The Meaning of Time

SONY DSCAll of us move through our lives with a clock ticking inside our heads. Even in troubled economic situations, time, rather than money, is our most important commodity. That clock tends to tick at relative degrees of loudness. You can meet a friend at Garden State Plaza Mall for the afternoon, and the clock ticks softly, a kind of shopping therapy. At the same mall another time, you want to get in and out as fast as you can. In other words, the meaning of time can change.

My mother was relieved when a 7-Eleven opened a location close to our suburban home in the 1950s. The idea of buying milk for a young family any time of day was a godsend, even if she did have reservations about both the price and quality. Ask a Millennial today where they buy milk, and you get an eclectic list; the drug store, the grocery store, the convenience store, the mass merchant, even the office product superstore sometimes stocks milk. In parts of Europe, you can even buy milk at roadside vending machines. [Read more...]

Something New, in the Right Hue, That Fits, Too!

iStock_000019764536MediumIn our most recent article, we discussed the newest trend in retail — going hybrid. The reality of the marketplace makes having control over the value chain a necessity for fashion brands, retailers and manufacturers; and this has evolved into what we call the hybrid business model. Today we’ll expand on how retailers can stand out from the crowd and develop a competitive advantage by using elements such as fashion design, newness and fit to support their overarching brand strategy.

Design

In an oversaturated marketplace, compelling designs in the storefront window are the key to enticing shoppers. I look no further than a recent shopping trip, when I was strolling past C. Wonder. This little yellow polka dot dress was calling my name. Seriously, calling my name. I couldn’t have lived with myself if I left it behind on the rack. This is precisely the type of personal response every retailer strives to create.

Examples of companies excelling at the design game are plentiful. Take, for instance, Canadian superstar, Lululemon. This retailer has successfully taken on vertical integration, gaining control across the design, marketing, distribution and retail stages of the value chain. I never thought I would pay $100 for a pair of yoga pants. But guess what? I’m not afraid to admit, I live in those things. What is the key here? A great, consistent design that is always flattering and made of high performance, feel-good fabric that lasts for years. Lululemon is a high-energy, experiential brand that is delivering on its promise through great design.

iStock_000020512898MediumNewness

Newness is also important. Fashion has to make you want to buy something new and the companies that are able to consistently deliver fresh products to the marketplace are the ones distancing themselves from the competition. Even timeless pieces like the Little Black Dress are constantly being reinvented to remain modern. According to global management consulting firm Kurt Salmon, newness impacts the bottom line. The firm calculated that for every week saved within the product development cycle, the realized margin improves by 25 base points. Think about Asos, which introduces 1500 new lines per week, creating a new shopping experience each time a customer logs on. Even traditionally conservative Nordstrom has forayed into fast fashion with its Savvy Collection and the expanding partnership with Top Shop. By changing up merchandise almost daily, Nordstrom is hoping customers will connect more often; online or in person. After all, if a customer thinks she may miss out on something desirable, she most certainly will be back again and again. The element of newness is also evident in the fast growing concept of pop-up retailing. Pop-up stores offer up the appeal of exclusivity, newness and the element of surprise. Even San Francisco-based startup company Storefront has made a business out of connecting companies with short-term retail space.

iStock_000016752905MediumFit

Now we turn to what customers often deem as one of the most important criteria when making a purchase decision —fit. Kurt Salmon revealed that 85% of consumers will buy a particular brand because of the way it fits. Who knew such a short, three-letter word could mean so much? Some companies are building fit into the very essence of their business model.

Take for instance the personal styling service Stitch Fix. According to its website, the company’s founder is “passionate about helping women achieve everyday confidence.” Using an algorithm that takes into account a woman’s measurements, budget and other data, Stitch Fix delivers a hand-picked selection of pieces aimed at flattering your body and matching your style preferences. And don’t worry men, there are options for you too. J. Hilburn is a menswear brand all about fit. Based on home-visits by stylists, the company uses measurements to deliver custom-made clothing. The strategy is paying off — during 2012, the custom retailer doubled its yearly revenue and expects continued growth this year.

We’ve seen many great examples of companies carving out their niche in the marketplace through fashion design, newness and fit. Ensuring these elements align with your brand will help protect against the continual mark-down strategy that has plagued so many. But the question remains — how can companies do this effectively and still reach the market at the right time, the right quality levels and the right price point?

The answer: technology. Today’s marketplace offers technology for anything you could possibly imagine and, luckily for the fashion industry, there are solutions that get to the heart of your every day challenges. Advanced design software enables designers to better share, communicate and collaborate while producing technically correct and cost-feasible designs. Product development software with the latest 3D technology reduces costly samples while improving style, fit and end product quality. The list goes on and on.

