Archive for March, 2010

Should customers pay for Kmart’s mistake?

Kmart recently published an online coupon ($10 off a $20 purchase) intended for three specific markets but worded to appear valid nationwide. There was apparently a lot of friction in stores where management refused to honor the coupon. Retail Wire panelists were invited for their point of view on how to deal with the issue, and here’s my opinion:

A simple (although not cheap) solution to this problem: Honor the coupon. This was Kmart’s mistake, not the consumer’s, and it’s disingenuous at best to try explaining to a customer in (say) Dallas that the coupon was intended for people who live in Chicago. The costs of bad publicity and ill will are potentially much higher than the extra markdowns driven by the online offer. I hope most retailers have the sense to own up to their own proofreading errors (and correct them quickly), instead of suggesting that the customer is doing something wrong by walking in the store.

CEO’s and store visits: Worth their time?

The popular new TV show “Undercover Boss” raised a related question among RetailWire panelists this week: Should retail CEO’s spend more time in their own stores to “see what’s really going on”? I believe it’s worth the effort, even if the trips are unannounced:
If a retail company’s culture and “best practices” are running on all cylinders, it shouldn’t take a CEO visit to uncover and fix problems. Especially at a chain operation with hundreds or thousands of stores coast-to-coast, senior management must rely on its field leaders to address issues. Nevertheless, CEO’s are well-advised to hit the road and see whether their vision is being executed properly. Announced tours often end up like “state visits,” whereas surprise/incognito observations are more likely to reveal the same things that customers see every day…good or bad.

Payless ventures into cosmetics

Payless Shoes has announced plans to add cosmetics to hundreds of its locations by creating new exclusive brands. I have some doubts, as expressed on a recent RetailWire discussion:
A broader and deeper assortment of accessories (handbags, jewelry, scarves and so on) would be a more logical extention of the Payless shoe franchise. Yes, Payless sells these categories online and in their bricks-and-mortar stores but it isn’t perceived as a “headquarters” business. So cosmetics might make a logical extension but it presents unique challenges:
1. Does Payless intend to handle cosmetics as a complete self-selection business or does it plan to provide service?
2. Does the company name (“Payless”) cause a brand disconnect with the type of imagery provided by successful cosmetic brands?
3. Is Payless well-positioned to execute a large-SKU and high-replenishment business like cosmetics?
I assume that Payless did the necessary testing before its ambitious rollout, so the results will be interesting to watch.

Can Blockbuster be saved?

As hundreds of Blockbuster stores close across the nation, Retail Wire panelists discussed some of the tactical changes being considered to keep the business alive. Is it too little, too late for an obsolete model? Here’s my opinion:

Changes to the operating model of Blockbuster (longer hours, coffee bars, etc.) can’t change the fact that technology and other business models have left them behind. Blockbuster’s mistake over the past five years was to react too late to the different types of competition offered by Netflix and Redbox. You can’t beat Netflix for convenience and breadth of assortment, and they have been very forward-looking by adapting to live streaming technology. At the same time, Redbox has become a strong competitor in terms of new releases at low prices in convenient locations.
I made far too many trips to my neighborhood Blockbuster in the past, only to be disappointed in the search for a new release or otherwise walk out empty-handed. No retailer can survive forever at this level of execution, and my local Blockbuster now has a “Store Closing” sign by the front door.

Best Buy leads the way toward 3D televisions

Interesting recent RetailWire panel discussion about whether Best Buy ought to be the leader in 3D televisions. Absolutely, I say:
The 17% survey result (that 3D sets will be widespread in the next five years) is probably a low number compared to what will really happen. Time and time again, there is a back-and-forth between the spreading of new technology and lower prices to consumers…as this happens, new technology invariably reaches mass appeal. Look at the popularity of blu-ray players…and, for that matter, large-screen TV’s as an overall category.
That being said, it’s vitally important for the category leader in consumer electronics retail (Best Buy) to establish a beachhead in 3D televisions. Credibility among “early adapters” is a must for Best Buy, and the long-term commercial potential for 3D sets is significant (even if it reaches “only” 17%).

Strategies for the “new normal”

Here’s another discussion from RetailWire about “the new normal” of reduced consumer spending. The discussion centered around whether this is a permanent development, and whether retailers have done enough to adapt:

I think the fourth-quarter results from many retailers (moving into the black) show that their strategies have already changed. With few exceptions, comp-store sales were modest at best and even the biggest increases are barely putting retailers back at pre-2008 sales levels. So the smart retailers have figured out other strategies: Tougher expense management and better inventory control. Much of the gain in profitability came from efforts to get fewer goods into the right stores; the reduction in markdowns led to higher margins for many stores.

The good news: Many of these efforts to manage expenses and inventory levels will leverage dramatically if and when there is a recovery in demand. The less good news: Without a real increase in comp-store sales, these operational strategies can only be pushed so far before they become counterproductive through stockouts and declining service levels.

Exclusive Brands: Enough already?

Ted Hurlbut, a fellow RetailWire panelist and blogger, provoked a conversation about the runaway trend toward “exclusive brands” at today’s retailers. How much is too much? Here’s my perspective:

I agree with Ted Hurlbut’s point of view about exclusive lines. One of the biggest changes in the retail landscape over the past five years has been the move from national brands carried across several competing retailers to “exclusive labels.” Sometimes these have been well-executed, with a compelling design point of view and brand positioning. Just as often, however, these brands have been created mostly as margin plays, so one retailer can avoid competing on price with another. JCPenney has been especially guilty of layering one “exclusive brand” on top of another, with very little editing, with resulting confusion especially in the women’s apparel zone.

Apparel companies have jumped onto the “exclusive brand” bandwagon as a way to please their big national accounts, but with very little differentiation in product development. So the “sea of sameness” still exists even though the label names might be different from store to store. Retailers need to approach this challenge carefully: “Exclusive label” proliferation might benefit the store’s margins in the short run but can quickly dilute the overall brand position that management is trying to achieve.