The Retail Expert's BLOG

"Made for All" - our visit to the new Fifth Avenue NYC Uniqlo

2011-10-24T08:11:00.000-07:00

Japan’s basic apparel category killer store Uniqlo opened its 89,000 square foot (bigger than a football field!) Fifth Avenue/53^rd St. location (second of three planned New York City locations) on October 14, 2011. We had the opportunity visit this store during a short 20-hour jaunt to the Big Apple.

By nature of our flight’s arrival time into the city in the late evening, we had the good fortune of experiencing the store during an off period – about half hour before closing. The store was certainly less chaotic at this time during the day – we attempted to go the next evening as well but quickly exited the can-of-sardines environment.

From across the street, the store exudes an Apple Store-esque glass cubic glamour. Fully-functioning elevators are closed off to the public and instead display a mannequin couple, riding up and down in the front windows to the delight of passersby.

It’s easy to forget that you are in a clothing store– with the clean, stark open format, the store has the same look and as Narita airport, complete with three long escalators in the center of the store and a cool, soothing female voice over the loudspeaker welcoming you to Uniqlo and announcing what products are on each floor.

Uniqlo somehow attracted the only happy, helpful, and efficient employees on the island of Manhattan. Two Uniqlo jacket-clad greeters at the entrance welcome customers and offer a large basket – genuinely friendly and not at all pushy. (Note: the staff wins extra kudos for calmly and genuinely willing to spend quite a bit of time helping us dig through a huge pile of Uniqlo’s $9.90 opening special jeans to get our size – seemingly oblivious to the surrounding chaos!)

The store does a beautiful job of “layers” of communication on the merino cotton apparel and the brand’s new “Heat-Tech” line:

Large block letters catch the customer's eye by indicating what material line the product is from - "100% Extra Fine Merino"

Second board gives information about the premium quality of the merino material.

Smaller sign as you look closer at the product -- indicates the style, and a more detailed description of the style.

Eye-catching hallway draws customer in

Boards on top of product racks educate and encourage shoppers to buy other products from the same line.

The store makes good use of brightly lit floor-to-ceiling LED screens to feature their products as well as Uniqlo brand ambassadors. The screens were not interactive, but this may have been deliberate, as shoppers seemed more intent on stuffing their bags with as much Uniqlo product as possible rather than admiring the surrounding décor.

Several walls are completely paneled with LED screens, giving shoppers styling ideas

The store is somewhat confusing in terms of layout, but there are maps on the walls and the aforementioned loudspeaker message. On the main floor, the layout is maze-like and designed for the quick-paced wanderer. There are specific areas on the mezzanine floor for people to sit, conveniently out of the way of shoppers – genius.

Seating area for tired shoppers and shoppers' mates, conveniently out of the way.

Uniqlo’s impressive displays are essentially the apparel version of Whole Food’s produce section. The merchandise is neatly stacked, hung, and folded in wall shelving, displaying Uniqlo’s extensive range of color options in each style.

Category killing in basics - like basic t-shirts.

More category killing in basics.

Take one product/material and do it well...in every color!

Checkout is stress-free single-line Whole Foods –style. Interesting to note: when checking out, staff members have a scripted response: “Your total is $X for X# of items.” – perhaps to emphasize how much bang you’re getting for your buck?

Overall, Uniqlo gives off a very clear message that certainly seemed to resonate with consumers – there was no rhyme or reason to the demographic in the store, and the melting pot of people epitomized Uniqlo’s tagline (which is currently plastered all over New York City public transit and billboards) “Made for All”.

It was certainly made for us, that’s for sure. We actually had to purchase another bag to haul back our Uniqlo treasures…

Report from WRC--A Global Perspective on Global Innovation

2011-09-30T05:14:00.000-07:00

We had the pleasure of attending the World Retail Congress in Berlin, which was held from September 25-28th of 2011. The World Retail Congress is a gathering of international retail executives. While there is a decidedly European feel to the conference (and attendees), North America and Asia was reasonably represented.
Ebeltoft’s (and our) official role at WRC was a coordinator and judge in this year’s Retail Innovation awards as the US member of Ebeltoft Group. This year, a record number of nominations were submitted and categories were split into two categories—business innovation (more about process) and format innovation (more about format).
The finalists provide a telling view on where Innovation is headed. In the format innovation category, they were:

• American Eagle –77 Kids. Their new concept store incorporates innovative digital in-store experiences with a dynamic in-store design
• Carrefour Planet. The most significant reinvention project in retailing. An attempt to reinvent the generalist hypermarket concept into a multi-specialist store
• Disney Store—New York. The largest Disney Store , representing their large scale reinvention, incorporating immersive interactive experiences
• Shoes of Prey—Australia. The only pure play on-line retailer, where customers can customize and design their own shoes, changing the color, toe, heel type, back etc.
• Eataly—New York. The fantastic New York outpost of the Italian food concept, blending together restaurant and food retail in a dynamic experience.
• The Craftsman Experience. Built as both a store and studio, this concept re-defines the relationship between a bricks and mortar store, the Internet and social media.

The winner in this category, Eataly, proves that retail excitement can still drive significant traffic to a brick and mortar store. Eataly reports first year revenue of an eye-popping $80 million.

Under business innovation, the range of submissions were vast, from weather forecasting tools to the latest take on loyalty marketing. The finalists were:
• Donna Ida—Denim Clinic. One-to one appointments to find the perfect pair of jeans.
• Karen Millen and Aurora Fashions—Deliver from 90 minutes. The world’s fastest fashion on-line delivery service
• Payvment—Facebook Storefront. The number one Facebook ecommerce payment platform for more than 800 million Facebook users.
• Titan Industries Goldplus—A soft benefits loyalty program for a jewelry chain in India, which rewards customers in the form of life experiences (a Cricket Match, trip to a Temple, etc
• Adidas—adiVERSE Virtual Footwear Wall. An in-store virtual footwear wall for Adidas utilizing state of the art Intel processors and touch screen technology.
• Tommy Hilfiger Europe—The Hilfiger Club +ID24. Interactive touch screens at POS to drive higher loyalty.

The winner here was Adidas, who also had their wall on display at the WRC. They plan on introducing this into a physical store environment within their London Flagship store.

What do these concepts have in common?:

• The seamless (or attempt to make seamless) integration of new technologies
• Blending together on-line and off-line experiences
• Creating more personalized and customer experiences, whether through the customization of products or the customization of experience.

In addition to the cases highlighted at WRC, Ebeltoft Group produces an independent project focusing on additional cases from around the world that showcases true global innovation. Contact me at nstern@mdretail.com to reserve a copy.

Loyal Until The First Screw-Up

2011-09-19T07:49:00.001-07:00

Like many, we received an e-mail from Netflix CEO Reed Hastings this morning concerning the controversy surrounding their sudden price increase (upwards of 60% in many cases, including ours) a few months back. In addition to suddenly increasing prices, there seemed to be zero recognition of customer loyalty. When we cancelled the “by mail” portion of our subscription, the response was an automated statement requesting that the outstanding DVD’s be returned immediately or we would be charged the full price, etc… Nice knowing you, Netflix.
Apparently, we weren’t alone. The latest results from Netflix reveal a rash of subscriber cancellations, with subscriber base declining by nearly a million. This is even more startling because the company was on a significant growth trajectory prior to this move. The streaming side has also faced its own issues of late, losing its contract with Starz, a popular source of streaming content. The stock, predictably, has plummeted from its earlier dizzying highs. And yet, two months went by without a direct response to the million(!) customers who apparently were unhappy.
So what did Reed have to say to customers today? Along with a brief apology, a more detailed explanation of the “business” problem emerges. Internally at Netflix, streaming and by mail businesses need to be nurtured and grown separately. As a result, they are officially separating the two models, even renaming the original business to Quikster. Customers who subscribe to both will now get two invoices and visit two separate websites. But, the good news—no more price increases for the added inconvenience!
While Reed Hastings has been one of the more dynamic executives of the Internet age, we suspect that this second explanation isn’t going to play much better than the first. The consumer moved from a bundled (and intuitive) solution to a separated one. We would suspect that more customers will opt out of one (or both) services and that it will be much easier to view their offers independently against other options. Two months in and can’t saw we’re missing the by-mail service and the streaming option often disappoints with limited or dated content.
While the intent of aggressively positioning the business for a streaming future so his business doesn’t become the next AOL or Borders is an admirable one, the execution of this plan has consistently lacked thoughtfulness and most importantly, a focus on the customer that Netflix (or Quickster) is supposedly serving.
So, apology not accepted. And for businesses that pride themselves on delivering customer service, the caveat in the headline applies: customers are only loyal until you give them a reason not to be.

