Archive for February, 2014

Amazon finds another industry to disrupt

An interesting RetailWire panel discussion this week, on the topic of Amazon. The issue is whether CPG manufacturers need to adapt faster as Amazon moves to take share away from brick-and-mortar food and consumables stores. Given Amazon’s track record — first in books, then in almost every other category they sell — the answer is a clearcut “yes.” Here’s my point of view:

For some perspective, it’s worth reading an article in the new issue of The New Yorker, about the impact that Amazon has had on the book publishing business. (Obviously huge, but arguable that without Amazon it was a “dinosaur” industry.) There are really two questions here: First, can the CPG industry survive over the long haul as their sales continue to migrate from conventional bricks-and-mortar to providers like Amazon? (Clearly, the answer is no.)

The second question is more complex: Can CPG companies sustain the sort of negotiating power they may have in their current relationships with retailers, while dealing with a completely different logistics and demand model? This is much harder to forecast, but younger consumers’ decreasing loyalty to specific brands may be a complicating factor over the next several years.

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Burger King’s latest “me too” maneuver

Burger King recently announced a revamp of its “Big King” sandwich, claiming that it is now slightly bigger than the Big Mac. As I comment below (from RetailWire), I’m not sure this latest tactical step is going to get BK to the market-share promised land:

If I were running McDonald’s, I wouldn’t lose sleep over BK’s “me too” strategy. Burger King’s comp sales didn’t gain much traction, at least in the 3rd quarter, and they have been mostly “followers” for years.

McDonald’s has its own issues to work through, which its CEO discussed recently: As the menu grows in variety and complexity, the ability to execute consistently is declining. (As an occasional McD’s customer, I can vouch for the longer wait times for lower-quality food — a bad combination.) Getting its own house in order is a bigger challenge than the latest weak stab at brand differentiation from the King.

Off 5th: Is good housekeeping a bad thing?

The new CEO of the combined Hudson Bay/Saks/Lord & Taylor group commented recently that he would like his company’s outlet division (Off 5th) to look messier…more like Nordstrom Rack, which is growing faster. On a RetailWire panel discussion, I make the point that content should be the driving force:

I think the content inside the Off 5th stores is a bigger issue than the housekeeping. I spoke to a store manager on a recent visit, and he told me that the majority of the goods are now developed specifically for the stores (like many brands doing business in outlet malls), instead of being closeouts of merchandise from the full-line Saks stores. Nordstrom Rack, in contrast, seems to be more engaged in the “treasure hunt” model followed by TJX and others.

It’s possible that for some consumers (at least this one) the neat appearance of Off 5th is actually more appealing and provides some brand differentiation. But it all comes back to merchandise content: If Off 5th messes up the store with the same merchandise content, they may not accomplish anything.

The real problem with store mannequins

RetailWire panelists weighed in (so to speak) on the growing trend toward more lifelike mannequins, instead of designs that perpetuate body-image issues. My real concern about “mannequin maintenance” is really a matter of good store management:

More “reality-based” mannequins are a good idea, but they probably need to be aspirational for each store’s target customer looking at them. But the premise behind this idea, or the Aerie campaign, is a healthy one.

The bigger issue — and a longstanding pet peeve — is the maintenance and placement of store mannequins. It’s a simple “Retail 101” concept to present mannequins wearing outfits adjacent to the fixture where the customer can buy the product — but it’s a management discipline often overlooked. Just as bad: Leaving mannequins outfitted with clothes that sold out long ago.

A&F splits the CEO and chairman roles…finally

A brief comment from RetailWire follows, on the topic of Abercrombie and Fitch. The company announced (after yet another weak year) that its longtime CEO, Michael Jeffries, is losing his chairman title. The question posed to panelists was whether this should be a more common practice; my view is that it depends on circumstances:

There is no “right answer” about whether the chair/CEO split is the most effective way to good governance. In this particular case, however, it’s a clear — and long overdue — signal that Mr. Jeffries has not been answerable to anybody for years. The puzzle is in the timing: Given the long history of weak performance at A&F, why the change in corporate structure right after awarding a new contract to the CEO?

2014: Year of the omnichannel “tipping point”?

While the CEO of Starbucks has less to worry about than the heads of more traditional retailers, he made the point recently that the industry in general needs to figure out multiple platforms for selling to consumers — and figure it out fast. Here’s my brief comment on RetailWire:

Howard Schultz is absolutely right about the shift, and he has a right to be concerned about the strength of his mall-based locations although his business is less vulnerable than a conventional retailer selling general merchandise.

Part of the “omnichannel” challenge is for retail executives to figure out how to leverage their tangible assets (storefronts and inventory) more effectively, given consumers’ migration to e-commerce. For some stores (Macy’s, for example), their forward-looking strategies are delivering results. For others (such as Best Buy) it’s a continuing struggle despite their efforts to execute the fundamentals better.


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