Where are today’s merchants?

Retail Wire panelists had a chance to weigh in on the apparent decline of “merchant skills,” exemplified by the “me-too” merchandise content visible at many mall-based department and specialty stores. Here’s my point of view:

The same retailers who drove modest comp-store increases a couple of years ago are now suffering through two of the toughest years in memory. It’s easy to blame lack of merchandising skills for the downturn, but the fact is that every good merchant didn’t get stupid overnight. That being said, there are some core principles of good merchandising worth remembering as most national retailers work to fight their way out of the recession:

1. Focus on key items: A “hot item” or focused category will do well in any economic climate, and the success stories of the iPhone and Kindle are perfect examples. It may take more creativity to apply this lesson to apparel businesses, but it’s no less important.

2. Take your own markdowns: Retailers have been guilty for awhile of “musical chairs” buying assignments. It may take a couple of years before a new buyer gains the experience needed to figure out what works and doesn’t work. Keep people in their chairs long enough to be responsible for their own wins and losses.

3. Be less risk-averse: The pressure to avoid mistakes has grown along with the trend toward retail consolidation and the emphasis on quarterly results. It’s time to balance financial caution with the recognition that retailing–at its best–is a high risk/high reward business.

Consumers cutting back on credit card purchases

Retail Wire panelists commented on the rapid shift from credit to cash purchases. Several of my colleagues focused on bank card companies jacking up interest rates ahead of pending legislation…I focus on the effects of the recession and excesssive household debt:

This study is consistent with all the other evidence that consumers (like businesses) are digging their way out of excessive debt. And the vast majority of shoppers can no longer use their home equity as virtual “ATM machines” if they behaved that way in the first place. This is a trend that is not likely to reverse itself anytime soon, and it’s healthy over the long haul.

However, retailers need to respond in a couple of different ways:

1. Find ways to encourage shopping in your store (instead of the competitor’s) through old-fashioned focus on merchandise content, compelling value and effective branding.
2. At least use your proprietary credit card program (if you have one) to drive sales and loyalty programs, if consumers are reluctant to use their bank cards.
3. Make sure you are catering to “shoppers on a budget,” whether you offer opening-price goods or more aspirational merchandise.

The stores that have adapted fastest to the “new reality” of less credit and tighter household budgets appear to be the market-share winners today and in the near future.

National brands: Enough spending on “equity”?

Are national brand marketers spending too much on sales promotion with their retail partners, at the expense of long-term brand equity? Here’s my point of view:

It’s hard to separate this topic from the recent discussion about partnership (or lack thereof) between national brands and their biggest retail partners. (The last post centered on the conflict between Costco and Coca Cola.) While it’s easy to say that national brands have sacrificed long-term equity by cutting their marketing budgets, it’s also hard to argue that retail consolidation has forced serious rethinking of overall strategic spending.

Certainly the retail landscape was much more diffuse 25 years ago; power has become much more concentrated in the hands of companies like Walmart that were barely noticed in the early 80’s. (And at the same time there is far less concentration among a few media outlets, with many more choices for ad spending among cable networks, digital media, and so on.) So the national brands who intend to spend against “equity” need to deal with the reality that they must allocate more dollars than ever before to keep their key retail accounts happy.

JCPenney’s latest “game-changer”

Penney announced a new “fast fashion” initiative with Mango this week, and Retail Wire commentators had a chance to weigh in. Here’s my point of view:

I’m a skeptic about JCPenney’s latest “reinvention.” So far, American Living hasn’t moved the comp-sales needle although it was also accorded a “store-within-the-store” treatment. And JCP has been painfully slow rolling out its Sephora shop concept, considering its stated success so far. Now JCP intends to launch Mango shops on top of its aggressive push in 2010 to become the exclusive retailer of the Liz Claiborne brand.

Meanwhile, JCP’s women’s apparel area looks unfocused and cluttered with too much “exclusive brand” proliferation to begin with. Clearly the results so far in 2010 (at least as far as top-line sales are concerned) show that Penney is mixing its “style/quality/price” messages and losing share in the meantime.

Costco vs. Coca Cola: A sign of the times?

Retail Wire panelists weighed in on the subject of the disagreement between Costco and Coca Cola on wholesale pricing. (At this writing, Costco has dropped Coke products from its stores.) Is this a sign of retailers’ greater power over national brands, and is it fair to consumers? Here’s my take:

There is little doubt that retail consolidation over the past decade has put greater pressure on brands to cooperate with (or in some cases, bow to) their key accounts. At the same time, national brands own a smaller share of a shrinking pie as large retailers put their focus on private or exclusive labels. so the power in the equation has definitely shifted toward the retailer. The Costco-Coke dustup takes it to a new level, however: At what point does the power struggle between the brand and its retail “partner” start to affect the consumer adversely?

