Reading Consumer Behavior in a Tentative Time

Sarah_ Spendin_Rd1The global economy has entered a period of transition. After the high hopes so many had pinned on the rise of the BRIC nations — Brazil, Russia, India and China — and other emerging economies, their seemingly inexorable ascent has proved all too exorable, with global demand for raw materials slackening and internal economic indicators demonstrating a cooling in overall economic growth.

But there are other factors making for the creation of a climate of transition — and, to a certain degree, of uncertainty. The existence of both exogenous and endogenous forces, not least of which are the seeming return of great power geopolitics in Eurasia and the South China Sea, the discovery and exploitation of new energy sources within the U.S. — thus creating a new source of instability in the Mideast — and the continuing struggle to make an integrated Eurozone a reality — all contribute to the atmosphere of watchful waiting. [Read more...]

Your Local Fruit Stand is a Bellwether

IMG_0139On the corner of 7th Avenue and 12th Street in Manhattan is a fruit and vegetable cart. Others just like it are scattered across New York City. They tend to be run by hardworking immigrants willing to stand up all day and put up with whatever weather comes their way. I’ve passed this stand thousands of times as I walk to and from work. Last fall, I stopped for the first time noticing that the same blueberries and blackberries that have now become my breakfast staples were cheaper than in the grocery store down the street; the same box and brand, but 25% less.

In retrospect, it makes perfect sense since my grocery store pays more in rent than the street vendor does. It wasn’t just that the berries were cheaper; when I actually compared the other fruit and vegetable prices, everything else was too. I started buying avocados, eggplant, onions and melons. Not only was it cheaper, but it was more convenient. Yes the selection was narrow, but it met my needs. The vendor was friendly, and his name was Ali. [Read more...]

Fashion or Fitness – What’s a Portfolio Manager To Do?

Marie-Blog-image_Rd.1Apparel is considered a discretionary purchase. Really? Most would agree we have little choice as to whether or not we purchase and wear clothing, and it’s considered ‘de rigueur’ in most social settings. The array of apparel choices is truly mind-numbing and drives a $1.7 trillion global market. Options span the most basic Gildan Activewear cotton t-shirt sold by the gross to vendors for silk-screening early in the supply chain, to non-branded apparel at Walmart, to national and specialty retail brands, all the way to the rarified luxury world of a Chanel tweed jacket priced at $10,000. There is something for everyone.

Branded apparel companies (both wholesalers and specialty retailers) such as Ralph Lauren, PVH (Calvin Klein, Tommy Hilfiger, Lacoste et al.), JCrew, and Gap differentiate themselves in the market by appealing to targeted consumer segments based on age, lifestyle, and income, as well as their interpretations of prevailing fashion trends for their demographic segment. Therein lies the rub! Fashion is fleeting and supply chains are inconsistent. Balancing the tightrope of enough fashion to be relevant, while not too trendy to incur speedy obsolescence, is the fashion merchant’s Gordian knot. Imagine doing this for two to four seasons a year! [Read more...]

The Breakfast Champion Goes Down for the Count

BreakfastWhat Happens When an Entire Consumer Segment Suddenly Loses Interest in a Brand or Product Category?

Ugly results happen, that’s what. Just take a look at Abercrombie & Fitch, the retailer of upscale apparel to teens. Over the space of a year or so, teens have been abandoning A&F in droves as the retailer lost its design edge and cash-strapped teens found cheaper and more fashion-forward alternatives at other retailers. Maybe also, teens now self define status more by the mobiles they carry than the jeans they wear.

That’s powered sharp declines in A&F’s same-store sales, its net sales volume, and the fortunes of Michael Jeffries, its autocratic and gaff-prone chairman and chief executive — or to be more precise, its former chairman who is now chief executive only.

What that retailer experienced in a comparatively short period of time has been happening in slow motion in the food industry for a long time. For a decade or more, a huge consumer segment shifted away from a core supermarket category: breakfast. And the component of the breakfast category that’s taking the biggest hit is its former champion, cold cereal.

Let’s take a look at what’s going on. [Read more...]

Angela Ahrendts – An Apple Disruptor or One-Off Burberry Rock Star?

AhrendtsI believe former Burberry CEO, Angela Ahrendts, did in fact disrupt the traditional department store model, specifically through her seamless and spectacular integration of the Internet and technology. Indeed, when one steps into Burberry’s London flagship, it’s like stepping into a technological extravaganza, taking “high-tech, high-touch” to another level, empowering consumers and providing an awesome shopping experience. And upon entering and shopping the website, one has an identical experience, however without the 3-D physical sensation. Burberry’s website states its mission as “seamlessly blurring physical and digital worlds.” Lauded on both sides of the pond as some kind of rock star, Ahrendts caught the attention of Apple CEO Tim Cook, who lured her to head up Apple’s retail business.

