State of the Union

Union graphic-01No, this isn’t the latest dispatch from the war-torn Middle East or the Ukraine, and the bunker here is a well-appointed lawyer’s office or a suite at the local Hilton.

But warfare is an apt metaphor for the endless battle surrounding labor relations and the war of words between retailers and unions—a war that is likely to escalate.

Retailing is seen as an increasingly viable route to economic development and job creation in many areas of the country, making the industry and its workers a more attractive target for union organizers. And in an industry that can have a 200% or 300% annual employee turnover rate, union organizers don’t have it easy. But sometimes things go their way. A case in point: The United Food and Commercial Workers (UFCW), which handles retail employees, got a boost from the National Labor Relations Board’s recent decision that a group of 41 cosmetics and fragrance workers at a Macy’s in Saugus, Massachusetts, could unionize. This precedent- setting decision may be a sign of things to come in retail, if unions are allowed to go after specific groups rather than having to organize an entire store.

In Southern California, the UFCW has reached a tentative accord with major supermarket chains covering 70,000 employees from the Mexican border to Monterey County, temporarily averting a debilitating walkout like the one that took place 10 years ago.

But these Californian chains will have to battle the Teamsters when negotiations begin on a new contract for drivers and warehouse workers this time next year. [Read more…]

Enough With the “Rooming” Already

stein_blog_roomingI just finished the 54-page 2014 Accenture Holiday Shopping Survey; and while I’m still in a state of ‘stat-overwhelm,’ I’m also left with a nagging thought. With our culture’s unceasing need to simplify things (abbreviation-nation syndrome), we may be losing sight of the obvious. E-commerce and the relative newbie, mobile electronic  retailing, combined have become the greatest destabilizing forces for retailers in a century. Emblematic of this is our culture’s tradition for creating nicknames for any major new phenomenon.

First showrooming arrived, the moniker given to some of the 200 million or so smartphone-toting customers who began deploying their devices in store. Shoppers price-checked the retailer, which more often than not resulted in an abrupt exit to buy online or at a competitor. This new practice also revealed inconsistencies between the retailer’s in-store pricing and that of their own websites which caused a corporate conundrum. Showrooming’s roommate is the more recent webrooming, a tech-term that describes browsing online and then going into a store to make a purchase. [Read more…]

Washington Crossing the Delaware on Black Friday

alpert_washingtonIt all began in Philadelphia, birthplace of innovative and uniquely American ideas and products: Philadelphia Cream Cheese (proof that God exists); Rocky I-V (more proof); and kites flying into lightning storms. Imagine, all this and more emanating from the sparkling urban jewel on the Delaware known affectionately as the City of Brotherly Love, a moniker richly deserved, given the kind and loving sports fans that inhabit this much-maligned metropolis.

Philadelphia was the site of our nation’s first capital and cradle of our revered United States Constitution.  It was here at Independence Hall where George Washington became the first General of the Continental Army, gallantly leading us into freedom from British tyranny. He was elected as our first president, and then moves the nation’s capital south to a city he named after himself. He crossed a roiling and treacherous Potomac River, standing triumphantly in the bow of that overcrowded rowboat, thus rendered in that famous painting he named after himself, Washington Crossing the Delaware on Black Friday. The painting was too big to stow in his little boat; he had a bridge built from New Jersey to New York so he could get the painting to the Met, where it still lives. Guess what he named the bridge?  Unbelievable.

As is obvious in that nautical painting, G-Dubya was taller than everybody else. We know he could not tell a lie: “I just outgrew Philadelphia, it was time to move on.” So G-Dubya moves to the new capitol and takes his football team with him, which he names after a few Native American friends (or potatoes).

But I digress. Back to Philly. Jeopardy fans there will surely know this one:

American Holidays” for, DING DING DING DING — The Daily Double!!! Contestants, you have 30 seconds for this question. What famous or infamous day in America has Philadelphia given to the world? Ben, would you like to go first? What is, Black Friday? YES!!! You win a week in Philadelphia. Betsy, as runner-up you get two weeks in Philadelphia, a wheelbarrow of South Philly cheesesteaks and all the Yuengling lager you can drink.

What’s in a Name?

In the mid-1960s, Philadelphia’s Police Department coined the name “Black Friday.” The name denoted the day after Thanksgiving, a day characterized by an overwhelming volume of traffic due to a confluence of two events: the onset of Christmas shopping madness, plus the torrential influx of West Point cadet and the Naval Academy midshipmen family and friends attending the Army-Navy game on Saturday at Franklin Field. Holy Liberty Bell, Batman! The entire police force was tasked to cover every intersection in Center City, stretching the force to the max, requiring even the Philadelphia Police Band members to pitch in. Philly’s Finest were not happy about this day and so it got its dark nickname.

