Competing in the New Normal

Competing_in_the_new_normalThe struggle between retail titans and industry disruptors is in the news more and more often. We are all well-versed in how companies such as Etsy and Rent the Runway, both of which were named to CNBC’s Disruptor 50 list, have successfully exploited a niche within the marketplace.

There are disruptors changing the rules of the game and titans who are reinventing themselves on a daily basis. Disruption is daring, while reinvention is daring but also extremely difficult and exhausting. Some days, pushing water uphill feels easier.

So, what is the new normal? The United States is arguably the most hyper-competitive retail market in the world. With exponential growth being seen in emerging regions like India, Brazil and especially China, the US market will continue to face oversaturation from domestic as well as international competition. Going outside US borders to seek growth is tempting.

As Mickey Drexler, CEO of J. Crew, once said, “There are too many retailers. There are too many brands. There are too many designers. There are too many discount stores, and the predator online companies are selling discount like crazy.”

What is frightening is that this oversaturation is becoming ubiquitous worldwide. As a result, a sort of depressing sameness has settled across major and medium-sized cities around the world, even in the world of fashion, which should have the highest levels of distinction in the fastest moving consumer goods category of all.

The sea change shift is that rather than simply expanding geographically—which has been the classic approach to growth—new business models are quickly evolving … because there is no other alternative.

Competing to win in the fashion market requires that companies do not go back to traditional retail basics to find solutions. Customer service, great prices, fast delivery, brand awareness, an authentic brand—these are no longer enough.  In fact, they are the tickets to entry in this fast-paced marketplace. With all the omnichannel, e-com, customer-experience hype, we seem to be forgetting one key thing—the product. Let’s be honest: what do people actually get when they buy something? Garbage, even when sold as part of an amazing customer engagement process, is still garbage.

A new paradigm is required to be innovative and sustainable. For fashion, modern companies are returning to the future, focusing on these three foundational elements:

1. Newness and Unique Design

Fast-fashion is no longer a new concept; it is a business model that has changed the fashion industry forever. Fast-fashion has pushed companies to increase the number of drops through continuous replenishment. But in a seasonless market where everyone has access to the same trend forecasts, couture and ‘street’ photos and paparazzi snapshots, designers can no longer stay within the safety zone of following ‘predicted’ trends. As a consumer, if I see variations of the same trend over and over, and retailers are running with the herd and not giving me other choices, only price becomes a strong influencer. This is really a shame because uniqueness, creativity and design can be core strategic retail benefits to customers. And even more of a shame is that the US has both easy access to technology that can elevate creativity, as well as easy access to sheer creative talent. But are we levering this access? US fashion schools offer some of the best, most balanced programs in the world, yet many foreign students come to the US to learn, and then go back home to their native countries to apply their learnings (as competitors!).

2.Fit

It’s not going away. In fact, it’s more important than ever before. With more and more companies operating on a global scale, combined with the fact that morphologies vary greatly, coming up with an optimal size range to match fit remains elusive. This is one area where technology is really helping. Virtual fitting rooms and fabric libraries simulate the look of different materials; style and fit can also be simulated, adjusted and approved before a prototype is even made. Moreover, a virtual avatar can be simulated across size ranges and morphologies to accurately capture the nuances of today’s consumer. (Plus, avatars don’t get tired, need bathroom breaks, or change size and they always show up on time!)  According to fitsme.com, online garment sales alone have an average return rate of 13%, 77% of which is due to bad fit. This represents a massive potential impact on immediate sales as well as long-term brand loyalty.

3. Supply Chain

The supply chain is becoming the product engine. Brands, retailers and manufacturers are all rethinking their strategies to determine if greater vertical integration and proximity sourcing make sense for them. This can be seen especially in China and Mexico where traditional manufacturers are now developing their own brands. A lean approach to fashion development and manufacturing is an excellent opportunity to reduce cost, reduce time to market and boost innovation. Companies can gain greater control over the product itself, how it is developed, when it is available, and its price.

Three fundamental strategies: design, fit and the supply chain. Focusing on these key elements is critical for both disruptors and titans. Such is the opportunity and the new normal – and it’s there for the taking.

Bursting the Bubble on August Retail Sales

BTN-9-16-14Last Friday the Department of Commerce released its August retail sales figures. Total sales rose 5% compared to August of 2013.

The business and economic media heralded the news and what it might mean for retail sales performance over the next several months. The New York Times decided that the 70% of GDP growth dependent on consumer spending would be buoyed by this clear message that consumers are fed up with being cautious and poised to open their collective wallet in a big way.

A look behind the numbers tells a slightly different story, however.

Auto sales were responsible for most of the gain. Sales at automobile dealers and parts stores grew by almost 9% to $90 billion, representing over 20% of total retail sales. Retailers of health and personal care products enjoyed an 8% increase, but represent less than 6% of all retail sales. Sales at non-store, or pure-play e-commerce, retailers grew by 7%.

