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Mar 2013 – V1. 0

Updated: 30/03/2013

Table of Contents

What's In Store: Retail's Stealth Trend ....................................................................................... 4

Three Important Retail Trends for 2013 ..................................................................................... 6

Mobile..................................................................................................................................... 6

Integration .............................................................................................................................. 6

More and More Social ............................................................................................................ 7

What's In Store: How Polyvore's Stylish Social Commerce Is Cracking Retail 3. 0 ..................... 8

Walmart Vs. Amazon: It's About To Get Interesting ...................................................................10

Retail Wisdom: Lessons Learned From Holiday 2012 ...............................................................11

Forget the calendar – it’s not a crystal ball .............................................................................11

Thanksgiving hours don’t guarantee more sales ....................................................................11

Focus on the merchandise ....................................................................................................11

Leverage the Internet for all it’s worth ....................................................................................11

Holiday Shopping: The Retail Race Is On .................................................................................13

New "Service" Vernacular: Do You Speak It?............................................................................14

HIGH-TECH SERVICE ..........................................................................................................14

ACCESSIBLE SELF-SERVICE .............................................................................................14

CONCIERGE SERVICE ........................................................................................................14

CUSTOMIZED, HELPFUL SERVICE ....................................................................................15

THOUGHTFUL SERVICE .....................................................................................................15

SERVICE ANYWAY THEY WANT IT ....................................................................................15

Channel Blurring On Steroids ....................................................................................................16

London Retail Dazzles: Between the Jubilee & Olympics ..........................................................17

2012: The Year of "Moving On" .................................................................................................18

BIG, BOLD, AUDACIOUS SPACES ......................................................................................18

VIRTUAL STORES POPPING UP .........................................................................................18

EXTREME COUPONING ......................................................................................................18

DEPARTMENT STORES TANTALIZE AFFLUENT SHOPPERS ..........................................18

Nordstrom Moves To The Land of Retail Opportunity................................................................20

Power Couple: Walgreens & Alliance Boots Build Cross-Pond Empire .....................................21

Will JC Penney Shoppers Accompany The Retailer To The Finish Line? ..................................23

Are Retailers Cannibalizing Black Friday? .................................................................................25

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Are You Really Getting A Bargain Black Friday Deal? ...............................................................27

Why Retailers Have to Open on Thanksgiving This Year ..........................................................29

With Thanks giving - Night Openings, Do Retailers Risk Busting More Than Doors? ................31

Retailers, Can You Hear Us Now? ............................................................................................33

Retailers: Who Do You Trust? ...................................................................................................34

Retail's Big Question: Is The Price Right? .................................................................................36

Pricing Part 2 -- Focus On Specialty & Vertically Integrated Retailers .......................................38

Getting the Price Right from the Start ....................................................................................39

Pricing Part 3: How Does A Brand Know When The Price Is Right? .........................................40

So how does a brand set the entry price for a new product? .................................................40

Department Store Pricing -- No Easy Task (Part 4 Of 4) ...........................................................43

High Fashion Specialty Stores ...............................................................................................43

Mid-Level Department Stores ................................................................................................44

Stores for Price-Sensitive Consumers ...................................................................................45

Conclusion ............................................................................................................................46

How Fashion Brands Set Prices ................................................................................................47

1. Market Product Opportunity Analysis: ................................................................................48

2. Define Strategic Brand Position: ........................................................................................49

3. Wholesale Price:................................................................................................................51

4. Product Development: .......................................................................................................52

Why do dresses cost more on a designer's website? ................................................................54

2. 1. Conflicting Priorities Destroy Feedback Loop:................................................................54

2. 2. High Subjectivity and Large Biases Adversely Impacting the Comparative Pricing Analysis: ................................................................................................................................56

2. 3 Supporting Legacy Revenue Channels with Conflicting Agendas ...................................57

2. 4. Emotional Engagement Drives Pricing Power: ...............................................................60

The Future Of Fashion Retailing: Part 1 - Uniqlo .......................................................................62

Uniqlo: Choosing Long-Term Appeal over Trends .................................................................62

The Future Of Fashion Retailing: The Zara Approach (Part 2 of 3) ...........................................64

Zara: Responding to Consumer Trends .................................................................................64

How is Zara able to do this? By being fast and flexible. .........................................................64

The Future Of Fashion Retailing -- The H&M Approach (Part 3 of 3) ........................................66

H&M: Building a Bridge between Timeless and Trendy .........................................................66

Three Different Approaches, Important Common Ground ......................................................67

Uniqlo: How Japanese Billionaire Tadashi Yanai Plans To Clothe America ..............................68

Are Retailers Reaching Consumers Of The New Millennium? ...................................................70

What Is The Kryptonite Of The Millennial Generation? ..............................................................72

History Repeats .....................................................................................................................72

History vs. Trivia ....................................................................................................................73

A Well-Read Mind .................................................................................................................73

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Why You Should Be Hiring Millennials [Infographic] ..................................................................74

What Millennials Want Most: A Career That Actually Matters ....................................................78

Postscript On Retail Pricing: Avoiding The "Race To The Bottom" ............................................80

Who Owns Pricing? ...............................................................................................................80

Is Anyone Selling at Full Price? .............................................................................................81

What is a Product Really Worth? ...........................................................................................81

Offering a distinct, differentiated product. ..............................................................................82

Staying true to who they are as a brand. ...............................................................................82

Pricing Wars Make A 'Punch And Judy' Show Of Retailing: Running For Higher Ground ..........83

Did The JC Penney ‘Fair and Square’ Promise Offer Salvation? ...........................................83

Dynamic Pricing ....................................................................................................................84

Personalized Pricing ..............................................................................................................84

What Can Be Done? ..............................................................................................................84

JCPenney Returns To High-Low Pricing, Cue The Critics .........................................................86

J.C. Penney Tweaks (Again) Its Radical Pricing Strategy, Which Continues to Sink Sales..........87

The Winners (Target) And Losers (Best Buy) This Holiday Season............................................91

Retailers Fight Back Against Amazon With Private Brands .......................................................96

Wal-Mart Nimble? Pricing and Shipping Moves Suggest New Competitive Zeal; Stock Rising 100

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What's In Store: Retail's Stealth

Trend

“Few purchases are made – either online or offline – without some type of digital research. Retailers are telling us that over 90% of their purchases are now digitally assisted. ” That’s the observation of Lelah Manz, chief e-commerce strategist at Akamai. You may not have heard of the cloud platform but you definitely know its customers. Akamai works with the likes of global retailers including Dolce & Gabbana, Best Buy, Victoria Secret and leading flash sale site Hautelook and tracking retail traffic based on its Retail Net Usage Index.

As analysts, brand managers and store owners (not to mention yours truly) try to tease out the trends that will convert browsers to buyers in 2013, Manz took a moment to talk to FORBES about an often overlooked, but critically important, part of the shopping experience: search.

Think about it. You want a TV. Or a pair of shoes. Or a toy for your toddler. Do you get in your car and drive to the nearest strip mall? Chances are you’re sitting at your computer, or on your smartphone, and you just type in the name of the product and let the research and reviews pour in. Or you’re actually in a store, staring at an array of similar products and whip out your smartphone and voila. Comparison pricing, often tagged to your location, pops up in seconds. Hello, showrooming!

Manz says search engines, with Google in particular, are still the number one choice for accessing product information. “One study suggests that as much as 80% of referrals – a referral is a site that shoppers link off of to get to an e-commerce site – is coming from Google search, ” she tells FORBES.

The growth in mobile also delivers a plethor of new shopping tools that bypass Google entirely, Manz notes, such as Apple iOS’s voice search Siri. “Red Laser is just one example of a price comparison scanning tools that allow shoppers to scan a UPC label, or a QR code, with their smartphone’s camera, returning a list of different online price points for that product. The search engine Milo offers price comparisons and inventory information for products to be found locally in stores, ” she adds.

Don’t forget Amazon. The online merchant’s massive database of product information and consumer reviews provides a natural starting point for many a search, says Manz, noting that a recent Forrester survey suggested Amazon may be taking traffic away from search engines when it comes to starting the purchasing process. The findings indicate that 30% of U. S. adults now start their purchasing journey on Amazon, while those starting on a search engine like Google declined to 13% in 2012, down from 24% in 2011.

Manz says the difference may be in consumer perception. “If you type into the address bar of your browser “Macys” instead of www. macys. com, behind the scenes that browser is using a search engine – most often Google as the default – to take you to a set of search results that includes as the top listing www. macys. com, ” she explains. “As a shopper you are likely not really thinking about that activity as a Google search, and arguably there was very little influence that Google search had in influencing your purchasing decisions in that case. But retailers do see and count this as a Google referral. ”

Manz believes the influence of Google-as-a-Navigation-Tool has on referral statistics is debatable, but it’s clear that this type of activity has a very different level of influence on the consumer’s decision. “The power of influence in Amazon’s reviews and pricing information, however, is indisputable, ” she asserts.

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http: //www. forbes. com/sites/lydiadishman/2012/12/21/whats-in-store-retails-stealth-trend/

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Three Important Retail Trends for

2013

Even as the cash registers and virtual shopping carts continue to rack up holiday sales for retailers, savvy merchants are casting a critical eye into their crystal balls to determine how their customers will shop in 2013. This is important, as theNational Retail Federation (NRF) points out that with retailers operating more than 3. 6 million U. S. establishments that contribute $2. 5 trillion to the annual GDP, what happens in stores and online is “a daily barometer for the nation’s economy. ” Good thing Kiplinger predicts that next year will herald better times, especially in the second half of 2013.

FORBES gathered some forecasts, surveys and expert comments to see what may be in store for retailers after January 1.

Mobile

Susan Reda, executive editor of STORES Media, writes, “The year just concluding will be remembered as the one in which mobile became embedded into the lives of consumers — and thus into the hearts of retail businesses large and small. ”

Mobile developers agree. According to a survey by Appcelerator and IDC , 93 percent of mobile developers anticipate that it is “likely to very likely” that most retail companies will have enabled mobile commerce in 2013 as consumers increasingly reach for their phones and tablets even while shopping in a physical store. Consumer behavior continues to underscore this transformation. Appcelerator found that nearly two-thirds of developers also believe that consumers will make more purchases via their mobile phone than their credit card in 2013.

Integration

Founder of the direct-to-consumer shoe merchant Sole Society Brett Markinson tells FORBES the “emerging” direct-to-consumer E-commerce model recently being discussed as the “Next Big Thing” is only the beginning of the evolution pushing haute couture into the digital age. “Building and distributing a successful brand in the Internet era is about addressing the new behaviors of an evolving customer base by leveraging the changing landscape and its new dynamics, ” he says.

Markinson believes the discussion has to shift from e-commerce vs. offline commerce to integrated commerce. “The consumer does not distinguish. They want to buy cute, on-trend products at great values wherever they happen to be. They want to engage with cool brands that understand their interests and proclivities. The DNA of the web must be an intimate part of the fashion brands of the future.

Those retailers who find a way to integrate will have a “killer brand. ” Says Markinson, “One needs to be where the customer is, with both your messaging and your product. If you haven’t

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already noticed, consumers today are both online and offline, and sometimes both–online while shopping offline. Online they are sharing, friend validating, researching, learning and developing a point of view. Offline there is touching, brand comparing and brand associating. All of this drives the brand of the future. Finding the formula to leverage that online/offline dynamic is critical. ”

More and More Social

RichRelevance, a company that powers personalized e-commerce experiences released some interesting findings about social media’s role in retail. Namely, traffic from Pinterest has doubled in the last year while Facebook saw its share decline to just 90% (from 95% in 2011).

Rich Relevance’s chief marketing officer Diane Kegley tells FORBES, “We believe that social is going to have an increasing impact in 2013. We feel that the role of social media is to generate awareness, not direct sales. While traffic referred from social networks is low – less than . 5% according to our data – it has grown 30% year-over-year. ”

Kegley notes that retailers are getting smarter about how to use the social channels to generate customer “delight. ” She points out how Target recently awarded gift cards to a number of customers who were tweeting about them over the Thanksgiving holiday weekend. “Social media is one element in [retailers’] arsenal of developing brand awareness across multiple channels. All of these elements, including social media, shape or form the way that a consumer hears about a brand or offering. This contributes not only to awareness, but actual product decisions. ”

http: //www. forbes. com/sites/lydiadishman/2012/12/17/three-important-retail-trends-for-2013/

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What's In Store: How Polyvore's

Stylish Social Commerce Is Cracking Retail 3. 0

It’s a dilemma that’s dogged retailers since the days of the general store: how to help customers discover new items and keep them coming back for more. In an era where e-commerce and social media is continuing to blur the transaction line, the solution is as easy to pinpoint as a moving target. But Polyvore is handily cracking the code of commerce 3. 0.

Though it’s not a retailer, as the largest fashion community on the web, five-year old Polyvore is easily straddling the intersection of style and social commerce. 20 million unique visitors discover the site each month and create over 2. 4 million “sets” or collages of products that range from branded apparel and accessories to nail polish and home furnishings. Polyvore’s co-founder Pasha Sadri says those sets generate “millions of data points on style and taste. Polyvore then uses the data to drive its algorithms for search ranking and product recommendations, Sadri noted in a statement.

But Polyvore’s massive army of style devotees isn’t just playing virtual dress up. They are turning those 7. 5 billion product views into real spending. New data released by the company yesterday indicates that the average order size from Polyvore visitors is $220. On Black Friday, the average Polyvore shopping cart was 50% higher than the average for an apparel retailer. It’s also a leader in the luxury market, boasting seven of its top 10 retailers who are major players in the space such as Neiman Marcus and Net-a-Porter. (Think: the biggest order ever was for $67, 315). All this has translated into a 2. 3x revenue increase for the profitable Polyvore.

Speaking of revenue generation, Polyvore’s successful model is due in part to affiliate marketing links, in which the platform receives compensation each time a user clicks through from a product to a retail or brand page. Users tend to click on items they are really interested in learning more about and/or actually buying so it’s extremely important for the platform to ensure a smooth transition. On Polyvore, clicking a pair of pumps in a set on party style for example, takes you to a product page and one more click leads to a purchase page.

The company’s recently hired chief revenue officer, Arnie Gullov-Singh, former CEO of Adly, a marketing platform on Twitter, understands the importance of providing a seamless experience. He tells FORBES that in order to keep those links at their clickable best, part of Polyvore’s engineering team is dedicated to data quality. “They are constantly working to ensure that products on the site link back to the correct e-commerce site and that those links are affiliatized

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without interfering with the user experience. User experience is our number one priority, ” says Gullov-Singh.

Another factor is ease of sharing. Of the one billion monthly set impressions, 43% are on social networks, according to company findings. Pinterest leads the Polyvore pack, Gullov-Singh says, because the visual nature of photo-sharing platform makes it a natural for shares and click-throughs. “It’s design allows people to scan lots of images very quickly. That’s great for image-heavy sites like Polyvore and e-commerce retailers, ” he says. “We’ve found that Polyvore sets shared to Pinterest get 18x as many views and 2x as many clicks as sets shared to Facebook. Tumblr is also very visual but the user interface is less optimized for fast consumption, ” adds Gullov-Singh.

Though he’s staying mum on Polyvore’s projected growth for the coming year, Gullov Singh says he’s excited for 2013. “What’s exciting aboutPolyvore is that it’s a fast growing social platform that actually drives sales of products for brands and retailers. That’s rare to find in today’s social media landscape and its what attracted me to join the company. ”

http: //www. forbes. com/sites/lydiadishman/2012/12/21/whats-in-store-how-polyvores-stylish-social-commerce-is-cracking-retail-3-0/

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Walmart Vs. Amazon: It's About

To Get Interesting

(Image credit: AFP/Getty Images via @daylife)

In the case of Walmart Vs. Amazon, it’s about to get interesting.

Let’s put aside the much discussednews leak that Walmart is considering using its own shoppers as delivery people, providing some kind of incentive to drop off online orders on their way home from the store.

It’s not likely to happen, there are far too many unattractive variables. But it shows the retailer is thinking outside of the box when it comes to competing with its online competition, Amazon.

Walmart already offers in-store pick up and just expanded its test of a locker system where shoppers can order online and pick-up in the store without waiting in line. It’s similar to Amazon’s recent deal with Staples and 7-Eleven to do the same.

The big box behemoth may not be a start-up, but it does try to think like one with its Walmart Labs division. That group is developing Pangaea, a global technology platform, scan and go apps that let shoppers buy in store via a smartphone, and online operations in growing markets outside the U. S. such as Brazil and China.

Wal-Mart is still testing same-day delivery in four cities. The program uses stores as fulfillment centers and if expanded, could turn 4, 000 stores into bases for same day delivery.

According to Internet Retailer, Walmart is the fourth largest e-commerce retailer and expects to generate $9 billion in global e-commerce revenue in its current fiscal year, ending Jan. 31, 2014.

Compared to Amazon, that $9 billion is pocket money. Amazon’s sales for the fourth quarter alone were $21. 27 billion.

But take a look at the profits and some other key indicators. Income is slowing, expenditures are up and there’s an Marketplace Fairness Act on its way to force the collection of state sales tax. Sooner or later, people will start to notice the lack of earnings.

Amazon is building out a physical infrastructure to provide same day delivery, it doesn’t have Walmart’s existing store base to work from.

It’s too early to call a winner in the retail race. Maybe there’s room for both, although they don’t think so. In the case of Walmart Vs. Amazon, it’s about to get interesting.

http: //www. forbes. com/sites/lauraheller/2013/03/29/walmart-vs-amazon-its-about-to-get-interesting/

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Retail Wisdom: Lessons Learned

From Holiday 2012

The post-holiday haze has lifted, leaving much head scratching and gnashing of teeth about what happened and why. Most agree it was an imperfect retail season. Sales results were reported up 3 percent versus 2011, reflecting a season that was “peak-ed” to say the least. And while final profit margins have yet to be released, they likely won’t bring better news.

So rather than succumb to a post-season, mid-winter funk, we may as well make the best of the 2012 holiday season. Lessons abound, after all.

Forget the calendar – it’s not a crystal ball

It’s time for retailers to stop using the calendar as a predictor. More shopping days between Thanksgiving and Christmas no longer mean more sales. Shoppers were very stressed by the end of 2012, and between the economy, fighting in Congress, Hurricane Sandy and life in general, they had good reason to be. Extra shopping days proved exhausting for many.

Thanksgiving hours don’t guarantee more sales

Opening stores on Thanksgiving Day didn’t necessarily translate to more sales either. It may have provided more people with jobs (good news), and got others off the couch before they ate their third portion of turkey (a good health trend!), but that’s it. And Black Friday isn’t what it used to be – it has become more media event and family entertainment activity than a major indicator or driver of the season’s sales.

Photo credit: Wikipedia

Focus on the merchandise

Retailers that offered innovative, relevant and good-value gifts made the sales (Urban Outfitters is a prime example). If there was nothing exciting to buy shoppers didn’t feel compelled to, or bought gift cards instead (one of the success stories of the season). Today’s shoppers didn’t feel pressured to buy just anything because it was the holidays. And, as 80% of US shoppers still believe “their” recession will last 3+ years (How America Shops® 2012 Megatrends), their focus on value is not over by any means.

Leverage the Internet for all it’s worth

The Internet became the great disrupter of the season, more so than in previous years. It enabled people to start shopping earlier, be better prepared by checking out pricing and deals online whether they planned to shop in stores or digitally). It also made the easily overwhelming season less stressful to manage. The outcome was that the many traditional retailers who

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smartly and creatively leveraged their bricks and clicks, omni-channel, approach were more

successful than those that did not (Macy’s and Nordstrom were good examples).

So, don’t blame a disappointing holiday season on the Fiscal Cliff, Hurricane Sandy or the calendar. Like everything else in retail today, the world of shoppers and shopping has changed, and this was never more evident than in 2012.

http: //www. forbes. com/sites/wendyliebmann/2013/01/29/retail-wisdom-lessons-learned-from-holiday-2012/

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Holiday Shopping: The Retail Race

Is On

(Photo credit: Wikipedia)

By the time we get to December 25 we will have learned much about the economics of this 2012 season. There has been much discussion about the merits of opening stores earlier this

holiday shopping season. When Walmart, Target, Best Buy, Toys R Us and others

announced their earlier Thanksgiving hours, questions arose as to the appropriateness: Shouldn’t Thanksgiving be sacrosanct? Is it fair to ask employees to work when they should be home? Is it right to encourage people to shop instead of spending time with family, eating and watching football?

The only way to answer these questions is to abide by our everyday mantra and “follow the shoppers” — let them lead us. And they did.

Here’s what we found: Holidays are about family and fun — and shopping. We saw shoppers

lined up in hundreds – especially outside big box stores and outlet malls – waiting for them to open. There were families and friends. They were happy, excited, eager to be first for door buster deals, especially those for flat screen TVs, computers, or the “toy” of the moment, tablets. Sure, some had a gift list; others just wanted something for themselves; and still others pre-planned, checking prices before lining up. But most came for the pure sport of it, to feel like a winner, and for the anticipation of Santa in the air.

How will the rest of the season measure up now that the thrill of the Thanksgiving/Black Friday hunt has passed? Our research finds that nearly half of Americans (46%) will do their shopping between November 26 and December 17, while nearly a quarter of shoppers (23%) will wait until the week before Christmas to get their gifting done. For retailers, this means that holiday sales opportunities are far from over. So where will the shopper lead us next? Stay tuned…

http: //www. forbes. com/sites/wendyliebmann/2012/12/11/holiday-shopping-the-retail-race-is-on/

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New "Service" Vernacular: Do You

Speak It?

