Penny wise, pound foolish. Failing to invest in technology is a common problem among retailers. But the consequences, as Longs Drug Stores has learned, can be devastating:

Richard Hastings, an analyst at New York-based retail credit advisory firm Bernard Sands, said Longs did not invest enough to modernize operations through the 1990s, exacerbating its current problems.



"Because Longs did not spend enough on the business, they now have to spend a fortune to sort out operational problems that are destabilizing their business," said Hastings.

The problem is that the need to invest in information technology is not immediately apparent to retailers because, paradoxically, they lack the tools to really understand all of the ways they could be saving money by holding less inventory and boosting sales by having the right inventory. So it's easy to keep selling day to day, using today's sales to pay off last months receivables, and think everything is okay. Until you wake up one day and realize there's a competitor out there who is faster at restocking than you and squeezing out higher profit margins because they had the foresight to invest in their business. It's the difference between the retailer who sees technology as a cost and one who sees it as an investment.

The blurring of boundaries. The boundaries between different types of retailers is blurring, as this story on the toy industry demonstrates. Customers can now find toys in Radio Shack stores, Starbucks cafes, bookstores, grocery stores and even apparel stores:

RadioShack's newfound status in toyland is an example of how the $20.3 billion toy industry is expanding beyond traditional retailers such as discounters and Toys "R" Us. The growing sophistication of children and toys themselves is partly behind the trend, but so are changes in the retailing industry, including the financial problems of retailers such as Kmart Corp. and FAO Inc. that have led to hundreds of store closings...



In another example of the change, traditional toy stores like Toys "R" Us and K-B Toys are selling toys to grocery and drugstore chains to compete with discounters. And manufacturers like Lego are making deals with apparel stores...



"The search is on to put the toys where consumers are, instead of trying to attract (consumers) to toy stores or another mass merchants," said Chris Byrne, an independent toy consultant.

The trend is not limited to toys. Have you noticed how many stores are selling body cream these days? A retailer like Bath & Body Works is not only competing with Crabtree & Evelyn these days, but also with a whole host of clothing stores and pharmacies offering similar products. The days of clearly defined competitors are over. You'd be surprised how may stores you really are competing with -- and it's not just the usual suspects.

Tip of the day. Two of the retailers I've mentioned here recently were able to boost their brand through a major marketing move: Victoria's Secret through it's televised fashion show advertised during the Super Bowl and Roots by sponsoring the Canadian Olympic hockey team. These kind of marketing strategies may seem out of league for smaller retailers. But it would be a mistake to think this way. You need to bring the same level of marketing pizzaz to your own, smaller market. One retailer I worked with in Orlando who sells high-end clothing for women went to the owner of the most popular discotheque in town and asked him how much it would cost to host a fashion show. The owner of the disco loved the idea (he too is always looking for new ways to attract customers) and the show was a big success. Another time this same retailer called the host of a popular television show and asked her to film a segment from his store. With smart marketing moves like these, he was having no trouble driving traffic to his store. The question fo you is: how can you create your own Super Bowl or Olympics right in your home market?

Aspirational retail. Interesting twist on merchandising at Banana Republic. This Washington Post reporter wonders why a Banana Republic store would stocka $600 bomber jacket -- well out of the price range of the typical customer who visits one of those stores.

"It helps create the atmosphere of an upscale specialty store," said Slater, a former retail buyer, who said he used the same strategy of "decorating" stores with a few eye-catching, but ultimately low-selling, items.

"If our customers see 'aspirational' items on the runway, on TV, in magazines, we want them to be able to purchase an item like that at an affordable price in our stores," said Banana Republic's McCollum.

The key word being "aspirational." It is a neat trick of retail psychology, knowing that customers will feel a lot snappier in those gray flannel and white broadcloth shirts if they know they were hanging next to that oh-so-luxe jacket. Even if they would never actually take home the oh-so-luxe jacket. Call it style by association.

Is there any aspirational merchandise displayed in your store window?

The power of small numbers. Came across this gem of a quote while reading this profile of Canadian specialty retailer Roots:

"From a replenishment point of view, the question becomes: 'What do I want to send the stores at the size level?'" Schiller continues. "Think about it. If Roots' average price point is $50, the stores are open 365 days a year, and the company could sell one more garment per day [in each store] because the right sizes are available - that's another $2.4 million dollars." Roots' management sees eye-to-eye with Schiller on the issue: "If you don't have the right size and the right fit, then it's difficult to get customers to come back," says Goldberg.

Now there's a company that understands inventory control. To be successful, you have to manage inventory at the item (size/color combination) level. And small mistakes (like having a style in stock in every size but one -- the one the customer with an open wallet at the counter is looking for) can have a big impact on your bottom line.

Remember, the customer that leaves your store unhappy because she didn't find what she was looking for in the right color or in the right size is not just any customer. It is a customer who has already seen your marketing, already found your store, already taken the time to enter your store and has already found a product that she likes...It's like striking out with the bases loaded. All of your effort from paying the rent on your store every month to spending on advertising and all the attention to detail to make your store look nice lead up to this one moment, when the customer is ready to pick a product and buy it. Think about it, for every customer in your store there might be a hundred who didn't see your add in the paper that week or who walked by your store without noticing. Can you really afford to be out of stock in a size or a color?