Diapers Direct and the Perils of Groupon

2011-07-13T09:46:00.000-07:00

“We sincerely apologize about the delay on your product delivery.” These are not the words that you want to see when you open your email, particularly with something as essential as diapers. At the beginning of June, we purchased a $25 Groupon for $50 worth of product from diapersdirect.com. We promptly placed our order (as many others did as well), and received our diapers in mid-June. Apparently, we were one of the lucky ones, as we discovered that this was the fourth email that Groupon customers had received regarding unfulfilled orders. So, we did a little digging and this is what we found:
• A quick Google search indicates that Diapers Direct offered a Groupon in Amarillo on May 11 which was purchased by 1,396 Groupon-ers. Over the course of the next 3 ½ weeks, this deal was featured in at least five other cities and purchased by over 900 additional customers. As we read the email mentioned above further, Diapers Direct goes on to state, “An estimated 98% of Groupon customers at our website have used their coupon within one day of purchasing it. The steady stream of customers over a six month period that we had planned for became a tidal wave of orders all made in the past thirty days.” Recent data from Groupon is consistent, with only 10% redeeming their coupon within one month, but if nearly 1,400 orders were placed on day one, this leaves us scratching our heads as to why Diapers Direct didn’t pull the deal after the first tidal wave of orders.
• Diapers Direct is a small business (with only 3 employees, according to their email) that presumably used Groupon in order to get a couple hundred new customers. “We have had commercial customers that purchased as many as 110 Groupon coupons.” Unfortunately, they didn’t set a limit on how many people could purchase their coupon and they instantly became overwhelmed.
• In a recent study on daily deal sites conducted by Rice University, nearly 80% of coupon users are first-timers, and only 20% of them become repeat customers. This conversion rate does not bode well for Diapers Direct (particularly since so many customers still have open orders). “We are by nature a recurring order company. A company designed to make monthly deliveries to a regular repeat customer base.” We’re betting the commercial customers mentioned above were not planning to become repeat customers. What’s more, any pre-existing customers are likely having a difficult time placing non-Groupon orders, damaging their existing customer base.
So what are the lessons learned?
• Know how Groupon works. Understand everything from what percentage Groupon will take of your profit, how many coupons the deal is limited to and how many coupons are available to purchase for each customer.
• Ensure your business can cover the discount you will offer. Diapers Direct planned to “lose a little money on every transaction and expected to do so as this was our way of introducing ourselves to all of you.” They likely did not plan for as many transactions as they got.
• Plan for best and worst case scenarios. Can you accommodate 1,000 new customers? Have you ordered additional stock for the initial wave of orders and the final month of your deal as customers try to use their soon-to-expire Groupons? Do you have enough staff to accommodate the influx of orders? Even if Diapers Direct had all product in stock, three employees could not efficiently and effectively fill all orders in a timely manner.
Groupon is bigger and more powerful than most of us understand. It’s either a quick way to double your sales or to go out of business.
There’s no question that Groupon, Living Social and the myriad of competitors are nothing short of a global phenomenon in retailing, service and foodservice businesses over the past two years or so. It is equally clear that there is much that’s unknown about these offers, particularly as it relates to both short and long-term success. We know the old saying Caveat Emptor (buyer beware!). In this instance, Caveat Venditor (seller beware!).

This is a guest blog from Felicia Greenbaum, McMillanDoolittle Business Manager

Bloomingdales.com--The devil is (apparently lost) in the details

2011-07-11T08:31:00.000-07:00

It is wonderful to see how well Macy's Inc. (parent of Bloomingdales) has been doing of late. They are in their second year of comp store increases and they do seem to have the company heading in the right direction. In their last press release, they also made note that their e-commerce division is performing even better--up a spectacular 40% year to year.
As a retail consultant, we tend to live in the kind of numbers above. As a customer, things tend to be a little different. We recently bought some California King sheets during a great sale at Bloomingdales...good item, great price, etc...
When the sheets arrived (in a horribly oversized box with no padding, by the way), they were not the "latte" clor we wanted but a very lovely purple. This is despite the fact that the bar code tag said latte...oops.
So, now what?
1. Called our local store who nicely explained that they don't sell Cal Kings in Chicago but we could try and call a California store...
2. Returned the item (at our expense) and explained they got the color wrong
3. A few weeks later, the replacement comes...and yes, still purple! Two observations--they clearly mis-tagged the product and; there is no human checkpoint to distinguish between latte and purple..
4. Return the sheets to a local store and (again) explain the problem. Their advice? Wait about 30 days before ordering again and HOPEFULLY, they will have figured out the whole latte/purple mix up by then
5. Receive a Bloomie's gift card (no credit refund) for an amount that is less the cost of the original shipping, return shipping, etc
6. Bottom line--no sheets, an enormous hassle and out money
What's wrong with this picture? It's almost impossible to figure out where to begin--failures in process, quality control, customer service, and so on.
It's nice to hear that on-line sales are up 40% but how will they be able to position themselves in the long run against a growing number of competitors who have figured this stuff out?

Apple: A Decade of Retail Revolution

2011-05-19T06:38:00.000-07:00

On May 19, 2001, the first Apple stores opened (more or less simultaneously) in Tysons Corner, Virginia and the Glendale Galleria. While the stores were eagerly awaited, they were also greeted with some understandable skepticism. Gateway had notably flamed out in retail, having to close all of their stores and Sony had been flip-flopping with a retail strategy during this same time period as well.

One of our favorite quotes on Apple’s retail strategy comes from a story headlined: Sorry Steve, Here’s Why Retail Stores Won’t Work. The story explains in some detail why getting into retail is a bad idea and ends with a quote from David A. Goldstein, who states, "I give them two years before they're turning out the lights on a very painful and expensive mistake".

Unfortunately, for us, David had some company. In our Retail Watch newsletter from July of 2001, we extol on the virtues of how cool the stores, saying “it helps that Apple’s stuff is cool itself—their product design is second to none and showcased within this amazing new environment”. Unfortunately, we also go on to say, “It will be very hard to ever make any money”. Oops.

So, how are the Apple stores doing? Well, we were only a few billion dollars off when assessing future profitability! In fact, the stores are obscenely profitable—300 stores Internationally, and over $2 billion in profits on $9 billion in sales. More to the point, they are one of the few branded retail stores (Nike and Coach join the ranks) that succeed in both elevating the image of the overall brand while delivering high levels of profitability.

Other numbers are equally astounding:

• Sales per square foot, a key measure in a retailer’s productivity, are estimated at around $5,000 per square foot! No one else in retail even comes close.

• Traffic counts are equally amazing, particularly in such a condensed space. Apple is averaging 15,000 customers per week in their stores, which is extraordinary given the compact store size.

Now, since we owned up to a “slightly” off prediction on Apple’s retail prospects, we also want to point out that it is a radically different company today than in 2001 (here comes the mea culpa):

• In 2001, Apple was a relatively small computer seller with a 3% market share. We still maintain that those margins on computers and the relative difficulty of the computer sales cycle does make selling "computers" profitably a daunting experience. Apple was “only” a $5 billion company back in 2001.

• Apple is now a huge consumer products retailer. Selling iPods, iTouches, iPhones and the like, in droves, is a very efficient retail proposition, accompanied by higher (and controlled) margins. The relative levels of profitability (and overall revenues) sky-rocketed once this shift took place. For history’s sake, the first iPod debuted in October of 2001 while the country was pre-occupied with post 9/11 matters. In 2011, Apple could well hit $100 billion in total revenues. Wow!

So, it becomes a classic "chicken and egg" dilemma. Could have Apple ever been a successful retailer without the dramatic introduction of game changing products like the iPOd? Conversely, would those products ever had a chance to shine without dedicated retail distribution?

The flipside of Apple’s retail success is that it has encouraged a number of other companies to follow suit. Few, if any (though we’re careful NOW not to make sweeping predictions) will ever come close to reaching Apple’s success: A rare combination of brand, product and an extraordinary retail experience came together to forge this remarkable game-changing retail story. Most companies will find themselves lacking in one or all of these areas.

There are rumors that version 2.0 of Apple retail is on the way. We can't wait.

Who Moved My Chipotle?

2011-05-12T10:37:00.000-07:00

In my hometown of LaGrange, Illinois, something curious has happened. The (and one can only presume based on dozens of visits) fabulously successful Chipotle branch in the heart of our downtown moved…approximately three blocks away. Now while this would not seem to be of particular consequence, there are some extenuating circumstances behind the move:

• It moved to the “other” side of the tracks. While the original location was directly across from the commuter train stop, the new location is a block or so North, at the intersection of the two busiest roads in town.

• It moved, very ironically, into a recently closed Baja Fresh location. Yes, it was pre-wired for burritos but the next logical question follows…why exactly did this Baja close?

• It moved to a location with parking, though shared with Walgreens, Caribou and an AT&T store. The parking is certainly a plus over the sometimes “impossible to find a space” downtown location.

So, you ask—what’s the problem? They stayed in the hood and added parking. Let’s examine the other side of the ledger:
• The new location feels (and almost certainly is) smaller. Seating only is for around 50 (at best). Worse, there is no separation between the seats and the line so there is a decidedly uncomfortable feel while queuing or eating. While we have been in tighter Chipotle spaces, the old space (long, with high, exposed ceilings and real character) had a significantly more pleasant feel and atmosphere.

• The old Chipotle was incredibly popular with the teenage crowd. Along with Starbucks a block or so away, it was the de facto hangout in town. Who wants teens hanging around? As long as those teens have money (which the La Grangian version most certainly do), why not. This location is not nearly as central to the walking crowd which is a significant part of downtown traffic, particularly during the (admittedly rare) nice days of Chicago.