Photo credit: Wikipedia

In a world where there are so many shopping choices — and always a cheaper, more convenient or more intriguing option — “service” delivered in 21st century fashion is what can build or destroy your relationship with your shoppers. Everyday, but especially during this holiday season.

How do shoppers value ‘service’ today? It’s more than just making it easy for them to find what they want, when they want it. Today, great service is also about anticipating what they don’t even know they want and understanding in which categories and shopping moments they want a “high touch” experience, or when they just want to get in and get out.

It all came into focus on a recent trip to Seattle, WA.

HIGH-TECH SERVICE

I began my trip by activating my new MapQuest app to plot the journey. [New-age service. ] It took a minute to figure out how to use the app. (In case you haven’t heard, you can no longer

use GoogleMaps on the new Apple iPhone5. Bad Apple service… But that’s another story. )

MapQuest efficiently talked me to Seattle’s new City Target store. [Friendly high-tech service. ]

ACCESSIBLE SELF-SERVICE

Target’s new three-story urban format doesn’t have lots of live bodies in the store, however, it does offer good (self) service. The store is easy to navigate for urban shoppers on-the-go, has personal service where it’s required (pharmacy, electronics) and lots of good signing and information when “people” service is unnecessary.

There are two entrances for easy access. The entrance on the main floor has a big friendly “Hi Seattle” on the wall to greet shoppers as they enter and walk through women’s apparel, baby, health and beauty, and pharmacy departments. The second entrance is conveniently located below street level at the supermarket (which allows for quick in-and-out grocery shopping).

CONCIERGE SERVICE

At Nordstrom’s flagship store, old fashioned service is expertly delivered by the concierge, who makes shoppers feel welcome and well-cared for. She answered every question: “Where’s the Men’s department?” “Where can I get a snack?” “Where’s the ladies’ room?” “And by the way,

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where did you get those fabulous shoes?” Nothing was a trouble. Later, when the concierge spotted me about to exit the store with hands full of shopping bags she asked, “Do you need any help?“ She then walked me out of the store and directed her back to the hotel. Her last word of advice “Don’t forget to try our Nordstrom app. It will make your shopping easy, let you see what events we have coming up. And you can download it for free. ” [Old world service meets new world service]

CUSTOMIZED, HELPFUL SERVICE

Last stop, Starbucks’ new Evolution Fresh store that sells healthy, fresh-squeezed juices and food. You can order a range of fresh-squeezed exotic juices like “Coconut Zen” juice (coconut water, pineapple and cucumber, 50 calories, in an 8 oz. glass for $4. 99) or “Sweet Burn” (with coconut water, pineapple, apple, beet, cayenne and ginger, 80 calories). You can order juices “your way” from Juices on Tap presented like beers on tap.

The service is pleasant, knowledgeable without being too pushy or too preachy. The signing is bold, clear, with dramatically changing wall images that tell the healthy story using wonderful pictures of colorful fruits and vegetables. It’s easy to select what you want once you get used to the process. You can have your drinks your way or theirs. You can stay and drink or take it home. [Good execution of customized service. ]

THOUGHTFUL SERVICE

After a refreshing juice to bolster my spirits, I headed back to the hotel for a quick workout — but realized I’d forgotten my sneakers. Saved! The Westin chain now offers Workout Gear, a program in conjunction with New Balance fitness wear. If you like to travel light (or forget to bring your exercise gear) Westin and New Balance have a solution. They offer guests fitness wear (sweats, socks and sneakers) to use for the length of their stay for only $5. 00. For most business travelers that’s a great deal. Even more rewarding is the fact that the hotel recognized the need and satisfied it. [Thoughtful service. ]

SERVICE ANYWAY THEY WANT IT

You get the picture. Sometimes good service is delivered by a person, in person — but not always. Today, it’s all about “servicing” customers, making it easy for them to find what they want, when they want it, on their terms. While a well-trained professional certainly makes for special add-on value that’s not what every shopper wants, every time she or he shops.

The beauty of today’s shopping world is that we now have the tools to understand who our shoppers are, what they need and want, when and how, so we can customize service accordingly. In the end, it’s all service. Anyone can offer it, regardless of category, price point or retail format. The fact is, everyone must.

http: //www. forbes. com/sites/wendyliebmann/2012/11/15/new-service-vernacular-do-you-speak-it/

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Channel Blurring On Steroids

Photo credit: Wikipedia

The wall between prestige and mass retailers continues to crumble. Luxury retailer Neiman Marcus and trendy big box Target announced a partnership to launch The Target + Neiman Marcus Holiday Collection this December. The limited-time collection will include products from 24 well-known fashion designers, including Marc Jacobs, Oscar de la Renta, Diane Von Furstenberg, Derek Lam, Rodarte and Tory Burch. The collection will feature some 50 products in women’s, men’s, children’s apparel and accessories, home, pets, electronics accessories and sporting goods. It will be featured in all Target and Neiman Marcus stores, and on both retailers’ websites. The collection will be merchandised together in a single shop-within-a shop format in both retailers.

The big question for shoppers: how quickly will the merchandise sell through? If last year’s Target program with Italian designer Missoni is any indication, we should all hold our place in line (or online) right now.

Three days after the NM – Target announcement, Seattle-based department store retailer Nordstrom and UK fast fashion retailer Topshop announced that Topshop and Topman would be sold (initially) in 14 Nordstrom stores beginning this September.

Topshop is recognized for bringing runway trends to its retail stores in a fashion-minute. Unlike other fast fashion retailers, such as H&M and Zara, Topshop has a wider range of: price points, quality merchandise and categories (including collectable vintage fashion and beauty).

This isn’t the first time Topshop has developed a relationship with a department store retailer. In the UK, in addition to its own stores, it’s sold in Selfridges and in Canada in The Bay.

The relationship with Nordstrom will help Topshop, currently with only three stores in the U. S. , grow its U. S. business faster. For Nordstrom, there’s the benefit of bringing new fashion into stores every week and, in so doing, attract younger and more fashion-forward shoppers.

Beyond the “official” reasons for the Nordstrom-Topshop and Neiman Marcus-Target collaborations, the real reason is that this is the way shoppers buy today. Shoppers around the world are no longer willing to deal with the barriers of price point or the delay from runway to store. They shop with a “high-low, ” “want it now” approach, and expect retailers to deliver. Retailers are finally beginning to recognize that – so, expect the blurring to continue.

http: //www. forbes. com/sites/wendyliebmann/2012/10/09/channel-blurring-on-steroids/

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London Retail Dazzles: Between

the Jubilee & Olympics

London has always known how to throw a party. But with this summer’s convergence of celebrations for both Queen Elizabeth II’s Jubilee and the Olympics, London retailers are truly making the most of their moment – and giving the rest of the world an “Olympic”-sized dose of retail inspiration.

UK retailers are creating all manner of enticements for locals and foreign visitors alike. Department stores Selfridges, Harrods, Harvey Nichols, andLiberty of London are emblazoned with enticing brands and unique promotions. Anticipating the crush of shoppers for Gucci products, Harrods had set up a “shopping line” on the pavement, “Gucci Queue Starts Here” (a la the velvet rope at a night club). And on a kitsch note, home retailer OKA has illustrated pictures of corgi dogs (the Queen’s dogs) on its windows.

To add to the excitement, new stores are opening in a timely fashion, including Victoria’s Secret on New Bond Street. And right near the Olympic Stadium, in once undeveloped East London, there’s Westfield Stratford City, handy for visitors who want a break from the events.

Once the Olympics are over, the 300-store mall will draw shoppers with its high-low fashion (from Hugo Boss to H&M, Prada to Primark), electronics (Apple of course), more beauty stores than a beauty junkie could dream of (from the obvious, MAC, Kiehl’s, L’Occitane, to the esotericArabian Oud, the largest Arabian fragrance retailer in the world), and everyday retail: supermarket (Waitrose), pharmacy (Boots), and banks. There are 80+ places you can eat or buy food, with movie theaters, a bowling alley and casino. And more. With or without a Queen’s Jubilee or the Olympics, London is clearly offering a shopper’s delight!

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2012: The Year of "Moving On"

Looking back on 2011, images come to mind that instantly capture the state of retail around the world, and anticipate the year to come. The images reflect the yin and yang of the world: the global economy as it limped along (at best), and the now unrelenting pervasiveness of digital technology. Together these converged to transform everything at retail in 2011, everywhere from the U. S. to South America, to the Pacific Rim and on.

After four years of economic upheaval, American shoppers have taken control of what they can and are moving on in new and different ways. Retailers too are moving on in their own way, as is evident by the degree of retail innovation and renovation in 2011.

BIG, BOLD, AUDACIOUS SPACES

The opening of Duane Reade’s hugely audacious flagship drug store at 40 Wall Street, NYC, set the tone for BOLD in 2011. The store’s “Upmarket” sushi bar, juice bar, fresh produce and expanded grocery offering reflect the growing importance of food as a category in U. S. drug stores.

And speaking of bold, who could forget the opening of the presumptuous new Apple store at New York City’s iconic Grand Central Station? The store goes way beyond a destination for travelers idling between trains; it has driven shoppers to other innovative retail stores now established at the station, including Australian beauty retailer Aesop, with its store made out of

recycledNew York Times newspapers.

VIRTUAL STORES POPPING UP

Another image that defined the year was the opening of the Home plus virtual store in the subways of Seoul, South Korea. This innovative concept features images of products as if in a regular store, and enables shoppers to use their smartphones to scan the image’s QR codes and instantly order, pay and arrange for delivery. Home plus and its partner UK’s Tesco leveraged the virtual pop-up into a retail game changer, rolling it out into permanent virtual stores, Then before you could say “click here” a Chilean grocery retailer Jumbo, and London-based John Lewis Department Stores both followed suit with their own virtual stores.

The speed at which these virtual stores went from concept to execution and moved from Asia to South America to England says much about the future of retail.

EXTREME COUPONING

If you haven’t seen this highly rated reality TV show, you can imagine what it’s about, and why it’s all the rage. When it airs, coupon websites gain significantly higher traffic. Everyone wants to be a smart shopper. While most shoppers don’t care to devote as much time as the TV show contestants do to get their groceries, and more, for almost nothing, they do admire those who do. Regular shoppers want to find their own “extreme couponing” in stores. What will retailers do in 2012?

DEPARTMENT STORES TANTALIZE AFFLUENT SHOPPERS

Department store retailers around the world have come to recognize they must dazzle their higher income shoppers, if they want them to shop and buy regularly.

As a result, we’ve seen renovations to revamp the shopping experience at many major department stores around the world: From the age-old Printemps flagship in Paris, now brilliantly new behind its traditional 19th century façade; to La Rinascente in Milan; and the completion of a multi-year remodel of Bloomingdale’s NYC 59th Street flagship, just to mention

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a few. The trend continues in 2012, when department stores such as London’s Selfridges and New York’s Macy’s will both undergo renovations.

The changes we’ve seen in 2011 have clearly paved the way for continued innovation and transformation in the year ahead. As retailers look to create compelling ways to entice shoppers to buy more than what’s on sale, there will be much for us to report on as the year unfolds. Stay tuned.

http: //www. forbes. com/sites/wendyliebmann/2012/01/19/2012-the-year-of-moving-on/

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Nordstrom Moves To The Land of

Retail Opportunity

(Photo credit: Wikipedia)

The American retail industry is buzzing – about Canada. This week, Nordstrom announced its plans to enter the Canadian retail market — joining other U. S. retailers such as Walmart and Costco who have already successfully made the move.

Anticipating this trend, last month WSL/Strategic Retail launched our first study of Canadian shoppers in How Canada Shops®, an in-depth analysis of how Canadian women and men shop across all channels, and how they compare to U. S. shoppers, with specific comparisons of U. S. and Canadian Walmart shoppers and Costco shoppers.

Why did we go to Canada at this time? U. S. retailers are now looking at Canada as a growth opportunity. Target’s announcement that it would open in Canada in 2013 added impetus for us. So too did the fact that department store retailer Lord & Taylor is now owned by the same company that owns Canada’s The Bay. The Limited has opened Victoria’s Secret and Bath & Body Works stores. As U. S. retail continues to struggle, more companies are looking north for opportunity. So did we.

Here are some interesting tidbits from the study. While Canadian shoppers are similar to American shoppers in some ways there are some not-so-subtle differences: they’ve made fewer changes to how they shop because of the recession (they didn’t get themselves buried in debt to the degree we did south of the board), they’re less driven to use coupons and sales (but they are still very focused on value), and while they do their homework online they buy less online (at least for now). In all, they are very compelling shoppers to target. These are only a few of the differences U. S. companies should understand – and strategize against – to ensure a

successful market entry. For more info about the study go to our website, www. wslstrategicretail. com.

http: //www. forbes. com/sites/wendyliebmann/2012/09/14/nordstrom-moves-to-the-land-of-retail-opportunity/

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Power Couple: Walgreens &

Alliance Boots Build Cross-Pond Empire

SAN FRANCISCO, CA - People walk by a Walgreens store in San Francisco, California. U. S. based drug store chain Walgreens has announced a deal to purchase a 45 percent stake in European pharmacy retailer Alliance Boots for $6. 7 billion. The acquisition will make Walgreens one of the world's largest drug store and pharmacy retailers with 11, 000 stores in 12 countries. (Image credit: Getty Images via @daylife)

If you still doubt retail is in the process of tremendous change, don’t. In a move that’s at once both brilliant and daunting, Walgreens, the largest US drug chain, purchased 45% share of Alliance Boots, including the UK’s iconic Boots The Chemist, a global pharmaceutical wholesaling business, and access to European and Asian markets.

Brilliant: Who would have thought of it? A global drug chain with 11, 000 stores in 12 countries (8, 000 of them in the US). That’s only part of it. There’s the highly regarded portfolio of Boots’ private label beauty and health brands, the likes of Boots No 7, Botanics, Sanctuary, Clearasil, and Soltan, to name a few. There is the retail division’s expertise managing prestige and mass beauty brands under one retail roof. There’s the company’s experience running retail stores of various sizes – from its flagship, multi-story, 15, 000 square feet store on Oxford Street, London to its ubiquitous urban and suburban stores on British High Streets and small format convenience-focused stores at British railway stations and airports. There are its years of experience with its loyalty card, Boots Advantage Card. And, last but not least, the power (often unrecognized in the US) of its global pharmaceutical wholesaling business.

Daunting: For one, the obvious challenge of combining two culturally different businesses across 3, 000 miles of ocean. Both companies clearly understand retail pharmacy. However, there are many differences in how drug store retailing operates in the UK and US, differences between UK, European and US health care systems, and differences in how people in these countries shop, in general and specifically for health and beauty.

So why? Why now? Only Walgreens’ and Alliance Boots’ management can say for a fact. But, from our point of view, there is so much happening in retail around the world that establishes the rationale for such a merger.

In the US alone, so much is changing the retail landscape: most notably the realization (finally) that we have too many stores — for the most part a result of the impact the Internet and mobile technology are having on the way people shop. As a result, retailers can no longer grow by opening more and more of the same stores. Retailers of every variety (including Walgreens) now ask themselves, “How many physical stores do we now need?”

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Boots The Chemist at Gunwharf Quays, Portsmouth. (Photo credit: Wikipedia)

So how to grow? Well, smart strategy says you need different size stores, stores customized to local communities, more virtual stores, possibly global expansion… for a start. Everyone from Walmart to Target to Best Buy, Starbucks, Macy’s are responding. And of course, also Walgreens — with its Duane Reade acquisition, flagship strategy, focus on urban formats, addition of food, and purchase of drugstore. com and beauty. com.

For Alliance Boots, the US has been a tantalizing market for a long time. Its successful test and rollout of Boots beauty brands in Target stores gave it a taste for the market. But where to go next? And where to grow its wholesaling proposition? Now, we know where.

In the end, we say, “Brilliant trumps Daunting. ”

http: //www. forbes. com/sites/wendyliebmann/2012/08/23/power-couple-walgreens-alliance-boots-build-cross-pond-empire/

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Will JC Penney Shoppers

Accompany The Retailer To The Finish Line?

Another year, another Black Friday and Cyber Monday. And while retailers from Kohl’s to Macy’s, Target to Wal-Mart have been busy trying to thwart “show-rooming”—the consumer practice of examining products in-store and then searching for the best deal online—the venerable JC Penney is literally in a race for its life. But as the company dramatically overhauls its stores into mini malls featuring certain brands or types of merchandise, will shoppers hang in there to the finish line?

JC Penney shoppers have been whipsawed on pricing policies ever since the arrival of CEO Ron Johnson a year ago this month. First the chain eliminated the more than 500 sales it used to stage all year long, in their place offering lower pricing across the board in its approximately 1, 100 locations. No testing of this new pricing approach was done, Johnson told The Associated Press, because time didn’t allow it. The result: shoppers went elsewhere. Late this summer, Penney got rid of its month-long sales offering—part of a three-tier strategy along with lower across-the-board pricing and periodic clearances—but sales continued southward. Financial results followed suit, with the company’s sales plummeting just over 26% in the third quarter of 2012.

The grand scheme now under way at Penney is to transform most of its stores into a sort of mini mall—stores within stores featuring wares from the likes of its own Liz Claiborne brand, Izod, Levi’s and Sephora. To protect margins, some of this merchandise won’t be available online. But shopping habits seldom change quickly. Instances of major retailers successfully completely revamping their operations and pricing policies are few and far between. CEO Johnson certainly has the chops for the job. He led Target to “cheap chic” success and then joined Apple to design its highly successful retail outlets. A look at consumer research strongly suggests that for his current challenge he did too good a job at Target, which stands above both JC Penney and Macy’s in key respects, per the GfK MRI Focus: Retail study. Nearly 26% of people who shopped at Target in the last three months agreed with the statement, “For the products I usually purchase at this store, this is my ‘go to’ store. ” The figure for JC Penney was 14. 7% and for Macy’s 10. 6%. The percentage of shoppers who believe they “can always count on great service” was 28. 9 for Target, 18. 9% for JC Penney and 12. 8 for Macy’s. Slightly more consumers (23. 8%) say they frequent JC Penney based on price versus 17. 7% of Macy’s shoppers. Since JC Penney and Macy’s share a fair amount of mall locations, these figures are good news for JC Penney.

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Alas, JC Penney simply is in a race against the clock. So far it has transformed a small handful of its stores, and the results have yielded $269 in sales per square foot compared with $134 in older stores, according to The New York Times. Problem is, it needs to spend mightily to revamp almost 90% of its locations, something that could take years. Meanwhile, its loyal core of middle-income consumers has begun voting with its feet. While it’s possible that JC Penney can win over new shoppers in the long run, any major disruption to the economy along the way (think fiscal cliff-induced recession) will infinitely complicate matters.

http: //www. forbes. com/sites/annemariekelly/2012/11/28/will-jc-penney-shoppers-accompany-the-retailer-to-the-finish-line/

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Are Retailers Cannibalizing Black

Friday?

Black Friday isn’t what it used to be. The days of working off that turkey and stuffing by running around the mall and scooping up holiday

Black Friday shoppers at Walmart (Photo credit: Wikipedia)

deals the day after are waning, because now you don’t even have to wait until you’ve digested that drumstick. Stores are opening on Thanksgiving Day itself, and there are plenty of sales in the days leading up to Thanksgiving, not to mention Cyber Monday along with the many pre-Christmas bargains that stores are offering.

So what’s a consumer to do? Not only is there confusion about whento shop, it’s gotten to the

point where there are so many great sales this time of year that the meaning of Black Friday has been cannibalized. That rush of excitement waiting for the doors to open, and the excuse to be out of the house and away from your relatives, is no longer a given.

It’s always a little sad when traditions change. Time marches on in this digital age, especially in the world of retail. But at least there are many ways for consumers to save at a more leisurely pace. Let’s look at what retailers are doing this week.

Amazon is offering Black Friday Deals Week, an actual countdown to Black Friday, including

lightning deals each day on apparel, electronics, toys, games and more. On Thanksgiving Day itself, many stores are advertising exactly what items will be on sale, and at what hours, so that shoppers can be more targeted and focused with their purchases and waste less time pushing through the crowds.

Walmart, for example, is selling its hottest electronic items, including the Apple iPad2 16GB

with wi-fi, between 10 and 11 pm on Thanksgiving Day, so the shopping can start the moment the dishes are done.

Shoppers don’t even have to wait until evening. For those who prefer retail therapy to watching

football, Sears, Target and Toys R Us are all open Thanksgiving Day, offering deals on

everything from stocking-stuffer toys to Xboxes and Playstations. The list and range of retailers doing business on that day is long and growing, with at least 20 major chains planning to be open.

Just as for Thanksgiving Day, stores are advertising online exactly what items will be on sale,

for how much, and when for Black Friday. At Staples, for example, customers arriving before

noon can save over $200 on certain HP PCs with Windows 8. PetSmart, meanwhile, is giving dog and cat lovers a steep 75% off select items online.

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How will the specificity of the items, and the window of time in which they are available, affect sales? The Black Friday strategy has always been to get people in the stores with doorbusters and then sell them other items once they are there. If an item is very popular (e. g. the iPad), advertising a deal on the specific item will naturally draw in shoppers.

I believe the difference in 2012 versus even just five years ago is the level of intelligence many retailers now have about their customers. With loyalty cards and deep analytics, many retailers know precisely the types of customers who will be drawn in by certain offers, and what other products those consumers are likely to buy once they are in the stores. They can know the price points at which consumers will buy an item, and they can also know the times of day consumers of certain demographics shop.

