Archive for February, 2013

Walmart raises a red flag about February sales

RetailWire panelists discussed a leaked memo from a Walmart executive, describing what appears to be a tough sales month so far. There were plenty of reasons cited (the payroll tax hike, gas prices and so on), but I suggested that most issues like this require some perspective and soul-searching:

The price of gas goes up, it goes down…I think we need to be careful to pin the blame for Walmart’s issues during the first two weeks of February on this or any other external issue. Who knows whether a succession of storms (vs. an unusually mild and dry February 2012) affected their business? What sorts of changes to their promotional calendar? Did they simply buy the wrong goods in some cases? It usually pays to look in the mirror before blaming others…and that goes for blaming one political party or the other.

More broadly, there is continuing evidence that money parked on the sidelines (especially by banks loaning to businesses) is finally being put into action. An article in yesterday’s Wall Street Journal touched on this, and I had a conversation with a manufacturer of steel and wire who found banks much more willing to fund a recent factory acquisition compared to six months ago. Along with the resurgent housing market, increased lending at low interest rates will help move the economy forward at a modest pace this year.

Signs of weakness among the dollar stores?

The best-run dollar stores (Dollar General and Family Dollar) aren’t going away anytime soon. But it’s likely that their store-for-store sales growth will slow as post-recession shoppers start “trading up” to Walmart. It’s also likely that their rapid store expansion will cause some cannibalization of their own comp-store sales.

A bigger concern is the dollar stores’ increased focus on food and consumables during the last few years. Margins are tight in these categories, and the competition is intense — not only from the discounters but also from rapidly growing chains like ALDI.

January 2013 Investor Podcast

Roulston Research Round Table

I’ve posted a link to a recent appearance at an investor round table sponsored by Roulston Research. Fellow consultant Jan Rogers Kniffen joined me in a discussion of several retail topics along with Q&A from several investment professionals who attended. Hope you enjoy it!

What comes first: Price or assortment?

RetailWire panelists commented recently on whether price or assortment is more important as a driver of customer loyalty. I argue (below) that so-called “loyalty programs” are merely incentives to cross-shopping, not to true commitment to a retailer. Here’s my point of view, focusing on Amazon’s track record:

Why is Amazon successful? Is it because they are the price leader in so many e-commerce categories? Or is there something more? I would argue that their success has a lot more to do with breadth of assortment (which makes sense for them) and customer service than simply price. It’s possible to “over-curate,” as Walmart learned the hard way a couple of years ago.

The entire subject ties back to some recent panel discussions about loyalty programs, which are for the most part “extra discount” programs. Again, exceeding expectations for service and execution are equally key.

Are retailers following the airline model?

The question posed above triggered a lot of comment at RetailWire. Most panelists agreed with me that it’s “the other way around”:

To some extent the airlines are following the lead of retailers and many other industries that have already lived through massive consolidation. The number of “legacy” airlines has shrunk from six to three in a matter of a few years, and their product hardly differs from the well-run “low cost” operators like Southwest and JetBlue. The parallel is the reduced number of regional department store nameplates and the rise of Macy’s.

The parallel ends there, however, because of the wide array of goods and services still available across the retail spectrum. There is room for both Walmart and Nordstrom (and a lot of options in between, in terms of merchandising, pricing and service) but very little room for airlines to differentiate a commodity product.

Barriers to omnichannel retail are mostly in your mind

RetailWire panelists commented recently on “top ten myths” pertaining to the success or failure of multi-channel retail. I zeroed in on the following:

Myth number 9 (“Online retailing cannibalizes sales from other channels”) is probably the most harmful to retailers’ development of true omnichannel strategies. As long as your retail business builds an artificial wall between your bricks-and-mortar business and your e-commerce business, you will not maximize either one. Macy’s and many other high-profile retailers have figured this out: They are enjoying synergies that are driving traffic to stores and websites as well as making their inventory more productive.

Partnership? What partnership?

RetailWire panelists weigh in at least once a year on the subject of retailer/supplier collaboration. In one sense, the growth of “big data” has forced more collaboration and information sharing between stores and vendors. But don’t kid yourself about who holds most of the cards in the relationship. Here’s my take:

In a sense, the partnership between retailers and suppliers is more genuine than ever, if you judge based on data sharing and collaborative planning. But there is little doubt that retail-industry consolidation over the past 15 years has swung the balance of power toward retailers. With stores’ focus on quarterly results and private brands — rather than long-term strategic planning — it’s no wonder that most vendors have less influence over the “partnership” agenda than in the past.