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Specialty Retail Clothing Industry Evaluation


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Our team was asked to evaluate the specialty retail clothing industry and decide if United States based companies would be able to survive the current environment. Next, we were asked to discuss specific companies that have positioned themselves for future success, and give recommendations on how businesses can survive and thrive going forward.

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Specialty Retail Clothing Industry Evaluation

  1. 1. Personalization and Adaptation: <br />Keys to Survival and Success in the United States Based Specialty Retail Clothing Industry<br />Written by:<br />Joseph Burns<br />Max Feldman<br />Patrick Fogt<br />Justine Holtkamp<br />Justin Schiff<br />Team 7G<br />107-PM<br />Presented to:<br />Professor Jamie Carter<br />Professor Gary Coombs<br />Professor Vic Matta<br />Professor Scott Wright<br />Monday, April 13, 2009<br />Table of Contents<br /> TOC o " 1-3" h z u Executive Summary PAGEREF _Toc227395709 h 5<br />Introduction PAGEREF _Toc227395710 h 6<br />Purpose PAGEREF _Toc227395711 h 6<br />Preview PAGEREF _Toc227395712 h 6<br />Problem PAGEREF _Toc227395713 h 6<br />Industry Trends PAGEREF _Toc227395714 h 7<br />Sharp Decreases in Spending PAGEREF _Toc227395715 h 7<br />Cost Cutting PAGEREF _Toc227395716 h 7<br />Cross Merchandising PAGEREF _Toc227395717 h 8<br />Globalization PAGEREF _Toc227395718 h 8<br />Conclusion PAGEREF _Toc227395719 h 8<br />Companies Fit for Survival PAGEREF _Toc227395720 h 8<br />Aéropostale PAGEREF _Toc227395721 h 9<br />Children’s Line PAGEREF _Toc227395722 h 9<br />Growth PAGEREF _Toc227395723 h 9<br />Classification PAGEREF _Toc227395724 h 10<br />American Eagle PAGEREF _Toc227395725 h 10<br />Cost Cutting PAGEREF _Toc227395726 h 10<br />High Value PAGEREF _Toc227395727 h 10<br />New Clothing Lines PAGEREF _Toc227395728 h 11<br />Classification PAGEREF _Toc227395729 h 11<br />The Buckle PAGEREF _Toc227395730 h 11<br />Superior Performance PAGEREF _Toc227395731 h 11<br />Management PAGEREF _Toc227395732 h 12<br />Classification PAGEREF _Toc227395733 h 12<br />Urban Outfitters PAGEREF _Toc227395734 h 12<br />Store Environment PAGEREF _Toc227395735 h 13<br />Online Shopping PAGEREF _Toc227395736 h 13<br />Classification PAGEREF _Toc227395737 h 13<br />Conclusion PAGEREF _Toc227395738 h 13<br />Measures for success PAGEREF _Toc227395739 h 14<br />Using Cost Cutting Effectively PAGEREF _Toc227395740 h 14<br />Assets vs. Cost Centers PAGEREF _Toc227395741 h 14<br />Supply Chain Management PAGEREF _Toc227395742 h 14<br />Corporate Pay Cuts PAGEREF _Toc227395743 h 15<br />Conclusion PAGEREF _Toc227395744 h 15<br />Appealing to Profitable Demographics PAGEREF _Toc227395745 h 15<br />Teens and Women PAGEREF _Toc227395746 h 16<br />Plus Sizes PAGEREF _Toc227395747 h 16<br />Hispanics PAGEREF _Toc227395748 h 16<br />Conclusion PAGEREF _Toc227395749 h 17<br />Creating a Personalized Shopping Experience PAGEREF _Toc227395750 h 17<br />Other Industries PAGEREF _Toc227395751 h 17<br />Retail Clothing PAGEREF _Toc227395752 h 18<br />Promotion PAGEREF _Toc227395753 h 18<br />Conclusion PAGEREF _Toc227395754 h 18<br />Exploring Cross Merchandising PAGEREF _Toc227395755 h 19<br />Use in Other Industries PAGEREF _Toc227395756 h 19<br />Thrift Environment PAGEREF _Toc227395757 h 19<br />Popular Culture PAGEREF _Toc227395758 h 19<br />Conclusion PAGEREF _Toc227395759 h 20<br />Recommendations PAGEREF _Toc227395760 h 20<br />Solution: Cost Cutting PAGEREF _Toc227395761 h 20<br />Cost Benefit Analysis PAGEREF _Toc227395762 h 20<br />Implementation PAGEREF _Toc227395763 h 21<br />Solution: Demographics PAGEREF _Toc227395764 h 21<br />Cost Benefit Analysis PAGEREF _Toc227395765 h 21<br />Implementation PAGEREF _Toc227395766 h 21<br />Solution: Personalized Shopping Experience PAGEREF _Toc227395767 h 21<br />Cost Benefit Analysis PAGEREF _Toc227395768 h 21<br />Implementation PAGEREF _Toc227395769 h 22<br />Solution: Cross Merchandising PAGEREF _Toc227395770 h 22<br />Cost Benefit Analysis PAGEREF _Toc227395771 h 22<br />Implementation PAGEREF _Toc227395772 h 22<br />Conclusion PAGEREF _Toc227395773 h 22<br />APPENDIX A - America’s Research Group PAGEREF _Toc227395774 h 23<br />APPENDIX B - Selling, General & Administrative Expenses PAGEREF _Toc227395775 h 24<br />APPENDIX C - The BCG Matrix method PAGEREF _Toc227395776 h 25<br />APPENDIX D - American Eagles total sales revenue PAGEREF _Toc227395777 h 26<br />APPENDIX E - The Value Chain PAGEREF _Toc227395778 h 27<br />APPENDIX F - Predicted Hispanic Population growth PAGEREF _Toc227395779 h 28<br />APPENDIX G – Digital Tailoring PAGEREF _Toc227395780 h 29<br />APPENDIX H – The System Development Life Cycle (SDLC) PAGEREF _Toc227395781 h 30<br />References PAGEREF _Toc227395782 h 31<br />Executive Summary<br />The current economic downfall has caused consumers to drastically change their spending habits. This reduction in spending has severely impacted businesses from every industry, and the specialty retail industry in the United States is no exception. A majority of specialty retailers have seen a dramatic slowdown in growth and sales. In light of these circumstances, there are still a few companies surviving and positioning themselves for success:<br /><ul><li>Aѐropostale
  2. 2. American Eagle
  3. 3. The Buckle
  4. 4. Urban Outfitters</li></ul>They have done this through various business strategies and by focusing on industry trends. From these efforts, several industry wide strategies can be applied:<br /><ul><li>Using Cost Cutting Effectively
  5. 5. Appealing to Profitable Demographics
  6. 6. Creating a Personalized Shopping Experience
  7. 7. Exploring Cross Merchandising</li></ul>After thorough analysis of these strategies, several recommendations have been made:<br /><ul><li>Evaluate Corporate Level Salaries
  8. 8. Automate Distribution
  9. 9. Explore Relevant Demographics
  10. 10. Implement Personalized Shopping Technology
  11. 11. Create Thrift Environment
  12. 12. Integrate Popular Culture</li></ul>Through effective application of these strategies, the specialty retail clothing industry will better adapt itself for success in a time of exponential technological growth and economic turmoil.<br />Introduction<br />Imagine you are an executive at a major United States based retail clothing company and the recent economic troubles of your customers have put your job and your livelihood at jeopardy. Sales are down due to decreased spending and the value of a dollar is suddenly rising to the point where your target audience is no longer the traditional American care-free spender. Changes must be made in order to continue to build on your success. In times like these, you must ask yourself – “what exactly is success?” and “what can I do to adapt to changing times?” Pertaining to these matters, two great men have had their own views. Bruce Barton, American author and advertising executive, answered the first question by saying, “The American conception of advertising is to arouse desires and stimulate wants, to make people dissatisfied with the old and out-of-date and by constant iteration to send them out to work harder to get the latest model” (Bruce, 2009, par. 5).  