12 Symptoms of a Dying Retailer

12symptomsWe all know when a retailer is in trouble financially. If public, their quarterly results invite critical comments by analysts. Their financial disclosures begin to make reference to problems with loan covenants. Their underlying liquidity and solvency comes under fire from suppliers and factors alike. Often these symptoms are noted too late for any effective remediation to take place. The deathwatch is on.

But are there warning signs that can be spotted before it’s too late?

I would suggest that, in fact, there are 12 symptoms of a dying retailer:

  1. Reductions in selling space. Stores that close off selling space abruptly are often signaling a crisis in lost productivity. Beware the department store that suddenly shutters its upper or lower floors.
  2. Reductions in inventory. Stores that begin to exhibit chronic stock outages, either empty shelves or lack of continuity in colors and sizes of ongoing merchandise, are often signaling a liquidity problem. A mass merchant, big box specialist or grocery chain that can’t adequately stock its shelves is sliding down a slippery slope that can be hard to escape.
  3. Unexplained elimination of classifications. This sometimes foretells a retailer that is beginning to lose its way. A healthy retailer finds ways to make difficult merchandise categories viable rather than eliminate them. The decision most department stores made in the 1990s to trim consumer electronics and housewares in favor of apparel and accessories — because those categories didn’t have enough margin or exhibit enough turnover — was a bad decision that is now coming home to roost.
  4. Reduction/elimination of amenities and services. A retailer that stops offering free or inexpensive gift wrap, and adequate boxes and bags for customer purchases, is also exhibiting worrisome behavior. Reductions in selling hours that don’t conform to competitors’ policies is another red flag.
  5. Wholesale changes in return policies. Returns are a never-ending challenge for all retailers. Appropriate changes that reign in aberrant customer behavior, without undue effect on customers at large, are a sign of a healthy retailer. But when changes take place that are completely inconsistent with past company policies and competitive practices, it is often a sign of inner turmoil.
  6. Deterioration in merchandise quality. Taking quality features and benefits out of merchandise and services is always an all-too-available stratagem for retailers looking to improve their gross margins. But it is almost always a fool’s errand. Customers notice when apparel doesn’t fit or wear well; when features and benefits have been withdrawn or made available at higher prices than in the past; and when packaging begins to look cheap and cheesy. Merchants under pressure, without adequate leadership, will often see this as path of least resistance. Once set in motion, however, this course usually becomes irreversible. Customers rarely give retailers who exhibit this behavior a second chance.
  7. Reduction in marketing spending. Stores that are having trouble paying their bills often begin to reduce their marketing spend disproportionately. Cheaper paper and fewer pages in newspaper inserts, less attention to quality of artwork, smaller media distribution, and failure to repeat historically successful fashion and promotional events are all harbingers of trouble. Hand in hand with this is the imposition of unreasonable and unwarranted demands on vendor partners for increases in advertising allowances.
  8. Loss of price competitiveness. All retailers are sensitive to competitive price issues. When a retailer suddenly begins to be less focused on this they are definitely heading for trouble. Failure to set prices properly, and then adjust prices, as necessary, is a symptom of a loss of integrity in customers’ eyes.
  9. Reductions in customer service. Unwarranted reductions in selling expenses by understaffing departments; cutting back sales support; providing fewer cash wraps, check out stations, and pick-up desks; and cutting back on customer service are all early warnings that something is going awry. If you are a customer and can’t get a sales representative to talk to you in a store or on the phone, you need to take your business elsewhere. If you are a vendor and you can’t reasonably correspond with your retail client, then you, too, need to think about taking your business elsewhere.
  10. Reductions in lighting. Does a store start to look dark and dim? Has the store actually begun to turn its lighting down by removing bulbs, or is it merely failing to replace the bulbs that have burned out? Hand in hand with this is inappropriate heating and air conditioning.
  11. Deterioration in housekeeping. Stores require constant attention to housekeeping. This includes everything from neat, properly presented merchandise to clean selling floors, wrap stands, and rest rooms. Dirty, disheveled stores are accidents waiting to happen.
  12. Deterioration in physical plant. Stores whose buildings and property are in disrepair are signaling larger troubles. Leaking roofs, unlit external signs, poorly maintained parking lots, entrances and docks are all signs of an organization that is coming off its rails.

