Archive for the 'Investor Relations' Category

JCP: Too early to declare victory

JCP’s CEO recently declared that its (slight) 2016 profit repreesented an historic turnaround. Most RetailWire panelists agreed with my contrary view:

It’s admirable that JCP has stopped bleeding cash but its net earnings in 2016 were just over $1 million (not the EBITDA number, which was higher). So it’s premature to declare an historic victory in light of store closings and soft sales. The slippage in gross margin in 2016 is another area of concern, because competition won’t be any easier in 2017.

With those reservations in mind, Mr. Ellison has had his eye on the ball ever since assuming the CEO chair and continues to focus on the right things — data science, expense controls, driving sales opportunities and weeding out unproductive locations.

Will Target’s latest reset work?

Target’s CEO announced last week that investors should expect tough 2017 returns as the company invests in stores and more competitive pricing. Here’s my recent comment from RetailWire:

Walmart was criticized a couple of years ago for investment spending on its stores because it was likely to put a dent into short-term results. But the long-term view for WMT is brighter because of this decision, and Target is aiming for the same kind of outcome.

But Target has some specific challenges ahead that a store revamp won’t fix on its own:

1. The longstanding conflict between “cheap” and “chic”: Target needs to be more price competitive but has built its brand promise on more aspirational goods;
2. The continuing lack of traction in the grocery business, especially to drive more frequent visits;
3. The head start on e-commerce (and omnichannel) that its biggest competitors already have;
4. The company’s longstanding inability to keep its shelves and pegs filled.

I can’t overstate the importance of the last point. A trip to Target where a third of the shopping list can’t be filled is a waste of time, no matter how compelling or competitive the merchandise might appear.

Should Bass and Cabela’s maintain separate brand identities?

Bass is acquiring Cabela’s, and one key question it faces is whether to keep separate branding for the two giant outdoor goods retailers. Here’s my thought, as recently posted on RetailWire:

I think it’s arguable that Macy’s made the right call over the long haul, as the only traditional department store with a national footprint. It was important to create brand equity for the “Macy’s” name instead of trying to support a bunch of nameplates with regional appeal. (Bon Ton Stores, on the other hand, decided that “localized” brand identity was a better tactic.)

In the case of Bass and Cabela’s, I think both brands are worth maintaining. These are superstores usually drawing from large trade areas, and not necessarily in direct competition with each other — and both companies with loyal customer bases. There is no point in shutting down the Cabela’s brand in the short term when there will be plenty of other merger-related challenges to deal with first.

Macy’s announces a strategic retreat

One of the biggest news stories of the summer was Macy’s announcement that it will close 100 stores (out of roughly 700) in 2017. Here are some of my observations from RetailWire panel discussion:

Whether Macy’s stops cannibalizing its own sales depends on where it closes stores. It seems clear that after a long period of acquisition (especially the May Company locations) that it is finally owning up to an unsustainable real estate portfolio. It’s also clear — from a random sampling of Macy’s visited around the country over the past year — that the company has not been prepared to make the necessary capital investments to keep some of its stores fresh and shoppable.

But painting this move as part of an omnichannel-driven “reinvention” is not the whole picture. The fact remains that Macy’s has plenty of work to do on overassortment, on low levels of customer service, and on a stale marketing program. Closing 100 stores may peel off Macy’s least profitable locations, but will the move address some of the company’s underlying issues?

Can near-luxury brands save themselves?

The question posed is especially relevant in today’s environment of sinking department store sales. Aspirational brands like Ralph Lauren and key handbag vendors are really struggling, and they are taking the approach of “less is more” when it comes to distribution. Here’s my recent comment from RetailWire:

Brands like Coach and Kors couldn’t grow fast enough, partly by overdistribution to department stores and partly by overexpansion of their own stores. Investors were happy while the category was hot, but the brands have been compromised at the same time that the demand for designer handbags is cooling off.

A strategy of deliberate scarcity makes sense in the short run (despite the volume hit), in order to rein in discounting and drive better sell-throughs. But the underlying issue remains: How to reignite consumers’ interest in near-luxury hanbags when they aren’t all that interested in visiting department stores at all.

Finally, I’m not sure that near-luxury brands like Coach and Michael Kors are ready and able to abandon the traditional department store as a key volume driver. Some of their recent problems fall on their own shoulders — the overexpansion of their own stores (hundreds in the case of Kors), the willingness to distribute their goods to off-pricers and their own outlet stores, and the failure to cherry-pick the best anchor locations. It’s not an exact parallel, but Apple has always been selective about being in “the right mall,” not every mall — and it’s a lesson that aspirational brands should learn as they continue to do business with department stores.

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.

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!