This intelligence allows retailers to be very targeted in the types of offers they make. Also, by starting early – on Thanksgiving Day or earlier in the week – retailers can find ways to lure a shopper back into the store on Black Friday or online on Cyber Monday with a targeted email offer.

So these new holiday “traditions” aren’t necessarily hurting retail. If anything, the spread of sale days is helping to bolster overall revenues and maintain consumer interest before, during and after Black Friday itself, which remains the most important day of the shopping year. With the NRF forecasting a 4. 1 increase in holiday sales for 2012 over last year, given the impact of Hurricane Sandy, Black Friday will undoubtedly play a key role in determining whether or not this happens. Last year, that one day accounted for $11. 4 billion in sales, an increase in 6. 6% from the previous year. Cyber Monday will also be an important day – it rang up $1. 25 billion in sales in 2011, up 22% from 2010.

Next week, we’ll get the results. Until then, enjoy your Thanksgiving and don’t forget to do your part to support the retail industry this week!

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Are You Really Getting A Bargain

Black Friday Deal?

Black Friday shoppers at Walmart (Photo credit: Wikipedia)

If you plan to line up outside Wal-Mart Stores (NYSE: WMT), Best-Buy (NYSE: BBY),

Macy’s (NYSE: M), Apple store or any other major retailer this Thanksgiving evening to buy

merchandise at deep discount, you better think twice: you may end up buying things you don’t need, wasting your time and money. Especially if you are an emotional shopper.

Humans are both intelligent and emotional beings. As intelligent beings, we make decisions by reason. We carefully examine the environment we live in, setting goals and priorities. Then we craft alternative strategies and tactics to reach them.

Emotional beings decide by impulse, fueled by anxiety, anger, fear, greed, and other emotions.

Both the intelligent and the emotional sides of humans come out in shopping. Intelligent consumers begin with the “Big Picture, ” things that are important in their lives, setting needs ahead of desires. Before they grab a piece of a merchandise and head for the cash register, they always ask three simple questions:

Do I need the product? Is the price right? Is this merchandise the best use of my money?

Emotional consumers, by contrast, act by impulse, passion and hype. They race out to buy products — filling the dreams and aspirations of ruthless marketers, rather than their own.

They see the “Big Picture” too, but upside down, often placing desires ahead of needs. They rush to buy merchandise just because it happened to be on sale, without asking whether they really have a need for it in the first place; whether the price is right; and whether it is the best choice for their money. They end up subscribing to magazines they never read; joining health clubs they rarely visit; buying clothing they never wear; purchasing tools and accessories they never use; and bringing home toys their children hardly touch.

Obviously, intelligent consumers allocate their resources efficiently and effectively, while emotional shoppers waste their resources.

But why do so many consumers do that? Why do they shop with emotions rather than intelligence?

Because emotional shoppers allow themselves to be manipulated by marketers who hype their emotions by sales events like Black Friday. They are too concerned with the prospect of missing out on a sale opportunity — buying merchandise indiscriminately, irrespective of the need for it.

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The bottom line: Before you head out for the stores on Black Friday, ask yourself the three simple questions of intelligent shopping, so you make sure you are really getting a bargain.

http: //www. forbes. com/sites/panosmourdoukoutas/2012/11/18/are-you-really-getting-a-bargain-black-friday-deal/

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Why Retailers Have to Open on

Thanksgiving This Year

Image via CrunchBase

I get the angst the retail employees are feeling about having to work on Thanksgiving, I really

do. Retailers like Wal-Mart, Target, Toys R Us and Kmart are among those stores that will be

opening in the evening on the big day and its employees will have to be there like it or not. And for most of these workers, it is definitely not.

Corporate greed is blamed for the decision, and technically that is true if one defines corporate greed as staying solvent. Brick-and-mortar retailers are on the brink of getting parity in the e-commerce-versus-real world shopping wars, but they still cannot afford to lose ground over the holiday season.

Consider this: Last year IBM‘s Holiday Benchmark survey reported thatThanksgiving online shopping grew by 39. 3% year over year. On Black Friday, online sales grew by 24. 3% compared to the same period last year.

If these people are logging on to shop, the thinking goes, they should also be interested in walking through a retailer’s doors as well.

And when they do they will be counted and tracked by ever increasingly sophisticated retail management systems.

“Retailers have been struggling with fact that so many sales have been going to ecommerce, ”

Rob Wilson, senior director of Retail Analytic Packages atSAP, says. Indeed they might have

seen themselves on the losing side of technology in previous years (that darned Internet!) but not so this year. “The past 12 to 18 months we have seen some amazing advancements in in-memory technology, POS data management and associated analytics. ” In-memory allows for the rapid granular analysis of activity at the transactional and SKU level, he says. “It lets retailers make decisions almost in real time about what is moving and at what times in the store. ” They can comfortably predict what sales would be like if they opened an hour earlier or later or, oh let’s say, on Thanksgiving Day.

Not that ecommerce is doomed now that stores are adopting bigger and meaner tech tools. This holiday season 20% of all online sales will come from mobile devices. So predicts the IBM prior to releasing its Holiday benchmark.

Not surprising, Apple‘s iPad and iPhone are driving much of this traffic, with 8% of online traffic originating from the iPad and 7. 2% from the iPhone.

The iPad Mini will probably skew online sales traffic even more, says Michele Turner, CMO of mBlox. “The iPad Mini will be transformative in terms of online shopping. It is small enough to toss in your purse or keep in your pocket, but still has robust browsing capability. It can be part of creating a great branded experience for a retailer. ”

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So as retailers step up their POS investments and mollify employees working on Thanksgiving as best they can, they also have to consider their mobile–not just online—presence.

For the record, mobile shoppers, it has been determined in numerous studies, don’t bother to wait more than a second or two for sites to open on their devices. They also can be exceedingly impatient with clunky payment processes.

It is well worth it for sites to overcome these challenges.

Last year, consumers spent more than $20. 7 billion shopping using mobile devices, according to The EGC Group’s report “How to Prepare for the First Nonline Retail Season”. Also, one in four used more than one device to shop during the 2011 Holiday Season, a percentage likely to increase as people add to their stable of tablets.

http: //www. forbes. com/sites/erikamorphy/2012/11/17/why-retailers-have-to-open-on-thanksgiving-this-year/

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With Thanks giving - Night

Openings, Do Retailers Risk Busting More Than Doors?

Retailers are opening earlier this holiday season, sandwiching Thanksgiving turkey between the work week and yuletide shopping as never before.

Target, Black Friday (Photo credit: Wikipedia)

Target is opening at 9 p. m. on Thanksgiving, while Sears and Walmart will open at 8 p. m.

Talk of putting the customer at the center of all marketing moves is on the lips of every CMO these days. But equally important, both for brand health and consumer engagement, as we’ve seen time and again, is keeping employees committed, happy and motivated.

The risk in alienating employees is alienating shoppers, of course, and that could have a negative impact on brand.

“To the extent that consumers relate more with employees pressed to work in stores on Thanksgiving than they do as customers who want to shop on Thanksgiving, it could have a negative impact on the brand, ” said Brooks Holtom, Associate Professor of Management at Georgetown University’s McDonough School of Business, in an email. “Because I think that consumers will be quite mixed in their opinions about shopping on Thanksgiving, the potential backlash against the retailers will be muted. While they may express outrage or moral indignation, whether they go shopping or not is the truest test of how they feel. ”

The reality, of course, is that U. S. employees can choose not to work for retailers that choose to open their doors early. “Because they are NOT indentured servants, they can choose to work or not work, ” Holtom said. “However, there are consequences of those choices. Employers face a favorable labor market right now. Unemployment is relatively high, and many of the jobs that are being created are low-wage jobs. Competition for jobs is strong. So, even though workers prefer to be home for Thanksgiving, economic necessity compels them to work whenever requested. ”

To keep employees happy, Target, for example, “should do its best to staff the store with those employees who volunteer to do so, ” he said. “Offering incentive or holiday pay allows the market to work. If they don’t get enough volunteers, they may need to up the pay. While employees will have different preference functions, the employer will over time find a market clearing wage. ”

In fact, “across the company, one-third of Target’s store team members are scheduled to work on Thanksgiving, ” Target communications manager Molly Snyder said in an email.

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“And on Friday, less than two-thirds of our team members are scheduled to work, ” she said. “We’ve heard from many stores that they had more team members volunteer to work than they had available shifts. In those cases stores were asked to make back-up lists to allow for the most flexibility if team members needed to make scheduling changes. ”

Target’s decision to open on Thanksgiving night wasn’t made without employee buy-in, she said. It “was carefully evaluated with our guests, team and the business in mind, ” Snyder said. “Across the country, team member preferences were considered in creating our store staffing schedules. ”

Georgetown’s Holtom believes that retailers like Target should make sure consumers know what they’re doing when it comes to employee relations. “If I were consulting to Target, I would encourage them to publicize all efforts to staff using volunteers. They should clearly articulate their incentive pay and project the economic benefit that will follow. They can also apologize for any perceived encroachment on the holiday, ” he said.

In the meantime, Target sales-floor employees won’t be the only ones pulled from mashed potatoes and gravy this Thanksgiving. “At Target we all believe that it’s important for our team — and particularly our leaders — to be actively involved, ” Snyder said. “Our senior leadership, including Jeff Jones, will spend Black Friday in stores across the country, meeting our guests, and celebrating and working together with our store teams. ”

In the end, consumers will vote with their wallets this holiday shopping season. “If no one goes shopping on Thanksgiving, then retailers will not open on Thanksgiving in the future, ” Holtom said.

http: //www. forbes. com/sites/jenniferrooney/2012/11/14/with-thanksgiving-night-openings-do-retailers-risk-busting-more-than-doors/

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Retailers, Can You Hear Us Now?

Last month I ended my post with the call to action for retailers and manufacturers to listen, not to me but to consumers. I stated a well-known fact: the customer is in charge of the dialogue, and the only way to know whether you are right is to look at your sales data. If your comp store sales are up over last year, you were right; if not, you were wrong. It’s that simple.

Another well-known and documented fact is that the retail market in North America is a zero sum game. The National Retail Federation (NRF) projects that U. S. retail sales will grow 3. 4% in 2012. The retail market is not growing substantially due to population explosion or technology or productivity enhancements on a broad level. One retailer or manufacturer’s gain is another’s loss. So, how do you win?

You win by expanding into new markets or categories, or by growing comparable store sales in existing categories, or both. In all cases, in order to provide long-standing shareholder value, you must have the products that consumers want. So what does this have to do with listening?

The answer seems obvious. Why wouldn’t we listen to consumers to find out what products they want? One reason not to listen to them is the belief that they don’t know.

A perfect case in point about retailers’ attitudes is NBC’s new show, Fashion Star. It’s a great concept – new fashion designers show their styles to retail experts from Saks, Macy’s and H&M, each of whom provides their opinions and votes with their orders. The winning styles are then made available in stores the next day.

The show seems like an interesting idea and is generating some marketing buzz for the retailers. In a recent Apparel article, Martine Reardon, CMO of Macy’s said: “Fashion Star is more about marketing than commerce. It helps us keep our brand out there. ”

Saks CEO Steve Sadove said the show is essentially a “one-hour commercial about who Saks is. ” Sadove added that website traffic doubles when the show airs, and the company has seen an increase in show-related purchases and new visitors to the Saks site.

But, overall, show viewership for Fashion Star is relatively low at 4. 5 to 5 million viewers. Why? Well, let’s compare it to Fox’s American Idol, which averages 15-20 million viewers. People are performing, experts are reviewing, but wait… there is one additional piece. On “Idol, ” American viewers get to vote, and it matters – even if the experts disagree. What a concept! Listening to the people and giving them what they want. Reminds me of an old quote from Marshall Fields, “Give the lady what she wants. ” But the question is, how?

I have not met a single executive who did not want to listen to his or her customers. Most have lamented the issue that, even though they listen to their customers, what the customer have told them and what the customer actually did were two entirely different things.

Did this ever happen to you? If this is the case, one or more of three issues may be the cause: One, you are not listening to the right people. Two, you are not asking them the right questions. Or three, you are not making it enjoyable for the consumer to engage with you and you end up getting bad information.

If you want the right people to give you the right information, you had better make it enjoyable. This will be the topic of my next post.

http: //www. forbes. com/sites/gregpetro/2012/04/12/retailers-can-you-hear-us-now/

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Retailers: Who Do You Trust?

Forever 21 Store (Photo credit: Rajiv Patel (Rajiv's View))

Trust is a funny thing. It is something that is highly valued, but cannot be bought. It must be earned, but cannot be sold. Its lifespan is as long as you care to maintain it.

During my 25+ years in the retail industry, I have worked very hard to build and maintain the trust of my customers. How? By doing what I say I will do, by maintaining confidentiality with the information shared with me, and by acting in my customers’ best interests. Why? Because it makes good business sense, of course. But ultimately, because a trustworthy reputation is one of a few things that is and will be remembered.

What does this have to do with retailers, brands and products? Well, you work extremely hard to establish a reputation with a group of people – your customers — who come to the places you have built – your stores — to get the products you have become known for providing. A simple word comes to mind in maintaining a trusted relationship: fairness. The trust your customers have developed with you comes from the idea that they expect a carefully edited set of products at a fair price. They will give you their hard earned dollars for a fairlyvalued product.

Brands also develop trust with their customers. The “brand promise” is ultimately the trust consumers have placed in a brand they like. Consumers who are loyal to a brand will trust that the next product introduced under that brand will fulfill the brand promise.

The more frequently you fulfill your promise, the more trusted you become. Given how easy it is for a customer to walk across the mall to your competitor, or price shop your products online, your competitive advantage is largely derived from how well you develop a relationship based on trust.

It begs the question:

How can you improve in earning the trust and consequent purchase dollars of your customers?

One direct way is by meeting expectations consistently. Setting and fulfilling expectations is the easiest way to build trust both in a relationship and through a product. Here are a few examples:

Retailers Forever 21, H&M and now Uniqlo have developed fashion-forward, value-oriented products that their customers recognize and desire. It is not just simply that their products are less expensive. These retailers consistently deliver on a promise of quality, and this approach has delivered strong returns for their businesses.

Costco delivers a great product set at a highly communicated 13% margin (tremendous value delivery), along with a consistent experience.

McDonald’s, Coke and Marriott all set and consistently meet expectations. Regardless of where you visit a McDonald’s or a Marriott, you will (almost always) experience a similar level of service and a similar product.

Sometimes retailers and brands delight their customers with exceptional experiences. Examples include Polo’s Mansion, Louis Vuitton’s newest handbag, and Wal-Mart’s superior fulfillment ability which ensures they will always have the product you are looking for, in-stock.

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How do you know what someone expects of you? One way is to visit as many of your customers as you can and ask them. Open, honest dialogue is invigorating and informative. You learn so much, even if you are already meeting their expectations.

Walk the floors, visit stores, survey or simply get out and explore. One of my favorite movies is Brubaker. It is an 80’s film in which Robert Redford plays a newly hired warden who goes in as a prisoner to understand what is wrong with the system. A current show on CBS is Undercover Boss, in which a CEO goes in undercover to learn the true story of what is happening within his or her own company. In almost every case, it is a true discovery session. I suspect that is the case for all of us, but the discovery comes at the cost of time.

Undercover Boss (U. S. TV series) (Photo credit: Wikipedia)

Often we hire consultants to understand… and they are helpful … but to fix a situation permanently, you need a systemic way of continuously getting customer feedback.

Technology can help bridge the gap. Looking at Point-of-Sale (POS) data gives a rear-view mirror view of what consumers want and have bought. I think we all know what happens when you look in the rear-view mirror too long. But today’s tools for leveraging social media and the “wisdom of crowds” can give a forward looking view into what’s coming and how people feel. Trust can now be measured, in terms of how your customers will view your new products verses your competitor’s products, and how well your new product offerings will deliver on the value you are proposing.

In addition to learning what consumers expect, the process of seeking consumer input itself builds trust with them. In our work with retailers and brands, we have found that consumers engage with online games at rates two to five times higher than typical promotional email campaigns. In fact, the email subject line that tends to generate the highest open rates is “tell us what you think. ” The lesson? Your customers want to engage with you!

So reach out and find a way to engage the customer. You will learn what they expect, and will earn their trust in the process.

http: //www. forbes. com/sites/gregpetro/2012/07/12/retailers-who-do-you-trust/

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Retail's Big Question: Is The Price

Right?

With the holiday season upon us, retail CEOs know that this month will make or break their year. As many retailers and brands launch new products, two factors will determine success or failure: is it the right product, and is it priced right? These days, pricing is the hottest topic in retail, and it is also the most complex.

Over my next few posts, I will share insights and comments from discussions with several CEOs with diverse opinions on pricing in the retail industry.

Markdowns, discounts and promotional strategies abound, creating a dangerous pattern deemed a “race to the bottom. ” Retail blogger Robin Lewis put it best when he said, “It behooves brands and retailers to beware what they ask for by diminishing the value proposition to…buy me, I’m cheap. ” When the “value” of a product shifts from brand recognition, differentiated features and in-store experience to merely “price, ” you have entered that race to the bottom.

Regarding price, consider that while Americans bought 19. 4 billion garments last year, a 5. 3 percent decrease from 2010, the total apparel sales dollars rose almost 5 percent to $283. 7 billion, according to the trade group American Apparel & Footwear Association. This means price increases, along with some shift in product mix to higher-priced garments, accounted for all of the growth in the apparel industry in 2011. This should set off alarm bells in the heads of most apparel retailers and brands.

Why? First, with stagnant or declining unit sales, if retailers are not pricing products to capture full consumer value, comp sales will almost certainly decline. Unfortunately, this is already happening for many retailers. Second, for those who have managed to increased comps by pushing price increases, how do they know they have captured all of the consumer value? How much is being left on the table?

So how do retailers and brands approach pricing today? There are several different models, including “take it or leave it” pricing (e. g. Apple, Under Armour), the “manufacturer’s suggested retail pricing” that no one actually pays (e. g. automobiles) and value- or volume-based pricing (e. g. Costco).

In the fashion industry, pricing models are just as mixed:

“Fixed Price” on unique products with long lifecycles (e. g. Uniqlo) Percentage off “retail price” plus additional discounts, promotions and markdowns (e. g. Kohl’s). “Everyday Low Price” (e. g. JC Penney) Set entry price with quick markdowns when inventory doesn’t move. This model is often used by fast fashion retailers with short product lifecycles (e. g. Wet Seal) “High/Low” pricing, where products are in a near constant state of change… up, down, up, down.

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Now layer on e-commerce, with mobile technology enabling real-time price comparisons, and the exercise of pricing becomes even more complicated.

It is no wonder the consumer is confused on what is and what is not a good value anymore. JC Penney, for example, is clearly struggling as it attempts to change the customer’s mindset. One customer recently stated on the retailer’s Facebook page: “This is not a change at all, there has never been a day in all of my shopping at JC Penney where ANYTHING has been full price. ” Another customer stated, “I really, really miss my coupons. ”

In this three-part series, I will explore how pricing is managed in three different retail entities – first Specialty & Vertically Integrated Retailers, then Department Stores, and finally individual Brands (the manufacturers). I will look at what’s working and what’s not, and I’ll discuss the results of some of my conversations with CEOs in each category.

http: //www. forbes. com/sites/gregpetro/2012/12/11/retails-big-question-is-the-price-right/

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Pricing Part 2 -- Focus On

Specialty & Vertically Integrated Retailers

Photo credit: Wikipedia

As I indicated in my last post, in this series I will explore how pricing is managed in three types of retail entities – first Specialty & Vertically Integrated Retailers, then Department Stores, and finally individual Brands (the manufacturers). I will look at what’s working and what’s not, and I’ll discuss the results of some of my conversations with CEOs in each category.

Let’s start with Specialty/Vertically Integrated Retailers. Just a few of the many companies that fit this category include Aeropostale, American Eagle, Charlotte Russe, Hot Topic, Gap, Men’s Wearhouse, and PacSun.

These companies control the entire product lifecycle – from design to manufacture to distribution. Let’s look at a couple of these retailers, starting with Charlotte Russe.

Charlotte Russe is a fast fashion specialty retailer with over 500 stores with a spotlight on women in their teens and early twenties. In a recent conversation with Jenny Ming, Charlotte Russe’s CEO, she told me that “Charlotte Russe is about the right fashion at the right price, ” adding, “if she (the customer) doesn’t want it, lowering the price will not make it more attractive to her. ” As a result, Charlotte Russe avoids heavy discount promotions but sometimes offers buy-one-get-one-free offers (BOGOs) to provide the customer with more of the type of product she wants. The initial entry price is clearly critical at Charlotte Russe.

I also spoke recently to Gary Schoenfeld, CEO of teen retailer PacSun. Their approach to pricing is based in part on the type of product – basic vs. unique. Schoenfeld stated, “With basic products, understanding the competitive landscape is very important. For unique products, we have more flexibility based on how our customers value our unique designs. ”

Mindy Meads, former co-CEO of Aeropostale, current Wet Seal board member, and previous Federal Reserve Bank board member, recently told me, “In a highly promotional environment, the key to the value equation is having the right combination of all three factors – fashion, quality and price. ”

Compared to Department Stores and Brands, Specialty (and Vertically Integrated) Retailers have the most control when it comes to pricing. Vertically Integrated Retailers control the entire process. The best ones design product from the beginning to target specific price and margin points. They also control the in-store experience, which can’t be ignored when understanding the value of the brand and how it affects pricing.

