Archive for March, 2015

Are Millennials averse to luxury goods?

Karyn Hoguet, the CFO of Macy’s, recently commented that her store’s trouble selling luxury goods to Gen Y customers is made tougher by the amount of money being spent on electronics instead. I argue (on RetailWire) that some of the problem is Macy’s-specific:

The “Millennial problem” is not limited to luxury goods, nor to Macy’s (which sells mostly upper moderate product anyway). It’s been reported that Gen Y and younger consumers’s discretionary purchases have been more focused on “gadgetry” than apparel. It’s not just the smartphone…it’s the data plan, the apps, the subscription to Netflix, the cost of broadband, and so forth. (Not to mention many customers’ growing interest in “experiential spending.”) So Ms. Hoguet makes a valid point without looking closely enough in the mirror.

Part of Macy’s problem drawing Millennials to its merchandise mix is that it just doesn’t try very hard, compared to its “fast fashion” competitors. Adding overlapping private brands geared to the older customer (JM Collection, Style & Co., Charter Club and so forth) exacerbates the problem. And the promotional monotony of Macy’s undermines whatever “luxury” position it is trying to grow.

Farewell to deep discounting? I don’t think so…

The following comment from RetailWire was triggered by a Washington Post article about stores’ promotional cadence. The premise of the article: The “glory days” of 40% off discounts (and more) are over. I’m not seeing it:

I agree that retailers need to do brand-building on the basis of merchandise content, customer service and loyalty marketing (benefit-driven, not price-driven). But I don’t see much evidence to back up the Washington Post premise that stores’ promotional cadence is losing any steam. Judging from our mailbox and e-mail offers, there are plenty of retailers (Macy’s, Kohl’s, Penney and just about any specialty store you can name) continuing to drive promotional sales with extra coupons on top of other sale offers.

There are two bigger questions that retailers need to grapple with: First, is price a sustainable loyalty driver? (I’d argue “no,” because somebody can always beat you on price.) Second, does the store’s expense structure provide enough breathing room for the promotional impact on gross margins?

The recent results of JCP and Kohl’s provide a good contrast: Both operate with a similar promotional cadence and both stores’ gross margins are in the same ballpark, too. The difference is that Kohl’s has a far leaner expense structure than Penney and delivers a better operating profit as a result. So the real “sustainability” question surrounding discounting comes down to whether a store’s overall operating discipline can support it.

The Apple Watch: The next big idea, or a misfire?

It’s never too early for the “experts” (like those of us on the RetailWire Braintrust panel) to weigh in on the latest development from Apple. This time, it’s the introduction of the Apple Watch, which has been greeted with more than the usual skepticism. Here’s my more measured opinion:

I’m not sure Apple has hit a home run yet — the price point is a concern — but there have been doubters before: “Who needs an iPad (and that awful name!) when you already own a laptop and a smartphone?” In that case, Apple created a demand for a product that people didn’t know they needed, in Steve Jobs’s words.

Can they do the same with the Apple Watch? Time will tell (sorry), but the initial pricing for even the simplest versions will make even the early adapters think twice about the purchase. And Apple has a well-known history of adding features (and lowering prices) on subsequent models; it sounds like longer battery life would be the first place to look for improvement.

The one “right” pricing strategy? Let’s lay that one to rest

In a recent RetailWire discussion, the topic of everyday low pricing (EDLP) came up in the context of food retailing. The issue is whether “the best” strategy can even be defined. Although I put the spotlight on general merchandise, there is certainly no “one size fits all” answer to this question. It all depends on the rest of your retail strategy:

It’s probably valid that too many overlapping promotional strategies only serve to confuse the customer. In the world of general merchandise, Kohl’s (for example) is working to simplify its multilayered promotions through its new loyalty program and mobile app. But there’s no doubt that “the thrill of the hunt” drives department stores’ business, and JCPenney learned the hard way about the cost of switching to an EDLP approach.

Meanwhile, other retailers depend on EDLP as a key piece of their overall strategy, whether in groceries, consumables or apparel. It’s not just Walmart that avoids sales on top of EDLP, but off-pricers and some fast fashion stores. So choosing which is the “best pricing strategy” depends — as usual — on the rest of your strategy and what drives your sales and profits effectively.

Whole Foods and Trader Joe’s: It’s not just about “organics”

In a recent RetailWire panel discussion, I comment on the growth of national and regional grocers taking a strong position on organic or “natural” foods. The question is whether “organic” is sufficient as a brand position to take on Whole Foods and Trader Joe’s. But the bigger issue is whether “natural” is even the key to these two chains’ success. Here’s my point of view:

I question the premise that TJ’s and Whole Foods are successful because they are merely “organic grocery” retailers. So chains trying to crowd into that space (which also has plenty of competition from the big national grocery stores) need some brand differentiation in order to succeed. Fresh Market is another growing chain with a smaller footprint than a typical Whole Foods store.

There is not necessarily anything “natural” about Trader Joe’s well-edited assortment of private-brand packaged and frozen foods. Whole Foods is a lot more than its “organic” positioning because of the “foodie appeal” in its fresh meats and produce. So competitors looking to gain share really need to understand why these two chains are excelling.

An off-price division from Macy’s?

When Macy’s announced its year-end sales and earnings, it mentioned development of an off-price division as one of its strategies to drive top-line sales faster. Here’s my comment from RetailWire:

For starters, I would be cautious about applying the Macy’s brand to the new division. Based on the success of Rack stores in particular, it might make more sense to leverage the Bloomie’s brand instead of undercutting what is already a highly promotional strategy for Macy’s core business. But that doesn’t appear to be the game plan; TJ Maxx seems to be the business model.

To some degree this sounds like a financial strategy — lower expenses, higher inventory and asset turnover — to drive total-company ROI. From that standpoint it’s a smart move…but only if it produces incremental sales instead of cannibalizing the Macy’s core brand.

Higher wages at Walmart: What’s the driving force?

Walmart (and some other retailers) recently announced starting wages in the $9-$10/hour range, depending on experience. The sheer size of Walmart helps redefine the “minimum wage” for the marketplace in an era of rising competition for opening-wage workers. But it’s not just about the falling unemployment rate, but also about the very real need for Walmart to improve its service levels.

Here’s my comment from a recent RetailWire discussion:

I agree with the comments about service as an underreported part of Walmart’s problems. Think about the issues discussed recently on RetailWire, regarding the challenges keeping fresh meat and produce on display, in a “lowest common denominator” service environment like Walmart.

The announcement yesterday about higher wages is a tacit acknowledgment of this problem, especially heading into an era of higher employment and labor shortages. It’s not accident that some of the highest-paying retailers (Costco, for example) have higher satisfaction ratings among both shoppers and associates. Maybe Walmart is finally figuring this out.