Are You Trapped in the Past?

shutterstock_176490206Think you are a Retail Guru? Student of the Industry? Current or former Master or Mistress of the Universe? Or have you just been around the business for at least 25 years? Well, wherever you were in 1989, were you capable of foreseeing what retail would be like in 2014? Some of you who were part of the industry in 1964 may in fact still be alive and kicking. If you are a member of that rarified group, did you envision then any of the changes that have occurred in our industry over these past 50 years?

Change is a concept that most of us say we understand and readily embrace. Yet, in reality, we have little or no capacity to conceive of, plan in support of, or manage change.

Past as Prelude

In 1964, retail was principally focused on downtown business districts in either overlarge emporium like local department stores and/or mega-catalog houses. Downtown specialty retail was invariably local. Few, if any, shopping malls existed; there were no strip or power centers, and no big box players or discounters of any consequence. Local city-based Woolworth’s and Woolworth-like stores that blanketed downtowns were more the norm throughout the country. Technology then was embodied by mechanical cash registers in the front of the house and manual comptometers and handwritten ledgers in the back room. [Read more...]

Amazon Finally Gets It: The Next Big Thing For All Pure Digital Players

amazon_openingAmazon’s announcement of its first physical store opening on Manhattan’s 34th Street is not a surprise to me, as I predicted it four years ago in the first edition of my co-authored book, The New Rules of Retail, published in 2010.

The logic was the same then as it is now.  Amazon has a huge database, estimated to be larger than the Pentagon’s — and they know how to use it. The data provide them with laser-sharp knowledge, such as what Jane Doe — who is married with two kids and a dog and is living on the east side of Manhattan (or anywhere in particular) — is eating for breakfast; what brand of jeans she wears; the charities she gives to; the music she likes; and so forth. Therefore, as Amazon rolls out its stores nationally, it can assort each location precisely with those items that are preferred by specific shoppers. The stores will also have screens for downloading information and selecting from Amazon’s massive inventory.

The personalized knowledge that Amazon continues to build on, and that all retailers are pursuing, is collected over time across all accessible consumer browsing and transactional points, and it’s game changing. It tracks consumer-shopping behavior and can be drilled down to individual profiles.  This is the big deal part of the buzz concept, Big Data, because it tells the retailer not only what brands the Jane Does on the East Side prefer, it can also indicate what kind of shopping experience, environment and service they expect. Most traditional retailers have not yet scratched the surface on big data analytics and its laser-like ability to localize, even personalize the shopping experience. It will be interesting to see how Amazon uses its analytical advantage in this area. [Read more...]

Luxury Needs a New Story

luxneedsnewHow Alex and Ani, Saint Laurent and STORY are doing just that

Recently, cracks have begun to show in the “same old story” that serves as the traditional luxury marketing platform. For years, for decades, and in some cases for centuries, luxury brands have been doing the “same old song and dance” for their current and prospective customers. The luxury story, which describes how brands are positioned and marketed, goes like this: exclusivity, design excellence, exceptional workmanship, top-quality materials, and aspiration for brands that one aspires to own and to show off. Things are changing.

In July, Hermes reported a slowdown of sales in its fiscal second quarter 2014. In the same month, LVMH reported first-half year sales were below expectations; and Kering, owner of the heritage Gucci brand, reported a 2.4% decline in the brand’s sale in the second quarter 2014. The only bright spot for Kering was their Saint Laurent brand … but more on that later.

While many fingers point to slackening demand in China as the culprit, American affluent consumers have undergone a dramatic mood swing regarding luxury since the recession, reflected in those disappointing results. That change in attitude is illustrated in Unity Marketing’s Luxury Consumption Index, our measure of affluent consumer confidence based upon quarterly surveys.

Every three months we survey 1,250+ affluent (i.e. people with incomes at the top 20%) luxury consumers (i.e. affluents that report buying any luxury or high-end goods or services in the preceding three-month study period) about their financial status and purchase behavior. Five key measures about their finances, spending patterns, and view of the economy overall go into the calculation of the Luxury Consumption Index, which reflects the affluent consumer confidence.