Success in this space requires you to “Distinguish yourself and stay true to who you are. Own your vision and have it be consistent, ” explained Ms. Meads.

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Added Jenny Ming, “To be a great retailer you must have an incredible sense of curiosity…curiosity to understand, learn and explore. ”

As Gary Schoenfeld, CEO of PacSun, succinctly summarized: “We have a knowledgeable customer who understands the value and pricing of our products. If the fashion and price is trend right, we have a win-win scenario. ”

Getting the Price Right from the Start

With price as a primary engine for growth over the next few years, pricing will clearly be an integral part of the value equation for consumers in deciding what is the “Right Product. ” In a study of 70 retailers in April 2012, retail analyst firm RSR found that 67% of respondents reported consumer price sensitivity as a top-three business challenge, up from 46% in 2010. Interestingly, they found that 55% of “laggards” (underperformers in year-over-year comparable store/channel sales) are using promotions as their pricing strategy, versus approximately 35% of all other respondents.

“Retailers must return to a value-based proposition for consumers, ” Nikki Baird, Managing Partner of RSR, recently told me. “This means there is a lot more importance on the initial price, because any retailer making a value argument about its prices is going to lose a lot of credibility with consumers if it then has to run promotions or markdown items because it didn’t hit consumers’ initial expectations. ”

So vertically integrated retailers know they must get the price right from the start. It is also becoming clear that these retailers want to price based on customer value, and that pricing based on assumed psychological barriers, or based on standard cost mark-ups, is no longer a “best practice. ” The best retailers are using data to drive decisions on price-setting… not historical data, but forward-looking data based on precise knowledge of what consumers will actually pay.

Next up: Pricing from the perspective of Department Stores.

http: //www. forbes. com/sites/gregpetro/2012/12/20/retails-big-question-is-the-price-right-part-2-focus-on-specialty-vertically-integrated-retailers/

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Pricing Part 3: How Does A Brand

Know When The Price Is Right?

(Image credit: AFP/Getty Images via @daylife)

Ever wonder how a manufacturer or brand comes up with the number on the price tag? Arriving at that figure is a complex process, and getting the formula right is key to the health of their profit margins.

This four-part series covers the hottest topic in retail: pricing. I’m sharing the results of conversations with several retail CEOs who are commenting on the challenges as well as best practices in the industry. At the NRF conference in New York City on January 14, I will also be moderating a panel discussion on this topic including several of the industry experts interviewed in these posts.

In my last post, I wrote about the pricing models and challenges facing specialty and vertically integrated retailers. This time, I will focus on the brands or manufacturers that sell through multiple retail channels.

How can brands price so they capture full customer value, grow sales and preserve margins? How do they avoid the so-called “race to the bottom”?

Brands typically rely on department stores or other channels to distribute their products. The department stores achieve differentiation through a combination of the product assortment, the customer experience, and the price/value equation. But, for the manufacturer, the differentiation resides with the brand itself.

Many brands have relatively narrow product lines, which tends to reduce their leverage with retailers. But Nike, for instance, has a broad product line which includes everything from shoes to apparel to sporting goods, which in turn allows them stronger negotiating power with retailers. Apple has a relatively narrow product line, but the brand is so strong that they have been successful selling both through retail partners (wholesale) as well as through their own retail channels.

So how does a brand set the entry price for a new product?

Forbes. com contributor Matthew Carroll wrote a comprehensive piece in February 2012 on this topic (“How Fashion Brands Set Prices”), describing how most manufacturers start by determining the targeted retail price to the consumer, otherwise known as the manufacturer’s suggested retail price (MSRP). If the new product is an extension of an existing product line, or a replacement for a previous style, the brand will typically expect a similar price as the product’s predecessor, unless there have been significant changes in market dynamics.

But if the product is new to the manufacturer’s line or is in an entirely new category, establishing the MSRP is more difficult. Many brands will analyze the market and the competitive landscape

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for the product category to determine where the new product will be positioned. Some manufacturers lay out a grid with price versus features, placing competitive products on the grid along with the proposed new product.

In addition to the retail price (MSRP), the manufacturer also attempts to estimate the average unit retail price (AUR). AUR is important because it is the average price the product will bear over its lifetime, taking into account all promotions and markdowns. MSRP is something the brand controls and sets; AUR is something that occurs based on consumer demand.

With a target retail price in mind for the product, the brand then works backwards to determine the wholesale price to the retailer. For years, retailers applied a standard 2x “Keystone Markup”, which meant that the retailer would double the manufacturer’s wholesale price. Today, both retailers and brands have access to robust analytics which give them better information with which to negotiate wholesale prices. Also, for manufacturers with broad product lines, the markup may differ based on the line or even the individual product. Other components can affect the markup, such as volume discounts, rebates, and marketing/advertising dollars provided by the brand to the retailer. Because of these factors, the standard 2x markup rarely applies these days.

Once the wholesale price is determined, the brand assesses its cost to manufacture the product. If the brand cannot make its targeted margin at the wholesale price, it may decide not to proceed with the product, or it may make modifications to the product in order to reduce the cost. Most brands are looking for margins of at least 50%.

This all sounds relatively straightforward… so why is it such a challenge? Because most brands must make the decision on whether or not to move forward with a new product 12-15 months prior to its introduction. They can’t wait for the negotiation with the retailers on wholesale prices. As a result, many brands don’t work backwards from the estimated retail price; instead they set the wholesale price based on a standard mark-up over manufacturing cost (say 2x or even 3x their cost).

The problem here is that when the product is ready to launch, the MSRP may end up being the wrong price because it was developed based on cost instead of what the end consumer will pay. But the problem really started 12-15 months earlier, when the product may have been over-designed (or under-designed) for the targeted price point.

“Data drives so much of our insights today, yet one of the most important and overlooked factors in trend-related consumer products is the initial price, ” said Matthew E. Rubel, Senior Advisor at private equity firm TPG Capital and TPG Growth, and former CEO of Collective Brands (previous parent company of Payless, Stride Rite and other brands), in a recent conversation. “Years ago, the advent of GMROI changed the way we looked at gross margin and the investment it took to get it…today we need to test and validate initial pricing in order to optimize our return. The opportunity for the savvy retailers and brands is to understand this and move ahead of the curve. ”

Today, many brands are using technology to learn the price the market will bear for a new product, at the point of initial product development. Manufacturers are gaining consumer insight on candidate new products – even in entirely new categories – 12-15 months before introduction. These manufacturers are able to analyze a price elasticity curve, yielding a forecast of the average unit retail price before product development dollars are spent. They use this information to set the MSRP based on market demand rather than based on cost mark-ups. They also use this data to eliminate potentially unprofitable products early on, or missed sales through stock-outs later on.

“With digital and immediate access to consumers, the process is no longer cumbersome, ” continued Rubel. “It is like a third party working with the buyer and the planner. ”

Mike Ray, CEO of Vera Bradley, a leading manufacturer of fashion handbags, luggage and accessories, told me: “As a brand selling through multiple channels, setting the suggested retail price is critical for us. We establish retail prices months before a product is launched, so we need a forward view of what the market will bear. We’re using real time consumer insights gathered through online engagements which give us actionable data on how to set MSRPs.

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This gives us insight into higher price point–and margin–opportunities, well before the product introduction. ”

As we have been sharing over the last few posts, price is an essential element in determining a new product’s success or failure. Using historical norms to predict the price performance of a new product is analogous to using a stock or mutual fund’s history to predict how that security will perform in the future. As we see in nearly all investment literature: “past performance is no guarantee of future results. ”

Next up: Department Store Pricing – No Easy Task

http: //www. forbes. com/sites/gregpetro/2013/01/03/pricing-part-3-how-does-a-brand-know-when-the-price-is-right/

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Department Store Pricing -- No

Easy Task (Part 4 Of 4)

In this four-part series, I have been discussing one of the most controversial and important topics in retail: pricing.

Photo credit: Wikipedia

Through discussions with current and former CEOs in the industry, I’ve covered how pricing is handled by Specialty (or Vertically Integrated) Retailers and Manufacturers (or Brands). In this last installment, I will explore the often complex process of how Department Stores set prices.

Offering broad assortments that typically consist of both branded and private label products, department stores seek to differentiate based on product breadth and mix as well as on the customer experience. Whereas a vertically integrated retailer controls the entire value chain – for them, the “brand” is both the product and the in-store experience – a department store relies on its ability to have the consumer view the department store itself as more important than any single product line or brand it carries.

For years, most department stores sold both soft goods (apparel and bedding) and hard goods (appliances and electronics). Today, department stores have a much stronger focus on soft goods.

Department stores come in many different shapes and sizes:

High fashion specialty stores – those offering upscale, often exclusive designer merchandise and exceptional customer service (e.g. Saks Fifth Avenue ,Nordstrom, Barney’s, Neiman Marcus)

Mid-level department stores - those selling more moderately priced merchandise (e.g. Macy’s, Boscov’s, Belk, Dillard’s)

Stores which cater to more price-sensitive consumers (e.g. JC Penney, Sears, Kohl’s, Target)

High Fashion Specialty Stores

Let’s begin with the high fashion luxury retailers. According to Unity Marketing’s Luxury Tracking Survey, affluent consumers picked up their pace of shopping in the third quarter of 2012, with luxury spending up 25.8 percent over the second quarter. The retailers in this segment have continued to perform well, even throughout the last recession. As I stated previously, the total number of garments sold in 2011 decreased 5% vs 2010, but total dollar sales were up 5.3%. The success of high fashion specialty retailers is a major contributor to this result.

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And yet, these luxury stores are not found everywhere. They select locations in areas with high average incomes. Neiman Marcus, for example, has only 43 full-line stores nationwide, focused in wealthy metropolitan areas. Saks has 45 full-price stores and Nordstrom has 117.

So how important is price? In our recent conversation, Richard Marcus, former CEO of Neiman Marcus, explained it this way: “The luxury customer is looking for quality and knows the difference between ‘better’ and ‘best’. These stores strive to meet that discernment. Price is important, but quality is remembered long after price is forgotten, as are qualities of uniqueness and originality.”

High fashion specialty retailers incorporate the customer experience into their value proposition. A case in point: the grand piano player at Nordstrom. It is interesting to note, however, that Neiman Marcus has leveraged its brand into an e-commerce business that is now a significant portion of total sales, and is growing nearly four times as fast as the store-based business. Therefore, it is clear that the customer experience is not just about what happens in the stores.

These luxury retailers also know that the mid-market is a huge opportunity and they don’t want to miss out. Some have created subsidiaries with separate stores and branding from their full-line chains. Nordstrom Rack has been very successful, as has Saks OFF 5TH. Both stores are growing faster than their high-end counterparts.

As Rob Wallstrom, President of Saks OFF 5TH, recently told me: “The Saks customer is looking for the best. However, even in the luxury market, each customer has a targeted pricing zone, by category, within which he or she shops. Therefore, Saks offers a variety of products across a ‘Good’, ‘Better’, and ‘Best’ spectrum – with increasing levels of quality and price – to appeal to each customer.”

Wallstrom continued: “At Saks OFF 5TH, we are a value channel versus a clearance or liquidation channel. We offer products which appeal to the aspirational Saks customer who is more value oriented. Our goal is to provide extraordinary value. Extraordinary value is created when the price is below the perceived customer value. One can create extraordinary value by either increasing the perceived value through quality, exclusivity, and desirability or by reducing the price. Our goal is to provide the best value, not just the cheapest price. Our customer wants luxury product at a great price. If we want to increase the value, we often add more to the product desirability rather than merely reducing the price.”

Saks’ strategy is interesting in that even in the luxury market, the company knows that there is a certain value quotient – the right combination of price, quality and desirability – which each customer expects.

Photo credit: Wikipedia

Mid-Level Department Stores

Mid-level department stores make up approximately 30% of the overall department store market. Some are doing very well, including Macy’s, which raised its comp sales and earnings forecast for 2012 in early November.

These mid-level department stores typically offer private label and branded products. The branded items often carry a ticket price set by the manufacturer (manufacturer’s suggested retail price or MSRP – see last week’s post for an overview of how these prices are set); the

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department stores then use aggressive promotions and coupons to drive purchases. Private label product pricing is set by the department store itself – these products carry a higher margin since they are designed and manufactured by the retailer.

Pricing is clearly a major challenge for these retailers, and many are worried about the “race to the bottom.” They have conditioned the customer to look for deals, and shoppers can usually find similar items at other stores or online.

Their advantage: the customer knows he or she can find a broad assortment of items when entering the store. For example, many holiday shoppers knew they could get most of their shopping done with one trip to Macy’s. The “one-stop shopping” pattern allows these retailers to use promotions on certain items to get the customer in the store, while maintaining higher prices on other items.

The department stores in this segment are most at risk of “showrooming” and competition from Amazon, particularly given the online giant’s announcement last year that it is entering the fashion arena. This represents a square challenge from a future pricing perspective…although most have not seen it happen yet.

Stores for Price-Sensitive Consumers

This final category competes more squarely on price and identified assortment, and some of these retailers have been doing well. As of December 2012, same-store sales at Target and Costco, for example, were up 3.2% and 6%, respectively. However, JC Penney has been making news lately, with sales declining 23% for the same period. Kohl’s was down 1.1%, and Sears (which includes Kmart and Lands’ End) is also struggling, with sales down 3.1%.

As most of you know, JC Penney has moved to an “Everyday Low Price” approach. CEO Ron Johnson, formerly of Apple Computer, has taken a page from Apple’s strategy and moved away from coupons, promotions and discounts. Put simply: the price is representative of the product’s value.

I was at the Women’s Wear Daily Apparel & Retail CEO Summit earlier this week in New York. At the Summit, Ron Johnson said: “Learning how the customer responds to our new vision, getting them to appreciate and embrace it, and bringing them along for the ride has been a bigger challenge than I anticipated.” Johnson is also focused on providing more than a great price. “You have got to have more support than that,” he said. “It’s how you provide a value that the customer will understand.”

Kohl’s and Target, on the other hand, continue to promote and discount. Interestingly, Costco has an approach similar to JC Penney, also declining to make heavy use of coupons and rarely marking down products.

Why has this worked for Costco but has been a challenge for JC Penney? “It’s about customer perception and trust,” explained Mark Cohen, Columbia GSB Professor and former CEO of Sears Canada, Lazarus and Bradlees Department Stores. “JC Penney conditioned its customer for decades to expect coupons and discounts. It is now expecting the customer to trust that its everyday price is the lowest price. This does not happen overnight.”

“In 1988, when Sears went from ‘High/Low’ to ‘Everyday Low’, they lost 30% of their volume in two months,” added Cohen. “And in response to their new everyday low pricing, their competitors undercut them.”

Costco’s model was built on value. When a Costco customer walks in the door, he or she expects that the products will be of high quality and offered at a low price. The tradeoff for the customer is that some of the value is delivered due to the bulk packaging. Costco’s prices are not necessarily the lowest on every item, however. But it has built up trust over the years with the consumer that as long as it continues to deliver value, it can afford to inch prices up in certain areas.

For JC Penney, I believe the story has yet to be completely written, and any commentary in preface is obviously premature.

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Having said that, another interesting strategy is the Target/Neiman Marcus partnership announced in October. For Target, this presented an opportunity for the mass merchant to raise its average unit retail (AUR) prices on apparel and draw in a higher end consumer. For Neiman Marcus, the theory was that the partnership would let it capture the value-oriented shopper without having to set up its own outlet like Nordstrom Rack. Also, Target’s nearly 1800 stores in the U.S. give Neiman Marcus a much larger footprint.

The outcome? So far, the results have not been stellar. Sales of the Target – Neiman Marcus Holiday Collection were below expectations, and many items were being marked down as much as 50% by December 21.

Conclusion

So, what does this all mean for department stores? How do they avoid the “race to the bottom” when consumers are looking for and armed to find the best prices?

While complex, the answer ultimately comes down to understanding what the customer will pay for each product, through each retailer.

For example, a consumer may pay more for the same dress at a Macy’s store than at Kohl’s. And at Neiman Marcus, consumers may pay more for a branded shirt than a private label shirt or vice versa. As Mark Cohen puts it: “Price is at or near the top of the list of factors that motivate consumer behavior. Retailers need to manage their price/value equation, otherwise they become irrelevant.”

It is imperative for retailers and manufacturers to embrace the idea of getting inside the heads of their customers before they make their final commitments to products and price them.

How do they do that?

Today’s technology tools let retailers gain insight from thousands of consumers quickly, enabling accurate identification of starting price points and AURs. Brands can know the price elasticity of an item, by retailer, even before that product hits the market. Arming themselves with this kind of knowledge (as just one example) leads to a distinct competitive advantage.

The alternative is to wait and find out at the cash register.

Greg Petro

CEO, First Insight, Inc.

Join me at the NRF conference in New York City on January 14 at 11: 00am. I will be moderating a panel discussion on this topic including several of the industry experts interviewed in these posts: “Everyday Low Pricing? Promotions and Discounts? How to Get Entry Pricing Right.”

http: //www.forbes.com/sites/gregpetro/2013/01/10/department-store-pricing-no-easy-task-part-4-of-4/

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How Fashion Brands Set Prices

Consumer-fashion is a bare knuckle, knock ‘em down, drag ‘em out brawl that is hands down on eof the most challenging, engaging, and addicting industries that I have ever worked in. It is an insanely ambiguous and obfuscated operating environment surrounding the horrendously complex brand development and diffusion processes.

In order to effectively serve the marketplace, the consumer-fashion industry is split into two complimentary segments of brands and retailers. Brands focus on designing, producing, and delivering great products to the marketplace that engage their target demographic. Retailers focus on optimizing their brand assortment, inventory quantities, and demand generation that maximizes product / market fit for each retail location or property.

GAP’s terrible financial performance throughout most of the aughts is probably the best example of the risks & challenges that can plague a vertically integrated retailer when one of these two divisions is lost (in GAP’s case it was that they lost their product-mojo and are only just starting to get it back). Hence the specialized focus of these two partners has governed the strategy for consumer-fashion & retail for the better part of the last 20 years – the core reasons that this has been successful the business model are:

Retailers:

1. Derive long-term value from major investments in building customer mindshare (i. e. ‘I think that I am going to stop by Bloomingdales on Saturday’)

2. Have extensive customer insights that enables retailers to optimize their merchandising assortment of brands, styles, and inventory quantities dynamically for each location (i. e. GAP only sells GAP stuff and that’s risky if the GAP product sucks)

3. Trying to own the brand side is hugely expensive & massively risky when the entire organization has been built around the customer side

Brands:

1. Great product design & authentic brand narratives emerge from data-informed & design-driven (versus being reactionary in data-governed design – although Zara and H&M are dialing in a damn good solution)

2. Brands begin life by focusing on one product vertical (i. e. Cloven for men’s outdoor footwear) & don’t have the resources nor the product depth required in the demand generation model (remember we are talking about the last 20-years – we’ll get to how the world is today)

3. Need the freedom to work with hundreds of retailers to effectively distribute inventory risk and disseminate the brand narrative to ‘get the word out’

Before the onset of the Great Recession & technical innovation began to sow the seeds of change, consumer-fashion brands’ B2B wholesale (i. e. retailers) generated around 80 – 90% of revenue from retailers for the first 2-years. This relationship creates two transaction points where the product is 2x the cost basis for the preceding transaction – a theory in retailer called “Keystone Markup”.

Keystone Markup is a pricing methodology that multiples the cost basis by a factor of two

(sometimes can be up to 5x in the case of jewelry) to dictate the price for next rung in the value chain. Keystone markup arose as the simplest way to universally markup goods across the retailer to a profitable level. Generally speaking, it is logistically impossible to uniquely price each product (from 100s or even 1, 000s in a given retail location) to reflect market conditions and retail demographics. The theory being that retailer profitability was more of a function of units sold versus maximizing each product’s price. Subsequently, this approach normalized prices across the marketplace (i. e. everyone is pricing a shirt at $100).

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Brand to Retailer: This is the B2B wholesale transaction where the brand sells products to the retailer at wholesale price. This B2B price is based on theory of audiences of scale (i. e. millions of customers going to Nordstrom brick and mortar retail stores and online properties) who should receive a discounted price (off retail price) for the retailer’s contribution in the consumer fashion dichotomy. The brand sells to hundreds of retailers to provide them with the volume of units required to run their business profitably.

Retailer to Consumer: This is the B2C retail transaction where the retailers sells product to the customer at Retail Price. The retailer sources product from hundreds of brands to dial in their product mix for selling product to their customers.

Now that we have established the basic building blocks for pricing, we need to establish the market rate to understand how individual products are priced in the marketplace. When you are in the beginning stages of launching a brand, you do a ‘market analysis’ to clearly define the competitive landscape. This competitive analysis determines the corresponding balance of style, price, and quality that enables the brand to most effectively capitalizes on the opportunity.

The product’s price must reflect a value proposition relative to where the competition is positioned. The rationale is that the overall product landscape establishes the data points that a customer will evaluate the product relative to what the customer sees as comparable goods. In consumer-fashion there are general pricing bands that establish certain boundaries for potential pricing. For example, one of the launch styles for Cloven was a boat shoe where the pricing bands for a mid-tier boat shoe are about $70 – $90 retail price. This means that pricing the product outside of this range immediately draws a red flag in the eyes of the consumer as being out of place (i. e. not in the $70 – $90 expected price range) – so pricing is heavily dependent on consumer expectations.

