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Retail (Bán lẻ) 2013


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Tổng hợp các bài báo về kinh doanh bán lẻ trên thế giới

Tổng hợp các bài báo về kinh doanh bán lẻ trên thế giới

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  • 1. RETAIL – BÁN LẺ hoangnd@msn. com duchoang@cmc. com. vn +849-0484-5459 Mar 2013 – V1. 0 Updated: 30/03/2013Table of ContentsWhats In Store: Retails Stealth Trend ....................................................................................... 4Three Important Retail Trends for 2013 ..................................................................................... 6 Mobile..................................................................................................................................... 6 Integration .............................................................................................................................. 6 More and More Social ............................................................................................................ 7Whats In Store: How Polyvores Stylish Social Commerce Is Cracking Retail 3. 0 ..................... 8Walmart Vs. Amazon: Its About To Get Interesting...................................................................10Retail 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 ....................................................................................11Holiday Shopping: The Retail Race Is On .................................................................................13New "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 ....................................................................................15Channel Blurring On Steroids....................................................................................................16London Retail Dazzles: Between the Jubilee & Olympics ..........................................................172012: The Year of "Moving On" .................................................................................................18 BIG, BOLD, AUDACIOUS SPACES ......................................................................................18 VIRTUAL STORES POPPING UP.........................................................................................18 EXTREME COUPONING ......................................................................................................18 DEPARTMENT STORES TANTALIZE AFFLUENT SHOPPERS ..........................................18Nordstrom Moves To The Land of Retail Opportunity................................................................20Power Couple: Walgreens & Alliance Boots Build Cross-Pond Empire .....................................21Will JC Penney Shoppers Accompany The Retailer To The Finish Line? ..................................23Are Retailers Cannibalizing Black Friday?.................................................................................251 | Page hoangnd@msn. com Mar 2013
  • 2. Are You Really Getting A Bargain Black Friday Deal?...............................................................27Why Retailers Have to Open on Thanksgiving This Year ..........................................................29With Thanks giving - Night Openings, Do Retailers Risk Busting More Than Doors? ................31Retailers, Can You Hear Us Now? ............................................................................................33Retailers: Who Do You Trust?...................................................................................................34Retails Big Question: Is The Price Right? .................................................................................36Pricing Part 2 -- Focus On Specialty & Vertically Integrated Retailers .......................................38 Getting the Price Right from the Start ....................................................................................39Pricing 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? .................................................40Department 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 ............................................................................................................................46How Fashion Brands Set Prices ................................................................................................47 1. Market Product Opportunity Analysis: ................................................................................48 2. Define Strategic Brand Position: ........................................................................................49 3. Wholesale Price:................................................................................................................51 4. Product Development: .......................................................................................................52Why do dresses cost more on a designers 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: ...............................................................60The Future Of Fashion Retailing: Part 1 - Uniqlo .......................................................................62 Uniqlo: Choosing Long-Term Appeal over Trends .................................................................62The 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. .........................................................64The 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 ......................................................67Uniqlo: How Japanese Billionaire Tadashi Yanai Plans To Clothe America ..............................68Are Retailers Reaching Consumers Of The New Millennium? ...................................................70What Is The Kryptonite Of The Millennial Generation? ..............................................................72 History Repeats .....................................................................................................................72 History vs. Trivia ....................................................................................................................73 A Well-Read Mind .................................................................................................................732 | Page hoangnd@msn. com Mar 2013
  • 3. Why You Should Be Hiring Millennials [Infographic] ..................................................................74What Millennials Want Most: A Career That Actually Matters ....................................................78Postscript 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. ...............................................................................82Pricing 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?..............................................................................................................84JCPenney Returns To High-Low Pricing, Cue The Critics .........................................................86J.C. Penney Tweaks (Again) Its Radical Pricing Strategy, Which Continues to Sink Sales..........87The Winners (Target) And Losers (Best Buy) This Holiday Season............................................91Retailers Fight Back Against Amazon With Private Brands .......................................................96Wal-Mart Nimble? Pricing and Shipping Moves Suggest New Competitive Zeal; Stock Rising 1003 | Page hoangnd@msn. com Mar 2013
  • 4. Whats In Store: Retails StealthTrend“Few purchases are made – either online or offline– without some type of digital research. Retailersare telling us that over 90% of their purchases arenow digitally assisted. ” That’s the observation ofLelah Manz, chief e-commerce strategist atAkamai. You may not have heard of the cloudplatform but you definitely know its customers.Akamai works with the likes of global retailersincluding Dolce & Gabbana, Best Buy, VictoriaSecret and leading flash sale site Hautelook andtracking retail traffic based on its Retail Net UsageIndex.As analysts, brand managers and store owners (not to mention yours truly) try to tease out thetrends that will convert browsers to buyers in 2013, Manz took a moment to talk to FORBESabout 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 yourcar and drive to the nearest strip mall? Chances are you’re sitting at your computer, or on yoursmartphone, and you just type in the name of the product and let the research and reviews pourin. Or you’re actually in a store, staring at an array of similar products and whip out yoursmartphone 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 foraccessing product information. “One study suggests that as much as 80% of referrals – areferral is a site that shoppers link off of to get to an e-commerce site – is coming from Googlesearch, ” 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 pricecomparison scanning tools that allow shoppers to scan a UPC label, or a QR code, with theirsmartphone’s camera, returning a list of different online price points for that product. The searchengine Milo offers price comparisons and inventory information for products to be found locallyin stores, ” she adds.Don’t forget Amazon. The online merchant’s massive database of product information andconsumer reviews provides a natural starting point for many a search, says Manz, noting that arecent Forrester survey suggested Amazon may be taking traffic away from search engineswhen it comes to starting the purchasing process. The findings indicate that 30% of U. S. adultsnow start their purchasing journey on Amazon, while those starting on a search engine likeGoogle 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 ofyour browser “Macys” instead of www. macys. com, behind the scenes that browser is using asearch engine – most often Google as the default – to take you to a set of search results thatincludes as the top listing www. macys. com, ” she explains. “As a shopper you are likely notreally thinking about that activity as a Google search, and arguably there was very littleinfluence that Google search had in influencing your purchasing decisions in that case. Butretailers do see and count this as a Google referral. ”Manz believes the influence of Google-as-a-Navigation-Tool has on referral statistics isdebatable, but it’s clear that this type of activity has a very different level of influence on theconsumer’s decision. “The power of influence in Amazon’s reviews and pricing information,however, is indisputable, ” she asserts.4 | Page hoangnd@msn. com Mar 2013
  • 5. http: //www. forbes. com/sites/lydiadishman/2012/12/21/whats-in-store-retails-stealth-trend/5 | Page hoangnd@msn. com Mar 2013
  • 6. Three Important Retail Trends for2013Even as the cash registers and virtual shopping carts continue to rack up holiday sales forretailers, savvy merchants are casting a critical eye into their crystal balls to determine how theircustomers will shop in 2013. This is important, as theNational Retail Federation (NRF) pointsout that with retailers operating more than 3. 6 million U. S. establishments that contribute $2. 5trillion to the annual GDP, what happens in stores and online is “a daily barometer for thenation’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 storefor retailers after January 1.MobileSusan Reda, executive editor of STORES Media, writes, “The year just concluding will beremembered as the one in which mobile became embedded into the lives of consumers — andthus into the hearts of retail businesses large and small. ”Mobile developers agree. According to a survey by Appcelerator and IDC , 93 percent of mobiledevelopers anticipate that it is “likely to very likely” that most retail companies will have enabledmobile commerce in 2013 as consumers increasingly reach for their phones and tablets evenwhile shopping in a physical store. Consumer behavior continues to underscore thistransformation. Appcelerator found that nearly two-thirds of developers also believe thatconsumers will make more purchases via their mobile phone than their credit card in 2013.IntegrationFounder of the direct-to-consumer shoe merchant Sole Society Brett Markinson tellsFORBES the “emerging” direct-to-consumer E-commerce model recently being discussed asthe “Next Big Thing” is only the beginning of the evolution pushing haute couture into the digitalage. “Building and distributing a successful brand in the Internet era is about addressing thenew behaviors of an evolving customer base by leveraging the changing landscape and its newdynamics, ” he says.Markinson believes the discussion has to shift from e-commerce vs. offline commerce tointegrated commerce. “The consumer does not distinguish. They want to buy cute, on-trendproducts at great values wherever they happen to be. They want to engage with cool brandsthat understand their interests and proclivities. The DNA of the web must be an intimate part ofthe fashion brands of the future.Those retailers who find a way to integrate will have a “killer brand. ” Says Markinson, “Oneneeds to be where the customer is, with both your messaging and your product. If you haven’t6 | Page hoangnd@msn. com Mar 2013
  • 7. already noticed, consumers today are both online and offline, and sometimes both–online whileshopping offline. Online they are sharing, friend validating, researching, learning and developinga point of view. Offline there is touching, brand comparing and brand associating. All of thisdrives the brand of the future. Finding the formula to leverage that online/offline dynamic iscritical. ”More and More SocialRichRelevance, a company that powers personalized e-commerce experiences released someinteresting findings about social media’s role in retail. Namely, traffic from Pinterest has doubledin 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 isgoing to have an increasing impact in 2013. We feel that the role of social media is to generateawareness, 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 generatecustomer “delight. ” She points out how Target recently awarded gift cards to a number ofcustomers who were tweeting about them over the Thanksgiving holiday weekend. “Socialmedia is one element in [retailers’] arsenal of developing brand awareness across multiplechannels. All of these elements, including social media, shape or form the way that a consumerhears about a brand or offering. This contributes not only to awareness, but actual productdecisions. ”http: //www. forbes. com/sites/lydiadishman/2012/12/17/three-important-retail-trends-for-2013/7 | Page hoangnd@msn. com Mar 2013
  • 8. Whats In Store: How PolyvoresStylish Social Commerce IsCracking Retail 3. 0It’s a dilemma that’s dogged retailers since the days of the general store: how to help customersdiscover new items and keep them coming back for more. In an era where e-commerce andsocial media is continuing to blur the transaction line, the solution is as easy to pinpoint as amoving 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 iseasily straddling the intersection of style and social commerce. 20 million uniquevisitors discover the site each month and create over 2. 4 million “sets” or collages of productsthat 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 styleand taste. Polyvore then uses the data to drive its algorithms for search ranking and productrecommendations, Sadri noted in a statement.But Polyvore’s massive army of style devotees isn’t just playing virtual dress up. They areturning those 7. 5 billion product views into real spending. New data released by the companyyesterday 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’salso a leader in the luxury market, boasting seven of its top 10 retailers who are major players inthe 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 marketinglinks, in which the platform receives compensation each time a user clicks through from aproduct to a retail or brand page. Users tend to click on items they are really interested inlearning more about and/or actually buying so it’s extremely important for the platform to ensurea 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, amarketing 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’sengineering team is dedicated to data quality. “They are constantly working to ensure thatproducts on the site link back to the correct e-commerce site and that those links are affiliatized8 | Page hoangnd@msn. com Mar 2013
  • 9. without interfering with the user experience. User experience is our number one priority, ” saysGullov-Singh.Another factor is ease of sharing. Of the one billion monthly set impressions, 43% are on socialnetworks, 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 setsshared 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, ” addsGullov-Singh.Though he’s staying mum on Polyvore’s projected growth for the coming year, Gullov Singhsays he’s excited for 2013. “What’s exciting aboutPolyvore is that it’s a fast growing socialplatform that actually drives sales of products for brands and retailers. That’s rare to find intoday’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-3-0/9 | Page hoangnd@msn. com Mar 2013
  • 10. Walmart Vs. Amazon: Its AboutTo 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 ownshoppers as delivery people, providing some kind of incentive to drop off online orders on theirway home from the store.It’s not likely to happen, there are far too many unattractive variables. But it shows the retailer isthinking 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 whereshoppers can order online and pick-up in the store without waiting in line. It’s similarto 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 WalmartLabs division. That group is developing Pangaea, a global technology platform, scan and goapps that let shoppers buy in store via a smartphone, and online operations in growing marketsoutside the U. S. such as Brazil and China.Wal-Mart is still testing same-day delivery in four cities. The program uses stores as fulfillmentcenters 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 togenerate $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 quarteralone were $21. 27 billion.But take a look at the profits and some other key indicators. Income is slowing, expenditures areup 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 haveWalmart’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’tthink 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/10 | Page hoangnd@msn. com Mar 2013
  • 11. Retail Wisdom: Lessons LearnedFrom Holiday 2012The post-holiday haze has lifted, leaving much head scratching and gnashing of teeth aboutwhat happened and why. Most agree it was an imperfect retail season. Sales results werereported up 3 percent versus 2011, reflecting a season that was “peak-ed” to say the least. Andwhile 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 the2012 holiday season. Lessons abound, after all.Forget the calendar – it’s not a crystal ballIt’s time for retailers to stop using the calendar as a predictor. More shopping days betweenThanksgiving and Christmas no longer mean more sales. Shoppers were very stressed by theend of 2012, and between the economy, fighting in Congress, Hurricane Sandy and life ingeneral, they had good reason to be. Extra shopping days proved exhausting for many.Thanksgiving hours don’t guarantee more salesOpening stores on Thanksgiving Day didn’t necessarily translate to more sales either. It mayhave provided more people with jobs (good news), and got others off the couch before they atetheir third portion of turkey (a good health trend!), but that’s it. And Black Friday isn’t what itused to be – it has become more media event and family entertainment activity than a majorindicator or driver of the season’s sales.Photo credit: WikipediaFocus on the merchandiseRetailers that offered innovative, relevant and good-value gifts made the sales (Urban Outfittersis a prime example). If there was nothing exciting to buy shoppers didn’t feel compelled to, orbought gift cards instead (one of the success stories of the season). Today’s shoppers didn’tfeel pressured to buy just anything because it was the holidays. And, as 80% of US shoppersstill believe “their” recession will last 3+ years (How America Shops® 2012 Megatrends), theirfocus on value is not over by any means.Leverage the Internet for all it’s worthThe Internet became the great disrupter of the season, more so than in previous years. Itenabled people to start shopping earlier, be better prepared by checking out pricing and dealsonline whether they planned to shop in stores or digitally). It also made the easily overwhelmingseason less stressful to manage. The outcome was that the many traditional retailers who11 | Page hoangnd@msn. com Mar 2013
