A.T. Kearney

ATKearneyA.T. Kearney is a leading global management consulting firm with offices in more than 40 countries. Since 1926, we have been trusted advisors to the world’s foremost organizations. A.T. Kearney is a partner-owned firm, committed to helping clients achieve immediate impact and growing advantage on their most mission-critical issues. For more information, visit www.atkearney.com.

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.

International Intrigue: How Retailers Can Gain Share of Cross-Border Spending

crossborderInternational travel has been remarkably resilient in the post-financial crisis period. In fact, MasterCard research shows that since 2009, international visitor arrivals and spending have grown faster than real global GDP. Despite its size and strong growth, cross-border spending is a challenging area for retailers. When international travelers arrive, many merchants have difficulty recognizing them, anticipating their needs and catering to them. Even worse, most merchants neither recognize the size of the cross-border opportunity nor understand their current share. This is important, since even a 1% share of a leading market such as New York or London is near $200m in annual revenue. As it does with so many retail issues, data can play an important role in gaining share of cross-border spending. Insights into spending and behavioral trends can help retailers understand their current share of wallet and provide the intelligence needed to attract more cross-border dollars.

The International Traveler of Mystery

For those who are successful at attracting the international traveler, the ‘prize’ can be substantial: MasterCard research forecasts that cross-border visitors to the 10 leading destination cities will spend $136 billion during 2014. Narrowing that down to the biggest cities for cross-border spending and the opportunity becomes even clearer. In London, the leading global destination this year, this translates to an average of more than $1,000 per visitor. Average spending is even more impressive for other major travel destinations, such as New York ($1,600) and Taipei ($1,700).

Retailers seeking to gain cross-border sales should consider four approaches to anticipate the arrival and needs of the cross-border customer, to capitalize on the opportunity:

1. Benchmark the Current Competitive Set

Retailers and other types of merchants typically lack data on their share of cross-border spending, and have even less visibility into their share of spending by visitors from specific countries. A first step should be to measure current performance and compare it to that of competitors. In doing that, merchants can gain valuable insights by analyzing key indicators based on recent transactions and determining how they stack up against their competitive set.

2. Leverage Existing Customer Base

After benchmarking competitive performance, retailers can capture a greater share of cross-border spending by analyzing existing customers. As an example, many types of merchants – including airlines, hotel chains and luxury fashion brands – have established relationships with travelers through loyalty programs. Analyzing the spending patterns of frequent traveling members of the program can help identify the merchant types with which members engage most frequently. This may uncover partnership and ancillary revenue opportunities for the brand.
Analyzing the membership of a hotel chain affinity program, for example, may show that affluent customers from certain countries engage frequently with particular luxury industries. Such insights may yield partnership potential as a means of attracting customers from those markets and gaining share of spend while they visit.

3. Understand Spending Habits of Cross-Border Customers

Another strategy to gain share of wallet with international travelers is to analyze past spending activity by international traveler customer segments for predictive insights. As an example, a retailer at a shopping mall in London could see that high-income customers from New York City are likely to have shopped for apparel before they come to the mall. The retailer may also notice that the international traveler segment frequents bookstores at some point after leaving the mall. These insights may help the retailer evaluate partnerships or category expansions.

4. Choose Influential Partners

Cross-border travelers interact with many different travel market participants, including airlines, airport authorities, tourist boards, car rental companies, hotel chains, online travel-related services and banks. These are potential partners to other merchants looking to grow their business with international travelers.

A tourist board, for instance, may wish to attract visitors from certain markets. From some markets, a high proportion of travelers will be affluent, while those from others will be predominantly business travelers. These different cohorts may favor certain types of retailers, restaurants and hotels during their stay. A tourist board will have an interest in connecting the two, both to improve the customer experience of the traveler and to drive business within its region. Insights from spending behavior patterns of travelers from these markets will identify areas of alignment and potential partnership between the tourist board and merchants in its region.