There are two important aspects of this foundation:

Prices are confined to ranges of established norms outside of the brand’s control & constrained by the consumer’s expectations (i. e. ‘if you are going to make product for this market, you have to price within this range to even be viable’) The price range is a subjective analysis of the competitive landscape from the brand’s perspective

To illustrate how prices are set, let’s roll through the process for how we price one of Cloven’s products for this season:

1. Market Product Opportunity Analysis:

The strategic analysis of how competitors have positioned their brands & products by price – where price is the defining metric to govern the product development of the startup

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2. Define Strategic Brand Position:

Formally establishes where the brand will sit in the marketplace to serve as the unifying creative direction of the brand.

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The potential price is inherently defined by how the brand needs to position it’s product relative to where the competition is. The logic behind Cloven’s pricing is:

The market is defined by the Sperry’s Authentic Original boat shoe – it has been in the market since 1935 and is one of the first shoe styles ever created – anything that Cloven would produce would be compared relative to this anchor product. Cloven uses a super interesting technology that will offer a dramatic improvement on fit & comfort over current Outsoles used in production – leading to a fit and comfortable advantage over the competition Cloven uses Outsole & Midsole tech to reduce leather quantities generating a lower cost basis that allows Cloven to compete on price as a small company without economies of scale Price below Sperry to incentive the customer to try on the product – competing on product quality for brand-insensitive customers (i. e. ‘I don’t care what brand it is so long as it fits well’)

[Note: For the rest of this answer, we are going to pivot to an actual example from my old brand VÆL Project’s Deckard Boot. ]

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3. Wholesale Price:

Wholesale price is the price charged by the brand to the retailer for product that they have ordered – it’s revenue to the brand and represents the cost basis of the retailer. The general rule of thumb is that wholesale price is a 2x keystone markup on the first cost (the total cost to create finished goods ready for sale in the marketplace) or in other words – wholesale price is a 50% discount (0. 5x) retail price.

However, the simple world of 2x keystone markup is ending as ERP and IT Systems enable new insights in all aspects of the retail business that were previously abstractions based on averages. Today, most brands are under considerable pricing pressure from retailers to markup wholesale price at less than 2x to provide the retailer with the margin required to profitably sell the product. Retailers are marking up wholesale price 2. 1x to 2. 4x to compensate for inventory markdown & return risks that delivers the overall margin required to achieve the profitability goals of the firm. This focus on margin is a function of increased adoption of IT Systems that allow deeper insight into product performance on the brand and product level versus the obfuscated aggregate view that plagued organizations just 5 – 7 years ago.

Despite the major strides in retail analytics, it’s still a major challenge to dynamically price products based on demand signals and current stage of brand development – subsequently, retailers generally apply a universal markup on wholesale price to derive the retail price. Both brands and retailers live and die by the wholesale price – if it’s too low then the brand risks not generating enough Contribution Margin to run operations and conversely if its too high then the brand risk pricing the product outside the optimal competitive price range.

The important aspects for a brand’s wholesale price are:

Wholesale price is a dance that requires the brand to balance the scope of retailers markup strategies with the realities of order volume and profitability constraints on funding the brand’s operations

Recognizing that setting the wholesale price on the high end of the range allows the brand to always back off the price through discounts on product (i. e. 5% off wholesale price for 1, 000 units) or marketing discounts (i. e. 5% discount for ad-spend or marketing placement).

This image illustrates how this pricing works in the market:

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4. Product Development:

After you have your target price and wholesale price, you begin to work backwards to define your costing & materials. The operating cycle in consumer-fashion is traditionally 12 – 15 months meaning the from the time you have your design to when it finishes it’s basic life cycle in the market.

One of the main problems with the launching a new brand is that you have absolutely zero pricing power – meaning that you have the market setting the price within a narrow range & subsequently have a high cost basis to manufacture product. This begins the most challenging part of this stage – the tweaking of materials to levels that deliver sufficient quality right up to the monetizable equilibrium between the quality of the materials, construction of the product, and the customer’s willingness to pay for these costs. Keep in mind that $0. 50 in manufacturing costs equals about $2 at retail (2x markup to wholesale and 2x markup to retail).

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Here is an example of the product development revisions made to the VÆL Deckard Boot to dial in the First Cost with the constraints of Wholesale Price & Retail Price.

We are in a very interesting period in the modern business environment as the fundamental business model that has ruled consumer-fashion for the last 20-years (what was referred to in the 90s as the ‘China Strategy’) is dying – the world of cheap goods is over. Factories in China are closing and the good factories are dropping small & unprofitable brands to stem the losses from 20% real wage growth & materials inflating like leather (cows eat lots of corn & most hides are shipped from the US to China for tanning).

In footwear particularly, a brand has essentially zero pricing power or ability to generate economies of scale for a considerable period of time. The break points are generally around 15, 000 pairs, 45, 000 pairs, 80, 000 pairs, 150, 000 pairs, 400, 000 pairs where prices drop by 10% – 15% successively at each interval.

For more on how fashion brands set prices, see my answer on Quora to the question: Why do dresses cost more on a designer’s website?

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Why do dresses cost more on a

designer's website?

Consumer-fashion at its core is highly tactical, deeply psychological (a style/trend gaining momentum is highly reflexive of the mood that pervades social-cohorts), and heavily dependent on intellectual-capital (i. e. aesthetic, creative, and strategic direction requires immense cognitive investments).

Direct business (brands/designers selling product directly to the customer via it’s website) has been an ancillary consideration to most brands (i. e. the direct business took the back seat to wholesale (brands traditional B2B revenue channel for major retailers like Nordstrom & Bloomingdales).

2. 1. Conflicting Priorities Destroy Feedback Loop:

One of the fundamental problems driving price deviations in consumer-fashion is the dearth of communication & data sharing that adversely inhibits the development of a healthy & efficient feedback system between the two primary vertical partners, Brands & Retailers. This is a structural problem that arises from the business cycle at two distinctly unique phases:

1. The Buying Cycle:

The traditional (. . . and rapidly deteriorating) business model for consumer-fashion revolves around 9-month seasonal sales cycle, where 80% of a brand’s revenue is generate through B2B wholesale orders place by retailers (via ‘buyers’ - the person/team responsible for procuring inventory from brands that achieves theoptimal merchandising assortment for the retailer) at major industry trade shows. The importance of trade shows in the archaic business model for consumer-fashion arose to provide a convenient, centralized location and time frame for retailers to touch, look, and feel all the products from hundreds of brands, dial in their merchandising assortment for complimentary products (i. e. boots from Brand X that would look great with the selvage denim from Brand Y) in direct, comparative context, and account for the production lead times for brands to manufacture the goods.

At the trade shows, brands exhibit their seasonal collections of ‘samples’ - the array of potential products that are in the final stages of product development and represent the full product mix. Buyers subsequently place orders for the styles, variations, and quantities that they believe will work best for their customer based on what other products in the pipeline, the goals of the merchandising assortment, the retailer’s brand & market position, customer & sales development strategy, and customer demographics. Obviously, brands are only going to go into production on the styles & variations (variations are generally the different colors - they have the same parent style, but differ by color) that retail buyers have placed firm orders to produce.

The trade shows are scheduled around the seasonal production cycle for brands:

1. Jan - Feb: Trade Shows 2. Mar - Jun: Production 3. Jul - Aug: Shipping & Inventory Turn 4. Sep - Nov: Selling Season

This process inherently does not make sense to me because an entire segment of the consumer-fashion industry is basing major, life-and-death decisions on product volumes for inventory based on a proxy demand signal - the retailer buyer serving as a representative agent for consumer demand. Now the most accurate forecasting methodologies still involve are a weighted algorithmic + Delphi Expert Model, but even with the incredible strides in retail analytics - the concept of elite group of people (buyers) controlling major segments of the ecosystem through their assessments of what they like or believe the customer likes. The prevailing theory that drove the evolution of this model was that buyers have all of the extensive

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customer intelligence gained by the retailer that is inherently put into practice through the B2B wholesale order placed with the brand at the trade show.

The major problems with this stage of the pricing model are:

1. The order placed the buyer is a based on limited historical data constructed by vanity-analytics like gender, category, and price - these top-line numbers are generally too broad to deliver true insights to account for brand-specific factors

2. This order does not take into account endemic brand factors like the current stage of brand development, customer mindshare, marketing & promotional activities of the brand - all demand signals that will substantially impact retail performance

3. There is a disconnect between the end-customer even having the opportunity to see the scope of the product landscape (products that perform poorly with buyers at the trade shows are dropped and never make it to retail) - buyers are making decisions for the customer as their representative agents with only tertiary support of this relationship (by monetarily supporting the retailer based on the product assortment)

Bottom line for how this influence price

The marketplace is directed by buyers: placing orders for product constraining the product scope forecasting quantity demanded by top-line data that doesn’t factor any endemic brand-specific factors order determined 9 - 12 months before the product hits retail shelves and the customer even has the opportunity to product ‘market fitting’ feedback

[Note: I am not trying to take a piss on buyers - I have an immense amount of respect for what they do and consistently am awestruck by some of the most talented buyers in the industry.

Being a great buyer requires that they procure products that customer’s will purchase for the current season, but they need to build a product pipeline of demand for styles that they are financially judged against. This means that they need to stay ¼ step ahead of their customer falling into 3 - 5 different customer-demand narratives to balance current demand while seeding trends for the next season. Great buyers introduce a style one season as an outlier styles that drive purchases next season to capitalize on demand as the trend diffuses over the current season. Furthermore, buyers need to prime for trend shifts that will be hitting the market in one year (and subsequently require introduction today to incept the idea and begin to trigger the want/demand at the correct time).

Buyers are what we would know today as curators except they are under incredible levels of stress as their decisions are made way in advanced and responsible for financial performance of the retailer. If a buyer screws up one time - they can destroy profitability for entire product lines or divisions. After spending a lot pf time working with buyers over the last 10-years, I generally don’t like a lot of buyers because of the ‘too cool for school’ mentality that drive purchasing decisions based on ego rather than data-informed and intelligent. Hands down the best buyer in Men’s is Emma Lee, at Gilt Groupe - to say that girl is brilliant is an understatement as I consistently look at what her buys tell me about the industry. ]

2. The Sales Cycle:

This is where the plot thickens and gets really interesting - let’s fast forward 9-months through the ordering, production, and shipping & fulfillment to a retail store - the product is now on the retailers website or store shelves. Customer’s now have the opportunity to purchase the brand’s product. In retail, there are certain sales level that innately occur simply by virtue of product being in the marketplace - the product is on the store’s shelf, the customers it, likes it, tries it on, and buys it - easy peasy lemon squeezy. However the vast majority of sales are generated following about 11-touch points with the trend/style/brand/products - meaning that converting consumers into customers requires on average about 11 touch points with the product on blogs, in marketing, at retail, or the consumers wearing the product to generate sufficient customer mindshare that drives purchase actions.

The most exciting data is the on the ground sales staff qualitative data collection and archetypal narrative development. Talk to a really good sales reps at Nordstrom - they have massive mental databases about the most valuable customer behavior and how customers break down

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aesthetically to certain groups (this is highly subjective data and definitely subject to huge bias - but the fact that it’s based on a significant amount of time & transaction by sales reps building the insight on the actual transaction level makes it far more interesting than #s on a page as each instance is embodied by a visual reference).

Remember how in the ‘Buying Cycle’ section, I commented on the prevailing logic was that retailers have all the customer insight? Well, the systems is fundamentally screwed up in that retailers do not share any of this data with their vertical partners - it is viewed as a competitive advantage and subsequently the property of the retailer. This data-silo’ing behavior adversely constrains brand partners from foundation level data to inform the basic comparative framework in the ‘Market Analysis’.

Retailers protect this data because they are desperately clinging to this as a competitive advantage (like Networks in releasing content to the web that fuels piracy) and do not share it because they are scared that brands will usurp the retailer and go straight to the customer. Ironically, it’s this protectionism that is forcing brands to build their own consumer-direct relationships to gain this information.

This protectionism mentality creates the following main challenges in the ‘Buying Cycle’:

Retailers do not have the resources nor the incentive to effectively make use of this purchase data for the 100s of brands that retailers stock

Demand generation is the responsibility of the brand - how can brands make meaning use of data to refine the product mix & pricing mix if the market feedback is hidden from them? For example, let’s say I ran a marketing campaign with a discount of 15% off a pair of shoes at Bloomingdales San Francisco. that discount code must be able to be scanned and accepted by the Bloomingdales ERP - meaning that the brand loses any insight about the customer and has given up generating any long term value from issuing this discount.

By not sharing feedback like this and relying on the brand to drive demand generation (i. e. the brand driving traffic to the retail partner), the brand is incentivized to full that support from the retailer and focus on owning the customer relationship in a way that creates the most strategic, long term value for the brand

It would make sense to drive traffic to the brand’s core strategic objectives like the brand’s Facebook Fan Page or to the brand’s E-Commerce site to work on building the customer relationship.

o How do brands discover marketing channels when customer insights about referral traffic is deliberately hidden from the brand? If the brand is responsible for generating online traffic and sending traffic to Bloomingdales but cannot benefit from the customer insights then how can brands tailor marketing campaigns?

o [Most Important] Brands cannot effectively price products without substantive insights into the data feed meaning that there are systemic problems with this model

Bottom line for how this impacts pricing:

Conflicting priorities between vertical partners drive information asymmetries that inherently inhibit accurate insights into the ‘market fitting’ pricing feedback and leads to widely inaccurate information fueling pricing discrepancies.

2. 2. High Subjectivity and Large Biases Adversely Impacting the Comparative Pricing Analysis:

In Section 1, we discussed that the first stage of pricing involves the brand conducting a market analysis of the competitive landscape. This market analysis establishes the brand’s evaluation of the strengths and weaknesses of competitors products and determines an implicit estimation for how the brand will balance style, price, and quality that will most effectively capitalize on opportunities in the marketplace.

This market analysis is an extremely challenging process because of the dearth of information available at the product level (retailers protect this data) and the high degree of managerial bias

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in evaluating competing brands & products for this framework - there is simply no way to extract transaction data from the marketplace. There are proxy signals like time to discount and channel checking via local retailers, takes time that’s not really practical as pricing decisions are made 9 - 12 months before products hit retail shelves - but no hard data available to brands to truly substantiate traction based and product / market fit effectiveness for products in the analysis.

Additionally, the pricing strategy is driven by highly-emotionally biased managers that deeply invested & fluent in brand-specific details. This leads to a managerial bias that outweighs product differences in favor of the brand - most of which is are not reciprocated by the uninitiated new market participants (i. e. customers).

This problem is seen all too often in tech when founders focus too deeply on a niche and product features as a source of competitive advantage. For example, let’s take a fictitious daily deal startup that also schedules the local services in conjunction with the daily deal (i. e. eat at this restaurant at 2 PM or the massage at 3 PM). I have heard probably 20 - 30 pitches over the last year where this occurs that the founder will say that the scheduling is what differentiates them from Groupon or LivingSocial and has lost site that features are not a source of competitive advantage. In the same vein, people who work in consumer-fashion (and I, admittedly, have found myself to have done this numerous times in hindsight) become so ingrained with their products that profound product differences to internal team does not translate into how the customer sees it.

Furthermore, the current phase of the brand’s development process dramatically skews the comparative analysis. New brands that are just entering the market have little traction and social proof to validate their brand & product strategy leading to an inherent undervaluation of their product and overvaluation of their competitors (the though being “well, this more established player is priced at $80, so we need to be below them because no one knows who we are. ”). Subsequently, a brand that has caught fire and are generating substantial traction begin to overvalue their historical success as the basis for vertical product extensions and new found ego-based biases that overvalue their pricing power to command above market rates.

Bottom line for how this influences prices:

The subjectivity and biases associated with the initial pricing framework is one of the most important factors in understanding why prices deviate between retailers and consequently from retailers to brand direct. The price is established by emotionally-invested managers that are heavily entrenched in relative valuations of their products and do not have the information resources to effectively adjust the pricing strategy before going to market.

2. 3 Supporting Legacy Revenue Channels with Conflicting Agendas

As we established in section 1, Retail Price is a function of Wholesale Price that the brand sets based on the market analysis and Brand Strategy. In the traditional consumer-fashion retail environment where B2b Wholesale represents upwards of 80% of the brand’s revenue, brands set Suggested Retail Price on their websites at the top end of the marketplace, and often times above the ‘actual’ retail price quoted to retail partners, to support the B2B revenue channel and make retailers appear like a good value / discount.

Prior to 2010, it was an inordinately challenging process for brands to generate sufficient online traffic in consumer direct (i. e. BrandXYZ. com E-CommerceBusiness) to be a strategic priority for most resource starved brands. The prevailing theory was that retailers have made the significant investments to build customer mindshare and owned the customer relationship so it was in the best interest of the brand to drive traffic to their retail partners.

For most brands without significant online consumer-direct presences, which was most brands before 2010 when you began to see brands 10Qs pepper in statements targeting 15 - 25% of revenues coming from consumer direct channels, the brand’s site served as an authoritative reference for product information to consumers on price. This meant that on artifically high

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prices set on the brand’s site and comparatively ‘better’ price on the retailers would generate opportunity costs to drive purchase via the retailer.

In the majority of cases, a brand’s site served as an authoritative reference of product information source about brand’s products where an artificially high price would make a comparatively lower price at the retailer assuage concerns with any consumer. With B2B Wholesale responsible for such a large portion of revenues, it was thought that driving a small number of traffic (the aforementioned inordinately challenging process) would assuage price-checking customers concerns to deliver these customers to the most strategic purchasing channel.

One of the core value propositions that retailers create is the cultivation of mindshare (‘I am going to go to Bloomingdales on Saturday’) and generation of significant amount of goodwill as the customer - whereby the customer had dealt with the retailer & the brand served as the product of the retailer. If the customer loved the brand, the retailer was the beneficiary of the customer’s goodwill/happiness as the provider of the garment (versus the brand as the producer of the product - it's a level of abstraction away from a direct relationship between product & consumer). The retailer controlled the relationship and therefore is the recipient of the customer's projected satisfaction or enjoyment of the product (as opposed to the brand that created the product).

Establishing mindshare & building goodwill deeply connects consumers with retailers - a trend that is even far more pervasive online as offline. Online shopping for consumer-fashion is a world of information asymmetries that, when done properly, engenders significant brand engagement & loyalty (i. e. fanatic Zappos customers thrilled by overnight shipping, free returns, and killer customer service). One of the most interesting things about a high Suggested Retail Price on a brand’s site enabled a certain flexibility for retailers to set prices at optimal levels for their target demographics.

To support their retail partners, brands would set the Suggested Retail Price at the top line of the marketplace with the understanding that retailers would adjust their prices to what works for their customers.

Historically (i. e. before 10 years ago), if a fashion-savvy teenager wanted to purchase an item from Abercrombie & Fitch & there wasn't one located in the local mall - there were two options: 1. purchase via mail order catalog or 2. wait until they took a vacation to a location that had an Abercrombie retail store. Great consumer-fashion E-Commerce sites understood that their value proposition was in their ability to generate significant loyalty by serving the void in the marketplace that the fashion-savvy teenager wants across the country.

This process of E-Commerce sites being one of a very select # of Online Retailers to retail the cool brands has the same impact that boutiques traditionally held & create pretty loyal customers that are branded to one property over another - sayTobi. com to RevolveClothing.

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com. This is not like daily deal sites like the zero sum game that LivingSocial & Groupon engaged in an epic trench-style war of attrition - customers are predominately StyleABC site or StyleXYZ site with little overlap.

By pricing on the high-end, the brand enables the retailers to dial in their pricing model to what works for their customer & explains why this prices can vary significantly from retailer to retailer as well as designer/brand to retailer.

2. 3. 1 Tertiary Drivers in the Legacy Channel

1. Cash Requirements:

Product Information Management is a major challenge for any E-Commercecompany & consumer-fashion brand - especially when technical development is not an in-house core competency of the firm. Therefore, more E-Commerce sites historically implement blanket discounting models - if the product has X% remaining stock after 4-week then the product is automatically discounted by 10%.

Once an order to a retailer leaves the docking bay, the ownership of the product changes to the retailer - an accounting & legal concept call FOB or ‘Free on Board’. Thus, the brand has little functional control as the retailer owns the product & has the financial imperative to ‘turn’ the inventory. The brand can do things like threaten to pull the account from a retailer - but this does not happen most of the time because the brand needs the retailer more than the retailer needs the brand.

2. Organization Oriented Around B2B Wholesale Business:

Brands are still predominately organized to serve the business model of the last 20 years - where sales reps ( glorified order takers ) form the backbone of the revenue generation priorities of the firm. A small consumer-fashion brand ( <$10m) has approximately 3 - 7 sales reps covering geographic locales - remember this model is geared around sales reps who would put samples in the car and drive around their territory to sell shops.

In the wake of the financial devastation brought on by the Great Recession, management teams for consumer-fashion companies retreated back to what they know best. Generally speaking these are guys and girls in the 30s & 40s (Gen-y’ers) whose first response is to get back to basics (i. e. the dying 20-year business model) to keep the company alive - thereby reinforcing the sales rep’s sole in the company & managerial support for this model

3. Drive Retail Support

Major retailers were the primary revenue channel for brands & their scale enabled brands to achieve the volumes that made the business attractive. The goal of the brand was to support the retailer and stay “in their good graces” by driving potentialtraffic to the retailer. Here was the basic strategy:

A major retailer like Nordstrom. com will place a pre-season order for 1, 300 units with a wholesale price of $105. 00

The Brand sets the Suggested Retail Price at $245. 00, while the retailer prices it at $230 representing a 6. 1% discount

Assume that seasonal mins are 2, 500 units - a minimum is the # of units set by the factory that must be purchased by the brand prior to the order being accepted.