Since early 2010, the LCI has stalled, moving forward one quarter, only to retreat again the next, with no consistent upward trend in affluent consumer confidence. Rather, three times in the past four years, the LCI has slid back to near recession levels. This is what I call a mood of austerity. It’s reflected among the mass affluent HENRYs (high-earners-not-rich-yet consumers with incomes $100k-$249.9k) by trading down to less premium brands and shopping destinations. For HENRYs, austerity means spending less, plain and simple.

The higher income ultra-affluents (income $250k), and the core customers for luxury brands, feel empowered financially, yet their spending has gone undercover, toward inconspicuous consumption or put another way, “conscientious consumption.” Ultra-affluents are expressing austerity as a return to basics and simplicity. For them it isn’t about saving money, they are holding out for something truly different, authentic, and special that reflects their new values.

Affluence, American-Style

American-affluents’ mood of austerity brings challenges to many mainline, traditional luxury brands and retailers. It also opens up opportunities for other brands that tell American customers a new story giving meaning to the brand. Aligning luxury brand positioning to the American consumer mindset is critical since by any measure the US is the world’s largest luxury market. The US has the most millionaires of any country in the world, 7.1 million according to Boston Consulting Group, which is nearly three-times more than China. And the Bain/Altagamma study reports the US leads the world in luxury goods sales, estimated to reach €62.5 billion in 2013, which is more than 3.5 times the size of the next largest country, Japan.

Luxury is very much a culturally conditioned concept. One-size-fits-all luxury won’t work in the global market; it has to be adapted to the unique character of each market. American affluents in their mood of austerity are focusing their purchasing choices on value; nobody wants to pay more when they can get good stuff for less. The brand story also plays an influential role. There is so much good product out there that the story becomes the hook that justifies the purchase. The narrative or history of a product — where it comes from, why it exists, and what it means — is increasingly becoming a key driver for purchase.

Luxury expressed American style means a trend toward the practical, simple and minimalistic, as opposed to the gaudy, showy or ostentatious. Austerity doesn’t necessarily mean cheap or low cost, but it demands that brands justify their premium prices with real value.

Here are three brands that have reinterpreted luxury well.

Selling Energy from Alex and Ani

Rhode Island-based Alex and Ani has put a new spin on jewelry marketing – emphasizing the personal experience of buying and wearing its designs, rather than placing value simply on the jewelry itself. It’s luxurious not because of what it is made from, the artisanal design, or the price, but rather by how it makes the customer feel. It’s jewelry with a meaning and purpose, designed so that customers can combine it in unique ways to create a personal statement. It is jewelry enhanced with an energy boost, as the company’s logo reflects.

A pendant tied to a specific interest (sports team, zodiac sign, charity, college, sorority) or emotion (enthusiasm, confident, enlightenment, vibrant, spirit) is the basis for each piece. Pendants are attached to wired bracelets designed to stack on the arm, or to necklaces for layering. While each individual piece is very affordable (most under $50), the concept is to create a whole collection so one can ultimately wear multiples worth several hundred dollars just on one arm. Every time she puts on her collection, she tells a personal story of where she’s been, what she values, or who she is. Or he is, since the brand is unisex by design.

Alex and Ani is a made-in-America brand, but more importantly, it is very much a brand made for American consumers today.

Saint Laurent Reinvents YSL for the Next Luxury Generation

In Unity Marketing’s affluent consumer tracking study we consistently find the young affluents, those aged 24-44 years with incomes of $100,000 and above, outspend the mature affluents 45 years and older. Young affluents are in an acquisitive life stage, while the matures may already be downscaling their lifestyles.

That leaves the younger consumers, under 45 years, as the prime targets for luxury brands. Increasingly, that means catering to Millennial shoppers, born from about 1980-2000; the leading edge of the cohort (34 years) is approaching early middle age and their peak income years.

Moneyed Millennials are looking to brands and shopping experiences that capture their unique mood and spirit. That is what makes the efforts of the newly reimagined Saint Laurent brand, under the direction of GenXer Hedi Slimane, worth studying. By dropping the Yves from the brand name, but keeping Saint Laurent Paris, it connects to the brand’s past, but looks forward to the future.

Further, the Saint Laurent reinvention has an American twist. Slimane moved his design studio from Paris to LA and opened a new flagship store on Rodeo Drive. While some of the Saint Laurent fashions feature glitz and glam, there is a minimalist, back-to-basics aesthetic, especially among the menswear designs, that connects with the current mood. Slimane is honoring the YSL-edge, but telling a new story reinterpreted for today’s hipsters. Saint Laurent was rewarded for its bold moves by a 29% growth in sales growth in the second quarter 2014, while Kering sister brand Gucci declined.