Retail legend has it that most merchants make their first profit of the year on Black Friday. It was the first day of “being in the black” financially. For years, Black Friday was the spiking pinnacle of a one-day volume of sales. Black Friday pushes balance sheets into rosy American Dreamland, making CEOs, executives and stockholders feel good about themselves. But there’s also that robust lay-of-the-landscape benefit downstream. This is advanced retail capitalism at its absolute max, prompting a flash mob frenzy of shelf emptying and inventory clearing out at fast-forward pace all over this great nation. And now it’s trending abroad.

Trench Warfare

To date, there have been seven fatalities and 90 injuries at various retail stores that have attracted the Black Friday hoards of shopper mobs since 2008. Doors have been torn off their hinges as unruly crowds give way to their basest knuckle-dragging instincts. But who can blame them when flat screen TVs are going for $400? There have been shootings by male customers who have entered stores with fully loaded firearms. Black Friday lore has is that two wives get into a little tiff on the checkout line and one husband reaches for his loaded pistol, resulting in a wild chase through the mega-store, then resulting in a shooting and a death. Thankfully the shooter could buy more ammo at the store; don’t want to go home with an empty clip, now do we?  But hey, he defended the honor of his wife — and then had lots of time to think about his wife’s honor while serving a chunk of the rest of his life in prison, where it’s Black Friday every day.

Collateral damage is a decidedly negative way of expressing the downside of the phenomenon of Black Friday. Let’s just call it the creepier side of human greed and reckless disregard for one another.

Sentimentality Aside

But hey, look at the bright side.  Retailers are now spinning the Black Friday phenomenon forward or backward, depending on how you look at it. What the hell, retailers have finally gotten smart, and EUREKA, they open shop for business on the actual Thanksgiving Day. Yes!!! Huge Win!!!  Who cares about eating turkey anyway? Honestly, which is more American: a family dinnering-down with a large earth-bound bird; or flying through the malls, enjoying a day shopping together? Bonus point: at the store, the family football fans get their holiday football fix watching somebody play somebody, and then the Cowboys playing somebody else on the endless expanse of flat screens. I mean, c’mon!!!

But wait, there’s a wizard behind the curtain: Big Data! Retail data from Adobe Systems (proof of God, again) tell us that the biggest sales are no longer on Black Friday, but the Sunday before Thanksgiving. The really good news is that Black Friday is not even Black Friday anymore. Nope. It’s Black November!  Even old G-Dubya never thought of that! Just as Hurricane Sandy changed the coastline of New Jersey, the 2008 Recession changed Black Friday and spread it over the whole month of November. Let’s use the WHOLE MONTH not just that one Friday. But hold on, what about Cyber Monday? Over $2.29 billion spent on that day. That’s billion with a, ‘b,’ friend. This is what is so good about America. We really know how to make a buck!

So after the final whistle of the last football game on Thanksgiving Day, thanks to the City of Philadelphia, the Philadelphia Police Department, and the founding father himself, I will be zooming down the NJ Turnpike to Philadelphia, Black Friday – Ground Zero – Holy Grail.  I will be armed and dangerous, credit cards polished and sharpened, ready for serial swiping.

Happy Thanksgiving and be careful out there!

Memo from the Grinch: The Gas Price “Bonus” is an Empty Tank

RL_11-18-14_1Economists, experts, analysts, consultants, a lot of CEOs, casual observers and even my friend and CNBC regular Jan Kniffen believe lower gas prices are going to goose holiday retail sales. In what some call the “gas bonus,” this means that some $40 billion saved on fuel will end up being spent over the holidays in the nation’s retail stores. This is certainly a happy thought. On a CNBC panel the other day, Kniffen was almost giddy about it. And then when you add in a falling unemployment rate, followed by an increase in consumer confidence — at its highest level since 2007 — stock traders are already chilling the bubbly.

Once again, I find myself the naysayer. Let’s start with the gas theory. The Robin Report Chief Strategy Officer Judith Russell looked at the monthly change in gas prices and retail sales for the past eight years. And as indicated in the chart below, there is neither a significant bump up, nor down, in retail sales accompanying rising or falling gas prices. She even looked at regressions with different segments in retail, and found that there simply does not seem to be a correlation, period. In other words, the gas theory is an empty tank.

