Archive for November, 2009

Target’s small-format “urban” strategy will need assortment editing

Target and other national chains (such as Best Buy and Kohl’s) have opportunities to open small-format stores, not only in urban markets where a smaller footprint is required, but also in smaller markets that can’t sustain the volume of a full-size prototype store. The challenge to Target in particular is to consider how to edit its businesses and assortments to suit the urban customer. Does it focus on consumables, HBA and other convenience-based categories? (If so, it runs the risk of being perceived as a large-format Walgreens or CVS.) It’s easier to determine which businesses ought to be eliminated completely (I would start with categories like CDs and automotive) than to decide which categories to focus on. But if Target plays to its strengths in trend apparel and home goods, its brand positioning becomes a lot more consistent, despite the company’s more recent emphasis on food.

Proposing a “service war” not a “price war” for specialty stores

Doug Fleener, a fellow Retail Wire panelist, writes today about how specialty stores can compete more effectively against big-box and discount stores. Doug’s position is that customer service, not price, needs to be their competitive advantage. I agree, but I think the definition of “customer service” is more nuanced than in the past:

Small specialty stores are just as focused on effective payroll management as the “big box” stores…or they should be. So their focus in terms of customer service ought to be the quality, not quantity, of their sales associates. Great training on how to connect with the customer and how to communicate product knowledge is a critical task in this environment.

But there’s more to “customer service” than the traditional definition of “plenty of good sales help,” and technology can help achieve broader results. For example, does the small retailer make cost-effective use of CRM methods to ensure that the “best customer” is identified, encouraged to make repeat visits and to increase her average purchase? Does the small retailer have good supply-chain disciplines that allow it to keep most-wanted items in stock and flowing regularly?

Doug is right: The small specialty retailer who tries to win on price is likely to get run over by the big-box stores. But, at the same time, winning through customer service is a much more complex challenge than in the past.

When is Macy’s going to deliver consistent results?

After Macy’s released its 3rd quarter earnings last week, Retail Wire panelists weighed in on the subject. Specifically, there is a lot of discussion about the merits of the “My Macy’s” program, intended to deliver more market-specific product to stores coast-to-coast. My bigger issue is that the May Company acquisition and other recent strategic moves are taking too long to deliver consistent profitability. My comments:

The “My Macy’s” initiative is worthwhile, and other national retailers have figured out how to tweak their local assortments in the context of a centralized buying office. However, if I were an investor in Macy’s I would have a few pointed questions after the latest earnings release:

1. If “My Macy’s” is an apparent volume driver, what’s taking so long rolling it out to the entire organization? Wouldn’t a couple of extra points of comp sales move the company closer to profitability?

2. When will Macy’s return to consistent profitability, not just in the fourth quarter but on an ongoing basis? Several of Macy’s key competitors (Kohl’s, for example) have delivered profits every quarter during a difficult 2009. Will Macy’s ever get out from under the crushing cost of its interest expense?

If you inspect the latest quarter closely, Macy’s continues to bleed from “division consolidation costs,” which have been going on at least since the May Company acquisition. It seems to me that “My Macy’s” needs to be a front-burner initiative, in order to start leveraging these acquisitions and division mergers once and for all.

Overly cautious inventory management threatens 4th quarter sales

Most retailers put together their fall financial plans during the worst of the demand slump last spring. And many of them made commitments to imported merchandise several months ago, before their comp sales showed signs of becoming “less bad.” I have said before that some of the weak sales likely to happen in the fourth quarter will be self-induced. It’s understandable that retailers want to avoid carrying excess inventory into 2010, especially on seasonal goods, but the winners are likely to be the ones with the most nimble supply chain and the ones most alert to opportunistic buys.