Smarter Retail

Resources for the independent retailer to survive and thrive.

Friday, July 21, 2006

The WSJ is reporting that Wal-Mart is launching a major overhaul or its stores:

WSJ.com - Heard on the Street: "The world's largest retailer by sales is attempting a sweeping makeover aimed at paring its inventory and labor costs while enticing affluent customers, some of whom now buy groceries in its stores, to spend more in other areas. As part of that effort, Wal-Mart will remodel nearly half its U.S. stores over the next year...

The retailer launched its effort to remake itself and crank up sales a year ago. It shifted its advertising to focus less on repeating Wal-Mart's 'always low prices' mantra and more on building its image as a "lifestyle" retailer offering trendy apparel and housewares. As part of the revamp, Wal-Mart is pruning the number of products it carries in each store to focus on top sellers. It is overhauling workers' shifts in its stores to have more employees on hand during each day's busy periods and fewer during slow times."

What's interesting about this story is that the retailer best known for competing on having the lowest price is finding that competing striclty on price is not such a good idea. Imagine that! If Wal-Mart has decided it needs to do more than just have the cheapest price, then the little guy competing against Wal-Mart certainly needs to offer more than just low prices or he will go out of business.

The article goes on to say that Wal_mart is remodily the stores with nicer faux-wood floors, wider aisles and nicer restrooms. I've always liked shopping at Target much better than at Wal-Mart. I know I'm paying slightly more, but it's a much more enjoyable shopping experience so I'm willing to pay more.

The other thing that is interesting about the changes Wal-Mart is looking at implementing is that they are planning on carrying less inventory. This is because they know one of the cardinal rules of retail: most sales are driven by just a few products. Success is not about stock more products but figuring out which of the many products you carry are selling well and restocking them in a timely manner.

I see this all the time with retailers. They might have 18 varieties of a product in stock. Sixteen of these don't sell at all or sell very little -- and the two that sell well are inevitably out of stock.

The rules of retail don't change. Figure out what customers want and have it in stock. Easier said than done.

Monday, July 10, 2006

Loss leaders don't work with all customers. Grocery stores were the first to pioneer "loss leaders" those really cheap items that the store loses money on, but get you in the store to buy more items. Well it turns out some people hop from store to store only buying those deeply discounted items.

Sale Shoppers Annoy Grocers as They Save - New York Times: "Grocers loathe the shoppers known as 'cherry-pickers' -- people who visit several stores on a single grocery run, choosing only the sale items in each. ' ... A recently published study by Professor Fox and Stephen J. Hoch, a professor of marketing at the Wharton School at the University of Pennsylvania, examined cherry-pickers in Chicago. It found that households with elderly residents were 15 percent more likely to cherry-pick and those with nonworking adult females were about 16 percent more likely.
Cherry-pickers get better with experience. A family that cherry-picks on 4.3 percent of its grocery runs, the median frequency, averages $11.93 in savings per cherry-picking trip. But families that cherry-pick 20 percent of the time save an average of $15.76."

The elderly and women that don't work: two demographics with lots of time on their hands. The question for stores is whether the loss incurred by these cherry-pickers is outweighed by the aggregate extra sales the promotions bring in.

One solution would be more targeted promotion. For example, require a minimum amount spent for the discount to take effect. Another solution would be to target the promotions for certain hours of the day, such as 5 - 8 p.m. when people are getting off work and will only stop at one store.

Wednesday, March 19, 2003

Barnes & Noble is deepening its embrace of Book magazine:
Book, a magazine filled with book reviews, author interviews and effusive features like "Anita Shreve's Secret Passions" and "Hype! Hype! Hype! Wild Publicity Stunts," grew so fast under Barnes & Noble's patronage that production costs soon overwhelmed any added revenues...

Now, Book and Barnes & Noble have restructured their partnership to cut costs and more closely integrate the magazine with the chain. Starting with the May/June issue, the magazine will be called Barnes & Noble Presents Book.

This diversification, like most moves by retailers to branch out into non-core businesses, is a questionable move. It's hard to see how the magazine can thrive if it is so closely tied to one book seller:
But Book's more public connection to Barnes & Noble is already having some unpleasant repercussions. Borders, the nation's second-largest chain bookseller, has decided not to carry Book after the current issue, and Mr. Gleason expects that independent booksellers will follow suit.
You can't have it both ways. If the magazine is little more than a mouthpiece for Barnes & Noble, its growth will be limited.
Gucci is faltering (WSJ: requires subscription) after being reinvented in the 1990s after being bought by the LVMH group:
The two rescued Gucci from near bankruptcy in the 1990s. They bought back thousands of product licenses from manufacturers who were sullying the brand by plastering its logo on key chains and umbrellas. They opened Gucci-owned stores, for which Mr. Ford created a common look, going so far as cutting decorative flowers to exactly the same height.