[Read more…]

2015 A Reality Check

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Now that Santa’s back home, trying to figure out how to get rid of his leftover inventory, with the new year well under way, it’s time for a reality check on what the retail landscape is going to look like for 2015 and beyond. What are some of the major issues and market characteristics that continue to evolve, and those that we are stuck with that are largely out of anyone’s control to change?

For starters, regardless of a few pockets of cheer, once again the retail industry has managed to stumble through another rather mediocre Holiday season. Once all of the insane promoting and discounting is factored in, as well as tallying up the excess inventory that will have to find a hole somewhere to bury itself, mediocre may turn into bleak and unprofitable.

On a more positive note, perhaps this will be the year in which we finally witness the serious elimination of excessive retail space, including malls and shopping centers, and the downsizing of what remains. I said perhaps. Part of the weeding out should consist of retailers who have reached the end of the line financially, due to their inability to steal business from competitors in a slow-to-no growth marketplace, (examples: Deb Shops and Delias). The other part of the shakeout should include retailers who are stuck in the last century (examples: Sears, Kmart and Radio Shack), unable to transform their strategies and business models necessary to engage the 21st century consumer, now the “controller in chief.” [Read more…]

Radio Sacked

radioshackWhen Woolworth went out of business and bought its one-way ticket to the great strip mall in the sky, I remember the great outcry from people who reminisced about the good old days of grilled cheese sandwiches and nickel Cherry Cokes at the lunch counter and shopping for notions.

Except when you asked these same people when was the last time they had eaten a grilled cheese sandwich or shopped for notions at Woolworths, they stared blankly and searched their memories to no avail.

We are now in the same mourning period for Radio Shack following its bankruptcy filing last Thursday. Certainly it was the retail demise with the longest build-up and least amount of surprise since the General Store closed in Dodge City.

Equal parts sad, appropriate, unforgiveable and tragic, Radio Shack’s bankruptcy has been forecast for years, despite new management, a handful of new concept stores and a Super Bowl ad that was every bit as dumb and ill-advised as Pete Carroll’s play calling. [Read more…]

Shoppable’s “Distributed Commerce”

young woman texting in a bus stationThe Ultimate In Preemptive Distribution

In my co-authored book, The New Rules of Retail, one of the new rules is preemptive distribution. Simply stated, it is defined as distributing a product to reach consumers first, faster and more often than all of one’s competitors, thus, preempting the fierce and excessive number of competitors. And today, this strategy is further enabled by technology and the Internet, including the unprecedented impact of smartphones. There’s a whole chapter devoted to this new rule and it offers deep perspective on how to implement this strategy.

In this warp speed world where new technologies and millions of new apps appear each day, there’s a preemptive distribution technology that is turning science fiction into reality. It’s called “distributed commerce.”

Think about how many times your brand is mentioned or appears online, in print, social media, advertising, on TV, in conversation, and on merchandise. Now imagine every time consumers engaged with your brand or product, wherever it may be, were automatically connected to a “buy button” that allows them to complete a purchase from any of these locations in under 60 seconds. This may sound like something impossible or out of a futuristic film, but technology companies have been working on this accelerated access for years, and according to better tech minds than mine, it will be everywhere within the next five years. [Read more…]

The New Luxury Consumer? Think: Multiple Consumers

atk_luxuryThe luxury industry may have lost a bit of its luster lately:  in 2014, Prada’s third-quarter profits sunk 44%; LVMH sales growth has slowed down; and analysts downgraded their recommendations for some listed companies.
There are several reasons for this. First, weak economic performance in parts of Europe and Asia is deflating consumer demand in those areas. Second, societal shifts, including a crackdown on corruption gift giving in China and last year’s protests in Hong Kong, are stealing some of the industry’s cache. At the same time, a lack of truly innovative products has failed to energize consumers.

But there is a big and most important reason:  the luxury consumer base has changed. It’s not your grandmother’s luxury market today, which brings tremendous growth opportunity for the luxury brands that can evolve with the changing face of affluence and market to these new customers based on their individual needs. [Read more…]

Richard Baker Is Smarter than Eddie…or Is He?

lampert_bakerNow that Eddie “sell the assets” Lampert is turning his dying retail business into a real estate play, he should retain Richard Baker as a consultant. If Lampert can afford him. Of course Richard doesn’t need the money, so he might do it out of the goodness of his heart. After all, ‘tis the season. While nobody ever questioned Eddie’s financial engineering skills, he is now at the 11th hour before bankruptcy or outright liquidation of the Kmart and Sears’ businesses. The only asset he has left to squeeze more cash out of is the real estate. With that in mind, Baker’s brilliance in real estate would come in handy. Here’s his story. In Canada, Baker sells the Zeller’s chain for a huge premium of $1.8B to Target. This is akin to Target getting whacked in the head with a sandbag. More recently Baker gets an appraisal on Saks 5th Avenue for a whopping $3.7B, making it the most valuable retail building in the world. Just to give some context, it was reported to be worth between $1B and $2B when he bought it a couple years ago. [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…]

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…]

Amazon: Trouble in River City?

