Outcome of Target’s proxy fight

Despite some bumps in the road — some caused by the economy, others triggered by some management decisions — most observers agree that Target is one of the best-run companies in retail. There has been tremendous management continuity over the years as well as a strong focus on store experience, brand positioning and merchandise content. The team running Target (including the board of directors) has earned the chance to continue making strategic changes to the formula as they see fit.

Meanwhile, Mr. Ackman’s “vision” for Target’s future has less to do with running a fundamentally sound retailer, and more to do with the sorts of financial “plays” that drove Mervyn’s into the ground and cost Sears a lot of market share. I applaud Target’s shareholders for doing the right thing.

Macy’s floating an outlet-store concept

There are lots of pros and cons surrounding the idea Macy’s recently floated: Opening outlet stores under the Macy’s or Bloomingdales name. Here’s my take on today’s Retail Wire:

I have mixed feelings about this idea. On the one hand, Nordstrom Rack points to a business model that could work for Macy’s and/or Bloomingdales. It allows for a location strategy with much more flexibility and cost-efficiency than the traditional mall anchor. It also provides a way to clear inventory outside of the mainline stores, which have tended to look very cluttered and poorly converted lately during “clearance season.” This would be a particular benefit in clearing private brands like INC that are a liability once commitments have been made.

On the other hand…this idea requires a lot of planning and good infrastructure. There needs to be a cost-effective way to manage the “reverse logistics” of moving goods from stores to outlets. And, most importantly, Macy’s has its hands full today trying to wring efficiencies from the May Company acquisition and its own buying-office consolidation. Investors would probably like to see Macy’s turn a profit before it turns its attention to another distraction.

The Buckle: A specialty retailer thriving in today’s economy

You may have read James Stewart’s column last week in the Wall Street Journal about The Buckle, the denim-focused specialty retailer based in Kearney, Nebraska. It’s a good argument in favor of developing customer loyalty without overemphasizing price. A few key points in Stewart’s column jumped out at me when I commented for Retail Wire:

1. Merchandise mix: The store carries an assortment of “relevant” denim brands within its moderate pricing position. This plays well to a mainstream consumer outside the big cities, perhaps, that is still looking for more style and label selection than at her local mass-market chain store.

2. Expansion: To Ryan’s point, The Buckle has been cautious to walk before running and to be opportunistic. Why pursue the ego satisfaction of a mall in the New York area (with its attendant costs and competition) when you can exploit your niche more carefully?

3. Service: This may be The Buckle’s key tool in developing customer loyalty. The discussion in yesterday’s Retail Wire debated whether loyal customers are simply price-driven…The Buckle surely provides a strong counter-argument.

Target’s private label redesign misses the bullseye

Today’s Retail Wire posting comments on the new private-label branding and packaging at Target called “Up & Up” — this will appear in HBA and other commodity areas. I start by quoting Kathee Tesija, the GMM involved in the project:

Ms. Tesija’s logic is backward: “We believe that it will stand out on the shelf, and it is so distinctive that we’ll get new guests that will want to try it that maybe didn’t even notice the Target brand before.” New guests (or customers, as the rest of us call them) are unlikely to walk into a Target store for the first time in order to buy a private label they never saw before.

More important, one of the key ingredients in Target’s brand equity is the red bullseye logo. Almost every other company in America (retailers and others) would kill to have a logo this recognizable and powerful. Target is certainly within its rights to rethink its private labels, and many other private-brand categories in the store do not exploit the bullseye. But did they have to come up with something so bland and unmemorable?

Loyalty: It’s not all about price

Today’s Retail Wire includes a discussion about loyalty: What defines it, how to develop it. The starting point for today’s Brain Trust panelists is a new book called Why Loyalty Matters, in which the authors declare that the most loyal customers are in fact unprofitable because they focus on price. But isn’t there a lot more to loyalty? My thoughts:

I don’t agree with the authors’ premise, that most loyal customers are in fact unprofitable. If you start with the assumption that loyalty is defined only by price-sensitivity, you might draw the same conclusion…but there is a lot more to developing the top 20% of customers who drive the majority of retailers’ sales.

First, start with the definition of loyalty as commitment to a particular retailer. Customers who are most motivated by price in their shopping decisions are also most likely to jump from store to store based on who offers the best deal at any given time. Good customer relationship management (CRM) is built on customer service, having the most relevant merchandise content for the target customer, and developing techniques to drive a bigger “market basket.”

