Retail Industry

The Antitrust Task Force of the House Judiciary Committee held hearings this week on legislation that sheds a little light on the interchange and transaction fees merchants pay to accept credit cards — and the underlying cost of our national obsession with plastic.

The Credit Card Fair Fee Act (H.R. 5546), introduced by Rep. Chris Cannon (R-Utah) and Rep. John Conyers (D-Mich.), would require Visa and Mastercard to negotiate fees with retailers and create a three-judge panel to resolve disputes.

Tom Robinson, a gas station operator who testified for the National Association of Convenience Stores, said 8 cents of every gasoline dollar goes to credit card fees that are set collectively by the credit card companies and large banks. Convenience stores paid $7.6 billion in card fees last year, Robinson said, up $1 billion from 2006, and had little or no negotiating power with their banks and the credit-card brands.

Joshua Floum, Visa’s general counsel, argued the bill would impose “price controls” on the credit card industry. Retailers “acknowledge the value that electronic payments bring to them, but they want it for less money,” Floum said.

The National Retail Federation is championing HR 5546 as a consumer-protection bill, saying that the average household paid $427 last year in interchange fees most shoppers don’t even know about. Evan Schuman, editor of StoreFrontBackTalk.com, points out on RetailWire that the $427 figure comes from very fuzzy math — the NRF divided the $48 billion retailers paid in 2007 interchange fees among 112 million U.S. households.

He adds:

There’s also an underlying assumption that if the fee were reduced, prices would be reduced by that much. What are the odds of that happening versus retailers adding those pennies to their razor-thin bottom line? Consumers are already paying the same price for cash or check or debit card versus payment card (and, for that matter, the same price for Visa versus Amex). So the logic that a rate reduction would somehow flow to consumers is flawed.

Retail lobbyists aren’t relying on that logic, instead pointing out that retailers — especially small retailers — have been caught between the rising cost of credit processing and shoppers’ eagerness to use credit cards for routine purchases like groceries and gas.

They also blame greed. Says the NRF: “A 2006 report by Chicago’s Diamond Management and Technology Consultants Inc. found that only 13 percent of the interchange fee is needed for actual transaction processing costs, with most of the rest going to the cost of card issuers’ rewards programs and profits.” In other words, merchants pick up (and pass along) the cost of  “free” airline miles, cash rebates and Bruce Springsteen tickets that card issuers have promoted endlessly to consumers.

Retailers have filed more than 60 suits against Visa and Mastercard, which handle more than 80 percent of plastic-card transactions. And the task force that heard testimony — Antitrust — tells you all you need to know about where the retail industry is headed with this.

Photo by Flickr user SqueakyMarmot, CC 2.0

Over at our BNET Energy blog, David Phillips takes a close look at Kohl’s Department Stores and its big plans to expand its solar-power program, which aims to cut its overall energy costs and carbon emissions, to locations in three East Coast states.

Kohl’s is one of the first major retailers to take its solar initiative outside the safe haven of California, which offers relatively generous rebates that, along with federal tax credits, can cover 50 percent to 60 percent of solar-installation costs. And its program stands in sharp contrast to the solar-based energy-efficiency plans of other retailers such as Wal-Mart, which is so far mostly stuck in pilot-project mode.

Curious how your brand comes across to the public? Check BrandTags, a new project from communications strategist Noah Brier, who avers, “The basic idea of this site is that a brand exists entirely in people’s heads. Therefore, whatever it is they say a brand is, is what it is.”

By that measure, American Apparel is “hipster clothes” with a side of porn, Wal-Mart is big, cheap, and evil, and Ikea is also cheap, as well as “design,” “furniture,” and “Swedish.”

It’s a fun way to waste an hour. For retail marketers, it’s the world’s cheapest research tool.

Here’s how BrandTags works. The home page offers a logo and invites you to enter the first word or phrase you think of. Click on a brand to see what the world thinks of it — or guess a brand by its tags. (What’s crunchy, cheesy, and Stephen Colbert? Doritos, of course.)

For example, Staples‘ ad agency will be pleased to hear that variations on “office supplies,” “we got that,” and “that was easy” scored big, but maybe less happy to read “boring” and “overpriced.”

And no doubt they’re angsty in Austin that “Whole Paycheck” overwhelms such positive attributes as green, organic, fresh, and healthy for Whole Foods.

Tags are rolling in as the site gets links from Seth Godin, Metafilter, Twitter and Consumerist.

Americans love their wireless gadgets but say the process of buying a phone and service plan is bad and getting worse, J.D. Power finds in its 2008 Wireless Retail Sales Satisfaction Study.

MediaPost’s Marketing Daily reports that wireless retail customer satisfaction at carrier-owned stores has dropped every year since 2005. In May 2008, the industry scored 699 on a 1,000-point scale, down 10 points since last October and 17 points in a year.

What’s happened since 2005? Phone store employees haven’t kept pace with the complexity of their products, which now double as PDAs, email devices, web browsers, cameras, music players, and personal style statements, says Kirk Parsons, senior director of wireless services at J.D. Power. Customers don’t like rebate gimmicks either.

