Archive for June, 2009

Redbox and Netflix: Short-term or long-term threat?

Today’s Retail Wire discussion centers on the opportunity for Redbox and other DVD “kiosks” to steal market share from Netflix. I agree this is a short-term issue but I think the discussion misses the real point:

Kiosks have barely reached a saturation point and provide plenty of short-term competition for Netflix (not to mention Blockbuster) in satisfying consumers’ demand for convenience. However, the Netflix formula offers not only convenience (if not instant gratification) but also breadth of assortment. If you’re looking for a DVD other than a best-seller, your choices on Redbox are limited and the $1 rental fee only works if you are willing to watch that DVD right away.

More relevant long-term is the switch from DVD to digital delivery of movies and other entertainment. Reed Hastings of Netflix was profiled last week in the Wall Street Journal, and it makes important reading: The paradigm shift of digital delivery is what keeps him awake at night, because he knows it will upend the business model of Netflix, Redbox and Blockbuster over the next five years.

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Department Store Merchandising: Shops within a Store or “Bunch of Stuff”?

Interesting discussion on today’s Retail Wire: Over the past couple of decades, has the traditional department store leaned too much on the “shop within a store” concept? As usual, it would be nice to have more data to support one argument or the other (category dominance vs. “collection of brands”). But the long-term market share decline of the traditional department store may be connected to this trend:

The topic of shop-within-shop merchandising gets to the heart of the debate between item (or category) merchandising versus “collection” merchandising. It’s easy to point out the merits of merchandising by lifestyle or collection: It provides a more pointed brand or demographic message to a targeted customer, and it also enables that customer to add more to his or her shopping basket.

On the other hand, collection merchandising has contributed to the “breakdown of order” in the traditional department store. It’s become less convenient to shop within a category (for example, women’s shorts or men’s knit shirts) because of the fragmented approach to the product. I believe this has helped traditional department stores lose share over the past 15 years to more convenience-driven retailers like Kohl’s or the category killers.

How safe is the food supply?

A little “off topic” of my usual subject of general merchandising…but today’s Retail Wire invites panelists to discuss a new IBM survey. It finds that American consumers are more distrustful than ever of food supply safety. This should not come as a big surprise:

The results of the survey aren’t surprising; consumers are understandably more concerned than ever about the safety of the food supply. Whether through suppliers’ negligence or poor oversight by regulatory agencies, there have been far too many incidences of safety issues in the past few years. When staples of the American diet like peanut butter and tomatoes are subject to this kind of scrutiny, the public reaction can be exptected.

I don’t have a proposed solution, but clearly the food supply and agricultural industries have a challenge to rebuild consumers’ confidence. And there are too many “misses” on the part of the FDA and other government agencies. Food and grocery retailers and wholesalers are among the biggest losers in this environment — and the supply base tends to be highly fragmented — so it will take some industry collaboration and push to rebuild the faith of Americans in their own food supply.

Target’s latest foray into food retailing

I’ve noted before on Retail Wire that Target is an “also ran” in the food business, especially in it’s non-combo store format. Today’s Retail Wire discusses a possible solution: A broader selection of categories (with tightly edited assortments) merchandised in the conventional or Greatland format. Here’s my opinion of the test:

The number of stores in Target’s test may not provide a totally accurate reading, and it would be interesting to know which markets were selected for the trial. But the initial results sound promising: Certainly Target needs to figure out how to compete more effectively in “food and consumables” against Walmart in the future, instead of losing long-term market share.

The Target model has been much more focused in the past on apparel and home decor, and long-term changes in discretionary spending require the company to drive more frequent visits. There is also a lot of real estate in a typical Target store that could be tightened up or eliminated: Continuing to devote space to books and DVD’s in today’s era of digital delivery is one example.

So the challenge to Target sounds like the installation of a “Fresh and Easy” or “Marketside” concept within the four walls of a prototype store. If Target can execute the right balance of variety vs. assortment at a compelling level of price and quality, it could be a very big win.

Fast-casual food: Time for more full disclosure?

This week, Retail Wire panelists had a chance to discuss a new consumer study. It shows that customers may give lip service to “eating healthier” at fast-casual restaurants but don’t follow through. My contention is that more “truth in advertising” on the menu might affect behavior:

Consumer behavior in fast-casual restaurants might be different if customers got a clearer picture of the calorie content of some popular menu items. This has gotten news coverage recently, and frankly some of the numbers are appalling.

The truly health-conscious are probably not going to eat often at Chili’s or Applebee’s, anyway. And there’s always a strong argument that the consumer has a right to choose, whether the food is good for you or not. But are these types of restaurants providing enough information for a more educated (and healthier) decision? I don’t think so.

Talbots CEO gets multi-million-dollar pension “make-good”

Catching up on a comment earlier this week about Trudy Sullivan, the CEO of Talbots. The board of her companies has provided a one-time $1.4 million “make good” on her contract relative to some changes to Talbot’s pension plan. The question to Retail Wire panelists: Does this pass the smell test with employees and investors? I’m afraid not:

It’s not just about the appearance to rank-and-file members of the Talbots team, but also to the outside world. This company has been a big disappointment to the investment community and the CEO has been unable to provide the right answers so far. It’s not as though the rest of her compensation package is unfair by any means considering their comp sales shortfalls and self-confessed merchandising mistakes. This looks like a very questionable decision by the board.

Best Buy: Bike Retailer?

It’s one thing for Best Buy to branch into musical instruments: There is a correlation between this type of product and other sorts of audio and home entertainment equipment sold in the store. It’s also a chance to “nationalize” a very fragmented category.

But it’s hard to make the same argument for electric bikes and motorcycles. True, this is another fragmented category dominated by local independent retailers (outside of dealer networks for mega-brands like Harley). But its relevance to the rest of Best Buy’s business is hard to figure. Granted, Best Buy needs to fill space vacated by the shrinking CD and DVD departments…but it doesn’t need to become “a bunch of stuff” either, just because it sees a tenuous connection between these leisure-oriented businesses.


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