Or Wall Street’s Magical Leprechaun

Amazon Unveils Its First SmartphoneJeff Bezos does have that “Leprechaunish” look about him. Wall Street certainly bought into the fable that Mr. Bezos (symbolically toiling over his “shoe making”) would deliver a pot of gold at the end of some yet to be defined rainbow. For 17 years, the Street has believed in his magic ever since he wrote in his SEC filing in 1997: “The Company believes that it will incur substantial operating losses for the foreseeable future, and that the rate at which such losses will be incurred will increase significant from current levels.” He also stated that he wouldn’t run the company to make profits, rather he would pour investment into growing the business to “get big fast.” Wall Street took a deep breath and bought into his strategy, hook, line and sinker. The Street believed that at some unknown distant point in time, and at the end of some rainbow, the Leprechaun would magically deliver his pot of gold.

Well, talk about “substantial operating losses” (which Amazon has lived up to for these past 17 years), this recent second quarter earnings report, revealing a net loss of $126 million, takes the cake. Worse, Amazon rather flippantly, with no explanation as to why, says it will lose between $410 and $810 million in the current quarter. Pot of gold? It’s more like a pot of coal. [Read more…]

The Coming Crash of Michael Kors…Take it To The Bank

MK_Blog_graphic-01Michael Kors, the brand, is becoming ubiquitous, and that’s the kiss of death for trendy fashion brands, particularly those positioned in the up-market younger consumer sectors. Its distribution is racing towards ubiquity, wholesale and retail (online, its own stores, outlet stores and internationally). Even worse, a rocket-propelled accelerant to ubiquity is its expansion into multiple product categories and sub-brands, so they can compete at all price points. Some would argue all of those segments will simply end up competing with each other, thus cannibalizing the top end of the spectrum. [Read more…]

Malls are the New Anchors…

Robin_Mall_blog_finalAnd the Internet is not the Only Culprit

A lot has been written and spoken recently about dying malls, my participation included. Well, here’s another one. In the middle of this protracted conversation, I discovered an interesting irony. As originally defined, the term, “mall anchor,” is now an oxymoron. Major retailers defined by mall and shopping center owners as “anchors” for their ability to generate traffic, now feel as though they are literally anchored to the mall, not able to cut loose as its Titanic-like host is going under. So the term “mall anchor” has now converged figuratively and literally.

With the exception of a hundred or so A malls, the B, C, and D malls are learning the hard way what they should have anticipated and acted upon a decade ago. Instead of the heavy dependence on their anchors for generating traffic and profitable growth, mall developers should have realized that nothing stays the same forever. As the Internet loomed larger by the minute, it didn’t require a rocket scientist to predict that technology would drive a fundamental transformation across the entire industry and threaten to the very existence of retailing, as we knew it.

With every mall and store in the world resting comfortably in consumers’ pockets or in their living rooms, who needs to spend the time and effort to actually go to, and shop through the mall when they can let their fingers do the walking and can shop virtually for an unlimited selection in a matter of minutes? All while sipping coffee.

Had mall owners foreseen the devastating plunge in traffic and the waning drawing power of their anchors, they would have proactively collaborated with their tenants to come up with a strategic transformation to unshackle from the anchor model. However, they didn’t. Therefore anchor positions have become an albatross around the necks of both successful retail anchors who now want a more compelling location, and the failing anchor stores who just want to get the hell out.

The Internet is Not the Only Culprit

While the Internet, rocket-fueled by the smartphone, has been the big disrupter, many malls have become irrelevant aided and abetted by three other major drivers:

1. Millennials Are Replacing Boomers as the Largest Consumer Segment

Aging Boomers, the largest consumer group ever, are retiring or starting to die off. And those among the living are downsizing, trading big homes for smaller ones, or renting in urban areas where they find more freedom in less burdensome and maintenance free apartment living. They just don’t need or want more stuff. “Stuff” expenditures for this group are now being transferred to purchasing experiential travel, leisure, and entertainment, as well as health and wellness. The Great Recession has changed shopping behavior, and whatever lesser amounts Boomers are still spending on stuff is being spent more online as opposed to a fatiguing and annoying trip to the local mall.