Having said that, Walmart had a slight increase in third quarter sales of .5%, for the first time since 2012, which they believe was partially due to lower gas prices. So, one may conclude that the entire discount sector will gain from the gas bonus, putting more cash in its lower-income consumers’ pockets. On the other hand, one might conclude, as I did, that Walmart is clawing back its customers whom they lost to the thousands of smaller neighborhood dollar stores during the recession when gas prices were high and low-income shoppers had a shorter ride to those local stores, thus saving fuel costs. In fact, Walmart said in its 3Q conference call that the Walmart Express strategy (smaller footprint convenient neighborhood stores) is beginning to facilitate their clawback of market share from the dollar stores.

Therefore, this hypothesis would suggest that rather than the gas bonus lifting total spending among low-income consumers across the entire discount sector, it’s simply shifting shares around within the sector.

Click to Enlarge

Click to Enlarge

If consumers do take their fuel savings and decide to spend them, while the discount retail sector may minimally benefit, it’s more likely they will spend more on health care and entertainment, as well as home improvement. And since income growth is flat, they could just as well decide to save the gas “bonus.” In fact, the savings rate has been ticking up.

And there was certainly no additional gas bonus spending among the mid-to-higher income consumer segments. In fact, Macy’s CFO, Karen Hoguet told analysts a week ago, “shoppers are spending more of their disposable dollars on categories we don’t sell, like cars, health care, electronics and home improvement.”

Lastly, the low overall inflation rate, even disinflation in some major merchandise categories, is allowing consumers to get more value for their money, which doesn’t result in an increase in sales, because they’re not buying more stuff per se. Consumers and particularly the growing Millennial cohort are shifting toward a “less is more” mentality, eschewing buying more stuff to seeking more experiential satisfaction out of life, which is why restaurant sales and entertainment spending are strong. And now with a strong dollar, we might see people opt to travel more often. So these dynamics, much of which has to do with a demographic and cultural shift, will also divert any part of the gas bonus that might have made its way into mainstream retailing.

The final word: dream all you want about getting your hands on a piece of the $40 billion gas bonus, but when you wake up on January 1st with a hangover, it won’t be due to the bubbly that the stock traders are currently chilling. It will be due to the fact that the dream was really a nightmare about the passing gas bonus, pun intended).

Doing Business in Brazil

brazilBrazil is more than just football!

Interesting fashion can be found in every corner of the globe and Brazil is no exception. Compared with China, Brazil has had far less attention from global brands. But that’s changing.

As I’m typing away on my flight from Rio de Janeiro to Sao Paulo and reflect on my trip so far, it becomes more and more apparent that the fashion industry here is set to explode in more ways than one. It is primed to be both impacted by global forces as well as make an impact on the world stage with more than just flip-flops and bikinis.

“B” as in BRIC

Brazil is the fifth largest country in the world with 200 million people, half of whom are under the age of 30. It is becoming more urbanized as millions of people have transitioned from poverty to the middle class. Brazil has a $54 billion apparel market that’s expected to keep growing, and by 2020, almost half of apparel spending will come from its smaller cities. [Read more…]

Lou Gerstner Was Right: Consumer Spending Matters, Not Stock Price

mc_gerstnerUS consumers are discriminating as to where they spend, and while demand has come back in what may seem unexpected categories, there is emphasis on experience and on purchases as investment.

Readers of Lou Gerstner’s book, Who Says Elephants Can’t Dance?: Inside IBM’s Historic Turnaround, or anybody who has heard the legendary former IBM Corp. CEO speak, will remember some sage advice: pay no attention to the stock price.

Let’s expand on this. Pay no attention to the stock market unless, of course, you’re investing in it. But as an economic barometer, the stock market has proven to be a fickle and even inaccurate judge of global economic health. Making cogent statements thereby is a delicate process, and I would argue that the more reliable barometer is consumer spending. The stock market is at best a confirmation of one’s previous calculations, not a factor in any of them.

What drove Gerstner to make the statement was his epic turnaround of IBM in the last century’s final years. Many friends and associates had congratulated him on the company’s resurgence based on a rebounding equity price. Gerstner warned them the number meant little, and the hardest work was yet to do. [Read more…]

Holy Guacamole: Millennial Favorite Chipotle Turns Neurological Connectivity into Gastronomical Addiction

chipotleMy 16-year-old son John’s idea of a gourmet meal is a burger and fries, so I was surprised one evening a couple of weeks ago when, after a busy day that left me no time to cook, I asked him where we should get takeout, and his answer was: “Chipotle.”