Here are how the #s breakdown in this example:

By virtue of Nordstrom’s scale, their one test order of 1, 300 units ($136k) essentially pays for production for the entire season ($135k). However, the real value is in working with Nordstrom over numerous season, when the numbers can look like:

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In order to illustrate the huge challenges in building an E-Commerce presence for a consumer-fashion brand, take a look at some statistics from VAEL Project. com in Season 4 of the brand.

Keep in mind these traffic #s are based on a brand that first hit the marketplace in Jan ‘08 - so these visitors are based on a product in the marketplace with 1000s of promotional blog articles. In my example about Nordstrom’s, we are showing that Nordstrom *could* be generation something like $5. 25m in top line revenue. Additionally, if we extrapolate this VAELProject. com E-Commerce out (assume $40k/mo), we are looking at brand direct at about 8% of total revenue.

2. 4. Emotional Engagement Drives Pricing Power:

I wholeheartedly believe that modern brands are evolving into more substantive, direct, and engaging relationships with their consumers to the level of aesthetic & intellectual peers. This transformation has is roots in the Great Recession when the macroeconomic devastation sparked a reevaluation of consumption psychology to and technology opened the door to a new world. Consumers writhing in pain from the market’s ferociously bite after they played by the ‘rules’ of the aughts (purchased a single family home, worked in secure corporate America, and leverage home equity to buy TVs). After the house was foreclosed on, Corporate job lost, and all the debt-fueled toys were taken away - the pervasive American consumption psyche has started a fundamental change as consumers (consciously & subconscious) are shifting their consumption dollars to products & brands that deliver greater value beyond product & with whom consumers identify with as individuals and feel like their business matters to the companies they are supporting.

This shift in consumer psychology was enabled by the explosion of the “social web” that collapsed the barriers for consumers to discover about brands & products and learn about who they are as people. The brilliance of the social web is that it enables engagement to be driven by rich, personal, and substantive relationships that support companies & people that you actually like and identify with. From Quora to Gilt Groupe, every transformative startup over the last 5 years has demonstrated that great products require the creation of a meaningful

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emotional bond between the user/customer & the product/brand that fosters a sense of personality, ethical, & philosophical congruency. This is what we now call ‘emotional engagement’ - where the combination of product, brand, and social experience cultivate a friendship between the people at the brand and the customer.

The phenomenal successes of Etsy, Kickstarter, and invested. in demonstrates that consumers will support independents that are less price-sensitive when they know it’s helping the little guy. The most interesting thing is that customers are implicitly beginning to monetize the brand experience & deep emotional engagement of these types of products.

Matthew A. Carroll currently runs an outdoor brand Cloven Footwear (raised $4. 1m in Nov ’10) and sits on the board of two tech startups in San Francisco, California. You can follow (and show some social love) via@Fail_Harder, FailHarder on Facebook, and Quora.

http: //www. forbes. com/sites/matthewcarroll/2012/02/22/how-fashion-brands-set-prices/

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The Future Of Fashion Retailing:

Part 1 - Uniqlo

(Photo credit: Wikipedia)

For decades, the model for most fashion retailers has been the following:

1. Send designers and merchants around the globe in search of new fashions.

2. Select designs six to nine months in advance based on anticipated consumer trends.

3. Make large commitments to the products merchants and planners think will be the winners.

4. Launch new products and let the sales data determine how well the whole process worked.

This formula has been followed almost blindly by many retailers for decades, but in recent years a major shift has led to great success for three industry heavyweights: Uniqlo, Zara, and H&M. These international market leaders have taken dramatically different paths from the status quo — and from one another. Each has thrived in its own right, and all seem to be avoiding the “race to the bottom” on pricing. What I find particularly interesting is that these three companies are employing lessons learned from other industries to build long-term, sustainable competitive advantages. And it’s paying off.

Uniqlo: Choosing Long-Term Appeal over Trends

First, let’s look at Uniqlo. The real differentiator for this company lies in its leadership. As CEO of Uniqlo’s parent company, Fast Retailing, Tadashi Yanai is the wealthiest man in Japan. His goal is to grow Uniqlo’s revenues to $50 billion in 2020, quadrupling current levels, with $10 billion of these sales coming from North America.

Lofty growth projections are certainly nothing new. What is different is Yanai’s approach to the business. While other apparel companies focus on finding and following the latest fashion trends, Yanai turns an eye to technology and invests in the long-term vision of Uniqlo.

In a recent interview with Wired Magazine, Yanai said, “In general, the apparel industry isn’t about continual process improvement or making the perfect piece of denim, it’s about chasing trends. ” While Yanai believes in the power of being on the leading edge, he puts more stock in longevity, saying, “At Uniqlo we’re thinking ahead. We’re thinking about how to create new, innovative products…and sell them to everyone. ”

Uniqlo’s offerings are basic items such as fleece, slim down jackets, synthetic thermal underwear, and denim. The company believes their customers care more about quality and value than about a quick response to changing styles. Rather than rushing to market, Uniqlo

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uses long development cycles in which they test new materials and designs. And instead of jumping from vendor to vendor, they develop long-term partnerships with material manufacturers.

In this way, I find Yanai’s strategy to be similar to that of automakers. Car manufacturers spend months or years in product development to create a product that will appeal to a range of consumers. And while some manufacturers do emphasize trends, quality trumps trendiness over the long term.

The fashion industry may well be following a similar path as the auto industry. Between 1896 and 1930, more than 1, 800 auto manufacturers existed in America. Why? Automakers wanted to develop cars that suited each individual’s tastes. By the early 1940s, a large percentage of these companies had gone out of business, and today we have just a few meaningful automakers in the U. S.

As in the early days of automaking, the current U. S. market is saturated with apparel brands and retailers. Mickey Drexler, CEO of J. Crew, said in a recent CNBC interview, “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. ”

Yanai operates Uniqlo more like a 21st-centry automaker. He identifies styles within product categories that won’t quickly go out of fashion, differentiates these styles, and then sets up a supply chain that delivers these styles to the consumer. Uniqlo has also implemented a strategy used by the technology industry, known as “planned obsolescence. ” Yanai drives consumers to update their wardrobes based on changes in technology — changes discovered and implemented by Uniqlo — rather than updating in response to ever-shifting style preferences.

The results have been impressive, and Yanai’s approach has made Uniqlo one of the world’s most successful retailers. It is gaining fast on rivals like Gap and H&M. Drexler complimented Yanai in the Wired article, saying, “Not only is he a great merchant, but he has an extraordinary vision and an unwavering long-term vision. ”

Looking ahead to Zara

In my next installment in this series, I will focus on Zara. At the other end of the spectrum from Uniqlo, Zara’s approach is to embrace trend-chasing. This company strives to tap into the fast-changing tastes of consumers, and it has built a supply chain which allows them to deliver to these preferences. How do they make it work? Stay tuned.

http: //www. forbes. com/sites/gregpetro/2012/10/23/the-future-of-fashion-retailing-part-1-uniqlo/2/

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The Future Of Fashion Retailing:

The Zara Approach (Part 2 of 3)

English: Zara Store, Pitt Street Mall, Sydney (Photo credit: Wikipedia)

In my previous blog post, I highlighted three companies — Uniqlo, Zara, and H&M— that are making strides by bucking traditional retail models. In that post, I described Uniqlo’s focus on quality and longevity; CEO Tadashi Yanai’s strategy is to avoid trendy fashions and build a supply chain to deliver technology-based, differentiated products, which appeal to the masses.

Now it’s time to turn our attention to Zara, a company that sits firmly at the opposite end of the strategy spectrum from Uniqlo but has achieved similar levels of success.

Zara: Responding to Consumer Trends

Spanish apparel company Zara has built its strategy around consumer trends, embracing the fast-changing tastes of its customers. To do this successfully, Zara has developed a highly responsive supply chain that enables delivery of new fashions as soon as a trend emerges.

Zara delivers new products twice each week to its 1, 670 stores around the world. This adds up to more than 10, 000 new designs each year! It takes the company only 10 to 15 days to go from the design stage to the sales floor. Because of this streamlined model, Zara is not forced to be ahead of the curve. Rather, they exist on the curve, evaluating trends first, then following.

How is Zara able to do this? By being fast and flexible.

Zara was designed to be responsive from its inception. Rather than subcontracting manufacturing to Asia, Zara built 14 highly automated Spanish factories, where robots work around the clock cutting and dyeing fabrics and creating unfinished “gray goods, ” the foundations of their final products. Like Uniqlo, Zara leverages automaker principles; these automated factories use a “just in time” inventory approach pioneered by Toyota Motor Company.

Zara has also created a partner network of more than 300 small shops in Portugal and Galacia to handle the finishing work; here, the gray goods are transformed into dresses and suits. By following this approach, if an item looks like a winner, Zara can quickly ramp up manufacturing and get items to their stores in a matter of days.

Zara has been very successful with this approach and is a big reason why its parent company, Spanish firm Inditex SA, is now the world’s largest clothing retailer. Inditex SA grew revenue 10% to $19. 15 billion for its fiscal year ending January 31, 2012.

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Another hallmark of its success is that Zara’s approach has not gone unnoticed. Some U. S. -based apparel companies are now following suit, manufacturing longer-lead-time gray goods in Asia and finishing in the U. S. This approach allows these companies get products into their stores — and into their customers’ hands — more quickly.

Up Next: H&M

Uniqlo and Zara: polar opposites in approach, but on the same end of the success spectrum. Next time, I’ll explore H&M, a company that splits the difference as far as strategy but doesn’t sacrifice any of the success.

http: //www. forbes. com/sites/gregpetro/2012/10/25/the-future-of-fashion-retailing-the-zara-approach-part-2-of-3/

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The Future Of Fashion Retailing --

The H&M Approach (Part 3 of 3)

H&M) store on October 25, 2012 in Berlin, Germany. (Image credit: Getty Images via @daylife)

In my previous two blog posts, I wrote about Uniqlo and Zara, two of the world’s largest —

and most successful — fashion retailers. What isremarkable about these companies is that they have abandoned the traditional retail model for their own approaches, each diametrically opposed to the other. Uniqlo focuses on technological differentiation, using long product development cycles and offering basics that appeal to a large consumer base. In contrast, Zara has built a supply chain that allows it to follow fashion trends and deliver goods in near real-time.

H&M, the Swedish fashion group with more than $17 billion in annual sales, has an approach

that is a hybrid of the Uniqlo and Zara models. It manages to merge a commitment to longevity while staying responsive to fashion trends. What are the keys to its success?

H&M: Building a Bridge between Timeless and Trendy

H&M is the second largest apparel retailer in the world, just behind Inditex SA. With 2, 600

stores in 43 countries, H&M was a pioneer in pursuing vertical integration with its own distribution network. The company’s clothing collections are created in Sweden by approximately 150 designers and 100 buyers. H&M outsources production to a network of 800 suppliers; 60% of the production takes place in Asia, the rest in Europe.

H&M offers two main collections each year, one in spring and one in fall. Within each season, there are several sub-collections that allow H&M to continually refresh its inventory. The primary collections are traditional long-lead items; the sub-collections are trendier items with short lead times.

The enabler to H&M’s ability to react quickly is its network of 20 to 30 production offices, which are placed close to its suppliers. These offices work with both the buyers in Sweden and the production facilities, reviewing samples, checking quality, and choosing the suppliers, which will handle each order. Generally, the items with very short lead times are manufactured in Europe, with longer-lead items manufactured in Asia. Like Zara, this allows H&M to be more responsive to trends.

H&M also has a world-class IT infrastructure, which is key to its success. Each store is connected with corporate logistics and procurement systems and the central H&M warehouse. The IT systems also reach as far as the design and product development teams, so executives have visibility into the entire process, from product design to sales. This leads to more effective management across all channels.

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Three Different Approaches, Important Common Ground

Uniqlo, Zara, and H&M — three very different models that are proving to be successful for 21st-century retail. What do these companies have in common?

All three companies understand that retail success doesn’t come from guessing on the next hot style. A fashion retailer may have a few great merchants who are able to put together a string of winners, but being dependent on the keen eye of a few people is a risky strategy. These three companies have institutionalized this process, greatly reducing their markdowns. Across the industry, 30-40% of products are sold at markdown prices, as compared to only 15-20% for Zara.

How do Uniqlo, Zara and H&M do this? An all-important shared pursuit of the three companies is a deep understanding of their customers’ wants and needs. All three have built systems for identifying consumer preferences. In Uniqlo’s case, getting customer preferences right is extremely important because of its lengthy development cycles and long-term commitments to materials and products. For Zara, reacting to consumer desires is a core component of its competitive advantage. And H&M is well known for its focus on researching and predicting emerging trends — a function the company staffs both in Sweden and in national offices around the world.

The bottom line is this: In today’s highly competitive retail environment, regardless of approach, it’s critical to know how consumers will react to products well before they’re launched.

http: //www. forbes. com/sites/gregpetro/2012/11/05/the-future-of-fashion-retailing-the-hm-approach-part-3-of-3/

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Uniqlo: How Japanese Billionaire

Tadashi Yanai Plans To Clothe America

Tadashi Yanai (Image credit: AFP/Getty Images via @daylife)

Tadashi Yanai looks like a mild-mannered Japanese executive. But he is one audacious clothing salesman. His goal is to turn the retailer he runs, Uniqlo, into a company with $50 billion revenues by 2020, selling low priced yet fashionable, basic items like v-neck cashmere sweaters, colorful t-shirts and lightweight down jackets. To do so, he’s planning to open 1, 000 stores in the U. S. So far he’s got just four here.

On Friday morning at a ribbon cutting ceremony, Yanai will open the fifth American store –in the heart of San Francisco, with the city’s mayor at his side. “Our goal is to become first in mind” as a place to shop, Yanai said through a translator in an interview Thursday afternoon.

In the course of two and a half decades, Yanai, who’s 63, has built Uniqlo into the world’s fourth largest retail apparel company, –behind Inditex of Spain (which owns Zara), H&M and Gap. Uniqlo has $10. 6 billion in revenue from 1, 163 stores—most of which are in Japan. Yanai’s stake in Uniqlo’s parent company Fast Retailing is worth $11. 5 billion, up from $10 billion since March, making him the richest man in Japan by a wide margin.

Yanai is more interested in becoming a top global clothing retailer than anything else. He grew up living above his parents’ clothing store in a small town in Yamaguchi Prefecture in southwestern Japan. He studied politics and economics at university in Tokyo, but he comes across as a retail philosopher. When I ask what sets Uniqlo apart from it competitors, he pulls out a laminated card printed with the Uniqlo creed, in Japanese on one side and English on the other. One element seems very Zen: “Uniqlo is clothing in the absolute. ” Yanai explains that it means he wants his clothing to be an extension of the person who wears it, to be something the customer doesn’t have to think about.

Yanai differentiates Uniqlo from “fast fashion” chains like H&M and Zara. He’s not chasing trends; he’s selling basics like Oxford shirts, leggings, jeans and sweaters for reasonable prices, from $6 for t-shirts to $30 for an oxford shirt.

He’s cleverly trying to create some buzz about Uniqlo, profiling in the marketing material hip young Bay Area artists and tech bloggers wearing his item of the moment: a lightweight down jacket. The marketing campaign to prepare for the San Francisco opening has been impressive: Buses around the city are plastered with ads about the new store, the Sunday San Francisco Chronicle came wrapped in a Uniqlo ad, and people were handing out flyers around downtown promising giveaways of lightweight down jackets to “selected lucky customers among the first 500. ”

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The latest hiccup was in China, where about 70% of Uniqlo’s clothes are manufactured. In September anti-Japan protests in China led Uniqlo to temporarily close 7 of its 164 stores in the country. Yanai refers to what happened as “sad events” and vows to continue his company’s partnership with the country. The plan is to eventually open 1, 000 stores there as well. “We’re going to remain on plan, ” he said.

In an effort to make his company more global, Yanai has declared English the company language. So it was a surprise to learn that he wanted to conduct the interview with Forbes in Japanese. His English is actually quite good –he understood nearly all of my questions without help from a translator –but like so many of us, he’s more comfortable in his native tongue. That also gave his lieutenant, Yasunobu Kyoguku – the chief operating officer of Uniqlo USA– a chance to weigh in, in flawless, unaccented English. It’s up to Kyogoku to open 995 more stores in the U. S. He’s trying to make Uniqlo a part of the community, working with nonprofits, and he wants to weave music, art and fashion into the Uniqlo experience. “One thousand people lined up inside a mall in New Jersey for our opening there, ”says Kyogoku. It’s clear he’s hoping for a repeat of that in San Francisco.

http: //www. forbes. com/sites/kerryadolan/2012/10/05/uniqlo-how-japanese-billionaire-tadashi-yanai-plans-to-clothe-america/

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Are Retailers Reaching Consumers

Of The New Millennium?

English: American Eagle Outfitters store, Green Oak Village Place shopping center, Green Oak Township, Michigan (Photo credit: Wikipedia)

Many of the retailers I meet tell me they want to reach “Millennials. ” Why is this demographic so important?

Millennials – also called “Gen Y” – are defined as the 50+ million Americans ages 18-29 who are the first generation to pass into adulthood in the new millennium. According to Pew Research, this generation has a defined personality: “confident, self-expressive, liberal, upbeat and open to change. ”

For retailers, brands and marketers, Millennials have created a conundrum. Although their entry into careers has been hurt by the Great Recession, 90% of Millennials say they currently have enough money or will eventually meet their long term financial goals. However, the current unemployment rate among workers ages 20-24 is 13% compared to 8% for older workers, according to recent economic data. They are the most educated generation in American history, yet approximately 12% of Millennials ages 22 and older have moved back with their parents because of the recession. And, according to PNC Financial Services, the average member of Gen Y carries $45, 000 in debt, mostly due to student loans.

Nevertheless, Millennial college students without full-time jobs spend $784 a month on discretionary (tùy ý) expenses, especially food and entertainment, according to the Mooslyvania marketing agency. Millennials are also the largest demographic purchasing electronics and fashion apparel. According to Bloomberg Businessweek data, Millennials ages 25-34 spend 8% more on apparel than those ages 35-44, even though they earn 22% less.

Some of this spending comes from money given to them by their parents or grandparents. For those Millennials who are employed, spending on food, apparel and entertainment often comes at the expense of other areas. For example, nearly 40% of Millennials are estimated to be without health insurance, according to Bloomberg Businessweek.

These trends are not lost on retailers. Over the last 10 years, the number of retailers targeting teens and twenty somethings has skyrocketed. Walk through your local mall, lifestyle center or strip mall and you can’t miss them: Rue 21, Hot Topic, Journey’s, American Eagle Outfitters, Abercrombie & Fitch, Aeropostale, Forever 21, Urban Outfitters, PacSun, Zumiez, etc. All of these retailers are essentially targeting a similar demographic — a group which, as a whole, has very little spending power.

The question is, how long will this continue, given the economic realities facing Millennials? I expect that Millennial spending will eventually align with their income levels. But they are a huge group and will still be spending. As Millennials become more frugal, how can retailers determine what they will buy, and find ways to reach them, so that they retain or even increase share?

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Millennials have different preferences, not just in the products they like but in how they learn about products and shop for them. Millennials tend to distrust big business. They don’t read circulars. They don’t respond to traditional surveys. They don’t use email as much as they use social media. They like to communicate with each other through social media but are wary of direct engagements with adults and businesses.

Where does this leave vertically-integrated retailers who want to target Millennials? These retailers don’t have the luxury of placing a large number of small bets across a wide variety of products in the hopes that Millennials will respond by opening their wallets. Integrated retailers make big buys of a relatively small number of items and, in the Millennial category, they often change out the merchandise every month or two as preferences change. These retailers know that they need to respond to these fast-changing preferences, as was noted in a recent USA TODAY article about back-to-school fashion trends.

I have found that Millennials want to engage in an authentic dialog with retailers, as long as it is enjoyable and the access is on their terms. They enjoy playing online games, particularly using mobile devices. When they are invited to engage with a brand or retailer they like, they do so in high numbers. And through these engagements, retailers can learn about the products they like, what they will pay for them, and how they view one retailer’s products versus another.

Manufacturers can also find out which entirely new categories their brands can be leveraged into. These approaches can take the guesswork out of developing product assortments which appeal to Millennials, enabling retailers to continue to gain share in this challenging segment. It all seems very natural, authentic and meaningful in the interaction. I think an approach such as this leads to further brand/retailer loyalty and business in the end. It is out of the box thinking, but if you want to reach Millennials, you’d better try something different.

http: //www. forbes. com/sites/gregpetro/2012/08/24/are-retailers-reaching-consumers-of-the-new-millennium/

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What Is The Kryptonite Of The

Millennial Generation?

No generation is just a single dimension or can be defined by a single thing. However, there are certain trends with every generation, and our newest to tackle the business world is no different. I am in constant awe and amazement at the levels of intelligence and poise possessed of so many millennials entering the workforce today. Having attended conferences where I have listened to them present, seen them in action at companies across the country, or worked alongside of them on projects, there is a level of sophistication that did not present itself for years with my generation.

(Although, to be fair, that was because we all sat around in coffee houses, draped in way too much flannel, debating Nirvana lyrics, and deciding whether Ticketmaster was evil or just greedy. )

But, in spite of growing up in the midst of a great technological leap forward, millennials have a fatal flaw – a weakness in your armor – and that is a lack of perspective. This generation is great at gaining an in-depth understanding of every topic happening within a certain time frame. Mobile devices, texts, RSS feeds, and a wealth of social media, combined with 24-hour news feeds, means you can know everything about everything as long as it was

happening right now.

