The bears have taken over Wall Street, shoppers and stores have a serious case of the blahs and technology and globalization are reshaping how goods are made, who’s buying them and how they’re marketed. Even the luxury sector, giddily invincible for years, is facing a newly frugal customer.
Fashion is famous for reinvention, but what does the industry need to do to weather the current downturn, which could be much more serious than previous slumps, and reposition itself for a rapidly changing world?
Some of the advice from industry and business leaders boiled down to belt-tightening (control inventory and expenses); some of it is wake-up call material (don’t follow the leader, be bold); some of it is reminders(don’t forget that the Boomers still have lots of money to spend), and all of it is going to require solid and visionary leadership.
The first step to excelling in the future is making it through today, which is proving to be more than half the battle for some — witness the bankruptcy this month of the fast-growing Steve & Barry’s chain of low-cost college-themed and celebrity fashions and reports that both Mervyns and Boscov’s are fighting for survival.
The degree to which a company should stay the course during the slowdown, tweak plans or completely overhaul operations was a recurring theme, with plenty cautioning against big moves.
“This is basically Darwin time — survival of the fittest, and the fittest have to show their intelligence and the ability to execute on their plan without making too many adjustments to it,” said Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates.
“People spending their energy thinking what life will be like in 2010 may not be around in 2010 if they don’t think about this quarter,” said Paul Charron, former chairman and chief executive officer of Liz Claiborne Inc. “Taking fundamental steps now to change course is dangerous.”
For some, it’s an equation as simple as delivering on the promise of a brand.
“The most important thing for ongoing success is always to remain focused on the long-term brand vision and strategy,” said Mark Lee, Gucci’s ceo. “External factors such as currency environment, tourist flows, stock market bumps create short-term impacts. The challenges in both strong and weak market circumstances are the same. It’s always about delivering unique and differentiated quality products, embedding the values of the brand.”
Of course, one has to truly have a strategic plan in place if one is going to be guided by it. For some, business as usual might not be enough.
Real estate mogul Donald Trump put it this way: “Moving forward is necessary. If that means changing the game plan, then that should be done. Instead of focusing on the problem, focus on the solution. Sometimes that perspective can readily trigger creativity, and put a new plan into action.”
There is a sense that the industry has gotten stale — styles look the same, the stores are cluttered and unfocused, executives stand accused of playing it too safe and missing the opportunities opened up by the flagging economy.
At the very least, this is a chance for some serious self evaluation.
“Ask, what do I need to do to be effective in three years when we emerge from this?” said Rick Darling, president of LF USA, part of sourcing giant Li & Fung Ltd. “The time to make those changes is now when everyone is going through tough times and bad numbers. There are no sacred cows. This is not a time to hunker down. This is a time to be aggressive and create change.”
Christopher Meyer, author of “It’s Alive: The Coming Convergence of Information, Biology and Business” (Crown Business, 2003) compared fashion’s quandary to the natural world — where evolution has developed survival strategies refined over aeons.
There’s even something to be learned from inhabitants of one of nature’s most modest rungs: Ants. Ant colonies, Meyer explained, divide their energies between exploiting current niches, like the local picnic table, and searching for new niches. When there’s some sort of change, the park closes and the getting is no longer as good at the picnic table, they investmore resources in exploration.
“What does the typical company do? It does just the opposite,” said Meyer. “If there’s a change in the way your market works or your business works, then exploration is what you should be doing. Particularly in an industry that changes as rapidly as fashion. Getting too timid is one of the biggest risks that companies face.”
For fashion, this means getting out there, braving the hazards of new markets and opening stores in rapidly developing economies such as China and India, and investing in customer service.
Vendors and retailers can also benefit by working collaboratively. “Reach out to retailers and collaborate with them to generate the biggest impact to consumers through new and exciting promotions,” said Bernd Beetz, ceo of Coty Inc.
It’s the ceos who are going to have to have the guts and vision to step up.
“The question is do you play defense or offense,” said Deborah Weinswig, equity analyst at Citigroup Global Markets. “If you want to win in this environment, you’ve got to play offense and I see so few retailers doing that. Everybody feels a little bit paralyzed right now. Whoever kind of takes the bull by the horns has really got a huge opportunity.”
One heartening thought is that business cycles are just that, cycles, and consumers will come back and want to buy. The key is to figure out now what they’ll want then and how they’ll get it. The only thing that’s a given is that the future will be different.
“I’ve been through this at least six times in 53 years,” said Bud Konheim, ceo of Nicole Miller. “Whatever was the generally accepted wisdom going into this period changes, and out of it emerges new ideas and new ways of doing things.”
Following is WWD’s 10-point business health plan for the most challenging environment in years.
MANAGE COSTSAND OVERHEAD
Top lines may be tough to control, but the bottom — and more important — line is another story. By controlling costs and overhead, profits can be saved from going the way of sales in hard times.
As part of the restructuring Liz Claiborne Inc. disclosed last summer, the $4.58 billion firm has cut $165 million in expenses, including sizable layoffs all the way up through executive ranks. Another $100 million in cost cuts are planned.
“There are special themes that emerge with greater priority during economic downturns,” said Claiborne chief executive officer William L. McComb. “We have a special emphasis right now on the balance sheet with very clear targets for debt and equity metrics over the next 12 months. That seems to be driving stock valuations even more than estimated earnings. Balance sheet targets trickle into the organization in the form of working capital management and cash flow focus, so we have our people very focused on inventory levels and even receivables, [stockkeeping unit] productivity and turns in the retail business. You also reprioritize every capital dollar you have for the 24-month horizon. Some things you delay, some things you accelerate because they will actually help your business through the tough times.”
Many companies are pulling back on capital-intensive store rollouts and even closing nonproductive doors. Outside of the apparel industry, Starbucks grabbed headlines by announcing it would close 600 stores. Within the industry, Gap Inc. plans to consolidate its subbrands, such as Gap Kids and babyGap, into its namesake stores to cut real estate costs. Walgreen Co. intends to slow growth in the next three years to save $500 million in capital expenditures.
J.C. Penney Co. Inc. has twice reduced capital expenditures, most recently cutting 2009 capital expenditures to $650 million from $1 billion, after slashing $200 million in April, which chairman and ceo Myron E. “Mike” Ullman 3rd said would let Penney’s maintain “positive free cash flow” next year.
Further, Penney’s has reduced store opening and renovation plans and now intends to open or relocate 20 stores in 2009, down from the 36 in 2008, a decline from the previous plans to open 50 stores each year through 2011. The company is also scaling back its store renovations to between 10 and 15 units in 2009, down from the 20 in 2008. It had previously planned to renovate 65 units each year through 2011.
Competitor Kohl’s is slowing store expansion plans from its previous goal of 1,400 stores by 2012. “We’re probably going to take a couple of years longer than we originally planned to get to that,” chairman and ceo Larry Montgomery said.