Millennials, who are replacing the Boomers to become the largest consumer segment (projected to account for about 30% of all retail sales by 2020), are also shaping a different lifestyle. Currently about 80% of the US population lives in urban areas. That number is growing due to Millennials preference for urban living, further influenced by the fact that many cannot afford to buy a home. Some are burdened with paying down school loans, and many of them still struggling to find decent paying jobs commensurate with their college-grad degrees. So renting an apartment is more often than not, their only choice.

Other lifestyle characteristics of this generation do not bode well for the future of massive suburban malls and shopping centers. Less is more for Millennials, and quality of lifestyle is desirable over big quantities of everything. Smaller, intimate and interesting environments trump giant stores and massive choice. High-tech and even higher-touch experiences are requisites. Ostentation is eschewed for the understated. Special-just-for-me, highly personalized brands beat out over-exposed badges of luxury. And social gathering places don’t always need physical spaces. But when they do, these places are not going to be impersonal, mega-scaled shopping centers.

Millennials are shopping differently, largely due to the fact that they were born into, and are using the full empowerment of the Internet and technology. They continue to accelerate their use of the Internet, fueling its double-digit growth rates. Therefore the shopping mall, unless it has a compelling enough reason for these young people to hang out, is being replaced by local grass-roots gathering places where the Next Gen can be with their friends to shop as well as work on their personal projects assisted by their smartphones and MacBook Airs. Mall-based teen specialty brands are struggling because they haven’t changed their models and store designs accordingly.

On the other hand, if Millennial shoppers do seek a more mall-type experience, they prefer clusters of smaller, freestanding stores in local neighborhoods or in mixed-use “village lifestyle centers.” These new public plazas offer a more compelling social and community experience, with streets of shops, outdoor cafes, restaurants, movie theatres, bakeries, and the like. Developers are keyed into this seismic shift, as many of these villages are designed with offices or apartments located above the shops.

2. Cash-Strained, Lower Income Consumers

The rich are getting richer. The A malls that largely cater to them will likely survive, although, they too, must elevate the shopping experience. However, many of the B, C and D malls catering to lower income consumers, many of whom are getting poorer, will either close altogether or be repurposed as walk-in medical clinics, health and wellness centers, video game complexes, movie theatres, etc. These cash strained consumers are reducing the number of visits to the mall to save on gas. At the same time, the dollar stores opened thousands of small, freestanding stores in lower income neighborhoods, more accessible and convenient for these paycheck-to-paycheck shoppers. Furthermore, Amazon offering rock bottom prices on just about everything, has stolen huge share of market from all the brick-and-mortar discounters serving this segment.

To throw more fuel on the fire that’s burning up mall traffic, both Walmart and Target are fighting back to regain some of their market share moving away from the mall and accelerating their small-store neighborhood strategies to compete with the dollar and convenience stores. The big-box guys are also aggressively increasing their omnichannel capabilities to better compete with Amazon.

Two other culprits are JC Penney and Sears. They are anchor tenants in roughly half of the mainstream US malls. The tale of these two retailers is not a happy one. JCP is struggling to right its ship after losing roughly a third of its business, which will require them to close many of those mall locations. Sear’s tale is one of a slow and painful death (in my opinion), which means they will ultimately close or sell the locations they own. Whatever small amount of traffic these former giants are still generating for the malls will continue to decline.

3. Outlet Malls On Fire

As retailers from luxury to mainstream continue in the value race to the bottom, in which price has become the weapon of choice, outlet stores are actually just another ruse to discount. Since the overhead for running these operations is much lower than full-line stores, the opportunity for faster and more profitable growth is intoxicating for all retailers who have been drastically slashing prices in their full-line stores, thus decimating margins.
Saks Off Fifth, Nordstrom Rack, Bloomingdale’s The Outlet Store, and Neiman-Marcus Last Call are all aggressively opening new outlet stores while they have few, if any new full-line openings planned. Even mainstream Macy’s is opening an outlet, and will probably find that it’s a highly-effective distribution channel for new growth. Just by example, upscale Coach generates 70% of total revenues from their outlet stores. Chico’s, Gap, even J Crew, are all opening more outlet stores, along with many others.