Cross-border spending is growing rapidly and should be of particular interest to retailers in geographies with high penetration of international visitors. With cross-border visitors to the 10 leading destination cities alone forecasted to spend $136 billion during 2014, the opportunity for merchants cannot be ignored and a critical first step is tapping into and understanding the right data and insights.

A version of the article appears in the Fall 2014 issue of the MasterCard Advisors “Compendium.”

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...]

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...]

Small Retailers Face Huge Technology Gap

Restaurant ownerTalk about proof points. In the April issue of The Robin Report, Gary Kearns from MasterCard wrote about the level of technology needed for retailers to create and maintain one-to-one relationships with consumers. “Few retailers today have the sophistication, systems and savvy to create a mutually rewarding relationship with [key consumers],” he wrote. A new MasterCard survey illustrates that point and details a huge capabilities gap between large and small retailers. That gap must be addressed if smaller retailers will have a chance to compete in a data-rich world.

The survey comes from MasterCard’s Global Insights team and is detailed in its recent Merchant Scope report. MasterCard conducted qualitative and quantitative interviews in Canada, Germany, South Africa and Brazil to identify the attitudes, opportunities and obstacles that are driving small business technology use.

The 90/20 eCommerce Equation

While most of the findings varied by vertical and country, a few numbers jumped out. The first: Nearly 90 percent of small to mid-sized merchants have an online presence, but only 20 percent have an eCommerce website. They lack the technology to accept payments online. That is a significant number, regardless of how big your store count or balance sheet.

It’s significant because the concept of financial inclusion is not limited to certain consumer groups in developing economies. Inclusion is about retailers, too. The retailer who cannot sell online is missing opportunities for themselves, but is also underserving consumers. Mega-retailing has had its share of consumer advantages in terms of price and service. But the overall health of retailing also depends on smaller regional chains, local favorite boutiques and rural multi-purpose stores.

Part of the responsibility falls on the data and payment technology communities. Small merchants need their help in understanding and meeting the evolving expectations of more informed and digitally connected consumers. These expectations center on convenience, an innovative shopping experience and personalized customer support. In the current data-driven retail environment, the consumer shopping experience starts long before entering a store, and includes the ability for the merchant to be present in different devices and channels. Advances in technology – including payments – have often presented an opportunity for small businesses to level the playing field. But, as consumers take advantage of mobile technology and real-time information, businesses of all sizes find themselves needing to create an “always on,” omnichannel presence or mobile app offering instantaneous rewards that attract new and repeat customers.

Barriers to Technology Adoption

The second set of numbers that jumped out from the study concerned barriers. The two clearest barriers to adopting technology, according to the report, were cost (46 percent) and know-how (31 percent). Here, small merchants need to prioritize resources for marketing. When examining what can be spent on digital marketing, they need to address key questions to help determine if an investment is worth it. Is this the key to improv-ing the customer experience? Do you understand how to use sales data to effectively build marketing propositions? Are you losing out on sales because you are not sure how to identify your best customers? What can you invest in now to make this pay off and run your business better?

Now let’s look at the ability to generate customer data. Here the capability of small merchants also needs to be improved. The Merchant Scope report shows that merchants find point-of-sale (POS) devices in large measure work as a transaction terminal. Half of the respondents globally indicated satisfaction with the payments acceptance experience. Nevertheless, MasterCard’s research indicates that the data passing through POS systems are under-utilized. They are leveraged for the authorization of transactions, but not as a potential window into insights on their customers. Today’s consumers are increasingly driven to shop by intelligent offers – perceived value over price and customized messaging. Consumers don’t just want to receive discounts; they want to be offered discounts on the products they care about. Developing ways to collect and use consumer purchase behavior data, in line with prevailing data laws, to offer them the things they really need depends on effectively utilizing the data flowing through the POS.

Regardless of the merchant’s size and geography, the most cited challenges (on average 41 percent of merchant respondents) revolve around identifying new customers. More than 32 percent cited Internet marketing and promotion, and 28 percent cited offering loyalty benefits to customers. Today, as more and more data is generated about customers’ shopping behaviors and preferences, there’s an opportunity to use that data to tail customer experiences, working with existing laws on data usage. Smaller merchants are starting to see the challenge and look for competitive solutions.

