Gateway is planning on closing some of its stores to cut costs and better compete with Dell:

Although the company did not give any more specifics on how it will cut costs, the hope is that Gateway will shut down some of its 270 Gateway stores -- the biggest contributor to overall losses.

"Part of their strategy has to involve closure of some of those stores," said Robert Cihra, an analyst with Fulcrum Global Partners, a firm that does no investment banking...

If Gateway does decide to close some stores and emulate the Dell model of selling PCs over the phone and Web than the company can avoid burning through its cash, he said.

Gateway's stores offer no real advantage over shopping for a computer over the Internet. Sure, they look nice, but once inside I find the layout confusing. If I have a specific type of computer in mind, say a laptop vs. a multimedia desktop, the stores (at least the ones I've been to) are not layed ut in such a way that I can quickly find those types of computers. Buying a computer is all about information; as a consumer I want to quickly compare metrics such as processor speed, RAM, hard drive capacity and, of course, price. But this information is hard to find in a Gateway store (unless you are interested in reading fine print).

Recently when I was at a Gateway store I was looking for a very specific kind of laptop and had trouble finding it. When I asked a salesman for help, he was not very helpful. When I pressed him further, he made me wait while he logged on to the Gateway site and downloaded information. I could have done that at home, and faster. So there is really no advantage to shopping at a Gateway store right now.

Which is a real shame, from Gateway's point of view. The company is paying rent to have these stores in nice locations, not to mention utility bills, the cost of displaying the inventory, salaries for everyone in the store, etc. -- all so that a bored and unmotivated salesman can surf the web for me to give me information I am looking for.

So what is Gateway's solution? Be like Dell. Only they can never hope to be as efficient as Dell. Imitating Dell's strategy is a recipe for disaster. It doesn't have to be this way. Stores offer advantages web sites will never have. From the moment I walk into a Gateway store I should be met by someone enthusiastic who will learn what my needs are and sit me down in front of the computer I am looking for and let me play music, download a video clip, play a video game, touch up digital photos -- or do whatever it is that will excite me and really feel the product.

Kohl's is trying to play the middle of the market, a difficult strategy to pull off:

For its market share, Kohl's is targeting young mothers with children at home, building stores in family heavy areas and putting the emphasis on convenience and value.

"It's a store that's focused totally on Mom," said Kevin Mansell, president of Wisconsin-based Kohl's Corp.

Mansell said he isn't worried about undertaking an aggressive expansion in difficult economic times because Kohl's is well-positioned between traditional department stores and mass merchants.

"In good times, people will trade up to Kohl's looking for the brands and willing to spend more money," he said. "In tougher times, customers will move down from traditional department stores and specialty stores, looking for great value."

At least they are very clear on who their tarrget customer is.

J. Crew is having many of the same problems that Gap is just beginning to recover from.

Selling to overweight customers is a huge market (no pun intended) that will only get bigger and is still under-served. This is a classic case of a market niche that a retailer focused on the specific needs of thse customers could find very profitable. The Wall Street Journal (subscription required) offers a glimpse into the opportunity and the retailers currently vying for the market:

Nearly 65% of Americans are overweight, turning plus-size clothing into a strong seller at retail outlets from Kmart to Nordstrom and for names such as Ralph Lauren and Versace. In all, big-and-tall has become an estimated $6 billion business, representing more than a 10% share of the total men's market.

Much of the action is coming from online and catalog buyers -- which makes sense, given that shopping at home is always more comfortable. Casual Male, the nation's largest big-and-tall chain, says sales through its online catalog were up 50% during the past year, while Big Tall Direct, an online offshoot of a Dallas retail chain, has seen a 38% increase.

The rub: Because weight-distribution varies widely from one big customer to the next, it can be tough for shoppers to find a good fit without trying items on.

As the article mentions, a lot of these sales are taking place online. Which means there is still a lot of money to be made by retailers who can offer the right sizes in stores where they can be tried on to ensure the right fit -- and the appropriate ambiance to make customers feel comfortable.

Why you will never win competing on low prices: Wal-Mart. From a profile in Fortune, which just named Wal-Mart the most admired company in America:

It means, for one, that Wal-Mart is not just Disney's biggest customer but also Procter & Gamble's and Kraft's and Revlon's and Gillette's and Campbell Soup's and RJR's and on down the list of America's famous branded manufacturers. It means, further, that the nation's biggest seller of DVDs is also its biggest seller of groceries, toys, guns, diamonds, CDs, apparel, dog food, detergent, jewelry, sporting goods, videogames, socks, bedding, and toothpaste--not to mention its biggest film developer, optician, private truck-fleet operator, energy consumer, and real estate developer. It means, finally, that the real market clout in many industries no longer resides in Hollywood or Cincinnati or New York City, but in the hills of northwestern Arkansas...

Wal-Mart's zero-to-60 engine is driven by three powerful cylinders: scale, scope, and speed. The scale part is obvious. The scope part allows Wal-Mart to "flex" its toy section before the holidays and collapse it afterward, while Toys "R" Us is stuck selling toys year-round. (Scope also lets Wal-Mart use entire categories--gas, soft drinks, whatever--as loss leaders to pull people into the stores.) The speed part may be the most intimidating. Wal-Mart's turnover is so rapid that 70% of its merchandise is rung up at the register before the company has paid for it.

