Podcast of Roulston Research conference call

Here’s a link to a podcast of a conference call moderated by Tom Roulston of Roulston Buyside Research. I was joined on the call by my colleague Gary White, and we discussed a wide variety of strategic issues affecting retailers’ decision-making today. Hope you enjoy it!

Sears: Does anybody care?

I took this picture outside a Sears store anchoring the Southridge Mall near Milwaukee. It’s a Simon mall including a Macy’s, JCP, Kohl’s and Bon Ton store among its tenants, and the biggest mall by square footage in Wisconsin. The other anchors remodeled all or parts of their stores when Macy’s opened here a couple of years ago.

This is the sight that greets shoppers walking into Sears from the parking lot. (And there is a duplicate poster on the opposite side of the door, looking just the same.) I know that Outdoor Life is an active/casual brand at Sears, and the poster (upon close inspection) is meant to look like a map — I guess. But it doesn’t even fit the frame — unless I’m missing something and that’s intentional, too. Would you assume that at least somebody on the store’s management team is looking at the outside of the store and might try to fix this? (Or a regional manager? Anybody?) If they don’t care about the outside of the store, how about the tired old interior?

This is a small example of the problems that are dragging down Sears, despite its best efforts to tout tactics like layaway, in-store pickup, Sears Your Way, and so forth. The bottom line is that the store experience, from merchandise content to presentation, still matters.

And one more thing, speaking of Sears Your Way: Why does the same Samsung digital point & shoot wifi camera cost $150 at Sears but $90 on Amazon? How does Sears plan to make its omnichannel strategy work if it’s totally uncompetitive?

Outlet malls still have plenty of growth potential

Outlet malls have been among the fastest-growing sectors of retail over the past several years. I argue (at RetailWire) that there is still plenty of upside, both geographically and strategically:

Outlet centers represent continued growth opportunity as long as their developers (such as Simon, which owns the Mills centers) rethink the tenant mix and shopping experience…and as long as the tenants themselves focus on new product development, not just clearance. It’s no different from the challenges facing any kind of shopping center; you can argue that regional malls are also “saturated” based on the growing numbers of so-called “zombie malls” in many cities.

Outlet malls have evolved far beyond their original appeal as clearance centers with “piperack” approaches to merchandising. Most centers today are a far cry from where they began. Gurnee Mills, between Chicago and Milwaukee, is a good example, having added a full-line Macy’s store last year. The outlet mall near Kenosha, just north of Gurnee MIlls, is consistently busy with customers lined up to get into the Coach store and other high-end stores.

Target: Time to pull the plug on Canada?

A surprising number of RetailWire panelists shared the opinion that Target should cut its losses and pull out of Canada. I disagree, and I had some company among the BrainTrust. Here’s my brief comment:

It’s premature for Target to pull out of Canada, just over a year since moving in. The company has too much invested in real estate (which they acquired for a bargain price), infrastructure, organization and corporate pride to throw in the towel this quickly. There are some clear lessons learned from the 2013 results that are correctable, starting with inventory levels and pricing. Target is going to have to be a lot more aggressive on both fronts if it intends to gain market share and cover its investment and costs.

The Canada experience is symptomatic of what ailed Target overall: Too much caution, too slow to react, too much faith that the “brand” (versus good execution) would carry the day. With luck, the interim CEO is addressing these cultural issues quickly, even during the search for his permanent replacement.

Why can’t Penney find a new CEO?

Following the recent news that Mindy Grossman of HSN turned down the lead job at JCPenney, RetailWire panelists had a chance to weigh in on the search. Most agreed with my assessment of the problems faced by the JCP board right now:

Part of the issue, as George Anderson points out, is the number of vacant jobs that would appear more attractive than the JCP position. Target would top the list, but Kohl’s is searching for a lead merchant with a possible shot at succession to the top job. Either of these companies is fundamentally better-positioned than Penney, despite their current issues.

Beyond the matter of competition, the bigger question is just what the JCP board wants. If it’s looking for a “transformational” CEO, it’s easy to understand being gunshy after the Ron Johnson fiasco. On the other hand, the “turn back the clock” strategy of Mike Ullman’s team is not a path to long-term sustainability. It’s hard to sell a top candidate on the job when the mission itself is unclear.

Sears’ omnichannel moves: Double-edged sword?