  • 12. smartly and creatively leveraged their bricks and clicks, omni-channel, approach were moresuccessful 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 thecalendar. 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-2012/12 | Page hoangnd@msn. com Mar 2013
  • 13. Holiday Shopping: The Retail RaceIs On(Photo credit: Wikipedia)By the time we get to December 25 we will have learned much about the economics of this2012 season. There has been much discussion about the merits of opening stores earlier thisholiday shopping season. When Walmart, Target, Best Buy, Toys R Us and othersannounced 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 behome? Is it right to encourage people to shop instead of spending time with family, eating andwatching football?The only way to answer these questions is to abide by our everyday mantra and “follow theshoppers” — let them lead us. And they did.Here’s what we found: Holidays are about family and fun — and shopping. We saw shopperslined up in hundreds – especially outside big box stores and outlet malls – waiting for them toopen. There were families and friends. They were happy, excited, eager to be first for doorbuster 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 otherspre-planned, checking prices before lining up. But most came for the pure sport of it, to feel likea 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 Fridayhunt has passed? Our research finds that nearly half of Americans (46%) will do their shoppingbetween November 26 and December 17, while nearly a quarter of shoppers (23%) will waituntil the week before Christmas to get their gifting done. For retailers, this means that holidaysales 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/13 | Page hoangnd@msn. com Mar 2013
  • 14. New "Service" Vernacular: Do YouSpeak It?Photo credit: WikipediaIn a world where there are so many shopping choices — and always a cheaper, moreconvenient or more intriguing option — “service” delivered in 21st century fashion is what canbuild or destroy your relationship with your shoppers. Everyday, but especially during thisholiday season.How do shoppers value ‘service’ today? It’s more than just making it easy for them to find whatthey want, when they want it. Today, great service is also about anticipating what they don’teven know they want and understanding in which categories and shopping moments they wanta “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 SERVICEI began my trip by activating my new MapQuest app to plot the journey. [New-age service. ] Ittook a minute to figure out how to use the app. (In case you haven’t heard, you can no longeruse 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-SERVICETarget’s new three-story urban format doesn’t have lots of live bodies in the store, however, itdoes offer good (self) service. The store is easy to navigate for urban shoppers on-the-go, haspersonal service where it’s required (pharmacy, electronics) and lots of good signing andinformation when “people” service is unnecessary.There are two entrances for easy access. The entrance on the main floor has a big friendly “HiSeattle” 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 locatedbelow street level at the supermarket (which allows for quick in-and-out grocery shopping).CONCIERGE SERVICEAt Nordstrom’s flagship store, old fashioned service is expertly delivered by the concierge, whomakes shoppers feel welcome and well-cared for. She answered every question: “Where’s theMen’s department?” “Where can I get a snack?” “Where’s the ladies’ room?” “And by the way,14 | Page hoangnd@msn. com Mar 2013
  • 15. where did you get those fabulous shoes?” Nothing was a trouble. Later, when the conciergespotted me about to exit the store with hands full of shopping bags she asked, “Do you needany help?“ She then walked me out of the store and directed her back to the hotel. Her last wordof advice “Don’t forget to try our Nordstrom app. It will make your shopping easy, let you seewhat events we have coming up. And you can download it for free. ” [Old world service meetsnew world service]CUSTOMIZED, HELPFUL SERVICELast stop, Starbucks’ new Evolution Fresh store that sells healthy, fresh-squeezed juices andfood. You can order a range of fresh-squeezed exotic juices like “Coconut Zen” juice (coconutwater, pineapple and cucumber, 50 calories, in an 8 oz. glass for $4. 99) or “Sweet Burn” (withcoconut 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 isbold, clear, with dramatically changing wall images that tell the healthy story using wonderfulpictures of colorful fruits and vegetables. It’s easy to select what you want once you get used tothe process. You can have your drinks your way or theirs. You can stay and drink or take ithome. [Good execution of customized service. ]THOUGHTFUL SERVICEAfter 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, aprogram in conjunction with New Balance fitness wear. If you like to travel light (or forget tobring your exercise gear) Westin and New Balance have a solution. They offer guests fitnesswear (sweats, socks and sneakers) to use for the length of their stay for only $5. 00. For mostbusiness travelers that’s a great deal. Even more rewarding is the fact that the hotel recognizedthe need and satisfied it. [Thoughtful service. ]SERVICE ANYWAY THEY WANT ITYou get the picture. Sometimes good service is delivered by a person, in person — but notalways. Today, it’s all about “servicing” customers, making it easy for them to find whatthey want, when they want it, on their terms. While a well-trained professional certainlymakes for special add-on value that’s not what every shopper wants, every time she or heshops.The beauty of today’s shopping world is that we now have the tools to understand who ourshoppers are, what they need and want, when and how, so we can customize serviceaccordingly. In the end, it’s all service. Anyone can offer it, regardless of category, price point orretail format. The fact is, everyone must.http: //www. forbes. com/sites/wendyliebmann/2012/11/15/new-service-vernacular-do-you-speak-it/15 | Page hoangnd@msn. com Mar 2013
  • 16. Channel Blurring On SteroidsPhoto credit: WikipediaThe wall between prestige and mass retailers continues to crumble. Luxury retailer NeimanMarcus and trendy big box Target announced a partnership to launch The Target + NeimanMarcus Holiday Collection this December. The limited-time collection will include products from24 well-known fashion designers, including Marc Jacobs, Oscar de la Renta, Diane VonFurstenberg, Derek Lam, Rodarte and Tory Burch. The collection will feature some 50 productsin women’s, men’s, children’s apparel and accessories, home, pets, electronics accessories andsporting 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 inboth retailers.The big question for shoppers: how quickly will the merchandise sell through? If last year’sTarget program with Italian designer Missoni is any indication, we should all hold our place inline (or online) right now.Three days after the NM – Target announcement, Seattle-based department store retailerNordstrom and UK fast fashion retailer Topshop announced that Topshop and Topman wouldbe sold (initially) in 14 Nordstrom stores beginning this September.Topshop is recognized for bringing runway trends to its retail stores in a fashion-minute. Unlikeother 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. Inthe 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 intostores every week and, in so doing, attract younger and more fashion-forward shoppers.Beyond the “official” reasons for the Nordstrom-Topshop and Neiman Marcus-Targetcollaborations, the real reason is that this is the way shoppers buy today. Shoppers around theworld are no longer willing to deal with the barriers of price point or the delay from runway tostore. 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/16 | Page hoangnd@msn. com Mar 2013
  • 17. London Retail Dazzles: Betweenthe Jubilee & OlympicsLondon has always known how to throw a party. But with this summer’s convergence ofcelebrations for both Queen Elizabeth II’s Jubilee and the Olympics, London retailers are trulymaking the most of their moment – and giving the rest of the world an “Olympic”-sized dose ofretail inspiration.UK retailers are creating all manner of enticements for locals and foreign visitors alike.Department stores Selfridges, Harrods, Harvey Nichols, andLiberty of London areemblazoned with enticing brands and unique promotions. Anticipating the crush of shoppersfor Gucci products, Harrods had set up a “shopping line” on the pavement, “Gucci Queue StartsHere” (a la the velvet rope at a night club). And on a kitsch note, home retailer OKA hasillustrated 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’sSecret on New Bond Street. And right near the Olympic Stadium, in once undeveloped EastLondon, 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 beautystores than a beauty junkie could dream of (from the obvious, MAC, Kiehl’s, L’Occitane, to theesotericArabian 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 orbuy food, with movie theaters, a bowling alley and casino. And more. With or without a Queen’sJubilee or the Olympics, London is clearly offering a shopper’s delight!17 | Page hoangnd@msn. com Mar 2013
  • 18. 2012: The Year of "Moving On"Looking back on 2011, images come to mind that instantly capture the state of retail around theworld, and anticipate the year to come. The images reflect the yin and yang of the world: theglobal economy as it limped along (at best), and the now unrelenting pervasiveness of digitaltechnology. Together these converged to transform everything at retail in 2011, everywherefrom 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 canand are moving on in new and different ways. Retailers too are moving on in their own way, asis evident by the degree of retail innovation and renovation in 2011.BIG, BOLD, AUDACIOUS SPACESThe 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 andexpanded grocery offering reflect the growing importance of food as a category in U. S. drugstores.And speaking of bold, who could forget the opening of the presumptuous new Apple store atNew York City’s iconic Grand Central Station? The store goes way beyond a destination fortravelers idling between trains; it has driven shoppers to other innovative retail stores nowestablished at the station, including Australian beauty retailer Aesop, with its store made out ofrecycledNew York Times newspapers.VIRTUAL STORES POPPING UPAnother image that defined the year was the opening of the Home plus virtual store in thesubways of Seoul, South Korea. This innovative concept features images of products as if in aregular store, and enables shoppers to use their smartphones to scan the image’s QR codesand instantly order, pay and arrange for delivery. Home plus and its partner UK’s Tescoleveraged the virtual pop-up into a retail game changer, rolling it out into permanent virtualstores, 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 toSouth America to England says much about the future of retail.EXTREME COUPONINGIf you haven’t seen this highly rated reality TV show, you can imagine what it’s about, and whyit’s all the rage. When it airs, coupon websites gain significantly higher traffic. Everyone wants tobe a smart shopper. While most shoppers don’t care to devote as much time as the TV showcontestants do to get their groceries, and more, for almost nothing, they do admire those whodo. Regular shoppers want to find their own “extreme couponing” in stores. What will retailersdo in 2012?DEPARTMENT STORES TANTALIZE AFFLUENT SHOPPERSDepartment store retailers around the world have come to recognize they must dazzle theirhigher 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 majordepartment stores around the world: From the age-old Printemps flagship in Paris, nowbrilliantly new behind its traditional 19th century façade; to La Rinascente in Milan; and thecompletion of a multi-year remodel of Bloomingdale’s NYC 59th Street flagship, just to mention18 | Page hoangnd@msn. com Mar 2013
  • 19. a few. The trend continues in 2012, when department stores such as London’s Selfridges andNew York’s Macy’s will both undergo renovations.The changes we’ve seen in 2011 have clearly paved the way for continued innovation andtransformation in the year ahead. As retailers look to create compelling ways to entice shoppersto buy more than what’s on sale, there will be much for us to report on as the year unfolds. Staytuned.http: //www. forbes. com/sites/wendyliebmann/2012/01/19/2012-the-year-of-moving-on/19 | Page hoangnd@msn. com Mar 2013
  • 20. Nordstrom Moves To The Land ofRetail Opportunity(Photo credit: Wikipedia)The American retail industry is buzzing – about Canada. This week, Nordstrom announced itsplans to enter the Canadian retail market — joining other U. S. retailers such as Walmart andCostco who have already successfully made the move.Anticipating this trend, last month WSL/Strategic Retail launched our first study of Canadianshoppers in How Canada Shops®, an in-depth analysis of how Canadian women and men shopacross 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 growthopportunity. 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 samecompany 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 foropportunity. So did we.Here are some interesting tidbits from the study. While Canadian shoppers are similar toAmerican shoppers in some ways there are some not-so-subtle differences: they’ve made fewerchanges to how they shop because of the recession (they didn’t get themselves buried in debtto the degree we did south of the board), they’re less driven to use coupons and sales (but theyare still very focused on value), and while they do their homework online they buy less online (atleast for now). In all, they are very compelling shoppers to target. These are only a few of thedifferences U. S. companies should understand – and strategize against – to ensure asuccessful 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/20 | Page hoangnd@msn. com Mar 2013
  • 21. Power Couple: Walgreens &Alliance Boots Build Cross-PondEmpireSAN 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 inEuropean pharmacy retailer Alliance Boots for $6. 7 billion. The acquisition will make Walgreensone of the worlds 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 onceboth brilliant and daunting, Walgreens, the largest US drug chain, purchased 45% share ofAlliance Boots, including the UK’s iconic Boots The Chemist, a global pharmaceuticalwholesaling 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 massbeauty brands under one retail roof. There’s the company’s experience running retail stores ofvarious sizes – from its flagship, multi-story, 15, 000 square feet store on Oxford Street, Londonto its ubiquitous urban and suburban stores on British High Streets and small formatconvenience-focused stores at British railway stations and airports. There are its years ofexperience with its loyalty card, Boots Advantage Card. And, last but not least, the power (oftenunrecognized in the US) of its global pharmaceutical wholesaling business.Daunting: For one, the obvious challenge of combining two culturally different businessesacross 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, differencesbetween UK, European and US health care systems, and differences in how people in thesecountries 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 therationale 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 mobiletechnology are having on the way people shop. As a result, retailers can no longer grow byopening more and more of the same stores. Retailers of every variety (including Walgreens)now ask themselves, “How many physical stores do we now need?”21 | Page hoangnd@msn. com Mar 2013
  • 22. 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 tolocal communities, more virtual stores, possibly global expansion… for a start. Everyone fromWalmart to Target to Best Buy, Starbucks, Macy’s are responding. And of course, alsoWalgreens — 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 androllout of Boots beauty brands in Target stores gave it a taste for the market. But where to gonext? 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/22 | Page hoangnd@msn. com Mar 2013
  • 23. Will JC Penney ShoppersAccompany The Retailer To TheFinish Line?Another year, another Black Friday and Cyber Monday. And while retailers from Kohl’s toMacy’s, Target to Wal-Mart have been busy trying to thwart “show-rooming”—the consumerpractice of examining products in-store and then searching for the best deal online—thevenerable JC Penney is literally in a race for its life. But as the company dramatically overhaulsits stores into mini malls featuring certain brands or types of merchandise, will shoppers hang inthere to the finish line?JC Penney shoppers have been whipsawed on pricing policies ever since the arrival of CEORon Johnson a year ago this month. First the chain eliminated the more than 500 sales it usedto stage all year long, in their place offering lower pricing across the board in its approximately1, 100 locations. No testing of this new pricing approach was done, Johnson told TheAssociated Press, because time didn’t allow it. The result: shoppers went elsewhere. Late thissummer, Penney got rid of its month-long sales offering—part of a three-tier strategy along withlower 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 thirdquarter of 2012.The grand scheme now under way at Penney is to transform most of its stores into a sort of minimall—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 completelyrevamping their operations and pricing policies are few and far between. CEO Johnson certainlyhas the chops for the job. He led Target to “cheap chic” success and then joined Apple todesign its highly successful retail outlets. A look at consumer research strongly suggests that forhis current challenge he did too good a job at Target, which stands above both JC Penney andMacy’s in key respects, per the GfK MRI Focus: Retail study. Nearly 26% of people whoshopped at Target in the last three months agreed with the statement, “For the products Iusually 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 ongreat service” was 28. 9 for Target, 18. 9% for JC Penney and 12. 8 for Macy’s. Slightly moreconsumers (23. 8%) say they frequent JC Penney based on price versus 17. 7% of Macy’sshoppers. Since JC Penney and Macy’s share a fair amount of mall locations, these figures aregood news for JC Penney.23 | Page hoangnd@msn. com Mar 2013
  • 24. Alas, JC Penney simply is in a race against the clock. So far it has transformed a small handfulof its stores, and the results have yielded $269 in sales per square foot compared with $134 inolder stores, according to The New York Times. Problem is, it needs to spend mightily torevamp almost 90% of its locations, something that could take years. Meanwhile, its loyal coreof middle-income consumers has begun voting with its feet. While it’s possible that JC Penneycan 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/24 | Page hoangnd@msn. com Mar 2013
  • 25. Are Retailers Cannibalizing BlackFriday?Black Friday isn’t what it used to be. The days of working off that turkey and stuffing by runningaround the mall and scooping up holidayBlack 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 digestedthat drumstick. Stores are opening on Thanksgiving Day itself, and there are plenty of sales inthe 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 thepoint where there are so many great sales this time of year that the meaning of Black Friday hasbeen cannibalized. That rush of excitement waiting for the doors to open, and the excuse to beout 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 inthe world of retail. But at least there are many ways for consumers to save at a more leisurelypace. Let’s look at what retailers are doing this week.Amazon is offering Black Friday Deals Week, an actual countdown to Black Friday, includinglightning deals each day on apparel, electronics, toys, games and more. On Thanksgiving Dayitself, many stores are advertising exactly what items will be on sale, and at what hours, so thatshoppers can be more targeted and focused with their purchases and waste less time pushingthrough the crowds.Walmart, for example, is selling its hottest electronic items, including the Apple iPad2 16GBwith wi-fi, between 10 and 11 pm on Thanksgiving Day, so the shopping can start the momentthe dishes are done.Shoppers don’t even have to wait until evening. For those who prefer retail therapy to watchingfootball, Sears, Target and Toys R Us are all open Thanksgiving Day, offering deals oneverything from stocking-stuffer toys to Xboxes and Playstations. The list and range of retailersdoing business on that day is long and growing, with at least 20 major chains planning to beopen.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 beforenoon can save over $200 on certain HP PCs with Windows 8. PetSmart, meanwhile, is givingdog and cat lovers a steep 75% off select items online.25 | Page hoangnd@msn. com Mar 2013