The $16.5 billion Kohl’s has been adding 95 to 100 stores annually in recent years, but will open only about 75 stores this year because of the economic climate. The 957-unit retailer will adjust its store opening plans to the economy each year, Montgomery said.
Wal-Mart Stores Inc. began to cut costs ahead of the curve last year. Compared with opening as many as 300 Supercenters a year for the last several years, the firm’s expansion plan calls for about 170 new Supercenters this year and 140 next year. Wal-Mart also revised its forecast for capital expenditures to between $13 billion and $14 billion, down from $13.5 billion to $15.2 billion.
“That strategic declaration took place well before there was any kind of a crisis in the credit markets, well before we had a meltdown in the mortgage markets,” said Tom Schoewe, Wal-Mart executive vice president and chief financial officer. “We got out ahead of that.”
To cut costs, consultants recommend working backward. To make 8 percent of sales as profit, figure out what the overhead must be to achieve that and then assess every line of expenses.
One of the biggest, most flexible — and emotional — places to cut is personnel. For example, The Talbots Inc. is eliminating 129 positions and cutting its corporate head count by about 9 percent, producing roughly $14 million in annual savings.
A company shouldn’t think about who it’s laying off, said some experts, but rather whose jobs is it saving by doing what it has to do to stay in business. Businesses can shave 10 to 20 percent off overhead by eliminating one person per department. To choose when it’s prudent to lay people off, one ceo recommends asking: “What would happen to this business if that person were hit by a bus tomorrow morning?” If business could continue as normal, eliminate that job, the ceo advised.It may sound heartless, but this can actually mark an upside of the economic downturn. There are probably employees that companies should have fired for performance issues, but didn’t want to make those hard decisions when times were good.
One place that cost savings probably won’t be coming from is sourcing at factories, where most companies are seeing prices climb by as much as 20 percent.
“You risk insulting your consumer by raising prices, despite higher costs coming from overseas,” said Rick Darling, president of LF USA, part of sourcing giant Li & Fung Ltd. “Efficiencies aren’t going to come further from garment factories — we’ve rung that towel out as far as we can as an industry for the last 25 years — so it has to come from lowering overhead. But 80 percent of costs come after the goods leave the factory, from freight, logistics and overhead. As freight costs rise, you have to look at logistics and overhead. You can outsource logistics and you must cut overhead.”
Although outsourcing has risks and downsides, including quality control, compliance standards and deverticalizing, which divides margins along the supply chain, outsourcing offers several advantages. For one, expenses become variable instead of fixed. Spending $1 on salary in-house, actually costs $1.50 with benefits factored in, whereas with outsourcing, there’s a real dollar-for-dollar value. Also, when demand is reduced, there’s not the emotional cost of cutting in-house jobs.
“Think about where you add value in your supply chain and outsource what is not your core competency,” recommended Darling. “When something is not your strength, it’s not where you should spend your energy — you should rent instead of buying.”
Areas that retailers and vendors may consider outsourcing include logistics, sourcing, warehousing and distribution.
Tommy Hilfiger Group decided to outsource its sourcing to Li & Fung last year. “From a sourcing perspective, owning your own buying office in Hong Kong used to be a competitive advantage, but today it’s a competitive liability,” said Fred Gehring, ceo of Tommy Hilfiger Group. “Now you need offices throughout Asia, so we struck a deal to outsource completely to Li & Fung, so we can move all over the world as the commercial opportunities move. The more outsourced you are, the more flexibility you have, whether in sourcing or logistics.”
BE CONSERVATIVE WITHSALES AND INVENTORY
When consumer confidence and spending are dampened, the first rule is not to save the top line by sacrificing the bottom line (see point #1).
“Now is not a time to push volume,” said Andrew Rosen, Theory co-founder and president. “If we do a few dollars less than we could have, that’s OK. It’s safer to miss a sale than have too much inventory. When the economy is really rolling, you can take chances that wouldn’t be prudent to take today.”
Profit is a function of inventory. Vendors should undersell and retailers should underbuy, given the theory that it’s preferable to reduce sales than margin. On the retail side, Gap Inc. lowered inventories 13.8 percent during the first quarter, which dropped quarterly comparable-store sales by 11 percent, but also improved margins. For manufacturers that typically produce an extra 20 to 30 percent over orders, one chief executive officer recommended reducing excess production to 5 percent.
Even as stores scaled down on inventory going into this year, retailers still bought too much, and excess inventory has haunted them. For example, American Eagle Outfitters Inc.’s 5 percent decrease in inventory was not enough, and the retailer resorted to aggressive markdowns to clear merchandise.
Even luxury retailers aren’t immune. “This battle on price is just not our game but we got into more promotions than we liked because of our inventory levels,” said Burt Tansky, Neiman Marcus Inc. chairman and ceo. “Promotional activity will continue as long as the inventories are high. We are driving our inventories to our year-end plan and once we get there we intend to stay there. From our perspective, we hope the promotional activity will normalize. We would like to avoid them in the future.”
Excess inventory goes on sale, which not only drives down margins on that round of product but also interferes with future sales of full-priced product, creating a vicious cycle. On the other hand, limited quantities of clothes can train customers to buy at full price.
“Shoppers are more willing to pay for an item at full price if they think it won’t still be there the next week,” said Christine Chen, retail analyst at Needham & Co. LLC.
Inventory reductions will become even more important during the upcoming back-to-school season, argued Eric Beder, retail analyst at Brean Murray, Carret & Co. “With initial fall shipments in less than six weeks, the level of newness will continue to slacken, while the need for price cuts to clear out goods will increase,” he said. “We believe most of our universe has continued to aggressively reduce inventory exposure over the past few weeks.”
STEP UP LEADERSHIP
Ceos, better roll up your sleeves.
Employees and shareholders are nervous, the company needs to be at the top of its game to maintain or pick up market share and leadership is essential.
“Senior management has to become much more visible, be with the troops,” said Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates. “Set the standards of performance higher than ever. Expect people to be more than they think they can really be. Even if the results are more modest than they would have been while good times rolled, great execution has to be acknowledged and rewarded.”
One of the industry’s most sought-after executives, Rose Marie Bravo, former Burberry and I. Magnin chief executive officer, and former Saks Fifth Avenue president, emphasized the importance of a leader who communicates in hard times.
“Certainly in business, you’re going to have up-and-down cycles, and some are going to be more dramatic and catastrophic than others,” Bravo said. “If sometimes the goals may need to be adjusted — and I’m talking not just the financial goals, but also the qualitative goals — you might think you would prioritize in a different way given the circumstances. But you want to keep the commitment to the mission. It’s essential, especially if you are managing a brand or a store that has its own DNA. It’s easy to go off point when you are having disastrous business or a reversal.
