End of the line for Toys “R” Us?

Big retail news of the day (as discussed at RetailWire) is the announcement that Toys “R” Us is throwing in the towel. Here’s my post-mortem:

It’s unlikely that Toys “R” Us is going to stay afloat, and this is a big deal for those who follow the recent history of retailing. They were among the first “category killer” stores with broad assortments of a single category in a big-box format. There have been others (Linens ‘N Things, Sports Authority, etc.) but this one stands out. If you see reporting on “the Amazon effect,” it’s more complicated than that.:

It’s tough to survive in a highly seasonal business like toys given the growth of e-commerce and the dominance of discounters in the same category. And there has been a generational change, where many of today’s kids are interacting with technology (smartphone apps, streaming video games) instead of the toys of a short time ago.

And one more lesson learned: A mountain of private-equity debt doesn’t help. On this point, an added thought from a more recent RetailWire discussion:

TRU was partly the victim of private-equity debt burdens, but also made its own mistakes. This is an example of a big box store with too much square footage — in a seasonal business facing robust competition from discounters and Amazon — failing to adapt.

There is probably enough brand equity remaining to salvage the business, provided that Storch and team rethink the model. (And get rid of that debt load.) Maybe an online-only play is the place to start, instead of trying to recapture the past.

Can Circuit City make a comeback?

Whoever bought the Circuit City brand after the store’s demise a few years ago plans to revive it — both as an e-commerce site and as a re-engineered brick-and-mortar store. The question in front of RetailWire panelists: Does the world need a revived Circuit City? (Or, as their headline put it, “Can Circuit City come back from the dead?”) Here’s my skeptical point of view:

This reminds me of the Linens-N-Things saga, in which the brand survives as an e-commerce site but its physical stores are long gone. There simply wasn’t the need for two similar big box concepts, so Bed Bath & Beyond turned out to be the survivor. (But BBBY stock price has fallen sharply in the past five years, like many retailers, as it faces increased competition from Amazon and others.)

It’s hard to see what value Circuit City brings to the table at this point — except as a web-only play. Does a small-footprint “experiential” store offer something different from Best Buy or Apple? (Especially now that Best Buy is removing CD’s from its physical stores, it’s easy to see that they will roll out more engaging and productive uses of that space.) The Circuit City brand was already “damaged goods” because of bad decisions they made to reduce customer service and in-store expertise.

Will a “mobile overhaul” fix J. Crew?

I haven’t seen holiday results for J. Crew, so the following RetailWire comment (published in early December) may misread the final outcome. It was apparent from shopping their stores during the holiday season that they continue to have a traffic problem. Here are some thoughts about the underlying issue:

J. Crew is pursuing the path of many other mall-based retailers, both department stores and specialty apparel chains. They are shedding excess square footage in weak locations, and they are developing an “omnichannel” strategy by expanding their digital footprint. These are all necessary steps for almost any retailer you can think of, not just J. Crew.

What’s missing from the discussion of a “mobile overhaul”? Any acknowledgement that the merchandising continues to be the underlying problem at J. Crew. The company is more dependent than most apparel retailers on a product direction that is relevant to its customers and true to its brand. Until J. Crew gets this right, the other pieces of the strategy feel like window-dressing.

The “upselling” opportunity depends on training

From a recent RetailWire discussion, here are my thoughts on the volume opportunity of “upselling.” As usual, the issue depends on the kind of retailer we’re talking about:

Upselling can’t work everywhere — in a mass merchant or discounter, for example, where associate training is more focused on “process” like running the registers or restocking the shelves. But there are plenty of specialty stores (and even department stores) that need to make upselling part of associate training in the first place. Filtering out candidates during the hiring process if they are uncomfortable engaging with customers is the obvious place to start, followed by extensive role modeling after the hire.

Who does this the best? I’d argue that Nordstrom has always made it part of the company culture. In the shoe department, for example, associates are trained to bring out three pairs if the customer picks just one to try on. It’s a simple lesson for other stores to learn, if they’re willing to try.

Black Friday: Losing battle for specialty stores?

I’m a little late publishing this comment from RetailWire, about how specialists can combat the price wars on Black Friday by taking advantage of their own niche:

If your promotional strategy the other 364 days of the year is not to “give away the store,” don’t compromise it on Black Friday just to appeal to deal-seekers who may never return. That being said, it pays to have some key items or categories on sale and (importantly) to execute the other basics as Bob suggests.