Shoppers’ biggest complaint, Parsons told Marketing Daily, is that sales reps “did not have enough knowledge about the products being offered, and that they did not explain the service-plan differences in enough detail.” Mobile retailers should put more phones on display for customers to handle, shoppers said, and let them play before pushing them to sign a contract.

Who scores well? J.D. Power says T-Mobile’s retail stores topped the list, scoring 716, followed by Alltel (714), Verizon (706), AT&T (693), and Sprint Nextel (654). “Well” is a relative thing, of course, since the highest grade was a solid C minus. Looks like there’s a financial consequence to lousy customer service: Sprint, which just reported a $505 million loss and more than a million lost customers in the first quarter, avoided an F from J.D. Power by just 0.4 percent.

Women’s Wear Daily reports this morning that fashion brand Valentino — whose global sales rose nearly 10 percent last year — aims to double revenues to more than $381 million as it remakes the brand to appeal to younger, less affluent shoppers.

Building on its reputation as a house of glamour that dressed Jackie Kennedy, Liz Taylor, and Julia Roberts, Valentino plans to add 35 stores in the United States, Europe, and Asia in the next five years, said Stefano Sassi, CEO of Valentino Fashion Group, which also owns Hugo Boss, Marlboro Classics, and M Missoni.

“With respect to a clientele that is traditionally richer and not very price-sensitive … We want to open up to a more modern, also more international, more price-conscious consumer,” Sassi said, according to Reuters.

Founder Valentino Garavani retired in January after private equity firm Permira bought the company. Alessandra Facchinetti replaced Garavani as head of all women’s ready-to-wear and couture, showing her first designs in February. The line was “generally well-received by retailers and fashion critics,” WWD’s Alessandra Ilari reports. With new ownership and a stable of new designers, the company has licensed its brand into bridal, watches, perfumes, and eyewear.

But the push to attract younger, trendier shoppers doesn’t mean less attention for the luxury end of the brand. Accessories have been a huge growth market, especially in the United States, and Sassi says the plan is to triple sales from $73 million in 2007. At $895 for a clutch to $18,900 for a multicolored caiman-skin tote, Valentino handbags are “much more expensive than Gucci and Prada’s,” Sassi told WWD.

Garavani opened his atelier in 1959 in Rome. The business was sold in 1998 to HdP for $300 million, then in 2002 for $210 million to Marzotto Apparel of Milan. Permira paid more than $1 billion for a controlling interest in May 2007.

The news: Anemic retail sales in April shouldn’t surprise anybody. Any gain was attributed to Easter happening in March this year, creating one more weekend trading day in April 2008 than in 2007. If you combine March and April, the Wall Street Journal said, sales rose 1.1 percent, right in line with the year.

The big winners: Discounters and teen clothing stores, including Buckle (up 34 percent) and Aeropostale (up 25 percent). Analysts see higher-income shoppers “trading down” to T.J. Maxx and Marshalls (up 8 percent), Costco (up 5 percent, excluding fuel) and Wal-Mart (up 3.2 percent, ditto).

The big losers: Department stores catch the short end of this zero-sum game, with Nordstrom down 3.8 percent and Dillard’s down 4 percent.

The outlier: Saks‘ comps rose 23.9 percent, just a hair higher than the 1.1 percent forecast. Saks says strong promotions lifted sales in high-end women’s clothing, jewelry, shoes, and handbags, and men’s apparel and shoes. Wonder how much of that flew back to London, Moscow and Shanghai, where shoppers are positively gleeful about the weak dollar.

Last month, I said it was smart when Cincinnati-based Kroger placed broad terms on its bid to pick up some of the economic stimulus money that’s showing up in shoppers’ hands this week. While Sears/Kmart offered a 10 percent bonus only if you handed them your whole stimulus check, Kroger shoppers could turn state or federal tax refunds into Kroger gift cards, as well. And Sears wanted a live check, leaving many who use direct deposit out of luck.

Other companies thought Kroger was smart, too. Supervalu, Wal-Mart, Safeway, and many regional store chains have since offered cash bonuses, or at least free check cashing — a valuable thing in lower-income circles.

Now Kroger has upped the ante. Bring in $300, $600 or $1,200 — they don’t care how you get it — and the supermarket chain will add 10 percent on a gift card until July 31. And once again, other operators are following suit.

At MorningNewsBeat.com, Kevin Coupe passes along a comment from one of his readers, who adds a factor I hadn’t thought of: Those plastic gift cards are as convenient as credit cards but don’t cost the merchant 5 percent in transaction fees with every swipe:

I spoke with a client today and they are going to start selling $330 cards for $300 as an ongoing promotion and it will be mutually exclusive from the stimulus checks. Look to see other retailers do this as well.

My client stated that just from the reduced credit card transaction fees they will save a lot of money. Better to have one $300 transaction than ten $30 ones.

Credit card companies are going to hate this.

Coupe’s comment: “Gee, that’s a shame.”

Remember layaway? If your mom couldn’t afford something, she put 10 percent down and paid a few bucks a week through the layaway window until the item was paid off and she could bring it home.

