All Talked Out “Ain’t Satisfactioning Me”

I am tired of all the talk and am exhausted from doing the talking myself. Retail is tough these days, everyone knows it. There is a shift in the customer’s shopping behaviour and perceptions to be sure. But let’s not keep beating a dead horse.

It may not be business as usual but it still is business. People are shopping – it’s a natural and necessary phenomenon and usually a huge part of a woman’s means of entertainment (this is not a sexist comment rather a sad commentary on the 21st century male who still is averse to shopping for anything other than a big screen TV from Best Buy, a winch from Home Depot or fishing lures from Bass Pro Shops and they would do it all online if they could to avoid browsing the stores themselves).

But we have been talking about the economy for over 8 months now. It is time to act as retailers:

1) I am tired of talking about Gap’s recovery and how much cash they have: Do something bold and creative and re-invent that company! Tinkering with the Old Navy format is nice and may drive some comps (although they have probably lost a total of 50% of their volume from their peak by now so 5-10 comps aren’t bold enough to my mind). With $1.7 billion in cash, they could acquire or create something to revolutionize the retail industry. Continuing to talk about how well they have managed their expenses and cash does not cut it with the consumer. Gap brand has been an issue for over 5 years now. Old Navy seems irrelevant in the market right now with H and M and Uniqlo set to continue to eat their lunch. Banana Republic is the most surprising disappointment to me. It occupied a unique niche in the market and in these times, the brand should be excelling at playing up their position as the fashion alternative to expensive designer offerings and the anti-Neiman Marcus, if you will.

2) I am tired of talking about the woes of the Canadian department store business and what the future holds for these large consolidated national players. The Canadian department store business has shrunk considerably in the past 5-10 years. With new ownership (yet again) at The Bay / Zellers parent company, it is time for bold action. I don’t think going “upscale” to compete with Holt Renfrew at this time is the reinvention The Bay needs. It needs creative thinking about what each floor in their portfolio represents, who each floor targets and how to create excitement, energy and impulse buying. The Bay can become anything it wants as the name is that strong. An upscale fashion resource may not be the right overall message to reinvent the brand.

As for Zellers, it has been an enigma for so many years. Rumour after rumour about Target and others looking and passing on purchasing the company because of the onerous real estate issues regarding size and numbers of non-performing locations have all created a stasis in the business. Who does Zellers appeal to? How can it knock the socks off that customer and compete against Wal Mart at the same time? I would like to see some bold action taken and for Zellers to come out and stand for something other than “The Lowest Price is the Law” and “Everyday Value”. Apparel offerings may be a place to successfully compete with Wal Mart as they cannot seem to get that right. Everyone knows about the Zellers value proposition, thecustomer can get value in many places right now. What other type of “value” are you going to offer your customers aside from price?

3) I am tired of talking about expense cuts and layoffs and “belt tightening” and having Wall Street applaud companies for that. Firstly, in every business cycle, these are natural occurrences. Maybe the company was too fat to begin with. Anyway, my point is that there is never enough credit given to or talk about creativity and unique merchandising in the industry. I realize the current economic conditions but that is when, I believe, fresh merchandise that emanates value to the customer from the standpoint of being style right, colourful and that makes people stop and say “Im Lovin’ It” and entices others to ask them “Where Did You Get That?” People want to feel good about themselves, especially in these tougher times and those retailers that can constantly figure out what merchandise and/or experience helps them achieve that goal, will thrive. Look at Tesco or Buckle or Aeropostale or Family Dollar. They have adjusted to the times or have gained market share by standing out in terms of value, experience and offering.

It’s time to stop talking and start taking action to lure more customers back to your stores. To quote Elvis Presley:

A little less conversation, a little more action please
All this aggravation ain’t satisfactioning me
A little more bite and a little less bark
A little less fight and a little more spark

That’s the recipe for sustained retail excellence and performance no matter what the climate!

TheRetailTherapist

Mr. Doom and Mrs. Gloom

I know….It’s bad out there.

Not only are retail sales as frigid as the “Arctic Blast” we are now experiencing, but the rhetoric and the over-reaction have sunk to new lows along with the thermometer.

If one looked long and hard, there were some bright spots in December even amidst this depressing atmosphere: Buckle again proved their concept is impervious so far with a 13.5% comp sales gain, continuing its two year string of double digit same store sales increases ; Aeropostale same store sales gained12%; Hot Topic and American Apparel also showed increases (the question is at what margin cost to each?)