Dale Carnegie, the author of the cross-generational book How to Win Friends and Influence People, gave great insight on the second question stating that “The person who gets the farthest is generally the one who is willing to do and dare. The sure-thing boat never gets far from shore” (Online Motivator, 2007). As an executive, now is the most important time to make intelligent, beneficial and innovative commitments that will help your company stand tall while other companies crumble around your feet at the hands of the economy. <br />Purpose<br />The purpose of this analysis is to understand whether U.S. based specialty retail clothing companies will be able to survive in this industry. Additionally, this analysis will provide insight into which companies are best positioned for continued success and why. Furthermore, this report will identify what approaches, ideas, and strategies should be utilized for success in the industry.<br />Preview<br />Throughout this report, the problems within the specialty retail clothing industry will be discussed. Important industry trends will be highlighted followed by specific successful companies that understand these trends. Lastly, measures for success within the industry will be identified, followed by the recommendations for successful implementation of these measures for the industry as a whole.<br />Problem<br />In recent years, a once super spending society of customers has transformed into a new breed that is suddenly thinking a little bit more with each swipe of their credit card. In a time of recession, it is necessary for families to find ways to cut corners and save money. There is more of a focus on what consumers need, rather than what they want. While many consumers may want the most expensive and lavish fashions, demand has decreased significantly in almost every market. Specialty retail clothiers also face a new frontier in their industry. Companies are forced to compete in the ever-changing economy by developing and improving strategies to distinguish them amongst competition. Globalization and availability of endless shopping sources in the industry due to technological advances have contributed greatly to increased buying power. This change in the consumer's position and role has forced businesses to take new approaches to attract and maintain strong customer relationships and achieve success.<br />Industry Trends<br />When pockets are tightened, goods that are not a necessity are the first to be cut from budgets. The specialty retail apparel industry is directly impacted by this decrease in consumer spending power.  According to the National Retail Foundation, specialty retail apparel sales in 2008 decreased by 17 percent (Great American Group, 2009). While there are many solutions to the problems that the specialty retail clothing industry of the United States is facing, there are a few techniques that have become the standard when trying to weather the current economic storm.<br />Sharp Decreases in Spending<br />America’s Research Group, (for further information, see APPENDIX A) in a survey from January 2009, found that there has been approximately a nine percent increase in the amount of consumers that said they are pressured by debt and credit card bills in the past year. “Almost twenty-nine percent said they are buying only the essentials and on-sale items” (America’s Research Group, 2009, par. 3). Studies have estimated that more than half of shoppers will decrease spending in the upcoming year. Britt Beemer, founder and chairman of America’s Research Group, says, “In 30 years of conducting consumer research, I've never seen such dramatic declines in shopping levels. The economy has shown no signs of bottoming out and heading back upward” (Beemer, n.d., par. 2) Bad debt amongst consumers has the ability to cripple major players in the specialty retail industry. One survey of 1,000 American shoppers revealed that customers’ “retail debt levels from existing credit card balances and other obligations are simply too high” (Beemer, 2009, par. 4). Stephanie Rosenbloom of the New York Times says, “Sales drops of five or ten percent might not sound like the end of the world. But because store chains have fixed costs, declines that large can devastate their profits and discourage banks from offering the financing necessary to run such a seasonal business” (Rosenbloom, 2008, par. 11). This sharp decrease in consumer spending should encourage and challenge the specialty retail industry to adapt through innovation and understanding.<br />Cost Cutting<br />Companies must cut costs in order to quickly adapt to the current financial situation. Retailers are utilizing conservative financial plans to reduce their operating costs and minimize loss. Industry leaders are making efforts to decrease inventory, as well as selling and general and administrative expenses (for further information, see APPENDIX B). Although this may force the cutting of spending on marketing, payroll, incentive compensation, and supplies, this trend is one companies have been forced to incorporate into their business processes.<br />Cross Merchandising<br />Companies are making efforts to associate the purchase of home furnishings, books, jewelry, footwear, handbags and scarves with their new clothing lines. Certain stores have made offerings that have allowed them to maintain profitability where others have not been able to do the same. In addition, the specialty retail clothing industry is luring customers to their stores by portraying a strong value message and creating a more lifestyle specific image. To gain a competitive advantage, industry leaders are making a renewed commitment to refine their products in order to improve their store’s shopping experience.<br />Globalization<br />Because consumers are spending less, it is vital for apparel retailers to devise ways to continually enlist consumer spending. Many retailers, such as American Apparel, are taking a more global approach to selling their brand. Mr. Dov Charney, the founder of American Apparel, says, “A global view is very important right now. The new marketplace is not from Los Angeles to New York, but around the globe. There are metropolitan young adults in Bangkok and in Auckland. There is a new international adult that’s emerging in this next generation. We want to feed into that” (Davis & Kang, 2006, par. 2). Companies have expanded and updated their websites to allow access from around the world. This is all a part of an increased effort to reach previously overlooked demographics.<br />Conclusion<br />With a decreased budget, customers gain more satisfaction when they make a sound purchase at a reduced cost. Naturally, when people have less to spend, they demand more for their money. On a brighter note, Leslie Earnest of the Los Angeles Times states, “Luckily, the economic woes have ushered in the hottest new trend of the season: Thrifty Chic” (Earnest, 2008, par. 4). Efficient retailers understand effective strategies to bring customers through their doors. Once in the store, customers will spend as a result of superior service and an exciting shopping experience. The retailers that still perform well, despite the recession, utilize extra promotions, coupons, and discounting in a global climate that is changing and advancing more rapidly every year.