Retail Industry

Two must-reads for retailers in Advertising Age’s CMO Strategy section this week (August 25):

Get in the Game or Lose: Why retailers must track the entire customer sales pipeline

Why does a shopper put your store on the short list when considering a purchase? Apparel and footwear shoppers want the latest trends, while consumer technology purchasers seek brand names and home products buyers want a broad selection. NPD Group developed a fascinating stack of data about what drives consideration — what consumers look for in retailers.

Discounts, value, special deals and services don’t matter nearly as much — and despite what a million real estate developers might say, location, location, location placed near the bottom in three categories and dead last in apparel.

“It’s imperative that retailers track the entire customer-sales pipeline, with a special focus on consideration,” Dee Warmath, VP-retail insights, writes. “You need to understand the customers’ requirements, or what they are evaluating in the decision to consider a given retailer for a particular category. In most cases, what gets you into the game will be different from what matters in a purchase decision.”

The Newest Brands? Open for Business: Retailers have switched gears, marketing their stores and their own labels and strengthening bonds with shoppers

On the facing page, DraftFCB’s Jim Lucas argues that retailers have evolved beyond their historic role as a link in the distribution chain for national brands.

“Rather than just establishing loyalty to branded products, retailers want voices of their own,” writes Lucas, who is executive VP and director of the shopper marketing division of the Chicago ad agency. “They are seeking to establish their own brands, and they are doing so by tailoring their customer experiences, differentiating them from their competitors’ and creating better, ongoing relationships with shoppers.”

How? By strengthening customer bonds with well-crafted private label products such as Safeway and H&M, strategic loyalty programs such as Kroger’s and Tesco’s (both developed by Dunnhumby), and strong value propositions such as Aldi.

It’s a complicated task — much less straightforward than marketing a traditional CPG brand, Lucas notes — and manufacturers need to consider their retailer partners’ branding needs and figure out where they fit in the mix.

A Portland, Ore., man who says he was hired by Wild Oats Markets to develop a turnaround strategy has sued the company and its acquirer, Whole Foods Market, alleging that Wild Oats execs schemed to sell the company cheap to fatten their own wallets, and fired him before he could blow the whistle to the board.

Multnomah County Circuit Court will decide whether Gary De Bay’s claims have merit, but in the meantime, the suit could add fuel to the Federal Trade Commission’s contention, recently seconded by an appeals court, that Whole Foods should not have been allowed to acquire Oats a year ago.

According to Portland Tribune reporter Nick Budnick, De Bay directed “new ventures and strategic planning” at Boulder, Colo.-based Wild Oats. His turnaround plan to quadruple sales in five years was approved by the company’s board in March 2005 but never funded, De Bay claims.

He alleges that they instead sought to cut expenses to increase short-term profits “so they could reach their 100 percent individual cash bonuses.”

De Bay further alleges that those bonuses were particularly important to [former CEO Perry] Odak and his management team because it was the final year of their five-year contracts, and therefore the bonuses translated to a significantly larger severance payout or “golden parachute.”

De Bay alleges that in late 2006 he directly accused the management team of “artificially dressing the company for sale” and that he believed they were “intentionally driving down the value of Wild Oats Markets Inc. to position the corporation for sale for their personal gain, and were not acting in the best interests of the stockholders of Wild Oats Markets Inc.”

“If I were the lawyer for the FTC, interviewing (De Bay) as a potential witness would be high on my to-do list,” said Richard Pierce Jr., an antitrust professor at the George Washington Law School. “This lawsuit and whatever this guy might have to say in an FTC hearing could make the antitrust problems worse for Whole Foods and Wild Oats.”

Odak came in from Ben & Jerry’s as a turnaround specialist but his leadership team struggled to get the job done at Wild Oats. De Bay, who lists consulting clients and employers  Nike, Starbucks, Exclusive Resorts, Coca-Cola, and Apple, now serves as executive vice president of global strategy and marketing for another Boulder company, Spyder Active Sports.

Since closing the deal last August, Whole Foods has sold, closed, or rebranded a number of Wild Oats stores. Odak, who left Oats before the merger was announced, has stayed out of the press, except for the Denver society pages, which have chronicled Odak’s high-ticket adventures with his new wife Stephanie.