It’s not all about price, even though a narrow definition of a “loyalty program” might be limited to extra discounts or special rewards. It’s really about developing the level of commitment to drive top-line sales and take market share from competitors.

What’s the matter with Macy’s?

Almost every retailer reporting its 1st quarter profits has shown a decline from 2008…some not so bad, some severe. In almost every case (JCPenney, Nordstrom, Dillard to name a few) the earnings have beaten expectations regardless of the weak comparisons to last year. Here’s the bottom line: Almost every one of these companies delivered a profit in the 1st quarter.

There is one notable exception, the biggest department store retailer in the country: Macy’s. The company reported a substantial loss for the quarter, whether you count their typical “one-time charges for restructuring” or not. (They have made this an art form over the years.) Their CEO announced today that the recent division consolidation will bring $400 million in savings…in 2010. Clearly Macy’s has not been nearly as nimble as its competitors in managing its costs and inventories “down” to reduced demand.

Abercrombie: The Sequel

If you follow developments in retailing, you probably saw news coverage last week about A&F’s new pricing strategy. I commented in late April about how their insistence on “brand integrity” (which apparently extended to a high-price perception) was unfair to their own shareholders and had customers racing for the door. Well, A&F announced that it will be re-evaluating (and adjusting) its prices, especially in its Hollister and Abercrombie Kids divisions. It’s one thing to stick to your principles, it’s another thing to ignore the realities of doing business today.

New off-price store TV campaign

You’ve probably seen the new commercials for the TJX Group on behalf of its two biggest divisions, TJ Maxx and Marshalls. They show a department store shopper whose friends stage an “intervention” because she is spending more than she needs to. My comment today in Retail Wire:

The commercials are clever and make their point effectively about the off-pricers’ reason for being. I do question whether combining the two brands (Marshalls and TJ Maxx) into one spot is smart. Most consumers don’t realize that these two nameplates are part of the same company…isn’t it worthwhile to establish a clear brand identity for one store or ther other?

Walmart decides to stop reporting monthly comp sales

Most fellow RetailWire panelists disagreed with me on the subject of Walmart’s announcement that it plans to stop announcing monthly store-for-store sales. They felt it would lead the retail industry in general (if other stores follow) toward more focus on long-term results.  I take the contrary position that it’s good for publicly traded retailers to show more transparency, not less:

Most other retailers that have stopped reporting sales on a monthly basis, such as Macy’s and Sears Holdings, have been roundly criticized for it. In fact, Macy’s reverted to monthly sales reporting last year when it became apparent during the stock market free-fall that investors wanted more transparency. In this case, Walmart may be “too big to care.”

The world’s largest retailer — and second-largest company of any kind — may feel that monthly reporting reflects short-term changes in the calendar, but most analysts who pay attention to the retail sector understand the impact of the Easter switch from one year to the next. Walmart may also feel that monthly reporting puts too much pressure on short-term thinking, but is quarterly reporting of sales and earnings really any different?

Bottom line: Taking Walmart out of the monthly sales data presents a very incomplete picture of how the retail sector in general is doing. This might give other public companies the “cover” they need to stop reporting monthly sales, but it does a disservice to shareholders.

April comp sales look “less bad”

Like so many other economic indicators right now, April same-store sales look “less bad” than during the past several months. These are the indicators of a “bottom” to the recession (we all hope) that have driven equity markets about 33% higher since early March. Still, there is no reason for dancing in the streets just yet.

April results show how Easter is a double-edged sword when it moves from one month to the next: On the one hand, businesses driven by the holiday (kids’ clothing, candy, etc.) spike up in sync with the calendar. On the other hand, most stores take a volume hit if they keep their doors closed on Easter Sunday. This year the “lost day” fell into April and seemed to affect some stores more than others.

The discounters looked strong in April, with Walmart leading the pack and Target showing a positive comp. Warehouse clubs were surprisingly soft, mid-tier stores like JCPenney and Macy’s did “less badly” (and have raised their quarterly earnings expectations), and luxury retail trailed the pack. Most middle-market stores have done a good job adjusting their inventory and expense plans to very low expectations, so any recovery in comp sales during the second half will drive a big earnings spike.

It may be a sign of recovery that middle-market apparel specialists have come back from their worst comps. The stores most focused on value did the best (are you listening, A&F?) but any sign of more active discretionary spending is a good thing.