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…]

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…]

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…]

Lessons in Luxury From the Middle Eastern Souks

Gold_SoukWhy is buying fine jewelry in the Western World such an intimidating and utilitarian experience? A beautiful piece of jewelry is sensual, romantic, seductive. Why do we feel like we’re purchasing expensive light bulbs instead of a circlet of dazzling diamonds? We can learn a lot from the bazaars and the souks in the Mideast.

Two of the most magical places in luxury retail are the Gold Souk in Dubai and the jewelry section of the Grand Bazaar in Istanbul. The window displays are opulent. There is nothing restrained about the presentation, unlike the minimalist Tiffany windows or vitrines at Bulgari. These Middle Eastern bazaars are the meeting grounds of testosterone and estrogen, resulting in a unique mercantile representation of desire. There is a sheer physical smell of the power to buy here, and there is a visceral joy in being the retail host for luxury and craftsmanship. Contrary to Western stealth wealth, the souks exhibit a certain sensuality; part dress-up, part princess-complex; and an explosion of both insatiability and satisfaction. The whole experience is wrapped up in life’s emotional punctuation marks. Acquisitions from the bazaars celebrate milestones, even those as simple as adding another gold bangle to the collection for no reason at all other than the ability to do so. [Read more…]

Goldman Sachs 21st Annual Global Retail Conference Key Takeaways

The traditional September back-to-work event for investors, marking the end of the summer lull (after a hectic wrap up to Q2 earnings in August and prognosticating about the back-to-school selling season) is the Goldman Sachs annual conference. This two-day affair is chock full of investor presentations and Q&As with 50+ public companies, private equity investors and the GS team. There was no real breakthrough news at the event, and our stalwart retail leaders seem to be soldiering on working hard to create compelling customer experiences as a point of differentiation. But it’s tough out there on the retail battleground front, and omnichannel is settling in as the strategy of choice for survival.

I believe the overriding takeaway of the conference was put forth in Robin Lewis’s recent blog, The Forecast: Share Wars For Rest of 2014, that ran a week ago, which quoted Macy’s CEO, Terry Lundgren, who kicked off the conference on the first day. The blog forecasted zero growth based on Mr. Lundgren’s quote: “The rebound that we were all expecting in this year hasn’t happened. The consumer has not bounced back with the confidence that we were all looking for. And so the performance I think we had in the second quarter, and we expect to have in the second half, is going to be a continuation of what we’ve been able to do over the last several years — and that is to capture market share and get the most out of the consumers that are in our stores.” [Read more…]

Rise of the Machines

DV1035356What if you could find a new retail outlet—yet another piece of the omnichannel puzzle to enhance the in-store experience? Well, how about a vending machine?

Admittedly, it’s not the first avenue of growth that comes to mind in our high-tech, high-touch world, and not exactly the kind of impersonal customer service image that most retailers want to project. But it’s the wave of the future.

Condoms and Holy Water

The first documented vending machine showed up around 215 BC at a temple in Alexandria, Egypt. You inserted a coin in a slot at the top of the machine. Levers opened a valve and out spritzed holy water. It was designed to prevent people from taking more then they paid for and, for all you historians, an early solution to portion control and shrink. It’s been pretty much downhill from there with vending machines mostly denigrated as low-rent purveyors of cigarettes, stale chewing gum on subway platforms, and restroom condoms.

On a more personal note, I admit to having fond memories of the Coca-Cola machine at the local candy store dispensing ice-cold bottles for ten cents that cooled the body and the soul on those sweltering summer days. Or, my father tossing me a quarter during his weekly poker game in back of the hardware store to get him a pack of Luckies from “the machine.” [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.

A Hopeful Look at the US Department Store in 2014

Macy's Sign Herald Square ManhattanCreative destruction, change management, business transformation —call it what you will, but something’s underfoot in the department store channel. After decades of ceding market share to specialty formats and channel consolidation, has the worm finally turned?

