THE NEW CONSUMER: SHOPPING CROSSROADS OF MASS AND CLASS
Byline: Valerie Seckler
NEW YORK — Welcome to the mass world.
As department store and specialty chain retailers struggle from quarter to quarter, such mass merchants as Wal-Mart Stores Inc., Target Inc. and Kohl’s surge on a tide of rising profits. While the phenomenon is well documented in financial pages, what generally hasn’t been examined is the consumer dynamics driving the shift and, more important, the effect it will have on the manufacturing and retailing sectors over the next five years.
“Consumers are older, wiser and more cynical than ever,” observed Paco Underhill, managing director of Envirosell, a retail and consumer goods consultant based here. “The notion that something on the runway is connected to the rest of the world is exceedingly remote. While there are certainly pockets of highly fashion-conscious people, a lot of what the fashion business is doing now is preaching to their own choir.”
And consumers are tired of it. In a world where they have less time, but more money, than ever, they increasingly are voting with their pocketbooks. They are shifting their shopping habits from wandering the malls to those local power strips where they can get the most items of all kinds in the shortest space of time.
In terms of apparel alone, mass merchants were the only store-based retailers to reap an increase in unit volume last year, realizing a 5.4 percent gain, to 2,187,496,000 items sold, up from 2,075,000,000 in 2000, according to Port Washington-based market researcher NPDFashionworld Consumer. Apparel unit volume last year at department stores, by comparison, dropped 4.5 percent, to 240,649,000 pieces sold, versus 251,953,000 a year earlier; plunged 12.6 percent at national chains, to 476,295,000 items, from 545,091,000; and sagged 18.7 percent at specialty stores, to 449,030,000 units, against 552,132,000.
NPDFashionworld Consumer data further shows the most apparel units purchased in the U.S. last year, according to age — the key demographic affecting budgets and body types — were bought by 13-to-25-year-olds, but at lower prices than the items purchased by the 45-and-older cohort, the second-biggest purchasers by unit volume. Sales to the teen and young adult contingent tallied $46,390,654,000, while those made with the older group totaled $41,420,227,000, NPDFashionworld Consumer found.
Even giants like Liz Claiborne are compelled to change with the times. Seven years ago, 90 percent of fashion giant Liz Claiborne’s business was in its flagship brand, and 90 percent of those sales were being transacted by customers at traditional department stores.
Today, the picture has changed considerably. Claiborne’s volume in those department stores accounts for just 46 percent, or about $1.6 billion, of the $3.5 billion cranked out annually by the Seventh Avenue titan. And no more than 45 percent is produced by the current bestseller among its portfolio of 26 labels, Liz Claiborne Casual, which bowed back in 1976, as did the flagship Liz Claiborne Collection. Meanwhile, its monikers developed for discount stores and moderate-price department and specialty stores now generate roughly $400 million, or 11 percent of Claiborne’s annual sales.
“We could do between $750 million and $1 billion in our special markets business, assuming a broader sales base than $3.5 billion,” projected Paul R. Charron, chairman and chief executive officer of Liz Claiborne Inc. He was referring to Claiborne brands such as Russ, sold at Wal-Mart Stores; Villager, available at Kohl’s and Mervyn’s; Crazy Horse, at J.C. Penney Co., and the newly introduced Axcess label, which bowed at Kohl’s and Mervyn’s in February, aimed at a younger consumer with a more contemporary style sensibility than the classic customer who favors Villager.
While taking pains to emphasize Liz Claiborne Inc. will stay primarily a department store player, Charron revealed he aims to hit that $1 billion mark. That would put the Seventh Avenue giant on a leading edge again — addressing the needs of women shopping for fashion, rather than basics, at lower-priced stores — much as it revolutionized career dressing in the late Seventies. It also illuminates the potential Charron sees in managing a broadening portfolio of labels, buttressed by its sourcing and design expertise, rather than as a mammoth manufacturer of decades past, which spent funds on factory operations it otherwise could have devoted to marketing its brands.
Charron’s strategy reflects his recognition of the potential that lies in a broader marketing phenomenon: During the past few years, fundamental changes have occurred in the way Americans are shopping, how often they do so, and why they favor particular products, brands and stores. Among them:
People are better educated and have greater access to information, thus have become more demanding of the goods and services they purchase.
There are no longer fixed ideas about what defines the middle class.
