Archive for March, 2012

Nordstrom, meet Nordstrom Rack

RetailWire panelists generally agreed with me that the newest location of Nordstrom Rack in downtown Seattle — across the street from its flagship store — is a net positive:

I don’t see the new Rack location hurting sales in the flagship Nordstrom store. The brand is so widely accepted in its hometown that this move should represent a net gain. As Mr. Nordstrom suggests, this pattern has been repeated elsewhere, such as in downtown Chicago, with evident benefit to both locations. It may not be a move worth duplicating everywhere, but some markets can support the strategy with the right amount of traffic and population density.

Buying power and pricing power: More important than ever?

The following comment (from RetailWire) seems obvious, but its importance can’t be overstated…it helps to have market leverage:

Buying power is hugely important and has gained traction during the era of retail consolidation. Whether you are talking about department stores, big box retailers or discounters, there are simply fewer players with more leverage over their vendors than 10 or 20 years ago. Walmart is probably the best example of a retailer with pricing power — and they have used it for many years to gain market share at their competitors’ expense.

First impressions of the new iPad

I’m sure Apple is selling plenty of new iPads since their introduction last week, but I have a few comments to share (through RetailWire). It’s interesting to note — since writing the following — that Apple declared a dividend today, perhaps signaling that its days of most explosive growth are behind it:

Apple may not see the same explosive growth coming from the new iPad model compared to its smartphone business over the past year. Nevertheless, there is nothing wrong with introducing a better product at the same retail price. It also allows for a better entry price into the iPad market, for those willing to accept the iPad 2.

Over the long term, however, Apple will need to develop a more truly revolutionary (not just “resolutionary”) iPad in order to drive sales faster. In order to achieve its goal of supplanting the notebook business, the next version of “new and improved” will need to do more. Adding voice recognition to the next iPad would have been a good place to start.

Can retailers really afford to raise prices?

From a recent RetailWire discussion about retailers’ ability to raise prices — or inability — in the face of rising commodity or gas prices. It’s not so easy, and recent history should be a guide:

What happened to many midtier apparel stores in 2011 as a response to higher cotton prices should be a cautionary tale for any CPG marketer or retailer. They were faced with a choice between raising prices (which almost immediately put a dent into their sales) and absorbing lower margins in order to protect the top line. The customer doesn’t understand — or care about — the worldwide commodity market, but she does grasp the right price to pay for a cotton t-shirt.

In an age of increased consumer empowerment — typefied by the QR scanners on all those smartphones out there — retailers need to be extremely careful about raising prices, or they need to find offsetting cost savings in the supply chain to protect both sales and margins.

Martha at JCP: A win for all, or for none?

The Martha Stewart brand may feel that adding JCP distribution is a big win, but I’m not so sure. Angering its biggest account (Macy’s), who has invested a lot of floor space and ad space behind the brand, will backfire. (Macy’s didn’t hesitate to drop Liz Claiborne, and its volume has hardly suffered for it.) JCP also has a right to be concerned about what happens to the Martha brand cachet over the long run, and whether it helps the store broaden its appeal to a younger consumer.

Beyond the Macy’JCP issue, the retail world is littered with designer and celebrity brands that overextended themselves to too many stores and too many product categories. Pet supplies and office supplies may be a bridge too far.

Brands as retailers: A smart idea?

A debate at RetailWire about the merits of brands running their own retail stores, in addition to outside distribution. I’m all for it, as long as the company in question leverages its retail expertise to help its accounts drive more profitable sales:

The best example of a brand selling its product in its own stores while distributing to other channels is Apple. The Apple Store has done wonders for the company’s brand image and pricing power in the marketplace, and consumers see very little discounting in other channels like Best Buy, Target and Walmart.

But walk through any mall and you will see other examples of brands following their own retail path. Many of these are accessory businesses — shoes, watches, handbags, and so on — and some of them are at “better” rather than designer price points. What many of these brands have in common is better control over their own product development and brand image, helping them to build leverage and avoid becoming promotional “footballs” in department stores and elsewhere.

Non-merchants at the top of retailers: A smart move?

Dominick’s recently hired a new CEO with a financial (rather than merchandising) background to lead the company. The topic comes up occasionally on RetailWire, and here is my opinion:

Despite my own background, I don’t think being a merchant is a mandatory background for a retail CEO. However, I do think it’s critical that the executive in charge has a chance to develop a comfort level with the thought process, even if he or she comes from the world of finance, store management or logistics. (Lee Scott at Walmart, for example, was an expert in supply chain management.) Most importantly, the CEO needs to put a strong merchant in charge as #2 in the absence of his own skill set, and trust the team around him or her to get the job done.