Technology can provide visibility across the entire supply chain, ensuring companies move quickly and efficiently. In our next installment, we’ll focus in on this technology and explain how it all works. Stay tuned!

People Improvement is a New Frontier of Growth

In my last article, I addressed the importance of “individualizing” store growth plans based on each store’s metrics and specific DNA. Now, let’s discuss the next step in the process — looking further inside the “black box” to the individual associate’s performance to help each person reach his or her full potential as reliable, strong contributors to store growth.

Developing associates to be more productive has never been more important than right now! Retailers face increasing pressures on labor costs. The Affordable Care Act (ACA) forces companies to make hard decisions on full-time vs. part-time staff. Although many retailers remain committed to maintaining a core staff of full-timers, these higher costs must be offset somehow. Our answer is to systematically increase individual productivity. When associates learn and apply new skills to help more customers buy, and buy more, they dramatically offset increases in wages or benefits.career path

As we all know, retail boils down to customers and associates. Associates are the ultimate touch point — where their interactions with customers strongly influence the likelihood of hearing, “Yes, I’ll take it.” So what’s the best way to systematize individual performance improvement and develop more top sellers? [Read more...]

How Modern Brands Stand Apart: Going Beyond Simple Segmentation

I don’t envy today’s brand marketers. With so much competition out there, how do they stand out?

I’m not talking about distinct competitors like Target and Walmart or Aldi and Trader Joe’s. The lines of contrast between these companies are easily drawn by age, income, race, education, and culture.

I’m talking about an industry like apparel retail, where brands like the Gap, Banana Republic, and J.Crew compete for nearly identical audiences. The factors that distinguish the loyal consumer of one brand from another can’t be found through mere demographics. These companies have to compete on entirely deeper levels, finding and appealing to the most granular nuances of their target shopper.

Let’s look at two of these similarly positioned brands, the Gap and J.Crew. Both appeal to a younger consumer (Millennials and GenXers), at similar price points, and with similar fashion styles. However, when we look deeper, we find that both brands attract a loyal following that is distinct from the other.

Our database includes a large national sample of consumers over the past year who responded to one of our polls, saying that they “Love” either brand. In total, we found 337 people who “Love” the Gap and 398 who said they “Love” J.Crew. We can study numerous other attributes we’ve collected about these respondents to find correlations. [Read more...]

A New Strategy: Individualizing Store Growth

In my last article, I talked about “Data, Data Everywhere” and how critical it is to simplify retail analytics so we can use the data to take the right actions to help more customers buy, and less time analyzing the hundreds of reports trying to figure out how. When we use data correctly, we have proven that we can develop each store based on their own specific needs…resulting in significant performance improvement and new-found profits. It’s a new way to grow!

I’ll never forget an energy filled conversation I had with a very successful CFO of a large retailer. I was sharing my approach of “individualized store development” when I quickly realized that after patiently listening to my theory he wasn’t buying it. He informed me that his one-size-fits-all, top-down approach is far easier to implement and that I should adopt the command-and-control approach which has worked successfully for the past 20 years.

I clearly did not make my case. But it was helpful as I went back to the drawing board on how to more effectively communicate this new approach. I learned that his point of view is highly indicative of where many leaders in our industry are in terms of how they think about stores and growing revenues. [Read more...]

Crime, Punishment & Retailing

African street vendorOrganized retail crime is escalating, but can law enforcement cope with a global crime spree and a new class of criminal?

When I was eight years old, me, and two equally nefarious friends, decided to hit the local Woolworth. The objective? The new Duncan yo-yo and two green plastic, spacegun-shaped waterguns.

My guys—not exactly Goodfellas—were supposed to distract the cashier and stock boy, but took a powder when they saw the manager grab me by the shoulder. Half an hour later amid threats of prison, my mother picked me up, smacked me on the head and dragged me home where I faced the dreaded “wait ‘til your father gets home” scenario.

So much for my criminal career! [Read more...]

It’s a Bird, It’s a Plane…NO, It’s Amazon

amazon-pac-man_rd.2It’s a state. It’s a city. It’s a country. It’s a movie producer, a real estate broker, a publisher, a wholesaler, a fashion house, a distributor of anything and everything. It’s really anything you want it to be. However, unlike Superman who could be seen and recognized, Amazon is still masked in the fog of the unknown. Nobody knows how to accurately and succinctly describe Amazon. However, since it sells lots of stuff to consumers, it is most often referred to as a retailer, and therefore, traditional retailers’ biggest fear. Described as Pac-Man in a previous Robin Report, chomping up share of market in multiple industries, Amazon is now pushing $80 billion in revenues and growing at 20+ percent a year.