“Probably during tough times, the best thing you can do as a leader is to be extremely visible and extremely supportive and to be reaffirming of the positives, and to be out there communicating consistently and constantly the message and the objectives that will help the organization stay positive because it could go into a very negative cycle,” Bravo added.
Dana Telsey, president of Telsey Advisory Group, put it this way: “It’s staying ahead of your customer, making sure that the staff and the selling staff continue to be excited about the brand and listening to them to hear what the customer says.”
At Polo Ralph Lauren Corp., Ralph Lauren told WWD last fall, on the occasion of his 40th year in business, that one person cannot be “the genius of the whole world.” Although the designer typically wins when he and his chief operating officer, Roger Farah, have differences of opinion, they always discuss issues. “It’s about teams, it’s about give and take, it’s about opening up,” Lauren said.
People at the top of the organizational chart need to remember, too, that the tough economy, more than being a headache for the company, can be a real threat to the rank and file.
“This is a difficult time for employees,” said Marshall Goldsmith, executive coach and author of “What Got You Here Won’t Get You There” (Hyperion, 2007). “Their friends are being laid off for things that are often not because of performance. The average employee is spending a third of his time complaining and focusing on how times are hard. You need to involve your employees in the changes that need to be made.”
Terry Lundgren, Macy’s Inc.’s ceo, sought recently to reassure his management team that the company was picking up market share and remained financially healthy despite rumors of liquidity problems that had tanked the retailer’s stock.
“I recognize how distracting the economy is for all of our people,” said Lundgren in a letter to executives. “The headlines and newscasts are overflowing with gloom and doom. In spite of it all, I am proud of how our organization has risen to the challenge in continuing to embrace change, serve our customers and innovate with unique new merchandise and marketing and selling programs.
“History tells us that our economy will improve over time, and we will get through this difficult period,” he continued. “When that happens, our company will be poised to win over more customers. This is a time for us to maintain our focus, and I thank you in advance for doing so.”
Although there’s no telling what impact the soothing words had on frayed nerves, Macy’s stock managed to stage a comeback, demonstrating the importance of communicating with analysts and investors.
Edie Weiner, a principal at Weiner, Edrich, Brown Inc., a futurist consulting group, pointed to executive compensation as a useful yardstick of whether a company has a sustainable plan. “You have to rethink the whole human resource strategy,” Weiner said. “When you remove yourself so much from the people who work for you and you have a corporate echelon that is really not so connected to the lives and the concerns of the people who serve the customer, then the customer is not going to be well served. That’s all part of stewardship. How are you taking care of the people and the planet?”
L.L. Bean is helping its employees manage their cost of living expenses. About a third of its 5,000 worldwide employees have signed up for ECO Bean, a new employee commuting option program that makes participants eligible for gasoline gift cards, GPS devices, bicycles and other gift certificates. Carpoolers get priority parking at the company’s Freeport, Maine, headquarters and more designated spots have been needed because of the program’s popularity.
Lululemon Athletica Inc., a Vancouver-based yoga apparel retailer, posts a “Goal Tending” section on its Web site, replicating the same goal-focused approach it cultivates in its employees. The company is also achieving its goals of healthy profits and sales growth in its first year as a public company.
Leadership also means staffing up with the best people possible, through recruiting, training and mentoring.
In his book, “The Game Changer,” (Crown Business, 2008) A.G. Lafley, chairman and ceo of Procter & Gamble Co., preaches the importance of developing future leaders. His plan calls for:
-Identifying future leaders immediately.
-Personal coaching by other innovation leaders.
-Support systems and training opportunities.
-Intentional assignment and experience planning.
-Reward and recognition.
“From Day One, new hires at P&G are intentionally thrown into innovation projects to see how they do right from the start,” Lafley wrote. “More P&Gers in more functions are tested this way. If they do well, they get a bigger project. To move up into the senior ranks at P&G, an employee has to consistently demonstrate his ability to run a business operation; to define clear, game-changing strategies, and to effectively run an innovation program. It’s that simple.”
Today’s trainee might well be tomorrow’s corporate titan, and a boost to programs now might mean that in a decade or two, every open slot in a corner office won’t be accompanied by a chorus of complaints that there isn’t enough top-shelf talent to draw from.
“One of the first things that go when times are tough are the training programs,” said Jay Baker, the former president of Kohl’s Corp., who has made significant philanthropic contributions to industry-related education since his retirement. “But if you are going to get young talent, it’s essential.…In the short term, you save money by not hiring young people and having these training programs, but in the long term, you really are going to suffer.”
PROVIDE MORE VALUE AND DIFFERENTIATE
Pressure is plowing in from both ends:
At the production level, costs out of China and Europe and freight costs for delivery are climbing, and at retail, consumers aren’t willing to pay as much for the same product. In short, they’re demanding more value at a time when value is hardest to produce.
The good news is value can come from two avenues: price and product innovation.
The more obvious one, price, is illustrated by Wal-Mart’s recent gobbling of market share. The challenge today comes from companies like Hennes & Mauritz, Uniqlo and American Apparel that put out fashionable products for practically nothing.
Christian Courtin-Clarins, president of Groupe Clarins’ supervisory board, attributed much of Clarins’ recent success of its pricing strategy “to stay reasonable.” “If you are too expensive, people will go to different distribution. Our target is to keep our customers in our distribution.”
William P. Lauder, chief executive officer of the Estée Lauder Cos. Inc., has a three-step prescription for the recession blues. Focus on the consumer, he said. “She has to feel important.” The second element is brand distinction: bringing excitement to the brand so that the consumer absolutely has to have it. His final piece of advice is to “be sensitive about price.” In particular, manufacturers must be careful about what cost increases they pass along to consumers.
But for companies without the size or sourcing capabilities to win purely by price, the answer is adding more design, integrity, versatility and longevity.
“There are two types of business: One sells by price and one sells by design,” said Bud Konheim, ceo of Nicole Miller. “When you sell by price, you win when your price gets to zero — a bad win. To add perceived value for us gets into design. When we hear a dress is too high-priced, we interpret it as ‘I don’t like it,’ because consumers will still spend when they love something.”
Mickey Drexler, chairman and ceo of J. Crew Group, hates the word “affordable” and instead relies on differentiation to sell product. Part of retail’s problem is there are “too many damn stores,” and not enough difference between them, he said.
“The world has become an assembly line of sameness,” Drexler said in a recent interview while opening a Madewell store in Atlanta. “We have to bring customers something exciting they haven’t seen before. We have to be in the style business.”
Ralph Lauren agreed. “I look at this industry and walk around the stores to see what is going on,” Lauren said in an interview last year when Polo Ralph Lauren Corp. launched Global Brand Concepts, a private brand division.“I think one of the things stores need is an ability to be individual, the ability to say, ‘This is mine.’ They have to be able to say, ‘Come to my store because we have something you don’t have.’