In 1995, Mr. Ford unveiled a breakthrough collection. Gone were Gucci's traditional loafers. The new Gucci woman wore tight-fitting, hip-riding pants and a peacock-colored shirt unbuttoned to the navel. The look catapulted Gucci back into the fashion columns.

But recently fewer customers have been splurging for their high-priced purses and loafers:
Gucci, one of fashion's biggest success stories in the 1990s, has hit a rough patch. Reduced global travel at a time of economic stagnation, terrorism and war talk has hammered an industry that counts on free-spending tourists for much of its sales.
Speaking of brand diversification, Liz Claiborne added to its string of acquisitions by buying Travis Jeans, a.k.a. Juicy Couture. Over that few years, Liz Claiborne has skillfully bought up clothing lines and chains of stores that are complementary and don't cannibalize each other's business, including: Sigrid Olsen, Lucky Brand jeans, Mexx shops and Ellen Tracy.
Brand out of focus? Sales of Tommy HiIfiger's line of clothing for plus-sized women have been growing while the brand has been losing ground among teenagers. I don't think the two trends are coincidental. The 18 year old gangster-wannabe wouldn't be happy to be spotted wearing the same jeans as his mother. This is a clear case of losing sight of who your customers are.

Tuesday, March 18, 2003

Tommy Hilfiger is closing 37 of its 44 specialty shops as it struggles to reinvent itself. Tommy Hilfiger has lost its grip on the hip-hop market:
Now the dreadlocks are gone from the advertisements-- and the big red, white and blue "Tommys" are pretty much gone from the streets. The Tommy Hilfiger Corporation has announced that it is moving away from its logo after many of the company's earlier urban constituencies abandoned Tommy for designers they call more "authentic": Fubu, Ecko, Phat Farm, J. Lo and Sean John...

"Tommy, Polo Jeans and Nautica are big losers," said Todd D. Slater, an analyst at Lazard, "but the biggest loser is Tommy; he's lost the most market share. Ralph has not lost his core customer the way Tommy has, he said, referring to Polo Ralph Lauren. "As a company, Tommy has to reinvent itself."

It looks like Tommy Hilfiger rode a fad very skillfully but has not been able to spot new fashion trends, much less create them. Tommy Hilfiger has also suffered from two problems I''ve discussed: excessive reliance on markdowns to move merchandise and depending to heavily on department stores for its sales. Department stores have been losing ground to big box discount retailers and upscale boutiques.
The New York Times has more on the Spiegel bankruptcy, citing a default rate of 17 - 20% among its credit card customers:
According to David Robertson, publisher of The Nilson Report, a trade journal that reports on the credit card industry, Spiegel had become, in effect, a subprime lender, offering credit to lower-income consumers who, in many cases, would not qualify for the more mainstream Visa or MasterCard...

When the economy started worsening, Visa and MasterCard started loosening their previously extremely tight standards across the country, Mr. Robertson said, ``casting a wider and wider net for customers.'' The retail companies, trying to compete for a share of the lucrative plastic business, had to lower their own standards even further.
As I said, leave the credit card business to Visa and Master Card. If the retail business is broken, looking for profits elsewhere is just postponing the inevitable day of reckoning.
Why are retailers trying to be banks? Spiegel, owner of the Eddie Bauer line of clothing, has filed for bankruptcy. Troubles at its credit card unit are to blame:
The company's troubles were largely linked to its credit card business, which it has been trying to sell for more than a year. To boost sales, the retailer extended credit to risky borrowers and the plan backfired, industry watchers said...

"By owning their own credit card company, they lost the discipline that is required in not extending credit to riskier borrowers," said Marty Zohn, a bankruptcy lawyer at Proskauer Rose LLP.
I hope Sears is paying attention.
More evidence that focused specialty realtors are thriving during a difficult retail season. Aeropostale and Urban Outfitters both reported strong sales growth. The key, as always, is knowing who your customer is and focusing on serving that customer''s needs in a way to no one else does:
"What they're demonstrating with these strong results is how successful a well-focused, differentiated retailer can be. Or in this case, two retailers: Urban Outfitters and Anthropologie. Both have shown a reason for being that consumers respond very favorably to," said UBS Warburg analyst Richard Jaffe.