Now it’s coming back as retailers and shoppers alike question the costs of instant gratification. Internet Retailer reports that a new company, eLayaway, appeals to shoppers who want to pay gradually without incurring debt. Merchants like it because they avoid the rising transaction fees normally charged for plastic card processing.

The eLayaway system charges customers a 1.9 percent fee — but no interest — and debits their checking accounts for three to 13 payments, delivering the goods when the last payment is received. About 700 participating merchants include boutiques, travel providers, and plastic surgeons.

Based in Tallahassee, Fla., eLayaway just launched a joint venture with Cardinal Commerce, an online payment provider with more than 33,000 merchant customers. Its payment platform also offers PayPal, Bill Me Later, and eBillMe as credit card alternatives.

Credit cards nearly killed layaway as shoppers opted for merchandise now, payments later. Wal-Mart phased out layaway departments in all its stores in 2006, citing high costs and declining customer interest. Kmart, T.J. Maxx, Fashion Bug, Big Lots, and some small retailers still offer the service.

We may see layaway rise from the ashes as a low-cost problem solver for retailers who want to close the sale. In the words of Flip Wilson’s character Geraldine, describing her boyfriend, Killer: “He gave me a ring. I just couldn’t keep up the payments.”

Linens N Things‘ Chapter 11 filing should serve as an object lesson for recession-wary chain retailers. Like many big-box operators, LNT has stuffed its shelves with Chinese products. At the same time that traffic drops and spending slows, putting pressure on the top line, the price of Chinese goods is increasing 10 to 15 percent a year, not counting the cost of fuel to float them across the Pacific and drive them to LNT’s 589 stores. That leaves a lot less cash to service the company’s $650 million in debt. One wonders how many execs are rethinking their race to the bottom these days.

Damage to the brand could be significant. As Mae Anderson of The Associated Press points out, LNT may have just created 400,000 peeved consumers:

Brian Riley, senior analyst at research firm The TowerGroup, estimates the filing will freeze about $42 million in consumer gift cards, affecting about 400,000 customers. While consumers may think of the gift cards as cash, the bankruptcy court considers gift cards as debt, and therefore holders are not necessarily going to get paid.

The lesson is clear. In a recession, retailers survive by selling the things that people have to have, either because they truly need them (consumables like bedsheets or drinking glasses) or they’re hooked by an irresistible selling proposition (like iPhones). Given that set of parameters, check the Mother’s Day specials currently in rotation on the LNT home page:

Digital photo frame, $69.99
KitchenAid stand mixer, $299.99
Keurig coffeemaker, $149.99
Margaritaville “frozen concoction maker,” $299.99

Anything there you can’t live without? Anything so fascinating and new you just gotta have it? Does your mom really want a $300 blender? Didn’t think so. There, my friends, is the problem: too many things and not enough linens.

There are women who buy shoes and then there are Women Who Buy Shoes. For the latter, the launch of DSW.com — DSW Shoe Warehouse’s online store — comes as super news. Is it too late to blunt the impact of online shoe pusher Zappos.com?

The bricks-and-mortar side of DSW operates 259 stores that its 10-k describes as “a sea of shoes” — 30,000 pairs in 2,000 styles under a typical roof, far more than the department stores DSW counts as its primary competitors. Its clearance racks are legendary (a $200 pair of Yves St. Laurent kitten heels for $18); President Peter Horvath describes its ideal employees as “fellow shoe lovers who are enablers.” But comps were flat last year on $1.41 billion in revenues and down 1.7 percent in the first quarter. DSW could improve its 2008 outlook if it can wring the e-commerce site’s projected $12 million first-year revenue out of new sales and not cannibalize store visits from loyal customers.

As one commenter on SeekingAlpha.com noted after DSW declined to forecast anything other than gloom for 2008, “If women are not buying shoes you know economic issues are serious.”

Analysts weren’t expecting DSW.com to open until the second half of 2008, but the $26.3 million project soft-launched April 23. DSW plans no marketing other than promotional flyers and e-mails to its 8.6 million loyalty card holders. That may be enough. Early users reported that the site was overwhelmed with traffic. At Papierdoll.net, Meghan Hart reports, “That cheering heard is the collective happiness of women everywhere.”

But Zappos.com has an eight-year head start, the Internet in its DNA (behold its employees’ Twitter log) and a fanatically loyal customer base that boosted sales from $1.6 million in 2001 to $800 million last year. CEO Tony Hsieh, speaking at the ANA convention this spring, described Zappos as “a service company that happens to sell shoes.” Along with shoes from 1,500 brands, it offers a 365-day return policy, free shipping for both sales and returns and phone reps who will search three other shoe sites if Zappos doesn’t have what you want in your size.

Zappos doesn’t do a lot of advertising, but what it does is brilliant. When you take off your shoes in the TSA line at 15 airports around the country, they go into bins with Zappos ads on the inside. Says Denver Post columnist Al Lewis, tipped off to the ads by his well-shod wife Susan, “Advertising does not get any more self-reinforcing than this.”