Archive for February, 2009

Off-pricers: Happy days are here to stay?

Off-pricers like TJMaxx, Ross Stores and others are benefiting from some key trends right now:

1. Value-oriented retailers in general are gaining share at the expense of higher-priced stores. The best examples right now are Walmart and the dollar stores, but the trend is also leaving more aspirational luxury retailers behind.

2. Off-price stores stand to gain when department stores find themselves with a glut of inventory and open orders they can’t use. This product needs to go somewhere, so the vendor community finds off-pricers a more viable option than in the past.

3. Many national chains (Macy’s, Target, JCPenney as examples) are devoting more open-to-buy and floor space to exclusive and private labels. National brands are being squeezed out and their own outlet stores can only absorb so many goods.

Do these short-term changes represent long-term shopping behavior changes? Not necessarily: At some point both retailers and vendors will learn to ratchet down their inventory levels (if they haven’t done so already) in response to slow demand, making access to product more difficult for off-pricers. And the off-price stores themselves need to make sure they are differentiating from each other — otherwise you can foresee a wave of contraction and consolidation in this segment just as in so many other areas of retailing.

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In-store signage: “Silent salesperson” or visual clutter?

In-store media should have a role in “selling more stuff,” which is the ultimate goal of every retailer. But in-store media also need to be consistent with the retailer’s brand image and marketing objectives. Simply adding more clutter to a store that may already be overloaded with visual cues may be counterproductive, and may lead the customer to decide that the merchandise content itself is just a “bunch of stuff.” So whether you are talking about digital signage, paper signage, POP displays, fixtures with vendor logos, or other types of in-store media, consistency is the key to a successful strategy.

What have luxury “discounters” done to value perceptions?

It’s going to be very hard to get the customer back in the mood to pay regular price for luxury goods, now that the gates have been opened. It’s one thing to “incentivize” your most loyal customers with occasional discounts or rewards programs; it’s another thing entirely to discount luxury goods at 70% off at the height of the season. I understand retailers’ need to drive traffic in the door (and inventory out of the door), but some of them have done long-term damage to the credibility of so-called “regular” prices. The damage done to the relationships between luxury retailers and their vendors (who are being asked in many cases to pick up the tab) could be even more damaging. It’s understandable that the luxury customer is going to ask why she was overpaying all these years in the first place.

McDonald’s: Management empathy or tasty fries?

On the recent Retail Wire¬†discussion that McDonald’s turnaround is due to its “empathetic” CEO:

I’m not buying the premise that “empathy” is the driving force behind McDonald’s resurgence, without minimizing its merits. CEO James Skinner and his two immediate predecessors¬† (both of whom died prematurely) recognized several strategic missteps made before them and took steps to correct them:

1. They improved the company’s execution. First and foremost, McDonald’s is noted for its consistency but had slipped badly in terms of food quality, cleanliness and speed of delivery. McDonald’s operates at a much higher level than in the past.
2. They improved the chain’s relevance to its consumers. Not by accident that McDonald’s buys (and presumably sells) more chicken than beef today, and is giving Starbucks a run for its money in the coffee business.
3. McDonald’s found a new marketing mantra (“I’m lovin’ it”) that achieved the simplicity and emotional resonance of its slogans from “the golden age” of its advertising.

I could go on…the point here is that Skinner may be an empathetic manager but has most importantly improved his company’s performance by executing some key strategic steps well.

Does Mervyn’s have another chance?

Long before the Sun Capital takeover in 2004, the damage was done to the Mervyns brand by its longtime owners at Target Corporation. The company veered from strategy to strategy for many years — more aspirational one year, more budget-conscious the next, more focus on national brands one season, more “Targetization” the next season by shifting gears to private brands. And who can forget the “Mervyns California” branding fiasco in unrelated markets like Minnesota?

At the same time, the level of execution declined sharply from the company’s heyday in the 1980’s and early 1990’s. Stores looked rundown, stockouts were rampant, and newer competitors like Kohl’s moved into Mervyn’s core markets several years ago. So it’s easy to blame the private-equity deal for the demise of Mervyn’s but frankly the company lost its way a long time ago. Good luck to the Morris family, but most of the best locations are now in others’ hands.

“Small Format” — the next big thing?

I would argue that “the next big thing” may turn out to be small-format stores, whether in food or non-food retailing. The idea behind “Fresh & Easy” (tightly edited assortments, convenient locations) has application to all sorts of businesses. Think of the newly announced “C-store” version of Office Max as a good example, allowing Office Max to spread its best-selling and most frequently-shopped items into smaller footprints. (These have the advantage of lower cost and site development along with the sort of ubiquity connected to successful stores like Walgreens.) The era of the “big box” isn’t over by any means, but also-ran players are falling by the wayside rapidly.

Cutting hours at the mall?

I’m sure mall developers have studied the economics of this move, and they probably find that the first and last 30 to 60 minutes the doors are open are relatively unproductive in terms of foot traffic vs. the costs of payroll, utilities, and so on. However, there are a couple of strategic costs associated with these moves:

1. How important is that first and last half-hour to the maintenance, restocking and recovery of store shelves? Will some retailers maintain a staff outside of “open hours” to help execute properly?

2. Will the reduction in hours contribute to the long-term decline of the mall? Big-box retailers (think Target and Kohl’s, for example) figured out some time ago that the convenience of longer hours provides a distinct competitive advantage.

These decisions may make short-term economic sense but help contribute to the long-term irrelevance of the regional mall.


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