Monday, March 17, 2003

The company you keep. This profile of shopping mall-developer Rouse Co. reveals how shopping destinations are increasingly becoming stratified:
Mall building is in turmoil. There are more malls than people want, which forces those of lesser quality to close. People with low to moderate income who used to shop at department stores such as J.C. Penney and Sears increasingly favor "big box" stores such as Target, Wal-Mart, and Kohl's.

"Wal-Mart will build 210 new super centers in 2003," said retail consultant John C. Melaniphy III. "Target's going to build 90 stores, Kohl's 80, but if you look at Federated [Department Stores], they'll open 11 stores. The growth just isn't there for department stores."

Rouse concluded that its best chance to make money on malls is in eschewing the middlebrow and making malls appeal to the upper-middle class. Company executives figure that the middle class may defect from such stores, but that the more affluent will not be nearly so tempted by the price advantages of the big-box stores.

The sheer size and power of Wal-Mart and similar low-cost retailers is eliminating the middle ground: you either sell based on low prices and limited service, or you target the affluent. It is getting increasingly uncomfortable for anyone trying to be in the middle. And, as this story shows, it's getting even harder because the physical middle is dissappearing too. So in the not too far future you may have to decide if you want have Wal-Mart and the dollar store as your neighbor or Saks Fifth Avenue and Louis Vuitton. Tell me who your neighbors are and I'll tell you who your customers are.
Need more proof you need to keep the right sizes in stock? Shares of Bebe, retailer of trendy women's apparel, plunged 20% when it announced it expected significantly lower earnings. One of the reasons analysts gave for Bebe's troubles:
"In essence, the company needs to carry significantly more sizing options to provide a full assortment for the customer. Additionally, the more sophisticated, higher-priced merchandise tends to turn more slowly in the stores," Tennant said.

Inventory Control is not just a "nice to have" or "one of the secrets of success". Inventory control is the engine of the retail company. If the inventory control is not working, nothing will move forward.

Friday, March 14, 2003

Here is a very interesting look at the Back to School season by Margaret Webb Pressler at the Washington Post. Back to School is a difficult season for retailers because teens can be very fickle and fashion trends can appear and dissppear remarkably quickly:
It is also one season that really keeps retailers on their toes, because if there's one thing that teens seem to agree on, it's that you can't commit to a look too early.

"A lot of the kids wait to buy their school wardrobe until they get to school to see what everybody is wearing," said David Hacker, trend director for women's sportswear for J.C. Penney. "That's when they drive the volume."

...None of this research and advertising, though, can protect against that most fleeting of fashion influences: the popular teens. When kids go back to school, they may notice that a leader in their group has come up with his own idea, perhaps something picked up from a CD cover. Immediately, the followers run to the mall to try and duplicate it, marking the second wave of back-to-school shopping that all retailers wait for.

Pressler suggests there are two basic strategies for attacking the back to school market. Retailers like J.C. Penney begin researching fashion trends up to a year in advance and testing small samples of the new merchandise in the spring, hoping they've caught a fashion wave they can ride in September. Then there are reailers like Old Navy who don't want to take any chances and set out to create the fashion trend themselves:
This year for back-to-school, Old Navy is promoting rugby shirts for the whole family, complete with commercials about the "Rugby Bunch" all-American family. "We're getting behind a product that we feel our customers are going to respond to and be very comfortable with," said Jonathan Finn, director of public relations for the company.

But Old Navy doesn't just hope. The saturation ad campaign is also meant to create a de facto trend in the collective teen mind.

"If you can't get everyone in school to wear it but you can get it all over TV, maybe that'll be the influencing factor," said Cohen of NPD. "Eventually, people will say, 'I can wear that, because I've seen it.' . . . That's the logic with these barrage campaigns."
Quality over quantity. New Staples CEO has been focusing on improving existing stores instead of opening new stores:
At times during the 1990s, Stemberg's Staples was opening a new store every 48 hours. Sargent is slowing down that pace and working to nurture existing markets.

The old Staples overwhelmed customers with massive selection -- from 10 kinds of paper shredders to pens shaped like vegetables. Now stores are smaller and feature fewer items. The reasoning: Too much selection slows down the supply chain and doesn't please customers, it just stresses them out.

"When I joined the company, opening another new store was a big deal," Sargent said. "But when you're opening another one every other day, it becomes more of a machine. We entered a bunch of new markets, and we didn't do the TLC I think we should have done in those bottom 20 percent of our stores."

"There's a lot more opportunity to make our existing store network operate 5 percent better than it is to open another 100 stores," he said.