Image of Henderson, Nevada, Wild Oats store by Flickr user Miss Shari

Answer: All of the above.

Data security was a hot topic at the National Retail Federation’s recent NRFtech leadership gathering. With TJX disclosing, the morning the conference convened, that it has incurred more than $200 million in costs related to credit card theft, retail CIOs have every right to be nervous about transaction and customer data.

So it made sense that near field communications — wireless-enabled payment and marketing technology — looked like a two-edged sword to Scott Langdoc of IDC Global Retail Insights, who spoke about security issues. New payment technologies will both help and hurt retailers’ efforts to keep customer data secure, he said, adding, “Compliance does not insure security.”

The complicated dance between card issuers, processors, and retailers is already acrimonious, Langdoc said. What might happen when you throw two more constituencies — mobile device vendors and wireless service providers — into the mix? Oh yeah, and customers.

These caveats didn’t hamper a later discussion about the future of NFC. Cash is the most expensive payment method, NRF blogger Eric Olson points out. Panelist Tom Parker of Bay Area Rapid Transit noted that it costs BART 6 cents to move every dollar in fare, not counting 3 cents for the paper ticket. BART is piloting a test of mobile payment systems to cut transaction costs while speeding commuters on their way.

But BART’s daily transaction environment is much less complex than a retail store, with limited choices in products and marketing needs. You’re not likely to stock up on ride tickets if you see a good deal — or buy one in a new color because it looked fun on a display.

Jim Scott, CTO of grocery giant Kroger, mentioned several large caveats — the biggest being the cost to add 15 to 20 wireless devices to each of Kroger’s 2,474 locations, which is a hard sell during a time of expense constraints. But as store systems get replaced, he predicts near-field communications will be a game-changing technology, especially in loyalty and in-store direct marketing applications.

Research shows that 50 to 60 percent more consumers will use a promo they receive in-store as opposed to one delivered at home or elsewhere. The data collected helps marketers quantify conversion rates to an unprecedented degree, and the idea of instantaneous feedback to a new planogram — or wireless tracking of customers around the store, delivering the right offer as they wheel the cart past pharmacy or produce — must seem pretty sweet to a brand manager.

Earlier today I came upon a story that New York Times reporter John Schwartz (then at the Washington Post) wrote back in 1993 about that strange new place, cyberspace. As many as 15 million people gathered on Prodigy, AOL, CompuServe and GEnie to, as Schwartz wrote, “get news and information, to trade stocks and even shop.”

Golly, shopping online. Imagine that.

Fifteen years later, with Amazon as much a code name for “shopping” as Wal-Mart or Safeway, marketers are still wrestling with a basic conundrum: online shoppers do things they’d never do in brick-and-mortar stores. Sixty percent of online customers abandon shopping carts, according to Stores magazine. Imagine that happening in Kroger or the Gap.

According to Nielsen research reported on GrokDotCom, June’s highest conversion rates (percentage of visitors who buy) were found at ProFlowers.com (28.4 percent), Office Depot (25.6 percent), and FTD (24.3 percent). Most of the top 10 (including Eddie Bauer and VistaPrint) were companies known for relentless e-mail marketing. Coremetrics says the new visitor conversion rate in June was 2.02 percent — 6.64 percent for visitors who do an on-site search — and more than 68 percent of shopping carts got left in the virtual aisles. That’s pretty pathetic.

“We knew customers were doing weird things on websites,” said Mark Nagaitis, CEO of  Austin-based consultancy 7 Billion People. The company’s team of behaviorists, information technologists, psychologists, and software engineers developed an application called Market Maestro that tracks 15 attributes, from customer motivation to site presentation preferences, and correlates them to behaviors: visits, returns, abandons, and conversions.

“We saw that something was still missing, the emotional factor, and the psychology of buying,” Nagaitis said. By constructing a neural network, the company hopes to gain some of the insights that online retailers can’t get through body language or facial expressions.