<br />Companies Fit for Survival<br />In times of recession, there is always a sense of survival of the fittest. While every company in the specialty retail industry is making strides towards continued success, there are several companies that have stuck out for a number of reasons. These are businesses that understand their struggles and how to learn from their mistakes and adapt. Because of the precautions a few of these companies have taken, some have even been able to increase sales while most other specialty clothing companies are losing money. It is important to identify which of these companies are moving from “question marks” to “stars” and which “stars” have the capability to reach their ultimate goal: establishing and maintaining their status as industry “cash cows” (for further information, see APPENDIX C).<br />Aéropostale<br />While they are commonly undervalued, casual apparel specialty retailer, Aéropostale, stands out amongst competition by utilizing crucial strategies of the industry to maintain a high status. This success can be attributed to several factors; primarily pertaining to appealing to their demographic and selling a quality product. The capability to reach new customers has proven beneficial. Whether it is delivering their demographic a new line of clothing or exploring the needs of a new demographic, Aéropostale has adapted to consumer trends more effectively than the majority of competitors.<br />Children’s Line<br />Recently Aéropostale has undertaken an exciting endeavor with the unveiling of a new line of children’s clothing. “P.S. From Aéropostale” is a new line whose goal is to target children, a huge market for specialty retail clothiers. Chief executive officer of Aéropostale, Julian Geiger, explains that moms often come into the shop with an older and younger sibling. Often, the younger sibling is " desperately trying to fit into the merchandise that was obviously too big for them" (Palmieri & Steigrad, 2008, par. 4). With this in mind, Aéropostale’s new line has a slightly different name and image so that children ranging from ages seven to twelve can feel unique and stylish. Aéropostale president and chief merchandising officer, Mindy Meads, added that the girls' line will be larger than the boys' even though the boys' line helps distinguish them from the competition because " most mall competitors focusing on this age group concentrate on girls" (Palmieri & Steigrad, 2008, par. 3). Aéropostale’s new line will offer “trend right casual apparel and accessories at compelling values” (Palmieri & Steigrad, 2008, par. 2). This is yet another example of the company addressing exactly what its target market wants.<br />Growth<br />Even though demographics play a major role in the way Aéropostale conducts business, their success has also been attributed to other factors. These methods include " Tightly managed inventory, new promotions, and growth" (Palmieri & Steigrad, 2008, par. 2). The implementation of these strategies has lead to growing sales. Their level of sales has reached $690 million, as opposed to $591 million in a comparable period (Palmieri & Steigrad, 2008, par. 6). Furthermore, in the third quarter of 2008, Aéropostale Inc. reported an 18.4% jump in net income (Steigrad, 2008). Additionally, Aéropostale has plans of expansion. The company is expecting to open 40 new stores this year, on top of their 874 current units (Palmeiri & Steigrad, Par. 8). Moreover, the “P.S. From Aéropostale” division will open 10 stores in the New York metropolitan area alone (Palmieri & Steigrad, 2008). From this growth, it is apparent that Aéropostale is confident in its ability to succeed through expansion while other companies are suffering.<br />Classification<br />When classifying Aéropostale, it is safe to refer to them as a “star” due to current and forecasted growth. Expanding the business into other segments of the market and appealing to various types of consumers will allow Aéropostale to expand towards “cash cow” status. Aéropostale’s strategies have helped them outperform the competition and thrive during tough economic times.<br />American Eagle<br />American Eagle Outfitters, Inc. started out as an outdoor gear retailer, but has branched out to include casual apparel and accessories in their nearly 1,000 stores. They had their most profitable year in the past three years in 2008, making nearly $3 billion in sales (American Eagle, 2009) (for further information, see APPENDIX D). American Eagle is utilizing several strategies that allow them to maintain profitability in a struggling economy. Some strategies are cost related while others are quality oriented. <br />Cost Cutting<br />While consumer spending has decreased, American Eagle Outfitters, Inc. is still finding ways to maintain high levels of profitability. One valuable strategy is lowering inventory to avoid losses from unsold merchandise. American Eagle Outfitters, Inc. is also reducing expenses across numerous areas such as supplies, marketing, services purchased, and payroll expenses. According to the company’s quarterly earnings report from January, they plan to decrease capital spending to $110-135 million this year, as opposed to $250-275 million in 2008 (American Eagle, 2009). The achievement of increased efficiency has made success more feasible.<br />High Value<br />In addition to American Eagle’s marketing attempts to create a lifestyle image with young, attractive, and trendy models, they are committed to creating value for their consumers. Their quarterly earnings report defines value as the ratio of quality for the price. Their ability to follow the framework of the Value Chain (for further information, see APPENDIX E) has allowed them to achieve the most possible utility from their investments. Most of their competitive strategies do not stress luxury, but instead focus on low cost and high value. This year, there is an emphasis on utilizing more value priced promotions because they recognize that their customers are spending less and want more for their money. In addition, a top priority is to expand their women’s line with items that offer valuable and updated fashions. Thus, they are enhancing and differentiating the brand experience. Customers and employees have stressed the importance of an optimal fit. In accordance, displays with bustier figures are used to showcase the attributes of larger women. American Eagle’s attempts to adhere to the ideals of a low cost and high value philosophy show their dedication to the demands of customers (American Eagle, 2009).<br />New Clothing Lines<br />In the past, American Eagle was thought of only as a store that appealed to teenagers and young adults. To curb this label, they have launched other lines that cater to previously unexplored demographics. One example of expansion is the unveiling of Martin + Osa, a new line for adults. They have also fulfilled the needs of the adolescent sibling through their recent launch of 77Kids. In addition to the exploration of new age groups, they will be establishing a new product line, Aerie F.I.T., so their customers can represent American Eagle even while working out. American Eagle also has plans to expand into personal care items, such as fine fragrances (American Eagle, 2009).<br />Classification<br />American Eagle Outfitters, Inc. shows the characteristics of both a “star” and “cash cow” because of their profitability, high market share, and growth potential. Although launching new brands can be expensive, American Eagle has been extremely successful at diversifying efficiently. Much can be learned from this company and their approach that appeals to the needs of a wide range of consumer. Their efforts to continuously expand show a promising outlook for the future.