DIFFERENTIATE OR DIE-RETAIL
Byline: David Moin
For department stores and general merchandisers, it’s not a pretty picture.
They’re losing market share, customers and the confidence of manufacturers, all because there’s too much sameness in merchandise and woefully little risk-taking by buyers.
However, at the CEO Summit there were a few select retailers that have broken the mold, or are at least fighting to differentiate themselves from the pack with merchandising and marketing strategies that try to transcend the mediocrity. And during a session called “Differentiate or Die — Retail,” they told their stories.
Chris Littmoden, president and chief executive officer of the American operations of Marks & Spencer, based in London, explained how his company has grabbed a commanding market share in the U.K. Close partnerships with suppliers and a private label formula that permeates the department store’s assortments have been key.
“We tell manufacturers what we want them to produce, instead of us selecting their products,” Littmoden said.
E. Jackson Smailes, senior vice president and general merchandise manager of apparel for Kmart, which has been getting squeezed by the stronger and more nimble Wal-Mart and Target chains, said Kmart has turned a corner. Kmart’s stock price, he noted, has doubled from around 10 to 20 in the past year, on the strength of revitalized private label programs, “a dominant emphasis on national brands” and a sweeping multiyear program to convert stores to the larger and brighter Big Kmart format.
“We think we do have turnaround strategies that thrive on differentiation,” Smailes stated.
Kmart’s comeback has been fueled by “encouraging initial results” in improved private label offerings, including Jaclyn Smith, which emphasizes classics, knits and accessories; Kathy Ireland, which focuses on swim and bodywear and intimate apparel, and will introduce a maternity line; Route 66, which crosses all apparel categories, and the Martha Stewart home line, which posted $500 million volume last year, becoming Kmart’s second-largest home textile brand. Cannon is its largest.
Smailes described Kmart’s core customer as the “time-pressed woman who knows prices and quality. We want to in sure that the Kmart brands mean more to her than ever before.”
Other members of the panel were Burton Tansky, chairman and ceo of Neiman Marcus and executive vice president of the Neiman Marcus Group; Marc Balmuth, president and ceo of Bob’s Stores; Kara Keenan, vice president of shopping and E-commerce partnerships for America Online; Susan Shafton, partner in the consumer business practice of Deloitte & Touche Consulting Group, and Irene Wilson, vice president of trend forecasting and consumer behavior for Spiegel, who said Spiegel research showed “60 percent of the women in America classify shopping as a negative experience.”
And according to one of the industry’s legendary innovators, Marvin Traub, the former Bloomingdale’s chairman, who moderated the panel, wholesalers would agree. “Key suppliers are concerned with the difficulty of maintaining or growing their businesses with department stores,” said Traub, who is senior adviser of Financo and president of his own consulting firm.
Citing a bevy of bleak statistics, Traub said the market share for department stores has declined in the last decade from 21 percent to 16 percent, and he sees it dropping to 12 percent in a few years. General merchandisers also have suffered, declining to a 12 percent share from 15 percent, while discounters have surged to 41 percent from 27 percent, he said.
“Buyers are no longer risk-takers,” Traub asserted, adding, “Today’s retailers and manufacturers are pleased at 30 percent regular-priced sell-throughs. Ten years ago, they would be pleased at 60 to 70 percent.”
At Marks & Spencer, however, a “strategic differentiation” has given the company strong sell-throughs, and a higher return on sales than any other major retailer in the world, according to Littmoden. The company posted $1.9 billion in profits on $13.4 billion in sales last year, said Littmoden, who is responsible for three divisions: Brooks Bros., Kings Supermarkets and Marks & Spencer in Canada.
Littmoden said Marks & Spencer’s differentiation strategy includes:
Developing easy care fabrics, including cotton shirts that don’t require ironing. They garnered $22 million in sales last year.
Developing high-performance cotton apparel.
Controlling the company’s “entire food supply chain, from seeds to the selling floor.”
Cutting furniture deliveries down to four to eight weeks, from at least three months.
“All our goods are produced for us,” Littmoden stated. “We don’t believe in confrontational buying.”
At Bob’s, 1997 was a turnaround year, said Balmuth. He described the transformation of Bob’s from a small, mini-department store lacking identity to a $400 million, 29-unit specialized format for active and casual merchandise for the entire family.
He said the stores, averaging 45,000 square feet in size, now concentrate on activewear, jeans, casual sportswear and footwear, and have been boosted by the following strategies:
Building stock in key items.
Developing ads that stress price, not a percent off.
Downsizing the infrastructure.
Improving in-store visuals.
Seeking “brand dominance in core businesses;” 95 percent of the inventory is branded.