There is just no way most retailers could ever hope to match Wal-Mart's ability to offer lower prices. So the only option is to compete on better service and better merchandise. Even that, may be getting harder:

"As Wal-Mart grows," writes consultant Ira Kalish of Retail Forward, "it will transform its competitors, its suppliers, and the industries it dominates." In apparel, for instance, Wal-Mart is moving from staples into cheap-chic fashion, exemplified by its new George line, which offers career basics like skirts and blazers priced between $8.87 and $28.96. That in turn is pressuring everyone from Bloomingdale's to Banana Republic to compete on price as well as image. "Wal-Mart has caused the fashion industry to go topsy-turvy," says Marshal Cohen, co-president of NPDfashionworld.

Wal-Mart is the 800 pound gorrilla in the room that cannot be ignored? What's your strategy for surviving in a Wal-Mart world?

Strange but true: mega-store are actually starting to offer less selection, fewer different products to choose from:

I have a regular complaint about the typical supermarket or drugstore these days: Too many brands and flavors and varieties are disappearing. The big manufacturers seem to be muscling out the smaller players, or retailers are yanking lower-volume products to make room for their own, more profitable private-label versions.

The exception seems to be toothpaste:

The result of all this is that today the average supermarket or drugstore carries nearly 84 different toothpaste items, according to market research firm Information Resources. That doesn't even include all the new whitening products on the market.

Read the whole article to learn why.

The limits of e-commerce. Not everything can be sold through a web-site, at least not well. This item is from a New York Times story on the oriental rugs business which is in the middle of a big downturn:

Many rug wholesalers operate in the style of an old-fashioned Mideastern carpet business, where prices are flexible. "Stack your rugs to the roof and let the customer choose," said Leslie Stroh, the editor of Rug News. At one showroom last week, a wholesaler sat alone amid carpets piled to the ceiling, with a humming tea kettle waiting to be pressed into service.

The Internet has modernized some aspects of the carpet business, especially among customers who like to use it for research. But selling expensive rugs is still largely an in-store experience.

"We make very few sales over $2,000 on the Web," said Mr. Head of ABC, which sends digital images of rugs by e-mail to customers who like to get an idea of the selection.

Looks like Staples understands that customers are turning sour on mega-stores:

Staples, crediting its focus on profitable small business customers and smaller stores that sell fewer items, reported fourth-quarter net income of $165 million, or 35 cents per share, beating expectations of analysts surveyed by Thomson First Call by 2 cents per share...

In an interview Wednesday afternoon, Staples Chief Executive Officer Ron Sargent said the company's focus on smaller stores and customer service was paying dividends. He said the company had determined customers were more interested in good service than endless selection.

On Sunday, Staples launched a new advertising campaign with the tag line ''That was easy,'' replacing ''Yeah, we've got that,'' which the company had used for years.

''This is hitting singles, this is not fancy,'' he said. ''This is about day-to-day execution, 58,000 people just churning it out, and I think we're churning it out a lot better than the other guy.''

After a couple of bad experiences at Office Max, I'm now a regular at Staples. The true test of customer service is when you ask an employee for help with an unusual problem that is not in their procedure book. Most of the time, if it's not in the handbook, the employee has no clue how to help you. The good news for small retailers is that it's a lot easier to get 5-8 people to "keep hitting singles" than it is to get 58,000 to keep it up.

The complaints about Home Depot continue. The biggest problem for large retailers is maintaining quality. It's easy to enter a market with a big splash, keep the shelves fully stocked and the store personnel helpful and friendly. But with the high turnover rates in the retail industry, maintaining the same level of service is very hard to do for the large retailers:

It's kind of an egg-on-face situation for pro-business media talking heads like myself. When the superstore comes in with lower prices and better service, and everyone whimpers about the injury to small business, we tend to lecture about the laws of economics and the benefits of economy-of-scale competition. If bigger means better prices for the consumer, it's good. But if the big superstore drives out the competition, and then becomes a hellhole, is that a good thing?

OK, talking head answer: It provides an opportunity for small business to make a comeback.

How do you make the comeback? Hire good people, treat them well and pay them a little more than the competition does. Happy employees make for happy customers.

Toys R Us is discovering that competing against Wal-Mart on price is a losing proposition:

Same-store sales at the company's U.S. Toy Store division fell 1 percent for the year and the fourth quarter of 2002 despite Toys "R" Us' heavy promotion of its "Low Price Superstar campaign" over the holiday season, as lower prices from discount chains Wal-Mart and Target continue to lure away customers.

"We were outpriced by our competitors 12-to-1," said Eyler. "As toy specialists, we have to offset [Wal-Mart's] pounding down of prices. We've identified two ways to do this. We have to align our prices more sharply with them and make it more fun to shop with us."

The latter strategy holds a lot more promise. Wal-Mart will always be able to undercut you on price. But shopping at Wal-Mart is not the most exciting experience.