<br />The Buckle<br />Despite its modest reputation, The Buckle has been a major name in the specialty retail industry since its first location opened in 1948 under the title “Mills Clothing.” By 1977, the store had taken on the name “Brass Buckle” and was selling casual clothes for both males and females; much like it is today. Known as a “denim destination”, each store specializes in a variety of denim products (Rhoads, 2008). In addition to offering superior denim products, the store prides itself on frequently adding new items to its inventory. This is just one of the many strategies they have used to combat decreased consumer spending in retail. While the firm had already been doing well with $49.6 million in total sales per month in 2008, this number has skyrocketed through the first few months of 2009. In this year alone, The Buckle has already managed an increase in sales of 27.5%, and the outlook is bright for the remainder of the fiscal year (PR Newswire, 2009). This is not a first time occurrence for The Buckle either. The corporation has increased its net income every year since 2004 (The Buckle, n.d.). These incredible results are leaving other businesses puzzled as to what exactly this lesser known company is doing to not only survive during recession, but be successful. The answer lies primarily in some of the approaches The Buckle has been taking to the industry.<br />Superior Performance<br />In a recent article regarding what The Buckle is doing to avoid the recession, it was said that “As we walk the malls and listen to companies report sales and earnings, it's clear that where there is exciting merchandise, there is outperformance on a relative basis” (Lee, 2009, par. 5). The Buckle is taking this message to heart by attempting to constantly reveal exciting and new items on its shelves. According to business experts, “Every trip to The Buckle would reveal something new” (Funding Universe, n.d., par. 6). A constant array of new merchandise is just one strategy that The Buckle has attempted to implement in order to drive recent success. The main motivation for taking said measures is to please their demographics and target markets. The firm markets primarily to teens and young people who frequent malls. They know that these shoppers will only continue coming to their stores on a consistent basis if new inventory is seen on each trip. Customer satisfaction is also a point of emphasis at Buckle stores. Personalized attention to consumers gets customers excited to enter the store. In addition, special features like free alterations, layaways, and a superb repeated shopper program help The Buckle stand out amongst the competition (The Buckle, n.d.).<br />Management<br />One other strategy that has led to significant progression in each of the past few years is to promote employees from within. Current President and CEO Dennis Nelson, who took over in 1991, first began working for the company part-time in 1970 as a member of the sales staff (Funding Universe, n.d.). Instead of hiring those from the outside with their own agendas who do not really understand where The Buckle currently stands and what their plans for the future entail, they have used the approach of promoting those who have already thoroughly immersed themselves in the company. By doing this, the retailer is able to create a personalized shopping experience by asking advice of those that have worked within the company regarding what exactly they noticed their customers wanted improved. The theory is that since those higher up in the company have usually had experience working in stores, they have seen first-hand what excites customers as well as what gives them a feeling of importance. As a result, management is often asked to give advice on new inventory and shed light on fashion trends they think consumers would find pleasant. One qualification of an upper level position is to always stay ahead of the game and make sure there is a thorough understanding of what measures must be taken to keep customers happy and, thus, be successful in the future (Funding Universe, n.d.).<br />Classification<br />While The Buckle is not a company often discussed in the same sentence as associations like Abercrombie and Fitch or Polo Ralph Lauren, they are doing what they do best to survive, and continuously grow. There is excitement growing around the relatively small firm as they continue to know their demographics, know what customers want, and exploit each. Due to recent success, this company once identified simply as a “question mark” is taking steps to move towards becoming a “star” in the near future. It would not be surprising to see the larger, more respected retailers, take steps to impersonate lesser known retailer, The Buckle, if they hope to succeed as well. <br />Urban Outfitters<br />At Urban Outfitters, customers have a wide variety of clothing styles to choose from. Ranging from hip-hop to indie, Urban Outfitters has the ability to uniquely appeal to customers of many spectrums. Their transition from urban locations to colleges and malls has placed them amongst the strongest companies in this industry (Urban Outfitters, 2009). By providing a distinct variety of vintage style clothing that appeals to a younger adult crowd, they fill a niche in malls that is not fulfilled by any other store. Lori Wachs, portfolio manager at Delaware Investments, stresses that “they are truly brilliant at finding out where there is space in the market” (Derby, 2006, par. 17)<br />Store Environment<br />In order to create a more enticing shopping experience than its competitors, Urban Outfitters focuses on the store’s environment. They use the placement of merchandise such as furniture, books, and rugs to give the store a cozier feel. This provides customers with a more relaxed sense of thrift shopping. Lori Wachs explains, “It’s not just going to the mall. When you spend time in their stores, you’re in the apparel experience” (Derby, 2007, par. 17). This technique allows them to better associate the atmosphere of their store with the personality of their customers.<br />Online Shopping<br />While almost every specialty retailer offers online shopping, Urban Outfitters has taken measures to increase the efficiency and quality of their electronic sales. “By providing a superior, differentiated online shopping experience, Urban Outfitters is attracting its 18- to 30-year-old target customers to in record numbers.” Some of their success in this facet of sales can be attributed to their clean and aesthetically pleasing website. Also, they have implemented a page-less checkout system that allows customers to view everything in their cart and move through the purchase process more smoothly. Since this implementation, they have enjoyed increased sales and a 19 percent increase in their checkout conversion rate. The fact that 80 percent of customers prefer the new checkout system only adds to their competitive advantage (Adobe, n.d.).<br />Classification<br />A recent decrease in sales may have negatively affected their status in the eyes of stockholders, but efforts to increase the quality of their in-store and online shopping experiences will set them apart in the future. “After all, things have been terribly rough in general, and there are many retailers that are getting brutalized in this environment; comparatively, Urban Outfitters looks pretty darn strong" (Lomax, 2009, par. 4). Because of their recent expansion, loyal customer base, and unique shopping experience, Urban Outfitters has proven their potential for success as a “star” in this industry. With continued use of their resources to expand and profit, there is definitely potential for this “star” to blossom into a consistent “cash cow”.