The new store formats, the targeted merchandise selection and the emphasis on customer service have vaulted Staples over Office Max and Office Depot. As with any successful retail venture, there has been one other key ingredient to succcess -- knowing exactly who your customers are and focusing on their needs:
Average customers may not be able to tell office supply stores apart, but Staples isn't targeting the average customer. Small businesses and individuals who spend more than $500 per year on office supplies account for 70 percent of sales and 90 percent of profits. Staples thinks it knows what those customers want: in-stock guarantees, solid service and short lines.
Sears is struggling (WSJ: requires subscription) to make its credit card division profitable:
Among other reasons why some analysts and investors fret: Sears's credit clientele seems more troubled than the average American. "It's one we would expect to experience more credit challenges," says James E. Moss, an analyst with Fitch Ratings. Bankruptcies among the retailer's credit-card holders soared 20% in the third quarter from year-earlier levels, and vaulted 26% more in the fourth quarter. That is far higher than the 7.8% increase recorded nationwide for personal bankruptcies in the year ended Sept. 30. Sears contends its increase is represented in dollars, not individual filers, and isn't out of line with the national statistics. (The national statistics, from administrators of the U.S. court system, come only in the number of filings, not dollar amounts.)

Sears says its customers are no less creditworthy than average Americans. The company says its active MasterCard customers have an average credit score compiled by credit specialists Fair, Isaac & Co. of 720, which roughly places them in the middle of the pack of American consumers. But Sears declines to release the scores for its inactive MasterCard accounts or for its proprietary blue card. Sears has some 60 million credit accounts, of which 25 million are active, meaning they have been used in the past year. Of those 25 million, roughly 16 million are Sears blue cards; the rest are gold MasterCards.

It is difficult to compare Sears's credit-card operations with those of rivals. Most credit-card issuers begin to write off customer accounts once they are delinquent for 180 days, but Sears doesn't take action until 240 days have passed. And at Sears, a customer who is 240 days behind can become current by making two payments, each of as little as 1/45th of the outstanding balance. Sears declines to say what percent of its accounts has undergone this so-called re-aging process.

Looks like Sears isn't ready to face up to reality yet. Which is bad news since credit represents a bigger chunk of their business than even the retail side:
Sears is the third-largest MasterCard issuer in the world, trailing behind only Citigroup Inc. and MBNA Corp., according to Nilson Report, an industry periodical in Oxnard, Calif. Sears launched the card just over two years ago, part of an attempt to counter a loss of market share by its proprietary "blue" card, which is good for use only in Sears stores. Thanks to the two cards, Sears's credit and financial-products segment provided $1.5 billion, or 60%, of the company's operating income in the fiscal year that ended Dec. 28. Its retail segment, by comparison, provided just $1.16 billion.
Saks to the rescue. Upscale department store Saks Fifth Avenue is taking an equity stake in bankrupt toy retailer FAO Schwartz and will begin selling FAO merchandise in its stores. The move makes a lot of sense:
"It's a great deal ... FAO has always positioned itself as the Tiffany's of the toy business and wanted to attract the upscale shopper, and Saks Fifth Avenue attracts that same demographic," said Jim Silver, publisher of Toy Wishes magazine.

"It also allows FAO to be in a place where people might not be thinking about toys ... A consumer is shopping for kids' clothes, and stumbles across the toy department and bingo, you have an add-on purchase."

Competing head-on with Wal-Mart and Toys R Us was a losing proposition for FAO, as they have unfortunately discovered. Instead, FAO should pursue more of these ventures that firm up its position in the upscale toy market. The alliance will help Saks as much as it helps FAO:
"One of the great challenges facing department stores is the lack of differentiation in their product mix," said Jeff Stinson, an analyst with Midwest Research. "By rolling out the FAO product, it gives Saks something unique and that's a positive for them, especially when the holiday season rolls around."
Another example of the tug-of-war between retailers and vendors, this time in the book-selling market:
The U.S. publisher of the new "Harry Potter" novel is selling some copies straight to readers. Bookstores complain that means less business for them.

Over the past couple of weeks, Scholastic Children's Books has been taking orders for "Harry Potter and the Order of the Phoenix" at school fairs around the country. Customers pay the full list price, $29.99 - far more than the cost at Amazon.com - but they also receive a free "Harry Potter" baseball hat. A portion of the proceeds goes to the schools.

The new Potter novel, the fifth in J.K. Rowling's beloved series, comes out midnight, June 21. Those ordering at the fairs can pick up their copies at local warehouses eight hours later.