The Story Behind STORY

Made in USA, as with Alex and Ani, is a very popular story today among affluents. Luxury with an American-twist is reflected by Saint Laurent, and then there is the STORY store itself. Located in on 10th Avenue in New York City, STORY is a store that, as described on the company’s website “takes the point of view of a magazine, changes like a gallery and sells things like a store.” It is fun, innovative and quirky.

Every four to six weeks, the store is completely made over with new fixtures, displays and merchandise, all that that tell a special story. A recent STORY exhibition is called Style Tech, which features brands like CuteCircuit — fashion that fuses LED lights into fabric technology or Ringly — interfacing jewelry with a smartphone to alert the wearer to an incoming call or text message. At STORY, merchandising becomes multidimensional – good quality and outstanding value combined with a compelling story that justifies the product’s existence.

Luxury brands Have to Tell a New Story

The idea of consumer aspiration for luxury brands– that people buy out of hope or ambition – is dead. The truly affluent don’t need status symbols; quite the contrary, today they are going stealth. They need to be inspired to pay a premium for luxury. And inspiration comes from a strong value proposition with an equally strong story hook. The smart marketers also recognize that each succeeding generation craves brands and shopping experiences that reflect their own special tastes and interests.

The question is whether you are ready to transform your brand through the hard work it takes to articulate authentically your story for today’s and tomorrow’s American luxury consumers. Believe me, they sure don’t want the “same old story” and the “same old song and dance.”

Target’s Big Leap of Faith

targetNot long ago, Brian Cornell was appointed Target’s CEO, becoming the retailer’s first CEO hired from the outside instead of being appointed from within the company’s hierarchy.

At any company, when a long-standing practice concerning the appointment of the top-level executive is changed, it usually means there is a lot of repair work to be done at the company. Target is no exception to that.

Let’s take a quick look at four key issues at Target and then see how — or if — Cornell’s experience addresses them. [Read more...]

MAC: All Things to All People…Even If That Maybe Isn’t The Best Idea Right Now

MACUpfront disclaimer #1: MAC is one of the best beauty brands of all time.

Now that that’s firmly out of the way, let’s commit a little heresy and posit that maybe, just maybe – and this is solely one industry-watcher’s opinion, Makeup Artist Cosmetics, founded in Toronto in 1984 by two guys both named Frank (Toskan and Angelo), snatched up by the Estée Lauder Companies in 1998 for a cool $60 million, has lost sight of its North Star.

How do you know a colossal cosmetics company, one that cut its teeth with professional makeup artists and deployed 6’7” drag superstar RuPaul as its very first spokesperson, may be veering off track? When it announces its hot new collaboration with…Brooke Shields.

Upfront disclaimer #2. Brooke Shields is incredibly beautiful and an American institution. [Read more...]

For Moroccanoil, Imitation Is the Most Litigious Form of Flattery

DanaWood1In all likelihood, only Novak Djokovic logs more court time than the corporate counsels of beauty brands in possession of a true rarity; an original idea. Breaking ground in a new category of product? Be prepared to spend your days fending off a slew of increasingly shameless copycats.

Flashback to 2006: An obscure “hair oil” – created not by an A-list coiffeur, but by under-the-radar Montreal salon owner Carmen Tal – starts trickling into the public consciousness. It’s derived from the nuts of argan trees, which are indigenous to Morocco, and is laced with hair-soothing fatty acids. Sure, argan oil is good for other stuff, like preventing heart attacks. But who cares about that when it can deliver livelier, lusher locks? [Read more...]

Serves Up, One Caffeine Wave at a Time

keurig2.0For big box retailers in the home business, there is no single merchandising classification they love to hate more than small electrics.

A cornerstone of the housewares business, it is – along with cookware — the workhorse of the promotional calendar, driving traffic and generally getting bodies to come into the store to the home department. It is also a train wreck when it comes to profitability. I remember talking with a new divisional merchandise manager for housewares who was downright flabbergasted by the tiny margins in the store’s small electrics business. If it weren’t for bad margins, small electrics wouldn’t have any margins at all. That said, you’re unlikely to see any of the major players in housewares retailing getting out of the category anytime soon. Like the old Woody Allen joke about the guy who thought he was a chicken, retailers need the eggs. [Read more...]