To use a favorite Seinfeld-ism, “Not that there is anything wrong with that. ” However, lacking the ability to put all that data into context and to synthesize it into smarter, more informed decisions is what keeps holding you back. It is the difference between “knowledge” and “wisdom. ”

History Repeats

The decisions in your field or discipline that you are facing today have already happened. The names, the details, or the particulars change, but the problems and potential solutions have been addressed since well before you were born. With enough study in any particular area, you will see that similar patterns continuously emerge. For example, there is always a business disruptor who shakes us from the comfortable into something new and slightly uncomfortable. We adapt, and then it becomes stale until a new disruptor comes along. Rinse and repeat. Sound familiar?

Think our recession is new? You only need to go back to Fitzgerald’s “Jazz Age, ” followed by The Great Depression, followed by global conflict and WWII to see similarities from our glut in the 90′s, recession, and increase in global turmoil today. You saw a similar scenario play out in the ‘70s. Can history predict the future? Alas, no; there is no crystal ball here, but how we behave and react to the world is pretty consistent – it is hardwired. Seeing the patterns helps to help us make smarter decisions. This is why some really smart folks put their money in bonds in 2007, and why some VCs know where to invest in the next new technology disruptor.

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Do you want the seat at the table to help make smart decisions (or just be able to make them yourself)? Do you want that kind of power and authority as part of your future? Better start now. That kind of knowledge is not going to present itself to you on your favorite social platform.

History vs. Trivia

Are you the wiz kid when it comes to 80′s night at the bar trivia contest? Trivia is fun, and does have a place in your future career longevity. Trivia can be the sugar-free sprinkles on your organic, rainforest-saving yogurt swirl. That little bit extra! Having an understanding of trivia and cultural references can make you more relatable to those around you from different generations; it can denote an encyclopedic mind; and it can showcase a well-thought out idea. Be careful of trivia, however. All trivia and no substance won’t help advance your career aspirations.

It is unlikely that knowing who was Captain Kangaroo, which Loverboy song has the best lyrics, or which Kenny Rogers movie was best will help you other than winning a bar bet. Trivia has a small role to play, but know the difference between what has historical significance and trivia. (For those playing along at home, the answers to the above are beloved morning children’s show host, “Working for the Weekend, ” and lastly . . . it is a trick question – there is no “best” Kenny Rogers movie. )

A Well-Read Mind

Interested, but not sure where to start? First, begin with a little light history. Read A History of Knowledge: Past, Present, and Future by Charles Van Doren, or A Really Short History of Nearly Everything by Bill Bryson, or go really old school and read H. G. Wells brilliant A Short History of the World. As you read, jot down what you find interesting – what piqued your interest. Those moments are the alignment of your head and your heart telling you where to go. Don’t ignore those impulses – they seldom lead you astray. The idea is to start somewhere and let that lead you to the next thing, and the next thing. (Interestingly enough, Charles Van Doren was the contestant caught up in the “Quiz Show Scandal” and immortalized in the move Quiz Show by Ralph Fiennes. Now there is some trivia for you!)

Second, find publications in your discipline that provide analysis of situations, and not just straight reportage. Pubs like The Economist, The New Yorker, Forbes, or Harvard Business Review are great places to start, but certainly not the only ones. They can add some insight into relevant events and will lead you to some interesting places.

Lastly, develop a mentor relationship with others from other generations on projects and initiatives. Your job it two-fold: you want to learn as much as you can from those people. It is also your job to help them see your perspective and your views on both the tactics and strategy. This is absolutely a two-way street. Those that don’t see that will do so at their peril.

Having some insight into our human history and adding some perspective to your decision making will not only make you wiser, but will help to truly distinguish you from the herd of others who also went to “leadership camp” when they were 8 or who built their first app when they were 15. I – for one – will look forward to finding you, and working with you some day.

##

Interested in going deeper on multigenerational management principles, you may want to check out Brad Szolllose’s book, Liquid Leadership. You can also follow Todd on Twitter @toddmwilms or connect on LinkedIn as I continue to offer up perspective and some Facts of Life-esque wisdom!

http: //www. forbes. com/sites/sap/2012/07/24/what-is-the-kryptonite-of-the-millennial-generation/

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Why You Should Be Hiring

Millennials [Infographic]

There are certain stereotypes that go along with being a millennial. Social media-obsessed and apathetic are two that I see thrown around most often. Thanks to a study by UNC’s Kenan-Flagler Business School and the YEC only one of these might be true and it will get millennials hired.

According to the study, millennials are highly ambitious, with a majority placing an importance on jobs with chances for career progression and personal growth. And while it’s no surprise that these ambitious young people are plugged in through social media, the study said hiring an employee who is active on Facebook greatly increases a company’s digital reach.

Millennials will make up 36 percent of the work force by 2014 and 46 percent by 2020—pretty good news for employers to have a generation of workers who are natural web marketers on the way.

This study, which is outlined in the graphic below, illustrates the traits that make millennials hirable, and how they differ from previous generations.

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Not only do millennials multitask far more than previous generations, they value social media freedom, device flexibility and work mobility over salary in accepting a job offer.

This is the first generation in history in which social communication skills have been so important. For millennials like me, using Facebook is second nature to keep up with friends and family, but employers see it as a way to spread their brand through who we talk to.

While I do find it aggravating that our own employers along with big brands and advertisers are cashing in on my generation’s somewhat obsessive social media habits, it makes a lot of sense.

A good portion of my Facebook news feed consists of my friends sharing information about their jobs, new products their company has come out with and events their employer is doing. Even when I look back at my own timeline 90 percent of my status updates are linked to Forbes posts.

This tendency to share every aspect of our lives naturally translates to our work life. What we do at the office is just as much part of our lives as who we’re dating, what we had for breakfast and who we’re in a fight with, so why not share our work life like everything else?

Sounds like good advertising to me, and for us it comes as second nature.

So, for those of you graduating high school or college or just entering the workforce, keep your Facebook page up and keep tweeting because these seemingly trivial social tasks might land you a job.

http: //www. forbes. com/sites/mattmiller/2012/07/03/why-you-should-be-hiring-millennials-infographic/

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What Millennials Want Most: A

Career That Actually Matters

This article is by Barry Salzberg, the global chief executive officer of Deloitte Touche Tohmatsu

Limited.

The Occupy Wall Street movement may have faded in the past few months, but its core beliefs have stuck with tomorrow’s talent.

It’s tempting to think that these grass-roots sentiments will run their course, but my interactions with young professionals around the globe, as well as our own research, tell me there is something larger at work, and that business leaders need to pay attention.

Occupy’s core issue, damaged trust in business, remains strong with millennials—strong in interviews, strong on college message boards, and strong on social networking sites. This fundamentally different recession has created a potentially fundamentally different generation.

As digital natives and emissaries from the future, the millennials hold the keys to unlocking the secrets of tomorrow. Researchers predict that this year there will come to be more mobile devices than humans on the planet. We need this digital generation to join us in unleashing the potential of all that mobility and access to information. And they will, but only if they believe our organizations can offer them careers that, well, actually matter. Given that Deloitte’s member firms will recruit 250, 000 people around the world over the next five years, this obviously resonates with me. And I believe it matters to any leader thinking about the future.

The good news is that business as a whole has a good record to point to, an all-true story about the many things we do to make the world a better place. Jobs and homes. Opportunity and security. Breakthrough new ideas like the iPad. The works.

Never mind the still sluggish job market. In their insistence on social principle, many millennials are not driven by money or success in quite the way their parents were. This generation wants to know what your organization stands for in improving society, what it stands for in action, as opposed to blowing smoke. Millennials want to know how they will make a positive difference in the world if they join your business, not by wearing a colorful T-shirt on a special project once a year but in their actual work.

Did I mention that this media-savvy generation is also jaded and suspicious? Unimpressed by title, well-traveled, and immune to P. R. in the old sense? To anyone who imagines their heartstrings can be nimbly plucked, good luck.

In August 2011, for example, students at top American schools—Yale, Harvard, Dartmouth, Stanford—were complaining about their peers going into finance and consulting, professions in which 25% of Yale grads launch their careers. They called such choices a “brain drain, ” or “a tragedy of wasted minds, ” as one Dartmouth undergrad put it. Deloitte signed up some 49, 000 minds last year, so naturally this got my attention.

We did some original research and discovered that these attitudes, conflicted as they can be, also reflect remarkable optimism and resilience, including an admirable willingness to tackle, head-on, society’s biggest issues. A slacker generation this is not.

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My organization examined the opinions of 1, 000 millennials at Deloitte member firms regarding the impact of business on society. We found that more than half of them believe that in the future business will have a greater impact than anyone else in solving society’s biggest challenges. And 86% of them believe business will have at least as much potential as government to meet society’s challenges. Clearly, taken as a whole, millennials do not see business as a waste.

Yes, employment remains a challenge, in the U. S. and especially in parts of Europe suffering from double-digit unemployment, such as Spain, Portugal, Italy, and Greece. True, more needs to be done to align education and training with today’s jobs, and my organization, among many, is striving to do just that. But to be realistic, it will take the bulldozer of business, going at full throttle, to get us out of the ditch. To do that effectively, business needs to move past the denial stage and get everyone on board, including the new generation of workers, with all their energy, curiosity, new skills, and passion.

Indeed, if you heed the details of this research, tomorrow’s leaders are telling us that they believe they can actually change the world, fiscally and socially—operating within the system. They want to play a part personally, not just in pro bono work but through the work they do every day.

In an effort to do just that, our member firms’ professionals are fully engaged. For example, in Korea they are creating new efficiencies in the nation’s IT infrastructure and thereby helping a developing country use inexpensive technology to create micro-businesses. In South Sudan, after a long civil war, we are helping create social structures from taxation to governance that support peace and stability.

Another part of the picture is the large number of women now in the global workforce: fully half, driven by better education and aided by the steady wind of social forces. Businesses are hungry for this talent.

In turn, greater economic equality between men and women has been shown to reduce poverty rates, boost GDP, and lead to better governance. That kind of social change, driven as much by business as by government or nongovernmental organizations, is bringing major benefits to the next wave of emerging economies in the Middle East, Africa, India, and elsewhere.

In short, we need to do more to connect the dots for millennials, showing them the deeper global dynamics of the business enterprise. Damaged trust in business is one side effect of the events of recent years. Like all our stakeholders, our digital natives need to know that they can trust us with their future, and that, like them, we’re ready to keep changing the world.

http: //www. forbes. com/sites/forbesleadershipforum/2012/07/03/what-millennials-want-most-a-career-that-actually-matters/

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Postscript On Retail Pricing: Avoiding The "Race To The Bottom"

Photo credit: Wikipedia

At the NRF conference in New York last week, I had a chance to talk to a number

of retail CEOs about the topic I’ve been covering the last few weeks: pricing. I am now more convinced this is the number one issue facing retailers today.

At the conference, I moderated a panel discussion on “How to Get Entry Pricing

Right”. The panel included several well-known former CEOs: Matthew E. Rubel (Collective Brands & Cole Haan, now with TPG Capital), Mindy Meads (Aeropostale,

Lands’ End, Federal Reserve Bank, now on the board of Wet Seal), Mark Cohen

(Sears Canada, Lazarus, Bradlees, now Professor atColumbia University), and

Nikki Baird (Managing Director of RSR Research).

Although these executives come from different perspectives – specialty/vertically

integrated retailers, brands and department stores – they all agreed that pricing is a huge challenge. They also agreed that poorly executed pricing strategies can be

the death knell for retailers, and could end up lowering the water mark for the industry as a whole.

As Matt Rubel explained: “The model that has been in place over many years was

that you would look at your competitive set, and your distribution, understand the product category that you want to be in, understand what you can buy the goods

for, and strive for a certain mark-up in aggregate. That’s pretty much old school.”

Rubel continued: “New tools which will help you set the right price up front, so that you can arrive at the final price with the most gross margin throughput against

your competitive set, to me is the wave of the future that we have to get on with.”

So how do retailers avoid the “race to the bottom”? Mindy Meads is a strong

proponent of product differentiation:

“You have to know your customer, who is that customer, you really have to

understand who they are and what they are looking for,” she argued.

Mark Cohen agrees that it’s all about the customer:

“There are no retailers in the world who have ever succeeded who have disregarded

the behavior of customers and the presence of competition.” he said.

Who Owns Pricing?

If pricing is so important, who owns it within the retail organization? In our panel

discussion, Nikki Baird reported some of the results of RSR’s 2012 Benchmark Report on Pricing. Interestingly, RSR found that over 50% of respondents said that

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the buyer/merchandiser manages pricing. RSR also found that a full 67% of

“laggards” (poorer performing retailers) say pricing is managed by the buyer.

Retail “winners,” on the other hand, are increasingly creating a separate pricing

function and are investing in tools to manage the process.

“Retailers have an opportunity, with more tools available than ever before, to make

better decisions,” said Baird. “It’s just a question of everybody starting to use them.”

Is Anyone Selling at Full Price?

I also had an opportunity to attend the 23rd annual Financo CEO Forum at the

Harmonie Club last week while in New York. This year’s panel included Lew

Frankfort (CEO of Coach Inc.), Paul Blum (CEO of Juicy Couture), Eric Wiseman (CEO of VF Corp) and Danny Meyer (CEO of Union Square Hospitality Group). The panel discussion focused on the importance of the in-store experience in conveying

a brand. Frankfort articulated the differences between the online and in-store experience by describing the store of the future as a “3-D portal.” In contrast, he

said the online experience is only two-dimensional.

But the real fireworks (just like last year) came when Mickey Drexler, CEO of J.Crew, challenged the panel by asking: “What percent of your goods are sold at full

price?”

Drexler said that J. Crew sells two to three times the industry average percentage

at full price, “except during Christmas.”

Just the week before, at the WWD Apparel & Retail CEO Summit, I heard Drexler

make a poignant point: “The real price of goods is always the selling price. The best price is to sell it for what it’s worth.”

Mickey Drexler is confirming Matt Rubel’s comments. Why are brands and retailers

continuing to use the “old school” pricing method of applying a mark-up to their cost of goods, based on their margin targets? We already know the result of this

approach – hyper-promotions, markdowns, clearance pricing – a “race to the bottom.” Gartner and others have stated that over 50% of new products continue to fail, and poor knowledge of what price the market will bear for a new product is a

major contributor.

What is a Product Really Worth?

So how do retailers know what the product is really worth, and what the selling

price should be?

In a conversation with Greg Girard, program director for merchandising, marketing,

and retail analytics at IDC Retail Insights, he addressed this issue: “Mobility, notably manifested in showrooming, now makes the price an item carries transparent anywhere anytime. While exclusive brands and private labels offer

retailers some protection from price transparency, anytime anywhere access to product reviews and information also puts downward pressure on the prices.”

Girard continued: “Avoiding the effect any race to the bottom on price has on revenue, margin, and unit sales erosion requires bringing the right products to market and setting their initial price right, otherwise forced promotions and

markdowns erode AUR and consumers’ perception of the brand’s value. These dynamics now put a premium on predictive analytics that complement merchant

judgment.”

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I believe in the end that successful retailers and brands will avoid the race to the

bottom by:

Offering a distinct, differentiated product.

Being authentic in their pricing strategies, with an accurate understanding of

the customer value quotient – the combination of product desirability and price at which the customer will pull the purchase trigger.

Staying true to who they are as a brand.

Just last Wednesday, at the ICR XChange conference, Robert Hanson, CEO of American Eagle Outfitters said: “In our view, ultimately the brands that are well

positioned with the leading product assortment and competing on intrinsic value is the way to win in the short, medium and long term in the category.”

American Eagle plans to reduce its average annual markdown rate by seven (7) percentage points in 2013 by reducing certain promotions. The company would rather “sell more regular price [merchandise] to maximize margin than to be stuck

with a lot of goods that we have to sell at a discount or in the clearance section,” Hanson added.

Selling more goods at full price is certainly the holy grail of retail, and I believe 2013 will be a critical year for retailers as they define (or re-define) their pricing strategies. I look forward to learning from and sharing with all of you as we move

forward!

Greg Petro

CEO, First Insight, Inc.

Watch the NRF panel discussion: “Everyday Low Pricing? Promotions? Markdowns? How to Get Entry Pricing Right.”

http: //www.forbes.com/sites/gregpetro/2013/01/22/postscript-on-retail-pricing-avoiding-the-race-to-the-bottom

83 | Page hoangnd@msn. com Mar 2013

Pricing Wars Make A 'Punch And

Judy' Show Of Retailing: Running For Higher Ground

This article is by Robin Lewis, editor and CEO of retail industry barometer The Robin Report, and is co-author of the book “The New Rules of Retail.”

(Photo credit: Wikipedia)

The back-and-forth, whack-upside-the-head of retail pricing has attained a dizzying speed. Just as the customer gained the balance of power by unabashedly “showrooming” (going into the store for information and education, then scanning bar codes to find a better price elsewhere), the tide is turning again with a couple of disruptive, high-tech strategies on the retailers’ side. In fact, the entire pricing and discounting game is getting so complex and chaotic that it may very well drive both consumers and retailers over the sanity cliff. Once off the edge, the pricing and discounting madness will likely continue between them, all the way down, and this race to the bottom will benefit no one.

Did The JC Penney ‘Fair and Square’ Promise Offer Salvation?

Now widely known and debated is the grand vision of JC Penney’s CEO, Ron Johnson (former head of the Apple retail phenomenon), in pursuit of transforming the department-store business model. A lynchpin of his strategy was his bet that consumers had reached a threshold of frustration, exhaustion and total mistrust of retail pricing. Thus, he developed a “fair and square” pricing model, devoid of promotions, coupons, and “high-low” pricing gimmickry. The promise was to provide fair value pricing on a daily basis.

Launched ahead of the other components of his game-changing vision, not the least of which is an experience-driven physical overhaul of the stores, the pricing strategy taken on its own was confusing to consumers — ironically the reverse of its “fair and square” intent. This led to an enormous loss of business, and the current reality is that he’s had to revert back to discounting and promotions.

In light of Johnson’s reversal, once the stores are transformed, will his bet on consumers’ going over the “sanity cliff” of pricing madness actually pay off? Will shoppers seek salvation and the comfort of “trust” in the simplicity of a fair price? Or has retail pricing convinced the consumer that it’s all a gamble?

There are definitely other, less fair and square strategies afoot. With two new disruptive technology tools, retailers who are betting on consumers’ inherent need to gamble are flipping

84 | Page hoangnd@msn. com Mar 2013

showrooming on its head and taking the game up a notch or three, for both their competitors and their customers.

Dynamic Pricing

Here’s a fable for our times: It was recently reported in the New York Times that Amazon offered a discounted price of $49.96 on a popular Xbox game the day before Thanksgiving — the same price as Walmart’s, and three cents lower than Target’s. Then the “pricing wars” began. “Amazon dropped its price on the game Dance Central 3 to $24.99 on Thanksgiving Day, which was then matched by Best Buy’s ‘doorbuster’ special, and went to $15 — once Walmart offered the game at a lower price. Amazon then brought the price up, then down, down even further, then up and up again – in all, seven price changes in seven days. The unluckiest buyer paid more than triple the price that the luckiest buyer paid.” Other examples of this opportunistic pricing strategy were tracked, finding, in many cases, that the “nano-second” changing of prices often involved just cents of difference between competitors.

With the use of the same algorithm tool used for 80% of all stock-market transactions, retailers are able to pull this off — something they are euphemistically calling “dynamic pricing.” Retailers can learn how their competitors are pricing specific items and then instantly change their prices accordingly. Remember the good old days, when retailers would send employees to competitors’ stores to check pricing, and days later put up their own “sale” signs? Now companies like Feedvisor and Mercent are using sophisticated computer programs to drive automatic price changes in a matter of seconds. Scary.

Personalized Pricing

There’s another new tool providing some punch back for retailers in the face of the almighty, demanding consumer. The Wall Street Journal conducted a study simulating 20 visits to Staples.com, from each of the 42,000-plus U.S. Zip codes, testing the price of a Swing line stapler. Additionally, in each of 10 Zip codes, for over 1,000 different products, they found that prices varied for about a third of the products, with as many as three different prices for individual items. Higher prices were found 86% of the time in Zip codes where a Staples store was located but was a long distance from a competitive store. Likewise, Zip codes that were farther than 20 miles from a Staples store had higher prices 67% of the time, whereas if a Staples store was within 20 miles of a competitor, higher prices were used only 12% of the time.

What this means is that retailers are now able to “showroom” consumers, first to find out where they are living, down to their Zip code, and what their income range is likely to be, then determine geographically how near or far access to a competitor might be. With this information, Staples and Home Depot, among others, are able to determine the “best” prices for specific niche consumer groups.

What Can Be Done?

What other options are available, short of a Ron Johnson-style radical redesign of the physical store? Retailers can deploy a number of strategies.

At a very fundamental level, to the extent that they can, they should aim to control as much of the value chain as possible, from raw materials and creation through sales and consumption. Along with this, and without necessarily enlarging their brick-and-mortar footprint, they should be increasing their distribution platform so as to be available wherever, whenever. This is called preemptive distribution.

But beyond this, retail has got to get back to being fun, exciting and engaging. Maybe easier said than done, but take a look at the way Banana Republic is partnering with Match.com to bring singles into their stores for cocktails and special shopping deals. That’s a heady combination capable of creating a high degree of expectation beyond just shopping. Or how Fashion’s Night Out has annually built on it s previous year’s success to get folks to have a reason to look fabulous and hit the stores. The common denominator is that the experience has

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to transcend simply “buying stuff,” and provide shoppers with a truly compelling, not-to-be-missed reason to leave the comfort zone of their couches.