In all, a curious move. Could the addition of parking trump all of the other negatives? Was the landlord simply impossible to deal with? We’ll find out. We suspect that business will be down but maybe Chipotle’s magic trumps even a bad real estate play. While we are huge fans of Chipotle, we are once again reminded that all retail is local--while they are winning big time on a national scale, this might be a local loss.

China: Enormous Opportunity, Enormously Difficult

2011-03-22T07:32:00.000-07:00

We just finished up a week of meetings and store visits in China. The amount of information we now have on the market could fill a thimble—a few trips hardly qualifies one as an expert. Of course, that won’t stop us, so here goes.

The statistics, as we have discussed before, boggle the mind. A population of 1.3 billion people, a rising economy and over 250 cities with more than a million people presents opportunities at nearly every turn. What could possibly go wrong for companies who are positioning themselves to do business in what will easily be the world’s largest economy in the not too distant future? Plenty, as it turns out.

During the week of our visit, two unrelated news stories caught our attention. The first is Best Buy’s decision to close their nine branded stores in China. While they will still have an investment in a Chinese electronics retailer, Five Star, closing their eponymous brand feels like an early signal of defeat. Observationally, the Chinese market for appliances and electronics looks and feels very different than the U.S. Price dominates and the stores are loud and noisy, populated by brand supplied salespeople in an environment where negotiation is expected. Gome, the large Chinese retailer, currently dominates. Best Buy, with an elevated customer experience, was way out ahead of the curve.

The complementary story of the quiet closing of the six story House of Barbie flagship store in Shanghai was even more surprising. This much written about experiential store was the global equivalent of American Girl and had just opened in 2009. The costs to operate, and/or the costs to close both had to have been substantial. This is a store that was more a brand builder than a money maker, even at the outset. It must have been losing even more money than even planned to pull the plug this early. Since Barbie’s owner, Mattel, is not a retailer, we would suspect some significant miscalculations on their part in what it takes to operate a Flagship retail store.

Home Depot is also in retreat, closing the Beijing outlets acquired when they purchased local retailer Home Way. To be equal opportunity with International struggles, the French DIY chain Saint-Gobain is also pulling out of the China market. The DIY market in China is far less developed, as apartments tend to come fully equipped.

The China market is large (and growing at incredible rates) but is also intensely competitive. Local regulations further hamper foreign businesses and bodies in the store (of which there are lots) don’t always translate into high sales. Average transaction size and sales density are quite low (in most cases) for now. The market is “open” but you’re never very far from remembering that this is a Communist country tightly controlled by the government. We couldn’t access our Blog page in China—censored (apparently) by the government!

This is definitely a market where investing for the future is required—quick returns are likely not there. Exceptions include a booming luxury goods market and a preponderance of very successful (think KFC) fast feeders. As the large global retailers (Auchan, Tesco, Carrefour, Walmart) battle it out, China will be a fascinating retail landscape to watch over the next decade. It decidedly is not, however, for the faint of heart.

Ano"Mall"ies--Three Great Shopping Centers

2011-02-21T11:49:00.000-08:00

Santa Monica Place

One of the side benefits of the massive winter storm we had a few weeks back was getting "stranded' in Los Angeles and London. While "idle hands may be the devil's tools", at McMillanDoolittle that just means more time to go and visit stores.

And while we are always fascinated with new retail concepts and stores, the malls that they are housed in have become so increasingly vanilla that they hardly merit a look. The story in the shopping center industry is the same as many others--consolidation, scale, efficiency=blandness.
There are exceptions to the rule and we visited three amazing centers (separated by a lot of geography) more or less back to back to back. The Grove and Santa Monica Place are two bright spots in Southern California and the Westfield Center in Shepherd's Bush in London represents an extraordinary shopping center achievement.

Desigual--The hot Spanish retailer at Westfield

When trying to distill common elements from these very different properties, we summarize a few of the key elements as follows:

Great Stores. This should go without saying but the hallmark of a great shopping center begins with the tenant mix. The old formula for a shopping center would consist of three to four main anchor tenants and then "fill in the rest". The one common point of these centers is that they are decidely not defined by anchors. While there is some good anchors here and there at these centers, they are better defined by an interesting mix of smaller retailers. Increasingly, the retail landscape is defined by global brands that bringing news and freshness to centers. Nike, AllSaints, Apple (of course), Anthropologie are just a few of the standouts.

Great Entertainment Options. All three centers work as great places to hang out, offering a number of casual dining options to full sit down variety. Restaurant Row at Westfield is a destination unto itself. What is clear is that the "food court" has become a bit anachronistic as options become spread throughout the space. Santa Monica Place will add a "Market" feature shortly to bring more food specialists into the fold.

The Market--Coming soon at Santa Monica Place

Segmented Offerings. It certainly helps to be reasonably new and build natural destination centers within a greater space. Grouping luxury retailers in one space, teen retailers within another and kid's retail in their own zones helps shoppers naturally find stores of interest. The retailers, too, benefit from proximity of their own targeted customers.

Great Space. The Grove and Santa Monica Place have the advantage of being open air facilities in a great geography. Westfield in London faces a decidely different challenge. Yet, all have utilized high ceilings to create a sense of space within the stores, ample public meeting spaces and room to freely roam.

Natural Proximity. The Grove naturally feeds into the iconic Los Angeles Farmer's Market, Santa Monica Place into well-established street retail and Westfield into a huge transportation hub. No accident that great centers also offer great adjacent draws.

These centers certainly have their unique elements. They also contain some lessons for existing centers as well as new developments underway. Hopefully, they will no longer be anomalies in the future.

Starbucks New Prototype Heads in the Right Direction

2011-01-21T12:55:00.001-08:00

Starbucks' renaissance under Howard Schultz's direction has been relatively well documented. And, it has been a fairly significant financial success, from closing a number of underperforming stores that had sprouted like weeds to reinvesting back in the core product (coffee). But, it hasn't been without some hiccups along the way. There was a foray into value pricing, seevral attempts at reinvigorating the food offer (oatmeal seems to have finally worked) and the latest high profile logo change (better than Gap but we have some issues...).
One of the most interesting tests during this period was the un-Starbucking of an actual store, opting for a local flair in Seattle under the name 15th Avenue Coffee and Tea. Designed to invoke more of the warmth of a local coffee shop, this store attempted to market the brand incognito. While this was an obvious attempt to counter the commercialization and ubiquity of Starbucks as well as addressing the decline of "third place" status, we weren't enamored from the start. Customers can too easily see through this type of artifice. The real key is to change what Starbucks stands for (at its roots--the best coffee and the third place) rather than substitute a different name. Last week, they announced the merciful ending of the 15th Avenue experiment.
At the same time, elements of that idea are now being rolled out into next generation Starbucks prototype. The latest, in Seattle, on Olive Way, represents how that new direction can be managed under the Starbucks brand. The space is vast and open, filled with environmentally friendly touches. It was filled during our visit with people happier to gave a real third place to hang at. There are fewer barriers between barista and customer and a significantly more relaxed vibe. The menu expands to include wine and beer (intriguing to say the least) and Starbucks Reserve coffee gets heavier play.
While this store is expensive to build, takes a fair amount of real estate and would seem challenged to handle peak rushes, it certainly elevates the brand to a hip place worth hanging out at.
Stay tuned as the experience continues to evolve.

Cool Things We See on the Way To See Other Things...

2010-10-28T03:26:00.000-07:00

We give a lot of presentations around the world. And, without a doubt, the things that always generate the most interest are the cool little things that often aren't very material to the business. Climbing walls, wave machines, shoe vending machines...people love them. This time, we have some random cool techy things to talk about with some wonderful juxtaposition of activities in Europe vs. the U.S.

Let's start with checkouts. Getting out of a store is probably the customers' number one pet peeve and the number one labor cost center for a store. And for decades, retailers have been trying to figure out a solution to both. Over twenty years ago, we saw the first self-serve checkouts at a Kroger store in Atlanta. Awkward and unwieldy at first, this technology eventually has become commonplace in many retailers, accounting for well over 25% of transactions. So, what's next? At the Kroger store in Hebron, Kentucky, you can see one approach. Their experimental Advantage checkout is a futuristic, high speed scanning belt that automatically scans products vs. the one at a time self-scan version. It looks a bit like an airport xray machine. Today, it is clearly early--there's more labor associated with running the experiment than the simple old-fashioned way. And, scan accuracy still has a way to go and exceptions remain a challenge. However, fast forward five years and this could be an enormous time and labor saver.

Another way to go about this is handheld scanning in aisle, which has been around for nearly ten years, indicative of how long the technology learning curve can be. However, in the new Carrefour Planet prototype in Lyon, they have made a big press in driving checkout innovation. For Carrefour, scan 'lib is an ambitious effort, supported in multiple areas in the store. As opposed to what we have seen in the US, the marketing and visual presence is a major difference and the "take" rate seems high.

