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The prognosis is not good: The mega-vendors and über-retailers of the world just keep getting bigger. And as they grow, these lumbering giants are able to leverage their economies of scale in such a way that it suffocates middle-market companies. But there is hope and treatment for midsize retailers and vendors. Here are 10 prescriptions for better business health in the midtier market:
Exercise Your Brand
Take a look at Target Corp. The mass retailer is an expert at brand positioning, and it pours a lot of energy into its distinctive bull’s-eye. The logo is everywhere, seen in fashion magazines and on T-shirts. It’s sculptured into topiary at tony summer destinations such as the Hamptons. It’s even emblazoned over the eye of Target’s mascot dog, who is a chick magnet at star-studded Target grand openings. In short, the Target brand is positioned as a fashion/value brand. And it works. For the most recent six-month period, sales at Target Corp. climbed 12 percent to $20.74 billion. Samuel C. Schwab, chief executive officer of Little Me, a children’s wear retailer and manufacturer, said companies can’t be in business without a strong brand. “Whatever size you are at, you must be able to invest in the level of building that brand,” Schwab said.
A Daily Regimen of Differentiation
Industry experts say midtier retailers and vendors don’t spend enough time differentiating themselves in the market. Kenneth A. Wasik, director of the consumer products group at Houlihan Lokey Howard & Zukin, said midtier players often overemphasize their competition with mass retailers, “when they should be figuring out how they fit in their own market. Mid-market retailers need to offer a differentiated shopping experience,” Wasik said. “That is absolutely what the mass merchants do not do. Mass doesn’t put a premium on customer service or fashion risk.”
X-ray Your Customer
Well, maybe that’s not a good idea. But industry analysts and scholars say it’s critical for middle-market companies to be especially knowledgeable of their customers. William Cody, managing director of the Jay H. Baker retailing initiative at the Wharton School of Business, said his prescription for mid-market companies is to know your customer. “Whether you are a Jones New York working with Kohl’s or a smaller outlet like Smith Brothers, you need to know your customers,” Cody said.
This story first appeared in the August 16, 2004 issue of WWD. Subscribe Today.
Exercise Your Strengths
Schwab said that in the middle market, “You can’t be all things to all people. You’ve got to know what your strengths are, but you have to be honest enough with yourself to also know your weaknesses.” Scott Friend, president of ProfitLogic, said midtier companies should leverage as many strengths as possible, such as optimizing operational efficiencies. Friend said middle-market retailers are “sitting on the primary asset required for success, in better understanding their customer and tailoring their assortment to local market demand.” That asset is point-of-sale and customer data.
Healthy Balance Sheets
Alan Ellinger, senior managing director at Marketing Management Group, advises middle-market companies to be fiscally sound. “First and foremost, companies need to be relevant and have a reason to exist,” he said. “Second, they have to add value to the marketplace. For a company to survive as a stand-alone business, they’ve also got to be fiscally strong and have diversified distribution.”
Another way middle-market companies can stay viable in fashion retailing is to carve a niche. A deep one. Cody, like other experts, points to the recent success of Chico’s as a model for creating a niche that customers will turn to. “There’s certainly opportunity for folks in the middle range to be successful, if you can carve out a niche and make a bond with customers.”
Be Flexible, and Nimble
The disadvantage of being a large company is an inherent inability to react quickly to changes in the market, whether that’s related to fashion or product demand, or even financing. Joe Pollicino, senior vice president of J.P. Morgan Chase, said, “While there are certainly capital disadvantages in size restraints, I think some of that is disappearing, as capital is at least presently available to different people at different stages. They need to take advantage of this, to quickly adapt to strategies.”
Take a Risk
Theresa Williams, director of the Center for Education and Research in Retailing at Indiana University’s Kelley School of Business, contends that midtier retailers can use their smaller size to their advantage. And they should take more risks, she said, such as taking on a lesser-known designer. “For smaller companies, you have an opportunity to deal with a smaller vendor or manufacturer,” Williams explained. “You don’t have the same sorts of demands of the larger places. You have an opportunity to use newer, more progressive designers. I don’t think enough small companies take advantage of that.”
Janet Wagner, associate chair of marketing at the Robert H. Smith School of Business at the University of Maryland, said it is critical to create personal relationships with suppliers and vendors. “Do your best to find a way to develop relationships with vendors, whether you do that through directly buying from a vendor or through a buying group,” she said. “The advantage of that type of relationship is over time you learn about each other and it becomes an effective way to do business.”
This sounds like a no-brainer, but middle-market companies can excel by offering better, more intimate service to their customers than larger companies may be able to do. “Do an excellent job of delivering customer service,” Wagner said. “When you deliver customer service, it forms a relationship. And it becomes a satisfying and rewarding way to do business.”
— With contributions from Vicki M. Young, Dan Burrows and Carrie Melago