<br />Conclusion<br />While there are many roads on the path to success in the specialty retail clothing industry, not every company will choose the correct path. Strategies that include effective cost-cutting, increased customer satisfaction, identification of profitable demographics, and implementation of cross merchandising have all proven successful. Now, it is up to the industry to effectively adapt and further develop the successes of these companies to their own business processes.<br />Measures for success<br />Through analysis and research into the above successful companies and across the industry, there are several apparent keys to maintaining and building prosperity. Looking into the future, technology will encompass most important aspects of the specialty retail industry. Combining technology with proven successful strategies, businesses will be fit to survive and prosper. These futuristic tactics are vital ingredients to success when implemented with the ideas of encouraging purchases through cross-merchandising, increasing profit with cost-cutting, creating a personal shopping experience for customer satisfaction, and using new and existing systems to analyze demographics and their preferences.<br />Using Cost Cutting Effectively<br />During a time of tight wallets and decreased spending, a necessary and logical first step to survival in the business world is to cut costs. This allows for increased efficiency and higher potential for profitability. The toughest part of cutting costs is determining which segments to cut in order to avoid negatively impacting profit margins. If the wrong segments of a budget are eliminated, the costs will greatly outweigh the benefits. Several key players in the industry have used these ideas to their advantage, and much is to be learned from their triumphs.<br />Assets vs. Cost Centers<br />In an interview with Jon Wright, Senior Account Manager at CDW, he spoke of the transition from a focus on service, to a focus on return on investment. As an expert who describes his daily task as “doing whatever I can to find technology systems that ultimately creates a large return for my client,” he emphasized the fact that companies without foresight are looking at these opportunities as cost centers, rather than assets. In other words, what these companies need to be doing is using the advances at hand to improve their chances for success. They must consider how implementing more efficient technology will earn them greater returns in time. There are obvious immediate expenses that go along with this technology, but a focus must remain on the future of the industry.<br />Supply Chain Management<br />Superior supply change management has grown in importance with the emergence of electronic commerce. Assembly lines are no longer the method of choice and have grown obsolete in a consistently forward thinking market. A very important factor in the business process is the ability to deliver your product in a speedy manner. Distribution centers within the industry are adopting more advanced automated systems to manage inventory. A prime example of a company excelling in this field is American Eagle Outfitters, Inc. Their newest distribution center in Ottawa, Kansas focuses on “optimizing and prioritizing picker paths and inventory replenishment” and comes as a necessary step in response to extra pressure online shopping has put on the industry (Morris, 2009, par. 4). Essentially, they have built themselves an automated warehouse that seamlessly integrates inventory, shipping, and order reception. Companies that make these strides will reap the benefit of eliminating employee error and theft while providing timely service, thus increasing efficiency. Ultimately, gradual implementation of processes intended to reduce labor costs through the information systems will decrease the price of distribution.<br />Corporate Pay Cuts<br />Technological advances to sufficiently reduce waste are not the only cost cutting measures within the industry that are imperative for survival. A common practice among retailers has been to eliminate the expenses of excessive executive salaries. Glenn Murphy, CEO of Gap, Inc., has proven to be an industry innovator in this practice. Not only did Mr. Murphy choose to take a 15% pay cut, but he also chose to eliminate merit-based salary increases for the majority of employees working at the corporate level. In addition, he has reduced board members from thirteen to ten and decreased the salaries of those remaining members (Brown, 2009). Besides reducing costs, these attitudes are important because they show that those in the higher pay brackets are acting unselfishly and are willing to take cuts in order to help the organization as a whole. Pay cuts are more justifiable when they do not solely affect those that are directly involved with the sale of the product. In essence, a happier sales representative is a better sales representative.<br />Conclusion<br />As a whole, there are several directions that a company can take in order to reduce costs. Whether these cuts involve improved supply chain management or the elimination and restructuring of salaries at the corporate level, the focus must remain on looking at these measures as assets, rather than cost drivers. The results of more efficient distribution and increased morale among all employees are certain to guide members of the industry to stable success into the distant future.<br />Appealing to Profitable Demographics<br />While efficient distribution and utilization of costs are important to run a productive company, there must also be a proactive approach focusing on the most profitable target markets. This strategy, within the industry, highlights knowing who is purchasing the product. With so many types of consumers with different needs and wants, it is vital for companies within the industry to seek out the demographic with the most potential. Customers use clothing as a way to express themselves as individuals. Thus, properly portraying the attitudes and characteristics of your target demographic carries a great amount of relevance. Especially in these times of economic downfall, this proper identification and exploration of markets with the potential for growth cannot be overlooked. With this in mind, retailers that can attract their demographic most efficiently will have a comparative advantage over others.<br />Teens and Women<br />The most logical demographics to begin with are those that are adept to spending the most money in the specialty retail clothing industry. As Gene Marcial, of Business Week explains, “Analysts say specialty retailers, including those catering to teens or women, may be the group to focus on since they tend to rally quickly after signs of economic improvement” (Marcial, 2009, par. 1). Betty Chen, industry analyst, points out that children are continuously growing and have a higher rate of replacement than other demographics. She also emphasized that birth rates have increased 3-5% over the past few years. These soon-to-be teens will look at going to the mall as a social event and continue to flood the malls (Chen, 2009). When it comes to women, it is a common belief that they spend far more money and time shopping than men. In fact, 40% of women under the age of 30 admit to spending the majority of their income on clothing, while only 12% of men say they do the same (Sullivan, 2008). Keeping this in mind, companies should focus the amount of resources they allot on these two key demographics accordingly.