Sticking with supermarkets, let's take the checkout process one step further. What if you didn't have to go in the store at all. Two retailers are experimenting with forms of curbside pick-up. Publix has two test locations and we saw one in Tampa. Simple enough in proposition, the customer pulls up into a designated parking space and communicates with the staff who brings their order to the car. There is some in-store marketing associated with the process but it is still relatively low key. At a minimum, it eases the process of in-store pick-up.

Taking this to another level is Auchan, which has two different offers in the market. One is ChronoDrive, a standalone effort that offers drive up pick-up service directly at a dedicated warehouse location. They also have AuchanDrive, which is located next to existing Auchan stores. It takes the effort further with dedicated drive up and a pick up session. There's a bit more technology involved where the customer types in a pin code that signals the staff. They claim several hundred customers per day, which is quite impressive.

OK, we admit to being vending junkies. And, the more bizarre, the better. There are some amazing vending options in Japan and some pretty cool ones cropping up in Europe. From the scratch baked pizza vending option in Italy to a fresh baked baguette in France, vending is certainly getting more ambitious. In the Monoprix store in Paris, 1 Euro gets you a fresh baked baguette, fully cooked in 60 seconds! The bread, by the way, isn't bad--hot, fresh and stayed soft for the day. The fact that it was sitting in front of a bakery didn't make much sense--it would seem to have more play where you can't get fresh bread.

Finally, pop-up hasn't gone away and we are moving fully into pop-up season. One cool marketing effort comes from Target (of course). Promoting their revamped P Fresh stores in Chicago, they created a pop-up marketing effort on Michigan Avenue, giving away bags of groceries to promote the extended offer, in conjunction with a lot of other media efforts (billboards, mobile trucks, newspaper) through the city.

Cool ideas for sure. Transformative, perhaps. Great speech material? Absolutely.

Walgreens fresh.real.now--Can they crack the convenience fresh code?

2010-09-17T10:04:00.000-07:00

A few months back, Walgreens announced a planned expansion into the food business. The first evidence of this was the announcement of expanded food offers in so called "food deserts", typical inner city locales in urban markets. The first half dozen or so of these have debuted in Chicago already.

In a separate test, Walgreens also has planned an entry into the convenience fresh foods business. Imagine a place to buy fresh produce, sandwiches, salads and meals in nearly 7,000 Walgreens locations across the country, appealing to the time starved mom who is already shopping in their stores? That's the market opportunity being explored by these test stores.

The first location opened at North & Wells in Chicago's Old Town neighborhood. A second was nearly complete at 30 N. Michigan and another seven were planned this year.

While the area is branded fresh.real.now, individual products (entrees like pasta chicken marinara or lasagna) were branded under Corner Kitchen. The product generally looked fresh and appealing with reasonable prices. The branding certainly creates visibility and the location is prominent within the stores.

The real question: will customers (those busy moms) trust Walgreens as a fresh food source in the same way that they trust the brand for pharmacy? While the product looked good, the Walgreens brand is not necessarily synonymous with fresh and many retailers have struggled with selling packaged products. And, selling fresh goods can be a killer when they have to be thrown away--we saw a lot of produce, as an example, that has a very short shelf life.

We'll revisit again once they get these fully up and running. We suspect that there will be a lot of tinkering with the merchandise mix and that it will take time to build awareness (and acceptance) of the concept.

Groupon Meets The Gap—The Old and New Combine…

2010-08-19T08:17:00.000-07:00

The Groupon on August 19, 2010 represents a potential inflection point of sorts in retailing and the Internet. While we have been watching and marveling over local Chicago area upstart Groupon for the past few years (and have written about them several times), their Gap offer today represents a new direction for them. Groupon represents a unique combination of many of the unique aspects of the Internet—social media, group buying dynamics, and limited time discounts—into one package. A Groupon deal of the day is typically half-off or more a product or service geared to a local audience. Until today, the offers have primarily been geared around service offers—spas, nail salons, yoga classes, etc. More successful offers have been around discounted memberships to the Art Institute in Chicago or esoteric pursuits like skydiving classes. Sporting events, restaurants and food offers have also experienced huge impacts with Groupon offers. To date, however, these efforts have occurred on a highly localized level, generally geared towards small business within a limited geography. So, while Groupon has grown explosively (a quick glance at the website shows Groupon operating in 91 US cities and 21 countries around the world), the offers have always been geared at the local level in whatever city it’s been focused in.

Today’s offer with The Gap is typical in many respects in its structure—$50 worth of Gap merchandise for $25. http://www.groupon.com/deals/gap-inc-chicago

It is very atypical for several reasons:

This is a national Groupon. We did a quick check in several cities and saw the same offer around the country.

It’s the first deal we know of for a national chain the size and magnitude of Gap

Like most Groupon deals, this one tipped, and tipped early. Groupon typically displays the number of coupons purchased, which makes it easy to do the math and figure out the dollar value. Interestingly, they chose to eliminate the number and most individual cities simply say that thousands have been purchased. At 8:30 a.m. in Chicago, 8300 Groupons had been purchased, which quickly translates to over $200K in value. And most users were not even awake! On a national basis, we suspect that this will be a real test of the Groupon bump—can they move the needle on a chain the size and magnitude of The Gap? The potential dollar amount will be huge—certainly in the millions…

Perhaps today is Groupon’s coming of age, in combination with one of brick and mortar’s most venerable (but troubled) brands.

“Two Nations Divided by a Common Language"

2010-07-29T08:15:00.000-07:00

Engaging in a prolonged bit of retail therapy in London the past day or two, we were struck by the similarities and differences that still remain between the U.S. and England. Perhaps there’s no better way to look at the two countries than to compare retail businesses, something we’ve been doing now for over two decades. At this point in the post, we would attribute the above quote to someone but as in all things that can be “googled” today, even that’s no longer so simple (you can take your pick—it has been alternately credited to Shaw, Wilde or Churchill).

Figure 1: Hotel Chocolat

As we have pointed out before, however, the divide between the two nations has never been smaller, at least as concerns retail, which has become increasingly internationalized. On the High Streets of London (or Tokyo, New York or Seoul), retail reads like a true United Nations. One short strip along Kensington High Street says it all and does foretell the real future of retail—Japan’s Uniqlo sits next to U.K.’s TopShop which is nestled against US brands American Apparel, Diesel, and Urban Outfitters.

This leads us to one universal truth: The future of retail will be defined by great retailers, global in nature that can effectively provide a consistent branded experience while making the necessary refinements to succeed at a local market level.

Of course, this is far easier said than done as our retail visits confirm. If we were forced to sum up the UK experiences into one key difference, it would be housed around the term Refined Sensibility. There is a higher degree of information provided, consistently better storytelling and an overall refinement in the offer that seems to be missing too often in the US.

By evidence, we offer up the somewhat random experiences of:

· Pret a Manger, which defines freshness in a delightfully understated way;

· Hotel Chocolat, which brings a new level of experiential and sensorial delight to the category of chocolate;

· Waitrose, which launched their Essentials line of low priced private label with great flair;

· M&S, which communicates the benefits of newer meal solutions lines directly to consumers with sub-brands like Fuller Longer and Count on Us;

· And one of our favorite little brands Neal’s Yard Remedies which is intelligently pursuing natural and homeopathic ingredients in beauty care.

What’s on the US side of the ledger? Based on what’s crossed over to date, we would sum it up in another word, Theater.

· The Whole Foods on Kensington appears to be closer to hitting its stride after a financially disastrous debut. We saw much better distribution of traffic than in prior visits with the suggestion that they are finally finding their footing (though we would never want to be paying their rent!). Losses in the UK continue but they seem to be in a more manageable range.

Figure 2: Anthropologie

· Easily the most spectacular store in our visit was the new Anthropologie store on Kings Road in Chelsea. Housed in a former antique market space with high ceilings and stunning stained glass, this is truly a cathedral for retailing—they could charge admission to this open, airy, inspiring retail playground.

With retail playing at an elevated level in both countries, we will expect to see a lot more crossovers in the future. British fast fashion is already making inroads with TopShop, which has had a big opening in SoHo (ours, not theirs)and we expect AllSaints to make a similar splash as it brings its vintage grunge rock sensibilities over to New York this year.

Figure 3: All Saints

No surprise—Retail Watching now, more than ever, needs to be an international activity.

Sign us up!

China—Incredible Complexity, Unlimited Opportunity

2010-05-28T13:11:00.000-07:00

We recently had the unique opportunity to attend the grand opening of the 25th store in Shanghai, China for E-mart, our long-time Korean client. E-mart is an extremely successful Korean hypermarket retailer that, along with just about every other global retailer, has targeted the Chinese market for expansion. In my 25 years of consulting, I have never seen anything like the masses of consumers who gathered to shop this store on a Tuesday morning. I was assured that the crowds would be much more substantial on the weekend. It made Black Friday in the U.S. look positively tame by comparison and recalibrated the notion of what crowded really means:

Figure 1: The throngs at E-mart's Opening

There is obvious opportunity in the market, with 1.3 billion people and a rapidly growing GDP. The opportunity is so evident, in fact, that China has attracted the interest of just about everybody of global scale. This includes Wal*Mart, Carrefour, Metro and Tesco, the four largest retailers in the world in order as well as an impressive list of other Asian competition and a host of local Chinese companies. Further complexity ensues when analyzing the business by region (different competitive dynamics are in place depending on the geography) and by city. The fact that there are literally dozens of Chinese cities with populations in excess of 1 million people is equally mind-boggling. Fun fact: there are 24 cities larger than Chicago (populations in excess of 3 million).

