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…]

Target’s Big Leap of Faith

targetNot long ago, Brian Cornell was appointed Target’s CEO, becoming the retailer’s first CEO hired from the outside instead of being appointed from within the company’s hierarchy.

At any company, when a long-standing practice concerning the appointment of the top-level executive is changed, it usually means there is a lot of repair work to be done at the company. Target is no exception to that.

Let’s take a quick look at four key issues at Target and then see how — or if — Cornell’s experience addresses them. [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…]

Serves Up, One Caffeine Wave at a Time

keurig2.0For big box retailers in the home business, there is no single merchandising classification they love to hate more than small electrics.

A cornerstone of the housewares business, it is – along with cookware — the workhorse of the promotional calendar, driving traffic and generally getting bodies to come into the store to the home department. It is also a train wreck when it comes to profitability. I remember talking with a new divisional merchandise manager for housewares who was downright flabbergasted by the tiny margins in the store’s small electrics business. If it weren’t for bad margins, small electrics wouldn’t have any margins at all. That said, you’re unlikely to see any of the major players in housewares retailing getting out of the category anytime soon. Like the old Woody Allen joke about the guy who thought he was a chicken, retailers need the eggs. [Read more…]

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.

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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.

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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…]