Of course, the elephant in the room is how this type of discounting is going to have on the credibility of the brands over the long term.

What’s an Anchor to Do?

If you happen to be a retailer “anchoring” dying malls, you need to determine how you can get the heck out of there without paying huge penalties. Then craft a new, smaller neighborhood store strategy that can be freestanding or as a part of one of the new lifestyle “villages” mentioned earlier.

And if you’re one of the dying mall owners, you have to figure out how to repurpose your space or simply close it down entirely. If you do, please take it down with the wrecking ball. These abandoned malls with their piles of cracking cement, broken windows, and huge empty parking lots, are horrible blights that devalue the whole area.

Repurposing examples abound. A laundry list of ideas: walk-in medical clinics, health and wellness centers, video game complexes, bigger Cineplex theaters with more Imax screens, university extension schools, 3D printing centers, gun ranges, aquariums, gyms, go-cart tracks, maker faires, community theatres, bowling alleys, day-care facilities, indoor parks, community centers and churches. And a huge opportunity; conversions to ethnic, culturally thematic malls such as the Fiesta Mall in Atlanta, totally focusing on Latino customers and all of the things they enjoy as they spend the day shopping with their families.

So the message to the anchor-store mall owners or anchor-retailers, un-anchor yourselves and embrace the revolution. Disrupt yourselves and “bite the bullet” on whatever financial hit you must take to change your business model. Quickly. As they say, “sink or swim.”

Will it Be Made in America?

FINAL image_Anastasia‘Made in America’ is quite the hot topic right now, grabbing up headlines left and right; from the backlash about Ralph Lauren’s 2012 Olympic uniforms (the company quickly learned its lesson—the 2014 ones were made in the US) to retail beast Walmart’s declaration to increase its purchase of American-made goods by $50 billion during the next 10 years. It’s a hopeful story—fostering patriotism while supporting the return of jobs to US soil.

There are those who say that domestic manufacturing is simply not feasible at certain price points, while others have found a significant shortage of skilled workers as a blocking point. Despite these obstacles, will apparel manufacturing sprout again in the US?

Our take is yes.

Companies are manufacturing clothing in the US today and have been for a long time. Take Martin Greenfield Clothiers, for example. The menswear company offers fine, hand-crafted tailored clothing including made-to-measure suits and tuxedos, made 100 percent by hand in its Brooklyn, New York factory. The company’s customers aren’t too shabby either—Presidents, Ambassadors, major motion pictures, the list goes on.

You may be saying, well of course a company that produces such high-end garments can charge a premium and not worry about paying extra for production. And we agree. But many companies are finding success producing in the US at all different price points. In fact, according to a recent study by Boston Consulting Group on the shift in global manufacturing, China’s manufacturing cost advantage over the US has shrunk to less than five percent, while Mexico currently has lower manufacturing costs than China. This shift highlights how American companies can now consider their home turf as a viable manufacturing option, keeping production closer to the end consumer.

Brand names like Ralph Lauren, Club Monaco, Frye and Brooks Brothers are now producing a percentage of their pieces on home turf as well. Designers like Nanette Lepore are outspoken on the topic; she organizes Save the Garment Center rallies and is vocal with lawmakers in Washington to support the American fashion industry.

America’s Research Group found that approximately 75 percent of consumers would pay more for American-made goods, up from 50 percent in 2010. Thus, people are seeing this as a business opportunity, evident by the rise of startups dedicated to US manufacturing. Look at American Giant, a direct-to-consumer apparel company that makes high-quality, affordable basics, including hoodies, t-shirts and sweatpants. After a December 2012 Slate article declared the company’s best-selling sweatshirt as the “greatest hoodie ever made,” there was a months-long waiting list. American Giant pledges to never outsource jobs overseas.

An important element to consider is the fact that this ‘repatriation’ movement isn’t unique to the US. There is also a push for ‘Made in Britain.’ British companies were dealing with the same challenges—wage increases in China, higher transportation costs, hard to control supply chains; there was also a wave of patriotism following the Olympics and the Jubilee. Many companies have been able to spark an onshoring resurgence, with Mulberry, Marks & Spencer, Topshop, Christopher Nieper and John Smedley being just a few examples.

The moral of the story is: if other higher wage countries are successfully moving toward domestic production, there’s no reason the US can’t follow suit.

We may end up eating crow because of our stance on this topic as only time will tell.