<br />Plus Sizes<br />The American population is growing: Not just in number, but also the size of its citizens. The obesity epidemic has grown to the point where two-thirds of Americans are labeled as overweight. The plus size industry is exponentially expanding and is expected to break the $100 billion mark by 2012 (Just-Style, 2009). There cannot be a more devastating feeling for a customer than knowing a store they love does not carry large enough sizes to properly suit them. Studies have shown that over 60% of the population wears a plus size (Mahalo, 2009). Speaking from experience, Bill Sackett, who spent three years as a General Manager for Banana Republic, feels there is a lot to be gained from carrying more plus sizes: “I cannot remember how many times I had to turn away customers because we simply could not find anything in the store that would fit them” (Sackett, 2009). One store who has quickly caught on to this trend and explored this demographic is Torrid. The apparel in the store is designed to not only fit plus size women, but also accentuate the features of larger women (Mahalo, 2009). With over 170 stores opening over the last eight years, this tactic has proved to be successful. In addition, Old Navy, a leader in the industry, has expanded their line of bathing suits to include plus sized fashions that are more flattering for overweight individuals (Lincoln, 2009). Specialty retail stores that do not cater to this ever growing demographic will struggle going forward. There is absolutely no reason to neglect a potential consumer because they are overweight.<br />Hispanics<br />The fastest growing segment of the American population today, in terms of race, is the Hispanic-American portion. While the Hispanic population was a significant 35.3 million in 2000, this number is expected to approach 48 million by 2010 (U.S. Census, 2006). Their rapid growth and increased role in American culture indicates that there will be a higher demand for retail goods for this market segment (for further information, see APPENDIX F). It can also be noted that the U.S. Hispanic population is relatively young and full of teenagers with spending power who have an affinity for retail apparel. In fact, Hispanics possess $768 billion in buying power, nearly nine percent of the total amount spent in the United States per year. Also, this group is easy to pursue in terms of location because of the amount of cities with a densely populated Hispanic community (KP Corporation, n.d.) Companies with a forward-thinking approach should recognize the increasingly strong buying power of this demographic when considering expanding their corporation through the creation of new brands.<br />Conclusion<br />While there are a few obvious target markets, such as women and children, there must also be an emphasis within the retail clothing industry to explore new and expanding demographics, such as Hispanics and the overweight. Opportunities exist for retailers to expand their current lines to include previously neglected customers. Women and children are important because of their tendencies to quickly rebound from an economic downturn. The faces of these women and children are ever changing and a growing portion of these customers are Hispanic or overweight. Every time a customer leaves a store because there is nothing that suits them, a potential sale is walking away with intentions of spending their disposable income elsewhere.<br />Creating a Personalized Shopping Experience<br />From a targeted and developed understanding of key demographics, it is crucial to build a shopping experience that will satisfy customers within those groups. There is a lot than can be learned by the customization of advertising on websites such as Amazon, eBay and Facebook. Seth Godin, esteemed business author, summed up this idea best through his theoretical development of Permission Based Marketing. The premise of this idea is that companies are now reaching specifically to those who are interested in purchasing their products, not just society as a whole (Godin, 2007). There is no better way to learn more about who is interested in purchasing your products and how to satisfy them than taking note of previous transactions of the customer and using this data to create a personalized shopping experience.<br />Other Industries<br />One of the main focuses in How to Win Friends and Influence People is that people want to feel a sense of importance (Carnegie, 1940). Consequently, it is a common practice among high end retail stores to accompany their best customers with personal shoppers. This is a practice that has been utilized to increase sales, so why not implement it on a larger scale? The successes of Amazon and eBay have proven that tracking your customers’ interests and relating your advertisement to this information is a valuable tool. Another example of successful implementation of these ideas can be seen through Kroger’s use of their savings card, which operates on the same premises. Evidently, this is not an idea that will only succeed online. Retail clothing stores should do whatever possible to move in this direction if they want to stay ahead of the competition. <br />Retail Clothing<br />Something as simple as a few touch screens connected to a software system can track the data of every customer. This information can be used to suggest products in the future, track shopping habits, send coupons before a birthday, and even create a personalized catalog that best highlights the true elements of each customer’s unique style. With the popularity of Facebook at an all time high, this data could even be used to create a new application that displays items you have purchased so friends can view and comment on your new clothing. Technology such as digital tailoring, which can use over 200,000 data points to assess your exact dimensions, is another useful tool that could further fulfill the needs of each individual and would go along well with such a system (Brooks Brothers, n.d.). What is better than an outfit that fits perfectly? (for further information, see APPENDIX G) Once enough data is collected on a customer base through innovative technology built for personalized advertising, there is even the ability to better predict which items will be in high demand at your store. This information can be used to plan more efficient distribution and production of each item in a season’s clothing line. Additionally, these systems can be linked directly to an automated warehouse in order to keep a full stock of the most popular items in your store. A customer that receives personalized catalogs, birthday gifts highlighting their favorite items, and a unique shopping experience unlike any other is sure to not only return to your store, but encourage all of their friends visit to your store, as well.<br />Promotion<br />One of the main things consumers with less to spend look for when shopping are opportunities to save money. Through implementation of systems that better target what will appeal to customers, promotions can be used more effectively. Bill Sackett, General Manager at Banana Republic, stressed the fact that the frequency of promotions definitely has increased due to the recent economic downturn. He believes these efforts are extremely effective because, recently, receiving the most value has become the main concern of his customers. However, he added that many of the higher end stores are avoiding this tactic in order to maintain their brand as a symbol of financial status. Expanding on this, Mr. Sackett mentioned that “more personalized promotions for current customers could be the perfect solution to lowering prices and maintaining a high financial status for luxury clothing stores” (Sackett, 2009). This balance of strategically lowering prices and keeping a reputation of quality allows stores to decrease the buying power of their consumers and strengthen their chances of outperforming competitors.