In yet another sign that Mark Wattles is exercising increasing control of Circuit City, the electronics retailer on Tuesday named James Marcum vice chairman. Marcum, one of three directors named to the Circuit City board at the behest of dissident shareholder Wattles, is also on its executive committee.

The goal, the company said in a statement, is to “accelerate its turnaround,” although it acknowledges that strategic alternatives are still being pursued and Goldman Sachs is still on board if a prospective buyer surfaces. Since Blockbuster abandoned its abortive effort to buy Circuit City in June, the consumer electronics chain has continued to falter.

I still think Mark Wattles will buy Circuit City for pennies on the dollar (it’s $1.74 a share as I write this) and will put the same strategy in place that turned Ultimate Electronics from a loose group of regional electronics stores held together with spit and baling wire into a lean, well-managed operation focused on TVs.

According to This Week in Consumer Electronics, Marcum was chief financial officer at Hollywood Video, which Wattles founded, and later assisted him in the turnaround of Ultimate Electronics, which Wattles acquired in 2005.

Circuit City Chairman, President, and CEO Phil Schoonover was quoted thusly: “The board and I selected Jim for this role because he is a highly experienced retail turnaround executive. I believe he will be a great partner to me and the rest of the management team as we focus on ways to improve our business.”

Will Wattles finally make a bid or will we see a Chapter 11 filing before the holiday shopping season?

“Limited to Justice” sounds like a TV cop show, but it describes a big play in the competitive tween apparel market — clothes for elementary and middle-school girls sizes 7-14.

Tween Brands said last week it will convert all of its 560 Limited Too mall stores into Justice stores. Justice — which focuses more on “value-oriented” basics priced about 25 percent less than Limited Too — will operate more than 900 stores nationwide.

While Limited Too’s numbers have fallen recently, Justice has comped higher in the last 14 quarters, according to Media Post. While the merchandise is similar, a pair of jeans at Justice costs $19.90 on back-to-school, while the special price at Limited Too is $29.90.

Girls’ Circo jeans at Target cost $9.99.

On Tween’s May earnings call, CEO Mike Rayden argued with Citigroup retail analyst Kimberly Greenberger’s assertion that Limited Too’s flat sales revenues were being spread over too many stores.

“I don’t just cannibalize and compete against myself. I compete against Old Navy, Kohl’s, Penney’s, Target, and Wal-Mart. That’s where the share of market is, but I think right now the name of this game is growing my top line and my share of market,” Rayden said. “The stores are profitable and I like having a 13 percent sales increase when the tween apparel market in the first quarter is down 10 percent. Those competitors are not winning in this space.”

Instead, a quarter later, Limited Too will disappear almost completely, although the brand will appear in Justice stores. “Our customers are looking for the next great thing and their parents want more value for their dollar,” Rayden said in an earnings press release. Tween Brands –which spun off from Limited Brands in 1999 — swung to a $6.7 million loss in the second quarter ended August 2.

With a 13-year-old girl in the house, this is a category I know all too well. It’s interesting to compare Tween Brands’ earnings call-speak (from the May call) with my field observations. Limited Too’s merchandise was overpriced, it relied too much on “save $25 on $50″ discount coupons from its “catazine,” and its sales strategies failed to map the reality of overstretched parents who already have to say “no” to their kids more than they would like. It’s easier to avoid stores that practice obnoxious overselling, and that’s just what happened to Limited Too.

Earnings call-speak: “We failed to deliver the right colors within Limited Too’s sportswear assortment. That failure was exacerbated by the fact that we missed on color. It goes across multiple categories within our casual as well as active assortments.”

Field report: Too much pink and blue and cutesy pastel plaid, too many items that don’t survive the wash.

Earnings call-speak: “Lifestyles and licensed accessories and apparel had increases. … Lifestyles is the biggest it’s ever been. We did almost 15 percent of our business in that category, it’s not purely Webkinz but we’ve never done anywhere near that kind of percentage in a first quarter versus about 5 or 6 percent last year. The margin on that is outstanding.”

Field report: The rear third of Limited Too, near the cash wrap, is devoted to “lifestyles and licensed accessories” — candy, cosmetics, accessories, toys, and media, featuring Hannah Montana, High School Musical, Neopets, and Webkins, among others. Salespeople push this stuff hard, and while girls love it, the upselling and cheesiness are major Mom turnoffs.