  • 26. How will the specificity of the items, and the window of time in which they are available, affectsales? The Black Friday strategy has always been to get people in the stores with doorbustersand 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 manyretailers now have about their customers. With loyalty cards and deep analytics, many retailersknow precisely the types of customers who will be drawn in by certain offers, and what otherproducts those consumers are likely to buy once they are in the stores. They can know the pricepoints at which consumers will buy an item, and they can also know the times of day consumersof certain demographics shop.This intelligence allows retailers to be very targeted in the types of offers they make. Also, bystarting early – on Thanksgiving Day or earlier in the week – retailers can find ways to lure ashopper back into the store on Black Friday or online on Cyber Monday with a targeted emailoffer.So these new holiday “traditions” aren’t necessarily hurting retail. If anything, the spread of saledays is helping to bolster overall revenues and maintain consumer interest before, during andafter Black Friday itself, which remains the most important day of the shopping year. With theNRF forecasting a 4. 1 increase in holiday sales for 2012 over last year, given the impact ofHurricane Sandy, Black Friday will undoubtedly play a key role in determining whether or notthis 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 insales in 2011, up 22% from 2010.Next week, we’ll get the results. Until then, enjoy your Thanksgiving and don’t forget to do yourpart to support the retail industry this week!26 | Page hoangnd@msn. com Mar 2013
  • 27. Are You Really Getting A BargainBlack 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 buymerchandise at deep discount, you better think twice: you may end up buying things you don’tneed, 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 byreason. We carefully examine the environment we live in, setting goals and priorities. Then wecraft 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. Intelligentconsumers begin with the “Big Picture, ” things that are important in their lives, setting needsahead 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 buyproducts — 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. Theyrush to buy merchandise just because it happened to be on sale, without asking whether theyreally have a need for it in the first place; whether the price is right; and whether it is the bestchoice for their money. They end up subscribing to magazines they never read; joining healthclubs they rarely visit; buying clothing they never wear; purchasing tools and accessories theynever use; and bringing home toys their children hardly touch.Obviously, intelligent consumers allocate their resources efficiently and effectively, whileemotional shoppers waste their resources.But why do so many consumers do that? Why do they shop with emotions rather thanintelligence?Because emotional shoppers allow themselves to be manipulated by marketers who hype theiremotions by sales events like Black Friday. They are too concerned with the prospect of missingout on a sale opportunity — buying merchandise indiscriminately, irrespective of the need for it.27 | Page hoangnd@msn. com Mar 2013
  • 28. The bottom line: Before you head out for the stores on Black Friday, ask yourself the threesimple 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/28 | Page hoangnd@msn. com Mar 2013
  • 29. Why Retailers Have to Open onThanksgiving This YearImage via CrunchBaseI get the angst the retail employees are feeling about having to work on Thanksgiving, I reallydo. Retailers like Wal-Mart, Target, Toys R Us and Kmart are among those stores that will beopening in the evening on the big day and its employees will have to be there like it or not. Andfor most of these workers, it is definitely not.Corporate greed is blamed for the decision, and technically that is true if one defines corporategreed 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 theholiday season.Consider this: Last year IBM‘s Holiday Benchmark survey reported thatThanksgiving onlineshopping 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 inwalking through a retailer’s doors as well.And when they do they will be counted and tracked by ever increasingly sophisticated retailmanagement 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 haveseen themselves on the losing side of technology in previous years (that darned Internet!) butnot 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 forthe rapid granular analysis of activity at the transactional and SKU level, he says. “It letsretailers 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 lateror, oh let’s say, on Thanksgiving Day.Not that ecommerce is doomed now that stores are adopting bigger and meaner tech tools. Thisholiday season 20% of all online sales will come from mobile devices. So predicts the IBM priorto releasing its Holiday benchmark.Not surprising, Apple‘s iPad and iPhone are driving much of this traffic, with 8% of online trafficoriginating from the iPad and 7. 2% from the iPhone.The iPad Mini will probably skew online sales traffic even more, says Michele Turner, CMO ofmBlox. “The iPad Mini will be transformative in terms of online shopping. It is small enough totoss in your purse or keep in your pocket, but still has robust browsing capability. It can be partof creating a great branded experience for a retailer. ”29 | Page hoangnd@msn. com Mar 2013
  • 30. So as retailers step up their POS investments and mollify employees working on Thanksgivingas 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 towait more than a second or two for sites to open on their devices. They also can be exceedinglyimpatient 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, accordingto The EGC Group’s report “How to Prepare for the First Nonline Retail Season”. Also, one infour used more than one device to shop during the 2011 Holiday Season, a percentage likely toincrease 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/30 | Page hoangnd@msn. com Mar 2013
  • 31. With Thanks giving - NightOpenings, Do Retailers RiskBusting More Than Doors?Retailers are opening earlier this holiday season, sandwiching Thanksgiving turkey between thework 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 CMOthese days. But equally important, both for brand health and consumer engagement, as we’veseen time and again, is keeping employees committed, happy and motivated.The risk in alienating employees is alienating shoppers, of course, and that could have anegative impact on brand. “To the extent that consumers relate more with employees pressed to work in stores onThanksgiving than they do as customers who want to shop on Thanksgiving, it could have anegative impact on the brand, ” said Brooks Holtom, Associate Professorof 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 onThanksgiving, the potential backlash against the retailers will be muted. While they may expressoutrage 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 chooseto open their doors early. “Because they are NOT indentured servants, they can choose to workor not work, ” Holtom said. “However, there are consequences of those choices. Employers facea favorable labor market right now. Unemployment is relatively high, and many of the jobs thatare being created are low-wage jobs. Competition for jobs is strong. So, even though workersprefer to be home for Thanksgiving, economic necessity compels them to work wheneverrequested. ”To keep employees happy, Target, for example, “should do its best to staff the store with thoseemployees who volunteer to do so, ” he said. “Offering incentive or holiday pay allows themarket to work. If they don’t get enough volunteers, they may need to up the pay. Whileemployees will have different preference functions, the employer will over time find a marketclearing wage. ”In fact, “across the company, one-third of Target’s store team members are scheduled to workon Thanksgiving, ” Target communications manager Molly Snyder said in an email.31 | Page hoangnd@msn. com Mar 2013
  • 32. “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 theyhad available shifts. In those cases stores were asked to make back-up lists to allow for themost flexibility if team members needed to make scheduling changes. ”Target’s decision to open on Thanksgiving night wasn’t made without employee buy-in, shesaid. 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 staffingschedules. ”Georgetown’s Holtom believes that retailers like Target should make sure consumers knowwhat they’re doing when it comes to employee relations. “If I were consulting to Target, I wouldencourage them to publicize all efforts to staff using volunteers. They should clearly articulatetheir incentive pay and project the economic benefit that will follow. They can also apologize forany perceived encroachment on the holiday, ” he said.In the meantime, Target sales-floor employees won’t be the only ones pulled from mashedpotatoes 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 goesshopping on Thanksgiving, then retailers will not open on Thanksgiving in the future, ” Holtomsaid.http: //www. forbes. com/sites/jenniferrooney/2012/11/14/with-thanksgiving-night-openings-do-retailers-risk-busting-more-than-doors/32 | Page hoangnd@msn. com Mar 2013
  • 33. Retailers, Can You Hear Us Now?Last month I ended my post with the call to action for retailers and manufacturers to listen, notto 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 storesales 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 zerosum 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 technologyor productivity enhancements on a broad level. One retailer or manufacturer’s gain is another’sloss. So, how do you win?You win by expanding into new markets or categories, or by growing comparable store sales inexisting 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 theywant? 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 greatconcept – 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 thenmade available in stores the next day.The show seems like an interesting idea and is generating some marketing buzz for theretailers. In a recent Apparel article, Martine Reardon, CMO of Macy’s said: “Fashion Star ismore 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 Saksis. ” Sadove added that website traffic doubles when the show airs, and the company has seenan 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 areperforming, experts are reviewing, but wait… there is one additional piece. On “Idol, ” Americanviewers get to vote, and it matters – even if the experts disagree. What a concept! Listening tothe 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 havelamented the issue that, even though they listen to their customers, what the customer have toldthem 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 upgetting 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/33 | Page hoangnd@msn. com Mar 2013
  • 34. Retailers: Who Do You Trust?Forever 21 Store (Photo credit: Rajiv Patel (Rajivs View))Trust is a funny thing. It is something that is highly valued, but cannot be bought. It must beearned, 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 thetrust of my customers. How? By doing what I say I will do, by maintaining confidentiality with theinformation shared with me, and by acting in my customers’ best interests. Why? Because itmakes good business sense, of course. But ultimately, because a trustworthy reputation is oneof 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 toestablish a reputation with a group of people – your customers — who come to the places youhave built – your stores — to get the products you have become known for providing. A simpleword comes to mind in maintaining a trusted relationship: fairness. The trust your customershave developed with you comes from the idea that they expect a carefully edited set of productsat 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 trustconsumers have placed in a brand they like. Consumers who are loyal to a brand will trust thatthe 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 isfor 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 basedon 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 theeasiest 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-orientedproducts that their customers recognize and desire. It is not just simply that their products areless expensive. These retailers consistently deliver on a promise of quality, and this approachhas delivered strong returns for their businesses.Costco delivers a great product set at a highly communicated 13% margin (tremendous valuedelivery), along with a consistent experience.McDonald’s, Coke and Marriott all set and consistently meet expectations. Regardless of whereyou visit a McDonald’s or a Marriott, you will (almost always) experience a similar level ofservice and a similar product.Sometimes retailers and brands delight their customers with exceptional experiences. Examplesinclude Polo’s Mansion, Louis Vuitton’s newest handbag, and Wal-Mart’s superior fulfillmentability which ensures they will always have the product you are looking for, in-stock.34 | Page hoangnd@msn. com Mar 2013
  • 35. How do you know what someone expects of you? One way is to visit as many of yourcustomers as you can and ask them. Open, honest dialogue is invigorating and informative. Youlearn 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 moviesis Brubaker. It is an 80’s film in which Robert Redford plays a newly hired warden who goes inas a prisoner to understand what is wrong with the system. A current showon CBS is Undercover Boss, in which a CEO goes in undercover to learn the true story of whatis 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 situationpermanently, 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-viewmirror view of what consumers want and have bought. I think we all know what happens whenyou 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 versesyour competitor’s products, and how well your new product offerings will deliver on the valueyou are proposing.In addition to learning what consumers expect, the process of seeking consumer input itselfbuilds trust with them. In our work with retailers and brands, we have found that consumersengage with online games at rates two to five times higher than typical promotional emailcampaigns. In fact, the email subject line that tends to generate the highest open rates is “tell uswhat 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 willearn their trust in the process.http: //www. forbes. com/sites/gregpetro/2012/07/12/retailers-who-do-you-trust/35 | Page hoangnd@msn. com Mar 2013
  • 36. Retails Big Question: Is The PriceRight?With the holiday season upon us, retail CEOs know that this month will make or break theiryear. As many retailers and brands launch new products, two factors will determine success orfailure: is it the right product, and is it priced right? These days, pricing is the hottest topic inretail, and it is also the most complex.Over my next few posts, I will share insights and comments from discussions with several CEOswith diverse opinions on pricing in the retail industry.Markdowns, discounts and promotional strategies abound, creating a dangerous patterndeemed a “race to the bottom. ” Retail blogger Robin Lewis put it best when he said, “Itbehooves brands and retailers to beware what they ask for by diminishing the value propositionto…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 tothe bottom.Regarding price, consider that while Americans bought 19. 4 billion garments last year, a 5. 3percent decrease from 2010, the total apparel sales dollars rose almost 5 percent to $283. 7billion, according to the trade group American Apparel & Footwear Association. This meansprice increases, along with some shift in product mix to higher-priced garments, accounted forall of the growth in the apparel industry in 2011. This should set off alarm bells in the heads ofmost apparel retailers and brands.Why? First, with stagnant or declining unit sales, if retailers are not pricing products to capturefull consumer value, comp sales will almost certainly decline. Unfortunately, this is alreadyhappening for many retailers. Second, for those who have managed to increased comps bypushing price increases, how do they know they have captured all of the consumer value? Howmuch 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 suggestedretail 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.36 | Page hoangnd@msn. com Mar 2013
  • 37. Now layer on e-commerce, with mobile technology enabling real-time price comparisons, andthe 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. JCPenney, for example, is clearly struggling as it attempts to change the customer’s mindset. Onecustomer recently stated on the retailer’s Facebook page: “This is not a change at all, there hasnever 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 individualBrands (the manufacturers). I will look at what’s working and what’s not, and I’ll discuss theresults 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/37 | Page hoangnd@msn. com Mar 2013
  • 38. Pricing Part 2 -- Focus OnSpecialty & Vertically IntegratedRetailersPhoto credit: WikipediaAs I indicated in my last post, in this series I will explore how pricing is managed in three typesof retail entities – first Specialty & Vertically Integrated Retailers, then Department Stores, andfinally individual Brands (the manufacturers). I will look at what’s working and what’s not, and I’lldiscuss 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 thatfit this category include Aeropostale, American Eagle, Charlotte Russe, Hot Topic, Gap, Men’sWearhouse, and PacSun.These companies control the entire product lifecycle – from design to manufacture todistribution. 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 onwomen in their teens and early twenties. In a recent conversation with Jenny Ming, CharlotteRusse’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 attractiveto her. ” As a result, Charlotte Russe avoids heavy discount promotions but sometimes offersbuy-one-get-one-free offers (BOGOs) to provide the customer with more of the type of productshe 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 topricing is based in part on the type of product – basic vs. unique. Schoenfeld stated, “With basicproducts, understanding the competitive landscape is very important. For unique products, wehave more flexibility based on how our customers value our unique designs. ”Mindy Meads, former co-CEO of Aeropostale, current Wet Seal board member, and previousFederal 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) Retailershave the most control when it comes to pricing. Vertically Integrated Retailers control the entireprocess. The best ones design product from the beginning to target specific price and marginpoints. They also control the in-store experience, which can’t be ignored when understandingthe 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. Ownyour vision and have it be consistent, ” explained Ms. Meads.38 | Page hoangnd@msn. com Mar 2013