“In this day and age, there are a handful of designers and brands that are very strong,” Lauren continued. “They can grow, but at a certain level, they start to overlap. Consumers are looking for something new, retailers are looking for something new and the brands are looking to grow their business.”
Winners will differentiate themselves by newness and unique designs that excite or inspire consumers.
“I’m not sure fashion is just about the here and now,” said designer Alber Elbaz, the creative helm of Lanvin. “For me, it’s about design and about desire and dreams. Fashion is about creating a need.”
Francisco Costa, creative director of women’s Calvin Klein Collection, said in an earlier interview, “Some people may question why the collection was too heavy in terms of the fabrics, and what is happening to the economy now because clothes get pricy. I felt the opposite. When times are tough, you need investment clothes, really. You will buy things that really make sense to you, that you can have for the longest time.”
For retailers, the question becomes how to get the customer to buy products from their stores, rather than the competition.
“Customers come to Macy’s and Bloomingdale’s looking for new and interesting merchandise,” said Terry Lundgren, chairman, ceo and president of Macy’s Inc. “They don’t want to see the same goods in our stores as they do all over town.”
Macy’s has made its exclusive and private brand offerings a top priority, even calling its 2007 annual report “the drive to differentiate.” More than a third of its $26.3 billion in sales came from brands that are exclusive to Macy’s or in limited distribution, including its private label INC line, Martha Stewart Collection, Donald Trump’s line and diffusion lines such as T Tahari. As Macy’s expands exclusive partnerships with Tommy Hilfiger, FAO Schwartz and Lush Cosmetics this fall, that number is only expected to grow.
“Even in tough times, you can survive by doing things differently from everyone else,” said Vittorio Radice, ceo of La Rinascente, the Italian department store chain. “By choosing to play in a different field, you can take market share away from others and get stronger. We have been repositioning our offer [upstream] for the last three years to differentiate ourselves and take ourselves out of the midmarket. By modernizing some stores and closing down others that are underperforming, by introducing accessible luxury brands and cutting down our private label, we think we can weather the storm and come out stronger.”
The retail experience can also provide customers with perceived value. Wharton professor of marketing Stephen Hoch argues that retail consists of three basic dimensions: value, accessibility and discovery.
“Consumers are a lot smarter today, and when times get tough, they start paying more attention,” Hoch said. “Every retailer that is discovery-focused now needs to figure out how to inject value by being creative. You can offer value by simplifying the decision process or by educating the consumer so they understand the value equation and why a product is worth more, like Apple does.”
Branding and marketing can also contribute to value. “Beyond pricing, the new segmentation will have to be about emotional benefits regardless of the nature of the item,” said Marc Gobé, president of Emotional Branding, a consulting firm. “For example, if you can’t afford that big-size expensive diamond ring, get a smaller one at Tiffany where the magic of the blue box compensates for the smaller diamond size. The Tiffany blue box creates an expectation that speaks loudly about taste and specialness regardless of the price. In this emotional time, you need emotional solutions: Branding based on trust will be key.”
Juicy Couture seems to be one of those brands, growing more than 50 percent a year after more than a decade in business. “For Juicy, we are sort of in this weird zone where we are seen as pure, colorful, happy L.A. sunshine — sort of like comfort food,” said Gela Nash-Taylor, co-founder and co-creative director of Juicy Couture. “I think that people come to us because they know us, they are comfortable with us, they see us as affordable luxury. We are a safe buy for them. In times like these, we sell tracksuits like crazy because they are colorful and comfortable, which people seek out in tough times.”
DELIVER CUSTOMER SERVICE
When product isn’t moving in tough times, department stores are conditioned to host big sales to drive traffic. But at specialty stores, when times get tough, owners and salespeople help start calling clients to tell them about specific items that experience suggests the customer will want.
“We are and will continue to be, with ever-greater intensity, hugging our associates and they, in turn, personalize the relationship with every customer and client,” said Jack Mitchell, chairman and chief executive officer of Mitchells/Richards/Marshs. “We call our customers, we are showing them fall goods and we’re telling them about upcoming events. We’re raising the bar a dash and making sure every customer gets hugged every time they come in. We want our sales associates to be up and positive and make each customer feel like they are coming into our home.”
Known for its outstanding customer service, Nordstrom Inc. was the leader in large-format apparel (as opposed to mall-based specialty stores) in an IBM survey of more than 19,000 consumers earlier this year. Twenty-eight percent of Nordstrom customers — the highest of any store in its group — said they would recommend the retailer, would spend more there if the store offered products found elsewhere and would stay with the retailer even if another store offered competitive goods. Why? It boils down to customer experience.
According to Robert Spector, author of “The Nordstrom Way to Customer Excellence,” (Wiley, 2005), numerous factors contribute to Nordstrom’s reputation for outstanding customer service. Among them:
-“Salespeople are on commission and they’re encouraged to be entrepreneurs within the company. Salespeople can take a customer and sell across all merchandise lines, so if you come in looking for a Donna Karan dress, you can also buy something for your husband, and that person will take you throughout the store and will get the commission for the sale.”
-“Nordstrom is famous for its wide and deep inventories. In the shoe department, if your right foot is more than two sizes different than your left foot, Nordstrom will break up the pair and sell them to you.”
-“Salespeople are always following up and you always get a thank you note.”
-“The stores are set up to create an inviting place. Not every square inch is loaded down with merchandise, so you can push a baby stroller or a wheelchair.”
-“Every year they set a sales goal for each department, and people who achieve that goal get a PaceSetter, which gives them a 33 percent discount for the year. They’ve created a culture where customer service is singled out, honored and rewarded.”
-“There’s the story of the man who lived in Long Beach, Calif., and forgot to pack his suit for a meeting in Austin, Tex. He called Nordstrom and told him his size, and the suit arrived at his hotel in Austin with a note, ‘Thank you for thinking of us in your time of need.’”
-“They hire nice, motivated people,” Spector said. “Nordstrom wants them to be already nice and already motivated before they come to work for them. When I asked Bruce Nordstrom, the retired chairman, ‘who trains their salespeople?’ He said, ‘their parents.’”
“Any time we have activity on the floor, the business is better,” said Michael Gould, chairman and ceo of Bloomingdale’s, which recently was named “Department Store of the Year” at the Global Department Store Summit in London. “We just had the four models for Estée Lauder in store, and the sales were incredible. What can we do to entice people to spend? Freshness of merchandise, newness and special events.”
Bloomingdale’s has also increased its service on the selling floor. For example, in its New York flagship’s lingerie department, customers can pick up a phone in the dressing room and request additional sizes and styles that are delivered instantly.
Bergdorf Goodman has found success with special events like trunk shows that let the customer preview individual lines early in the season and talk to someone — often the designer — who knows the line well. In May, an Akris three-day trunk show at Bergdorf’s did more than $1 million in sales, with the first day breaking Bergdorf’s record for the most actual sales in a day by a designer — all this despite the shaky economy. Jim Gold, president and ceo of Bergdorf’s, called the trunk show “an exciting and positive start to the fall season.”