E-commerce start-ups, which display positive growth trajectories, have been more than happy to get acquired, or to merge with Amazon. And the range of such deals over the past many years just confirms the fact that Amazon is an all-inclusive, ‘boundary-less’ world of whatever one might want or need. The list is endless, ranging from drugstore.com, to pets.com, wineshopper.com, audible.com, shopbop.com, foodista.com,and zappos.com. And these are just a few.

Ironically, or brilliantly, Amazon is most often operating with a red bottom line. This, of course, is simply absurd, counterintuitive and unacceptable for most traditionally grounded businessmen, particularly since this has been CEO and Founder, Jeff Bezos’ ‘MO’ from Amazon’s day one. How does he get away with it? Well, Wall Street not only accepts it, they totally understand that it’s an expansion and growth strategy without end, not limited to any product or service category, to any consumer segment, to any geography. It is simply a distribution platform, able to distribute anything and everything to anybody and everybody, at any time, anywhere in the world — and soon to be distributed the same day.

So Bezos continues to take any leftover cash from revenues and throws it at new business launches. And investors have learned to not only expect and accept it, they, well … invest in it.

While Walmart is still the world’s largest retailer, and recently declared that their approximately 4500 stores are indeed, distribution centers, they are so established in the minds of consumers as a traditional brick-and-mortar retailer, selling basic, commoditized ‘baskets’ of products and services at rock-bottom prices, that it would be near impossible to transform itself into the Amazon model.

Having said that, we do not count the Walmart ‘behemoth’ out, do we? Pushing towards $500 billion in sales, with a mere 1% to 2% (roughly $5 billion) of sales generated online, its digital future should be its oyster. However, given its established business model, with a narrower range of product or service avenues for growth compared to the ‘boundary-less river’ of Amazon, I just don’t see a horse race in the future when Amazon reaches Walmart’s size and begins to pull away.

And for the rest of you, regardless of the industry you are in, your product or service category, your position as luxury or discounter, wherever you are located geographically, just simply expect and accept the fact that Amazon is going to be eating your lunch for a long time.

And believe me, Amazon will open physical buildings, commonly called stores, probably sooner than later. Further, those stores, ‘pods’ or showrooms, or whatever you wish to call them, will offer a level of personalization/localization that traditional retailers simply cannot achieve. Why? Because Amazon sits on bigger data than anybody else on the planet — and they know how to mine it.

Good luck.

The $2 Trillion American Rip-Off

There’s a growing disparity in the way some economic data have moved since the recession. On the one hand we have employment and income figures, which tell the story of a sluggish U.S. recovery with a long way to go to pre-recession prosperity. On the other hand, healthy retail sales and consumer spending have rebounded to, and even surpassed, pre-recession levels.

According to the Bureau of Labor Statistics, the population of working-age people has grown by more than 5 million since the beginning of 2008. The labor force has increased by only 1.5 million, and the total number of employed has decreased by 2 million, resulting in a steady decline in the labor force participation rate (see Chart 1).

shadow_economy_chart-1That doesn’t jive with the brisk pace of consumer spending (Chart 2), according to Bernard Baumohl, Chief Economist at Princeton, NJ-based forecasting firm The Economic Outlook Group, who noticed the sudden divergence between total personal consumption expenditures and the labor force participation rates that began during the Great Recession.

shadow_economy_chart-2

The stubbornly high unemployment rate makes even less sense in light of retail sales which, according The Department of Commerce, have been growing by 3-5% per month over the last two years on a 12-month smoothed basis, as shown in Chart 3 below. Sales of durable goods have been particularly strong.

shadow_economy_chart-3This is consistent with an unemployment rate much lower than the current rate of 7.3%, according to Baumohl, who noted: “… Not since the government first released retail sales on a monthly basis have we seen retail sales grow at such a vibrant pace with the unemployment rate so high.”

All this has been going on while, according to the Bureau of Labor Statistics, median household income has been on a steady decline (Chart 4).

shadow_economy_chart-4How are all these unemployed consumers with declining incomes able to keep shopping?

As it turns out, being unemployed doesn’t necessarily mean not working. According to research by Professors Richard Cebula of Jacksonville University and Edgar Feige of the University of Wisconsin-Madison, a significant part of the U.S. population participates in the shadow economy, an estimated $2 trillion underground market in the U.S. These folks are doing everything from giving piano lessons to running retail stores. They’re being paid off the books in cash by their employers and/or customers, and either not reporting or underreporting their income.