Childrens’ Place was flat; Costco, BJ’s Wholesale, Family Dollar, GameStop and Walgreen’s all posted positive comps in December – which may be expected considering the climate.

But the main market maker is always Wal Mart and they didn’t disappoint as the elephant in the room. They reported a positive 1.7 comp which was, according to analysts, “shockingly” below the consensus of a positive 2.8% that they had pegged and at the lower end of the spectrum of company guidance.

Maybe it is time for the silly practice of providing guidance to be retired. While 1 point of comp sales is significant revenue when one is talking about Wal Mart, it is not a reason to commit hari-kari, which is exactly how the markets reacted to this news. It was ridiculous.

Here is why: Many factors could have contributed to the shortfall in absolute dollars in comp sales for December. It may have had nothing to do with store traffic, the number of transactions, gross margin percentage performance or operations. It could simply have been a consumer anomaly.

For example, when buyers plan a season, they try and guess (although Wal Mart “guesses” less than the average retailer because of the strength of their systems) what the consumer is going to buy, in what quantity and at what price. That is the science and art of the retail game. However, consumers have a mind of their own and they may choose to buy in completely different patterns than the buyers expected. Judging from the game-changing environment we now find ourselves in, some unexpected consumer behaviour may be expected.

So, if the consumers as a group purchase the assortment differently than what the executives expected (read : lower priced items, not necessarily because they are discounted, just because those items sell at retails less than others) , you can get an anomaly in the same stores sales performance. Average retail can have  a large affect on these figures.  Wal Mart, of all the retailers out there, deserves its results to be analyzed further before we all go off on scary tangents.

Wal Mart lost 15% the day it announced its “disappointing” sales. All I am saying is that a closer look is required before we draw such hasty conclusions.

We certainly are hyper-sensitive these days and with good reason. But we need to be reasonable too. This is Wal Mart we are talking about. They are, and continue to be, in great shape.

TheRetailTherapist

The New Five and Dime

In the old days, thrift general merchandise stores were literally called  “Five-and-Dime” stores. F. W. Woolworth created the concept in the late 1900’s and virtually every main street in America (and Canada) contained one of these variety stores, the precursor to general merchandise retailing as we know it today. With over 1000 stores by the 1960’s, they were the Wal Mart of their time. They lasted through World War I,  the Great Depression and World War II.

Today, the basic business model has certainly been proved out mainly by Wal Mart. Granted, Wal Mart is on a much bigger scale but they certainly modernized the concept. The similarities are staggering: Low prices; endless supply of general merchandise; mediocre / non-descript store layout and design; outstanding real estate; and large footprints. If you think about what the five-and-dime grew up to be, it certainly has to be Wal Mart. Even Lee Scott, the retiring CEO, mentioned this past week that “Sam Walton built this business for economic times like these”. Indeed, Sam understood the five-and-dime concept intimately. Better yet, he knew that to survive long term and not become obsolete like Woolworth’s did, he would have to modernize the concept. That meant to him: bigger boxes; prime suburban real estate; the most revolutionary logistics retail has ever seen; and the lowest prices anywhere. He certainly captured the minds and wallets of a nation or two.

But there are other segments that were created out of the five-and-dime image. For instance,  the dollar store phenomenon has blossomed with more than 27,000 stores expected to be open in the U.S. by 2010.

However, there is a hipper version of the five-and-dime that I really admire. 5 Below was born in the New Jersey / Philadelphia corridor and now boasts 80 stores on their way to 200. They feature general merchandise in approximately 5-7,000 square feet of strip plaza type space that is targeted to kids and teens. Candy, licensed sports merchandise, t-shirts, stuff to decorate your room, a variety of balls and games that inspire the younger set are all on display in a stuffed store, but one with clear, wide aisles. This concept actually seems closest to the original five-and-dime offering from the early years. Everything is $5 or under as the name suggests and they ensure they keep things fresh and carry only the hottest trends that are available at that price point.

In this economy, these new aged five-and-dimes should thrive. However, from now on, we will have to start calling them five-and-tens owing to the fact that prices have increased 100 fold since the good old days when five-and-dimes were born.

TheRetailTherapist

Being Schooled

Let’s see…if we clear away the debris from a very poor August for most retailers, we see some interesting trends. Gap continues to post negative comps (but are very profitable due to cost and inventory controls – which will catch up to them very soon if they do not solve their top line problems). That’s a continuation of a trend.