However, this opportunity brings intense competition and a vast array of cultural and geo-political issues that make success in China far from a sure thing. First, the competition in the market is extremely strong. We were extremely impressed by RT Mart (a Taiwanese competitor with 150 or so stores in the market partially owned by French giant Auchan), which had outstanding execution in fresh foods. Fresh in China really means “fresh”, often live, with as few barriers between customers and the product as possible:

Figure 2: A look at RT Mart's Produce Department

Equally impressive is Carrefour, the French hypermarket retailer that was an early pioneer in the China market and nominally the market leader. They essentially created the notion of what a hypermarket is in China. One of the units we visited reportedly does in excess of $200 million per year (and we believe it based on the crowds and merchandise density observed). The store’s high service levels (mostly staffed by suppliers) and incredible breadth and depth really stood out:

Figure 3: Carrefour's Wall of Shampoo

In general, the market is defined today by price. From a retail standpoint, there is little regard for inventory productivity or much sophistication with technology. Labor is so inexpensive and readily available that sheer manpower keeps the store in good operating order.
While the GDP is indeed increasing, it stands today at about $7,000 per capita. This number is deceiving on a number of levels given that there is vast disparity in income among regions and among consumers within the region. The GDP in Shanghai is nearly double the national average reflecting greater prosperity but there still remains a huge divide among the haves and have-nots with a growing but still scarce middle class.

While there is a rush to entry, and big expansion plans named by the majors, no one really occupies a definitive position today. A vast majority of the market is still done in unorganized trades in mom and pop retailing and wet markets that are prevalent everywhere. The last time we saw any market share figures, the leading chains have somewhere in the neighborhood of 2% share. While it is impossible to really gain a measure of profitability, high development costs and razor thin margins don’t bode well for short term profitability.

To further complicate matters, navigating the China market requires an in-depth understanding of local markets and the rules (or lack thereof). There are dozens of unwritten rules that govern the market and there is a distinct bias towards the success of local companies who can more effectively navigate the labyrinth. As an example, Walmart is still having issues with its Trust Mart acquisition even after a year. From a true macro standpoint, it is important to remember that China remains a communist run state and the geo-political climate is far from stable. That said, there is no doubt that China is well on its way to becoming the world’s largest economy. In a year when the global economic output decreased by nearly a percent, China’s grew nearly 9%. It is scheduled to grow by double digits into the foreseeable future. At that pace, China is destined to become the world’s largest economy in the next thirty years (passing Japan in the next decade).

As we said in our headline, incredible complexity combined with almost unlimited opportunity. While not for the faint of heart, China might well represent the greatest growth opportunity for retailers (and suppliers) for the foreseeable future.

If It’s Tuesday, This Must Be Seoul

2010-04-30T08:04:00.000-07:00

Sure, we’re showing our age with the outdated pop culture reference above. But, in this time of growing Internationalism, the analogy seemed appropriate after visiting one of the newer shopping centers in the high profile Myeong-dong shopping district in Seoul. Traveling the globe, previously exotic locales now somewhat blend together with the homogenization of retail. In the five years we have been traveling to this market, we have seen dramatic changes to the retail landscape.

As in every part of the world, global influences are rapidly spreading. In country after country, the influence of globalization is apparent, from fast food franchises to high-end luxury goods and fast fashion. As we were walking through the new and exciting NooN shopping center, the roster of tenants reads like an international who’s who of fashion.

This is the site of H&M’s first store in Korea, occupying partial space in several floors of the six story structure. H&M continues to improve its branding, visual merchandising and communications as the format evolves from its relatively no-frills beginnings to a true lifestyle powerhouse.

Zara and Mango, the two Spanish global brands also have presence. Zara felt a bit lost, perhaps unsure of its positioning. The thinness of merchandise and negative space used so effectively in Europe is not to be found here. Supply chain may play a factor in promising quick replenishment.

A floor of the center is devoted to sports fashion brands. Nike, Adidas and Puma all have brand shops, along with Foot Locker, strangely. Strangely, of course, because it’s selling the same brands that are in their dedicated shops. Of course, brand management in Korea always leaves something to be desired. In the incredibly (take our word for it) dense and crowded streetscape, we can encounter shops of these very same brands multiple times within a three block radius. And, you can see everything from a full-blown flagship store to a tiny footprint boutique.

The fifth floor actually begins to show some Korean (or at least Japanese) flavor and heritage. It houses an extraordinarily cool collection of small independent boutiques, offering the “best of” fashions of Japan, Korea and the U.S. The sixth floor is a food court and yes, Starbucks and Coldstone Creamery can be found. The Singapore export Breadtalk has a small café here in addition to their street presence, with a delightful collection of bread and pastry with exhibition style baking.

The dynamic parts of Seoul continue and the shopping district maintains its unique Korean identity in the thousands of shops and boutiques that dot the landscape. But, with these International brands (and spectacular Japanese brands like Muji and Uniqlo also present), it is easy to forget where you are. Only momentarily, one might add, since the sizes available don’t quite match our carb-filled American bodies!

The rapid global presence of the powerhouse fast fashion brands of Zara and H&M is amazing to contemplate. Inditex (Zara’s parent) does business in over 70 countries with sales of over $13 billion while H&M is present in 30 countries with sales right behind. They have redefined the fashion business and seem to translate their business to great effect across the world.
U.S. retailers, once the innovators, are struggling to keep pace. The world is indeed getting smaller.

The 40th Anniversary of Earth Day and Greentailing

2010-04-22T11:19:00.000-07:00

It’s hard to believe that we are officially at the 40th Anniversary of Earth Day. Green, while now blasted into our consciousness, still feels very new. While concern for the environment has been circulating in fits and starts in retailing for quite some time, it has not really gained traction until the past few years. In fact, we published an infamous edition of our Retail Watch newsletter exactly twenty years ago that spoke in glowing terms about the green revolution, the rapid embrace by consumers and ambitious programs being launched by retailers. As we eloquently stated, “The “Green Revolution” represents one of the quickest and most significant shifts in consumer attitudes in this country’s history.” Oops. The recession of 90-92 came along and green once again receded into the background.

Fast forward to three years ago and we were in the midst of writing our latest book, Greentailing and other Revolutions in Retail. We attempt in this book to be provocative and look ahead in the key trends that will influence retail as we move into the future. Along with green, these trends include shifting demography, the rise of experiential retailing, brands going retail, services growth and new ways to reach consumers outside of traditional brick and mortar. But, as the title suggest, Greentailing vaulted ahead of the pack.

What have we learned about green since we began researching this subject:

· Green is important to around two-thirds of customers. While only a small percentage (around 17% at last count) are actively green, another 50% or so will consider green in their purchases and activities.

· The stigma around green products is disappearing. The perceived quality is going up which is encouraging trial and usage.

· Customers will not pay more for green. At most, consumers are willing to pay around 5% more for a green product.

· Retailers, from a customers’ point of view, are not doing enough

Taken together, these facts present the challenge and opportunity of going green. We developed a simple model called T.A.S.C. to present an overview of effective retail strategy:

· Think Green. Build green into the mission of the company

· Act Green. Utilize various energy savings, waste reduction and recycling programs and invest in conservation and sustainability to run more efficiently.

· Sell Green. Carry more products that offer “green” benefits

· Convey Green. Communicate your green strategy to consumers in a compelling way

Of these four, Act green has gained the most traction because of the tangible savings and benefits arising from it. The two consumer fronting areas: Selling Green and Conveying Green need the most work still. Figuring out what products truly are “green” is extraordinarily confusing for the consumer and the lack of uniform standards and labels exacerbates the issue. And, retailers are not getting enough credit for what they already do. Conveying Green is a significant opportunity. We can say that there is significantly more marketing activities around Earth Week 2010 than we have ever seen. Hopefully, more consumers get the message.

Has Greentailing been the revolution we predicted? It is perhaps too early to say. While it has dominated headlines, it is still not clear that a retailer can build a sustainable advantage by being green. Important? Yes. Necessary to compete? Absolutely. Game changing? Not yet…

Kenmore Live Studio—Can Sears Resurrect Its Brand?

2010-03-26T08:41:00.000-07:00

We just visited a fascinating experiment from Sears called Kenmore Live Studio. Dubbed a “social media factory”, the basic idea is that this will become a physical space to showcase the Kenmore brand. While we’ve been lamenting a lack of creativity, this is certainly a concept that is pioneering a new direction.

Kenmore Live Studio is located on the corner of North and Wells in Chicago. It is a curious place to put the concept, a trade area that is more restaurant and/or art gallery than retail. It will not have the walk-by traffic that one would associate with “pop-up” locations but may be fine for the purposes of a destination draw. The space is designed to be a gallery of sorts for the Kenmore brand, with the focal area being a stage/demonstration area for cooking classes and live events. This content is then edited live and disseminated via Kenmore’s Facebook page….www.facebook.com/Kenmore. The format just opened with plans to be around for six months. Generally closed during the day, the main interactions will be on evenings and weekends. They have already hosted chefs, a cookie cook-off and a demonstration for organization tips.