So, back to “Retailing 101:” Drive greater efficiency and innovate. Otherwise, one thing retailers can take to the bank (pun intended) is less profit. This is simply due to the fact that regardless of all the new pricing weapons retailers can deploy, and more potentially looming, weak consumer demand will continue to force prices down.

Retailers need to transcend the discounting madness and reach for higher ground or be part of the downward spiral. Because in the end, it all comes down to the customer’s trust. At least Ron Johnson is betting so.

http://www.forbes.com/sites/onmarketing/2013/02/25/pricing-wars-make-a-punch-and-judy-

show-of-retailing-running-for-higher-ground/

86 | Page hoangnd@msn. com Mar 2013

JCPenney Returns To High-Low

Pricing, Cue The Critics

JCPenney in Frisco, TX (Photo credit: Wikipedia)

Another day, another installment in the sad tale of JCPenney.

The retailer has returned its former high-low pricing wherein a product is priced higher only to be marked down periodically as part of a promotion.

According to Reuters:

1. The U.S. retailer began changing the price tags on merchandise earlier this month and should be done in the next few weeks, spokeswoman Daphne Avila said in a statement emailed to Reuters on Tuesday.

2. “While our prices continue to represent a tremendous value every day, we now understand that customers are motivated by promotions and prefer to receive discounts through sales and coupons applied at the register,” Avila said.

The pricing program effects JCPenney’s own brands including St. John’s Bay, jcp, Stafford and Arizona, according to the report.

JCPenney and CEO Ron Johnson famously tried to do away with this strategy last year, implementing every day low prices, or “fair and square” pricing as the retail dubbed it in ads. In that time sales have plummeted by 25% for the year with stock prices fairing much worse.

Johnson and company have returned to sales, running regular 20% off events, and now this.

It it too little too late? A disappointing reversal? The hastening of the end of JCPenney?

That depends on what you’re reading. The only clear thing in JCPenney’s long year is that it can’t win for trying. Cut sales and there’s a chorus of critics bemoaning the move. Add them back in, and get called a hypocrite. Recall the old pricing scheme the critics are mourning and it’s all over but the foreclosure sale.

JCPenney doesn’t stand a chance.

http://www.forbes.com/sites/lauraheller/2013/03/28/jcpenney-returns-to-high-low-pricing-cue-

the-critics/

87 | Page hoangnd@msn. com Mar 2013

J.C. Penney Tweaks (Again) Its Radical Pricing Strategy, Which Continues to Sink Sales

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A two-story J. C. Penney in Aventura, Florida (Photo credit: Wikipedia)

Heading into the make-or-break holiday selling season, J.C. Penney continues

to hemorrhage sales, prompting the retailer to, once again, revise its radical

“fair and square” pricing strategy, which eliminated most sales and coupons in

favor of 40 percent lower everyday prices, but has befuddled and alienated

shoppers.

Third quarter comp-store sales released this morning sank 26.1 percent.

Nine months into CEO Ron Johnson’s bold makeover of the chain, the

formerApple executive still insists that Penney is on the mend, although store

traffic fell 12 percent in the quarter from the year-ago period, when the chain

was running 590 sale events and coupons.

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The Winners (Target) And Losers (Best Buy)

This Holiday Season Barbara ThauContributor

J.C. Penney Slides

Further Into Oblivion Walter LoebContributor

However, Johnson did concede that the company’s pricing strategy, launched

in February, remains “confusing to our customer,” he said this morning during

a web cast to review third quarter earnings.

“The bad news,” he said, is that the quarterly comp-store sales drop and

shopper traffic declines reflect the elimination of its month-long sale event in

August, which marked its first revision to the fair and square pricing strategy.

“We have to address that.”

To reverse the shortfall, Penney will now feature the manufacturers’ suggested

retail price as well as Penney’s lower price on price tags hanging from its

nationally branded items, in a bid to highlight the value to shoppers, Johnson

said.

It will also start participating in seasonal vendor promotions, so if Jockey has

a spring sale event, for example, J.C. Penney will be a part of it — which has

been a missed opportunity that has hurt its competitive position.

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Johnson said he’s in a tricky spot: He’s leading a chain that is transforming

from a sales-heavy promotional department store to an everyday low price

specialty department store, “and what’s good for one is not necessarily good

for the other,” he said.

In the meantime, Penney is bleeding market share.

For the third quarter ended October 27, J.C. Penney’s total sales dove 26.6

percent to $2.93 billion. Online sales through jcp.com fell 37.3 percent from

last year.

Penney’s net loss narrowed to $123 million from $143 million.

By contrast, third quarter sales at competitors Macy’s and Kohl’s rose 3.8

percent and 2.6 percent, respectively.

The Shop Concept

Johnson, who joined Penney from Apple where he ran its wildly successful

retail stores, and previously served as the vice president of merchandising

forTarget, has set out to not only wean shoppers from their addiction to sales

and coupons, but also create the nation’s first-ever specialty department store.

He’s been transforming J.C. Penney into a mall of 100 mini shops, featuring

in-store boutiques from the likes of Martha Stewart, Canadian fast fashion

chain Joe Fresh (which will launch March 1) and a Levi’s shop that takes a cue

from Apple’s Genius Bars.

Johnson is confident the shops will transform the chain and set it apart from

other big players in the mall.

That’s because specialty stores ranging from fast-fashion chain H&M to

houswares retailer Williams-Sonoma have been the fastest growing part of the

retail sector in recent years, he said.

Johnson pointed to the Sephora beauty shops, which Penney rolled out in

2006, as an example of how well the in-store concept can work.

90 | Page hoangnd@msn. com Mar 2013

The Winners (Target) And Losers (Best Buy)

This Holiday Season Barbara ThauContributor

J.C. Penney Slides

Further Into Oblivion Walter LoebContributor

Sephora’s shops have generated 5% comp-store sales increases “independent

of the J.C. Penney performance,” he said.

Despite Penney’s poor third-quarter results, Johnson was upbeat on the make-

or-breaking holiday selling season.

“We’re expecting a great Black Friday,” he said.

On Nov. 12, the retailer will release the details of “Merry Christmas America,”

what he called a major holiday promotion, which will run from Black Friday

through Christmas Eve.

The campaign marks the first promotion the company has run all year — a

sign that Penney is tiptoeing back into sales mode? We’ll have to wait and see.

http://www.forbes.com/sites/barbarathau/2012/11/09/j-c-penney-tweaks-again-its-radical-

pricing-strategy-which-continues-to-sink-sales/2/

91 | Page hoangnd@msn. com Mar 2013

The Winners (Target) And Losers (Best Buy) This Holiday Season Comment Now

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Target (Credit: AP Photo/Damian Dovarganes)

It’s show time – or make-or-break time — for the nation’s big retailers, which

generate up to 40% of their annual sales during the holiday selling season.

And once all the presents are unwrapped and gift cards redeemed, the retail

industry’s victors will clearly emerge, as will the defeated. Mark Cohen,

professor of marketing in the retailing studies department of Columbia

University’s business school, and former CEO of Sears Canada and

Bradlees, offers his picks of the retail winners and losers this holiday season.

Retailers Fight Back Against

Amazon With Private Brands Barbara ThauContributor

The Winners

92 | Page hoangnd@msn. com Mar 2013

These retail winners are defined “by virtue of having well defined, strategies,

which successfully address their customer segment and reflect orderly and

intelligent planning and effective execution,” according to Cohen.

Amazon.com: The e-commerce giant “continues to expand its footprint

across categories of goods including fashion and luxury,” Cohen said, noting

Amazon’s advertising-savvy move into fashion.

For one, the retailer’s New York bus shelter fashion ad campaign “expresses

Amazon as a retailer of consequence in ready-to-wear,” he said.

During the holiday season two years ago, “Amazon would have likely sold no

fashion apparel. This year, they’ll sell a consequential amount.

“They’re continuing to be a destination for customers for everything,” Cohen

said.

Target: The cheap chic discounter’s new commitment to offering its signature

exclusive, trendy collections year round, including the new Shops at Target, a

revolving collection of merchandise from independent boutiques around the

country, will strike a resonant chord with shoppers this holiday, Cohen said.

“They’re expanding on the success they’ve seen with stylish, contemporary

collaborations by offering a whole program throughout the season.

Historically it’s been an occasional headline theme [think the widely

successful Missoni line]; It’s now an ongoing strategy, instead of episodic,” he

said.

Macy’s: The chain could pull off a successful holiday selling season, but

“somewhat by default, as a principal benefactor of J.C. Penney’s ongoing

collapse,” he said, referencing Penney’s plummeting sales from its new CEO’s

elimination of sale events and coupons.

As for Macy’s, “It’s disheartening to see them continue to rely on [lines from]

celebrities who in some cases are past their sell date,” he said.

On the other hand, “It’s encouraging to see Macy’s express themselves by way

of category dominance, such as their Levi Strauss campaign, even if it was

motivated by a need to put J.C. Penney down.”

The Losers:

These chains are losers “by virtue of ongoing poor performance, lack of

strategy, inability to mount and maintain intelligent planning and effective

execution,” Cohen said.

93 | Page hoangnd@msn. com Mar 2013

Abercrombie & Fitch: The teen chain’s provocative, risqué marketing

campaigns and fashion assortment have fallen out of favor with their teen

audience, sinking same-store sales.

“The game is over. The gig is up,” Cohen said. “The story they’ve been telling

has lost its appeal.” The “elitist, macho” marketing messages, marked by ads

of “bare-chested, hunky guys … plays to a tourist crowd, not a [core]

audience,” he said. In turn, Abercrombie has ceded market share to American

Eagle.

Best Buy: “Best Buy feels like a restaurant that has lost its appeal. Its décor

isn’t as attractive as it once was, its menu is not as interesting, and at the end

of the day, it doesn’t really have something I want to order,” Cohen said.

The rise of online retail and little product newness have conspired to knock

the chain off its once dominant perch in consumer electronics, which will

continue to play out this holiday season.

“There isn’t a tech trend they can call their own,” Cohen said.

For one, they’re “somewhat limited as to how much Apple [product] they can

sell, [so despite] a big boom in Apple, they can’t consequentially benefit from

it.”

Retailers Fight Back Against

Amazon With Private Brands Barbara ThauContributor

And while there’s talk that the launch of Windows 8 will rekindle the PC

business, “that business remains miserably commoditized, so it’s difficult to

rely on that trend resurging with any kind of decent [profit] margin,” he said.

94 | Page hoangnd@msn. com Mar 2013

At the same time, the flat screen TV business “has run out of gas, margins have

collapsed and price points have dropped,” Cohen said. And while 3-D TVs

were supposed to be the next big thing, “that never happened.”

Then there’s the elephant in the room.

While “the good news is that Best Buy has no principal brick-and-mortar

competitor [with the demise of] Circuit City, there’s a ruthless competitor by

the name of Amazon that has beaten them to a punch at every turn — from

price to assortment,” Cohen said.

It also doesn’t help that Best Buy’s web site collapsed last holiday, and

shoppers remember that, he said.

Sears: The celebrity apparel lines the department store is banking on this

holiday season — such as collections from the Kardashian sisters and “Modern

Family” star Sofia Vergara – “may demonstrate success, but they don’t have

enough leverage [to boost] the whole enterprise,” Cohen said.

Sears’ stores “look terrible, their value-promise positioning is muddled, and

the organization is completely demoralized,” he said of the chain, which has

posted five consecutive years of sales declines.

The Questionables:

Retailers “in suspense,” as Cohen puts it, are companies “whose performance

may or may not be successful, based upon the inconsistencies and anomalies

that they currently exhibit, or the fact that their businesses have been so poor

that they reasonably should show improvement.”

Kohl’s: “Kohl’s should be a principal benefactor of J.C. Penney’s ongoing

collapse, but has inexplicably performed poorly this past year,” he said.

Toys “R” Us: The toy chain, “whose performance has been fair … but that’s

seemingly tied to the degree to which Wal-Mart and Target permit them to

succeed,” Cohen said. “The two big hitters have taken so much market share.”

He called the move to open Toys “R” Us Express shops in 24 Macy’s stores for

the holidays “a somewhat desperate attempt on the part of Toys “R” Us to

expand their marketplace exposure.”

Wal-Mart: And lastly, even the fortunes of the world’s biggest retailer are iffy

this holiday season, Cohen said.

The company’s performance “has recently resurged, but Wal-Mart has yet to

demonstrate consistent strategies for growth.”

95 | Page hoangnd@msn. com Mar 2013

http://www.forbes.com/sites/barbarathau/2012/10/26/former-retail-ceo-weighs-in-on-the-

winners-target-and-losers-best-buy-this-holiday-season/

96 | Page hoangnd@msn. com Mar 2013

Retailers Fight Back Against Amazon With Private Brands

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It’s no secret that the rise of

showrooming – when shoppers browse brick-and-mortar stores to check out

potential purchases, only to buy them later from online merchants like

Amazon at lower prices – has retailers shaking in their boots.

As a counterattack, chains ranging from Target and Macy’s to Family Dollar

are ratcheting up exclusive, private-label brands – which defy price

comparisons – and in the case of Lowe’s, are even reinventing themselves as

wholesale brands overseas.

The race for product differentiation and fatter profit margins has even birthed

some strange bedfellows this holiday season: Exclusive brands that are the

result of partnerships between two retailers.

Cheap chic discounter Target and upscale department store Neiman Marcus

are teaming up on a fashion, home and accessories collection that will be sold

at both chains.

Meanwhile, Macy’s is setting up Toys “R” Us pop-up shops in 24 of its most

highly trafficked stores this holiday season.

97 | Page hoangnd@msn. com Mar 2013

Indeed, there are a lot of “interesting frenemy relationships brewing,” Lisa

Bradner, chief strategy officer of Geomentum/Shopper Sciences, noted on

a RetailWire web forum.

It comes as little surprise.

“Retailers are increasingly threatened with pricing pressure as a result of

showrooming as consumers instantly check prices in real time either while

they are shopping online or in store,” said Deborah Weinswig, broadlines

retail analyst for Citi, in a research note. In turn,“Private label is gaining

traction, but in an entirely new way … The need to aggressively innovate and

develop recognizable brands has resulted in an increased focus on quickly,

efficiently and effectively creating products.”

As a result, beyond the rapid rollout of private brands and frenemy

partnerships, retailers are also building a new mousetrap for sourcing their

proprietary lines.

One way takes a cue from social inspiration board Pinterest and mobile

technology.

Retailers such as Family Dollar and Lowe’s have recently begun testing

Bamboo Rose, a global e-market community that enables retailers and

suppliers to exchange ideas and product information that is upending the way

merchants create their private-label brands, said Sue Welch, chief executive

officer of TradeStone Software, which created the app/virtual marketplace,

during a Citi presentation this week.

TradeStone Software works with national chains such as Macy’s, PacSun,

Kohl’s and The Gap to maximize their return on investment from exclusive

brands via technology solutions.

Its new digital marketplace Bamboo Rose aims to cut time — and cost — out of

the arduous process of creating private brands, which are incubated during

retail buyers’ treks to industry trade shows, visits overseas and by shopping

competitors’ stores, all while baking more creativity into the process.

Retailers are now asking themselves, “How do we change the process?” Welch

said. “They are petrified of showrooming.” That’s “driving the urgency” to

rethink private-brand development, as “everything is getting commoditized,”

she said.

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Typically, retail buyers take thousands of photos at industry trade shows, for

example, to use as reference points for design and color trends that inform

their private-label merchandise for everything from housewares to apparel.

It takes, on average, anywhere from 30 to 45 days for merchants to organize

that data into themes and merchandising concepts, and share it with their

designers and suppliers, Welch said.

Bamboo Rose claims to shorten that process to three days by building

intelligence into the data “in real time.”

Buyers in the field can snap pictures, organize them on the fly with an app that

sorts products and merchandising ideas that, a la Pinterest, communicate

“inspirations” and “themes,” such as ”a Mediterranean look,” or “a stonewash

feel,” she said.

At the same time, via Bamboo Rose’s global e-market, retailers can

publish wish lists of products they’re looking for, pass them on to vetted

suppliers, order samples and shop across their virtual showrooms.

Family Dollar, for one, has started using Bamboo Rose to capture images at

trade shows in Asia and transmit them to suppliers as wish lists of products

they are interested in, Welch told Forbes.com. “Suppliers then create online

showrooms for Family Dollar merchants to shop, sample and further develop.”

What’s game changing about Bamboo Rose, said Welch, is that retailers can

now “move seamlessly from the shopping experience to the buying process”

when creating private label brands.

That seamless transition means retailers spend “less time on the boring data

entry administrative aspects of their jobs while unleashing their creative

passions to develop unique and inspiring products and brands,” she said.

But although retailers are turning to private brands to fight showrooming, that

hasn’t stopped them from hitting the markdown panic button this holiday

season to minimize its damage to sales.

Last week, Best Buy said it would match the price of online competitors such

as Amazon during the make-or-break shopping season.

And for the first time ever, Target said this week it will match online retailers

prices between Nov. 1 and Dec. 16. Qualifying merchants

include Amazon.com, Walmart.com, BestBuy.com and Toysrus.com.

99 | Page hoangnd@msn. com Mar 2013

“Our guests will be able to shop with confidence this holiday season knowing

that we are intensely focused on providing them the right merchandise at the

right price,” Gregg Steinhafel, CEO of Target, said in a statement.

Let the games begin.

100 | Page hoangnd@msn. com Mar 2013

Wal-Mart Nimble? Pricing and Shipping Moves Suggest New Competitive Zeal; Stock Rising Drivers in California, still battling sky-high gasoline prices, may not feel much of the benefit from Wal-Mart’s (WMT) pledge to cut the price of a gallon by as much as 15 cents when drivers refill their tanks at one of the retailer’s pumps. (California doesn’t seem to be among the states where Wal-Mart is making this deal available.) But elsewhere analysts are optimistic that the strategy – combined with a return to the pledge of everyday low prices storewide – will enable its core customers to save dollars that can then be spent on higher-margin products in Wal-Mart stores and translate into greater foot traffic and a further uptick in same-store sales.

Wal-Mart is doing several things right at present. It’s testing the risky but necessary strategy of matching Amazon’s ability to deliver goods ordered online on the same day – necessary, if Wal-Mart hopes to continue competing with Amazon (AMZN). And, as well as cutting the cost of gasoline, Wal-Mart is lowering prices on grocery items even as food prices generally are trending higher.

Is the strategy paying off? Well, Wal-Mart’s profit margins, while still lower than those of archrival Target, appear to be edging higher at a better rate, while Amazon’s are falling off a cliff.

WMT Profit Margin Quarterly data by YCharts

101 | Page hoangnd@msn. com Mar 2013

WMT data by YCharts

Clearly, the market is betting that Wal-Mart will manage to fare better than Target (TGT) in the retailing battle that is taking shape, at least judging by the trailing 12-month PE ratio. (Amazon, meanwhile, commands an eye-popping 228 times earnings.) But while valuation metrics and data on yields appear to tilt the playing field in favor of Target, it is worth remembering that Target has publicly pledged to match sale prices its customers find online this holiday season, a move that might temporarily buoy same-store sales but isn’t likely to do much for profit margins over the longer haul. Wal-Mart and Target both beat the 10-year Treasury rate with their dividend yield.

102 | Page hoangnd@msn. com Mar 2013

WMT Dividend Yield data by YCharts

Wal-Mart will report its quarterly results on November 15, and analysts are betting that the stock will be able to hold on to its recent gains in the coming weeks. They are figuring that the company’s pledge to give customers lower gasoline prices will win not only loyalty but generate foot traffic and trigger a more significant gain in same-store sales (a figure Wal-Mart reports only quarterly). Certainly, this bricks and mortar retailer is a far more alluring investment than Amazon, with its sky-high valuations and slumping margins.

Suzanne McGee is a contributing editor at YCharts, which includes the just-released YCharts Pro Platinum for professional investors.

http://www.forbes.com/sites/ycharts/2012/10/24/wal-mart-nimble-pricing-and-shipping-moves-suggest-new-competitive-zeal-stock-rising/

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http://www.forbes.com/sites/oreillymedia/2012/03/29/how-to-design-great-data-products/

http://www.forbes.com/sites/jennagoudreau/2012/07/06/why-millennials-arent-as-useless-as-you-thought/

http://www.forbes.com/sites/zackomalleygreenburg/2011/11/16/how-millennials-can-survive-and-thrive-in-the-new-economy/

http://www.forbes.com/sites/emilylambert/2011/11/16/generation-x-time-to-reboot/

http://www.forbes.com/sites/morganbrennan/2011/11/16/the-benefits-of-buying-a-home-with-cash/

http://www.forbes.com/sites/deborahljacobs/2011/11/16/boomers-rewriting-the-next-chapter/

http://www.forbes.com/sites/maribellopez/2012/10/22/can-omni-channel-retail-combat-showrooming/

http://www.forbes.com/sites/bradthomas/2012/11/23/retail-reits-getting-into-the-black-friday-shuffle/

http://www.forbes.com/sites/bradthomas/2012/10/10/retail-survival-of-the-fittest-adapt-or-die-and-fight-for-tax-equality/

http://www.forbes.com/sites/carminegallo/2012/09/20/5-reasons-why-j-c-penneys-ron-johnson-will-reinvent-retail-again/