Caught off guard, I had to think for a minute. “I don’t think there’s one nearby.”

“Yes there is, in Yonkers,” he said, then added sheepishly,“ and you told me I could choose where to go.” Sighing, I grabbed my purse and keys for the 20-minute drive.

Chipotle (named after a smoke-dried jalapeno pepper) is the wildly successful chain of casual Mexican-style restaurants known for its overstuffed burritos made from healthy and natural ingredients. It was founded more than 20 years ago by Stephen Ells, a graduate of the University of Colorado and the Culinary Institute of America who,  with the dream of someday opening his own restaurant, moved to San Francisco to work for a famous chef . One day, he noticed an assembly line of workers at a taqueria in the Mission District  efficiently serving a crowd of hungry customers. He decided he could open a similar place to generate the cash needed to fund his fancy dining establishment. He quit his job, moved back to Denver and, after borrowing $85,000 from his dad, opened the first Chipotle in mid-1993. The restaurant, which from the start operated on the principle that fast food doesn’t have to be low-quality and that delicious food doesn’t have to be expensive, offered crafted-to-order burritos made from fresh, locally-sourced ingredients. Within six months, the restaurant was reportedly selling 1,000 burritos per day, 10 times the level needed to break even. [Read more…]

Coty Sinks In Its Claws

shutterstock_152473550When it comes to spending sprees, November 2010 was a doozy for Coty, Inc. In rapid succession, the New York-based, publicly held global powerhouse scooped up the German makeup company Dr. Scheller Cosmetics AG for an undisclosed amount; the touchy-feely Philosophy skincare brand from the Carlyle Group for an estimated $1 billion; and OPI, the pro nail care line famous for lacquers with cheeky names like “Skull & Glossbones” and “Wooden Shoe Like to Know,” for another (rumored) $1 billion.

At the time of those purchases, Coty, then a $3.6 billion entity, was billing itself as the world’s largest fragrance company. By rounding out its portfolio with these brands, the plan was to reduce its reliance on the recession-plagued perfume biz, carve off a bigger slice of Germany’s beauty pie, and inch toward its stated goal of $7 billion in revenue by 2015.

While it would be hard to argue which was the splashier score— Philosophy or OPI, both of which are wildly beloved by consumers— the latter allowed Coty to not only tap an entirely new distribution channel, but also expand its foothold in the supernova that was nails circa 2010. [Read more…]

Walmart Collateral Damage

iStock_000043854262LargeWhat if Walmart opened a big fleet of new-format stores and no one came?

We might find out really soon. After years of tinkering with its small-format, food driven Neighborhood Market model, Walmart has started to roll them out in earnest. There are now about 350 Neighborhood Markets and Walmart expects to open them at the rate of about 200 per year, ultimately achieving about 2,000 stores.

At about 40,000 square feet each, Neighborhood Markets are integral to Walmart’s strategy for future growth. Its main store model, the huge food and nonfood supercenter, needs a boost since it has just about reached market saturation and is facing dwindling consumer engagement.

And in an unexpected twist, Neighborhood Markets in many areas are pulling dollars from the pockets of the same supercenters shoppers, so net sales increases aren’t growing at the anticipated rate. In fact, Walmart’s net sales are actually dropping in some areas. And guess what? Local supermarket operators are starting to relax about the competitive threat Neighborhood Markets pose. [Read more…]

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…]

Showrooming: A Death Knell or Hidden Opportunity?

showroomingAccording to the Nielsen U.S. Digital Consumer Report, 65% of all American adults own a smartphone, up from 44% in 2011. This trend, the ever-increasing ability of consumers to access the Internet at their fingertips, was hailed as the death knell for retail stores. Showrooming, the practice of trying out products at a store before making a cheaper purchase online, appears to be a fatal flaw for retail shopping.

What we’ve seen instead, running beyond the popular narrative of doom and gloom, is a vibrant new world of opportunities for retail brands.

And it isn’t just tech start-ups that have come to see this revolution as an opportunity. A subterranean phenomenon in the retail and consumer goods industries is the rise of omnichannel retailing. This phrase might not mean much to the average American, but if you’re a retailer like Macy’s, Best Buy or Target, this new consumer-oriented ideology is quickly becoming a way of life. Omnichannel retailing mirrors what we advertising technology companies would call “multiscreen, coordinated campaigns.” In other words, it aims to make all the avenues for a brand to engage with consumers (whether it’s online, on TV, in-store or even through a catalogue) a cohesive experience. [Read more…]