Publishers have an obvious motive to sell direct: They keep more of the money. Scholastic has been selling books, including the earlier Potter works, at fairs for years. But this is the first time a Potter book has been pre-sold, offered before publication.
This Wall Street Journal article (subscription required) does a quick scan of Wal-Mart's weaknesses:
Wal-Mart is, without question, a fabulously run company. It has, however, but one selling proposition: price. While that's a pretty good one, the company isn't infallible. Same-store sales have been inching down, to the low single-digits. Costco Wholesale, among others, has effectively competed on price, while offering higher-quality goods.

Wal-Mart's store locations aren't always the most convenient. The stores can be dark, hard to navigate and not pristine. The lines are long. The apparel is far from hip.

Thursday, March 13, 2003

A funny and insightful story in the Washington Post explores how men shop differently than women. While most women see shopping as gathering, men see it as hunting. The reason, author Margaret Webb Pressler suggests, is that men are uncomfortable with fashion trends and afraid they will make the wrong decision. (Hence the popularity of "we'll make sure you look like everyone else retailers Gap and Banana Republic). This has lead to an interesting phenomenon: women shopping for men's clothes:

So if fashion's not in your comfort zone, why would you want to prolong the experience? The speed requirement many men have seems to be a macho response to a generally uncomfortable situation.

Shopping so little only reinforces a lack of confidence, too, so that even the most accomplished, professional customers can be wary about making a fashion decision on their own.

"We have one power attorney who comes in with his wife, looks in the mirror and says, 'How do I like this?' " said Alan Shemer, one of three partners at the Boardroom Ltd., a men's tailored-clothing store at White Flint Mall.

In fact, men's clothing stores say the majority of their customers shop with their wives or girlfriends. And that's actually great for business, because women automatically head to something more upfashion. They aren't so rushed, either: While the man is in the fitting room getting the same old blue blazer chalked up by the tailor, a woman will often browse through merchandise and come up with a fresh idea or two.

The role of wives and girlfriends is getting even bigger, too, as workplace dress codes get more relaxed and suits are replaced in many companies by "business casual" attire. Retail executives say men have had a difficult time finding a style they're comfortable with in this new milieu, much less one that feels appropriate. Although most suits are bought by men, most men's casual clothes are bought by women.

There you have it. If you are a retailer of men's clothing, find a way to attract women to your store. Perhaps you could offer $10 gift certificates to all certified wives or girlfriends.
Blockbuster is struggling to reinvent itself as an entertainment retailer, emphasizing (WSJ: requires subscription) sales instead of just rentals.
Last year, in a major shift, people spent significantly more on movie purchases than rentals. While retail sales for films rose 19% to $12.26 billion, rental spending slipped 3%, to $9.92 billion, according to Adams Media Research of Carmel, Calif. And in December Blockbuster's stock plunged 32% after the company disclosed that its fourth-quarter revenue would be weaker than expected, which it blamed on consumers snapping up low-priced DVDs and videos at discount retailers.
Now the 53-year-old Mr. Antioco, who took over Blockbuster in 1997, is steering the company into the retail market -- and onto a risky collision course with discount chains such as Wal-Mart Stores Inc., Target Corp. and Costco Corp. A bit player with only a 3% share in video sales, Blockbuster hopes to triple that share by 2006.

...Mr. Antioco last summer announced plans to plunge Blockbuster into the retail market. It revamped store layouts: Instead of scattering shelves of movies for sale throughout the store, it grouped the shelves together under huge "Buy This" signs hanging from the ceiling. Used tapes and discs, called "pre-viewed," were put in separate racks from new movies.

To ensure that customers can't miss the products for sale, stores are arranged to steer them past racks of for-sale product before they get to the rental wall that usually runs along the perimeter. Blockbuster has also created similar zones dedicated to selling video games.

Blcokbuster's predicament did not come about accidentally. As it's market share grew to 40% it exerted significant bargaining power over the studios which looked for a way to strike back:
Worried they had become too dependent on Blockbuster, some studios cut prices on DVDs in the hope that a thriving retail market would weaken Blockbuster, whose expertise was in rentals. Last year, Warren Lieberfarb, then chief of home video for AOL Time Warner Inc.'s Warner Bros., complained that Blockbuster had used its market share "to increase their margins at the expense of the studios." Mr. Lieberfarb, who left Warner in December, led a drive to offer cheap DVDs to train the public to buy rather than rent them and, he says, to create "an antidote to Blockbuster's dominance" without hurting the studio's profits.

We've seen this kind of tug-of-ware before (for example, Nike vs. Footlocker) between vendors and retailers that get too powerful. Becoming the market leader brings its own set of new risks and challenges.
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