  • 39. Added Jenny Ming, “To be a great retailer you must have an incredible sense ofcuriosity…curiosity to understand, learn and explore. ”As Gary Schoenfeld, CEO of PacSun, succinctly summarized: “We have a knowledgeablecustomer who understands the value and pricing of our products. If the fashion and price istrend right, we have a win-win scenario. ”Getting the Price Right from the StartWith price as a primary engine for growth over the next few years, pricing will clearly be anintegral part of the value equation for consumers in deciding what is the “Right Product. ” In astudy of 70 retailers in April 2012, retail analyst firm RSR found that 67% of respondentsreported 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 comparablestore/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, ManagingPartner 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 credibilitywith consumers if it then has to run promotions or markdown items because it didn’t hitconsumers’ initial expectations. ”So vertically integrated retailers know they must get the price right from the start. It is alsobecoming clear that these retailers want to price based on customer value, and that pricingbased 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… nothistorical data, but forward-looking data based on precise knowledge of what consumers willactually 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/39 | Page hoangnd@msn. com Mar 2013
  • 40. Pricing Part 3: How Does A BrandKnow 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? Arrivingat that figure is a complex process, and getting the formula right is key to the health of theirprofit margins.This four-part series covers the hottest topic in retail: pricing. I’m sharing the results ofconversations with several retail CEOs who are commenting on the challenges as well as bestpractices in the industry. At the NRF conference in New York City on January 14, I will also bemoderating a panel discussion on this topic including several of the industry experts interviewedin these posts.In my last post, I wrote about the pricing models and challenges facing specialty and verticallyintegrated retailers. This time, I will focus on the brands or manufacturers that sell throughmultiple 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. Thedepartment stores achieve differentiation through a combination of the product assortment, thecustomer experience, and the price/value equation. But, for the manufacturer, the differentiationresides with the brand itself.Many brands have relatively narrow product lines, which tends to reduce their leverage withretailers. But Nike, for instance, has a broad product line which includes everything fromshoes to apparel to sporting goods, which in turn allows them stronger negotiating power withretailers. Apple has a relatively narrow product line, but the brand is so strong that they havebeen successful selling both through retail partners (wholesale) as well as through their ownretail 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 thistopic (“How Fashion Brands Set Prices”), describing how most manufacturers start bydetermining the targeted retail price to the consumer, otherwise known as the manufacturer’ssuggested 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 theproduct’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, establishingthe MSRP is more difficult. Many brands will analyze the market and the competitive landscape40 | Page hoangnd@msn. com Mar 2013
  • 41. for the product category to determine where the new product will be positioned. Somemanufacturers lay out a grid with price versus features, placing competitive products on the gridalong with the proposed new product.In addition to the retail price (MSRP), the manufacturer also attempts to estimate the averageunit retail price (AUR). AUR is important because it is the average price the product will bearover its lifetime, taking into account all promotions and markdowns. MSRP is something thebrand 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 determinethe 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, bothretailers and brands have access to robust analytics which give them better information withwhich to negotiate wholesale prices. Also, for manufacturers with broad product lines, themarkup may differ based on the line or even the individual product. Other components canaffect the markup, such as volume discounts, rebates, and marketing/advertising dollarsprovided by the brand to the retailer. Because of these factors, the standard 2x markuprarely applies these days.Once the wholesale price is determined, the brand assesses its cost to manufacture theproduct. If the brand cannot make its targeted margin at the wholesale price, it may decide notto proceed with the product, or it may make modifications to the product in order to reduce thecost. Most brands are looking for margins of at least 50%.This all sounds relatively straightforward… so why is it such a challenge? Because most brandsmust make the decision on whether or not to move forward with a new product 12-15 monthsprior 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 setthe wholesale price based on a standard mark-up over manufacturing cost (say 2x or even 3xtheir cost).The problem here is that when the product is ready to launch, the MSRP may end up being thewrong price because it was developed based on cost instead of what the end consumer willpay. But the problem really started 12-15 months earlier, when the product may have beenover-designed (or under-designed) for the targeted price point.“Data drives so much of our insights today, yet one of the most important and overlookedfactors in trend-related consumer products is the initial price, ” said Matthew E. Rubel, SeniorAdvisor at private equity firm TPG Capital and TPG Growth, and former CEO of CollectiveBrands (previous parent company of Payless, Stride Rite and other brands), in a recentconversation. “Years ago, the advent of GMROI changed the way we looked at gross marginand the investment it took to get it…today we need to test and validate initial pricing in order tooptimize our return. The opportunity for the savvy retailers and brands is to understand this andmove ahead of the curve. ”Today, many brands are using technology to learn the price the market will bear for a newproduct, at the point of initial product development. Manufacturers are gaining consumer insighton candidate new products – even in entirely new categories – 12-15 months beforeintroduction. These manufacturers are able to analyze a price elasticity curve, yielding aforecast of the average unit retail price before product development dollars are spent. They usethis 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 salesthrough 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 andaccessories, told me: “As a brand selling through multiple channels, setting the suggested retailprice is critical for us. We establish retail prices months before a product is launched, so weneed a forward view of what the market will bear. We’re using real time consumer insightsgathered through online engagements which give us actionable data on how to set MSRPs.41 | Page hoangnd@msn. com Mar 2013
  • 42. This gives us insight into higher price point–and margin–opportunities, well before the productintroduction. ”As we have been sharing over the last few posts, price is an essential element in determining anew product’s success or failure. Using historical norms to predict the price performance of anew product is analogous to using a stock or mutual fund’s history to predict how that securitywill perform in the future. As we see in nearly all investment literature: “past performance is noguarantee of future results. ”Next up: Department Store Pricing – No Easy Taskhttp: //www. forbes. com/sites/gregpetro/2013/01/03/pricing-part-3-how-does-a-brand-know-when-the-price-is-right/42 | Page hoangnd@msn. com Mar 2013
  • 43. Department Store Pricing -- NoEasy Task (Part 4 Of 4)In this four-part series, I have been discussing one of the most controversial and importanttopics in retail: pricing. Photo credit: WikipediaThrough discussions with current and former CEOs in the industry, I’ve covered how pricing ishandled by Specialty (or Vertically Integrated) Retailers and Manufacturers (or Brands). In thislast 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 thecustomer 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 relieson its ability to have the consumer view the department store itself as more important than anysingle 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 softgoods.Department stores come in many different shapes and sizes:High fashion specialty stores – those offering upscale, often exclusive designer merchandiseand exceptional customer service (e.g. Saks Fifth Avenue ,Nordstrom, Barney’s, NeimanMarcus)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 StoresLet’s begin with the high fashion luxury retailers. According to Unity Marketing’s Luxury TrackingSurvey, affluent consumers picked up their pace of shopping in the third quarter of 2012, withluxury spending up 25.8 percent over the second quarter. The retailers in this segment havecontinued to perform well, even throughout the last recession. As I stated previously, the totalnumber 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.43 | Page hoangnd@msn. com Mar 2013
  • 44. And yet, these luxury stores are not found everywhere. They select locations in areas with highaverage incomes. Neiman Marcus, for example, has only 43 full-line stores nationwide, focusedin 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 NeimanMarcus, explained it this way: “The luxury customer is looking for quality and knows thedifference between ‘better’ and ‘best’. These stores strive to meet that discernment. Price isimportant, but quality is remembered long after price is forgotten, as are qualities of uniquenessand 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, thatNeiman Marcus has leveraged its brand into an e-commerce business that is now a significantportion 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 wantto 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 aregrowing faster than their high-end counterparts.As Rob Wallstrom, President of Saks OFF 5TH, recently told me: “The Saks customer is lookingfor the best. However, even in the luxury market, each customer has a targeted pricing zone, bycategory, 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 toeach customer.”Wallstrom continued: “At Saks OFF 5TH, we are a value channel versus a clearance orliquidation channel. We offer products which appeal to the aspirational Saks customer who ismore value oriented. Our goal is to provide extraordinary value. Extraordinary value is createdwhen the price is below the perceived customer value. One can create extraordinary value byeither increasing the perceived value through quality, exclusivity, and desirability or by reducingthe price. Our goal is to provide the best value, not just the cheapest price. Our customer wantsluxury product at a great price. If we want to increase the value, we often add more to theproduct desirability rather than merely reducing the price.”Saks’ strategy is interesting in that even in the luxury market, the company knows that there is acertain value quotient – the right combination of price, quality and desirability – which eachcustomer expects. Photo credit: WikipediaMid-Level Department StoresMid-level department stores make up approximately 30% of the overall department storemarket. Some are doing very well, including Macy’s, which raised its comp sales and earningsforecast for 2012 in early November.These mid-level department stores typically offer private label and branded products. Thebranded items often carry a ticket price set by the manufacturer (manufacturer’s suggestedretail price or MSRP – see last week’s post for an overview of how these prices are set); the44 | Page hoangnd@msn. com Mar 2013
  • 45. department stores then use aggressive promotions and coupons to drive purchases. Privatelabel product pricing is set by the department store itself – these products carry a higher marginsince they are designed and manufactured by the retailer.Pricing is clearly a major challenge for these retailers, and many are worried about the “race tothe bottom.” They have conditioned the customer to look for deals, and shoppers can usuallyfind similar items at other stores or online.Their advantage: the customer knows he or she can find a broad assortment of items whenentering the store. For example, many holiday shoppers knew they could get most of theirshopping done with one trip to Macy’s. The “one-stop shopping” pattern allows these retailers touse promotions on certain items to get the customer in the store, while maintaining higher priceson other items.The department stores in this segment are most at risk of “showrooming” and competitionfrom Amazon, particularly given the online giant’s announcement last year that it is entering thefashion arena. This represents a square challenge from a future pricing perspective…althoughmost have not seen it happen yet.Stores for Price-Sensitive ConsumersThis final category competes more squarely on price and identified assortment, and some ofthese retailers have been doing well. As of December 2012, same-store sales at Target andCostco, for example, were up 3.2% and 6%, respectively. However, JC Penney has beenmaking news lately, with sales declining 23% for the same period. Kohl’s was down 1.1%, andSears (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 RonJohnson, formerly of Apple Computer, has taken a page from Apple’s strategy and moved awayfrom coupons, promotions and discounts. Put simply: the price is representative of the product’svalue.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 abigger challenge than I anticipated.” Johnson is also focused on providing more than a greatprice. “You have got to have more support than that,” he said. “It’s how you provide a value thatthe customer will understand.”Kohl’s and Target, on the other hand, continue to promote and discount. Interestingly, Costcohas an approach similar to JC Penney, also declining to make heavy use of coupons and rarelymarking down products.Why has this worked for Costco but has been a challenge for JC Penney? “It’s about customerperception and trust,” explained Mark Cohen, Columbia GSB Professor and former CEO ofSears Canada, Lazarus and Bradlees Department Stores. “JC Penney conditioned its customerfor decades to expect coupons and discounts. It is now expecting the customer to trust that itseveryday 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 intwo months,” added Cohen. “And in response to their new everyday low pricing, theircompetitors undercut them.”Costco’s model was built on value. When a Costco customer walks in the door, he or sheexpects that the products will be of high quality and offered at a low price. The tradeoff for thecustomer is that some of the value is delivered due to the bulk packaging. Costco’s prices arenot necessarily the lowest on every item, however. But it has built up trust over the years withthe consumer that as long as it continues to deliver value, it can afford to inch prices up incertain areas.For JC Penney, I believe the story has yet to be completely written, and any commentary inpreface is obviously premature.45 | Page hoangnd@msn. com Mar 2013
  • 46. Having said that, another interesting strategy is the Target/Neiman Marcus partnershipannounced in October. For Target, this presented an opportunity for the mass merchant to raiseits average unit retail (AUR) prices on apparel and draw in a higher end consumer. For NeimanMarcus, the theory was that the partnership would let it capture the value-oriented shopperwithout having to set up its own outlet like Nordstrom Rack. Also, Target’s nearly 1800 stores inthe U.S. give Neiman Marcus a much larger footprint.The outcome? So far, the results have not been stellar. Sales of the Target – Neiman MarcusHoliday Collection were below expectations, and many items were being marked down as muchas 50% by December 21.ConclusionSo, 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 payfor 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 shirtor vice versa. As Mark Cohen puts it: “Price is at or near the top of the list of factors thatmotivate consumer behavior. Retailers need to manage their price/value equation, otherwisethey become irrelevant.”It is imperative for retailers and manufacturers to embrace the idea of getting inside the heads oftheir 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 priceelasticity of an item, by retailer, even before that product hits the market. Arming themselveswith 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 PetroCEO, First Insight, Inc.Join me at the NRF conference in New York City on January 14 at 11: 00am. I will bemoderating a panel discussion on this topic including several of the industry experts interviewedin these posts: “Everyday Low Pricing? Promotions and Discounts? How to Get EntryPricing Right.”http: // | Page hoangnd@msn. com Mar 2013
  • 47. How Fashion Brands Set PricesConsumer-fashion is a bare knuckle, knock ‘em down, drag ‘em out brawl that is hands down oneof the most challenging, engaging, and addicting industries that I have ever worked in. It is aninsanely ambiguous and obfuscated operating environment surrounding the horrendouslycomplex brand development and diffusion processes.In order to effectively serve the marketplace, the consumer-fashion industry is split into twocomplimentary 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 demandgeneration that maximizes product / market fit for each retail location or property.GAP’s terrible financial performance throughout most of the aughts is probably the bestexample of the risks & challenges that can plague a vertically integrated retailer when one ofthese two divisions is lost (in GAP’s case it was that they lost their product-mojo and are onlyjust starting to get it back). Hence the specialized focus of these two partners has governed thestrategy for consumer-fashion & retail for the better part of the last 20 years – the core reasonsthat 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 sideBrands: 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 ofchange, consumer-fashion brands’ B2B wholesale (i. e. retailers) generated around 80 – 90% ofrevenue from retailers for the first 2-years. This relationship creates two transaction pointswhere 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 valuechain. Keystone markup arose as the simplest way to universally markup goods across theretailer to a profitable level. Generally speaking, it is logistically impossible to uniquely priceeach product (from 100s or even 1, 000s in a given retail location) to reflect market conditionsand retail demographics. The theory being that retailer profitability was more of a function ofunits sold versus maximizing each product’s price. Subsequently, this approach normalizedprices across the marketplace (i. e. everyone is pricing a shirt at $100).47 | Page hoangnd@msn. com Mar 2013
  • 48. Brand to Retailer: This is the B2B wholesale transaction where the brand sells products to theretailer at wholesale price. This B2B price is based on theory of audiences of scale (i. e. millionsof customers going to Nordstrom brick and mortar retail stores and online properties) whoshould receive a discounted price (off retail price) for the retailer’s contribution in the consumerfashion dichotomy. The brand sells to hundreds of retailers to provide them with the volume ofunits required to run their business profitably.Retailer to Consumer: This is the B2C retail transaction where the retailers sells product to thecustomer at Retail Price. The retailer sources product from hundreds of brands to dial in theirproduct mix for selling product to their customers.Now that we have established the basic building blocks for pricing, we need to establish themarket rate to understand how individual products are priced in the marketplace. When you arein the beginning stages of launching a brand, you do a ‘market analysis’ to clearly define thecompetitive landscape. This competitive analysis determines the corresponding balance ofstyle, 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 ispositioned. The rationale is that the overall product landscape establishes the data points that acustomer will evaluate the product relative to what the customer sees as comparable goods. Inconsumer-fashion there are general pricing bands that establish certain boundaries for potentialpricing. For example, one of the launch styles for Cloven was a boat shoe where the pricingbands for a mid-tier boat shoe are about $70 – $90 retail price. This means that pricing theproduct outside of this range immediately draws a red flag in the eyes of the consumer as beingout of place (i. e. not in the $70 – $90 expected price range) – so pricing is heavily dependenton 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 perspectiveTo illustrate how prices are set, let’s roll through the process for how we price one of Cloven’sproducts 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 startup48 | Page hoangnd@msn. com Mar 2013