“The store’s success can be attributed to aggressive product and service strategies along with an intensive capital investment,” Gold said last July when Bergdorf’s cracked $500 million in annual sales for the first time, as he gave a toast to his sales associates. “We could not have reached this milestone without the loyalty of our clients, the talent of our associates and the commitment and support of our vendor partners.”
La Rinascente, the Italian department store, has mechanized its back office, enabling the retailer to get more people out on the selling floor, while keeping headcount constant.
REALLOCATE RETAIL SPACE
Retail today could perhaps be better described as Rack City.
Ira Neimark, former Bergdorf Goodman chairman, recommends rethinking stores’ use of space. “The customer walks in and wanders around looking for something, missing great opportunities,” Neimark said. “Now it has reached epidemic proportions, where every major store has racks all over the store.”
The fashion business could benefit from studying retail best practices of other industries. The apparel industry could benefit by shifting its focus from sales per square foot to an engaging retail experience, which can be found at Apple, Whole Foods and Best Buy. Within the apparel industry, Anthropologie “sets aside space for theatre,” as one source described the retail strategy, and Saks Fifth Avenues’ shoe floor — marketed with its own zip code — has played a huge role in driving shoppers into the store to witness the spectacle.
Urban Outfitters is testing a retail concept called Space 1520 in a 26,000-square-foot building in West Hollywood. Urban Outfitters will occupy 11,000 square feet and act as the landlord to other retailers it chooses. Food, entertainment, beauty and art are complementary businesses being considered. “Space 1520 is very experiential and tied to culture, commerce and community,” said Glen Senk, ceo of Urban Outfitters Inc. Space 1520 could be expanded to other cities.
“Don’t forget the value of inspiration,” counseled Daniel Erlbaum, chief executive officer of Finch Brands and a former vice president at David’s Bridal. “The power of a retail brand will carry the store in these difficult times,” contended Erlbaum, whose clients include Lord & Taylor, Everlast and Daffy’s.
Selfridges in London has devoted 3,500 square feet to its Ultralounge, a basement space that doesn’t sell products but rather holds exhibitions and events. “We want to capture customer affection and loyalty,” Selfridges ceo Paul Kelly said. “If you can do a good job in the tough times, you’ll do a great job in the good times.”
At Saks Fifth Avenue, last year’s launch of its highly marketed 10022-SHOE floor in its New York flagship is an example of“targeted capital improvement” to increase the productivity of Saks’ current stores, according to Stephen I. Sadove, Saks Inc. chairman and ceo. After the department’s success in New York, Sadove plans to expand the shoe floor concept to “five or six more stores.”
J.C. Penney has scored by adding Sephoras, which are anchored at Penney’s entrances and are two to three times more productive than the rest of the store, according to Myron E. “Mike” Ullman 3rd, chairman and ceo of J.C. Penney Co. Inc.
“The whole idea of Sephora was we felt we had to differentiate Penney’s from Kohl’s, from Macy’s and from other key competitors by having attractions that would anchor us as an exciting and fun place to shop and an easy place to shop,” Ullman said at the WWDBeauty CEO Summit this past spring. “Beauty is one of the most frequently shopped categories, and Penney’s has never really been very successful in the beauty category….The reason I felt it would work well is I felt that expanding the footprint of Sephora, which is a highly desirable, successful concept, to reach customers that they would never get to. We do business with 60 million customers, 60 million families. No matter how many specialty stores they put in, in the next 10 years, they would not reach that customer base.”
Using a similar theory, Macy’s is putting Lush and FAO Schwarz shop-in-shops into many of its stores.
With many Lord & Taylor sites considered overspaced, the department store is renovating its units and reallocating floor space to create Fortunoff jewelry departments and home stores with bridal registries in the 47 Lord & Taylor stores within the year. In addition, it will spend $100 million to renovate Fortunoff stores and open additional units.
Simon Graj of Graj + Gustavsen, an imaging and branding company, said the industry’s focus needs to shift back from accounting and numbers to vision and product.
“Retailers are presenting inventory and are looking to get the margin or the premium for the product and are asking the customer to do the work,” Graj said. “The smart retailer of tomorrow needs to contextualize the product, present it in such a manner that profiles it. The way retailers do that now is a cop out. They stopped being merchants. They look at the numbers, what they sold last year, and they do the same thing.”
Merchants may reach for something special to grab shoppers’ attention in difficult times, but they can’t afford to overlook the basics, advised Paco Underhill, managing director at consultant Envirosell.
“Nothing kills a business faster than a dirty store or being out of stock,” Underhill said. “These are seminal issues. Merchants have to keep fundamental issues in sight and not put on a sour face.”
RETIME SHIPMENTS TOMITIGATE MARKDOWNS
As women’s budgets tighten, they are waiting longer
to shop — until they’ll actually be able to wear what they’re buying. One reason, say numerous observers, is that season after season of earlier and earlier markdowns have trained customers to wait for sales. Markdown madness might be corrected, at least in part, if vendors and retailers collectively shifted merchandise arrival to align with the seasons. In other words, fall should start selling in August or September, not June, and should not be marked down until closer to the end, not beginning, of the season as defined by weather.
Vendors have been complaining about the early timing of shipments for years — Donna Karan has been an outspoken advocate of aligning deliveries with the seasons —but the current economic situation and shift in consumer buying patterns may be enough to stimulate real change.
“We are so projecting forward that we are not talking to the customer,” said Karan. “People should not be worrying, ‘What do I wear six months from now?’ The customer doesn’t want it that way, but we force them. Everybody is trying to be ahead of the game. To me, it’s like the movie industry. I no longer have to go to a movie. There are so many screenings a year in advance. I go, ‘Wait a second, that just opened? Everyone’s seen it already.’ It’s too confusing.”
“Individual vendors can’t dictate when goods go on sale, but they should have more just-in-time deliveries,” said Allan Ellinger, senior managing partner at Marketing Management Group. “No individual company can reinvent the wheel, but working as a group, they can align merchandising with seasonality. It’s a one-time correction that would benefit the entire industry, from retailers to vendors, in creating less markdowns.”
One thing designers have started doing is use 12-month fabrics to make clothes appealing regardless of the specific season. Lighter-weight fabrications and lighter colors in fall 2008 collections are more evident than previous seasons, retailers have observed, which should spur sales.
Part of H&M and Zara’s success has been their fast-fashion formula that includes wear-now-buy-now pieces and collections that rotate the floors regularly to get the customer to keep coming back to view new merchandise.
Markdowns, of course, will continue to be a reality, and there are strategies to make money off them by creating preplanned sale product. “Form alliances with specific retailers to create the best style in the cheapest fabric or the cheapest style in the best fabric, to get extra margin while satisfying the sales period,” recommended Andrew Jassin, managing director of the Jassin-O’Rourke Group LLC fashion consultants.
