Archive for May, 2009

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.