Leveling the Playing Field

Improving this situation requires a mind shift. Consider technology in the context of how it is integrated. Buildings blocks like eCommerce and effective new digital marketing will be greatly improved when technology is integrated. The sales data that comes through a well-developed eCommerce and invent-ory system is the fuel for developing strategies of product promotion and how to offer customers the goods and services they want most.

The rise of the mega-retailer has changed everything about the competitive environment for merchants of all sizes. Large, vertically integrated merchants have revolutionized supply-chain and inventory management, taking technology in those areas to a level that enables them to cut pricing and improve the customer experience. They have exploded across continents, with technology channels creating the “omnichannel” reality of global shopping. According to information published by the National Retail Federation, the top 250 retailers control $4.3 trillion in revenue; 63 percent of them are global. They have leveraged their scale and technology resources to present customers with a unitary, integrated shopping experience that inexorably is moving to an individually customized marketing model. That model has effectively upended the traditional merchant/consumer relationship, empowering the consumer to the point where customer experience and online agility are increasingly important as growth drivers for top global online retailers.

When it comes to leveraging technology, the picture for the mega-retailer is much clearer. But for small and medium-sized merchants, it’s still murky. The ability of large, often global merchants to dominate retailing creates an arena where small to medium-sized merchants may feel they cannot compete. The ability of large merchants to integrate technology both on the macro level outlined above, as well as in-store, presents a daunting competitive environment for small and midsized merchants.

The gap in technology resources between global retailers and smaller-scale merchants is glaring, and can be closed with the coordination and participation of banks, governments, and technology providers, as well as merchants. The downside of not addressing these gaps is that smaller retailers will fall further behind in becoming better engines for economic growth. The upside is huge.

Will it Be Made in America?

FINAL image_Anastasia‘Made in America’ is quite the hot topic right now, grabbing up headlines left and right; from the backlash about Ralph Lauren’s 2012 Olympic uniforms (the company quickly learned its lesson—the 2014 ones were made in the US) to retail beast Walmart’s declaration to increase its purchase of American-made goods by $50 billion during the next 10 years. It’s a hopeful story—fostering patriotism while supporting the return of jobs to US soil.

There are those who say that domestic manufacturing is simply not feasible at certain price points, while others have found a significant shortage of skilled workers as a blocking point. Despite these obstacles, will apparel manufacturing sprout again in the US?

Our take is yes.

Companies are manufacturing clothing in the US today and have been for a long time. Take Martin Greenfield Clothiers, for example. The menswear company offers fine, hand-crafted tailored clothing including made-to-measure suits and tuxedos, made 100 percent by hand in its Brooklyn, New York factory. The company’s customers aren’t too shabby either—Presidents, Ambassadors, major motion pictures, the list goes on.

You may be saying, well of course a company that produces such high-end garments can charge a premium and not worry about paying extra for production. And we agree. But many companies are finding success producing in the US at all different price points. In fact, according to a recent study by Boston Consulting Group on the shift in global manufacturing, China’s manufacturing cost advantage over the US has shrunk to less than five percent, while Mexico currently has lower manufacturing costs than China. This shift highlights how American companies can now consider their home turf as a viable manufacturing option, keeping production closer to the end consumer.

Brand names like Ralph Lauren, Club Monaco, Frye and Brooks Brothers are now producing a percentage of their pieces on home turf as well. Designers like Nanette Lepore are outspoken on the topic; she organizes Save the Garment Center rallies and is vocal with lawmakers in Washington to support the American fashion industry.

America’s Research Group found that approximately 75 percent of consumers would pay more for American-made goods, up from 50 percent in 2010. Thus, people are seeing this as a business opportunity, evident by the rise of startups dedicated to US manufacturing. Look at American Giant, a direct-to-consumer apparel company that makes high-quality, affordable basics, including hoodies, t-shirts and sweatpants. After a December 2012 Slate article declared the company’s best-selling sweatshirt as the “greatest hoodie ever made,” there was a months-long waiting list. American Giant pledges to never outsource jobs overseas.