Companies need to set their sights globally, while at the same time seizing opportunistic real estate in their own backyards.
Retail expansion through directly owned stores presents numerous opportunities to negotiate better prices on rent as competitors shutter units, to expand e-commerce as gas prices increase and drivers stay close to home and for American brands in particular to sell their product abroad as the dollar makes U.S. exports a relative bargain.
For stores considering their own retail doors, prime real estate is opening up and rent prices are falling, declining 0.1 percent nationally at shopping malls in the second quarter. The national retail vacancy rate at neighborhood and community shopping centers is at its worst in a decade, and regional malls are at their lowest point in more than five years, according to real estate analysis firm Reis Inc. As G-III Apparel Group illustrated earlier this month when it bought Wilsons The Leather Experts Inc.’s name and operations of 116 outlet stores, the weak economy is opening up plenty of retail options.
As competitors close stores, Kohl’s plans to take advantage of real estate opportunities, said Kohl’s chief executive officer Larry Montgomery. “We have a pecking order,” he said, declining to say which competitor’s locations made his list.
LeSportsac plans to open five stores this year “in locations and rent deals that make sense in this type of marketplace,” according to Abe Chehebar, founder and ceo of Accessory Network, which produces handbags and accessories for Calvin Klein, Tahari and Karl Lagerfeld, and owns the LeSportsac and Ghurka brands.
“Mall owners are very aggressive to give very favorable deals in order to bring respected brands into their centers,” Chehebar said. “Although we are in a difficult environment, there are always opportunities to expand your distribution into new accounts. This becomes even more important when there are retailers that are closing stores or not getting credit approval. A wide account base enables you to attract a broader consumer segment and leverage your risk.”
Topshop is crossing the pond to enter the U.S. market in October with a 40,000-square-foot store at 478 Broadway, and Sir Philip Green, the retailer’s owner, said he is scouting for additional New York locations. “If the right deal comes up, I would do it,” Green said. “If I find three, I will open three.”
Cartier International has diversified to become strong across five regions of the world: Europe, the Americas, Asia, the Middle East and Japan, according to Cartier ceo Bernard Fornas, “so when one region slows down, the others make up some of the slack.”
“I wouldn’t want to bedependent on only the U.S. or Japan right now,” Fornas said. “Some of my competitors whose business is mostly centered in those regions continue to open stores in those markets. I don’t understand that strategy. There is still liquidity in the world. It’s just moving around.Plenty of people are profiting from the rise in oil and raw materials, for example. They are still spending. What they are looking for is real luxury. Over the last three years we’ve doubled our production capacity in the high jewelry ateliers. You have to create pieces that are absolutely extraordinary, pieces that live up to your customers’ financial status.”
Just as the likes of Topshop expand to the U.S., U.S. companies should be looking abroad for expansion. For one, the weak dollar makes U.S. products a more appealing bargain. Furthermore, while the U.S. economy is being hard hit, some regions — including Russia and the Middle East — have growth opportunities.
“American companies are highly regarded abroad, in the Middle East and Russia — markets where the business is healthier, and brands should be focusing on them,” said Marvin Traub, co-founder of TSM Capital, an investment firm.
Coach, like other fashion players, has its eyes on China, after opening a 9,400-square-foot flagship there in May. “We’re looking over the next five years for our sales [in Greater China] to grow to at least $250 million from approximately $30 million at retail today,” said Lew Frankfort, Coach’s chairman and ceo, adding the company plans to open at least 50 stores in the Greater China market over the next five years.
For Bloomingdale’s, a deal in the Middle East could happen soon. Saks Fifth Avenue already has two stores in the Mideast, one in Mexico, plans to open in Shanghai, and is said to be considering Kazakhstan. Lord & Taylor is looking to international expansion, possibly through licensing. According to Lord & Taylor chairman Richard Baker, “there is an opportunity in Asia and other markets in North America for Lord & Taylor to have stores” focused on American designers.
Just this month, NRDC Equity Partners, L&T’S parent, acquired Toronto-based Hudson’s Bay Co. Those businesses will now be part of a holding company called the Hudson’s Bay Trading Co. The new holding company will represent more than $8 billion in sales, some 75,000 employees and 55 million square feet of space in the U.S. and Canada. NRDC plans to invest $500 million into the combined company. In addition, there are plans to launch 10 to 15 Lord & Taylor stores in Canada.
International operations can also make for a good corporate balance. “It helps to have a worldwide distribution network, both in established and emerging markets as these are really becoming the driving force of the business,” said Patrizio Bertelli, ceo of Prada SpA.
Giorgio Armani is counting on further retail expansion worldwide to ease market-specific downturns. Armani will forge ahead with 50 new store openings worldwide this year, including its first two stores in India and the first Emporio Armani flagships in Moscow and Beijing, after adding 49 stores to its 471-strong retail network last year, including the 12-story Armani Ginza Tower in Tokyo.
“Although we often say that the world is a small place these days, it still offers enormous scope for the Armani portfolio of brands,” Armani told WWD this spring. “Our medium-term strategy is to continue to pursue our unique multibrand strategy, expanding and strengthening our brands and product lines in both mature and emerging markets.”
For Armani, that means more than fashion. This year will mark the opening of the first Armani Hotels & Resorts as well as the sales of the first Armani Residences.
Polo Ralph Lauren Corp.’s three long-term goals all revolve around expansion: new merchandise and product development, expansion of direct-to-consumer business and growth of international operations.
“Today, the United States represents approximately 65 percent of our branded sales with Europe accounting for 17 percent and Asia and the rest of the world representing the remaining 18 percent,” president and chief operating officer Roger Farah told Wall Street analysts in May. “Ultimately, we’d like to have the United States, Europe and Asia each representing approximately one-third of our revenues.”
Farah added that achieving this balance will “take some time...but I do believe that it will not be that far off.” He added, “While the U.S. is still growing, the international markets are growing more quickly.”
LVMH Moët Hennessy Louis Vuitton chief Bernard Arnault agrees. “The economy today is driven by emerging markets,” said Arnault. “The growth has been impressive. Soon they will no longer be emerging markets but emerged.”
LVMH has more than doubled its business in emerging markets in the last five years, with about 450 stores in emerging economies, from Russia and China to Brazil and Ukraine. He attributed LVMH’s success in emerging markets to the fact that “we treat them like they are developed....Our success is explained by quality.”
Arnault said LVMH will not halt its aggressive expansion despite the economy. “Every time we’ve been [in a difficult economy] we’ve increased market share,” he said. “We’ve started the year strong. We will not pull off [of the accelerator].”
A willingness to reinvent has helped Guess Inc. expand and grow. “We have diversified our product from what it was 10 to 15 years ago,” Paul Marciano, Guess’ ceo, said. “Jeans make up barely 25 percent of total merchandise, where it used to be 75 percent because we didn’t have solid merchandise in other key categories. Now we are a complete lifestyle brand, from men’s and women’s apparel to accessories and footwear.”