I like this quote too:

"The one thing we do differently than most retailers is that no two stores are alike in terms of product mix," says Myles. "When one of our customers travels to another Roots store, there may be new products just for that store, so it's exciting to go in. There is always a surprise."

The smart retailer knows that no two stores are the same. Stores tend to be in different demographic zones and will therefore have a different clientel. Even those stores that are in the same region might have a different layout or different managers that will emphasize different products. The same product that is selling well in one store might not sell at all in another. So the cookie-cutter approach is not going to work. Each store needs to have a unique product mix to maximize sales.

Here's a retailer who is doing well and, no surprise, it's a specialty retailer. What is Victoria's Secret? High (and growing) revenue per unit sold:

"The cheapest gift would be for about $100 and it's all uphill from there," said a company spokeswoman. That works out well for both for male shoppers and Victoria's Secret, given that the average man is expected to spend $126.96 on a Valentine's Day gift this year as opposed to $38.22 for women, according to the National Retail Federation.

Creative offers like this are helping drive up per unit revenue:

A popular option last year was personalized intimate apparel. "Rhinestone messages on lingerie are very popular on the West Coast," said Washington. "Men can personalize the garment with a personal message like 'I love you' or 'Happy Valentine's Day' using rhinestones."

It's a scarry world out there. Think you're the only one struggling to turn a profit in your stores? This piece has a list of major retailers who have fired their chief executive in the last few months because of weak sales: Wet Seal, Ann Taylor Stores, Parisian Stores, Linens 'n Things, American Eagle Outfitters, Toys R Us, Kmart, Coath, Bath & Body Works, Talbots, Marc Jacobs, Tommy Hilfiger, Donna Karan and J. Crew.
And it's only going to get worse:

Tracy Mullin, president and chief executive at the National Retail Federation, blamed the tough economic times, and said that the retail bloodbath might not be over: she said she knew of several more "major" retail shakeouts in the works, which may be announced in the next six months.

Anyone who has lived abroad quickly realizes how efficient the retail industry is in America relative to other countries. Besides the obvious investments in technology, American retailers overall unrivalled customer service that is striking when compared to what most shoppers get in their home countries. So it is no surprise that many American retailers have successfully expanded abroad where there are great opportunities to be seized. Still, I found this item shocking:

Wal-Mart de Mexico, the Mexican retail group, which already captures an astounding 40 per cent of the Mexican retail market and is the nation's largest employer, posted a 13.5 per cent increase in net profits in the fourth quarter on sales that rose 9 per cent.

40% and growing! Of course it helped that Wal-Mart went in and bought out the largest retailer in Mexico. But, still, an impressive number. How many of those independent retailers that Wal-Mart has put out of business in Mexico would have thought the future would catch up to them so soon?

The future of money? The latest attempt to have smart cards replace cash, this time in France.

Very attractive customers. Find a niche and serve it, is as good a mantra as any for staying on top of the retail business. Find a lucrative, underserve niche and serve it is even better. Retailers like Hot Topic and Pacific Sunwear that cater to the teen market have been enjoying strong sales while retailers like Ann Taylor and Gap geared to the considerably more crowded adult market have been suffering. CNN/Money explains why teens are such desirable customers:

Teens for the most part get an allowance, don't pay rent, mortgage, or insurance costs, and also don't pay for their food" so they tend to spend more freely than their parents at the mall.

Ah, but if only it were that easy. Naturally, the best performing teen-focused companies are also very good at getting the basics of retail right:

How do Hot Topic, Pacific Sunwear and Charlotte Russe, another chain, do it? They buy domestically, meaning they can get products faster and tap into fashion trends more quickly than competitors; speed that's key to being successful in this sector

Another allure of the Torrid concept stores is the way the merchandise is arranged thematically, which makes it easier and faster for shoppers to find the look that they want..."We set up our clothes in sections based on music genres, like punk or rock,"said Sylvia Niles, buyer for Torrid apparel. "Also, all our clothes hang facing the customers as they walk in. Our clothes don't hang sideways on racks because every item has a novelty factor and we want to emphasize that to the maximum."

The best advertising is a happy customer. The New York Times reports that Amazon.com is giving up on television advertising in favor of word-of-mouth advertising. Amazon finds that spending the money on offering free shipping on orders over $25 is more cost-effective.

Now Amazon has turned its quantitative prowess on one of the most vexing questions in marketing: Is television advertising worth the expense? Amazon's answer is no. And it has canceled plans for any television or general-purpose print advertising this year. The company is so sure of its decision that it has dismantled its five-member advertising department, assigning the employees to other roles.

If you are anything like the typical retailer, at least half of your business is coming from repeat customers. Keeping them happy is the best investment you can make.

Tip of the day. Beware December markdowns. This last Christmas season I ran into a few retailers who were offering deep discounts on a lot of their merchandise because of inventory problems. Turns out they were holding on to too much stock and were desperate to recuperate some of their investment so they turned to markdowns. Bad idea. The typical retailer makes up to half of her sales (and most of her profits) in the period between Thanksgiving and New Year's. This is the one time of the year that you are almost guaranteed your stores will be full of customers looking to spend. This is the time for impulse buys. Save your markdowns for January, when you'll really need to get creative to get customers through the door and to the cash register. Sure, markdowns in December will move a lot of merchandise, fast. But you are killing your business. If you are offering deep discounts around Christmas time, it's time to take a hard look at your business and see if it's even worth staying in business.