Archive for July, 2016

Is stingy inventory management costing sales?

There is some recent reporting (about Home Depot and other retailers) that stores are trying to keep their inventory levels very lean, and are willing to send customers to their websites if their shopping trips end with an out-of-stock. I addressed this problem recently on RetailWire:

I’ll use myself as an illustration of why the answer to the headline question is “yes”: Over the holiday weekend I had three separate transactions with Amazon (for K-cups, indoor spotlights and a new laptop battery) that saved me three different shopping trips. I had the assurance that the items were in stock, would show up quickly and would be priced competitively. It’s not just the price and the convenience of the transaction, but also the assurance that the items are in stock.

This is a powerful rebuttal to the brick-and-mortar model, especially as more stores try to keep up with Amazon by offering too much selection in a limited amount of space. Retailers have forgotten the maxim of “Narrow and deep,” and find it more and more difficult to stay in stock on such a broad array of SKU’s. (In fact, Target has had this problem for years.) This is one more way in which “omnichannel” has turned into a double-edged sword for many retailers — and not the growth driver it was imagined to be.


Has overpromotion hit a wall?

The topic of whether department stores (and other retailers) are overpromoting is always a provocative one at RetailWire. Here are my recent thoughts on the subject:

JCPenney makes a good cautionary tale about what happens when a promotional department store tries to go “cold turkey” on its sale events. LIke it or not, the customer has been trained to wait for sales for a long time (Gimbels, anyone?) but the difference now seems to be the frequency of margin-busting sale events and extra discounts. JCP’s experience may have scared other retailers away from cleaning up their promotional calendars and risking a volume meltdown.

Certainly retailers like Amazon and Costco drive plenty of volume without being especially promotional. But they operate with different margin requirements (and expense structures) than the typical department or specialty store. So I’m not sure there is an easy answer to the question — but it’s clear that the overpromotion is not driving sales growth.

Can a Macy’s “lifer” turn the ship around?

Macy’s recently announced that its longtime CEO will be stepping down soon, and passing the baton to his longtime second-in-command. I question (on RetailWire) whether the company needs a fresh pair of eyes as it faces unprecedented structural challenges:

Terry Lundgren has led Macy’s through a period of unprecedented change, in particular integrating the May Company brands into a truly national department store company and leading the industry in “omnichannel” initiatives. But Macy’s has lost its edge over the past couple of years — whether or not Mr. Lundgren is responsible — in essential areas of focus like merchandising, marketing and customer service.

Jeff Gennette has the challenge of stepping into the CEO chair at a difficult time for the company, and this is not the timing that Terry Lundgren might have had in mind for his succession plan. The question for Mr. Gennette is whether a Macy’s “lifer” (33 years) can also be a transformative leader at the point where the company is facing unprecedented risks to its business model.

Location strategy: Why it still matters

“Location, location, location” is one of the oldest cliches in the retail business, but with more than a grain of truth. With traditional definitions of places to shop breaking down, is location still an important factor? In the context of Ulta cosmetics stores, I argue (on RetailWire) that it absolutely is:

I agree with George Anderson’s premise — that choice of location for a brick-and-mortar store is more important than ever. It’s always been true that the type of location reinforces a store’s brand image and competitive posture: For example, Apple always seemed to choose the “right malls” in a given market, and Walgreen’s model is built in part on a convenience strategy.

But the question of “what’s the right kind of shopping environment” is more complex than ever, and it’s not just triggered by the growth of omnichannel. Most metro areas have at least one secondary or even “zombie” mall; at the same time, consumers are drawn to newer formats like off-price/outlet malls and lifestyle centers. So Ulta is a good example of a retailer deciding strategically not to lock itself into the traditional mindset of “we have to be located just in regional malls.”

BOPIS: Good for Target’s business?

To answer the question in the headline, Target would say “yes.” But, as I discussed recently at RetailWire, these kinds of omnichannel initiatives can be a double-edged sword:

Claiming success depends on what metric you use. Target’s argument seems to be that a growing percentage of orders is being fulfilled by stores — which is doubtless true — but it misses the bigger picture:

1. Is Target growing its overall topline sales? How about other general merchandisers who are pursuing “ship from store” strategies?
2. Is the “ship from store” trend actually cutting down on store visits, and the chance to sell impulse items?
3. How is the multitasking sales associate (busy fulfilling BOPIS or ship-from-store orders) doing his or her core task of interacting with customers or replenishing store shelves?

On the third point, it’s clear that department stores in particular have allowed their in-store service levels to decline while they try to fund omnichannel initiatives out of the same expense bucket. But by all appearances the issue is costing Target sales, too.

Ralph Lauren and the luxury malaise

I commented recently (on RetailWire) on the problems faced by the new CEO at Ralph Lauren. How to be more nimble and efficient while also protecting an iconic brand? Here are a few thoughts:

This is a complex challenge, because the Lauren brand equity has been weakened over the past several years. I believe customers are confused by the price/quality relationship between Ralph Lauren, Lauren, Polo Ralph Lauren and subsidiary brands like Chaps. It doesn’t help matters that the growth of outlet store business has further commoditized the brand.

Smarter sourcing (cheaper and faster) is something that the new CEO can bring to the table…but are quicker lead times really meaningful for iconic items like polos and navy blazers? And will “taking out costs” also mean compromising quality? These are big questions that will complicate the job of restoring some clarity and “polish” to the RL brand.

Target’s “LA25” grand experiment

Target is using its Los Angeles-area stores as a laboratory for new initiatives, products, store layouts and so forth. I reflect (at RetailWire) on the importance of both returning to its roots and simply executing better:

Target’s origins in 1962 were as an outgrowth of the Dayton’s department store chain. (Full disclosure: I worked there from 1978-1982.) Dayton’s was a pioneer in trend merchandising, and moved many of its key merchants and marketing executives over to Target to help create the “Tar-zhay” that many of us grew up with.

But most of Target’s initiatives for the past several years have been reactive to Walmart (and now Amazon) instead of forging its own path. The expanion of food, the “dollar store” at the entrance and the overall commoditization of the brand have helped Target lose its way. Meanwhile, the chain continues to struggle with the ABC’s of good supply chain execution.

So if the LA25 initiatives help reposition Target as a more upscale alternative, they will probably be successful in the long haul — but only if Target does a better job keeping goods in stock!