Sleepless Nights

mattress isolated on the whiteI am not sure about where you live, but around here in southeastern Pennsylvania, it seems like wherever I drive, I am never far away from a mattress store, and a discount one at that.

It makes me wonder how these stores can keep their lights on. Can there really be that many people in this community of half a million that, give or take, need a new bed? I don’t have the answer for the mushrooming growth of retail banks, but do I understand Americans have been buying mattresses in record numbers making the mattress category the fastest growing segment in the $164.4 billion home furnishings business in 2012, according to HFN’s State of the Industry report. In 2013, the mattress segment posted slower but still good growth to reach $9.4 billion.

Mattress Madness

Obviously Americans are sleeping better—or at least investing in record numbers in better beds. And with recent double-digit growth in the category, mattress retailers are trying to squeeze every bit of spring out of the mattress business. Sleepy’s tops out at over 900 stores, and 1800Mattress.com gives ‘showrooming’ mattress shoppers access to deep discounts for most of the leading brands. The leading television channels and even Walmart are getting in on retailing beds. [Read more...]

Retailers and Wholesalers: Yesterday’s Fish Wrap

Direct_to_consumerThe retail and wholesale business models, separately and in conjunction with each other, are collapsing. Along with their demise, the actual terms, retail and wholesale, will literally cease to exist. In fact, as I write this article, major traditional wholesale brands such as The North Face, Timberland and other VF Corporation brands, along with PVH brands, Calvin Klein and Tommy Hilfiger, among many other giant wholesale brands, are achieving faster and more profitable growth in what they are referring to as their DTC (direct to consumer, including e-commerce) business, than through their traditional wholesale to retail to consumer model. Essentially the DTC model that these wholesale brands are adopting is simply the branded apparel specialty retail model that was launched by the Gap, Esprit and other brands in the 1960s. A phrase often used to describe the model is “the brand on the door is the brand in the store.” Likewise, and to some degree in response to their branded wholesale vendors’ accelerating focus on the DTC model, traditional retailers — from Nordstrom and Macy’s to Walmart –- and across all retail sectors, will be forced to transform their business models to better control and accelerate their own brands’ direct engagement with consumers. In fact, Nordstrom and Macy’s, to cite two examples, are proactively beginning to transform their models. [Read more...]

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. [Read more...]

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...]