This is an intriguing idea—part social media, part pop-up—that explores new ways that brands will begin to interact with customers in the future. Interestingly, nothing is for sale, so the real measure will be in visibility for the Kenmore brand (or, at minimum, new Facebook friends. There are now just 439 of us, so there is tremendous room for growth for a brand that is in tens of millions of American homes).

We did not see the concept in full action though we did drive-by on a weekend night and the huge flat screen TV does draw interest from the streets. You can also watch the space live on Facebook and measure crowd appeal. The success will obviously lie in content programming—a quick look today reveals no “scheduled” events, only past ones, and this kind of medium needs constant attention.

To the bigger picture, we wonder about the mother brand, Sears, and its future. While it seems to clearly be losing the brick and mortar war in the Sears format (year upon year upon year of comp store declines is our real indicator, not how much profitability can be wrung from the box…), they do seem to be doing a lot of things right in the e-commerce space. The web site and sales continue to grow; they remain leaders in creating site to store solutions with ideas like My Gofer and do seem to be very aggressive with social media, mobile apps and the like. Much of this may be window dressing if the core stores can’t turn around but slowly, perhaps, the image of Sears is beginning to change.

Kenmore Live Studio is another compelling glimpse into a multi-channel future.

Martin & Osa--RIP

2010-03-16T07:49:00.000-07:00

This week, American Eagle Outfitters officially pulled the plug on their ambitious Martin & Osa concept. This will mean the closing of 28 locations and the end to yet another experiment by a specialty retailer to target an older demographic. Abercrombie & Fitch had already pulled the plug on their upscale and older Ruehl experiment.

With our recent blog on the closing of Fashionology, we seem to be spending more time writing obits than we do celebrating the opening of new ideas. This is surely a sign of the times: the optimism inherent in these brand extensions simply doesn’t exist today. Both Reuhl and Martin & Osa suffered from a combination of bad timing as well as a struggle in truly finding their identity.

Straight out, we were big fans of Martin & Osa (even typing this blog has me in M&O fashion). We loved the lifestyle approach, particularly evident in the early stores where music, books and eclectic merchandise also accompanied the fashion. There was the wonderful back stories of the intrepid adventurers (yes, they were real folks) that anchored the men’s and women’s collections. The store design was visually stunning and cool and had some awesome dressing rooms!

Ah, but what about the product? It seemed maddeningly hit or miss. But, of course, this was highly dependent on which customer it was being designed for. The price points and styles jumped all over the map, which led to some great (for the shopper) markdowns but undoubtedly hurt the bottom line. In fact, they announced over $40 million in losses on the 28 stores which led to the inevitable plug pulling. We loved some of their fashion but it was never entirely clear as to what precisely Martin & Osa’s role would be (it seemed to want to play somewhere in the Banana Republic/J. Crew genre but never had those concept’s clarity). The clothing was casual but didn’t really transition to the workplace. It was conservatively styled but lacked some flair to make it the right choice for a night out. And, while we knew of several men who owned pieces, the women’s side (which, of course, is always more important) never seemed to connect on quite the same level.

But, we found ourselves rooting hard for the concept to find its legs. It has great imagination—it failed to back that up with product that matched the ambition. We look forward to a day when we can glowingly write about new ideas that are trying to break through the clutter. In the meantime, we suspect there are a few more of these unfortunate obits still on the way.

2010-03-03T06:00:00.000-08:00

Location, Location, Brand

Walgreens’ recent acquisition of Duane Reade and Ahold USA’s purchase of the venerable Ukrop’s chain has put us in a reflective mood. First, these and some other recent acquisitions (Tops acquiring P&C Food) or attempted acquisitions (Albertsons announced offer for Bashas; Simon’s offer for General Growth) suggest that we might be beginning to see some real M&A activity after a fairly prolonged drought brought upon the freezing of capital markets. However, most of the acquisitions would be classified as “strategic” buys, retailers buying retailers, which suggest that the private equity guys still remain largely on the sidelines.

The notion of a “strategic” buy is really at the heart of what we’re musing about. On the surface, both acquisitions are simple enough to understand. They are real estate motivated—Walgreens getting access to 250 or so coveted locations in the densest market in the US and Ahold, through its Martin’s division, extending its store base in Virginia. However, acquisitions are rarely “simple”, as culture, format uniqueness and long ingrained shopping habits play a large role. In both of these cases, giant chains are taking over relatively small companies so the assumption is that the smaller companies will be quickly absorbed into the bigger firms’ brands and cultural folds.

As we dig further into the details, both begin to get interesting. Shortly after acquiring Ukrop’s, an announcement was made that the Martin’s name would become the main banner. This makes a world of sense from a synergy standpoint but also erases one of the most venerable names in food retailing off the map, not to mention an institution in their hometown of Richmond. Right or wrong, this is not a slam dunk decision but easily understood. Shortly thereafter, the first and highly unlikely culture test came into play—hereafter known as the great Girl Scout cookie incident. Seems that Ukrop’s has a long-standing tradition of allowing local charitable institutions to sell outside their stores--Ahold does not and banned the practice. The publicity that ensued (mostly negative for Ahold) is almost comical in scale but highly illustrative of the dangers of messing with culture. The much bigger deal ahead is that Ukrop’s, due to religious beliefs, never sold beer and wine and closed their store on Sundays. Again, Ahold is making a simple decision to reverse those sales killing decisions this Spring and it should theoretically yield almost an instant 20% sales gain. But, as the Girl Scout flop shows, messing with a brand is serious business.

The dust has yet to settle on Walgreens/Duane Reade. Again, on the surface, the locations Walgreens will secure are almost priceless and will allow for penetration in the New York City market that would be impossible to duplicate. A few short years ago, the Duane Reade brand (and stores) was in critical condition. Famously cluttered and with indifferent service, it was a brand New Yorkers loved to hate. But, the current management team has done a remarkable job of making over the chain. A new logo, stunning new store design, new private brand programs, an emphasis on higher end beauty and a re-dedication to customer service woke up Duane Reade (and was probably a significant contributor to the $1 billion + purchase price). So, now what? It would be an easy decision to turn these stores into Walgreens and gain instant synergy. Or, does Walgreens choose to let Duane Reade remain independent and perhaps be the template for urban stores? Whatever the decision, Caveat Emptor (let the buyer beware)—there is more to a Brand than meets the eye.

Fashionology—An Unfortunate Retail Failure

2010-01-08T07:16:00.000-08:00

Fashionology’s fate was probably sealed a year or so ago when ICSC named it one of the country’s Hot Retailers for 2009. This tween based concept that allowed customers to custom-create their own t-shirts and other apparel certainly had promise and a number of cool elements. But, as we have seen so many times before, there is a huge difference between a promising concept and a successful one. We had just visited (and shopped) at Fashionology and the ideas and flaws were readily apparent.

What was great about Fashionology? The ability for girls to custom design their own clothing brings out the Project Runway in all of us and the high tech and high touch machines made it easy to bring the customization to life. At the end, the customer could have their picture digitally taken with their creation and e-mailed to their friends or posted on the Fashionology site. The store could handle birthday parties and it would be a blast. And yes, we did buy something for our daughter, who said she loved the design.

It’s easy to see how it grabbed initial publicity. However, getting named a “store of the year” or “hot concept” often seems to lead to failure rather than success.

Our visit revealed some gigantic problems. As clichéd as it may seem, the retail adage of ” location, location, location” always seems to come into play. The first (and it turns out) only retail location was in Beverly Hills, on Canon Drive, a good block away from the real (and really expensive) retail activity. But, even had it gotten closer to the heart of Beverly Hills retail, it still would have been the wrong place for this concept, which would have been much more at home and much more accessible to its customers in a mall.

Additionally, it was expensive. By the time we were done “blinging” our shirt and buying a few buttons, we were staring at a $40 + price tag, which is a lot for a girl’s long sleeved shirt. Fun to do once but not necessarily a place to build a wardrobe. Patterns, colors and styles were also fairly limited, which further reduced the overall appeal.

Fashionology announced a January 21 closure. As with many concepts with promise, the fixes may have made a huge difference, beginning with a better location. But, funds obviously dried up and we may never know if there was something lasting here. It reminds us again just how difficult it is to start up a retail concept. Fashionology joins the unfortunate ranks of new concept failures.

Sol Price—A Retail Revolutionary

2009-12-17T13:21:00.000-08:00

We were saddened to hear about the passing of Sol Price, a retail legend who revolutionized retailing over the past several decades. We also have some very personal links to Sol, and can trace McMillanDoolittle origins almost directly to that era of profound retail change.

For those not aware, Sol Price founded Price Club, which was the original membership warehouse concept pre-dating any of the efforts we see today. He almost single-handedly created the notion of this business, which is now well over a $100 billion business in the US and taking root internationally as well.