Now, everybody is wondering what she’s going to be doing in her new role. And that’s no small question as she sits in the enchanted land of “the next big thing.” Apple already disrupted the world of retailing when it launched its stores under Steve Jobs in 2001. Currently, with over 400 stores worldwide, it’s still the most productive retail space in the world, in all of history, averaging over $5000 per square foot. So the first question one might ask is: why on earth would Apple want to disrupt such incredible performance? Secondly, if that is what is expected of Ms. Ahrendts, how would she disrupt it? [Read more...]

Dear Doug – An Open Letter to Doug McMillon, the New President & CEO of Walmart

doug-mcmillon-in-store

By now you’ve been in the corner cubicle in beautiful downtown Bentonville for a few weeks, so congratulations on being only the fifth president in the history of Walmart. It’s a big job, running the largest retailer — hell, the largest anything — in the world and you’ve got millions of employees and billions of customers depending on you to do a good job.

No pressure, really.

But you also sit in perhaps the most revered seat in American retailing, the one once occupied by Mr. Sam himself, the man whose name is over the front door, the guy who put most of the stores in the United States out of business, and the hovering spirit who continues to both inspire and haunt everything and everybody at Walmart. But Doug, you and Sam Walton also have one other thing in common: you’re the only merchants ever to run Walmart.

And therein lies the greatest hope for a very troubled company. You see Doug, as you know better than anybody, Walmart is not quite what it seems to be. You know how certain businesses appear to be one thing and are actually another? Like movie theaters fronting as places to show films when in fact they are giant popcorn and snack emporiums? Or furniture stores appearing to be selling couches and credenzas when they are really finance companies charging usury rates that would embarrass organized crime? [Read more...]

Moneyball for Retail

YG_moneyball_FINAL imageThere’s a new way to grow profits and hit it out of the park with consumers, employees and shareholders. It’s “Moneyball for Retail” – finding market inefficiencies to gain a competitive advantage.

In Major League Baseball, team owners want to win games. In retail, executives want to grow sales and profits. Both want to achieve these goals without breaking the bank, and the best-managed franchises in each have one fundamental principle in common: identify, develop, and reward the right players.

Whether baseball teams are winning or not, their ongoing costs continue to escalate. To keep the franchise operating at a high level, management needs to be aware that the most expensive players aren’t always the best fit for the team. The same holds for retail stores: operational costs are escalating regardless of store success, and executives need to schedule the right people in the right places to generate profits with the fewest additional costs.

And just as iconic baseball dynasties have come and gone, so have seemingly invincible retail giants. The survivors are the ones that continue to win. [Read more...]

Amazing Macy’s

Robin-Macys-illo_Rd5Not Just a Miracle – Not Just a Department Store

While JC Penney, Kohl’s and Target struggle to regain their “mojo,” or better put, to save their butts, Macy’s seems to be mojo-fueled and on a trajectory to be the last man standing. Or, are they simply stealing sales away from their befuddled competitors? The answer is a mixture of both.

The Macy’s on 34th Street today, is no miracle, nor are its recent positive (albeit aligned with a weak economy) financial results. It’s just the result of the strategic vision and methodical, complex tactical implementation of CEO Terry Lundgren and his five-star team. The store is a shopper’s delight, an audio-visual stimulating experience, one special event after another, “Black Friday,” and Christmas energy every day. Their many exclusive brands are showcased in a boutique-like shopping environment, and it’s obvious that Macy’s has evolved its brands and experience for the Millennial generation, soon to be the primary consumer segment. Over time, I expect Macy’s will spread the miracle across most of their roughly 800 doors.

Department Stores’ Last Man Standing or a Different Model?

If not “the last man standing” among department stores (an apt reference to Gary Cooper in the classic film, High Noon), Macy’s clearly created a differentiated national brand that they dominate. In a retail industry that I expect will struggle for growth between 2% to 3%, at best, for years to come, in which discounting is the weapon of necessity (Macy’s included), Macy’s is outpacing the pack with its “My Macy’s” localization strategy and ongoing pursuit of a seamlessly integrated omnichannel; plus “Magic Macy’s” elevated consumer service (including new augmented reality technology), as well as its continual focus on the “experience.”

In fact, I wish they would stop calling their business model a department store. I believe that sometime in the not too distant future the terms “wholesale” and “retail” will cease to exist as relics of the past, defining business models that are ceasing to exist. And, the classic “department store” definition will become irrelevant as well.

In the second edition, of our updated book, The New Rules of Retail, (due to be released in August), we redefine retailing into three sectors: “Omni-Brand to Consumer,” Commoditization,” and “Liquidation.” The Omni-Brand to Consumer sector is best positioned strategically for maximum competitive advantage and profitable growth.

The business models in this sector are destination brands, not nameplates. These brands are highly differentiated, including unique, mentally indelible experiences. Ultimately the brand is the creator of the largest percentage of all products and services sold (if not, they exercise dominant control). These brands will then control the distribution of its goods, including the experience, on all relevant distribution platforms, seamlessly integrated, from creation to consumption.

As Macy’s continues to evolve, in my opinion, they will begin to look like the poster child of this newly defined Omni-Brand to Consumer sector.

