Archive for January, 2016

Small-format stores: One success, one failure

Walmart recently announced that it is quickly exiting its small-format business, including all of its Walmart Express stores. Meanwhile Target continues to build out its small-format stores, especially in urban locations. Why the difference in approach? Here’s my opinion, from a recent RetailWire discussion:

The CityTarget experiment has helped Target learn how urban shoppers’ behavior is different. (Apartment living…public transportation or walking instead of cars…and so forth.) And Target’s assortments in its full-line stores are much more concise than what a typical Walmart carries; the ability to edit even further is more ingrained in the Target culture. Finally, Target continues to have a brand cachet (which Mr. Cornell is busily reinforcing) more likely to resonate with urban shoppers in the first place.

JCPenney re-enters the appliance business

JCPenney recently announced a regional test of re-entry into the major appliance business, which they exited at least two decades ago. RetailWire panelists had a chance to weigh in on the merits of the strategy; here’s my take:

I’m not sure whether the JCP appliance test is intended to take share from Sears right away. However, it’s useful for Penney to take advantage of Sears’ accelerating decline and its increased pace of store closures. It’s worth finding out now (instead of after the demise of Sears) whether this is a viable category in terms of driving sales and profits, and in terms of the unique logistical challenges of the business.

Meanwhile, even without the Sears factor, many JCP stores have productivity issues today, especially with too much space in the home store. This presents Penney with an opportunity to fix the problem, provided that the appliance business can deliver incremental margins in a competitive category.

Amazon Prime continues to drive rapid growth

RetailWire panelists recently discussed the rapid growth of membership in the Amazon Prime program, despite the recent increase in annual membership. Here’s my take on this brilliant strategy:

The growth and penetration of the Amazon Prime program is astonishing, considering that many analysts were skeptical that Amazon could follow the Costco “membership fee” model only a few years ago. The program has created a loyalty firewall around the overall Amazon business, since Prime members receive an array of benefits from music streaming to free (and fast) delivery.

Fee revenue also provides Amazon with some incremental profit considering its overall strategy is to gain share at the expense of margins. This allows Amazon to keep building out its infrastructure and to achieve a market dominance rare in the recent history of retail. Nobody is impregnable (see Sears and Walmart as recent examples), but Amazon is building a huge moat around its business.

Return policies: The easier, the better

From a recent RetailWire study of stores’ return policies:

More than a tool to drive sales or margins, a store’s return policy should be considered a marketing tool. It may seem counterintuitive that the most lenient policies are most helpful to a retailer’s results, but those policies really represent a key trust-building tool with customers and a way to build consumer loyalty over the long haul.

My experience at Kohl’s — which has always had lenient policies in place — reinforces my perception. Individual buyers may have cringed (the customer returning a watch for credit that he ran over with his truck), but the big picture told a key story about the brand.

One caveat: Stores with liberal return policies are now grappling with the amount of online-only purchases being returned to brick-and-mortar stores. While this is a “cost of doing business” as an omnichannel retailer, it doesn’t mean that the logistical solutions are easy.

Do Macy’s problems foretell the “death of the department store”?

…or is it just plain bad execution? (A recent visit to Macy’s huge anchor at the Mall of America would suggest so; it was a mess.) Here’s my opinion as posted recently on RetailWire:

Macy’s sales problems didn’t start in the fourth quarter; their same-store trend has been flat to down for awhile. While I agree that the store closings and layoffs will trim some fat from their operating model, what drives Macy’s is top-line sales.

The company is dealing with a stale promotional platform and an increasingly confused point of view in its merchandise assortments. At the same time, its service standards are challenged by the re-engineering of its brick-and-mortar stores to be omnichannel fulfillment centers.

Until Macy’s addresses these issues (all central to its brand identity), the expense cuts and the rollout of its off-price strategy are likely to produce only marginal improvements.

“Back to the future” for department stores?

An interesting RetailWire discussion earlier this month about department stores’ path to revival. Can they lean on nostalgia, and just what exactly does that mean? Here’s my point of view:

The answer to the question depends on your definition of “nostalgia.” If it’s defined by elevated levels of customer service and merchandise assortments, it continues to be a winning strategy for Nordstrom despite its current issues. Macy’s has strayed far from this formula in its effort to keep up with the promotional cadence of mass merchants like Kohl’s and JCPenney, and now its plan to open off-price stores risks its brand equity even further.

Playing the “nostalgia card” (better service and assortments) might just give the traditional department store more pricing power in the face of intense competition from value-oriented retailers and from e-commerce.

Omnichannel: A logistical double-edged sword?

Amongh the challenges facing retailers as they try to convert to an omnichannel model, what do they do with the products that customers order online but return to their stores? Here’s a thought, borrowed from a recent RetailWire panel discussion on the subject:

As stores strive for more omnichannel integration, it becomes a double-edged sword when customers return goods to brick-and-mortar locations that are only carried online. (And this is true for most retailers, who don’t have the space for the breadth of assortment they can offer on their websites.) What happens to this merchandise, which was never planogrammed and will simply clog the aisles with more clearance?

Kohl’s is testing a concept (“Off Aisle”) intended to absorb this merchandise but is rolling it out slowly. Obviously it’s an issue that most national retailers with liberal return policies need to deal with more aggressively.