Department stores, apparel specialty stores, off-pricers and other purveyors of non-auto and discretionary goods, however, posted sales growth that underperformed the average. Apparel specialty stores got only a 3.2% pop from back-to-school. Food and beverage store sales rose by 3.6% compared to last year, boosted by rising prices in some key product categories. General merchandise store sales were up by less than 2%, depressed by a 1% drop in department, chain and specialty stores.

In other words, once folks have finished replacing their worn out pre-recession cars, retail sales could be facing a tough period.

Retail Doldrums

Over the past several weeks, publicly-held retail companies have been publishing their second quarter and first half sales and earnings performance results. Total sales of the top 35 companies in the department, discount, apparel specialty and off-price sectors were up by only 1% for the quarter and the half compared to the corresponding period in 2013. Market growth is not even keeping up with inflation. In real terms, it is in decline. The sales data indicate that off-pricers and apparel specialty store sales took share from department stores in the first half of the year, mostly by opening new stores.

Click to Enlarge

Comps were flat for both periods. Comps at specialty stores fell by almost 2% in the six-month period, due largely to big drops at teen specialty stores, while those at department stores were flat.

There were a few standouts in the crowd. Cato Stores, Chico’s, Dress Barn parent Ascena Retail, Limited Brands, off-pricers TJX and Ross, Nordstrom, JCPenney, Urban Outfitters and board sports inspired teen retailer Zumiez were among those reporting nice total sales increases, positive comps, or both.
But there were far more losers. The teen retailers suffered an almost 4% drop in total sales in the second quarter and the first half. Specialty stores dELia*s, Aeropostale and Wet Seal and department stores Stage and Sears Holdings suffered low-double-digit sales declines. Almost all of them had serious drops in comps as well. Overall gross margin deteriorated by 50 basis points. Total net income fell by a whopping 11%.

Predictions?

I’ve pored through the transcripts of at least two dozen quarterly earnings conference calls, looking for some indication that better days were expected in the third and fourth quarters. Most of the retailers were cautiously optimistic at best.

I also spoke to several Wall Street analysts. Although some were bullish about the ability of particular companies to gain share at the expense of others, none would go so far as to say that the overall market is growing more than a percent or so.

So, although I would love to believe that consumers are going to start spending more on clothes, shoes, jewelry, home furnishings, and other fun stuff, I think those predictions are a bit premature, if not flat-out wrong.

Which might explain why Wall Street met the retail sales news with a yawn, and markets closed down on Friday.

Click to Enlarge

As we enter the all-important holiday selling season, it’s important to keep in mind that an oversupplied market chasing apathetic demand is not a recipe for growth. This year, an over-hyped and über-promotional Thanksgiving and Cyber week will consume a large part of the holiday budget, after which things will quiet down a bit before the last weekend leading up to Thursday, December 25. Every indication is that the back half of the year will be just like the first, with flat sales and challenged margins and earnings.

Increased market share alone is what will separate the winners from the losers, and will require compelling product and an engaging store environment, both online and off. To achieve this, retailers will have had to invest in store expense, technology, and intensified customer engagement marketing. They will also, unfortunately, need to be willing to take it on the gross margin chin.

Supermarket Disrupters Rattle the Industry

Amazon Expands Grocery Delivery Service To Los Angeles AreaConventional supermarkets — those mid-tier retailing behemoths — are beset on all sides by disrupters. Some of those disrupters are cloaked in technology, some aren’t; others are self-inflicted and emerging from within.

Let’s take a look at what the disrupters are doing to the biggest retailing industry of all.

To begin: the greatest disruption traditional supermarkets have faced in the 60 years or so they’ve been feeding America came a generation ago when Walmart got into the grocery business. Walmart’s go-to-market strategy changed everything, particularly how product was acquired and distributed. For the longest time, even as the threat grew, Walmart was ignored by the supermarket industry, largely because Walmart wasn’t — and isn’t — much of a marketer and had difficulty at the time with presenting quality perishables and still does.

But none of that really mattered because Walmart swamped supermarkets with such a significantly better pricing offer that it soon became the country’s dominant grocer. [Read more…]

The Forecast: Share Wars For Rest of 2014

RL_Blog_9-10-14Forget about all of the holiday projections soon to be bandied about by the legions of economists, analysts, pundits, experts and faux experts. This is the one you can take to the bank, and it comes from none other than Macy’s CEO Terry Lundgren. Crisply, clearly and without hesitation, he nailed it at his presentation at the Goldman Sachs Annual Retail Conference.

“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.”

