American Girl and Lands’ End: Did they make the right call?

American Girl recently announced its expansion into Toys “R” Us stores, while Lands’ End plans to sell its product on Amazon. These are two very different kinds of products — and distribution decisions. My comments (from RetailWire) suggest that I agree with one of the decisions but not the other….because more distribution is not always better.

First, regarding American Girl:

Yes, Toys “R” Us is the biggest big-box toy chain by far (not counting the huge sales at Walmart and Target) so it’s a tempting decision for American Girl. But I think it cheapens a premium brand, and there may have been other ways to drive broader distribution (and more sales). For example, wouldn’t a traditional department store like Macy’s be a suitable home for American Girl shop concepts?

Next, about Lands’ End:

By 2017, Amazon may outpace Walmart as the biggest seller of apparel in the U.S. It’s hard to argue with its legitimacy and power if you’re a label trying to rebuild your volume base, not just your brand equity. Remember, Lands’ End was tarnished by its years-long association with Sears (including its shops within Sears store), so it’s not nowhere to go but up.

Walmart shows modest Q2 gains

Walmart stood out from most other retailers by reporting a comp-sales gain for the 2nd quarter, instead of a decline. (There continues to be strength in the off-price segment, too.) I think part of the reason is Walmart’s success at the food and commodity businesses while Target continues to struggle. Here’s my take from a recent RetailWire discussion:

Walmart veers from underperformance to overperformance over time, and the latest “overperformance” is really only in contrast to competitors like Target. A very modest comp-store sales increase is nothing to write home about when Walmart continues to lose share to Amazon, dollar stores, and other competitors. That being said, Walmart is doing a consistently better job drawing in regular food shoppers than Target, and some of its investments in store improvements are starting to pay dividends. But a 1.6% same-store increase isn’t cause for celebration, even in today’s tough environment for general merchandisers.

JCPenney: “Less bad than most” again

JCP reported 2nd quarter results that were modestly better than other department stores’ sales trends, and measurably better in operating profit compared to their own past standards. This continues to point toward operating improvements but it’s a long way from a true turnaround until the sales trend becomes more robust. Here are some thoughts I posted on a recent RetailWire panel discussion:

Marvin Ellison has noted the sales gains in JCP locations where Sears has closed, and it’s not surprising. Even those Sears stores that are still open are often woefully light on basic inventory, especially in Penney’s sweet spots like sheets, towels, socks and underwear. And the play for Sears’ appliance business is clearcut, even though JCP also has an opportunity to make its own home stores more productive.

But some of the credit for JCP’s modest operating improvements is coming from other initiatives that Mr. Ellison is spearheading — cost reductions, improved supply chain management, better IT managment, and (most important) new merchandising leadership. Given these changes, and the tailwinds coming from Sears and Macy’s store closures, JCP investors probably have a right to expect faster growth after 2016.

Can Nordstrom find growth outside of its Rack expansion?

Nordstrom seemed immune from the problems plaguing the rest of the department store sector, but this is no longer the case. I posted some thoughts on RetailWire last month after the company’s earnings announcement:

If I were a JWN shareholder, I’d be happy that the company is growing the Rack business. It’s good to have a growth vehicle in light of the well-documented issues with both the traditional department store business and the near-luxury brands like Coach, Michael Kors and Ralph Lauren. And Nordstrom has always been very cautious about opening its full-line stores.

This being said, the company’s brand reputation is really built on the success of its full-line stores. I shopped my local Nordstrom on Saturday (newly opened in Milwaukee last fall) and I wonder whether a little more attention to the store’s value positioning — without hopping on Macy’s promotional carousel — might help its traffic levels and reduce its clearance levels more effectively.

And some further thoughts about how Nordstrom can grow its core business, based on its announcement about a partnership with J. Crew:

For Nordstrom, this continues a trend that already includes partnerships with Madewell and Topshop. A presence inside Nordstrom has helped these two labels create brand awareness (and benefit from the halo effect) as they build out a relatively small footprint of their own stores.

The association with J. Crew is different: This brand has been in the penalty box with its loyal fans for at least a couple of years, and it’s debatable whether its merchandise content problems have been fully addressed yet. (Plus, there is no scarcity of J. Crew locations across the country.) I see more upside for J. Crew than for Nordstrom (especially if JWN has to carve out space that could be devoted to higher-performing goods), but it puts some burden on JWN to make sure that its J. Crew shops put forward the “best of the brand.”

Macy’s announces a strategic retreat

One of the biggest news stories of the summer was Macy’s announcement that it will close 100 stores (out of roughly 700) in 2017. Here are some of my observations from RetailWire panel discussion:

Whether Macy’s stops cannibalizing its own sales depends on where it closes stores. It seems clear that after a long period of acquisition (especially the May Company locations) that it is finally owning up to an unsustainable real estate portfolio. It’s also clear — from a random sampling of Macy’s visited around the country over the past year — that the company has not been prepared to make the necessary capital investments to keep some of its stores fresh and shoppable.

But painting this move as part of an omnichannel-driven “reinvention” is not the whole picture. The fact remains that Macy’s has plenty of work to do on overassortment, on low levels of customer service, and on a stale marketing program. Closing 100 stores may peel off Macy’s least profitable locations, but will the move address some of the company’s underlying issues?

Can near-luxury brands save themselves?

The question posed is especially relevant in today’s environment of sinking department store sales. Aspirational brands like Ralph Lauren and key handbag vendors are really struggling, and they are taking the approach of “less is more” when it comes to distribution. Here’s my recent comment from RetailWire:

Brands like Coach and Kors couldn’t grow fast enough, partly by overdistribution to department stores and partly by overexpansion of their own stores. Investors were happy while the category was hot, but the brands have been compromised at the same time that the demand for designer handbags is cooling off.

A strategy of deliberate scarcity makes sense in the short run (despite the volume hit), in order to rein in discounting and drive better sell-throughs. But the underlying issue remains: How to reignite consumers’ interest in near-luxury hanbags when they aren’t all that interested in visiting department stores at all.

Finally, I’m not sure that near-luxury brands like Coach and Michael Kors are ready and able to abandon the traditional department store as a key volume driver. Some of their recent problems fall on their own shoulders — the overexpansion of their own stores (hundreds in the case of Kors), the willingness to distribute their goods to off-pricers and their own outlet stores, and the failure to cherry-pick the best anchor locations. It’s not an exact parallel, but Apple has always been selective about being in “the right mall,” not every mall — and it’s a lesson that aspirational brands should learn as they continue to do business with department stores.

Loss leaders still serve a purpose

Most RetailWire panelists (like me) have been around the block, so the phenomenon of loss leaders for Back to School is not exactly groundbreaking. And most agree with me that it’s a useful tool, even in today’s digitally enabled shopping environment:

I agree with other panelists that loss leaders are useful in driving sales and store (or site) traffic. Anybody with a long memory (Gimbels, anyone?) knows that loss leaders have been around for decades, and the phenomenon of cherry-picking is at least as old as Black Friday circulars.

What’s different is shoppers’ ability to do their cherry-picking on their smartphones, but I’m still skeptical about the number of consumers willing to drive from store to store to save on pencils here, glue sticks there, and so forth — versus the convenience of one-stop in-store or online shopping. So these loss leaders are a calculated gamble that shoppers lured in by the giveaways will stay to fill their carts.