Consumers’ newfound craving for goods that afford excellent value and design, in many instances, is trumping their taste for pricy status symbols.
An increasing willingness to cross-shop retail channels is bringing a new elasticity to people’s budgets. They are saving money at discount stores on some items, while shelling out more for others bought elsewhere.
A decline in shopping as a leisure-time activity. For example, according to NPDFashionworld Consumer, Americans made an average of 36 shopping trips for apparel in 2001, down 8 percent from 39 shopping trips for fashion, on average, in 2000, and off 16 percent from 43 trips in 1999.
The growing allure of power-strip centers where many of the mass chains are located, in large part because those strips are typically located closer to where most people live than are regional malls.
Media images have changed, widely portraying “real” people, like TV characters Ray Romano on “Everybody Loves Raymond,” or Precious Elizabeth on “Survivor 2,” rather than the glamorous types who populated glitzy fantasy takes such as “Dallas” and “Dynasty” during the Eighties.
The accelerating speed at which the mass media can wear out any symbol, including a brand’s equity.
“Some of it is a marketing engine — marketing to Gen X and Gen Y, and, in effect, ignoring where most of the money is — with older, physically larger, but not fat, people,” Underhill said. “At the same time, we’re seeing the mass stores trying to broaden the base of what their affluent customers would buy.”
Indeed, consumers’ changing mind-set was the chief reason cited, by the two dozen or so observers contacted, for the ongoing shift of consumers’ dollars into the mass market. There is no longer a stigma attached to shopping discount stores, or other value-priced chains, and, in fact, the power-strip centers where many of the Targets, Wal-Marts, Kohl’s, Old Navys, Home Depots, Best Buys and the like are located increasingly appeal to consumers who are seeking to save time as well as money by steering clear of the regional mall.
“It’s as much a real estate pattern as anything else,” noted Carl Steidtmann, chief economist at Deloitte Research, in referring to the accelerating flow of dollars into the mass market. “Much as you saw people shift from downtown shopping to the malls 50 years ago, people are shifting from the malls to the power strips. By creating these large, drive-up-to-the-door retail strips, it’s changed the way we shop. People are cruising by the huge storefronts, window shopping, not unlike the way they used to walk past the windows in downtown shopping districts.
“The real challenge,” Steidtmann added, “is for retailers that have lots of real estate in regional malls. The specialty stores, traditional department stores and mass department stores have to fight back. What’s striking is how undiversified their real estate portfolios are.”
The same could be said for the merchandise marketed by regional mall tenants, which have narrowed their assortments to the point that mall shoppers can no longer find a wide array of soft and hard goods under one roof, as they would at discount stores. And that ups the chances of finding an unexpected treasure, like the Polo/Ralph Lauren dress shirts purchased recently at a Costco warehouse club by Marshall Cohen, president of NPDFashionworld Consumer.
“Consumer loyalty has shifted, in terms of where they shop for certain brands,” said Cohen, who related he bought a few of those Polo/Ralph Lauren shirts last week, at $20 apiece, when he’d gone into Costco to purchase bottled water. “Why should someone spend $24 on basic jeans at a department store, when they could buy them for $19 at a discounter, while shopping for many other items? Or $59 for khakis at a department store, when they could get virtually the same item for $29 at a discount store?”
Price alone is no longer a sufficient enticement, however. Brand imagery still matters and the mass crowd has gotten better at playing that game as well. “What does an Xhiliration sweater mean, versus a very similar one from Mossimo?” posed Peter Levine, a principal of Manhattan-based marketing consultant Desgrippes Gobe Group, in comparing the image imparted by a product under Target’s proprietary label with one bearing Target’s proprietary Mossimo designer tag. “You could probably take the labels out and people wouldn’t notice the difference in the products.
“But they like the image, or assurance, of the Mossimo brand,” he added. “If you snipped that label out, it would probably make most people less comfortable with the purchase.”
Even as more money flows through mass channels, apparel marketers will be increasingly challenged to nab those dollars as consumers’ priorities are expected to keep shifting toward their homes and away from disposables like fashion merchandise. “One of the factors feeding the mass channel is the multitude of choices that are in front of customers in a well-run mass chain,” said Mark Minsky, The Doneger Group’s general merchandise manager of women’s sportswear and plus sizes, men’s and children’s apparel, who logged 14 years as a merchant at former regional discounter Caldor. “There’s more style in lots of products — not just apparel — and a lot of the money that used to be spent on apparel is now being spent on many of those things, like electronics, appliances, entertainment, home goods. We have developed more of a nesting mentality.”