  • 49. 2. Define Strategic Brand Position:Formally establishes where the brand will sit in the marketplace to serve as the unifying creativedirection of the brand.49 | Page hoangnd@msn. com Mar 2013
  • 50. The potential price is inherently defined by how the brand needs to position it’s product relativeto 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 brandVÆL Project’s Deckard Boot. ]50 | Page hoangnd@msn. com Mar 2013
  • 51. 3. Wholesale Price:Wholesale price is the price charged by the brand to the retailer for product that they haveordered – it’s revenue to the brand and represents the cost basis of the retailer. The generalrule of thumb is that wholesale price is a 2x keystone markup on the first cost (the total cost tocreate finished goods ready for sale in the marketplace) or in other words – wholesale price is a50% discount (0. 5x) retail price.However, the simple world of 2x keystone markup is ending as ERP and IT Systems enablenew insights in all aspects of the retail business that were previously abstractions based onaverages. Today, most brands are under considerable pricing pressure from retailers to markupwholesale price at less than 2x to provide the retailer with the margin required to profitably sellthe product. Retailers are marking up wholesale price 2. 1x to 2. 4x to compensate for inventorymarkdown & return risks that delivers the overall margin required to achieve the profitabilitygoals of the firm. This focus on margin is a function of increased adoption of IT Systems thatallow deeper insight into product performance on the brand and product level versus theobfuscated 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 priceproducts 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. Bothbrands and retailers live and die by the wholesale price – if it’s too low then the brand risks notgenerating enough Contribution Margin to run operations and conversely if its too high then thebrand 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 markupstrategies with the realities of order volume and profitability constraints on funding the brand’soperationsRecognizing that setting the wholesale price on the high end of the range allows the brand toalways back off the price through discounts on product (i. e. 5% off wholesale price for 1, 000units) or marketing discounts (i. e. 5% discount for ad-spend or marketing placement).This image illustrates how this pricing works in the market:51 | Page hoangnd@msn. com Mar 2013
  • 52. 4. Product Development:After you have your target price and wholesale price, you begin to work backwards to defineyour costing & materials. The operating cycle in consumer-fashion is traditionally 12 – 15months meaning the from the time you have your design to when it finishes it’s basic life cycle inthe market.One of the main problems with the launching a new brand is that you have absolutely zeropricing 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 challengingpart of this stage – the tweaking of materials to levels that deliver sufficient quality right up to themonetizable equilibrium between the quality of the materials, construction of the product, andthe customer’s willingness to pay for these costs. Keep in mind that $0. 50 in manufacturingcosts equals about $2 at retail (2x markup to wholesale and 2x markup to retail).52 | Page hoangnd@msn. com Mar 2013
  • 53. Here is an example of the product development revisions made to the VÆL Deckard Boot todial 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 fundamentalbusiness model that has ruled consumer-fashion for the last 20-years (what was referred to inthe 90s as the ‘China Strategy’) is dying – the world of cheap goods is over. Factories in Chinaare closing and the good factories are dropping small & unprofitable brands to stem the lossesfrom 20% real wage growth & materials inflating like leather (cows eat lots of corn & most hidesare shipped from the US to China for tanning).In footwear particularly, a brand has essentially zero pricing power or ability to generateeconomies 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?53 | Page hoangnd@msn. com Mar 2013
  • 54. Why do dresses cost more on adesigners website?Consumer-fashion at its core is highly tactical, deeply psychological (a style/trend gainingmomentum is highly reflexive of the mood that pervades social-cohorts), and heavily dependenton intellectual-capital (i. e. aesthetic, creative, and strategic direction requires immensecognitive investments).Direct business (brands/designers selling product directly to the customer via it’s website) hasbeen an ancillary consideration to most brands (i. e. the direct business took the back seat towholesale (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 ofcommunication & data sharing that adversely inhibits the development of a healthy & efficientfeedback system between the two primary vertical partners, Brands & Retailers. This is astructural 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 revolvesaround 9-month seasonal sales cycle, where 80% of a brand’s revenue is generate through B2Bwholesale orders place by retailers (via ‘buyers’ - the person/team responsible for procuringinventory from brands that achieves theoptimal merchandising assortment for the retailer) atmajor industry trade shows. The importance of trade shows in the archaic business model forconsumer-fashion arose to provide a convenient, centralized location and time frame forretailers to touch, look, and feel all the products from hundreds of brands, dial in theirmerchandising assortment for complimentary products (i. e. boots from Brand X that would lookgreat with the selvage denim from Brand Y) in direct, comparative context, and account for theproduction lead times for brands to manufacture the goods.At the trade shows, brands exhibit their seasonal collections of ‘samples’ - the array of potentialproducts 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 willwork best for their customer based on what other products in the pipeline, the goals of themerchandising assortment, the retailer’s brand & market position, customer & salesdevelopment strategy, and customer demographics. Obviously, brands are only going to go intoproduction on the styles & variations (variations are generally the different colors - they have thesame 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 SeasonThis process inherently does not make sense to me because an entire segment of theconsumer-fashion industry is basing major, life-and-death decisions on product volumes forinventory based on a proxy demand signal - the retailer buyer serving as a representative agentfor consumer demand. Now the most accurate forecasting methodologies still involve are aweighted algorithmic + Delphi Expert Model, but even with the incredible strides in retailanalytics - the concept of elite group of people (buyers) controlling major segments of theecosystem through their assessments of what they like or believe the customer likes. Theprevailing theory that drove the evolution of this model was that buyers have all of the extensive54 | Page hoangnd@msn. com Mar 2013
  • 55. customer intelligence gained by the retailer that is inherently put into practice through the B2Bwholesale 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 priceThe marketplace is directed by buyers: placing orders for product constraining theproduct scope forecasting quantity demanded by top-line data that doesn’t factor anyendemic brand-specific factors order determined 9 - 12 months before the product hitsretail shelves and the customer even has the opportunity to product ‘marketfitting’ feedback[Note: I am not trying to take a piss on buyers - I have an immense amount of respect for whatthey 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 thecurrent season, but they need to build a product pipeline of demand for styles that they arefinancially judged against. This means that they need to stay ¼ step ahead of their customerfalling into 3 - 5 different customer-demand narratives to balance current demand while seedingtrends for the next season. Great buyers introduce a style one season as an outlier styles thatdrive purchases next season to capitalize on demand as the trend diffuses over the currentseason. Furthermore, buyers need to prime for trend shifts that will be hitting the market in oneyear (and subsequently require introduction today to incept the idea and begin to trigger thewant/demand at the correct time).Buyers are what we would know today as curators except they are under incredible levels ofstress as their decisions are made way in advanced and responsible for financial performanceof the retailer. If a buyer screws up one time - they can destroy profitability for entire productlines or divisions. After spending a lot pf time working with buyers over the last 10-years, Igenerally don’t like a lot of buyers because of the ‘too cool for school’ mentality that drivepurchasing decisions based on ego rather than data-informed and intelligent. Hands down thebest buyer in Men’s is Emma Lee, at Gilt Groupe - to say that girl is brilliant is anunderstatement 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 throughthe ordering, production, and shipping & fulfillment to a retail store - the product is now on theretailers website or store shelves. Customer’s now have the opportunity to purchase the brand’sproduct. In retail, there are certain sales level that innately occur simply by virtue of productbeing 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 generatedfollowing about 11-touch points with the trend/style/brand/products - meaning that convertingconsumers 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 customermindshare that drives purchase actions.The most exciting data is the on the ground sales staff qualitative data collection and archetypalnarrative development. Talk to a really good sales reps at Nordstrom - they have massivemental databases about the most valuable customer behavior and how customers break down55 | Page hoangnd@msn. com Mar 2013
  • 56. 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 buildingthe insight on the actual transaction level makes it far more interesting than #s on a page aseach instance is embodied by a visual reference).Remember how in the ‘Buying Cycle’ section, I commented on the prevailing logic was thatretailers have all the customer insight? Well, the systems is fundamentally screwed up in thatretailers do not share any of this data with their vertical partners - it is viewed as a competitiveadvantage and subsequently the property of the retailer. This data-silo’ing behavior adverselyconstrains brand partners from foundation level data to inform the basic comparative frameworkin the ‘Market Analysis’.Retailers protect this data because they are desperately clinging to this as a competitiveadvantage (like Networks in releasing content to the web that fuels piracy) and do not share itbecause 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-directrelationships 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 purchasedata for the 100s of brands that retailers stockDemand generation is the responsibility of the brand - how can brands make meaning use ofdata to refine the product mix & pricing mix if the market feedback is hidden from them? Forexample, let’s say I ran a marketing campaign with a discount of 15% off a pair of shoes atBloomingdales San Francisco. that discount code must be able to be scanned and accepted bythe Bloomingdales ERP - meaning that the brand loses any insight about the customer and hasgiven 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. thebrand driving traffic to the retail partner), the brand is incentivized to full that support from theretailer and focus on owning the customer relationship in a way that creates the most strategic,long term value for the brandIt would make sense to drive traffic to the brand’s core strategic objectives like thebrand’s Facebook Fan Page or to the brand’s E-Commerce site to work on building thecustomer 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 modelBottom line for how this impacts pricing:Conflicting priorities between vertical partners drive information asymmetries thatinherently inhibit accurate insights into the ‘market fitting’ pricing feedback and leads towidely inaccurate information fueling pricing discrepancies.2. 2. High Subjectivity and Large Biases AdverselyImpacting the Comparative Pricing Analysis:In Section 1, we discussed that the first stage of pricing involves the brand conducting a marketanalysis of the competitive landscape. This market analysis establishes the brand’s evaluationof the strengths and weaknesses of competitors products and determines an implicit estimationfor how the brand will balance style, price, and quality that will most effectively capitalize onopportunities in the marketplace.This market analysis is an extremely challenging process because of the dearth of informationavailable at the product level (retailers protect this data) and the high degree of managerial bias56 | Page hoangnd@msn. com Mar 2013
  • 57. in evaluating competing brands & products for this framework - there is simply no way to extracttransaction data from the marketplace. There are proxy signals like time to discount andchannel checking via local retailers, takes time that’s not really practical as pricing decisions aremade 9 - 12 months before products hit retail shelves - but no hard data available to brands totruly substantiate traction based and product / market fit effectiveness for products in theanalysis.Additionally, the pricing strategy is driven by highly-emotionally biased managers that deeplyinvested & fluent in brand-specific details. This leads to a managerial bias that outweighsproduct differences in favor of the brand - most of which is are not reciprocated by theuninitiated new market participants (i. e. customers).This problem is seen all too often in tech when founders focus too deeply on a niche andproduct features as a source of competitive advantage. For example, let’s take a fictitious dailydeal startup that also schedules the local services in conjunction with the daily deal (i. e. eat atthis restaurant at 2 PM or the massage at 3 PM). I have heard probably 20 - 30 pitches over thelast year where this occurs that the founder will say that the scheduling is what differentiatesthem from Groupon or LivingSocial and has lost site that features are not a source ofcompetitive 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 soingrained with their products that profound product differences to internal team does nottranslate into how the customer sees it.Furthermore, the current phase of the brand’s development process dramatically skews thecomparative analysis. New brands that are just entering the market have little traction and socialproof to validate their brand & product strategy leading to an inherent undervaluation of theirproduct and overvaluation of their competitors (the though being “well, this more establishedplayer 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 toovervalue their historical success as the basis for vertical product extensions and new foundego-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 themost important factors in understanding why prices deviate between retailers andconsequently from retailers to brand direct. The price is established by emotionally-invested managers that are heavily entrenched in relative valuations of their productsand do not have the information resources to effectively adjust the pricing strategybefore going to market.2. 3 Supporting Legacy Revenue Channels with ConflictingAgendasAs we established in section 1, Retail Price is a function of Wholesale Price that the brand setsbased on the market analysis and Brand Strategy. In the traditional consumer-fashion retailenvironment where B2b Wholesale represents upwards of 80% of the brand’s revenue, brandsset Suggested Retail Price on their websites at the top end of the marketplace, and often timesabove the ‘actual’ retail price quoted to retail partners, to support the B2B revenue channel andmake retailers appear like a good value / discount.Prior to 2010, it was an inordinately challenging process for brands to generate sufficient onlinetraffic in consumer direct (i. e. BrandXYZ. com E-CommerceBusiness) to be a strategic priorityfor most resource starved brands. The prevailing theory was that retailers have made thesignificant investments to build customer mindshare and owned the customer relationship so itwas 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 brandsbefore 2010 when you began to see brands 10Qs pepper in statements targeting 15 - 25% ofrevenues coming from consumer direct channels, the brand’s site served as an authoritativereference for product information to consumers on price. This meant that on artifically high57 | Page hoangnd@msn. com Mar 2013
  • 58. prices set on the brand’s site and comparatively ‘better’ price on the retailers would generateopportunity costs to drive purchase via the retailer.In the majority of cases, a brand’s site served as an authoritative reference of productinformation source about brand’s products where an artificially high price would make acomparatively lower price at the retailer assuage concerns with any consumer. With B2BWholesale responsible for such a large portion of revenues, it was thought that driving a smallnumber of traffic (the aforementioned inordinately challenging process) would assuage price-checking customers concerns to deliver these customers to the most strategic purchasingchannel.One of the core value propositions that retailers create is the cultivation of mindshare (‘I amgoing to go to Bloomingdales on Saturday’) and generation of significant amount of goodwill asthe customer - whereby the customer had dealt with the retailer & the brand served as theproduct of the retailer. If the customer loved the brand, the retailer was the beneficiary of thecustomer’s goodwill/happiness as the provider of the garment (versus the brand as the producerof the product - its a level of abstraction away from a direct relationship between product &consumer). The retailer controlled the relationship and therefore is the recipient of thecustomers projected satisfaction or enjoyment of the product (as opposed to the brand thatcreated the product).Establishing mindshare & building goodwill deeply connects consumers with retailers - a trendthat is even far more pervasive online as offline. Online shopping for consumer-fashion is aworld of information asymmetries that, when done properly, engenders significant brandengagement & 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 RetailPrice on a brand’s site enabled a certain flexibility for retailers to set prices at optimal levels fortheir target demographics.To support their retail partners, brands would set the Suggested Retail Price at the top line ofthe marketplace with the understanding that retailers would adjust their prices to what works fortheir customers.Historically (i. e. before 10 years ago), if a fashion-savvy teenager wanted to purchase an itemfrom Abercrombie & Fitch & there wasnt 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 anAbercrombie retail store. Great consumer-fashion E-Commerce sites understood that their valueproposition was in their ability to generate significant loyalty by serving the void in themarketplace 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 thecool brands has the same impact that boutiques traditionally held & create pretty loyalcustomers that are branded to one property over another - sayTobi. com to RevolveClothing.58 | Page hoangnd@msn. com Mar 2013