It all started with Sol Price in a single club in San Diego in 1976. Sol had the revolutionary idea of re-inventing the productivity chain in retail: Carry a few of the absolutely critical sku’s, sell in incredible tonnage, with great velocity, at extremely low margins and charge membership fees paid for by consumers for the privilege of shopping. And, being the brilliant merchant that he was, Sol also figured out that creating a treasure hunt environment that mixed unexpected surprises with the staples would keep customers loyal and coming back again and again. In the process, he created retail stores that drove volumes in excess of $100 million, unheard of that time and still rare today.

While we are all now familiar with how the model works, so many pieces were so radical at the time that his ideas were dismissed by many in retail. Of course, there were a few people paying close attention. Jim Sinegal of Costco worked for Sol Price and later launched his own concept and eventually acquired Price Club. Our founder, Sid Doolittle, was an early follower as well, and partnered to open The Warehouse Club in the Chicago market. Other early models included BJ’s, The Wholesale Club, and Pace. And, there was a guy named Sam Walton who used to visit Sid Doolittle at his first Chicago location on the weekends…..600 stores and nearly $50 billion in revenues later, Sam’s Club remains a staple of US shopping.

For many of us who have worked at McMillanDoolittle for a long time, we had the privilege of learning the lessons of high productivity retail from Sid Doolittle first hand. For such a simple idea, execution becomes incredibly complex and razor thin margins necessitate an extreme focus on all of the levers of retail profitability. But, while the clubs have been around now for 30+ years, the lessons of productivity are slow to take hold. Even today, with all of the analytical tools at a retailer’s disposal, the club model still produces 50 to 100 times the productivity per sku than the retail models it competes against—drug stores, supermarkets, discounters and supercenters.

In our book, Greentailing and Other Revolutions in Retailing, we began our discussion reviewing historic revolutions in retail, ranging from the birth of the supercenter to the advent of the Internet. And, there was certainly a prominent place in that discussion of the contributions of Sol Price and clubs. In an era of so much sameness, the real innovators tend to stick out. Sol Price was one of the true icons of modern retailing.

Big Book R.I.P.

2009-11-23T10:18:00.000-08:00

With JC Penney’s recent announcement that they will no longer publish a big book (their large general merchandise catalog), it effectively ends the lifecycle of a business that ushered in modern day retailing in the United States as we know it.

Back in the late 19th Century, Montgomery Ward began the mail order business in Chicago, IL (a major rail and water hub perfectly positioned to serve the established East Coast markets and the emerging West). Along with Sears, Roebuck and Spiegel, mail order boomed through the first half of the 20th Century, bringing goods to customers in remote areas and effectively ushering in modern consumerism in the United States.

Post WWII, as Americans began to cluster in closer to the cities (the development of the suburb) and with brick and mortar retailing greatly expanding (the simultaneous development of the modern day shopping mall), mail order began its gradual, inexorable path to extinction. This was particularly true for the big books of Sears and Montgomery Ward that also relied on their stores or catalog stores for product pick up and return (and we think multi-channel retailing is a new invention…). But, for millions of Americans, the arrival of the big catalog provided an incredible window into the all of the products that could be available.

By the 80’s, the general merchandise catalogers reached further obsolescence, as specialty catalogs and specialty retailers proved to be more nimble and cost effective than the cumbersome books. One by one, the big books fell, and often their companies with it—Montgomery Ward and Spiegel both disappeared and Sears shut down catalog operations.

Ironically, JC Penney who was late to the catalog game (they entered through acquisition in the 60’s) also survived the longest. Catalog remained a multi-billion business for them in the late 1990’s. Most importantly, they hung on long enough to effectively bridge the gap into the modern day era of e-commerce. As the Internet began to boom in the late 90’s, JC Penney had the infrastructure and name to become an instantly formidable player in e-commerce as other companies struggled to quickly ramp up capability.

Unquestionable, as catalog retailing changed the retail landscape in the early 20th Century, e-commerce is having the same effect on the 21st century.
Even though this obit could have been written fifteen years ago, we’re going to miss those big books and that link to a form of retailing that brings back a flood of nostalgia.

In our most recent book, Greentailing and Other Revolutions in Retailing, we discuss this very theme. As mail order fades, e-commerce takes it place. Has the modern day department store been rendered irrelevant by specialty and discount stores? Will Amazon make book superstores obsolete? And most importantly, what’s around the corner that will one day threaten Amazon?

2009-10-05T11:24:00.000-07:00

Taking Private Label Public

One of the few bright spots in retail has been the explosive growth of private label during this current recession. While private label has also grown during non-recessionary periods, the double digit increases of late has brought overall share to historic highs in the U.S. Individual chains, like Kroger, report that private label share is now in the high 20’s as a percent to sales and nearly 35% of units.

Of course, private label growth has been coming at the expense of national brands, with private label growing faster than brands in most categories. For retailers, the trade-off between lower average selling prices and higher margin is one they seem willing to make. In fact, many have begun to take the battle for private labels very public, beginning to compare both quality and price to the brands:

•Major re-launches for private brands that have occurred this year include the massive packaging re-design and reformulation of Wal-Mart’s Great Value brand, which is the largest single private label brand in the U.S. Target also chose to replace its iconic “bulls eye” packaging in personal care and households products with the Up & Up brand, which is finding its way onto shelves now.

•Stepped up media efforts include companies like HEB, Loblaws and Safeway running dedicated spots for their private brand programs. In the case of Safeway, brands such as Eating Right and O Organics are being sold outside to other retailers (shades of Loblaw’s Presidents Choice from years ago).

We have also seen more guerilla-marketing driven efforts appear of late, sometimes in seemingly unlikely places:

The first evidence comes in the form of an old supermarket trick—the shopping cart comparison. In the old days, of course, the cart would be used to compare Store A against Store B and show how much cheaper they are. Now, we see a diverse group of retailers performing the same comparison, using private label and national brands. The photo to the right is Costco, which shows a whopping $116 savings on a $442 basket, nearly 30%. The fact that this is placed prominently at the front, after walking through a display of exclusively private label products makes the impact that much more powerful.

This picture is Safeway, which is offering a $44 savings, or over 35%, in their basket against national brands. They have also been aggressively marketing the quality of their private label with in-store POP materials.

What happens when you don’t have national brands in your store? Trader Joe’s goes back to the tried and true of comparing against another retailer.

This time, Trader Joe’s compares their basket of private label against Dominick’s (Safeway), as you can see from the image on the left.

In fairness to Safeway, they were only 40% cheaper (great merchants, lousy mathematicians…)

We did something similar last month. As part of a larger pricing study, we looked how private label prices compared across retailers. Now, we acknowledge that this isn’t the way a consumer shops (they compare private label to a national brand at the shelf) but we did think it would be interesting to see who has the lowest prices on private label, period. In a basket with 10 private label items (they can’t be called identical because they aren’t brands and are not the same), Aldi was 25% lower than Wal-Mart and nearly 80% lower than the two leader Chicago area grocers—Jewel and Dominick’s.

Finally, Consumer Reports recently weighed in, asserting that a number of private label products did as well or better than the brands in their tests.

As private label becomes more mainstream, it puts pressure on the retailers to deliver products that deliver on the promise and national brand manufacturers to fight back with real innovation while ensuring that the value remains.

One thing is certain—the battle of private label versus national brand has been elevated to a very public status.

Has Retail Gone on Permanent Sale?

2009-08-27T13:23:00.000-07:00

A few weeks ago, we attended (code for "shopped" and "did our part to stimulate the economy") Nordstrom’s famous semi-annual sale. The premise has always been a novel one—put in-fashion and current season goods on sale now, before they are put on regular (and higher) prices post sale. A great way to get a jump on the season and we know of many customers who circle the date on their calendar to buy for the year. It has also traditionally enabled Nordstrom to avoid the massive price cutting and clearance that occurs at most retailers towards the end of the season. And, while there have been precious few winners in the retail space of late, Nordstrom has been able to maintain decent margins even as their sales have consistently averaged down double digits over the past six months.

Our experience with the Nordstrom semi-annual sale this year yielded two critical observations:

• The average retail price point has gone down. Besides the products that were on sale, everyday priced items from well known brands were at seemingly lower price points than in the past.

• This would seem to mean one of two things: Nordstrom is taking a lower initial mark-up on items in order to be more value priced, and perhaps avoid taking clearance at the end. Or, manufacturers are developing product at lower price points from the outset. Perhaps they are settling for less or maybe slightly de-specing the goods. Or, of course, a little of both.

Either way, it means that customers will have access to lower priced products earlier in the season. On the downside, it means retailers like Nordstrom will need to sell more pieces to keep up, which has been a constant issue in apparel retailing for the last decade as access to lower priced manufacturing has driven price deflation.

We also look at this in the context of some other trends we note of late:

• The advent of private sales at luxury goods retailers has created the notion of a secret sale within the store. The sales can be targeted via direct mail to their better consumers or through a “wink-wink” system in-store.

• The growth of on-line purveyors like the Gilt Groupe (which is worth its own blog) has made access to luxury goods on sale an everyday phenomenon. There seems to be a growing list of manufacturers who will supply goods through the on-line channel.