In Japan, by contrast, where space is hard to come by, said Envirosell’s Underhill: “People will still spend on fashion. People in Europe and the U.S. are obsessed with buying property. Plus, many people under 30 here are spending $200 a month on their cell phone bills. This wasn’t a factor 10 years ago. This spending comes out of something else, like clothing. It has helped lower-priced chains like H &M and Zara.”
Although retail analysts expect apparel’s share of discount stores’ dollar volume to decline during the next 10 years as people purchase more in other categories, mass marketers are nonetheless expected to keep taking share of clothing dollars away from traditional department stores. A convergence of market dynamics is seen stoking the trend, in tandem with consumers’ changing attitudes, including continued improvement in the mass chains’ apparel offer, better marketing and the increasing rollout of superstores that house a broad array of goods in units with a footprint of 100,000 square feet or more.
“I expect stronger growth, overall, in hard goods than soft goods at the discounters going forward,” offered Dan Barry, senior retailing analyst at Merrill Lynch, reflecting the popular view. “But with the growth of the supercenter format, we expect discounters to keep taking [overall] market share from the department stores between now and 2012.” “Liz Claiborne has just developed a whole new brand [Axcess] for the mass crowd,” noted retail consultant Stephanie Shern of Stephanie Shern Associates, “and I think this will happen with some of the mid-market, better, and even luxury brands. If you were Gucci and you looked at Target, you might think Target has an edge and seek an entree.
“Wal-Mart has found, through its wholesale clubs, that it does have a high-income customer,” Shern pointed out. “Every category of merchandise will eventually be dominated by the big, value players. In sporting goods, for instance, they will dwarf specialty chains like The Sports Authority, much as they have grown to dominate the toy business.”
Shern, among others, said she anticipates the discounters will eventually dominate apparel retail as well.
In 2000, Wal-Mart Stores sold more apparel than any other U.S. retailer, with volume totaling about $34 billion-worth, or 19 percent of its sales, followed by Penny’s, which sold $22.8 billion of it, or 71 percent of its department store business, said Ira Kalish, chief economist at Retail Forward, who is based in Santa Monica, Calif. Target Stores ranked fifth, selling around $10.1 billion of apparel, which amounted to 28 percent of its volume; Sears, eighth, with $8.2 billion in apparel business, representing 22 percent of its department store volume; Kmart, ninth, with apparel volume of $7.2 billion, or 19 percent of sales, and Costco, 15th, with apparel transactions totaling $5.5 billion, or 17 percent of its sales. By comparison, Federated Department Stores ranked third, selling $14.5 billion of apparel, representing 79 percent of its volume, and Gap was fourth, transacting $11.6 billion in apparel sales, or 85 percent of its business. May Department Stores placed seventh with apparel sales of $9.7 billion, or 66 percent of its business, following Limited, which transacted apparel sales of $9.7 billion, or 96 percent of its business.
“The broadline retailers have been correct in trying to boost apparel sales because the category creates greater cross-shopping opportunities between general merchandise and food, and brings higher-margin goods to the stores,” Kalish said, reflecting the widely held view, although some still question the category’s significance in some mass venues going forward.
Sears, Roebuck & Co., whose 800 or so regional mall-based, mass department stores have been losing share in recent years to the big three discounters and hybrids like Kohl’s, remains committed to apparel despite the increasing competition from mass retailers.
“While we have differentiated our goods via hard-line brands such as Kenmore and Craftsman, we recognize apparel is a key connection to women shoppers, gives us quicker turns than hardlines and centers on the family, our target customer,” said the company’s chairman and chief executive officer Alan Lacy, in a phone interview from his office in Hoffman Estates, Ill.
Lacy noted that 60 percent of the volume in Sears department stores is produced by hard goods. Hardlines’ share of Sears’ overall volume balloons to 80 percent, when dollars flowing from the service and credit businesses are included.
Still, Lacy said: “We recognize our apparel business needs to be improved. We were trying to be a better-run, moderate-price department store for most of the Nineties. We’ve seen that’s not the future,” he admitted. “Now, we have to create a service-oriented, off-the-mall-like environment in apparel departments. We’re making changes in our signage, checkout areas, and the way we merchandise our goods to do so.”
