Archive for June, 2010

Costco: A challenge and opportunity for CPG vendors

From a recent RetailWire discussion about Costco: Most panelists agree that there are specific product development challenges doing business with warehouse clubs. I point out that CPG companies should devote more internal resources to supply chain management, too:

Outside of the key issues that other panelists brought up (bulk sizes, limited SKU count, exclusives), it’s also important to keep in mind the particular challenges of doing business with warehouse clubs. As David pointed out, forecasting is a big issue, along with the logistics of bulk deliveries, etc. CPG companies that have put a lot of effort into supply-chain “partnership management” with their key discount, food and drug acouunts would be wise to put some human resources behind warehouse clubs like Costco with rapidly growing market share.


Junior apparel: One weak spot in the retail recovery

From a recent RetailWire comment about junior apparel: There are macroeconomic issues that are slowing down this segment of the industry, although there are exceptions to the rule. Here’s my point of view:

Let’s see what the May comp sales numbers actually look like before drawing too many conclusions about the state of the junior apparel market. But there is no doubt that the economic slowdown has had a “trickle-down” effect on this segment of the business. First, the “new normal” dictates that consumers live more strictly with a household budget; this is likely to put a damper on parents’ willingness to spend on “nice to have” instead of “must-have” clothes for their teenagers. Second, and more important, high unemployment is hitting teens especially hard, in terms of “first jobs” and summer jobs too. Until employment rates improve, the real and perceived impact on teens’ spending is going to continue.

Rue 21: A smart growth strategy “from the outside in”

From a recent RetailWire discussion: Rue 21 is a fast-growing junior apparel chain focused on growing in smaller towns first. For many panelists, it feels like a bright idea…and I agree:

This appears to be a smart strategy; after all, Walmart built its business from the perimeter (small towns, exurbs) to the center. I’m not suggesting that Rue 21 is the next Walmart, but clearly there is a niche for specialty apparel stores aimed at misses and juniors, in markets too small to support a Gap, AE or Forever 21 location. This kind of real estate plan also allows specialty stores to operate at higher margins (less competition “next door”) and at lower cost…provided, of course, that Rue 21 provides the right merchandise content for its customers.

A new concept from Sports Authority

Sports Authority is developing a new concept called “S.A. Elite,” offering a more focused selection of branded sport apparel in a smaller footprint. I have mixed feelings about the idea, as I noted on RetailWire recently:

Interesting idea to present a more focused selection in a smaller footprint, and this allows Sports Authority to develop sites in locations (malls, lifestyle centers) unable to take on a full-size store. It’s unclear, however, how the “S.A. Elite” name communicates the concept effectively. The smaller prototype seems to be geared toward a narrow selection of branded sport apparel, without the breadth of “hardlines” carried in a full-line store. Does “Elite” really put this idea across, and does it potentially turn off the customers that SA would like to attract?

The Kindle: Can Amazon rest on its laurels?

Interesting discussion at RetailWire about Amazon’s strategy for the Kindle. It’s targeted at the reader, not the multi-tasker who might be tempted to buy an iPad instead. Can Amazon stick to this strategy? My thoughts:

I agree that the Kindle is targeted sharply at the “high-consumption” reader, and it plays neatly into Amazon’s core brand position as a book retailer. I also agree that the prime audience for the iPad is probably the “multi-tasker” looking for a device that can bridge the gap between a smartphone and a netbook. Its principal appeal seems to be as a portable web browser and “app machine.”

However, as a satisfied Kindle owner and user, I do wish the product had more functionality beyond its main purpose as an e-reader. Its browser capacity is limited at best, and the appeal would be broader if the functionality were enhanced by a touch-screen. I wouldn’t doubt that Mr. Bezos is “playing possum,” to some degree, and is already at work finding ways to enhance the Kindle experience while staying focused on its core market.

Continued good news on the economic horizon

OK, so I posted the following RetailWire comment just before Memorial Day (and before some of the recent downdrafts in the stock market). I still believe there is more good news than bad news on the economic horizon right now:

Surely the Great Recession that began during the second half of 2008 didn’t begin with the collapse of Lehman Brothers, but with horrendous spikes in gas prices that happened earlier in the year. (The bursting bubble of real estate prices didn’t help, either.) On the other hand, oil and gas prices fell dramatically last year but it didn’t translate immediately to higher consumer spending. There is something of a lag effect, but I agree that falling pump prices (if the trend continues) will help sustain the recovery in other discretionary spending. (It’s like a “tax cut” to consumers, as Larry Kudlow likes to point out.) It’s also helpful to the recovery that money is still cheap, with mortgage rates being at historic lows. All of this should help consumers lead the economy out of a ditch, despite market nervousness about more intangible issues like European sovereign debt.

Another example of smart supply-chain management at WMT

A recent RetailWire comment about Walmart pushing its vendors to maximize shipping cost efficiencies:

Backhauling has always been a smart supply-chain strategy, and Walmart is taking it to the next level. It makes sense, with an armada of their own semi-trailers delivering goods from their distribution centers to their stores all over the country, not to allow these trucks to return “empty-handed” to their DC’s. It will require a lot of sophisticated logistics planning to deploy trailers to vendors’ warehouses, but if anybody can figure this out, Walmart can. It’s interesting to see that they are currently running a marketing campaign around the cost-saving benefits of good supply chain management…and the direct benefits to the consumer.