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Target’s choice: Cheap chic, or just cheap?

A brief RetailWire comment below on Target’s re-pricing of food and commodity basics,  which is something they periodically need to do:

Target periodically needs to reset its prices on commodities because of customers’ nagging perception that it charges too much. This has always been an issue with Walmart as its key competitor, and now Amazon adds to the challenge with its dive into the grocery price wars.

The key to making this work is to drive the higher-margin categories like apparel at the same time. (That’s really the key to the company’s success, not its grocery business.) Target’s reset of its private brands needs to accomplish this goal, otherwise the lower prices on food and household goods will only erode the company’s profitability.

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Amazon and Kohl’s in a “smart home” alliance

Amazon and Kohl’s announced jointly that they are setting up “smart home” shops in 10 test stores in Chicago and Los Angeles this fall, using 1000 square feet to promote items like Echo along with related devices and the home services to set them up. Reportedly (according to RetailWire) the shops will be staffed by Amazon and the revenue will accrue to them. Here’s my comment:

A ten-store test in an 1100-store chain is not significant in the short term, but it’s an interesting alliance. (My usual full disclosure: I worked for Kohl’s between 1982 and 2006.) It’s curious that the sales revenue goes straight to Amazon (with a presumed piece of the action to Kohl’s), compared to the traditional model where somebody walks into the store and uses his/her Kohl’s card to buy an Echo Dot. It’s also a recognition that the “smart home” business needs more hands-on salesmanship.

Amazon look like the winner in this deal, because it potentially leads to another brick-and-mortar tie-up with a much bigger store footprint than Whole Foods, without the cost of a flat-out acquisition. Meanwhile, Kohl’s benefits from increased traffic and a meaningful use of space at a time when it is “right-sizing” about half of its stores. This bears watching.

Are social media driving the speed of trends?

The short answer to my own headline question (above) is “yes,” but there is a lot more to this issue. Here’s my comment from a recent RetailWire panel discussion:

Social media may be a factor in fashion trends going Aeand moving faster. But the influence of “fast fashion” retailers (Zara, Forever 21 and others) can’t be understated. They mastered their supply chain in order to bring new goods to the selling floor a lot faster, and in order to react to early test orders in a big way. Most traditional retailers built their logistics around long lead times, especially on private-brand goods, and are scrambling to catch up.

The idea of “speed to market” requires a change in mindset — affecting supply chain management, the willingness to chase big ideas, and the ability of retailers’ vendors to move just as fast.

More on combating the Amazon grocery juggernaut

Another timely discussion at RetailWire about the best ways for grocers to fight the Amazon-Whole Foods tie-up. To me, it’s not just about price competition but a lot more:

Most of the spotlight on the Amazon/Whole Foods acquisition has focused on price cutting, but these were necessary to make WF more competitive. Look for more cuts to come, to help Whole Foods overcome its “Whole Paycheck” brand reputation.

But longtime observers of Amazon know that the keys to its success are its assortments and its mastery of logistics. If I were a competitor, this is where I would focus my efforts before being run over by the Amazon juggernaut. Improving the efficiency of the shopping experience — whether through faster checkout, better execution of home delivery or higher in-stock rates — will go a long way toward dealing with the looming challenge.

“Whole Paycheck” no more

As soon as Amazon closed the deal on its Whole Foods acquisition, it dropped prices on several best-selling staples (with more to come). This sent a shudder through the rest of the grocery industry, especially with Amazon’s history of losing money to gain market share. I argue (on RetailWire) that Amazon had to move fast to overcome Whole Foods’ perception as an overpriced place to buy groceries:

I did a fast price check at the site for Metro Market (one of the Kroger’s divisions operating here in Milwaukee, and the sister brand of Mariano’s in Chicago). Its prices on organic bananas, eggs, butter and Fuji apples are already at or slightly below the new pricing at Whole Foods. (Its price on lean ground beef is 50 cents higher as of this morning.) What this points out is that Whole Foods had a pricing problem (“Whole Paycheck”) that Amazon is taking aggressive steps to correct.

Based on what happened to Costco’s and Walmart’s stock prices since Friday, there is a typical overreaction to the steps that Amazon is taking. Just keep in mind that Walmart and many other grocers are already competitive and Whole Foods is just joining the party. Also keep in mind that the Whole Foods brick-and-mortar footprint has a long way to go before it catches up with its competitors, despite the smart moves that Amazon is likely to make.

Can low prices alone drive loyalty?

Not for the first (or last) time on RetailWire, panelists engaged in a conversation about whether low prices or compelling sales can make or break retailers’ loyalty programs. I think there’s a lot more to it:

Most retailers’ so-called loyalty programs are little more than extra discounts layered on top of existing sale prices. It’s a transactional approach to the business, if you believe that true loyalty is developed by moving customers from “satisfied” to “committed.” And it’s the easy way out.

A value-oriented retailer will argue that deeper discounts are part of its brand equity — which may be true — but this is not the same thing as building an emotional connection through great content, execution and service. If anybody thinks that Amazon has built brand loyalty (among Prime members and others) strictly on the basis of competitive prices, they are missing the point of everything else Amazon is trying to do.

Macy’s reshuffles the merchant deck

Macy’s new CEO Jeff Gennette announced yesterday the hiring of a new president (with background at eBay and Home Depot) and the restructuring of its merchant organization. The company also announced plans to grow its private brand penetration from 29% to 40%. Here’s my comment from a recent RetailWire discussion:

I’ll start with this point: Growing private-brand penetration from 29% to 40% will only drive Macy’s sales if the company gets the merchandise content right. I’d argue that there are already too many private brands and lack of clarity between them, especially in women’s apparel. Macy’s execs may be able to tell the difference, but I doubt the average shopper can define what Karen Scott vs. Style & Co. vs. Charter Club (and so forth) really stand for. Let’s face it: Most stores trying to grow their private label business are doing it as a margin play, not a loyalty tool, and it’s often moved the sales needle in the wrong direction.

As to the new hires and restructuring: It’s clear that Macy’s is doubling down on omnichannel with the hiring of Mr. Lawton. It’s also clear that streamlining its merchant organization is meant to bring more speed to the decision-making process. Let’s see if the new team can tackle those “clarity of offer” problems after all.