International Intrigue: How Retailers Can Gain Share of Cross-Border Spending

crossborderInternational travel has been remarkably resilient in the post-financial crisis period. In fact, MasterCard research shows that since 2009, international visitor arrivals and spending have grown faster than real global GDP. Despite its size and strong growth, cross-border spending is a challenging area for retailers. When international travelers arrive, many merchants have difficulty recognizing them, anticipating their needs and catering to them. Even worse, most merchants neither recognize the size of the cross-border opportunity nor understand their current share. This is important, since even a 1% share of a leading market such as New York or London is near $200m in annual revenue. As it does with so many retail issues, data can play an important role in gaining share of cross-border spending. Insights into spending and behavioral trends can help retailers understand their current share of wallet and provide the intelligence needed to attract more cross-border dollars.

The International Traveler of Mystery

For those who are successful at attracting the international traveler, the ‘prize’ can be substantial: MasterCard research forecasts that cross-border visitors to the 10 leading destination cities will spend $136 billion during 2014. Narrowing that down to the biggest cities for cross-border spending and the opportunity becomes even clearer. In London, the leading global destination this year, this translates to an average of more than $1,000 per visitor. Average spending is even more impressive for other major travel destinations, such as New York ($1,600) and Taipei ($1,700).

Retailers seeking to gain cross-border sales should consider four approaches to anticipate the arrival and needs of the cross-border customer, to capitalize on the opportunity:

1. Benchmark the Current Competitive Set

Retailers and other types of merchants typically lack data on their share of cross-border spending, and have even less visibility into their share of spending by visitors from specific countries. A first step should be to measure current performance and compare it to that of competitors. In doing that, merchants can gain valuable insights by analyzing key indicators based on recent transactions and determining how they stack up against their competitive set.

2. Leverage Existing Customer Base

After benchmarking competitive performance, retailers can capture a greater share of cross-border spending by analyzing existing customers. As an example, many types of merchants – including airlines, hotel chains and luxury fashion brands – have established relationships with travelers through loyalty programs. Analyzing the spending patterns of frequent traveling members of the program can help identify the merchant types with which members engage most frequently. This may uncover partnership and ancillary revenue opportunities for the brand.
Analyzing the membership of a hotel chain affinity program, for example, may show that affluent customers from certain countries engage frequently with particular luxury industries. Such insights may yield partnership potential as a means of attracting customers from those markets and gaining share of spend while they visit.

3. Understand Spending Habits of Cross-Border Customers

Another strategy to gain share of wallet with international travelers is to analyze past spending activity by international traveler customer segments for predictive insights. As an example, a retailer at a shopping mall in London could see that high-income customers from New York City are likely to have shopped for apparel before they come to the mall. The retailer may also notice that the international traveler segment frequents bookstores at some point after leaving the mall. These insights may help the retailer evaluate partnerships or category expansions.

4. Choose Influential Partners

Cross-border travelers interact with many different travel market participants, including airlines, airport authorities, tourist boards, car rental companies, hotel chains, online travel-related services and banks. These are potential partners to other merchants looking to grow their business with international travelers.

A tourist board, for instance, may wish to attract visitors from certain markets. From some markets, a high proportion of travelers will be affluent, while those from others will be predominantly business travelers. These different cohorts may favor certain types of retailers, restaurants and hotels during their stay. A tourist board will have an interest in connecting the two, both to improve the customer experience of the traveler and to drive business within its region. Insights from spending behavior patterns of travelers from these markets will identify areas of alignment and potential partnership between the tourist board and merchants in its region.

Cross-border spending is growing rapidly and should be of particular interest to retailers in geographies with high penetration of international visitors. With cross-border visitors to the 10 leading destination cities alone forecasted to spend $136 billion during 2014, the opportunity for merchants cannot be ignored and a critical first step is tapping into and understanding the right data and insights.

A version of the article appears in the Fall 2014 issue of the MasterCard Advisors “Compendium.”