The high end retailers of which I include Abercrombie and Fitch, Saks Fifth Avenue, Nordstrom and Neiman Marcus all had tough months. What would be really interesting to know is whether transactions were down or did they have to reduce prices and become more promotional, which meant their retails were lower than last year yet transactions held. It looks like of all the higher end retailers, Neiman’s either held their prices the best or suffered the least amount of traffic declines.

Then there are the hot retailers, which will always buck any ebbing economic trend. Buckle, American Apparel and my guess would be Urban Outfitters (although they report quarterly) performed brilliantly in August. During these times, kids are told they have just so much money to spend and they learn to spend it wisely on the stuff they REALLY REALLY want and these stores are who they choose. Pretty impressive stuff. That is the power of each of their brands that is shining through in this type of environment. I am sure they are the envy of most retailers out there.

As one would expect, the trend towards the “value” retailers is signified by the positive results at Wal-Mart, Costco, TJX (although surprisingly only recorded flat comps), Family Dollar, BJ’s Wholesale Club and Ross Stores posted positive comps in an anything-but-positive environment. These results do not surprise. What does surprise is how poorly Kohl’s and J.C. Penney performed. I guess they are continuing their poor trend this year but with all the uniqueness of offerings and exclusive brand related marketing and price points, I would have expected better results to sway the teens and college kids (or more specifically their Moms). They are obviously not executing where they should be and need to be careful to ensure they stay relevant in this hyper-competitive market.

The biggest surprise to me is Target. They have been bouncing around flat to slightly negative and slightly positive most of the year but with the current state of the economy and state of mind of the consumer, I would have expected them to post better than a negative 2 for August. Even though they were coming off a very good August last year, I expected them to continue to keep pace with Wal-Mart. Does that mean that Wal-Mart is making in-roads in apparel? I am not so sure after walking through a Wal-Mart Supercenter recently.

Interesting times for sure. The kids are not the only ones learning new lessons this time of year.

TheRetailTherapist

Staying True

“Sticking to one’s knitting” has always been an axiom in our retail world. We can count on one hand how many retailers have been able to completely re-invent themselves and become more successful. Once dormant brands have been ‘re-resuscitated’ such as Banana Republic and Abercrombie and Fitch. Mostly though, brands and concepts have been ‘refined’ along the lines of Target, J.C. Penney and even Victoria’s Secret to match the customer’s demands for change but all the while remaining essentially what and who they were before.

One example of a ‘re-invention’ gone sour was when Gap decided to rid themselves of all their basic commodities and become a young, hip source for fashion, earlier in this century. The chain dropped 25% overnight and hasn’t fully recovered since. Any other success or horror stories of re-inventions out there? I would love to hear them.

In a recent outing at the mall I was struck by two retailers who have been hot lately and are taking slightly different approaches in this tougher environment. Anthropologie has honed in on the 20-30+ year old women who love the thrill of the treasure hunt, when looking for either something to wear or something with which to adorn their residences. They are unique not only in their approach to the theatre of retail (with their elaborate visual changes every quarter in every store) but their ability to create branded labels out of their own private labels. They have been consistent in this approach with their merchandising, staying true to their customer and not wavering from their core formula.

J. Crew has been another fabulous success. What Mickey Drexler and his team have done with that brand and those stores is nothing short of remarkable. They have extended the brand to wedding gowns, suitings, kids clothing and additional accessories, while, for the most part, staying true to the original premise of well made, preppy/fashionable weekend clothing for the young at heart. However, I hope the latest store set up is not indicative of a change in direction.

At the front of the store, were mannequins lined up with quite dressy looks in metallic fabrics in quite hideous mustard and gray colour combinations. It was not pleasing to this eye when walking in the door. It did not seem to fit what the general premise or direction has been for the past number of years. Maybe it was an aberration and it will change in the next few weeks (if it hasn’t already) but the point is, especially in these uncertain economic conditions, the customer must feel their favourite stores are familiar and trustworthy and must not stray from them in their time of need.

Staying true is difficult especially the more success one garners and especially in the “fashion apparel” business. But the customer must be able to recognize who you are and what you are offering as that is how they, in part, tend to define who they are and what they should look like to the rest of the world. A very important facet to keep in mind in any retailer’s strategic planning session.

TheRetailTherapist

Mind the Gap

The Gap Inc. saga is certainly one of the most compelling questions and stories in specialty retailing in the last few years. Questions have abounded over the past 6 years as to whether the company became too big for its own good; whether they overexpanded and thus overexposed its brands; whether the leadership was effective enough; whether they fell out of fashion; whether they lost ‘it’ (aka “cachet” or a certain “je ne sais quoi” they had in spades during “khaki swing” and Old Navy’s launch); whether any fashion retailer can last that long etc.