An important element to consider is the fact that this ‘repatriation’ movement isn’t unique to the US. There is also a push for ‘Made in Britain.’ British companies were dealing with the same challenges—wage increases in China, higher transportation costs, hard to control supply chains; there was also a wave of patriotism following the Olympics and the Jubilee. Many companies have been able to spark an onshoring resurgence, with Mulberry, Marks & Spencer, Topshop, Christopher Nieper and John Smedley being just a few examples.

The moral of the story is: if other higher wage countries are successfully moving toward domestic production, there’s no reason the US can’t follow suit.

We may end up eating crow because of our stance on this topic as only time will tell.

 

Fabric Substitution Needles Home Textile Shoppers

Preference for Cotton Remains Paramount

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Click to See Chart Full-Sized

Housing starts and existing home sales are not only good economic indicators, but they are also strong predicators of future growth in other areas like home textiles. As the turnaround in the housing market gains steam, the home textiles market benefits – but consumers are increasingly paying higher prices for lower quality and less cotton-rich items, and they are not satisfied.

Textile World recently reported that housing starts could increase by as much as 15 to 20% over the course of 2014, despite the harsh winter, leading to potentially brisk business for the home textiles sector. While January building permits were 5.4% below the December rate, they were still 2.4% above the January 2013 estimate, according to the Department of Commerce, hinting at an upswing in the industry that could carry over to home textiles.

Cotton remains the favored fiber for home textiles like bedding and sheets; more than eight in 10 (81%) consumers prefer their sheeting to be made from cotton and cotton blends, and 75% of consumers prefer their bedding to be made from cotton and cotton blends, according to the Cotton Incorporated Lifestyle Monitor™ Survey. But that’s not always evident at retail. [Read more...]

Seeking Transparency

Cotton Charts 05-2014-01

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How Sustainability Can Enhance Your Supply Chain

Has sustainability truly become part of our lexicon, or is it still just a buzzword? Today, most consumers expect products and their manufacturing processes to be sustainable; indeed, it’s part of the legacy of the original Earth Day, held more than 40 years ago. And while Millennials demand it, they’re not always willing to pay more for it. So how can the retail industry adapt?

“Research reveals price and style still top consumers’ lists of purchase drivers when shopping for apparel, though environmental-friendliness remains a draw,” says Kim Kitchings, Vice President, Corporate Strategy and Program Metrics, Cotton Incorporated. “When she buys something that looks great on her and is the right price for her budget, the item’s environmental-friendliness becomes a kind of added bonus.”

Indeed, data from the 2014 Cotton Incorporated Environment Survey support this; 98% of women say fit is the most important factor when making a clothing purchase, followed by comfort (97%), quality (95%), and price (95%). Nearly half (46%) of female consumers cited environmental-friendliness. [Read more...]

How Chicago Grew Its Own Fragrance

Tru Fragrance_flowersThe Second City has racked up something novel. For the first time, the city has come together to fulfill a mission of sustainability, urban beautification, and economic development through creating flower gardens specifically for use in a fine fragrance.

Tru Blooms is a fragrance initiative designed to transform Chicagoland’s green spaces into growing spaces, and cultivating flowers that are harvested and bottled into a limited edition perfume.

Capitalizing on the trends of urban farming, locally-grown produce, and the overall “farm-to-table” vibe, Tru Fragrance, based in Willowbrook (just west of Chicago), and with offices in New York and Denver, saw an opportunity to do something completely different in the perfume space.

The brand DNA was not only based on the flowers grown locally in the Windy City, but it was also infused with an artisanal touch, and defined by community and purpose. Over 60 people have been trained and employed to plant and maintain more than three acres of flowers located across the city, ranging from the high profile and highly trafficked Grant Park, to many of the small neighborhoods that Chicago is known for.

Tru Blooms is a brand based on community gardening with a perfume evoking an olfactive image of a fountain cascading with overgrown with roses. Our goal is to produce a scent that is as authentic as the spirit of the community of gardeners. [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...]

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...]