Archive for May, 2015

Kohl’s “Off Aisle” off-price experiment

Here’s a consolidation of a couple of recent RetailWire comments. The topic is Kohl’s announcement of a new small-format, off-price store called “Off Aisle by Kohl’s.” A lot of stores (Macy’s and others) are jumping on both bandwagons, and Kohl’s appears to be joining the parade. My question is whether the concept addresses a sales and merchandising opportunity, or simply the excess backup of e-commerce returns in its physical stores:

Kohl’s is the latest store to announce the opening of a small-format outlet store. Evidently the 30,000 square foot store in New Jersey will be a test, starting with the sale of “like-new” apparel, accessories and home goods. It sounds like the initial purpose is to liquidate returned goods, especially e-commerce purchases returned to brick-and-mortar stores. (Full disclosure: Of course I worked for Kohl’s until 2006, but all I know is what I read in the paper!) I agree that this can be a tough sell unless the returned goods are priced very aggressively compared to the layers of sales, discounts and “Kohl’s Cash” already available. And it will be interesting to see whether those overlapping discounts can be used in the Off Aisle store.

This may make sense because of the amount of web-only goods being returned to stores’ physical locations, and it should certainly be a low-cost operation — assuming the logistics are manageable. I’m speculating that Kohl’s needs a systemic way to liquidate e-commerce goods returned to its brick-and-mortar stores. I recently bought a spring jacket online that came in a color different than I expected, and returned it to my neighborhood store. Since Kohl’s doesn’t carry men’s spring jackets in its stores, how do they make these goods go away?

You can multiply my example by millions of similar transactions across over 1100 stores, if I’m guessing correctly. The question is whether Kohl’s can absorb the logistical costs of consolidating and moving these returns to each market’s “Off Aisle” store while pricing the goods as aggressively as they will need to sell the product. The pilot store will be a good opportunity to find out.

But if I were in the business of developing a new “small footprint” concept, I might start with a real strength of the Kohl’s business — fitness and active, athletic footwear, team apparel and other “healthy lifestyle” goods — and wrap it into a package that could profitably fill 10,000 square feet in a mall or power center.

Target to national food brands: Your days may be numbered

I posted a comment in April about Target’s CEO (Brian Cornell) and his intention to reposition the grocery business toward fewer “commodities” and more specialized categories. This week, Target also announced that it will be taking the spotlight off of some of the best-known national brands in the food business as part of this evolution. While Target is overall starting to deliver better results (and that may be the big picture), most RetailWire panelists agreed with my point of view on this one:

This initiative ties to the “curated” approach that Mr. Cornell announced a month ago. It provides a greater focus on categories like snacks, coffee, craft beer, etc. and less attention paid to “commodity” items. My RetailWire comment at the time — that a “Trader Joe’s” approach to the business can undermine Target’s investment in being a destination food store — certainly applies to this news as well.

If Target makes it harder, not easier, for the grocery shopper to find everything on his or her list, doesn’t that signify a retreat from its investment? At the same time, it may represent a chance to reposition the total store away from food and toward the other areas where it aspires to gain share.

Which software should be tops on retailers’ shopping list?

There was a recent RetailWire discussion about developments in retail software intended to improve stores’ and websites’ logistics management. I felt that perhaps the most important — because it has the most impact on merchandise content — was missing from the conversation. Here’s my brief comment about location-based allocation software:

I don’t see it on the list, but I’m hearing more about the importance of software that improves localized allocations and assortment planning. “My Macy’s” has been the leader here, and several of its national competitors are playing catch-up. It’s not enough any more to capture regional/climate differences if two stores ten miles apart appeal to completely different demographic and lifestyle profiles. The advance of this kind of software makes the process less “manual” on the retailer’s part, and might eliminate some of the need for markdown optimization if the goods are getting to the right stores in the first place.

Amazon: The secret of its success?

Here’s a brief comment from RetailWire, in response to a discussion about Amazon. The thread centered around the question of whether assortment or pricing was Amazon’s secret weapon. I argue that execution and credibility are the most important aspects of the company’s growth:

Most impressive is Amazon’s ability to leverage its brand equity in category after category, fueling its growth. “Better and faster” are the key words here, because the company’s reputation for great execution — not just broad assortments and competitive prices — has allowed it to spread its wings dramatically over the past ten years. And the expansion has been deliberate and organic — from books to e-books and readers to a vast assortment of merchandise and digital services — all based on customers’ belief that the company will do what it says.

Whole Foods is developing a new format

Whole Foods announced this month that it is developing a new format, under a different brand name. The goal is to appeal to “millennials” (the brass ring these days) with a smaller footprint, more “curated” assortment and lower prices than a typical Whole Foods store. Here’s my commentary from RetailWire:

This announcement raises several questions about the kinds of issues being discussed inside Whole Foods’ headquarters:

1. Is a new concept the best way to overcome what is apparently a price-perception problem?
2. If we are creating a new store for “millennials,” will we lose them to our core business? If so, why are we continuing to open so many stores?
3. Will a “modern, streamlined design” offer the kind of “foodie” appeal and presentation that drove Whole Foods’ growth in the first place?
4. How, exactly, is the new chain different from the highly curated assortment at Trader Joe’s, Fresh Market and other small-footprint competitors?

Whole Foods may in fact develop a concept that impacts the industry as much as its original stores have done, but for now count me as a skeptic.

Macy’s jumps onto the off-price bandwagon

Macy’s announced in early 2015 that it was developing an off-price concept, and it provided more details about the concept this month. (And in another RetailWire discussion this month, panelists discussed the phenomenon that department store “sale” prices are often lower than outlet store prices anyway.) Here’s my skeptical point of view:

It’s not simply a question of how Macy’s Backstage differentiates itself from a space crowded with competitors like Nordstrom Rack, TJX and Ross Stores. Rack in particular has the brand cachet that Macy’s and the others can’t touch, especially in markets where Nordstrom is very deliberate about placing its full-line stores.

More importantly, how does the off-price concept differ from Macy’s full-line stores, with their constant barrage of sales and coupons? How is the merchandise content going to differ from what customers can find on the clearance rack at their local mall? Will Macy’s develop product specifically for Backstage? (Tough to do initially for only four stores…)

Plenty of questions needing answers before Macy’s ends up cannibalizing its core business. I still believe a “Bloomingdale’s Rack” type of concept might be more viable.

JCP develops an app for the new Apple Watch

RetailWire recently posted a discussion about JCPenney, and its development of a mobile app for the new Apple Watch. The consensus is that JCP shoppers are probably not overlapping with “early adapters” for the watch. Nevertheless, I don’t see any negative impact from the move:

Eventually the Apple Watch will be a broadly accepted item — even if its price point prevents it from being “mass appeal.” So JCP certainly has nothing to lose by being an early member of the watch app community. Whether this is a game-changer for Penney is a different question. There will be plenty of other retailers following suit (Target is already the featured watch app at the Apple site) so the halo effect for JCP may be short-lived.