The Future is Now

I refer back to some quotes from an article I wrote for The Robin Report in 2011 to give context to Macy’s evolution. At the time, Lundgren commented that the massive $400 million expansion and restoration that Macy’s was undergoing, would create “a modern, customer-centric shopping experience” to reflect “how a new generation of customers prefers to shop.” His next statement was the one that really caught my attention. He said, “In many cases, product will be organized by lifestyle to help customers create looks and build wardrobes across categories.”

The significance of that last statement might have gone unnoticed by many. But Lundgren’s commitment to this lifestyle aspect of the shopping experience could well have been the first “shot across the bow” of the branded apparel specialty chains, most of which have used this same strategy to steal apparel share from department stores.

I have long speculated that if the big stores could begin to organize their products and services around lifestyle it could actually provide them a huge competitive advantage, because they already trump the branded specialists with the breadth of their selection. This merchandising reorganization speaks to an easier, more convenient shopping experience without having to traverse the maze of departments and floors.

Finally, I could not sign off in that article without offering up what could be the severest blow to the branded specialists, which would be department stores rolling out their private or exclusive brands as branded specialty chains. While Macy’s did so with their Aeropostale brand several years ago without great success, I believe it was simply ahead of its time.

How About Macy’s Mini-Mall?

So what might brand-Macy’s look like fully evolved? As I said back in 2011, Macy’s would resemble more of an enclosed mini-mall, full of go-to events, cafes, restaurants, and a collection of small, branded lifestyle shops that would be leased and run by the brand, which by the way, Mr. Lundgren was recently quoted in WWD declaring he’s “all in” and “I’m a believer” in the leased shop concept. Macy’s, the brand, would be the destination, with a mini-mall full of experiences so compelling that consumers would leave the Internet or any other store that just sells stuff.

One thing I am sure of is that even though many of Macy’s initiatives will result in echoes of its origins as a kind of a grand palace, the future is now for the department store sector. Macy’s is certainly providing a roadmap for transforming the department store into a more relevant 21st century model, defined by us as the Omni-Brand to Consumer model.

And, at the end of the day, they can call the model whatever they want, as long as consumers connect with it the moment they hear it.

How about, well … Macy’s?

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...]

The Power of One

shutterstock_93965347Consumer Insights from MasterCard Advisors

The digital age has brought a shift in power from retailers to consumers unlike anything known before. Each consumer is now a market segment of one. Within the next five years every retailer will learn to win consumer business and sustain loyalty by understanding behavior as it’s reflected in what consumers buy, the experiences they covet, the networks they leverage and their attitudes regarding data usage, price and convenience.

The year is 2020. Isabel, a 35-year-old professional, opens her tablet. First stop is her home screen, from which she controls her universe. She has her favorite brands, her product wish list with the prices she’s prepared to pay (information she has shared with those same favorite brands) and an easy-to-manage dashboard defining what the outside world sees about her. Certain brands she trusts enough to share quite a lot about herself. These favorites, of course, know the most about Isabel, so that she can get exactly what she wants from them. [Read more...]

CVS: Blowing Smoke? Or Truly Concerned for our Health?

Judy-CVS_FINAL-imageI resent the fact that I can’t walk down a street in New York City without breathing in a potentially lethal amount of second-hand smoke. So imagine my satisfaction when, on February 5, CVS announced it was going to cease selling tobacco products at its 7,600 stores by October 1.

CVS Loses a Loyal Customer

I became a CVS customer about 30 years ago. I found the stores conveniently located, bright, clean, and easy to shop. The product assortment was excellent and well-priced, and the ExtraCare loyalty program, of which I was a charter member, was terrific. I started shopping there for my prescription and over-the-counter medications, health and beauty aids, and vitamins, eventually expanding to cereal, juice, sundries, holiday candy, and school supplies. As the years went on, I did a greater portion of our family shopping there, and each quarter I would receive a generous coupon of “extra bucks” — free money to spend in the store. [Read more...]

Innovation and Prosperity: A Primer on Private Brand Fragrance Development

shutterstock_115177768Why aren’t more retailers getting into the private brand fragrance game?

In the fashion retail marketplace, developing your own private fragrance brand, especially for specialty apparel chains, is a powerful way to take share from larger multi-brand stores. The single brand strategy resonates so well with consumers today, from Millennials to Baby Boomers, at all levels of the marketplace — from mainstream to luxury. Multi-brand retailers can use private or exclusive brand fragrance to enhance their businesses. These proprietary brands reinforce uniqueness; can be used as promotional tools, gifts-with-purchase, or other innovative marketing techniques.

For retailers who have the will and the vision, the development of private brand fragrance products represent an opportunity for significant financial gains combined with the strategic leverage of merchandising exclusive, compelling products. This is a wonderful opportunity to showcase the creativity, imagination and innovation of your company – - just what is necessary today to differentiate yourself and be successful in the retail space. While nothing is ever guaranteed (and especially not in retail), the development of private brand fragrances can potentially lead to tens of millions of retail profits. [Read more...]