Archive for the 'Strategy' Category

Amazon pushes Whole Foods toward centralization

There has been plenty of comment — most of it critical — about Amazon’s intention to centralize its merchandising of the Whole Foods stores. Most of the critics are concerned that the lack of local brand advocacy will turn Whole Foods into something very different. Here’s my RetailWire comment on that topic, followed by a comment about what Kroger is doing in response:

Centralized buying will bring economies of scale that allow Whole Foods to compete more effectively on price and on execution. But competitors (Kroger, I believe, is one example) are already opening the door to local vendors in response to the Whole Foods move.

Let’s not forget, however, that Amazon is the master of data science when it comes to retail management. Just because they are tightening the screws on the buying process doesn’t mean that they will ignore local preferences. In fact, they are likely to do a better job of allocating space and replenishing goods to meet individual stores’ tastes than Whole Foods ever dreamed of.

And now my comment about Kroger’s announcement that it is encouraging more local vendors:

Whether this was a pre-existing strategy or a reaction to the Whole Foods “centralization” news, it’s a good idea especially for grocers with national scale to pay attention to local preferences. As I said last week, however, don’t assume that Amazon will ignore this issue just because it is trying to find cost savings in the Whole Foods model in order to compete.

Amazon is the leader in using data science to determine consumer preferences, and I expect this to extend to their assortment planning in individual Whole Foods stores. If Kroger intends to compete, it will want to support its “local” initiative with great execution of in-stock levels.

 

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And now, a Google/Walmart tie-up

To expand on my last post (about Kohl’s and Amazon), now comes word of a stronger alliance between Walmart and Google. Here’s my comment from RetailWire, in which I comment that each company brings specific strengths and weaknesses to the partnership:

When the majority of product searches start at Amazon, that’s a huge advantage — it combines the predictive intelligence of an SEO company with the execution skill of a best-in-class e-tailer. But is Amazon invulnerable? Of course not, and that’s part of the reason why the company is filling in its portfolio with brick-and-mortar acquisitions (Whole Foods) or alliances (Kohl’s).

So an expanded partnership between Walmart and Google has potential: It provides Walmart with more robust search capacity and web traffic, and it offers Google a stronger e-commerce platform. But unless Walmart adds more second-party retailers (and their goods) to its site, it’s not going to catch up to Amazon’s head start for awhile.

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?

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.

JCP today, fitness center tomorrow?

The Simon development group is taking a three-level JCP store — soon to close at Southdale Center outside Minneapolis — and redeveloping the space as a fitness center. I’m among the RetailWire panelists discussing this smart “reinvention” strategy that can be applied to malls around the country:

Creating a fitness center out of an existing mall anchor is a creative way to reinvent excess real estate — instead of waiting for another retail tenant or tenants to energe (unlikely) in today’s overspaced environment. I’ve been in the JCP store in question and it was grossly overspaced for the volume it probably generated during the last few years.

Students of retail history (and Minnesota natives like me) know that Southdale was the first fully enclosed regional mall in the U.S. It served its purpose as a retail mecca — and community center — for many years, but the mix of anchors and nearby competition from Mall of America has made it less relevant in its current form. So the Simon team deserves credit for finding new reasons for people to come to Southdale and other malls like it.

Are off-pricers bulletproof?

Off-pricers represent the hottest segment of brick-and-mortar retail right now, even more so than “fast fashion” retailers. RetailWire panelists discussed whether they are invulnerable to challenge, especially in a soft demand cycle for apparel. Here’s my point of view:

The “wheel of retailing” is a longstanding premise that new formats overtake old ones….only to be overtaken themselves when a newer innovation comes along. Off-pricers are playing a hot hand right now: Customers like the values and the “treasure hunt,” However, the category runs the risk of oversaturation even though the segment is gaining apparel share at the expense of more traditional models, and it faces the ongoing competitive threat of e-commerce.

Given all of this, hats off to TJX for continuing to develop new formats (especially in the home store) as one way to inoculate itself against these challenges.

Thoughts on Macy’s self-service shoe and cosmetics departments

RetailWire panelists just took on the subject of a new test at Macy’s, in which its shoe and cosmetics departments are being converted to “assisted self-service” instead of the traditional associate-driven model. In the case of shoes, Macy’s is getting more of its inventory out of the stockroom and bulked out on the floor, with apparent early success. I’m raising a caution flag, however:

It’s hard to tell whether the reconfigured shoe department is meant to be a sales driver or an expense saver. JCP recently reconfigured a store that I visited to mass out its shoe inventory — DSW-style — instead of depending on salepeople to find the right size in the back. (And these associates are often paid a commission, just like cosmetics salespeople.) But it gets to the heart of what Macy’s wants to be. As Art put it, are they trying to be JCP or Kohl’s? Are they finding the hidden costs of “omnichannel” (BOPIS and so forth) to be unsustainable for a traditional department store?

And one more issue: By abandoning the Nordstrom model (where the salesperson is trained to bring out three pairs of shoes when the customer asks to look at one), Macy’s may in the long run walk away from the sales and margin potential of “upselling” that shoe and cosmetics departments should be known for. A declaration of victory may be premature.