  • 59. com. This is not like daily deal sites like the zero sum game that LivingSocial & Grouponengaged in an epic trench-style war of attrition - customers are predominately StyleABC site orStyleXYZ site with little overlap.By pricing on the high-end, the brand enables the retailers to dial in their pricing model to whatworks for their customer & explains why this prices can vary significantly from retailer to retaileras well as designer/brand to retailer.2. 3. 1 Tertiary Drivers in the Legacy Channel1. 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 corecompetency of the firm. Therefore, more E-Commerce sites historically implement blanketdiscounting models - if the product has X% remaining stock after 4-week then the product isautomatically discounted by 10%.Once an order to a retailer leaves the docking bay, the ownership of the product changes to theretailer - an accounting & legal concept call FOB or ‘Free on Board’. Thus, the brand has littlefunctional control as the retailer owns the product & has the financial imperative to ‘turn’ theinventory. The brand can do things like threaten to pull the account from a retailer - but this doesnot happen most of the time because the brand needs the retailer more than the retailer needsthe 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 prioritiesof the firm. A small consumer-fashion brand ( <$10m) has approximately 3 - 7 sales repscovering geographic locales - remember this model is geared around sales reps who would putsamples 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 teamsfor consumer-fashion companies retreated back to what they know best. Generally speakingthese are guys and girls in the 30s & 40s (Gen-y’ers) whose first response is to get back tobasics (i. e. the dying 20-year business model) to keep the company alive - thereby reinforcingthe sales rep’s sole in the company & managerial support for this model3. Drive Retail SupportMajor retailers were the primary revenue channel for brands & their scale enabled brands toachieve the volumes that made the business attractive. The goal of the brand was to supportthe retailer and stay “in their good graces” by driving potentialtraffic to the retailer. Here was thebasic strategy:A major retailer like Nordstrom. com will place a pre-season order for 1, 300 units with awholesale price of $105. 00The Brand sets the Suggested Retail Price at $245. 00, while the retailer prices it at $230representing a 6. 1% discountAssume that seasonal mins are 2, 500 units - a minimum is the # of units set by the factory thatmust 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 forproduction for the entire season ($135k). However, the real value is in working with Nordstromover numerous season, when the numbers can look like:59 | Page hoangnd@msn. com Mar 2013
  • 60. 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 - sothese 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 generationsomething like $5. 25m in top line revenue. Additionally, if we extrapolate this E-Commerce out (assume $40k/mo), we are looking at brand direct at about 8% of totalrevenue.2. 4. Emotional Engagement Drives Pricing Power:I wholeheartedly believe that modern brands are evolving into more substantive, direct, andengaging relationships with their consumers to the level of aesthetic & intellectual peers. Thistransformation has is roots in the Great Recession when the macroeconomic devastationsparked a reevaluation of consumption psychology to and technology opened the door to a newworld. 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, andleverage home equity to buy TVs). After the house was foreclosed on, Corporate job lost, andall the debt-fueled toys were taken away - the pervasive American consumption psyche hasstarted a fundamental change as consumers (consciously & subconscious) are shifting theirconsumption dollars to products & brands that deliver greater value beyond product & withwhom consumers identify with as individuals and feel like their business matters to thecompanies they are supporting.This shift in consumer psychology was enabled by the explosion of the “social web” thatcollapsed the barriers for consumers to discover about brands & products and learn about whothey are as people. The brilliance of the social web is that it enables engagement to be drivenby rich, personal, and substantive relationships that support companies & people that youactually like and identify with. From Quora to Gilt Groupe, every transformative startup over thelast 5 years has demonstrated that great products require the creation of a meaningful60 | Page hoangnd@msn. com Mar 2013
  • 61. emotional bond between the user/customer & the product/brand that fosters a sense ofpersonality, ethical, & philosophical congruency. This is what we now call ‘emotionalengagement’ - where the combination of product, brand, and social experience cultivate afriendship between the people at the brand and the customer.The phenomenal successes of Etsy, Kickstarter, and invested. in demonstrates that consumerswill 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 brandexperience & 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 (andshow 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/61 | Page hoangnd@msn. com Mar 2013
  • 62. 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 yearsa 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 “raceto the bottom” on pricing. What I find particularly interesting is that these three companies areemploying lessons learned from other industries to build long-term, sustainable competitiveadvantages. And it’s paying off.Uniqlo: Choosing Long-Term Appeal over TrendsFirst, let’s look at Uniqlo. The real differentiator for this company lies in its leadership. As CEOof Uniqlo’s parent company, Fast Retailing, Tadashi Yanai is the wealthiest man in Japan. Hisgoal is to grow Uniqlo’s revenues to $50 billion in 2020, quadrupling current levels, with $10billion of these sales coming from North America.Lofty growth projections are certainly nothing new. What is different is Yanai’s approach to thebusiness. While other apparel companies focus on finding and following the latest fashiontrends, 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’tabout continual process improvement or making the perfect piece of denim, it’s about chasingtrends. ” While Yanai believes in the power of being on the leading edge, he puts more stock inlongevity, 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 thermalunderwear, and denim. The company believes their customers care more about quality andvalue than about a quick response to changing styles. Rather than rushing to market, Uniqlo62 | Page hoangnd@msn. com Mar 2013
  • 63. uses long development cycles in which they test new materials and designs. And instead ofjumping from vendor to vendor, they develop long-term partnerships with materialmanufacturers.In this way, I find Yanai’s strategy to be similar to that of automakers. Car manufacturersspend months or years in product development to create a product that will appeal to a range ofconsumers. And while some manufacturers do emphasize trends, quality trumps trendinessover the long term.The fashion industry may well be following a similar path as the auto industry. Between 1896and 1930, more than 1, 800 auto manufacturers existed in America. Why? Automakerswanted to develop cars that suited each individual’s tastes. By the early 1940s, a largepercentage of these companies had gone out of business, and today we have just a fewmeaningful automakers in the U. S.As in the early days of automaking, the current U. S. market is saturated with apparel brandsand retailers. Mickey Drexler, CEO of J. Crew, said in a recent CNBC interview, “There are toomany retailers. There are too many brands. There are too many designers. There are too manydiscount stores, and the predator online companies are selling discount like crazy. ”Yanai operates Uniqlo more like a 21st-centry automaker. He identifies styles within productcategories that won’t quickly go out of fashion, differentiates these styles, and then setsup a supply chain that delivers these styles to the consumer. Uniqlo has alsoimplemented a strategy used by the technology industry, known as “plannedobsolescence. ” Yanai drives consumers to update their wardrobes based on changes intechnology — changes discovered and implemented by Uniqlo — rather than updating inresponse to ever-shifting style preferences.The results have been impressive, and Yanai’s approach has made Uniqlo one of the world’smost successful retailers. It is gaining fast on rivals like Gap and H&M. Drexler complimentedYanai in the Wired article, saying, “Not only is he a great merchant, but he has an extraordinaryvision and an unwavering long-term vision. ”Looking ahead to ZaraIn my next installment in this series, I will focus on Zara. At the other end of the spectrum fromUniqlo, 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 tothese 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/2/63 | Page hoangnd@msn. com Mar 2013
  • 64. 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 aremaking strides by bucking traditional retail models. In that post, I described Uniqlo’s focus onquality and longevity; CEO Tadashi Yanai’s strategy is to avoid trendy fashions and build asupply 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 thestrategy spectrum from Uniqlo but has achieved similar levels of success.Zara: Responding to Consumer TrendsSpanish apparel company Zara has built its strategy around consumer trends, embracing thefast-changing tastes of its customers. To do this successfully, Zara has developed a highlyresponsive 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 upto more than 10, 000 new designs each year! It takes the company only 10 to 15 days to gofrom the design stage to the sales floor. Because of this streamlined model, Zara is not forced tobe 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 subcontractingmanufacturing to Asia, Zara built 14 highly automated Spanish factories, where robots workaround the clock cutting and dyeing fabrics and creating unfinished “gray goods, ” thefoundations of their final products. Like Uniqlo, Zara leverages automaker principles; theseautomated factories use a “just in time” inventory approach pioneered by ToyotaMotor Company.Zara has also created a partner network of more than 300 small shops in Portugal and Galaciato handle the finishing work; here, the gray goods are transformed into dresses and suits. Byfollowing this approach, if an item looks like a winner, Zara can quickly ramp up manufacturingand 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 revenue10% to $19. 15 billion for its fiscal year ending January 31, 2012.64 | Page hoangnd@msn. com Mar 2013
  • 65. 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 inAsia and finishing in the U. S. This approach allows these companies get products into theirstores — and into their customers’ hands — more quickly.Up Next: H&MUniqlo 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’tsacrifice any of the success.http: //www. forbes. com/sites/gregpetro/2012/10/25/the-future-of-fashion-retailing-the-zara-approach-part-2-of-3/65 | Page hoangnd@msn. com Mar 2013
  • 66. 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 theyhave abandoned the traditional retail model for their own approaches, each diametricallyopposed to the other. Uniqlo focuses on technological differentiation, using long productdevelopment cycles and offering basics that appeal to a large consumer base. In contrast, Zarahas 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 approachthat is a hybrid of the Uniqlo and Zara models. It manages to merge a commitment to longevitywhile staying responsive to fashion trends. What are the keys to its success?H&M: Building a Bridge between Timeless and TrendyH&M is the second largest apparel retailer in the world, just behind Inditex SA. With 2, 600stores in 43 countries, H&M was a pioneer in pursuing vertical integration with its owndistribution network. The company’s clothing collections are created in Sweden byapproximately 150 designers and 100 buyers. H&M outsources production to a network of 800suppliers; 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 primarycollections are traditional long-lead items; the sub-collections are trendier items with short leadtimes.The enabler to H&M’s ability to react quickly is its network of 20 to 30 production offices, whichare placed close to its suppliers. These offices work with both the buyers in Sweden and theproduction facilities, reviewing samples, checking quality, and choosing the suppliers, which willhandle 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 responsiveto trends.H&M also has a world-class IT infrastructure, which is key to its success. Each store isconnected 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 executiveshave visibility into the entire process, from product design to sales. This leads to more effectivemanagement across all channels.66 | Page hoangnd@msn. com Mar 2013
  • 67. Three Different Approaches, Important Common GroundUniqlo, 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 hotstyle. A fashion retailer may have a few great merchants who are able to put together a string ofwinners, but being dependent on the keen eye of a few people is a risky strategy. These threecompanies have institutionalized this process, greatly reducing their markdowns. Across theindustry, 30-40% of products are sold at markdown prices, as compared to only 15-20% forZara.How do Uniqlo, Zara and H&M do this? An all-important shared pursuit of the three companiesis a deep understanding of their customers’ wants and needs. All three have built systems foridentifying consumer preferences. In Uniqlo’s case, getting customer preferences right isextremely important because of its lengthy development cycles and long-term commitments tomaterials and products. For Zara, reacting to consumer desires is a core component of itscompetitive advantage. And H&M is well known for its focus on researching and predictingemerging trends — a function the company staffs both in Sweden and in national offices aroundthe 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-3/67 | Page hoangnd@msn. com Mar 2013
  • 68. Uniqlo: How Japanese BillionaireTadashi Yanai Plans To ClotheAmerica Tadashi Yanai (Image credit: AFP/Getty Images via @daylife)Tadashi Yanai looks like a mild-mannered Japanese executive. But he is one audaciousclothing salesman. His goal is to turn the retailer he runs, Uniqlo, into a company with $50 billionrevenues by 2020, selling low priced yet fashionable, basic items like v-neck cashmeresweaters, colorful t-shirts and lightweight down jackets. To do so, he’s planning to open 1, 000stores 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 theheart of San Francisco, with the city’s mayor at his side. “Our goal is to become first in mind” asa 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 fourthlargest 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’sstake in Uniqlo’s parent company Fast Retailing is worth $11. 5 billion, up from $10 billion sinceMarch, 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 grewup living above his parents’ clothing store in a small town in Yamaguchi Prefecture insouthwestern Japan. He studied politics and economics at university in Tokyo, but he comesacross as a retail philosopher. When I ask what sets Uniqlo apart from it competitors, he pullsout a laminated card printed with the Uniqlo creed, in Japanese on one side and English on theother. One element seems very Zen: “Uniqlo is clothing in the absolute. ” Yanai explains thatit means he wants his clothing to be an extension of the person who wears it, to be somethingthe customer doesn’t have to think about.Yanai differentiates Uniqlo from “fast fashion” chains like H&M and Zara. He’s not chasingtrends; 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 hipyoung Bay Area artists and tech bloggers wearing his item of the moment: a lightweight downjacket. 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 FranciscoChronicle came wrapped in a Uniqlo ad, and people were handing out flyers around downtownpromising giveaways of lightweight down jackets to “selected lucky customers among thefirst 500. ”68 | Page hoangnd@msn. com Mar 2013
  • 69. The latest hiccup was in China, where about 70% of Uniqlo’s clothes are manufactured. InSeptember anti-Japan protests in China led Uniqlo to temporarily close 7 of its 164 stores in thecountry. Yanai refers to what happened as “sad events” and vows to continue his company’spartnership with the country. The plan is to eventually open 1, 000 stores there as well. “We’regoing to remain on plan, ” he said.In an effort to make his company more global, Yanai has declared English the companylanguage. So it was a surprise to learn that he wanted to conduct the interview with Forbes inJapanese. His English is actually quite good –he understood nearly all of my questions withouthelp from a translator –but like so many of us, he’s more comfortable in his native tongue. Thatalso gave his lieutenant, Yasunobu Kyoguku – the chief operating officer of Uniqlo USA– achance to weigh in, in flawless, unaccented English. It’s up to Kyogoku to open 995 more storesin the U. S. He’s trying to make Uniqlo a part of the community, working with nonprofits, and hewants to weave music, art and fashion into the Uniqlo experience. “One thousand people linedup inside a mall in New Jersey for our opening there, ”says Kyogoku. It’s clear he’s hoping for arepeat of that in San Francisco.http: //www. forbes. com/sites/kerryadolan/2012/10/05/uniqlo-how-japanese-billionaire-tadashi-yanai-plans-to-clothe-america/69 | Page hoangnd@msn. com Mar 2013
  • 70. Are Retailers Reaching ConsumersOf 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 demographicso important?Millennials – also called “Gen Y” – are defined as the 50+ million Americans ages 18-29 whoare the first generation to pass into adulthood in the new millennium. According to PewResearch, 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 entryinto careers has been hurt by the Great Recession, 90% of Millennials say they currently haveenough money or will eventually meet their long term financial goals. However, the currentunemployment 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 parentsbecause of the recession. And, according to PNC Financial Services, the average member ofGen Y carries $45, 000 in debt, mostly due to student loans.Nevertheless, Millennial college students without full-time jobs spend $784 a month ondiscretionary (tùy ý) expenses, especially food and entertainment, according to the Mooslyvaniamarketing agency. Millennials are also the largest demographic purchasing electronics andfashion apparel. According to Bloomberg Businessweek data, Millennials ages 25-34 spend8% 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. Forthose Millennials who are employed, spending on food, apparel and entertainment often comesat the expense of other areas. For example, nearly 40% of Millennials are estimated to bewithout health insurance, according to Bloomberg Businessweek.These trends are not lost on retailers. Over the last 10 years, the number of retailers targetingteens and twenty somethings has skyrocketed. Walk through your local mall, lifestyle center orstrip 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 ofthese retailers are essentially targeting a similar demographic — a group which, as a whole, hasvery little spending power.The question is, how long will this continue, given the economic realities facing Millennials? Iexpect that Millennial spending will eventually align with their income levels. But they are a hugegroup and will still be spending. As Millennials become more frugal, how can retailers determinewhat they will buy, and find ways to reach them, so that they retain or even increase share?70 | Page hoangnd@msn. com Mar 2013
  • 71. Millennials have different preferences, not just in the products they like but in how they learnabout products and shop for them. Millennials tend to distrust big business. They don’t readcirculars. They don’t respond to traditional surveys. They don’t use email as much as theyuse social media. They like to communicate with each other through social media but are waryof direct engagements with adults and businesses.Where does this leave vertically-integrated retailers who want to target Millennials? Theseretailers don’t have the luxury of placing a large number of small bets across a wide variety ofproducts in the hopes that Millennials will respond by opening their wallets. Integrated retailersmake big buys of a relatively small number of items and, in the Millennial category, theyoften change out the merchandise every month or two as preferences change. Theseretailers know that they need to respond to these fast-changing preferences, as was noted in arecent 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 isenjoyable and the access is on their terms. They enjoy playing online games, particularly usingmobile devices. When they are invited to engage with a brand or retailer they like, they do so inhigh 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 leveragedinto. These approaches can take the guesswork out of developing product assortments whichappeal to Millennials, enabling retailers to continue to gain share in this challenging segment. Itall seems very natural, authentic and meaningful in the interaction. I think an approach such asthis 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/71 | Page hoangnd@msn. com Mar 2013