<br />Conclusion<br />This system may seem too futuristic to some, but the capability to perform all of the above tasks is definitely feasible. Industries outside of specialty retail clothing have already stepped to the forefront of these advances and shown growth through their implementation. During the interview with Jon Wright of CDW, he estimated that the equipment and software for a system like this would only cost between $4,000-6,000 per store, not including digital tailoring (Wright, 2009). This is a small price to pay when considering that many retailers have reached the billion dollar level in revenues and how much something as simple as a television commercial can cost. A positive return on these investments will be earned by encouraging increased spending among consumers and increased efficiency for the specialty retail clothing industry.<br />Exploring Cross Merchandising<br />Once a store has a better understanding of their demographic and has created a personalized shopping experience, it is in their best interest to utilize these tactics through cross merchandising. The strategy of promoting products through association with other products has proven successful in various industries. Whether it is furnishing, shoes, or accessories, the implementation of this strategy has become increasingly popular across the retail clothing industry as well.<br />Use in Other Industries<br />With the purchase of a Happy Meal at McDonald’s, not only do children get the enjoyment of their meal, but they also receive a toy to take home. To them, this gift only comes off as an added bonus for their pleasure. In reality, this toy is a perfect example of promotion through cross merchandising. Disney is a prime example of a company that promotes all of their products in a manner that expands to all forms of entertainment and merchandising. Retail clothiers could benefit through adoption of this concept.<br />Thrift Environment<br />Success in other industries has led some specialty retail clothing companies to explore cross merchandising. One example of a company, who benefits from the implementation of this strategy in many different ways, is Urban Outfitters. In addition to clothing, they offer items that include home furnishings, books, gag gifts, and accessories that all build into the ‘lifestyle image’ of a typical Urban Outfitters shopper. With a vast array of items for sale, Urban Outfitters creates an environment that is similar to thrift shopping. This allows them to deliver a variety of products in one location that their customers find appealing.<br />Popular Culture<br />Another company that profits from cross merchandising is Hot Topic. This unique retailer takes advantage of trends in popular culture and incorporates those trends into their products. Hot Topic has managed to use the vast success of the best-selling book series and movie Twilight to their advantage. Twilight is currently very popular in the United States amongst teens and young adults: a group with a significant amount of buying power in the specialty retail clothing industry. Additionally, Hot Topic has recently outperformed most of their competition because they are one of a few stores that market popular musicians and bands in a majority of their products (Hot Topic, 2009). Also, the understanding of their customers’ interests in specialized forms of entertainment has allowed them to promote and embrace the lifestyles of young people who are often criticized for their unique styles.<br />Conclusion<br />While many companies have found success in the sales of only clothing, they may be cutting themselves short by not exploring other profitable markets. These stores make strides to better understand their target market, but lack the ability to incorporate their interests in many different forms of media. Cross merchandising will not only allow a company to increase their sales, but also will add a more lifestyle specific environment for their customers. In a world of constant exposure to advertising, companies that are able to market a variety of products that promote the sale of their clothing will enjoy sustainability and success.<br />Recommendations<br />After thorough investigation of the specialty retail industry in the United States, several keys to success have become apparent. While there are many solutions, there is a main underlying problem that is causing turmoil in all aspects of the industry: customers, simply, are not spending as much as they used to. The only way to combat this problem is to focus successful and innovative strategies that alleviate the pressures of a reduced consumer budget. These techniques can be applied effectively through the use of the System Development Life Cycle (for further information, see APPENDIX H).<br />Solution: Cost Cutting<br />Companies must promote cost cutting as an asset that will decrease spending in the long term, rather than a cost center that will increase spending in the short term. Increased efficiency in supply chain management will reduce costs. Also, companies must analyze the salaries of their employees at the corporate level.<br />Cost Benefit Analysis<br />In the short term, new investments in supply chain management will carry high initial costs. In the long run, the benefits of a more efficient supply chain will reduce labor costs and theft. Additionally, the demand for items that have shown strong sales in particular stores will be understood. Because of highly developed tracking technology, companies will be able to respond to the demands of their customers at particular stores. An increase in speed and efficiency and a decrease in human error and theft will help reduce the amount of time and money lost. <br />A decrease in salaries at the corporate level may have a large cost if employees who make a strong positive impact choose to quit because they feel they are undervalued. Other than obvious benefits from a decrease in salary costs, this will show employees that those with the most power are willing to reduce their own earnings in order to benefit the company as a whole. In addition, a commitment that proves management is taking responsibility for their actions and shows their appreciation of the lower level employees will raise morale.<br />Implementation<br />Create an automated supply chain and warehouse that will ease their business processes. With a more efficient system for tracking distribution and needs for production, the industry must develop a better idea of what goods need to be routed to certain stores. Use this system as a tool that will increase speed and efficiency and decrease human error and theft.<br />Evaluate the utility gained from upper management, in terms of the salary they are receiving, relative to a need for reduction in cost. Make it clear that executives in the industry are willing to make a sacrifice in order to avoid laying-off valued employees.