In addition to economic and consumer malaise, mall traffic, and thus store traffic, is the problem. With the Internet’s 24/7 access, price transparency and free shipping, combined with a fruitless in-store search for a size, color or sales clerk, who needs a brick-and mortar-department store? It used to be a destination to see the latest trends in color and silhouette, interpreted by a bevy of national brands, and curated by retail buyers with a clear fashion sense as well as an understanding of their customer base. Nowadays, social media, Instagram and fashion bloggers are more personable than the average sales clerk. And that source of style and fashion curation is more robust. A trip to the mall has become a chore … and just so boring. [Read more…]

Passion Can’t Be Found In A Spreadsheet

iStock_000021559265SmallThe distance between Vere and Portman streets in central London is 528 yards; an easy walking distance encompassing the two solitudes of retail today: stores that behave as product sheds and those that behave like retail theater. Taking center stage in the dichotomy are three stalwarts of the British department store industry: Debenhams at the start; Selfridges in the middle; and Marks & Spencer at the end. The headlines on these companies say it all:

“Debenhams shares dive…the biggest obstacle to profits comes from a higher level of discounting as the retailer struggles to attract shoppers…”

“Marks & Spencer’s recent figures show the retailer losing market share faster than any of its rivals…”

“Selfridges turnover for the year is ahead 9% while pre-tax profits rose 40%…”

But the headline I find most illuminating of all is this:

“The latest problems at Debenhams will pile pressure on its finance director, Simon Herrick, who was already seen as likely to exit the company…”

If businesses are to prosper they need customers who are engaged and willing to spend, and I can assure you the lack of interest on the part of shoppers for Debenhams isn’t because of Mr. Herrick’s finance competency. While this headline comes from an analyst, it’s indicative of a common corporate failing: too often finance departments are asked to make right in a business what it takes an entire executive team to figure out, namely how to be more meaningful to a buying public who has the freedom to spend their time and money wherever they want.

Success and Failure in Retail Neither Begins Nor Ends at the CFO’s Door

Where these stores are located is the area of Oxford and Regent streets in central London, home to one of the world’s premier retail districts. Every year 150 million shoppers put the lie to the notion that ‘stores are dead’ and many pass the windows of Debenhams, Selfridges, and Marks & Spencer. There are clearly plenty of prospective customers, but they show a declining desire to make two of those stores a destination. A simple visit to these fading retail icons and you’ll immediately understand why: bad lighting, inelegant visual merchandising, and disinterested staff in the fading stores, whereas Selfridges is famed for its excitement and dynamism. The two in trouble feature environments where dreams of fashion and style go to die; in the stand-out you’ll find experiences that draw people in record numbers who are willing to pay more, and seem to do so gladly based on the numbers. And remarkably, executives of all three can walk the floors of their competitors in five minutes and experience what makes the difference.

So it makes you wonder: can retail executives even see the experience through the eyes of a shopper? Each of these three companies has the size, financial clout, and reputation to attract the best and brightest talent. I’m sure none of them lack for MBAs and finance people, yet it would seem that common sense and instinct – the soft skills that humanize the business of retail – have been subverted by higher education when their executives can’t seem to see the solution for better performance when it’s staring them in the face.

Quality Retail Experiences Rely on Store Executives to Make Them That Way

Too often, retail leaders describe the measure of their personal success based on their vertical roles in the business: the ability to deliver faster, cheaper and to reduce costs; rarely on the need to add value back into the store environment. Their idea to develop greater customer loyalty is all too frequently based on low price. Why? Many leaders feel that to innovate and engage consumers through the experience of their environments is overshadowed by transactional cultures that view process as the end, not the means. It seems few big companies remember what it was that made them what they are. Their worlds revolve around revenue rather than value; demographic segments instead of people. And what requires good common sense becomes over-analysis of the abstract. The new silver bullet of ‘big data’ is crazy given the way so many business people use it to define their strategic priorities – what’s the point of knowing more about your customer if you’re not able to truly understand or reflect why your business should matter to them?

The opportunity for offline retail has never been greater, but retail’s existential threat is itself. Who’d choose to shop online if they could get the benefit of price as well as experience? This model starts by offering a better way by asking if what you’re presenting to the buying public actually matters. If it does you win; if it doesn’t you discount.