The firm, which has changed its business profile from primarily a wholesaler to a retailer, has also grown geographically, with 391 stores in the U.S. and Canada and 607 stores outside of North American — 63 of them owned directly.
“We have developed brand recognition on every continent,” said Marciano. “The key is we are in tune with our customers and have an open line of communication with regional and store managers. This allows us to immediately react when something goes wrong with a product. We don’t have to wait three months to hear our customers didn’t like a handbag.”
China, India and the United States are the three most populous nations today, but India will surpass China by 2030, while the U.S. will remain third, according to the United Nations.
A.T. Kearney, which released its own Retail Apparel Index report (an offshoot of its Global Retail Development Index) in June, found that top emerging countries, such as Brazil, China and India, were ripe for apparel retail expansion opportunities.
At $511 billion in estimated retail sales this year, India’s retail market is larger than ever and drawing both global and local retailers. Gross domestic product is projected to grow by more than 8 percent in fiscal year 2008. India’s overall retail sector is expected to rise to $833 billion by 2013 and to $1.3 trillion by 2018. Consumer spending centers around youth, as more than 33 percent of the country is below the age of 15, according to Kearney’s report.
In 2007, Chinese GDP grew at over 11 percent, and its retail market was $886 billion, according to the report.
Brazil is the dominant country in Latin America, in terms of GDP — it grew at over 4 percent in 2007. Its retail market was $400.2 billion in 2007, according to A.T. Kearney. With over 190 million people, Brazil has the second-largest population in the Western Hemisphere behind the U.S. Over 60 percent is under the age of 29.
FOLLOW THE DEMOGRAPHICS
It’s all about figuring out what women want, and catering to those who still have the means to spend, even in hard times.
Take the Baby Boomer. The largest demographic segment in the U.S. today at 79 million strong, Boomers account for a third of the country’s population, spending about $2 trillion annually. With the economy shrinking their retirement accounts and devaluing their homes, they expect to stay in the workforce far past the age of 65, according to a June study from Packaged Facts titled “U.S. Baby Boomer Attitudes and Opportunities: At Home, At Work and On the Road.” Everybody knows about her and knows she has lots of dough to spend, but few are really addressing her needs.
“It’s not that the challenges are new or startling — they have been here all along and the business has refused to pay attention,” said Edie Weiner, futurist and a principal at Weiner, Edrich, Brown Inc. “The aging of the population, it’s right in front of them.”
All that’s needed is young styles to fit older bodies at affordable prices, said Weiner.
“Come on,” she said. “There’s nothing new here, why aren’t they getting it? It’s inertia, it is too much of a fascination for the next hot young new market with less attention to where the money is.”
Eileen Fisher has paid attention unfalteringly to her core Boomer customer and has been rewarded with a nearly 25-year-old company that has enjoyed near constant 15 to 20 percent annual growth for the past five years to become the $254 million brand it is today. The Boomer population, with plenty of money to spend, if not perfect bodies, appreciates the brand’s forgiving silhouettes (including special sizes, which comprise more than a quarter of revenues) and timeless looks, without “planned obsolescence,” which appeals to a demographic concerned more with investment dressing than trends.
“It’s the Baby Boomer phenomenon,” said James D. Gundell, vice president of retail and e-commerce at Eileen Fisher. “As women get older and their bodies change, we offer options for a lot of different body types. She is the consumer with the disposable income today.”
Chico’s Inc. soared for years by catering to this forgotten middle-aged woman, delivering 113 consecutive months of same-store sales gains, until 2006. But for the last two years, the company has reported disappointing results, for which fashion blunders have been blamed. Having someone who understands the Boomer mentality and desire for style is also key, and Chico’s faltered with the departure of founder Marvin Gralnick, whereas Eileen Fisher continues to spearhead her brand.
Boomers are the easy example. But they are far from the only ones to watch.
After the Boomers, the teenagers and twentysomethings that make up Gen Y are the largest U.S. population at 75 million.
Females between the ages of 13 and 24 spent $33.7 billion on clothing in the 12 months through April, according to The NPD Group, a Port Washington, N.Y.-based market research firm. That compares with $16.9 billion purchased by 25- to 34-year-old women, including some older members of the Millennials, and $29.8 billion by Baby Boomers between the ages of 45 and 64.
And, of course, there are the wealthy luxury consumers, which fall into several age ranges. As Burt Tansky, chairman and chief executive officer of the Neiman Marcus Group, quipped, this customer may be tightening her belt, but that belt is still made of alligator or ostrich.
Ethnicity plays into the equation. Latinos are the second-largest population group in the United States, growing by 1.4 million in 2007 to 45.5 million people, or 15.1 percent of the total U.S. population, according to the U.S. Census Bureau. Hispanics are also the fastest-growing demographic of young people, according to the Hispanic Youth Culture Study ’07. There are 40.7 million African-Americans, the second-largest minority group.Aside from pure numbers, the fallout in the housing market and higher gas prices are reordering how consumers think and live.
“There will be a whole transformation of what people view as their house,” said Allen Questrom, former chairman and ceo of J.C. Penney Co. Inc. and Federated Department Stores and a member of Wal-Mart Stores Inc.’s board. “They’re going to want to get close, they’re going to want to live in cities, they’re going to want to have more use of public transportation. That’s going to change even longer-term the value of those homes that are now in the hinterland.”
“A good retailer is a person who serves their clientele. They have to be aware of what’s motivating, what’s changing the lives of their customers and adjust their inventories to accommodate,” said Questrom. “Most successful
retailers have to be very aware of what’s happening outside their own world.”
Dov Charney, founder of Los Angeles-based chain American Apparel, attributed the company’s continued success amid a sagging economy— it posted an impressive 37 percent first-quarter increase in same-store sales and a 42 percent increase for the second quarter — to low price points and a brand appeal centered around
an urban lifestyle. American Apparel stores are in cities with relatively few drivers and more renters than homeowners — populations less affected by spikes in gas prices and the collapsing U.S. residential housing market.
“Many of our stores in North America are in cities with good public transport and few people have cars. That’s a big part of our chain and identity: It’s all about our locations,” Charney said. “We don’t have expensive products and they are basics. The average ticket is not very high — under $100 for a few items, and the average item is $22.”
At its core, retailing is a game of giving consumers what they want.
“Many retailers don’t know what their customers want,” said Elaine Hughes, president of the executive search firm E.A. Hughes & Co. “One of the many reasons why [J. Crew chief] Millard “Mickey” Drexler is as successful as he is, is that he is in his stores on a weekly basis talking to his customers and making changes in response to what she needs.”
Keeping up with consumers can make merchants look like magicians.