Supermarket Disrupters Rattle the Industry

Amazon Expands Grocery Delivery Service To Los Angeles AreaConventional supermarkets — those mid-tier retailing behemoths — are beset on all sides by disrupters. Some of those disrupters are cloaked in technology, some aren’t; others are self-inflicted and emerging from within.

Let’s take a look at what the disrupters are doing to the biggest retailing industry of all.

To begin: the greatest disruption traditional supermarkets have faced in the 60 years or so they’ve been feeding America came a generation ago when Walmart got into the grocery business. Walmart’s go-to-market strategy changed everything, particularly how product was acquired and distributed. For the longest time, even as the threat grew, Walmart was ignored by the supermarket industry, largely because Walmart wasn’t — and isn’t — much of a marketer and had difficulty at the time with presenting quality perishables and still does.

But none of that really mattered because Walmart swamped supermarkets with such a significantly better pricing offer that it soon became the country’s dominant grocer. [Read more...]

Luxury Retail: Turning Affluent Austerity into Retail Prosperity

lux_retailI got a call earlier this month from a freelance reporter who follows my beat – research on the affluent consumers and the luxury market. As she walked through the Time Warner Center on Columbus Circle on her way to the subway at midday, she found the halls and high-end boutiques unexpectedly empty. The only store seeming to do any business was Whole Foods. She wanted to know, “What’s up?”

I shared a similar experience visiting the Tysons Galleria, in McLean, Virginia, located in one of the nation’s highest-income counties. Walking through the mall on a weeknight, there was a remarkable lack of customers. The most active shop in the whole place that evening was the Starbucks café. [Read more...]

Apple Addicts Still Mainline Steve Jobs

X Japan Wax Figure UnveilingExcerpted from the New, New Rules of Retail
By Robin Lewis and Michael Dart

On January 9, 2007, on a big stage at the Macworld convention at the Moscone Center in San Francisco, Steve Jobs unveiled the first iPhone. With the already unprecedented cult following of Apple—and for that matter, of Jobs himself—this would be the first of many launches that would further fuel one of the most powerful brand-consumer connections ever.

This unveiling, of course, was merely the warm-up. Steve Jobs’ grandly staged presentation would trigger an intense anticipation among Apple “addicts” that would be satisfied only by the actual sales release of the iPhone itself.

This would happen at 6:00 PM local time on June 29, 2007, as the doors opened at Apple Stores nationwide to welcome hundreds of cult followers anticipating their fix, so to speak. Some media sources at the time were dubbing the iPhone the “Jesus phone.” In fact, in New York City the line started forming twelve hours before Apple’s flagship store opened and ended up winding around two city blocks, or roughly a quarter mile, with more than a thousand avid cultists in it. Some had even camped out overnight. Obviously the Apple addicts had learned that if they wanted the new phone, they had better be present when that door opened, or be forced to wait for weeks.

Apple’s connection with its consumers has gone way beyond the simply emotional. It has succeeded by actually connecting with their minds. In our updated second edition of The New Rules of Retail, released on August 12, 2014, we called this neurological connectivity. [Read more...]

Who Will Buy?

iStock_000006132565Medium

Uber.com

Millennials Opt In To a Rent-a-World

Who will buy this beautiful morning? What about renting it? What about renting it on Airbnb? What if you could rent this beautiful morning with clean sheets for $150 and be done with it?

It’s a Renter’s Market

Millennials have bypassed their small net worths through membership programs that rent them early access to nearly everything they could need. Never mind buying a second home when you can rent a chateau in France on Airbnb for $200. Why hire a chauffeur when they don’t come with an app that tracks their relative location to yours, like Uber? Even owning the latest album of your favorite band feels a lot less appealing when you can stream it immediately on and offline with a Spotify pro membership, without taking up any space on your hard drive. Music, transportation and hospitality aren’t the only industries being hit, of course; retail rental start-ups, including Rent the Runway and Bag Borrow or Steal are betting that you really don’t need to keep that evening gown or this season’s It designer purse at five times the price of a rental.