Accelerating growth in young men’s, junior, boys’ and girls’ areas.
Adding more vendor shops, including Nike, Levi’s and Dockers.
While most people at the Summit bemoaned the reluctant consumer, Neiman’s Tansky sang a different tune. For the luxury customer, “the interest in shopping is not declining,” he proclaimed. “There’s a booming economy and stock market, and a euphoric feeling for upscale.
“We expect the momentum to carry us forward for many months to come.”
While Kmart tries to improve assortments to generate better sales, Neiman’s, Tansky said, “believes in building relationships with customers — and sales will come later.’
Neiman’s long and rich profit run has been attained by pampering the luxury customer and delivering powerful designer assortments from door to door, but Tansky’s presentation focused on new marketing strategies. He said Neiman’s In-Circle program — which rewards customers, based on how much they spend, with points that can be converted to gifts or trips — is “the most effective loyalty program in retailing today.”
He said the store’s intense schedule of trunk shows, seminars, luncheons and charity events — 2,500 per year, or an average of two per week per store — are “a call to shop.”
Neiman’s upcoming Galleries at Neiman Marcus stores, a 10,000-to-15,000-square-foot format for fine jewelry, gifts and home accessories, has the potential for international expansion, Tansky said, though he didn’t specify where. The first two test sites will be in the Cleveland in November and Phoenix late this year. A third is being planned.
While Neiman’s thrives, other U.S. chains, particularly those catering to the broad middle markets, are having a tough time gaining any ground. Spiegel’s Wilson suggested the trend can be improved if retailers wake up to emerging trends — and act on them. In a thoughtful presentation filled with data and visuals, she discussed five emerging lifestyle trends, what they mean to consumers and how retailers can capitalize on them.
First, she said there is a movement to “ease and comfort,” which means consumers will want more relaxed dressing, more business casual and compact, clean designs. This translates into opportunities to sell more luxury basics, and styles versatile enough to wear at home or to go out. With classic looks, “a piece of relaxation has to be there,” Wilson said.
The other major lifestyle directions Wilson cited were:
Mobility. Consumers are traveling more and want clothes that are portable, packable and don’t wrinkle, and small electronic gadgets that stow easily. “Travel is going to impact your entire business,” just as casualization began to six years ago, Wilson said.
Connections. Consumers want privacy; quiet and stronger, more special relationships, which translates into opportunities to sell more handmade products, collectibles and clothes and home goods for spaces without walls, such as patios, porches and gardens.
Individuality. Consumers want to feel special; to express themselves and create personal spaces. That translates into opportunities for retailing more accessories, “ultimate brands” that are distinctive and products for workspaces where people can pursue creative endeavors.
Freedom. People want to take control of their lives, feel good about themselves and be energetic, which translates into opportunities for selling active ready-to-wear, purposeful designs, feminine fashions and home products and tube dressing.
While Wilson advocated paying closer attention to consumers’ lifestyle changes and their wishes and dreams, AOL’s Keenan pitched her on-line service as a way for retailers to make more money, to penetrate worldwide markets, to stage “quiet” liquidations and to create “one-to-one” relationships with consumers.
She said the 1997 holiday season was an enormous success for AOL; sales doubled, and apparel was the number one category, with an average order of $130. She said 42 percent of AOL’s shoppers last year were new customers.
Among the on-line success stories, Keenan said last year J. Crew generated $7 million in sales on AOL and Gap is projected to do $7 million this year. Disney’s on-line sales are about equivalent to the volume of five Disney stores. “Returns have not been enormous,” she added.
Currently, there are currently 120 retailers selling products on AOL, and 12 million AOL subscribers in the U.S. who average about 50 minutes a day on line, Keenan said.
During the Q&A portion of the session, former Laura Ashley ceo Ann Iverson touched a nerve by broaching one of retailing’s most sensitive subjects: chargebacks.
“We’ve heard a lot about partnerships today, but what can retailers do to improve partnerships up front” by eliminating damaging and excessive charges to vendors.
Kmart’s Smailes described his firm as “totally up front…A partnership implies two. We need to keep that relationship going so we can keep growing our business. Nobody does business with us who doesn’t want to.”
“We try to make deals up front,” said Bob’s Balmuth. “We do as much up front with the price and live with the partnership.”
Traub, however, had the final word on the issue, suggesting retailers aren’t solely to blame for the chargeback crisis.
“Many of the manufacturers building big brands are saying their order is too small, they want more space, and say, ‘I’ll take care of you.’ This problem won’t be solved,” Traub contended, “until manufacturers and retailers agree that this is not a particularly profitable way to do business.”