In other words, folks, there will be no overall market growth this holiday season; only share wars in which the great retailers will steal share from the not-so-great, resulting in a zero-sum game. So, here you have it, The Robin Report official holiday projection: Zero Percent Growth. [Read more…]

Is Alibaba Really Worth It?

alibaba_newOn the verge of becoming the biggest initial public offering in US history, one has to wonder if it’s really worth the $187 billion some analysts are projecting. As we witness Jack Ma, former schoolteacher and founder of Alibaba, strut across a stage portraying himself as Jeff Bezos and Steve Jobs combined, at least he’s talking the talk. Walking the walk, as we all know, is a horse of a different color.

And to that point, off stage he’s been on a wandering and random acquisition binge, making some 30 investments since the beginning of the year, worth close to $7 billion. Whether or not he was just trying to find stuff to invest all of the cash gushing through the business, the deals he has made seem highly questionable. [Read more…]

Private Brand Primer: Five Things Not to Do When Launching a Signature Fragrance

Stocksy_txp33ce1e73JS7000_Small_35808Launching a signature fragrance is both exceptionally difficult and wonderfully exciting. It is also daunting and exhilarating. A fragrance launch is many things, but what it is not, is rocket science.

While both involve an attempt to blast off and to reach the stratosphere, the similarities end there. For example, typically no one’s life is at risk because of a fragrance launch. That being said, a promotion or even careers have been in the balance because of such a launch. Also, while there are many complex calculations that are part of a fragrance launch related to the formulations – the financial projections and logistics – none of this math even borders on aeronautical engineering or requires physics. Furthermore, a fragrance launch does not require you to deal with immutable laws of nature ­­– such as the laws of gravity or inertia.

However, having been responsible for putting numerous cologne and perfume products on the launching pad over the last several years, I have observed a few basic patterns and have acquired quite a bit of empirical data, albeit mostly anecdotal, about how to launch a signature fragrance. So here goes… [Read more…]

How Equinox Could Save Your Mall

Click to Enlarge

Click to Enlarge

The Great Recession turned most US consumers into necessity-based shoppers, eliminating their need to spend a day or even an afternoon impulse shopping at the mall. But these changing demographics and shopping habits across the country have real estate developers getting creative – in some cases, by filling now-empty anchor stores with non-retail properties like fitness centers. Ironically, this emphasis on non-retail may be what woos consumers away from the convenience of online shopping and back to the mall.

Seventy-two percent of consumers say they prefer to buy separate apparel pieces at different stores, according to the Cotton Incorporated Lifestyle Monitor™ Survey, compared to the 28% who would prefer to purchase everything in one place.

“That number has really remained consistent over the last several years, indicating that the very nature of malls still holds strong appeal among consumers even as the traditional anchor store model has become outdated,” says Kim Kitchings, Vice President, Corporate Strategy & Program Metrics, Cotton Incorporated. [Read more…]

Touch Screens: Innovation or Distraction?

electronic-superhighway-namjunepaikOur visual language continues to evolve faster than our spoken or written word. That evolution sits at the confluence of disruptive everything; from the viability of broadcast media to the science of visual merchandising. It also circumscribes a generational shift in how and where we access information.

If our screen owning habits are changing, how has that affected our screen watching habits in retail and other places outside our home? Ten years ago, our measurement data suggested that a television-based image attracted twice the number of eyeballs as a static paper-based image. Remember the video walls in stores and shopping malls that were some weird commercial rendition of a Nam Jung Paik art installation? It was brilliant the first, and maybe also the second time you saw it, but eye-straining thereafter.

[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…]

Is Athletic Wear Poised to Usurp Denim?

CottonGirlsIn the US, the NPD Group reported US shoppers spent about $17 billion on denim in 2013, and the global jeans market is projected to reach $56 billion by 2018, according to research firm Global Industry Analysts, Inc. But some in the industry see athletic apparel as the one to beat. While denim remained almost flat, declining just 1% for the 12 months ending December 2013, activewear soared 9%. And the total apparel market was only up 2% over the same period. What’s happening here?

While some point to athletic apparel’s ubiquity – 92% of consumers wear it for activities other than exercise, up significantly from 87% in 2009, according to the Cotton Incorporated 2014 Sports Apparel Survey – a more complicated answer might lie in the fact that for denim shoppers, what’s being sold at retail isn’t living up to their standards.

“I think part of what’s challenging to denim brands right now is the ‘premiumization’ of yoga pants and the luxury ath-leisure sector essentially following denim’s own model for success,” says Shanna McKinnon, editor of DenimHunt.com. “But can yoga pants, even nice ones, really be as versatile as denim? I’m not so sure.”

For consumers, durability remains a key component of new clothing purchases. Yet data from the Cotton Incorporated Lifestyle Monitor™ Survey has established many consumers are not happy with the denim they are getting at retail.

Indeed, the majority of consumers say they have experienced fading (67%) and wrinkling (51%) in their jeans, followed by wear & tear issues (50%), shrinking (49%), and lack of stretch recovery (49%), according to Monitor data. [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.