Retail Industry

German discount grocer Aldi will open a distribution center and 13 Aldi stores in Florida and a warehouse and as many as 35 stores in Texas. Chowhounds in both states are rejoicing because where Aldi goes, Trader Joe’s follows.

Aldi and Trader Joe’s are owned by a trust controlled by German brothers Karl and Theo Albrecht. Worldwide, they operate more than 7,500 stores, mostly in the extreme value Aldi format where 1,300 SKUs of staple goods are displayed on pallets or cut cases. Where the 850-plus Aldi stores in the United States operate in lower-income neighborhoods, selling store-brand corn flakes and soda, the 310 Trader Joe’s focus on well-priced private-label gourmet groceries like frozen edamame and chocolate-covered popcorn.

But operationally, the stores are similar: limited selection, small-footprint outlets that specialize in opportunistic buys and private labels that keep costs as much as 50 percent lower than name-brand items. In 2007, Trader Joe’s sold an estimated $6.5 billion, while Aldi had revenues of $5.8 billion, according to Supermarket News. While Aldi is often dismissed as a niche player, SN’s David Orgel points out the chain is well-positioned to take share from Wal-Mart and Target as middle-class shoppers seek to lower their grocery costs.

After opening a distribution center in Salisbury, N.C., in the late 1990s, Aldi expanded into the South. Now, six Trader Joe’s stores in metro Atlanta and four in North Carolina will be joined by a rumored store in Greenville, S.C. The Haines City, Fla., warehouse and initial stores in Orlando and Florida’s east coast will open later this year. Aldi’s Denton, Texas, distribution center will open in 2009, followed by discount stores in greater Dallas — and, Texan foodies hope, access to frozen fish tacos and Two Buck Chuck.

Who are a mall’s real customers? A case study in The Hub magazine reports that developer Westfield USA found some surprising results when it sought to redefine its brand: Out of seven identified shopper types, just two were responsible for 52 percent of Westfield malls’ total buying power.

The authors of the case study, brand-management firm Landor & Associates, dove deep, starting with online questionnaires and moving on to three-hour interviews. Researchers hung out with shoppers at home, drove around their neighborhoods, and took them shopping at both competing centers and Westfield properties, which include Century City in Los Angeles, the San Francisco Centre, and Garden State Plaza in New Jersey.

What they learned was that more than half of buying power rests with two types of shoppers: “Navigators” — independent, creative types who shop for what they’re passionate about — and “Social Seekers” — who also love shopping but look to others for validation. Both types find shopping continually engaging, Landor’s Kendra Wehmeyer and Kara McCartney write. “They need an excuse to go to the mall — but once there they wander with a sense of purpose.”

Navigators quickly became the target for future branding. They make up only 8 percent of Westfield’s customer population but 20 percent of their buying power. And because confident Navigators feel superior to insecure Social Seekers, messages that appealed to Navigators also worked on Social Seekers, but not the other way around. “If we chose the Navigator as our core, our tone would be that of an ‘expert mall’ speaking to the ‘expert shopper.’ It would be about inspiring their journey, not directing it,” Wehmeyer and McCartney write. Messages with appeal for both shopper types include “a sense of security and consistency; respect for their shopping expertise; the feeling of being an insider (ahead of the curve); the presence of enabled discovery; reward for their Westfield loyalty; and the opportunity to shop alone or to feel unrestrained.”

Westfield now sends different loyalty program pitches to Navigators and Social Seekers and tailors presentations to current and prospective tenants around their new core customer.

More than a dozen prototype Blockbuster stores in Dallas-Fort Worth are testing ideas to turn Blockbuster locations into “entertainment destinations” instead of just places to pick up a DVD and a box of Milk Duds. According to the Dallas Morning News, the prototypes include:

• A hands-on gaming center with free wireless Internet
• A kid-friendly store with a play area and children’s merchandise
• Stores that open at 6 a.m. so customers can pick up movies on the way to work
• Self-service and full-service snack bars for coffee and fountain drinks
• Stores that sell video cameras and big-screen TVs (testing a concept that Blockbuster wants to realize by acquiring Circuit City)

All of the prototypes have updated signs and paint, plus lower shelves to make the space feel more open. Some combine two or three features, and each was chosen with its neighborhood in mind: the Coca-Cola Cafe is near Southern Methodist University, while the Blockbuster with electronics is in the new-urbanist Uptown Dallas neighborhood. Blockbuster CEO Jim Keyes told the News’ Maria Halkias that despite the trend toward downloadable movies and games, brick-and-mortar stores will continue to have a place in entertainment distribution:

“Think of all the investment that Sony’s put into a Blu-ray product line,” he said. “It’s based on an assumption that discs will be around for a while. That’s not just us thinking this; it’s the industry that believes consumers will still prefer all forms of access.” Stores are just one piece, but they’re worth the attention, Mr. Keyes said.