We’re not just talking about mob bosses or drug dealers here, but about millions of people, some (but by no means all) of them undocumented immigrant workers, with everyday jobs, many in service businesses such as child care, landscaping, and construction. Much of the underreporting of income starts as a way to make ends meet after being laid off, but ends up becoming a lifestyle.

According to Professor Cebula, the underground economy has been around for as long as income tax. Its participants range from hardcore criminals to people whose lousy bookkeeping skills cause them to accidentally underreport their income. His research shows that in the last 10 years, the ratio of unreported and underreported adjusted gross income to reported AGI has ranged between 22% and 24%. Most of the underground income, says Cebula, is earned by people in the lowest income brackets.

To uncover this trend, Cebula and his colleagues simply followed the cash. Despite the proliferation of credit cards, debit cards, smart phone payment apps and bitcoin, currency in circulation with the public totals around $3,000 per capita, hardly the trappings of a cashless society. The Federal Reserve reports almost double-digit increases in currency outstanding over the last few years, to almost $1.2 trillion, compared to $800 billion six years ago (Chart 5).

shadow_economy_chart-5The evidence is everywhere: people pulling out wads of cash in stores to pay for big-ticket items; small stores who “don’t charge you sales tax” if you pay them cash (which means they’re not reporting the revenue to the IRS); soaring demand for prepaid debit cards (which you can buy anonymously and use to pay utility, rent and other bills); the rise in underbanking and nonbanking. According to the FDIC, in 2011 the number of U.S. households with no bank accounts was 8.2%, up from 7.6% in 2009.

Why is the economy’s dirty little secret not getting more air time? Well, for starters, it’s neither politically correct nor expedient to go after the little guy. It makes government look boorish, and after all, many of the people perpetuating this fraud are voters, so politicians have every incentive to turn a blind eye.

A more important factor, however, is that much of the $2 trillion ultimately goes into cash registers, and might have kept the real economy from tanking a few times during the recovery. Which means retailers aren’t exactly unhappy about it.

The U.S. is not the only country experiencing this trend. The shadow economy in Europe will total $3 trillion dollars this year, according to an A.T. Kearney/Visa report. In Italy, where the top personal income tax rate is 45% and tax evasion is practically a national pastime, it represents a massive 21% of GDP.

So is the shadow economy a good thing? Unless you’re a fan of felony tax evasion, of course not. The impact on government revenue is staggering, with an estimated $500 billion in lost federal income tax, money that could close the budget deficit (and possibly even create a surplus), reduce the national debt, help pay for improved infrastructure, and provide public services to people. Many of the people working off the books also collect unemployment or disability, go on Medicaid, and use food stamps, multiplying the fraud.

Of equal concern is the fact that the rapid growth of the underground economy since the recession might be a result of deeper and potentially more damaging trends: an underlying distrust in government; a feeling that regulations are too stringent and complicated; a lack of confidence in financial markets; declining confidence and hope. These feelings weren’t exactly soothed by the most recent government shutdown.

The Economic Outlook Group’s Baumohl feels that although impossible to quantify, the size of the underground economy could be as high as 10% of GDP. If legally accounted for, this $2 trillion would add another 10% to disposable income data in the U.S., and add a whopping 25% to government tax revenue.

Cebula feels that it would be impossible to collect tax on these transactions, however. First, because these transactions leave no paper trail and, in many cases, are done by people that the government doesn’t even know exist, it would be hard to find them. Second, even if uncovered, the taxation would be very short-lived. “In theory, if we were to tax it,” he added, “the behavior would stop, so there would be nothing to tax. And many illegal immigrants would just leave.”

In other words, trying to go after these people wouldn’t necessarily boost tax revenues very much, but would help curtail illegal activity and reduce the illegal immigration problem? Sounds like a step in the right direction.

However, Cebula’s argument fails to take into account the fact that plenty of the underreporting is done by businesses and households who, rather than get caught and pay penalties, might decided to improve their reporting record. That includes the dog groomer or handyman who doesn’t charge you tax if you “make the check out to cash.” He’s not going to turn away business; he’ll just do more of his business on the books. Maybe his prices will go up a bit in the short run, but they’ll eventually settle at what the market will bear, or he’ll find another line of work. So, theoretically, some of the tax gap will be at least partially recouped.

People who work off the books are hurting themselves in both the short and long terms. They’re not paying into Social Security or receiving health benefits. They can’t report abusive employers to authorities. They don’t participate in financial markets to build up investment income nest eggs. This is ultimately a drag on economic growth, which will hurt the retail industry.