A brief comment (from RetailWire) about the news that Sears and Kmart are expanding store pickup to all of their locations when you place a web order. My argument is that the store experience itself is still lacking:

It’s a smart move, and Sears Holdings seems to be moving faster than some of its competitors in this area. But it’s a double-edged sword: Once customers walk into their local Sears or Kmart store to pick up an online purchase, are they going to like what they see? As long as the company’s brick-and-mortar business is defined by outmoded stores and lackluster content, this continues to be an uphill battle despite the occasional tactical win.

A postscript: I shopped online yesterday for a wi-fi enabled point & click digital camera. The same Samsung model priced at $150 at sears.com was available at Amazon for $90. Hard to win that battle, Sears…

Crumbs closes its stores, but may survive

There was plenty of news last week about the cupcake chain Crumbs…first the announcement of its closing, then the news that new investors will step in to save the brand. The discussion at RetailWire centered around whether the cupcake “fad” is sustainable, but I feel that’s missing the point. It’s really an issue of how Crumbs ran its business, not whether cupcakes are a passing fancy:

I’m not sure that cupcakes themselves are the problem — calling them a “fad” is like calling donuts a “fad” just because Krispy Kreme had the same kinds of problems. Yes, there are too many places to buy cupcakes, and every city has its own local examples of failures. But four years into the “Cupcake Wars” series on Food Network might be a sign that the category is postpeak — not explosive, but still sizeable and profitable. (Who doesn’t love cupcakes, after all?)

It sounds like the lessons of Crumbs — whether it survives or not — are more particular to its business model. Did it expand too fast? Did it offer enough diversity on its menu, like Magnolia? Did it have the financing and infrastructure in place to support its growth plans? These are all cautionary questions that any growth-oriented retailer needs to ask, no matter whether it is selling cupcakes, jeans or candles.

Best Buy: The turnaround is still a work in progress

Today’s panel discussion at RetailWire centers on Best Buy. The question is whether the company’s turnaround (as engineered by its CEO Hubert Joly) can be declared an outright success. I think there is still plenty of work to be done:

It was premature to declare Best Buy DOA a couple of years ago, but it’s equally premature to declare the turnaround a success. Mr. Joly has done several smart things during his tenure that I have noted before on RetailWire (reallocating space away from CD’s, DVD’s and software…adding branded shops…putting more focus on service and omnichannel initiatives).

However, the holiday 2013 and Q1 2014 results still reflect declines in the company’s comp-store sales and gross margin. Good expense management seems to be driving earnings higher, which is a positive step toward sustainability. But Best Buy has a long way to go to recapture its consumer magic. Let’s hold off on the “transformation” talk until this happens.

More thoughts on American Apparel

As a followup to my recent post on American Apparel, I offer the following comment from RetailWire. The reason for the second discussion was the maneuvering between the CEO, the board and the outside investors to see who takes control of the company. I find any scenario where Dov Charney re-emerges in control to be baffling:

It’s hard to imagine how Mr. Charney’s reported (and recorded) antics were tolerated for years, until the board apparently lost patience with his results — not with his behavior. Now the maneuvering between Mr. Charney, his investors and the board continues to threaten a company that was on shaky ground in the first place. American Apparel was already bleeding consumer relevance fast.

It’s equally hard to imagine how any company directors — public or private — can allow the sort of shenanigans that reportedly took place at American Apparel, and put the company’s exposure to lawsuits at grave risk. It’s just plain awful corporate governance, and to see a potential outcome where Mr. Charney is running the company again is baffling.

Walmart continues to expand small-format concepts

While some RetailWire panelists feel that Walmart is an oversaturated brand — no matter what they do — I disagree. I think the company has the potential to grow all three of its small-format ideas, depending on the specifics of the site and the individual real estate market. Here’s my commentary:

A recent profile of Walmart’s new CEO, Doug McMillon, drew the same conclusion about Walmart’s push toward smaller concepts. Rather than choosing one format, it’s easy to see where all three have “legs” depending on the neighborhood, site availability, competitive landscape and so forth.

As retailers struggle generally with big-box productivity and location saturation, it’s smart for Walmart to move in a completely different direction, especially in densely populated cities. At the same time, Walmart’s e-commerce business has plenty of room to grow. Both approaches should finally start to move the needle of U.S. sales over the next few years.