  • 72. What Is The Kryptonite Of TheMillennial Generation?No generation is just a single dimension or can be defined by a single thing. However, there arecertain 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 somany millennials entering the workforce today. Having attended conferences where I havelistened to them present, seen them in action at companies across the country, or workedalongside of them on projects, there is a level of sophistication that did not present itself foryears with my generation.(Although, to be fair, that was because we all sat around in coffee houses, draped in way toomuch flannel, debating Nirvana lyrics, and deciding whether Ticketmaster was evil or justgreedy. )But, in spite of growing up in the midst of a great technological leap forward, millennials have afatal flaw – a weakness in your armor – and that is a lack of perspective. This generation isgreat 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 newsfeeds, means you can know everything about everything as long as it washappening 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, moreinformed decisions is what keeps holding you back. It is the difference between “knowledge”and “wisdom. ”History RepeatsThe decisions in your field or discipline that you are facing today have already happened. Thenames, the details, or the particulars change, but the problems and potential solutions havebeen addressed since well before you were born. With enough study in any particular area, youwill see that similar patterns continuously emerge. For example, there is always a businessdisruptor 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 byThe Great Depression, followed by global conflict and WWII to see similarities from our glut inthe 90′s, recession, and increase in global turmoil today. You saw a similar scenario play out inthe ‘70s. Can history predict the future? Alas, no; there is no crystal ball here, but how webehave and react to the world is pretty consistent – it is hardwired. Seeing the patterns helps tohelp us make smarter decisions. This is why some really smart folks put their money in bonds in2007, and why some VCs know where to invest in the next new technology disruptor.72 | Page hoangnd@msn. com Mar 2013
  • 73. Do you want the seat at the table to help make smart decisions (or just be able to make themyourself)? 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. TriviaAre you the wiz kid when it comes to 80′s night at the bar trivia contest? Trivia is fun, and doeshave a place in your future career longevity. Trivia can be the sugar-free sprinkles on yourorganic, rainforest-saving yogurt swirl. That little bit extra! Having an understanding of trivia andcultural 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 oftrivia, 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 asmall 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’sshow host, “Working for the Weekend, ” and lastly . . . it is a trick question – there is no “best”Kenny Rogers movie. )A Well-Read MindInterested, but not sure where to start? First, begin with a little light history. Read A History ofKnowledge: Past, Present, and Future by Charles Van Doren, or A Really Short History ofNearly Everything by Bill Bryson, or go really old school and read H. G. Wells brilliant A ShortHistory of the World. As you read, jot down what you find interesting – what piqued yourinterest. 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 andlet that lead you to the next thing, and the next thing. (Interestingly enough, Charles Van Dorenwas the contestant caught up in the “Quiz Show Scandal” and immortalized in the move QuizShow by Ralph Fiennes. Now there is some trivia for you!)Second, find publications in your discipline that provide analysis of situations, and not juststraight reportage. Pubs like The Economist, The New Yorker, Forbes, or Harvard BusinessReview are great places to start, but certainly not the only ones. They can add some insight intorelevant events and will lead you to some interesting places.Lastly, develop a mentor relationship with others from other generations on projects andinitiatives. Your job it two-fold: you want to learn as much as you can from those people. It isalso 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 decisionmaking will not only make you wiser, but will help to truly distinguish you from the herd of otherswho also went to “leadership camp” when they were 8 or who built their first app when theywere 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 checkout Brad Szolllose’s book, Liquid Leadership. You can also follow Todd onTwitter @toddmwilms or connect on LinkedIn as I continue to offer up perspective andsome Facts of Life-esque wisdom!http: //www. forbes. com/sites/sap/2012/07/24/what-is-the-kryptonite-of-the-millennial-generation/73 | Page hoangnd@msn. com Mar 2013
  • 74. Why You Should Be HiringMillennials [Infographic]There are certain stereotypes that go along with being a millennial. Social media-obsessed andapathetic 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 millennialshired.According to the study, millennials are highly ambitious, with a majority placing an importanceon jobs with chances for career progression and personal growth. And while it’s no surprise thatthese ambitious young people are plugged in through social media, the study said hiring anemployee 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—prettygood news for employers to have a generation of workers who are natural web marketers on theway.This study, which is outlined in the graphic below, illustrates the traits that make millennialshirable, and how they differ from previous generations.74 | Page hoangnd@msn. com Mar 2013
  • 75. 75 | Page hoangnd@msn. com Mar 2013
  • 76. 76 | Page hoangnd@msn. com Mar 2013
  • 77. Not only do millennials multitask far more than previous generations, they value socialmedia 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 soimportant. For millennials like me, using Facebook is second nature to keep up with friends andfamily, 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 arecashing 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 theirjobs, new products their company has come out with and events their employer is doing. Evenwhen I look back at my own timeline 90 percent of my status updates are linked to Forbesposts.This tendency to share every aspect of our lives naturally translates to our work life. What we doat the office is just as much part of our lives as who we’re dating, what we had for breakfast andwho 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 yourFacebook page up and keep tweeting because these seemingly trivial social tasks might landyou a job.http: //www. forbes. com/sites/mattmiller/2012/07/03/why-you-should-be-hiring-millennials-infographic/77 | Page hoangnd@msn. com Mar 2013
  • 78. What Millennials Want Most: ACareer 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 beliefshave stuck with tomorrow’s talent.It’s tempting to think that these grass-roots sentiments will run their course, but my interactionswith young professionals around the globe, as well as our own research, tell me there issomething larger at work, and that business leaders need to pay attention.Occupy’s core issue, damaged trust in business, remains strong with millennials—strong ininterviews, strong on college message boards, and strong on social networking sites. Thisfundamentally different recession has created a potentially fundamentally different generation.As digital natives and emissaries from the future, the millennials hold the keys to unlocking thesecrets of tomorrow. Researchers predict that this year there will come to be more mobiledevices than humans on the planet. We need this digital generation to join us in unleashing thepotential of all that mobility and access to information. And they will, but only if they believe ourorganizations can offer them careers that, well, actually matter. Given that Deloitte’s memberfirms will recruit 250, 000 people around the world over the next five years, this obviouslyresonates 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 aboutthe many things we do to make the world a better place. Jobs and homes. Opportunity andsecurity. Breakthrough new ideas like the iPad. The works.Never mind the still sluggish job market. In their insistence on social principle, many millennialsare not driven by money or success in quite the way their parents were. This generation wantsto know what your organization stands for in improving society, what it stands for in action, asopposed to blowing smoke. Millennials want to know how they will make a positive difference inthe world if they join your business, not by wearing a colorful T-shirt on a special project once ayear but in their actual work.Did I mention that this media-savvy generation is also jaded and suspicious? Unimpressed bytitle, well-traveled, and immune to P. R. in the old sense? To anyone who imagines theirheartstrings 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 inwhich 25% of Yale grads launch their careers. They called such choices a “brain drain, ” or “atragedy of wasted minds, ” as one Dartmouth undergrad put it. Deloitte signed up some 49, 000minds 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.78 | Page hoangnd@msn. com Mar 2013
  • 79. My organization examined the opinions of 1, 000 millennials at Deloitte member firms regardingthe impact of business on society. We found that more than half of them believe that in thefuture business will have a greater impact than anyone else in solving society’s biggestchallenges. And 86% of them believe business will have at least as much potential asgovernment to meet society’s challenges. Clearly, taken as a whole, millennials do not seebusiness as a waste.Yes, employment remains a challenge, in the U. S. and especially in parts of Europe sufferingfrom double-digit unemployment, such as Spain, Portugal, Italy, and Greece. True, more needsto 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 fullthrottle, to get us out of the ditch. To do that effectively, business needs to move past the denialstage 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 theybelieve 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 doevery day.In an effort to do just that, our member firms’ professionals are fully engaged. For example, inKorea they are creating new efficiencies in the nation’s IT infrastructure and thereby helping adeveloping 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 thatsupport 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 hungryfor this talent.In turn, greater economic equality between men and women has been shown to reduce povertyrates, boost GDP, and lead to better governance. That kind of social change, driven as much bybusiness as by government or nongovernmental organizations, is bringing major benefits to thenext 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 deeperglobal dynamics of the business enterprise. Damaged trust in business is one side effect of theevents of recent years. Like all our stakeholders, our digital natives need to know that they cantrust 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/79 | Page hoangnd@msn. com Mar 2013
  • 80. Postscript On Retail Pricing: AvoidingThe "Race To The Bottom" Photo credit: WikipediaAt the NRF conference in New York last week, I had a chance to talk to a numberof retail CEOs about the topic I’ve been covering the last few weeks: pricing. Iam 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 PricingRight”. 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), andNikki Baird (Managing Director of RSR Research).Although these executives come from different perspectives – specialty/verticallyintegrated retailers, brands and department stores – they all agreed that pricing isa huge challenge. They also agreed that poorly executed pricing strategies can bethe death knell for retailers, and could end up lowering the water mark for theindustry as a whole.As Matt Rubel explained: “The model that has been in place over many years wasthat you would look at your competitive set, and your distribution, understand theproduct category that you want to be in, understand what you can buy the goodsfor, 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 thatyou can arrive at the final price with the most gross margin throughput againstyour 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 strongproponent of product differentiation:“You have to know your customer, who is that customer, you really have tounderstand 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 disregardedthe 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 paneldiscussion, Nikki Baird reported some of the results of RSR’s 2012 BenchmarkReport on Pricing. Interestingly, RSR found that over 50% of respondents said that80 | Page hoangnd@msn. com Mar 2013
  • 81. 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 pricingfunction and are investing in tools to manage the process.“Retailers have an opportunity, with more tools available than ever before, to makebetter decisions,” said Baird. “It’s just a question of everybody starting to usethem.”Is Anyone Selling at Full Price?I also had an opportunity to attend the 23rd annual Financo CEO Forum at theHarmonie Club last week while in New York. This year’s panel included LewFrankfort (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). Thepanel discussion focused on the importance of the in-store experience in conveyinga brand. Frankfort articulated the differences between the online and in-storeexperience by describing the store of the future as a “3-D portal.” In contrast, hesaid the online experience is only two-dimensional.But the real fireworks (just like last year) came when Mickey Drexler, CEO ofJ.Crew, challenged the panel by asking: “What percent of your goods are sold at fullprice?”Drexler said that J. Crew sells two to three times the industry average percentageat full price, “except during Christmas.”Just the week before, at the WWD Apparel & Retail CEO Summit, I heard Drexlermake a poignant point: “The real price of goods is always the selling price. The bestprice is to sell it for what it’s worth.”Mickey Drexler is confirming Matt Rubel’s comments. Why are brands and retailerscontinuing to use the “old school” pricing method of applying a mark-up to theircost of goods, based on their margin targets? We already know the result of thisapproach – hyper-promotions, markdowns, clearance pricing – a “race to thebottom.” Gartner and others have stated that over 50% of new products continueto fail, and poor knowledge of what price the market will bear for a new product is amajor contributor.What is a Product Really Worth?So how do retailers know what the product is really worth, and what the sellingprice 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 carriestransparent anywhere anytime. While exclusive brands and private labels offerretailers some protection from price transparency, anytime anywhere access toproduct reviews and information also puts downward pressure on the prices.”Girard continued: “Avoiding the effect any race to the bottom on price has onrevenue, margin, and unit sales erosion requires bringing the right products tomarket and setting their initial price right, otherwise forced promotions andmarkdowns erode AUR and consumers’ perception of the brand’s value. Thesedynamics now put a premium on predictive analytics that complement merchantjudgment.”81 | Page hoangnd@msn. com Mar 2013
  • 82. I believe in the end that successful retailers and brands will avoid the race to thebottom by:Offering a distinct, differentiated product.Being authentic in their pricing strategies, with an accurate understanding ofthe customer value quotient – the combination of product desirability andprice 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 ofAmerican Eagle Outfitters said: “In our view, ultimately the brands that are wellpositioned with the leading product assortment and competing on intrinsic value isthe 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 wouldrather “sell more regular price [merchandise] to maximize margin than to be stuckwith 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 believe2013 will be a critical year for retailers as they define (or re-define) their pricingstrategies. I look forward to learning from and sharing with all of you as we moveforward!Greg PetroCEO, First Insight, Inc.Watch the NRF panel discussion: “Everyday Low Pricing? Promotions? Markdowns?How to Get Entry Pricing Right.”http: // | Page hoangnd@msn. com Mar 2013
  • 83. Pricing Wars Make A Punch AndJudy Show Of Retailing: RunningFor Higher GroundThis 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. Justas the customer gained the balance of power by unabashedly “showrooming” (going into thestore 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. Infact, the entire pricing and discounting game is getting so complex and chaotic that it may verywell drive both consumers and retailers over the sanity cliff. Once off the edge, the pricing anddiscounting madness will likely continue between them, all the way down, and this race to thebottom will benefit no one.Did The JC Penney ‘Fair and Square’ Promise OfferSalvation?Now widely known and debated is the grand vision of JC Penney’s CEO, Ron Johnson (formerhead of the Apple retail phenomenon), in pursuit of transforming the department-store businessmodel. A lynchpin of his strategy was his bet that consumers had reached a threshold offrustration, exhaustion and total mistrust of retail pricing. Thus, he developed a “fair andsquare” pricing model, devoid of promotions, coupons, and “high-low” pricing gimmickry. Thepromise 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 isan experience-driven physical overhaul of the stores, the pricing strategy taken on its ownwas confusing to consumers — ironically the reverse of its “fair and square” intent. This led toan enormous loss of business, and the current reality is that he’s had to revert back todiscounting and promotions.In light of Johnson’s reversal, once the stores are transformed, will his bet on consumers’ goingover the “sanity cliff” of pricing madness actually pay off? Will shoppers seek salvation and thecomfort of “trust” in the simplicity of a fair price? Or has retail pricing convinced the consumerthat it’s all a gamble?There are definitely other, less fair and square strategies afoot. With two new disruptivetechnology tools, retailers who are betting on consumers’ inherent need to gamble are flipping83 | Page hoangnd@msn. com Mar 2013
