Kmart: If the shoe fits…

Today’s Retail Wire comment discusses the decision by Kmart to switch its shoe department from a leased operation to self-managed. The question is whether the customer will react positively, whether the brand assortment can get the job done, and whether Kmart has other front-burner issues in its apparel business:

I hope and assume that Kmart tested the takeover of its shoe business in a number of stores before rolling it out chainwide. If so, I also assume this was a smart business decision in terms of more productivity and higher margins. On the other hand, the brand offerings especially in adult athletic footwear are not strong enough to establish Kmart as anything like a “headquarters” store. (Protege is, after all, a private label without the cachet of the national brands or “exclusive” brands like Converse at Target.) And most retailers recognize that they need to get the apparel business right before “fixing” footwear, not necessarily the other way around.

Toys “R” Us adding a convenience store-within-a-store

The “R” market concept makes some sense but at the same time is unlikely to drive big incremental sales to Toys “R” Us. It is potentially a way to reallocate square footage and make the overall store more productive. The product can be expected to drive some higher sales to the customer’s “shopping cart,” and it helps smooth out the seasonal peaks and valleys of the toy business. But the drawback is that consumers are unlikely to switch their loyalty from Walmart or other destination stores for household products, even kid-focused categories like diapers. Toys “R” Us needs to be very price-competitive to be meaningful in these businesses, which may not be a margin win for them even if the strategy drives incremental sales.

A&F’s pricing strategy: Brand integrity or bad timing?

There’s been a lot of discussion recently about Abercrombie & Fitch, and their well-publicized decision not to discount their product last fall in the midst of the consumer/retail meltdown. My perspective is that “brand integrity” only goes so far, at the expense of losing long-term market share to key competitors. Here are some other comments from Retail Wire:

When higher-end competitors like J. Crew and others are taking steps to be more value-oriented (adjusting their regular prices, running more in-store promotions), A&F sticks out like a sore thumb. It may be noble to stand for “brand integrity” by failing to offer cash-strapped customers better value, but A&F has made a couple of strategic missteps as a result. First, they have allowed most of their competitors to gain market share at their expense. Second, they have undermined their own message by painting their merchandise content as “too expensive” in the consumer’s mind. Third, they have done a disservice to their own shareholders by sitting on their hands, allowing a comp-sales and clearance meltdown to occur.

Is there a “brand space” for bad beer?

An interesting topic in today’s Retail Wire, especially for a blogger from Milwaukee: The discussion centers around several “budget” brands of beer (Busch, Milwaukee’s Best, Icehouse and Keystone) with some perceived negatives in their brand image. The question posed to panelists: Do these brands deserve to live? Here’s my take on the subject:

The common theme here is that all four brands in question are positioned as budget alternatives to the national brands with big ad budgets. Many of the criteria used to judge their viability depend in part on brand imagery, which in the case of these brands focuses on “cheap,” not quality, reputation or impression. These are not status brands by any means.

But is there anything inherently wrong with this brand position? Obviously the brewers in question have identified a niche and target market for these products, and (based on their longevity) have figured out how to make money selling them. Perhaps the best advice is to reformulate the beers if changing tastes are driving up the “negatives” on flavor, but continue to fill the market space for this sort of product. In the meantime, these brands are probably “cash cows,” in large part because they keep the assembly lines running with very little marketing cost.

Blogging on Bloggers

Retailers have to learn how to deal with social networking and other “new media,” especially given the potential effects of negative blogging. Here’s my opinion:

I don’t think negative bloggers can be ignored completely, or simply treated as cranks. Retailers need to discern between those with a case of “sour grapes” and those with valid complaints. It’s possible that negative blogs can bring some serious field operational issues to the attention of management, such as low housekeeping standards, poor replenishment methods and slow checkout procedures. If the tone of negative blogs is consistent and credible, it’s worth making sure that these sorts of problems get corrected before “social networking” turns a brushfire into a PR disaster.

The Future of JCPenney: An investment in IT?