It is clear that retailers are going to have alter their approach to business in many fundamental ways if they hope to get a piece of what continues to be a dramatically reduced pie. Pricing strategies and pricing integrity will play a crucial role in the future. While we can admire Abercrombie’s steadfast refusal to discount, it is also fairly evident that they are falling on a mighty big sword (with comps down a staggering 30%). It is not at all clear that their customer base will come back even as they have maintained brand integrity.

Has retail gone on permanent sale or will we see pricing recover along with the economy?

Your thoughts?

Eddie Bauer Files Chapter 11; Ruehl to Shut Down

2009-06-22T13:55:00.000-07:00

“…every new beginning comes from some other beginning’s end” -- Closing Time

At first glance, these stories don’t seem to share too much in common other than being the latest casualties in a brutal recession. While retail sales have been hit hard in general, apparel retailers have taken an even greater toll -- perhaps the biggest surprise is that we haven’t seen more bankruptcies and closures. Behind the curtains, though, both have lessons to tell, not entirely related to the recession.

For Eddie Bauer, this filing almost seemed inevitable. After emerging from the Spiegel bankruptcy in 2005, the company has struggled to regain its prominence as a specialty apparel retailer. With Spiegel, the company grew far too fast and lost direction, moving away from its outdoor performance roots towards casual apparel. As an independent company, it experienced further bumps along the way, moving too far fashion forward at times, then perhaps too conservatively as it struggled to regain its way. The company lost focus and its soul along the way.

With full disclosure, we had the opportunity to work with Eddie Bauer around two years ago, helping the management team craft an interim strategy. With Neil Fiske’s arrival, he developed a direction that simultaneously invoked the company’s (and its persona, Eddie Bauer) strong outdoors heritage while also attempting to move it forward as well. What the company couldn’t afford was this current economic downturn. Executing a turnaround with razor thin margin for error isn’t easy (and nearly impossible) in trying times.

What is particularly encouraging about this particular Chapter 11 announcement is that it stands in marked contrast to other high profile filings recently. Rather than simply disappear from the retail landscape (think Linens ‘n Things, Circuit City, Sharper Image and a host of others), Eddie Bauer may actually emerge as a significantly stronger company that has a full opportunity to regain its prominence. While Chapter 11 is never a good thing (particularly for all current company stakeholders), in this instance, new proposed ownership is in place with some interesting stipulations: while there is still conflicting stories about how many stores will close—from none to up to a third, expect a significant number—the opportunity to get out of bad leases is too attractive to pass up in a filing.

More significant, however, is the private equity firm’s stated intention to finance this deal in cash, which would allow a re-emerged Eddie Bauer not to be crippled by debt, which was the cause of many a highly leveraged company’s collapse in prior times.

Though details are few and much still needs to be approved, we take this as a very positive sign of what re-constituted retail companies might look like in the future. Eddie Bauer still has a long way to go…but it begins with solid assets of real brand equity and an eponymous founder who doesn’t need any embellishments on his legend. We think the company now has a real shot to emerge as a multi-channel model for retailers in the future.

Ruehl, which announced it is shutting down its 29 stores at the end of the year, represents one of the few brand stumbles for its parent Abercrombie & Fitch. They are masters of brand building, creating their namesake brand from the ruins of a stodgy hunting brand, turning it into a hip brand for teens. They did it again with the development of the Hollister brand, bringing the same sophistication to the surfwear look. When it came time to develop Ruehl, their track record certainly suggested success. We first covered Ruehl in Retail Watch of December of 2004 (time flies in the retail world). Now, after five years, they seem to be throwing in the towel.

While Abercrombie knows how to build brands, our big concern for Ruehl (and Gilly Hicks which is their other developmental brand) is that brand building at Abercrombie is becoming too formulaic: the mysterious store front, the brand back story, the dimly lit store (we needed coal miners’ hats to see), the expensive merchandise and the beautiful but less than helpful staff…can easily describe any or all of their formats. In the case of Ruehl, the brand story takes us to Greenwich Village and a uber-hip townhome. The store was so hip that it disguised itself as a store, a novel idea but not exactly welcoming. Once in, the product never really distinguished itself from the flagship brand, and didn’t justify the more premium pricing. We actually think they were making progress during our many visits but apparently the brand was destined not to move much past a niche. We suspect we will continue to see the Ruehl brand exist (perhaps as a premium sub-brand for leather goods) within the A &F family.

We think the larger issue for retailers right now is how much they will be able to continue the push for format diversification, which was all the rage in better times. For Abercrombie, their insistence to resist discounting and maintain brand integrity is noble but is also leading to staggering sales decreases, as they now have recorded eight straight months of -20% or more comp store sales numbers. They are tightening the ship, and Ruehl may be the first casualty. We have higher hopes still for Gilly Hicks (with 15 stores) given that it goes after a different segment than Ruehl. But, perhaps the tried and true brand formula needs tweaking?

What is the lesson that ties Eddie Bauer and Ruehl together? While their paths and history are very divergent, clarity of brand positioning for the consumer emerges as a paramount theme. Eddie Bauer had a solid brand at one time, then let time and competition slowly erode it. For all of its promise, Ruehl never really founds its niche. While a well-positioned brand may not entirely protect a company in trying times, it certainly represents the foundation for long-term survival.

From the country that brought you slow food…slow retail?

2009-06-04T06:21:00.000-07:00

During our recent trip to Italy, we stumbled across a retail marketing idea that really made us think. And, given the current retail climate, any retail promotional idea deserves an opportunity. Italy brought us the slow food movement, rebelling against fast food. While it has been slow in building in the U.S. (Alice Waters of Chez Panisse is a big proponent), it does seem to be picking up steam. So, if we have slow food what about slow retail?

At the Freddy store we studied while visiting stores in Milan, Italy (did we mention this was tough work?), we stumbled across their campaign offering a “slow movement of shopping”. The idea is basically as follows:

The more time you spend in the store, the more money you save. Spend 10 minutes in the store and get 10% off. Twenty minutes, 20% off and 30 minutes, 30% off.

We are intrigued by this idea on several fronts:

Data suggests that there is a correlation between time spent in retail stores and money spent. The more time, the more money.

Given the promotional thrust of most retailing today, it may just be another, more creative way to market a discount.

But (and a giant one…), that time needs to be productive time for the customer. If it is time spent finding a parking space, finding an item or waiting in line to check-out, it can quickly become a negative.

As creative promotions go, this one makes you think. Besides the logistical difficulties of actually tracking time spent, there is something compelling about a retailer who encourages customers to really understand their offer.

In the case of Freddy, this really does seem to make sense. We would kind of liken them to the Lululemon of Italy. They specialize in what they call the art of movement, creating stylish clothing for yoga, ballet and active pursuits. They were the official sponsor of the Italian Olympic team in Beijing as well as the upcoming Vancouver winter Olympics. Like Lululemon, it does take more time to explain technical product and there is a passion for what they sell that does encourage more time spent in the store.

How slow retailing gets balanced against our fast-paced lifestyles is the real challenge. Our research indicates that customers have been shopping less stores and spending less time while shopping. But, there are certainly experiential retailers that would seem to buck the trend.

What’s your point of view? Besides the inevitable slew of Italian jokes—and yes, we can attest that it almost impossible to get anything done in Italy in less than 30 minutes…is there merit in encouraging customers to spend more time in the stores?

Three’s Definitely A Crowd—Perhaps Two Is As Well

2009-01-19T09:01:00.000-08:00

Nearly a decade ago, we published a somewhat controversial article entitled Three’s A Crowd. The simple premise—the retail world was getting cluttered with too many also-ran retailers and that it was getting increasingly difficult to survive if you had the third, fourth or fifth market share in a particular category.

Come 2009, this premise seems wistfully nostalgic. While we were prescient at the time, it is now obvious that only the top retailers in a category will survive. But, the last six months brings an even scarier premise—what if there’s not even room for two? The very high profile bankruptcies and subsequent liquidations of Circuit City and Linen’s & Things are stories of the demise of the number two specialty players in their respective categories. In categories as large as consumer electronics and home furnishings, we are now left with just one (albeit sizable) specialist. Kay Bee Toys is now also completely defunct leaving us with one standalone toy big box retailer. In book retailing, the troubles at Borders perhaps challenge whether there is still room for two brick and mortar book retailers.

What’s changed? There are two significant factors that appear to be at work outside of a historically dismal economy. The first is that competition has been redefined by the tremendous influence of mass retailing. In just about every category, Wal*Mart and Target wield enormous influence and market share. The second key factor is the Internet, which offers customers instant access to dozens of choices. While market share may not be huge yet in any given category (books are a notable exception), it is growing fast and absorbing demand.

We are about to enter a period of significant closures and consolidations as retail spending contracts and we work our way through an excess of retail stores. Survival needs to be foremost in any retailers minds. But, at a minimum retailers need to think now, more than ever, of creating innovative strategies that are not simply trying to copy the competition. The ultimate failure of Circuit and Linens had much to do with the inability to carve out unique space relative to Best Buy and Bed, Bath & Beyond.