Analyst Arvind Bhatia of Sterne Agee & Leach in Dallas likes the full-service beverage counter, which could generate an impulse purchase on top of a rental, and the gaming store but not the technology store. “I’m not sure someone will buy a $2,000 TV at Blockbuster,” he told the News.

Though the United States seems headed toward a cashless society, in the United Kingdom more people use cash at retail than they did six months ago, a survey finds.

Surveying 17,000 retailers, the British Retail Consortium found 60 percent of transactions were completed in cash, up from 54 percent in November. By dollar volume, debit cards lead cash in both the United States and Britain.

The BRC, which represents shop owners, has objected to card companies’ campaigns to promote the use of plastic cards, which increase merchants’ transaction costs. Currently, U.K. retailers pay 4 cents on average to process a $40 cash transaction compared to 16 cents for a debit card and 68 cents for a credit card.

BRC director general Stephen Robertson says the increase in cash spending showed that people are “trying to control their finances and (not) spend money they did not have.”

Well-publicized fraud cases have also made consumers skittish, Emily Starbuck Gerson says in the Taking Charge blog at CreditCards.com. After thieves installed skimming devices on card readers at gas stations and ATMs in the village of Letchworth, west of Cambridge, many residents returned to paying cash — obtained from flesh-and-blood bank tellers, not machines.

When the first two Apple Stores launched in 2001, Apple’s ads said, “5 Down, 95 To Go.” Apple proposed to double its 5 percent market share to 10 percent by showing people how to use its products to do insanely great things like posting photos to the Web.

At the time, skeptics like analyst David Goldstein told Business Week there was no way Apple could compete with Gateway’s Country Stores. “I give them two years before they’re turning out the lights on a very painful and expensive mistake.”

Fast forward seven years. Apple’s 208 stores sold $1.45 billion in the most recent quarter, according to the company’s April 23 earnings call, and 53 percent of the 458,000 CPUs sold there went to new Mac customers. Not iPods, not iPhones. CPUs.

Store revenue grew 74 percent year-over-year. Traffic was up 57 percent to 33.7 million visitors. Sanford C. Bernstein says that sales per square foot at Apple stores average $4,032, four times the take of Best Buy, the highest-performing electronics chain. As for share, Macs now hold 21 percent of the U.S. consumer market, IDC recently estimated.

Why did the retail gambit work? Because from the outset, Apple stores were designed to convert Windows users. “They don’t think they want a Mac. They will not take the risk of a 20-minute drive in case they don’t like it,” CEO Steve Jobs told Fortune last year. “But if we put our store in a mall or on a street that they’re walking by, and we reduce that risk from a 20-minute drive to 20 footsteps, then they’re more likely to go in because there’s really no risk.”

Lehman Bros. analyst Ben Reitzes says the retail chain allows Apple to beat competitors to market with its highest-growth products. “Apple’s vertically integrated model has ‘trapped’ in the wallets of consumers better than any business model we have seen in years,” Reitzes wrote. “For example, we estimate that Apple’s Mac units will grow about 33 percent this year and about 20 percent next vs. only about 10-12 percent growth for the global PC market.”

Now we’re hearing rumors of Microsoft stores. Tipsters told Fudzilla.com’s Fuad Abazovic that Microsoft wants to open storefronts staffed with “skilled people [who] will be able to show the true Microsoft experience.” One can only imagine.

Looking for ways to make lemonade from this lemon of an economy? Stuck with high rent or a second-rate space you leased when the market was booming? Try renegotiating your lease — with chains closing stores and reducing planned expansions, and new construction overhanging the market, shopping center landlords show increased willingness to deal.

CoStar’s Retail News Roundup reports that retail construction starts in the first quarter were 6 million square feet, a five-year low. Vacancy rates on new retail construction started to rise in 2005; 13 percent of the 90 million square feet brought online in 2006 is still vacant, and 22 percent of the 89 million square feet completed in 2007. That’s a substantial overhang that causes CoStar, a real estate information firm, to predict a 28 percent vacancy rate for shopping centers completed this year.

