Can Target return to its merchandising roots?

Some recent articles about the new CEO at Target (Brian Cornell) have noted his plan to focus on apparel, home decor and kids’ businesses. For somebody with a CPG background like Mr. Cornell, this is a refreshing approach to a business that lost sight of its key strengths. Here’s a recent RetailWire comment on the topic:

I have always viewed Target’s focus on food and consumables to be a distraction from its core business. Having made the investment in groceries, it’s hard to step back now but the strategy served largely to “commoditize” a company with a distinct brand identity. I’m pleasantly surprised to see Mr. Cornell (the subject of initial skepticism because of his CPG background) focusing on “cheap chic” areas like apparel and home decor.

It was also interesting to note in the WSJ article that Mr. Cornell paid a visit to Bob Ulrich, who was perhaps the most important figure in Target’s history. (The Journal said that Mr. Ulrich stepped back while his protege Gregg Steinhafel took the company in a very different direction.) Bob Ulrich’s re-engagement with the new CEO has some symbolic value at a company trying to move faster while honoring its heritage.

Target finds its new CEO

Target announced this week its first-ever outside hire as CEO. Brian Cornell brings a mix of CPG and retail background to Target, including stints at Pepsico, Sam’s and Michaels. My comment at RetailWire reflects some caution about whether he can fix what really needs fixing at Target. If he can empower his merchants and other members of his team, the appointment should be a win:

Some of the initial reaction I’ve read pushes back on Mr. Cornell’s Pepsi background, ignoring the time he has spent at retailers like Sam’s and Michaels. The real question is whether he can shift the spotlight back onto apparel and home decor — always Target’s “calling card” for brand differentiation — and away from food and consumables. His background raises a caution flag, but with luck the Target board identified somebody with the leadership and strategic skills that the company needs right now.

Use our coupons, just don’t sue us

General Mills has stirred up some unwanted publicity by imposing a new policy on users of its digital coupons. The “terms of service” apparently prevent users from suing the giant CPG company in the event of a product liability issue. (I’m paraphrasing.) This issue has caught the attention of many RetailWire panelists, including this one:

Part of the problem is that digital and print coupons are increasingly seen as the same thing, in the eyes of customers. Younger consumers who are not newspaper readers are less likely to be “coupon clippers” and more likely to respond to online or mobile offers as time goes by. In that context, how does General Mills differentiate legally between a print coupon user with a product liability claim, and somebody using a digital coupon? Either way, I agree with my fellow panelists that this is not a well-considered PR policy, outside of the legal firewall that the attorneys are trying to create.

Amazon finds another industry to disrupt

An interesting RetailWire panel discussion this week, on the topic of Amazon. The issue is whether CPG manufacturers need to adapt faster as Amazon moves to take share away from brick-and-mortar food and consumables stores. Given Amazon’s track record — first in books, then in almost every other category they sell — the answer is a clearcut “yes.” Here’s my point of view:

For some perspective, it’s worth reading an article in the new issue of The New Yorker, about the impact that Amazon has had on the book publishing business. (Obviously huge, but arguable that without Amazon it was a “dinosaur” industry.) There are really two questions here: First, can the CPG industry survive over the long haul as their sales continue to migrate from conventional bricks-and-mortar to providers like Amazon? (Clearly, the answer is no.)

The second question is more complex: Can CPG companies sustain the sort of negotiating power they may have in their current relationships with retailers, while dealing with a completely different logistics and demand model? This is much harder to forecast, but younger consumers’ decreasing loyalty to specific brands may be a complicating factor over the next several years.

Walmart and the “Twinkie defense”?

Today’s RetailWire discussion was triggered by the weekend news about Hostess relaunching Twinkies, and Walmart apparently breaking the “embargo.” (I know…there are more important topics in the world.) The question is whether large CPG companies favor large retailers, and the answer (shared by other panelists) is a clear “yes”:

I’m shocked — shocked! — at the idea that CPG manufacturers and other large vendors provide preferential treatment to their biggest retail customers. These can range from early launch dates to exclusive product designs to co-branded marketing plans. Industry consolidation (on both sides of the business) has only made this trend more apparent. The onus falls largely on smaller retailers to work proactively with their vendors on product development and other two-way benefits, or to develop deeper relationships with CPG companies that may not be “household names.”

All-American brands

In honor of July 4th, RetailWire panelists commented on a list of “most patriotic” brands, with some expected names high on the list (Coke, McDonalds, Harley, etc.) Here’s my comment:

I would put Coca-Cola at the top of the list. It’s been an effective “brand ambassador” for American consumer goods around the world, whether or not you think that soda consumption is a good thing. And it has “wrapped itself in the flag” through very effective marketing for many years, in particular with its Olympic tie-ins.

What’s missing from the list? Chevrolet. I’m old enough that I can still hear echoes of the old “Baseball, hot dogs, apple pie and Chevrolet” jingles dating back to the ’70s when the brand began its long market-share slide vs. the imports. Meanwhile, Jeep and Ford still seem to resonate with American consumers who just don’t care about Chevy any more.

Can retailers build brand equity by themselves?

I argue on a recent RetailWire post (below) that retailers are not nearly as adept as branded vendors at building equity through emotional engagement of the consumer:

Brands are better at emotional engagement than retailers, and this has been the case for a long time. While there are exceptions like Nordstrom, most retailers are unwilling to do the heavy lifting needed to turn satisfied customers into committed ones. The perfect example is the large number of so-called “loyalty programs,” which are really focused on price incentives instead of true loyalty.

Not every CPG company is equally adept at building brand equity, but most of them put retailers to shame. Retailers’ move toward more private and exclusive brands is just complicating this issue.

Target and Campbell’s co-branding effort

A brief comment from RetailWire about the collaboration between Target and Campbell Soup on a “limited edition” of Andy Warhol-inspired soup cans. Inspired, indeed, in my opinion:

It’s hard to imagine anything more prosaic than a can of Campbell’s tomato soup, which is what made the Warhol paintings so iconic in the first place. Hats off to Target and Campbell’s for infusing some fun and “design” (Target’s buzzword) into a boring category. Campbell’s in particular will benefit from the halo effect of this promotion, even if a lot of buyers turn out to be “collectors” instead of consumers.

Merchandising or “brand management”?

I weighed in on a recent RetailWire discussion about different types of merchandising organizations. In particular, I argued the merits vs. flaws of “brand management” as an organizing principle, and come down on the side of category management instead:

I’m not sure that the CPG concept of brand management — which has been in place for many years — is totally applicable to retail merchandise management. There is still a place for category managers (i.e. buyers) who can put together assortments of disparate brands, to make sure that each brand has a point of view so the department (and store) is coherent to the customer. Do private brands and exclusive brands need their own advocates in a retail organization? Absolutely, but not at the expense of redundant assortments and a confusing shopping experience.

Can retailers really afford to raise prices?

From a recent RetailWire discussion about retailers’ ability to raise prices — or inability — in the face of rising commodity or gas prices. It’s not so easy, and recent history should be a guide:

What happened to many midtier apparel stores in 2011 as a response to higher cotton prices should be a cautionary tale for any CPG marketer or retailer. They were faced with a choice between raising prices (which almost immediately put a dent into their sales) and absorbing lower margins in order to protect the top line. The customer doesn’t understand — or care about — the worldwide commodity market, but she does grasp the right price to pay for a cotton t-shirt.

In an age of increased consumer empowerment — typefied by the QR scanners on all those smartphones out there — retailers need to be extremely careful about raising prices, or they need to find offsetting cost savings in the supply chain to protect both sales and margins.