Earnings call-speak: “It impairs our outfitting strategy whereby we guide tweens and their Moms in putting color coordinated tops and bottoms together.”

Field report: The two clearance-rack tops selected by your child appear in the dressing room matched with full-price jeans ($39.50), hoodies ($29.50), shoes ($44.50), and a necklace, all of which she wants. This ticks Mom right off.

Earnings call-speak: On Webkins: “It is really a very reasonable way financially for Mom to satisfy the Mom’s greatest need which is the happiness of her daughter.”

Field report: $16.50 for a Beanie Baby with a web code? Maybe once.

The takeaway: Mom has the credit card. Mom has the car keys. Cater to the pre-teen and ignore the mother at your peril.

This is a guest post submitted by BNET member Jason Breslow. To submit your own post, go to submit.bnet.com.

Retail sales may be down out on the streets, but in airport terminals times couldn’t be be more promising, says a new report from the British firm Verdict Research. According to the study, global airport retail sales are set to rise 11 percent in 2008 to $30 billion, making the airport terminal the fastest growing channel for retail sales after the Internet.

Worldwide retail sales have been rising steadily over the past several years, from $14.3 billion in 2002 to $27.1 billion in 2007. The Verdict report not only sees this growth expanding in 2008, but through 2012 as well, driven largely by growth in emerging markets.

“The key factors stimulating this growth are increased affluence, growing tourism, rapidly expanding airline networks and new routes (especially those of low cost carriers,” said Nick Gladding, author of the report, in a written statement.

The Middle East has seen the fastest growth in airport retail sales, to $1.2 billion in 2007 from $461 million in 2002. By 2012, the report forecasts, sales in the Middle East will more than double, to $2.5 billion.

Photo courtesy Daquella manera, Creative Commons.

–

Jason Breslow is a graduate journalism student at Northwestern University, where he covers the transportation industry for the business section of the Medill News Service. Jason’s work can also be found on the student-run business blog MedillMoneyMavens.

When Frito-Lay wants to see the impact of a packaging change or end-cap display, the Dallas salty snack purveyor no longer has to wait for sales reports. Frito-Lay built a 15,000-square-foot “simulated supermarket” and enlists real people to shop it — and the lab is available for noncompetitive CPG companies to use.

The prey stalked by Frito-Lay and its parent company, Pepsico, is the elusive impulse purchaser, John Karolefski writes in CPGmatters.com. Using “automated observation” from a company called VideoMining enabled Frito-Lay marketers to change merchandising, packaging, graphics, and even products and test them in a controlled, yet realistic environment.

“All of this learning changed what we were doing. We were going down one path for merchandising for 2008, and took a big turn based on what we learned. We really understood why we had to change direction for our overall aisle merchandising,” said Rob Clancy, insights manager for multi-cultural sales at Pepsico. Clancy spoke at the Shopper Insights conference in Chicago.

“The way we merchandised the aisle made shoppers look for new things and spend some time in different sections – really browse as opposed to search,” Clancy said. “Browse is a good thing, and search is not a good thing. That was a key learning for us. Knowing where shoppers were going in the aisle helped us optimize the product set and sometimes change the flow a little bit, too.”

Artful Doritos photo by Flickr contributor Melissa Doroquez

Channel integration — and some eye-catching partnerships — have helped JCPenney bounce back into retail relevance, CEO Mike Ullman told the National Retail Federation’s NRFtech IT Leadership Summit in Colorado Monday.

With its legacy of catalog sales, Penney’s did multichannel retailing long before anybody used that term. In the four years since Ullman took over as CEO, integration efforts have been extended deep into the planning, buying, merchandising, and marketing arenas. E-commerce is a $1.6 billion business for Penney’s.

In the process, Chief Information Officer Tom Nealon said, Penney’s has gone from a completely decentralized operation to one built on an Internet platform that allows better store visibility, nimbler pricing, and more effective coordination between planning, merchandise allocation, and messaging.