In addition, Lacy said, over the next six to eight months, Sears will take its apparel out of brand-based concept shops and display it as it once had, by merchandise classification, in an attempt to simplify the shopping experience. And it will focus on classic, casual apparel. “Previously, we nibbled around that category, but we never achieved the critical mass,” he acknowledged, citing Sears’ plan to launch its new brand of apparel, to be called Classic, in September to herald the effort. Despite these changes, he said, Sears will continue to devote roughly 60 percent of the space in its department stores to apparel and the balance to hard goods.
Sears isn’t the only mass merchant to stumble in the apparel arena lately. Old Navy hit a serious speed bump when it began to appeal more to the parents’ of the young customers who once drove the chain’s business. “Old Navy went out and created a really cool environment for teens to enjoy,” Cohen of NPD related, “and when their parents started to love it, Old Navy lost the teens. Now, they’re trying to get them back.”
Of course, the phenomenon cuts both ways. As Cohen noted, “The big issue with our priorities is that they change with age. Brand marketers have to understand this,” he advised. “Intimate apparel and hosiery brands running ads featuring teens and young adults alienate the more mature customer.”
Ironically, at a time when Americans are being numbed by a barrage of ever-changing media imagery, including a flood of fashion brands, it has become increasingly difficult for people to develop an individual sense of style, remarked Thomas de Zengotita, an adjunct associate professor in the Draper Program at New York University, whose article, “The Numbing of the American Mind” was published in the Harper’s April issue. “Baby boomers have spawned or grabbed almost any part of pop culture, and it drives kids crazy. It drives kids crazy. There’s almost nothing [boomers] haven’t done, or won’t take, from Generation Y.” In contrast, he said, “When the boomers were growing up, their culture was quite distinct from their parents.”‘
But the consumer free-for-all that appears to proffer sales potential actually poses a significant threat to brand marketers, in the view of Robert Thompson, Syracuse University trustee professor of TV and popular culture. “The danger is that the old notion of stable high, middle and low-end markets has gone completely fickle. A brand like Tommy Hilfiger can be hot one minute and fade as fast as it caught on. Chanel No. 5, in a week, could become something people don’t demand.
“It’s ironic,when attitude drives success of products, rather than the goods themselves,” Thompson continued. “People now want, more than ever, to be perceived as original. This has enormous implications for the impact of pop culture on several industries — fashion and automobiles among them. Brands, especially in style, are sitting on a gossamer web. Anything that upsets it can completely collapse the house.”
At the same time, designers are increasingly seeking mass exposure, from the Mossimo, Todd Oldham and Stephen Sprouse apparel now sold at Target, to Cynthia Rowley’s limited edition of Special K, sold at her stores in New York, East Hampton, Chicago and Los Angeles for $10, since last November, a phenomenon that bridges mass and class, and reflects the democratization of luxury (see related story). Proceeds from the designer edition of cereal are slated for breast cancer charities.
As a result of it all, industry members from NPDFashionworld’ Consumer’s Cohen to Claiborne’s Charron expect fashion marketing efforts to evolve over the next several years, in part, by building their brand businesses based on closer vendor-retail partnerships and by merchandising stores by door and even stockkeeping unit, as they did in the Eighties, before the fashion megabrands started managing their displays in department stores.
“Consumers are exposed to so many messages that are so ubiquitous, it compels us to ask why we shouldn’t address her, wherever she goes,” said Charron, who teased: “There will be other [Claiborne-created] brands in the not-too-distant future at J.C. Penney and Sears, that we develop in partnership with them.”
“Branding is a 20th-century tool,” said Envirosell’s Underhill. “In the 21st century, brands that do a very focused and careful job of maintenance are going to survive. Their managers are going to have to go out and see it, and manage it, at the point of sale.”
Adding momentum to sales transacted at discount stores is the pop-culture imagery conveyed via mass media, which, according to Thompson of Syracuse University, has essentially “turned into a category of clowns — people who seek hipness by acquiring too many status-driven items.
“In about a generation’s time, we’ve devalued the BMW owner, dressed in an Armani suit, drinking Evian water, for example,” Thompson remarked. “We’re seeing high-net-worth people opting to get beyond hip. Microsoft chairman Bill Gates still has a hairdo that Cut ‘N’ Curl would be ashamed to give for $5. Now, the way to be cool is to consciously eschew brands formerly associated with status or hipness.”