On top of that, the International Council of Shopping Centers predicts 5,770 closings in 2008, up 25 percent from a year ago and including big names like Foot Locker, Ann Taylor, and Zales Jewelers.

Those chains’ misfortune could be your opportunity to trade up to a better location or reduce occupancy costs. “Take Sharper Image for example, as they’re closing 90 stores,” Ivan Friedman, President and CEO of RCS Real Estate Advisors, told CoStar’s Sasha Pardy. “Their locations are pretty much 50-yard line, 4,000 square feet, very wanted mall locations and a very wanted size. While landlords would normally have someone for that immediately, now they’re saying ‘It’s great I get this back, but who do I have to rent it to?’” Is there a troubled chain in your center whose space you’ve been secretly coveting? Speak now.

Pier 1 Imports used the slowing market to its advantage in lease negotiations, and wound up closing fewer stores than it planned, 79 instead of 100, CFO Cary Turner said on an April 10 conference call. “We are looking at every single store, at every single deal that the landlord presented to us,” Turner said. “In some cases we wanted to give some stores an extra year, which the landlord gave us. … Other stores came back very strongly and we’ve just taken them off the list.” Center owners would rather take a hit and keep space occupied than face the bigger headache and unknown long-term cost of a vacancy.

Elsewhere on BNET, I found a checklist of real estate lease terms. Another helpful piece from Inc. tells how to renegotiate your lease. Bottom line: Treat your landlord as an ally to keep both of you in business.

(Abandoned Mall image courtesy of hive, CC 2.0) 

According to a report in Marketing Daily, consumers want to “buy green” but often don’t really know what that means. The article refers to a new study on green marketing from the Boston College Center for Corporate Citizenship and Cone LLC, a marketing firm.

About one in four people say they consistently buy earth-friendly products. But the study found that 48 percent of “green” consumers believe the products benefit the earth, while just 22 percent understand that they do less harm than conventional products.

And 47 percent trust companies to tell the truth in environmental messages. “The public has more confidence in their ability to understand the meaning of environmental advertising than they should have,” Mike Lawrence, EVP/corporate responsibility at Cone, told Marketing Daily. “And sooner or later, they’ll find that out, and be really unhappy.”

Here are some things that marketers can do to improve their green cred:

• Use third-party certification such as EnergyStar or Certified Organic. Eighty percent of green shoppers say that’s important and 63 percent say it influences their purchases.
• The more specific, the better in green product claims. While 36 percent say they would believe a paper product’s claim to being “environmentally friendly,” the number rises to 60 percent if the product is marked “made with 80 percent post-consumer recycled paper.”
• Take advantage of endorsements from government agencies or watchdog groups. More than three-quarters of respondents say advocates, the media, and regulators help keep companies honest about their environmental impact.

Only 14 percent of consumers say they’re “overwhelmed” or “cynical” about the avalanche of green marketing claims, while 11 percent feel “empowered,” and 38 percent say they appreciate the information.

Industry insiders are voicing surprise that Lord & Taylor, the nation’s oldest department store, would turn to Roger Adams, ex-Chief Marketing Officer of The Home Depot, as its first CMO. Adams joined Home Depot in 2005 as VP of marketing, and became CMO a year later. He has also worked at Pepsi-Cola, Nabisco, Keebler, and General Motors — not exactly Lord & Taylor’s demographic. But it comes down to this: Adams knows more about the female shopper than you’d think.

Back in October (before Adams left Home Depot), retail-experience blogger C.B. Whittemore caught Adams’ presentation at the Association of National Advertisers’ annual meeting. As one of ANA’s “Marketing Maestros,” she reported, Adams preached engagement and emotional connection to the brand. Home Depot had lost its way, he said, by squandering the trust shoppers once had in the friendly orange-aproned employees. During Adams’ tenure, he sought to rebuild that connection by appealing to women, who are the decision-makers in two-thirds of Home Depot transactions.

Whittemore wrote:

Home Depot creates an emotional connection to its brand through the notion of “I did it.” It’s about giving consumers the confidence to try a project; helping them develop a sense of personal ownership and empowerment because they actually did the project themselves. Experienced associates represent a teaching base to communicate and engage consumers across a rational/emotional continuum that recognizes that the home represents an individual’s identity, and the most expensive and expressive badge of color, individual style and personality.