Handbags to the rescue:

Retailers looking to boost sales at a time when women are reluctant to spend money on a whole new wardrobe are falling back on an old fashion maxim: Accessorize.

"Little things" like belts, scarves, footwear and handbags are less expensive, and a fun way to update last-season's wardrobe...

Companies known for accessories, such as Coach Inc. , Kenneth Cole Productions Inc. and Claire's Stores Inc. have shown a big leap in profits, helped by robust sales. In contrast, many other retailers have had to rely almost solely on cost controls.

Shoppers spent up to 24 percent more on accessories compared with a year ago, according to a survey of 1,000 people conducted in January by America's Research Group, said Britt Beemer, the group's chairman.

Stocking accessories make all-around good business sense. Accessories have much higher profit margins than apparel and footwear and are the perfect impulse buy (which is why they should always near the point of sale). And, as this article points out, they are a good hedge during economic downturns.

Later in the article there is a profile of Coach, who has been very successful selling upscale accessories. One of the key factors in its success is that Coach rarely, if ever, runs sales:

Not only has Coach's near-luxury label become a must-have for fashionable women in the United States and Japan over the last few years, the company has rarely had to mark down prices, unlike the bulk of retailers hurt by a rocky U.S. economy. In turn, it has consistently increased and topped its profit targets in recent quarters.

As I've mentioned before, sales can be a powerful narcotic you may find yourself inadvertently addicted to. Though you didn't start off as a low-cost retailer, you may wake up one day and realize that your discounts are the only thing bringigng customers into your store. If you are going to sell luxury or high-end items, be very wary of sales.

Men's Warehouse has found a strategy that is working for them:

During the Internet boom of the 1990s, men traded suits and ties for polo shirts and khakis. More recently, as the economy has faltered, there has been some renewed interest in traditional business attire, but falling consumer confidence has reined in spending.

Last year, men bought more tailored clothes, but at lower prices than before. Sales of men's tailored clothing fell 1 percent to $4.7 billion in 2002, but units sold rose 5 percent, according to market research firm NPD.

Men's Wearhouse has capitalized on this trend by selling designer-like suits at prices "better than anyone else's," said Marshall Cohen, co-president of NPD Fashionworld.

The mark of any good retail company is that they are clear on who their customer's are and what their strategy is for getting and retaining those customers. There are only two truly successfuly strategies in retail: take the low-cost position (which Men's Warehouse is doing in men's suits) or sell a unique product your competitors do not (and cannot) offer.

Looks like Home Depot is finally catching on to its customer satisfaction problems:

Home Depot Inc. co-founder Arthur Blank on Wednesday said the home improvement retailer could boost sales and earnings by balancing an efficiency drive with a commitment to great customer service.

"The success we had at Home Depot in its first 23 years was really based on focusing not on the bottom line but by focusing on customers, hearing what our associates were telling us about our business," Blank said after speaking at a leadership forum in Atlanta.

How did Home Depot lose its customer-focus? There was a changing of the guard (Arthur Blank retired) and gettting the next generation of leaders to understand and follow the original vision is one of the biggest challenges there is in business. And it looks like Home Depot screwed it up, hiring a CEO who did not understand what any small retailer knows: your stores live or die based on your customer's happiness:

Nardelli, who arrived from General Electric Co. in 2000 with no retailing experience, spent his first year cutting costs. Now, he is boosting worker training to improve customer service and spending millions to remodel aging stores which face more competition from newer Lowe's warehouses.

Yin and yang. Yet another story on the battle between Lowe's and Home Depot:

Home Depot built itself into a retail giant with the style of scuffed and steel-toed workboot, its warehouse-style stores so big the lights sometimes don't reach into the shadowy corners of its vast aisles, with their handwritten signs and often dusty floors.

Lowe's has a different style, and you can see the contrast in Snellville, where its store right across from Home Depot is more brightly lit, its white and blue signs more cheerful and its floors spotless...

Home Depot and Lowe's once shared a contractor-oriented look. Then Lowe's took a different course in 1994, when it started opening 115,000-square-foot stores that included home decor and appealed to women as well as men. The approach, less intimidating to people who are not experienced do-it-yourselfers, has helped it to thrive in recent years despite a weak economy.

Lowe's strategy is classic, by-the-book strategy for any Number 2 competitor going up against the Number 1 company in a market: cover the market segment the leader is ignoring and force them to choose. When Coke looked like the unbeatable soft drink company, Pepsi zeroed in on younger consumers and targeted them aggressively, forcing Coke into a difficult choice: respond and ris alienating Coke's older base of loyal customers or ignore Pepsi and give up leaderhsip in the youth segment of the market.

Lowe's is wisely doing the same thing, staking out a strong position in the novice DIY (do it yourself) market and forcing Home Depot to choose between responding aggressively and alienating the contractor market it prizes so much or ignoring Lowe's and letting them gain leadership in this segment.

The founders of Home Depot brag about the early days when just before opening a store they would scruff up the floors and spread woodchips around the floor to convey an atmosphere contracors and handymen would feel comfortable in. Lowe's realizes that it would be foolish to try to imitate Home Depot and compete with them head-on. A lesson all retailers would be wise to remember.