It was never a question of financial strength or lack of resources (specifically cash). But perhaps it was a lack of common sense and foresight. I would love to hear about whether you shop any of their brands including Gap, Gapkids, babygap, Gapbody, Old Navy or Banana Republic. One disclaimer I will inform you is that I worked there in the late nineties and early 2000’s – but hasn’t everyone worked there at one time or another?

Here are a few theories and observations…

1) It did get too big too fast starting when it was about $5 billion in 1996. When they talked about ramping the business to $20-40 million (not a word of a lie) and spend $1 billion on advertising to ensure the brands were top of mind and rival the spending of a Coca-Cola, I thought it sounded a bit strange. We did all drink the Kool Aid, but no one asked if the organization (including the leadership) possessed the skill sets to manage this growth and lead a $15 billion plus apparel retailer. HR was not a major influence at the strategy sessions and the work force was simply overwhelmed and overmatched.

2) Because of that growth sprint, managing o company of that eventual size was not Mickey Drexler’s forte. He is brilliant, don’t get me wrong and the proof that his forte is a smaller brand with huge potential where he can be hands on in the merchandising and imaging of the brand is never clearer than today at J. Crew. What he has done with that company and that brand is nothing short of phenomenal. He did the exact same thing at Gap when it was J. Crew’s size back in the late eighties and early nineties. But at Gap Inc., it quickly became too unwieldy and did not play to his strengths and hence his departure in 2002, which was the right thing for both parties.

3) I never understood why the individual brands were allowed to compete so fiercely with each other. The race for real estate and fashion trends and key items was intense and quite frankly, obscene. Old Navy was totally bent on eating Gap’s lunch and Gap was panicked as to what to do about their assortments and their store formats. Gap built much larger footprints to give it more of a department store feel with all 4 sub-brands in one box of 20,000 square feet (which was, not coincidentally, the average size of the Old Navy standard box). Each brand took the same type of real estate space and went after the same malls and in some cases opened right next door to each other. It also forced Gap to try and go after a more upscale customer, which then started infringing on the Banana Republic business. Gap was truly “Malcolm in the Middle” and like a middle child, started kicking and screaming and making poor decisions, including, at one point, ridding itself of all its tried and true basic commodities on which the brand was built (like denim, khaki, pocket t-shirts etc.). Gap swung the pendulum toward a trendy and fashion forward look that the company dropped 25% comp overnight. Gap then scrambled to get back in stock but it took close to 12 months for the pipeline (which was constantly replenishing the basics in an orderly, just-in-time way) to refill since it was completely emptied out.

4) Old Navy stayed too boring and basic. With the influx of European players such as H & M and Zara, Old Navy did not react fast enough to the changing tide of fast fashion and fresh looks. Even Steve and Barry’s came up with a fresh approach by synergistically using celebrity endorsements to attract a new customer and create excitement and hype (I call it “news” as it were) with Stephon Marbury (for the teen athletes), Amanda Bynes (for the teen girls), Bubba Watson (for college age and older males) and Sarah Jessica Parker (for the college and young women set). Ironically, Sarah Jessica Parker was featured prominently in two global Gap ad campaigns not 2 years prior to her signing a deal at Steve and Barry’s.

5) I also believe that Gap could have taken a road less traveled at the time, grounded itself in denim of all sorts, regained its authority over the category and morphed into more of what Lucky Brand looks like today. Between Buckle and Lucky Brand, they have stolen the mid-priced, fashion and basic denim market away from Gap in the malls across the United States and soon elsewhere.

6) Through it all, babygap and Banana Republic have remained strong and sharp. Their brands are solid and the merchants in those brands have separated themselves from the competition and stayed true to their strengths. They constantly differentiate themselves very well from their sister brands, something the other namesake brands of Gap and Old Navy failed to do at the outset and throughout the turmoil.

Having said all the above, I still believe in the brands and in Gap Inc. I know a number of people who are working hard every day to regain each of the brand’s prominence in the marketplace and in share of customer’s mind. They have a new CEO, a brilliant merchant as president of Gap and a very grounded, committed and humble founding family still holding around 30% of the shares outstanding. The Fisher family are among the nicest people you will ever meet.

So I am rooting for them and so should you be as they helped define specialty retailing over the years. What doesn’t kill you only makes you stronger and I believe Gap Inc. will be stronger for this extended period of transition and education.

TheRetailTherapist