But if the long-term goal is to build a bigger contact list or more loyalty among your best customers, think of Black Friday as a chance to “surprise and delight” — maybe with a higher level of customer service than the shopper is finding at your competition.

Forever 21 enters the beauty space

The Forever 21 team is testing a new beauty concept (“Riley Rose”) in a number of GGP malls around the country. I commented at RetailWire about this news before seeing one of the prototype stores:

As the article says, the beauty space is crowded and getting more so. New entries like Riley Rose point out the core issue: Weak traffic in department store anchors (and their aging demographics) force the cosmetics business to find new avenues. Sephora and Ulta have been the biggest players so far, but don’t ignore the huge beauty business being done by discounters, drug chains and even Amazon.

So the jury will be out until Riley Rose opens its doors. (One of the first locations is at the Mayfair Mall here in Milwaukee, part of the GGP rollout.) Will the Forever 21 customer recognize Riley Rose as a spinoff? And will Riley Rose look and feel different enough from Sephora to succeed? Stay tuned.

Postscript: I shopped the Riley Rose location at the Mayfair Mall in December, and it’s a fresh alternative to Sephora and traditional mall anchors’ cosmetics departments — complete with an assortment of snacks and toys. I expect to see the concept evolve and expand over time…it was definitely attracting traffic and shoppers.

The impact of “activewear as sportswear”

It seems more apparent than ever that some of the “women’s apparel” problem is actually a long-term lifestyle change. RetailWire panelists discussed this in the context of Gap’s Athleta activewear division:

I was in Madison, Wisconsin last week and walked down the pedestrian mall running from the state capitol to the University. It was impossible to ignore that the vast majority of women were wearing “activewear as streetwear” — in particular, black yoga pants instead of jeans. And these were college students for whom jeans would have been “the uniform” five years ago.

On the last wave of quarterly earnings calls, most retailers complained about the lack of traction in their women’s sportswear businesses — while mentioning the rapid growth of fitness wear. It’s increasingly clear that activewear is cannibalizing more traditional women’s apparel, so Gap ought to push the growth of its Athleta brand as hard as it can for as long as this lifestyle shift continues.

Is Wayfair “Amazon-proof”?

As Amazon expands further into home furnishings, RetailWire panelists discussed Wayfair — one of the hottest online retailers out there — and whether it can keep growing in the face of new competition. Here’s my take:

Nobody is “Amazon-proof,” because the company has a quick learning curve (and willingness to investment-spend) whenever it decides to move into a category. But Wayfair is in a better position than Amazon’s competitors in other industries: It has a niche, a following and a strategy that are serving it well right now. Something to watch: Will Wayfair decide down the road that it needs an omnichannel game plan through a footprint of brick-and-mortar showrooms or a strategic alliance with another furniture retailer?

Discounting finds the cosmetics department

A topic near to my heart, from a recent RetailWire panel discussion:

Speaking as a former buyer of cosmetics (going back to 1980) and then as a merchandise manager with oversight of the category, the beauty business has been the last refuge of full-price selling in department stores. But the temptation to put these goods on sale has migrated from discount stores and mass merchants to those department stores — with the added impact of Sephora, Ulta and online sales. And like anything else related to price promotion, retailers will find it hard to stop taking this particular drug once they start.

A long time ago, cosmetics fed off the traffic that the traditional department stores enjoyed. Then they became “headquarters” businesses in their own right given the strength of brands like Lauder, Clinique and Lancome. Eventually customers were trained to “wait for the gift-with-purchase,” just as they were trained to “wait for the sale” elsewhere in the store.

Those legacy brands are aging, just like the legacy department stores that carry them. This pattern is being repeated throughout the retail industry and the entire CPG world. So the conventional wisdom — that discounting cosmetics will only commoditize the business — may be true but may not be relevant anymore.

Was dropping tobacco a mistake at CVS?

CVS garnered a lot of publicity a few years ago when it stopped selling cigarettes and related smoking products. More recently, the giant pharmacy chain is making a bigger push into “wellness” categories, at the same time that its comp sales show some softness. Here’s my take, from a recent RetailWire discussion:

The comp-sales problem at CVS seems unrelated to their decision three years ago to drop tobacco products. It was the right decision then, and the “healthy” brand positioning makes sense. CVS is not operating in a vacuum, but is competing against Walgreens — which seems at times more interested in being the neighborhood C-store than in selling health-related products.

The trick now for CVS is to build on its tactical steps and brand equity to grow its topline sales.