Amazon’s Threat Isn’t From Being Online, It’s By Being Customer Obsessed

Ironically the one business that retailers fears most is Amazon. Yet, in that company’s 2013 letter to shareholders, Jeff Bezos wrote:

“We are internally driven to improve our services, adding benefits and features, before we have to. We lower prices and increase value for customers before we have to. We invent before we have to. These investments are motivated by customer focus rather than by reaction to competition. Proactively delighting customers earns trust, which earns more business from those customers, even in new business arenas. Take a long-term view, and the interests of customers and shareholders align.”

So the company that makes every retailer question whether there’s a future for brick-and-mortar has customer delight at the core of its DNA. The same business that’s been referred to as “socialist” in its ideals by investors focused exclusively on short-term results has proven that long-term success can only come by thinking first about customers. Not surprisingly, you find a similar philosophy at the heart of the one retailer whose performance on Oxford Street outperforms the others.

The Weston family that owns Selfridges is the second largest luxury retailer in the world with holdings that include Brown Thomas in Ireland, de Bijenkorf in the Netherlands, Fortnum & Mason and Primark in the UK, and Holt Renfrew in Canada.

Their retail philosophy, expressed by Alannah Weston, the Selfridge group’s Vice Chair, is that there’s a lot more to the experience of their stores than just shopping. Her vision is to be the destination for exceptional experiences and believes that with such an enormous space the bounds of creativity have to be limitless. In a recent interview she explained that, “In an all-access shopping culture, remaining relevant is essential because you can buy anything at the airport shop, so why come to a department store?”

Weston’s advice for success is that you’ve got to have passion, “If you don’t believe it, you won’t do it well.” It’s simple: you’ve got to matter to your stakeholders if you’re to succeed. And while there’s little passion to be found in a spreadsheet, you may just find it in yourself by walking the shop floor, listening to customers, hearing what really matters, and by attempting to build back into your business that one thing which you can take true pride in. If you do a walkabout, invite your colleagues along – retail is a team sport.

Who Are the HENRYs and Why Are They Important to You?

Pam charts Rd2After a lot of retailer nail biting this past December, the Department of Commerce has reported the numbers and, all in all, the sales year didn’t turn out as badly as expected. So while we sigh with relief, nobody reading the news or talking with consumers is delusional enough to think that retail is out of the woods yet. Consumers remain extremely cautious about spending; the average US household’s income is currently $71,274, down more than $4,500 from its high in 2006 of $75,810. The reality of this extended post-recession period is that the American middle class has lost much of its spending power, leaving retailers that have traditionally targeted this customer holding the bag and needing to find new consumer segments for growth.

If the middle-income customer is scarce, the logical place for retailers to look for new customers is one step up the income ladder: the affluent, which are defined as the top 20% of US households based on income which starts at around $100,000. With nearly 125 million American households in total, the affluent segment numbers just under 25 million households. In most any spending category, the affluent top 20% account for about 40% of total consumer spending, according to the Bureau of Labor Statistics Consumer Expenditure Survey. That means the absolute spending power of the affluent household is twice as big as the average middle class spend.

Of course, all affluent households aren’t created equally in spending power either, with the top 2%, or the ultra-affluents, roughly 2.5 million households (incomes starting at about $250,000) with much more discretionary income. But between the ultras and the middle-income consumer segments, there is an often overlooked group that, quoting Rodney Dangerfield, ‘gets no respect’ – the lower-income affluents or HENRYs (High Earners Not Rich Yet). These are the new mass-market affluents with incomes $100,000 to $249,999 and they number about 22.5 million households.

Tale of the Tape –The receipt tape, that is.

Every three months my company,Unity Marketing, surveys 1,200+ affluent consumers who recently purchased any high-end or luxury goods or services in 21 different categories, including home goods such as furniture and major appliances; experiential services such as travel and dining; and personal items such as fashion, jewelry, and beauty. In that survey, data is collected about those recent purchases including how much people spent. [Read more…]