What makes Black Friday work for some retailers and not others?

Retail Wire panelists had a chance this week to give their “post-mortem” observations about Black Friday. In particular, what seemed to work (and not work) as traffic drivers in a tough economy? My advice? Keep it simple:

We don’t know who “won” or “lost” Black Friday just yet, but the evidence suggests that it was flat at best: More traffic and transactions, smaller average purchases. The “top ten” list published with this discussion also suggests that electronics rules the roost again in 2009. Black Friday is dominated by wanted items at hot price points, perhaps more than at any other time, because shoppers are focused on how many of these items fit into their predetermined budgets. Layering on extra percentage savings, etc. may work at other times during the holiday season but tends to muddy the message on Black Friday. That being said, some extra incentives (such as a bounceback coupon with a minimum purchase) are good ways to drive at least one more hot item into the shopping basket.

Airlines expand their retail efforts

American Airlines announced recently that its flight attendants will expand their efforts to sell merchandise onboard, beyond the minimal results from inflight magazines like SkyMall. My take on the subject:

To make this a success, airlines like American will have to rethink their model for online web usage. Right now, airlines equipped with onboard WiFi use it as a revenue producer, usually at a high price tag. Expecting passengers to pay $9.99 or higher for the privilege of online shopping simply isn’t going to work.

In theory, there is nothing wrong with selling merchandise onboard, whether by placing catalog or online orders for future delivery or by actually distributing goods on the plane (any international traveler is used to the duty-free pitch). But my fellow panelists make a valid point: The rest of the airline experience is far from customer-friendly today and is not exactly geared to put passengers in a shopping mood.

Barnes & Noble runs out of the “Nook”

Retail Wire panelists had a chance last week to comment on the “Nook,” the e-reader carried by Barnes & Noble. In one of the hottest segments of the electronics business, the item isn’t available for sale yet and is unlikely to ship before Christmas anyway. My opinion about Barnes & Noble’s handling of this hot item:

B&N made two mistakes: First, it introduced a product that it wasn’t prepared to ship until November 30th anyway, according to Tom’s article. Second, it failed to forecast demand and will leave thousands of orders unfilled (and probably canceled) for the critical holiday season. These miscalculations play right into Amazon’s hands: There are probably plenty of Kindles available for sale, and e-readers are the “gift that keeps on giving” for any company selling books on its own devices.

Amazon took an added aggressive step over the weekend: It sent e-mails to its members (including this writer) offering a free download of Kindle software onto any computer. I now have a Kindle reader as well as a netbook with e-reader capability thanks to the software that I installed. So Barnes & Noble looks doubly foolish trying to rush a product to market, where its two biggest competitors already control 75% of the share.

What’s in store for Black Friday this year?

The “fearless forecasters” of Retail Wire sounded off the week before Black Friday about what to expect this year, in terms of results and in terms of reporting on the subject. Here’s my point of view, you can compare it to what really happened:

Clearly the retail sales from the last few months point toward a “less bad” Christmas than in 2008, and in some cases we can expect to see positive comps against very tough comparisons. It’s a valid point that the overall sense of economic gloom will hang over reporting about retail sales, but keep in mind that some of that gloom is justified by an extremely high unemployment rate and overall sense of anxiety. I’m sure we will also see fewer “visuals” of crowded store openings on Black Friday, driven largely by Walmart’s decision to open a day early. The national mood is not good, but we should expect to see at least a flat holiday shopping season…not a disaster.

Target’s small-format “urban” strategy will need assortment editing

Target and other national chains (such as Best Buy and Kohl’s) have opportunities to open small-format stores, not only in urban markets where a smaller footprint is required, but also in smaller markets that can’t sustain the volume of a full-size prototype store. The challenge to Target in particular is to consider how to edit its businesses and assortments to suit the urban customer. Does it focus on consumables, HBA and other convenience-based categories? (If so, it runs the risk of being perceived as a large-format Walgreens or CVS.) It’s easier to determine which businesses ought to be eliminated completely (I would start with categories like CDs and automotive) than to decide which categories to focus on. But if Target plays to its strengths in trend apparel and home goods, its brand positioning becomes a lot more consistent, despite the company’s more recent emphasis on food.