  • 84. showrooming on its head and taking the game up a notch or three, for both their competitorsand their customers.Dynamic PricingHere’s a fable for our times: It was recently reported in the New York Times that Amazonoffered 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 ThanksgivingDay, which was then matched by Best Buy’s ‘doorbuster’ special, and went to $15 — onceWalmart 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. Theunluckiest buyer paid more than triple the price that the luckiest buyer paid.” Other examples ofthis 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, retailersare able to pull this off — something they are euphemistically calling “dynamic pricing.” Retailerscan learn how their competitors are pricing specific items and then instantly change their pricesaccordingly. Remember the good old days, when retailers would send employees tocompetitors’ stores to check pricing, and days later put up their own “sale” signs? Nowcompanies like Feedvisor and Mercent are using sophisticated computer programs to driveautomatic price changes in a matter of seconds. Scary.Personalized PricingThere’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, from each of the 42,000-plus U.S. Zip codes, testing the price of a Swing linestapler. Additionally, in each of 10 Zip codes, for over 1,000 different products, they found thatprices varied for about a third of the products, with as many as three different prices forindividual items. Higher prices were found 86% of the time in Zip codes where a Staples storewas located but was a long distance from a competitive store. Likewise, Zip codes that werefarther than 20 miles from a Staples store had higher prices 67% of the time, whereas if aStaples 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 wherethey are living, down to their Zip code, and what their income range is likely to be, thendetermine 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 specificniche consumer groups.What Can Be Done?What other options are available, short of a Ron Johnson-style radical redesign of the physicalstore? 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 ofthe 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 shouldbe increasing their distribution platform so as to be available wherever, whenever. This is calledpreemptive distribution.But beyond this, retail has got to get back to being fun, exciting and engaging. Maybe easiersaid than done, but take a look at the way Banana Republic is partnering with tobring singles into their stores for cocktails and special shopping deals. That’s a headycombination capable of creating a high degree of expectation beyond just shopping. Or howFashion’s Night Out has annually built on it s previous year’s success to get folks to have areason to look fabulous and hit the stores. The common denominator is that the experience has84 | Page hoangnd@msn. com Mar 2013
  • 85. 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 retailerscan take to the bank (pun intended) is less profit. This is simply due to the fact that regardless ofall the new pricing weapons retailers can deploy, and more potentially looming, weak consumerdemand will continue to force prices down.Retailers need to transcend the discounting madness and reach for higher ground or be part ofthe downward spiral. Because in the end, it all comes down to the customer’s trust. At least RonJohnson is betting so. | Page hoangnd@msn. com Mar 2013
  • 86. JCPenney Returns To High-LowPricing, 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 bemarked 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, Staffordand Arizona, according to the report.JCPenney and CEO Ron Johnson famously tried to do away with this strategy lastyear, implementing every day low prices, or “fair and square” pricing as the retail dubbed it inads. In that time sales have plummeted by 25% for the year with stock prices fairing muchworse.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 itcan’t win for trying. Cut sales and there’s a chorus of critics bemoaning the move. Add themback in, and get called a hypocrite. Recall the old pricing scheme the critics are mourning andit’s all over but the foreclosure sale.JCPenney doesn’t stand a chance. | Page hoangnd@msn. com Mar 2013
  • 87. J.C. Penney Tweaks (Again) ItsRadical Pricing Strategy, WhichContinues to Sink Sales2 comments, 1 called-outComment NowFollow CommentsA two-story J. C. Penney in Aventura, Florida (Photo credit: Wikipedia)Heading into the make-or-break holiday selling season, J.C. Penney continuesto hemorrhage sales, prompting the retailer to, once again, revise its radical“fair and square” pricing strategy, which eliminated most sales and coupons infavor of 40 percent lower everyday prices, but has befuddled and alienatedshoppers.Third quarter comp-store sales released this morning sank 26.1 percent.Nine months into CEO Ron Johnson’s bold makeover of the chain, theformerApple executive still insists that Penney is on the mend, although storetraffic fell 12 percent in the quarter from the year-ago period, when the chainwas running 590 sale events and coupons.87 | Page hoangnd@msn. com Mar 2013
  • 88. The Winners (Target) And Losers (Best Buy)This Holiday Season Barbara ThauContributor J.C. Penney SlidesFurther Into Oblivion Walter LoebContributorHowever, Johnson did concede that the company’s pricing strategy, launchedin February, remains “confusing to our customer,” he said this morning duringa web cast to review third quarter earnings.“The bad news,” he said, is that the quarterly comp-store sales drop andshopper traffic declines reflect the elimination of its month-long sale event inAugust, 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’ suggestedretail price as well as Penney’s lower price on price tags hanging from itsnationally branded items, in a bid to highlight the value to shoppers, Johnsonsaid.It will also start participating in seasonal vendor promotions, so if Jockey hasa spring sale event, for example, J.C. Penney will be a part of it — which hasbeen a missed opportunity that has hurt its competitive position.88 | Page hoangnd@msn. com Mar 2013
  • 89. Johnson said he’s in a tricky spot: He’s leading a chain that is transformingfrom a sales-heavy promotional department store to an everyday low pricespecialty department store, “and what’s good for one is not necessarily goodfor 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 26.6percent to $2.93 billion. Online sales through fell 37.3 percent fromlast 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 3.8percent and 2.6 percent, respectively.The Shop ConceptJohnson, who joined Penney from Apple where he ran its wildly successfulretail stores, and previously served as the vice president of merchandisingforTarget, has set out to not only wean shoppers from their addiction to salesand 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, featuringin-store boutiques from the likes of Martha Stewart, Canadian fast fashionchain Joe Fresh (which will launch March 1) and a Levi’s shop that takes a cuefrom Apple’s Genius Bars.Johnson is confident the shops will transform the chain and set it apart fromother big players in the mall.That’s because specialty stores ranging from fast-fashion chain H&M tohouswares retailer Williams-Sonoma have been the fastest growing part of theretail sector in recent years, he said.Johnson pointed to the Sephora beauty shops, which Penney rolled out in2006, as an example of how well the in-store concept can work.89 | Page hoangnd@msn. com Mar 2013
  • 90. The Winners (Target) And Losers (Best Buy)This Holiday Season Barbara ThauContributor J.C. Penney SlidesFurther Into Oblivion Walter LoebContributorSephora’s shops have generated 5% comp-store sales increases “independentof 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 Fridaythrough Christmas Eve.The campaign marks the first promotion the company has run all year — asign that Penney is tiptoeing back into sales mode? We’ll have to wait and see. | Page hoangnd@msn. com Mar 2013
  • 91. The Winners (Target) And Losers(Best Buy) This Holiday SeasonComment NowFollow CommentsTarget (Credit: AP Photo/Damian Dovarganes)It’s show time – or make-or-break time — for the nation’s big retailers, whichgenerate up to 40% of their annual sales during the holiday selling season.And once all the presents are unwrapped and gift cards redeemed, the retailindustry’s victors will clearly emerge, as will the defeated. Mark Cohen,professor of marketing in the retailing studies department of ColumbiaUniversity’s business school, and former CEO of Sears Canada andBradlees, offers his picks of the retail winners and losers this holiday season. Retailers Fight Back AgainstAmazon With Private Brands Barbara ThauContributorThe Winners91 | Page hoangnd@msn. com Mar 2013
  • 92. These retail winners are defined “by virtue of having well defined, strategies,which successfully address their customer segment and reflect orderly andintelligent planning and effective execution,” according to The e-commerce giant “continues to expand its footprintacross categories of goods including fashion and luxury,” Cohen said, notingAmazon’s advertising-savvy move into fashion.For one, the retailer’s New York bus shelter fashion ad campaign “expressesAmazon as a retailer of consequence in ready-to-wear,” he said.During the holiday season two years ago, “Amazon would have likely sold nofashion apparel. This year, they’ll sell a consequential amount.“They’re continuing to be a destination for customers for everything,” Cohensaid.Target: The cheap chic discounter’s new commitment to offering its signatureexclusive, trendy collections year round, including the new Shops at Target, arevolving collection of merchandise from independent boutiques around thecountry, will strike a resonant chord with shoppers this holiday, Cohen said.“They’re expanding on the success they’ve seen with stylish, contemporarycollaborations by offering a whole program throughout the season.Historically it’s been an occasional headline theme [think the widelysuccessful Missoni line]; It’s now an ongoing strategy, instead of episodic,” hesaid.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 ongoingcollapse,” he said, referencing Penney’s plummeting sales from its new CEO’selimination 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 wayof category dominance, such as their Levi Strauss campaign, even if it wasmotivated by a need to put J.C. Penney down.”The Losers:These chains are losers “by virtue of ongoing poor performance, lack ofstrategy, inability to mount and maintain intelligent planning and effectiveexecution,” Cohen said.92 | Page hoangnd@msn. com Mar 2013
  • 93. Abercrombie & Fitch: The teen chain’s provocative, risqué marketingcampaigns and fashion assortment have fallen out of favor with their teenaudience, sinking same-store sales.“The game is over. The gig is up,” Cohen said. “The story they’ve been tellinghas lost its appeal.” The “elitist, macho” marketing messages, marked by adsof “bare-chested, hunky guys … plays to a tourist crowd, not a [core]audience,” he said. In turn, Abercrombie has ceded market share to AmericanEagle.Best Buy: “Best Buy feels like a restaurant that has lost its appeal. Its décorisn’t as attractive as it once was, its menu is not as interesting, and at the endof 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 knockthe chain off its once dominant perch in consumer electronics, which willcontinue 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 cansell, [so despite] a big boom in Apple, they can’t consequentially benefit fromit.” Retailers Fight Back AgainstAmazon With Private Brands Barbara ThauContributorAnd while there’s talk that the launch of Windows 8 will rekindle the PCbusiness, “that business remains miserably commoditized, so it’s difficult torely on that trend resurging with any kind of decent [profit] margin,” he said.93 | Page hoangnd@msn. com Mar 2013
  • 94. At the same time, the flat screen TV business “has run out of gas, margins havecollapsed and price points have dropped,” Cohen said. And while 3-D TVswere 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-mortarcompetitor [with the demise of] Circuit City, there’s a ruthless competitor bythe name of Amazon that has beaten them to a punch at every turn — fromprice to assortment,” Cohen said.It also doesn’t help that Best Buy’s web site collapsed last holiday, andshoppers remember that, he said.Sears: The celebrity apparel lines the department store is banking on thisholiday season — such as collections from the Kardashian sisters and “ModernFamily” star Sofia Vergara – “may demonstrate success, but they don’t haveenough leverage [to boost] the whole enterprise,” Cohen said.Sears’ stores “look terrible, their value-promise positioning is muddled, andthe organization is completely demoralized,” he said of the chain, which hasposted five consecutive years of sales declines.The Questionables:Retailers “in suspense,” as Cohen puts it, are companies “whose performancemay or may not be successful, based upon the inconsistencies and anomaliesthat they currently exhibit, or the fact that their businesses have been so poorthat they reasonably should show improvement.”Kohl’s: “Kohl’s should be a principal benefactor of J.C. Penney’s ongoingcollapse, but has inexplicably performed poorly this past year,” he said.Toys “R” Us: The toy chain, “whose performance has been fair … but that’sseemingly tied to the degree to which Wal-Mart and Target permit them tosucceed,” 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 forthe holidays “a somewhat desperate attempt on the part of Toys “R” Us toexpand their marketplace exposure.”Wal-Mart: And lastly, even the fortunes of the world’s biggest retailer are iffythis holiday season, Cohen said.The company’s performance “has recently resurged, but Wal-Mart has yet todemonstrate consistent strategies for growth.”94 | Page hoangnd@msn. com Mar 2013
  • 95. | Page hoangnd@msn. com Mar 2013
  • 96. Retailers Fight Back AgainstAmazon With Private Brands7 comments, 1 called-outComment NowFollow Comments It’s no secret that the rise ofshowrooming – when shoppers browse brick-and-mortar stores to check outpotential purchases, only to buy them later from online merchants likeAmazon at lower prices – has retailers shaking in their boots.As a counterattack, chains ranging from Target and Macy’s to Family Dollarare ratcheting up exclusive, private-label brands – which defy pricecomparisons – and in the case of Lowe’s, are even reinventing themselves aswholesale brands overseas.The race for product differentiation and fatter profit margins has even birthedsome strange bedfellows this holiday season: Exclusive brands that are theresult of partnerships between two retailers.Cheap chic discounter Target and upscale department store Neiman Marcusare teaming up on a fashion, home and accessories collection that will be soldat both chains.Meanwhile, Macy’s is setting up Toys “R” Us pop-up shops in 24 of its mosthighly trafficked stores this holiday season.96 | Page hoangnd@msn. com Mar 2013
  • 97. Indeed, there are a lot of “interesting frenemy relationships brewing,” LisaBradner, chief strategy officer of Geomentum/Shopper Sciences, noted ona RetailWire web forum.It comes as little surprise.“Retailers are increasingly threatened with pricing pressure as a result ofshowrooming as consumers instantly check prices in real time either whilethey are shopping online or in store,” said Deborah Weinswig, broadlinesretail analyst for Citi, in a research note. In turn,“Private label is gainingtraction, but in an entirely new way … The need to aggressively innovate anddevelop 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 frenemypartnerships, retailers are also building a new mousetrap for sourcing theirproprietary lines.One way takes a cue from social inspiration board Pinterest and mobiletechnology.Retailers such as Family Dollar and Lowe’s have recently begun testingBamboo Rose, a global e-market community that enables retailers andsuppliers to exchange ideas and product information that is upending the waymerchants create their private-label brands, said Sue Welch, chief executiveofficer 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 exclusivebrands via technology solutions.Its new digital marketplace Bamboo Rose aims to cut time — and cost — out ofthe arduous process of creating private brands, which are incubated duringretail buyers’ treks to industry trade shows, visits overseas and by shoppingcompetitors’ stores, all while baking more creativity into the process.Retailers are now asking themselves, “How do we change the process?” Welchsaid. “They are petrified of showrooming.” That’s “driving the urgency” torethink private-brand development, as “everything is getting commoditized,”she said.97 | Page hoangnd@msn. com Mar 2013
  • 98. Typically, retail buyers take thousands of photos at industry trade shows, forexample, to use as reference points for design and color trends that informtheir private-label merchandise for everything from housewares to apparel.It takes, on average, anywhere from 30 to 45 days for merchants to organizethat data into themes and merchandising concepts, and share it with theirdesigners and suppliers, Welch said.Bamboo Rose claims to shorten that process to three days by buildingintelligence into the data “in real time.”Buyers in the field can snap pictures, organize them on the fly with an app thatsorts products and merchandising ideas that, a la Pinterest, communicate“inspirations” and “themes,” such as ”a Mediterranean look,” or “a stonewashfeel,” she said.At the same time, via Bamboo Rose’s global e-market, retailers canpublish wish lists of products they’re looking for, pass them on to vettedsuppliers, order samples and shop across their virtual showrooms.Family Dollar, for one, has started using Bamboo Rose to capture images attrade shows in Asia and transmit them to suppliers as wish lists of productsthey are interested in, Welch told “Suppliers then create onlineshowrooms for Family Dollar merchants to shop, sample and further develop.”What’s game changing about Bamboo Rose, said Welch, is that retailers cannow “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 dataentry administrative aspects of their jobs while unleashing their creativepassions to develop unique and inspiring products and brands,” she said.But although retailers are turning to private brands to fight showrooming, thathasn’t stopped them from hitting the markdown panic button this holidayseason to minimize its damage to sales.Last week, Best Buy said it would match the price of online competitors suchas Amazon during the make-or-break shopping season.And for the first time ever, Target said this week it will match online retailersprices between Nov. 1 and Dec. 16. Qualifying merchantsinclude,, and | Page hoangnd@msn. com Mar 2013
  • 99. “Our guests will be able to shop with confidence this holiday season knowingthat we are intensely focused on providing them the right merchandise at theright price,” Gregg Steinhafel, CEO of Target, said in a statement.Let the games begin.99 | Page hoangnd@msn. com Mar 2013
  • 100. Wal-Mart Nimble? Pricing andShipping Moves Suggest NewCompetitive Zeal; Stock RisingDrivers in California, still battling sky-high gasoline prices, may not feel much of the benefit fromWal-Mart’s (WMT) pledge to cut the price of a gallon by as much as 15 cents when drivers refilltheir tanks at one of the retailer’s pumps. (California doesn’t seem to be among the stateswhere Wal-Mart is making this deal available.) But elsewhere analysts are optimistic that thestrategy – combined with a return to the pledge of everyday low prices storewide – will enableits core customers to save dollars that can then be spent on higher-margin products in Wal-Martstores 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 ofmatching 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 ofgasoline, Wal-Mart is lowering prices on grocery items even as food prices generally aretrending higher.Is the strategy paying off? Well, Wal-Mart’s profit margins, while still lower than those ofarchrival Target, appear to be edging higher at a better rate, while Amazon’s are falling off acliff.WMT Profit Margin Quarterly data by YCharts100 | Page hoangnd@msn. com Mar 2013
  • 101. WMT data by YChartsClearly, the market is betting that Wal-Mart will manage to fare better than Target (TGT) in theretailing 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 anddata on yields appear to tilt the playing field in favor of Target, it is worth remembering thatTarget has publicly pledged to match sale prices its customers find online this holiday season, amove that might temporarily buoy same-store sales but isn’t likely to do much for profit marginsover the longer haul. Wal-Mart and Target both beat the 10-year Treasury rate withtheir dividend yield.101 | Page hoangnd@msn. com Mar 2013
  • 102. WMT Dividend Yield data by YChartsWal-Mart will report its quarterly results on November 15, and analysts are betting that the stockwill be able to hold on to its recent gains in the coming weeks. They are figuring that thecompany’s pledge to give customers lower gasoline prices will win not only loyalty but generatefoot traffic and trigger a more significant gain in same-store sales (a figure Wal-Mart reports onlyquarterly). Certainly, this bricks and mortar retailer is a far more alluring investment thanAmazon, with its sky-high valuations and slumping margins.Suzanne McGee is a contributing editor at YCharts, which includes the just-released YChartsPro Platinum for professional investors. | Page hoangnd@msn. com Mar 2013
  • 103. | Page hoangnd@msn. com Mar 2013