<br />Solution: Demographics<br />The industry must target markets that have the highest potential for growth and the least amount of competition. Companies must also target those that have the tendency to rebound quickly from an economic downturn.<br />Cost Benefit Analysis<br />Resources and research into new and existing demographics will increase costs in the short run. Additionally, some marketing focus must be shifted, and creating new products that target these ever growing demographics will take funding. Benefits include increased sales to underserved, yet prominent, target markets. Reaching out to more consumers than the competition will provide a company with a competitive advantage. <br />Implementation<br />Produce clothing that will appeal to the fastest growing demographics. Understand how and where to target these demographics by analyzing the demand of customers. Place stores or merchandise where growing demographics, such as Hispanics and the obese, can easily access their preferred clothing. Additionally, focus the majority of efforts on those who are more likely to resume spending, such as teens and women, after times of economic downturn. <br />Solution: Personalized Shopping Experience<br />Customize and improve the shopping experience with technology and promotions through an increased understanding of customer habits. <br />Cost Benefit Analysis<br />In the short run, the cost of implementation is the technology required to establish a more thorough understanding of customer wants, needs, and demands. Technology experts cited these costs at between $4,000 and $6,000 per store (Wright, 2009). The benefits of this system would include a wireless network that integrates touch screens and point of sale systems with customer buying habits and interests. Additionally, this technology will help manage inventory to meet the demands of the customer. <br />Implementation<br />Place technology at the front of the store, as well as online, that will track the habits of every customer. Use this information to create devices for the consumer such as personalized catalogs, online applications, and promotions that relate to the customers’ individuality. Create excitement through advertising a new and beneficial personalized shopping experience. Utilize customer information to obtain market research that will lead to more efficient management of inventory. <br />Solution: Cross Merchandising<br />Associate clothing lines with other products and popular culture to cater to the personalities of new and current customers. Create a distinct shopping environment that comforts and appeals to the uniqueness of target markets.<br />Cost Benefit Analysis<br />Resources must be diverted to create new product lines not previously offered. Also, deals will have to be made with the major players in the entertainment industry to carry products that promote various forms of media. Benefits will include the ability to feed off of successes in popular culture. Additionally, expanding sales to other market segments will increase sales and develop a specific lifestyle image for clothing lines. <br />Implementation<br />Make deals with the entertainment industry to offer products that cater to the interests of customers by combining all aspects of popular culture with merchandise. Expand on the lifestyle image of stores through sales of additional items such as accessories, home furnishings, and various forms of entertainment.<br />Conclusion<br />While it is a difficult time for every industry in the United States today, it does appear as if members of the specialty retail industry will survive, and some will even flourish. However, this will only occur if firms precisely follow well thought out business strategies. These strategies include using cost cutting methods effectively, appealing to profitable demographics, creating a personalized shopping experience, and, finally, exploring cross merchandising. Companies must appropriately shape these various approaches in order to become fully efficient. In addition, they must make it a priority to implement new technologies that will help them adapt to an ever changing world. If they are able to do these things, and follow the above recommendations, companies in the specialty retail clothing industry will be able to best position themselves for success. <br />APPENDIX A - America’s Research Group<br />America’s Research Group was founded in 1979 by C. Britt Beamer. This group is a “full service consumer behavior survey research company.” They are located in Charleston, South Carolina having only 9 employees; however they have a wide variety of clients ranging from manufacturing to retailing. They provide quantitative and qualitative analysis and research with clients such as General electric, JC Penney, and Kmart. The company generated over 2.5 million dollars last year. <br />(Source: America’s Research Group, 2009)<br />APPENDIX B - Selling, General & Administrative Expenses<br />Definition: measures all of the costs associated with selling a product or service and the general expenses associated with running a business<br />Examples include expenses such as: salaries, commissions, and travel expenses of executives, sales people and employees<br />These expenses can be found on any company’s income statement below gross margin. It is the manager’s job to keep these expenses as low as possible.<br />(Source:, 2009)<br />APPENDIX C - The BCG Matrix method<br />Definition according to the Boston Consulting group: The BCG Matrix graphically portrays differences among divisions in terms of relative market share position and industry growth rate.<br />Stars (high growth, high market share) - requires a lot of investment, but known for rapid growth and increasing competition. Stars can become cash cows if they know how to maintain their large market share.<br />Cash Cow (low growth, high market share) - leaders in the market, products that are well established and require minimum funding.<br />Question Mark (high growth rate, low market share) - consume large amounts of cash but do not generate large amounts of cash. Investment is required to move to a star.<br />Dogs (low growth rate, low market share) - produce enough income to survive but not expand, unlikely to grow in the future. Can get rid of dog by selling to another company or by stopping production.<br />(Source: Value Based, 2009)<br />(Source: Boston Consulting Group, 2009)<br />APPENDIX D - American Eagles total sales revenue <br />`<br />(Source: Yahoo Finance, 2009) <br />APPENDIX E - The Value Chain<br />The value chain was created by Michael Porter in 1985. The value chain is a chain of basic activities that add value to a product or service. Firms use this process to add value to their products so it can give them a greater competitive advantage. The chain is split into two sections: primary activities and support activities.<br />Applies to individual organizations, supply chains, and distribution units.<br />(The, 2007)<br />APPENDIX F - Predicted Hispanic Population growth<br />(Source: U.S. Census Bureau, 1970, 1980, 1990, and 2000 Decennial Censuses; Population Projections, July 1, 2010 to July 1, 2050)<br />APPENDIX G – Digital Tailoring<br />Digital tailoring is a new form of technology created by Brooks Brothers Tailoring that creates a 3-D map of any human body. The map is created by scanning the person using over 200,000 data points to match their exact measurements. With high speed and white-light technology a single scan of a person’s body takes up to approximately 12 seconds. 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