“Some people just have that touch and that taste and that ability,” said Laurence C. Leeds Jr., chairman of Buckingham Capital Management. “Why does everybody want to take out the same girl? There are some people who just do it better and have that talent and some people who make clothes that are more creative. Why does everybody you know, virtually, say, ‘Gee, I love J. Crew?’”
Although it’s not a great time to undertake major technology initiatives, it’s a good time to invest in the Internet, say analysts.
That could include upgrading one’s Web site; expanding e-commerce capabilities; advertising and selling on other companies’ sites; posting fashion shows on YouTube, and getting involved with e-mail marketing, social networking sites, video and avatars.
“Virtually all online retailers are still reporting strong numbers or at least stronger than other store sales,” said Forrester retail and technology analyst Sucharita Mulpuru. “The argument can be made that sales are shifting from off-line to online, so it probably makes sense to invest in that kind of technology.”
According to Forrester, last year U.S. online sales (excluding travel) were $174.5 billion, which is expected to climb to $204 billion this year. Of that, $30.1 billion was spent on apparel, accessories, footwear, jewelry, cosmetics and fragrances. That figure is expected to reach $35.4 billion this year.
Forrester adds that luxury consumers do more shopping online and spend twice as much as other consumers. Last year, the size of the luxury market for just apparel and accessories online was estimated at around $1 billion, and luxury companies are finally catching on. Recent entrants include Prada, Louis Vuitton, Yves Saint Laurent, Stella McCartney, Boucheron, Bulgari, De Beers and jeweler Karen Karsh, and in the near future Calvin Klein and Pucci are expected to add e-tailing. The Limited, which initially didn’t believe Express and Limited Stores should have e-commerce, has finally joined the fray and will launch its first transactional Web site in September, which it expects will account for 20 percent of the firm’s total business in five years.
“I think eventually every company that runs stores will have e-commerce,” predicted Mark Lee, chief executive officer of Gucci, a leader in online commerce that launched e-commerce in 2002 and handles the technical side in-house. “Whatever the initial fears or reluctance, people are embracing it. It doesn’t harm the brand in any way, and it’s also very profitable.”
Oscar de la Renta sees value firsthand in the latest technology. After his May resort show, his biggest Russian customer, Aizel Trudel, who also is a partner in his Moscow store, placed an order for more than $1 million from looks she viewed on YouTube, a half hour after he showed in New York.
Net-a-porter.com, a multibrand luxury e-tailer, which did about $110 million in sales last year, has helped the Web lose its low-rent reputation.
“Where this is coming from is consumer demand,” said Net-a-porter founder Natalie Massenet. “Customers now expect it, particularly from the big brands. [Not having e-commerce] would be like going to a store at one in the afternoon and having a sign on the door saying, ‘We’re currently not selling from this store.’” Neiman Marcus’ Web site is its biggest store, and Brendan Hoffman, president and ceo of Neiman Marcus Direct, projects it will grow to a $1 billion business in several years. Hoffman points out the Web site also provides the retailer with longer arms.
VF Corp. is looking to e-commerce to help drive its brands abroad, as well, proving luxury companies aren’t the only ones tapping the Web’s potential.
And with sales of more than $1.5 billion, jcpenney.com is more than the fastest growing division at the company. “We use jcpenney.com as an information resource for customers and associates, and as a way to get instant and invaluable feedback from shoppers through product reviews or blogs,” said John Irvin, who retired in June as executive vice president after leading the retailer’s Internet and catalogue businesses since 2001.
Experts caution that it’s not the time to invest in major new technology initiatives such as enterprise resource planning (ERP), warehouse management systems, aligning databases, customer relationship management or loss-prevention programs. Even technologies known for a quick and strong return on investment, such as price optimization, scheduling software and self-checkout are not magic bullets, said Forrester’s Mulpuru.
“Theoretically they can all help reduce costs but the problem is you have to put in processes and people who know how to use the software to see the cost savings. Any big technology investment will take a year to see results and you have to take the hit now on your line on your P&L.”
Retailers spend about 3 percent of total revenues on information technology on average. They are unlikely to cut essentials such as spending on data security, given all the bad press that has attended losses at companies such as TJX.
Companies should be creative and use what they already have to juice sales in the short-term.
“They should be calling on companies like Google to help them put in place tests so they understand what the search-engine marketing impact is on offline sales,” said retail technology analyst Patti Freeman Evans of JupiterResearch. They should also be using point of sale, online reviews and customer service information they already have to more precisely target customers and speak to them in a relevant way, she said. “It takes resources but potentially now is a great time to do that to eke out extra dollars in average order value. Potentially that will create conversion opportunities and diminish returns,” she said.
Finally, “retailers shouldn’t just hunker down and try to get by through discounting, but should try to innovate and drive the top line,” she said.
Burberry, for example, was fortunate in making IT investments over the past few years.
“What we’ve done over the past couple of years is place the investment in the business where it needs to be placed, in terms of the IT systems, in terms of the supply chain functions,” said Stacey Cartwright, chief financial officer at Burberry. “We’ve now made those investments and are now yielding the benefits. Part of the benefits are…being able to ship product on time that we hadn’t been able to ship before on time, which therefore protects the business in other ways. Having our wholesale sales up 43 percent in the quarter is fantastic, it means we got the product in when it was meant to get in to wholesale accounts, it reduces the risk of any cancellations down the track when you’re late, and also increases the possibility of reorder. So it’s not just about efficiencies to drive cost savings per se, it’s about efficiencies to drive opportunities.”
@juicebeauty, where @gwynethpaltrow holds the title of creative director of makeup, has become one of the foremost labels in the organic beauty category –– with sales on track to hit $100 million this year. What’s behind the rapid growth the brand is experiencing right now? It all started in 2005 when the wellness movement was just getting started. Read more on WWD.com. #wwdbeauty
Stay up to do date with breaking news and trending stories with WWD’s “The Essentialist.” Our newsletter delivers the top news in fashion right to your inbox. Want more info? Link in bio. #wwdfashion (📷: @kukukuba)
"I want to tell a story that inspires people to feel good about themselves, but also I'm making a commentary about the lack of female stories and female directors and saying this should change," said @imheathergraham on her latest project "Half Magic." The comedy feature, which the actress wrote and directed, is based on her own struggles as a woman in show business. Read @andrewnodell's full interview with Graham on WWD.com. #wwdeye (📷: @jgreenery)
@meltcosmetics cofounders @lora_arellano and @danabomar built their brand on a single idea: a true matte lipstick. To set the brand apart, they said they always put their customers first –– including a personalized note in each package. #wwdsummits #wwdbeauty
@moncler unveiled its latest project, #MonclerGenius, yesterday at Milan Fashion Week. The Italian outwear maker gave show-goers a preview of the monthly collections – which were created by eight designers and creative talents including Pierpaolo Piccioli, Simone Rocha, Craig Green and more – that will start rolling out in the summer.