Adams says that price is not a key driver for consumers. Rather, it is a matter of how satisfied they are with the fun factor of the store, whether the store is friendly, how knowledgeable associates are and how well organized the store is.

Recognizing that purchases represent personal identity and style? Emphasizing customer experience over price? Sounds like a good blueprint for the new Lord & Taylor. Many retail-watchers expected the company to be dismantled for its real estate value after NRDC Equity Partners bought it in 2006. But pared down to 47 stores in upscale locations, and headed by CEO Jane Elfers, Lord & Taylor has spent $10 million to rebrand itself as a high-end apparel retailer, with more exclusive merchandise, amenities, and service.

This week, heads were scratched at the proposed tie-up between Circuit City and Blockbuster. “The world is littered with remnants of bankrupt retailers,” Michael Pachter, an analyst with Wedbush Morgan, told Reuters. Others looking for a metaphor have mentioned Sears-Kmart. Uh-oh.

Al Lewis of The Denver Post cast a jaundiced eye on Circuit City management:

Last April [CEO] Philip Schoonover … announced “a wage-management initiative.” Schoonover — who bagged nearly $7 million in compensation last year — decided that $12 an hour was too much for his salespeople. So he fired 3,400 employees and replaced them with people willing to work for $8. Circuit City’s stock then lost 75 percent of its value. All those big-screen TVs, but few employees left who knew how to sell them.

It could be a Harvard Business School case study on how being a ruthless idiot doesn’t always work.

On RetailWire.com, industry expert George Whalin, author of “Retail Success,” agreed that management is the issue:

There could be some real synergy between these two companies since they serve the same consumer. The problem here is neither company is very well managed. Management at Circuit City has made far too many mistakes in trying to rebuild this once successful company. And they continue to operate the business at a loss. The same is true at Blockbuster.

I believe there is a place in the market for a strong number two consumer electronics chain behind Best Buy, but this deal won’t help make that happen.

But Dan Gilmore, editor of Supply Chain Digest, makes a good point on the RetailWire dicussion: Blockbuster is running out of options:

I think most commentators are missing a key point — the Blockbuster current model is clearly dying. Circuit City is horribly managed, but the model itself is not anywhere near as clearly dead. So, if you are Blockbuster management, you can either just prepare for the end and just wind down the business over a few years, or try something to keep [yourself] alive. … Will it work? Probably not. … But if you are Blockbuster, it is better than certain death.

We agree with RetailWire poster Burt Steinberg, who sums up: “This is like the Andrea Doria and the Lusitania going out to sea together.”

Plenty of retailers have focused their ads on the expected wave of economic stimulus checks. Sears and Kroger have taken things a step further, giving shoppers an extra 10 percent cash if they trade their whole check for a Kroger, Sears, or Kmart gift card. Now Kroger, the biggest supermarketer in America, has sweetened the deal — they’ll trade IRS or state tax refunds for cash plus 10 percent, as well.

While both companies clearly hope to lure new customers for the long term, Kroger has a much better chance for three reasons:

More flexible. Not only does Kroger accept state and federal tax refund checks for the bonus program, it will accept printed proof of direct deposit, according to spokeswoman Meghan Glynn. This gives Kroger consumers in most states three dollar amounts from which to choose (federal refund, state refund, and stimulus check), if they’re not ready to go steady with one store for their whole $1,500 rebate. Sears requires a live stimulus check, although they’re trying to figure out how to handle direct deposited amounts, spokeswoman Kirsten Whipple says.

More reliable. Kroger, which sold $70.2 billion last year, benefits from strong financial performance, straightforward supermarket brand identification (Ralph’s, Fred Meyer, Fry’s, King Soopers), and established shopper habits in 44 major markets. There’s no risk in paying $1,200 for $1,320 in future groceries, but nobody really knows what might happen to shaky Sears.

Hits consumers where they live. People are sweating the increasing cost of food, health care, and gasoline. Along with pharmacies in nearly every store, Kroger sells fuel at almost 1,500 locations. Sears and Kmart, meanwhile, are places you go for discretionary spending, which the skittish 2008 consumer is just not doing, Future Merchants’ Don Delzell comments on RetailWire. “Much deeper promotional activity happens every day and hasn’t had much impact on destination retail choice,” he notes, while a 10 percent discount at the supermarket, gas pump or pharmacy is a pretty good motivator to change your habits.