“Two Nations Divided by a Common Language"

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

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

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

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?

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

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.

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.