“Our executive board really gets it,” Nealon told the gathering in suburban Denver. Nealon came to Penney’s from Southwest Airlines two years ago. Ullman spent time at IBM earlier in his career and has a better understanding than many retail CEOs of how to “get our IT infrastructure aligned with the objectives of the company.” (Perhaps to underscore this point, Ullman tooled around the convention hotel on a Segway.)

When he was recruited to JCPenney, Ullman said, “I was very uninterested in running a department store. I told the board, if you want me, we’re going to have to start over.”

While on the Starbucks board, Ullman said, “I watched Starbucks enable people to make decisions at the point of sale. … Our engagement scores are higher than Starbucks today.” Some $250 million in dotcom-ready point-of-sale terminals have been installed at Penneys “from our smallest store in Cutbank, Montana, to our largest store in Queens” so that all merchandise on the Web is visible to store associates.

New brands like the Sephora store-in-store continue to attract younger shoppers who like to research and buy online as well as in-store. The European cosmetic brand launched at JCPenney in 2006 and attracts Penney’s youngest, most affluent, and most frequent shoppers, who spend an average of 45 minutes in the department. “The customer loves it,” Ullman said, and Sephora represents 70 percent of beauty sales in the 85 Penney’s locations where it operates a store-in-store.

As the former head of LVMH Moet Hennessy Louis Vuitton, which owns Sephora, Ullman connected the companies. Similarly, Ullman’s tenure on the Polo Ralph Lauren board helped Penney’s seal a deal to launch the RL American Living “lifestyle concept.” Forty categories of clothes, accessories, and home fashions hit stores last spring, some better-received (women’s and kids’ clothing, window coverings, handbags) than others (menswear).

“We still think it can be a billion-dollar brand,” Ullman said.

Image of J.C. Penney store in Astoria, Ore., by bellav via Flickr

Upgrades to J. Crew’s online store have gone seriously phlooey — bad enough that customers have gotten e-mails from CEO Mickey Drexler apologizing for poor implementation and promising to make the website and call center better soon.

Problems include prices that change between the display page and the shopping cart, UPS tracking numbers that don’t work, and paid orders shipped to secure undisclosed locations, never to be seen again. Store employees and phone reps have been soothing customers with prompt refunds, gift cards, and discounts on future purchases.

That offer’s a little late for the guy who was less upset that they sent him three kid-sized shirts, than that they charged him $9,208.50 shipping. And it’s causing a seriously black eye to J. Crew, a company inspires loyalty and raves for its clothes and in-store service — and that counts on direct sales for 30 percent of its business as same-store comps take a hit.

Credit Suisse retail analyst Paul Lejuez told The Wall Street Transcript that J. Crew is one of the bright lights he sees in retail (the other is lululemon):

I think they operate in an underserved market, or I should say it’s not served effectively, which is the young adults/adults market. They just seem to get the product right. They are run by CEO Mickey Drexler, and we’d say he is one of the few rock star merchants in specialty apparel. The way that they run their business is they’ve managed to put out some of the best fashion on the floor, season in and season out. They do a great job with colors. They do a great job with fit. They are always doing something new and interesting rather than just kind of sitting back and doing the same old thing. I think customers appreciate that, and they want to shop at their stores.

Commenters on The Consumerist were divided on whether the shopper ordered the wrong shirt, but agreed that the website is poorly implemented and that $9,208.50 for shipping is kinda steep.

    Here’s how shipping for 9k is supposed to go: A gold plated Hummer limo with Jacuzzi pulls up being driven by what looks like a chimp wearing limo driver garb. But he’s just for show, the real driver is in a hidden compartment like a parade float. … It runs on fossil fuels made from cloned dinosaurs and processed truffles. The doors open and a group of dwarf acrobats wearing Elvis costumes … give you a show and then do the robot while the shirts are handed over by the Swedish bikini team … Then they hand you 4k in a cash refund for overpayment. If it wasn’t like that, I would demand a refund.

Ellipses indicate omitted imaginary details I would get in trouble for repeating. This is a family blog.

Image: J. Crew store window in Los Angeles by _e.t., via Flickr, CC 2.0