The underground economy disfavors law-abiding people and shifts liabilities to future generations. Allowing businesses to get away with cheating makes it harder for legitimate ones to compete. The reduction in workforce participation puts upward pressure on labor costs, and places honest retailers, who collect and remit sales tax and abide by employment laws, at a price disadvantage.

The IRS claims to lack the resources to go after the tax cheats, which only makes the problem worse. When there are fewer police cars on the roads, more people speed. But how could it not be cost-effective to enforce compliance? When such a huge amount of owed taxes is not being paid, it shouldn’t take long for an IRS agent making $60,000 a year to earn the agency back his salary. We can’t afford to not force compliance. If successful, it might eventually lead to lower income tax rates for all which, as we know from history, tends to stimulate economic growth.

We need fewer regulations and red tape for businesses and households who employ people, and better enforcement of (simpler) tax laws. We need politicians to worry less about getting re-elected, and more about increasing government efficiency. And we need a level playing field that rewards success and honesty, punishes criminals, and helps people who really need help. Without these things, neither the free market nor democracy works.

Opening the Door on Target’s new Threshold

Robin_Report_Sep2013_stock4Perhaps the Dayton family should have come up with another name for its discount department store start-up back in 1962 if it wasn’t prepared for the inevitable – and as-it-turns-out endless – questions raised by retail observers, competitors, suppliers and, oh yes, customers, about whether the store was on Target, had missed the Target, or otherwise was involved in some Target-related activity.

Be that as it may, those are valid questions to ask, more so than ever when it comes to the country’s second-biggest general merchandise retailer’s home furnishings offerings and its new marquee program called Threshold. Officially rolled-out this past spring after some soft teases over the prior months, Threshold is the single-largest private label program Target has ever introduced, and is no doubt being counted on to carry much of the merchandising load for the retailer in the months and years ahead. [Read more...]

Big Data “Has No Clothes”

GERMANY-US- INTELLIGENCE-SNOWDEN-PROTESTThe Millennials Love It

It’s a strange world and these are strange times we are living in. We witness nerdy Edward Snowden, outing and vilifying the NSA for seeking to make the world’s population transparent, while at the same time making himself transparent to the entire world. And, I suspect at some level, he’s been quite enjoying his sudden (transparent) notoriety, however controversial it might be.

Yet the irony of Snowden’s purpose in outing the NSA is that his fellow Millennials seem to live, breathe and happily embrace transparency in everything they do, from posting every flake of cereal they ate on Facebook, or tweeting about the bug that just ran across their desk, or “I’m walking down the street now,” and, of course, the height of transparency, “sexting” (which, I know is not confined to Millennials – witness Anthony Weiner).

So, Snowden believes the NSA is invading the privacy rights of citizens, while a whole generation (his, and commercially, the most important for the retail industry), has expanded the acceptance of transparency in their lives, almost beyond limit.

Snowden’s purpose and fate are beyond my pay grade, but the irony of “bad” big data (“Big Brother”) according to Snowden, and “good” big data, apparently welcomed by his cohorts, did not escape me. And the discussion of big data could not be more timely. It is the buzzword of the day, almost replacing “omni-channel.” [Read more...]

Consumers Are Talking…Are Brands Listening?

The Robin Report

Click to see Chart Full-Sized

Consumer Facts from Cotton Incorporated Lifestyle Monitor™

Once consumers became comfortable purchasing apparel online, brands and retailers sought to enhance the experience through social media sharing options, crowdsourcing — and online customer comments sections. What may have begun as a means of increasing sales via search engine optimization has grown to be a barometer of what’s in and what’s out of favor with the buying public.

Customer Comments
Project Reveals Key Apparel Complaints

Cotton Incorporated set out to quantitatively measure these customer comments, and the result – the Cotton Incorporated Customer Comment Project – reveals what makes apparel consumers rant or rave about their purchases. [Read more...]

So, What’s a Little Surveillance Between Friends?

surveillanceUnless you’ve been living under a rock, you’ve heard the National Security Agency vehemently denying that its spy program is trampling on the constitutional rights of citizens, while privacy advocates bellow about the rise of Orwellian dictatorships. They do love trotting out the 1984 metaphors.

Frankly, there are hypocrisies on both sides. But retailers using data mining and loyalty programs, could get caught in the wringer if they don’t police themselves and those that gather the data. More disturbing is what I’ve heard in retail circles recently about reining in customer analytics for fear of incurring the wrath of privacy activists.

I sincerely hope that government surveillance is more concerned with terrorist plots than people’s personal proclivities. But surveillance isn’t new. It just went electronic with George Orwell’s vision of an authoritarian utopia and the Internet has simply made it easier. [Read more...]