There’s no question that an investment in IT can pay all sorts of dividends for JCPenney as well as other retailers. To name just a few:

1. Continued improvements in supply-chain and store payroll productivity, driven by enhanced systems;

2. A stronger focus on CRM than the brick-and-mortar competition, learning from masters of data mining like Amazon;

3. Development of kiosks and other interactive technology appealing to younger consumers with a high “tech-savvy” comfort level at retailers like Apple and Best Buy.

But a note of caution to JCPenney: IT may lead to a slicker, more modern and more productive operation but the true “front door” to the business should continue to be its merchandising content, store experience and brand positioning.

“Parent Blogging” and the FTC

Does the FTC have regulatory authority over “parent blogs” in an attempt to protect consumers from paid endorsements? Is it something that the government ought to undertake? Here’s my opinion:

I believe in “truth in advertising” but this sounds like a case of government overreaching. The marketplace needs to determine the success or failure of products recommended by bloggers based on the merits of the products themselves. How, exactly, does the FTC propose to regulate a digital media phenomenon like blogging without being intrusive and potentially stepping on privacy rights? After all, most bloggers and other users of the Internet expect their confidentiality to be protected. There is an element of “herding cats” to this idea, anyway…unless the FTC proposes a practical solution to this issue, they ought to avoid intrusion in other “new media” such as Twitter, Facebook and text messaging if they can’t demonstrate a consumer benefit.

Untapped potential of online marketing

My comment for today’s Retail Wire newsletter pertains to the untapped potential of online marketing for the CMO’s (chief marketing officers) of retail companies:

Some of the CMOs’ frustration may be caused by the rapid transition from “old media” to “new media.” Many CMOs of retail companies were schooled in how to allocate a marketing budget between TV, print and other traditional media and are familiar with how to measure the results. “New media” are tougher to measure: How do you judge the efficacy of your website as a tool to reinforce your brand message and draw traffic to your brick-and-mortar stores, not just measuring them by the sales it generates? How do you gauge the impact of social networking and text messaging on your marketing message? There are some web-only companies (Amazon is the obvious example) who have figured this out, but most CMOs have a lot to learn.

Best Buy: Going down the Circuit City road?

Today’s Retail Wire discussion ought to provoke a lot of conversation. Best Buy is making some payroll and staffing moves that remind a few observers of the mistakes that helped bring about the demise of Circuit City. Best Buy may feel that its principal competitor has left the stage, so it’s free to make some changes in its store…but be careful when your brand positioning is built in large part on customer service:

This move puts Best Buy in a tough position. Economic reality dictates cost-cutting moves at headquarters and in the field, as with many other retailers trying to protect shareholder value in a demand slump. But history is a good lesson — not only Circuit City but also Home Depot under Nardelli — so Best Buy has to be extremely careful here. A short-sighted and less than surgical approach to cost-cutting will be just as visible to the consumer as what Circuit City did, especially in a company building its marketing position on good service. And the consequences for a demoralized team are high unless management makes its case internally, not just to outside stakeholders and observers.

Does anyone know what a record is?

Thursday’s Retail Wire has an interesting panel discussion on the handful of independent music retailers making a go of it. Here are some observations:

Independent record stores are a dying breed, not only because of changes in technology that have doomed most national music retailers but also because of the challenges of competing against the big-box stores still in the business of selling music. It’s not unlike the troubles that independent booksellers have had staying in business.

It’s futile for independent retailers to try to compete against the likes of Walmart or Best Buy on the basis of price (outside of the “market price” on new releases and top sellers), so they need to pursue a couple of other strategies:

1. Focus on assortment: Find your niche and be the best at it. Whether you specialize in indie bands, folk music or classical, chances are good that the big box stores aren’t interested. And some customers would still prefer to buy full-length CDs (or even LPs!) instead of downloading track-by-track from iTunes.

2. Focus on service: Identify your best customers and their interests. Cater to those interests in terms of your content, but also develop CRM techniques for cultivating their loyalty. This could be as simple as collecting e-mail addresses in order to notify them of new releases of interest, or developing more specific software to track their preferences and behavior.

There are other key tactics to follow, including choice of location and multi-channel retailing but the bottom line for staying competitive is a strong focus on content and service.