Tasting Over Consuming

A 2012 Atlantic feature calling Millennials “the less-owning generation,” cited a federal study in which the share of young people getting their first mort-gages between 2009 and 2011 is half what it was just 10 years ago. What’s more, the new renter’s market makes it more cost effective not to own, with the quality and quantity of rental goods and services surging. Start-ups focusing on work environments like NeueHouse, a workspace club whose membership caters to creative “solopreneurs” and businesses under 10 years old in New York’s Flatiron District, allow Millennials to rent studios, desks, and even just entry to the club. NeueHouse’s facilities and resources are distinctly more hospitality-driven than OfficeMax, and their membership is very selective. Concierges can as easily order a catered lunch for 10 as they can give you a shortlist of video producers for your 60-second product reel. NeueHouse plans to expand to Los Angeles and London this year, hoping to build up to 20 locations by 2020.

shutterstock_88227727

RenttheRunway.com

The digital version of this rentable luxury is SquareSpace’s highly designed, highly mobile, and hardly-any-assembly-required website templates that let small businesses get started online with their own websites and domains for a $16 monthly start. Surface magazine, a forerunner of Millennial fashion and design tastes, rents studio space in NeueHouse and has just moved their website to a SquareSpace template. Two for two, and counting.

Banking on Entitlement

Brands that truly understand the Millennial consumer are banking on the Next Gen’s fabled sense of entitlement, and are positioning themselves as connectors to lifestyle upgrades. Transportation industry disrupter Uber used this sense of entitlement and applied it to the experience of having a private driver with their “Everyone’s Private Driver” tagline, along with a stellar mobile interface and different price point options of taxi to black-car service. But the real coup in connecting to the private-driver experience was a payment-less exchange. Uber’s interface connects your beginning and end destinations and processes online payment without any further exchange with your driver; you just get out and get going.

The Standard of Living Hang-Up

This appeal to Millennials’ feeling of entitlement works particularly well because of dually negative and positive reinforcement. Negative reinforcement comes from the five years of wolf-crying from the press, damning Millennials to a lower standard of living than their Boomer parents. (Pew released a recent report on Millennials’ lag to rejoin the housing market and declare themselves heads of households.) Positive reinforcement of Millennials’ entitlement comes directly from, whom else, the first Generation Me: their parents, the Boomers. Their mantra is, “If I lived alone in the East Village in 1973, why shouldn’t you?” Never mind that 200% rent markup.

Standards still need to be maintained. Boomers say they need a set of white wine and a set of red wine glasses to entertain in that said apartment, right? Right. Boomers’ high earnings during their early bread-winning years have affected the current generation’s expectations of acquiring the same household goods, clothing, entertainment, and travel. Even with an almost 60% drop in net worth from Boomers in their twenties to Millennials in their twenties, Millennials’ expectations of a reasonable standard of living have changed very little. The real change has been in size reduction, asset reduction and the level of investment in expanding their access professionally, culturally, sartorially, even romantically. The Millennials’ standard of living is a pragmatic mash-up of owning, renting and third-party resources. And they are proud of it.

Tree house

Airbnb.com

Millennials Are Not Having a Possession-less Moment

The nature of the Millennial buyer was changed by the Recession and then morphed into a consumer whose net worth is low, yet whose standard of living is high.

But to misinterpret the Millennial renter phenomenon into thinking that Millennials do not value possessions would be a big mistake. It is not that Millennials value their earthly possessions less, it is that they value access to higher quality possessions and services more. To give it to you from my perspective: would you rather commute to work in a car every day or have a private driver pick you up twice a week? And let’s face it, how many possessions do you really need in a 400-square-foot micro-unit apartment? What Millennials are doing is leapfrogging from the traditional route of buying modestly in the beginning and then trading up as they become more affluent, to going for the gold out of the gate, even if they don’t own it outright.

The Retail Gap

Retail brands have really missed the opportunity of this trend by offering aggregated, high-quality rentable goods and services. Why do retail brands depend so heavily on dispersed outlet locations to unload this season’s collections when they could rent them? Why don’t more stores have a leasing program where you could, for example, change sunglasses every season? The concept of ownership is turning on its head, with Millennials leading the charge.

So who would buy? This preference towards immediate, temporary access is particularly enticing for luxury brands trying to acquire the Millennial. With rentable luxury goods, they can experience luxury and sample a whole range of products and brands, now. The companies that foster a sense of connoisseurship through offering these programs will earn our loyalty and trust. I encourage retailers to look at Rent the Runway, Uber, Airbnb, NeueHouse, Warby Parker, Spotify and SquareSpace as disruptive innovators who could very well reinvent the new rules of retail.