As earnings results trickled out this year, many retailers glossed over their sales results on their conference calls and then boasted about how cutting inventories and other costs had helped them protect their bottom lines.
This story first appeared in the November 17, 2003 issue of WWD. Subscribe Today.
However, lean inventories often exacerbate soft sales, making for disappointed shoppers and creating a vicious cycle of weak volume.
Retail executives and industry watchdogs are hoping that things are about to change during the fourth quarter and in 2004 as they attempt to counteract two years of weak retail performance and waning consumer confidence with a return to top-line growth.
Banking on the belief that consumers are ready to shop again, retailers are hoping to raise the numbers and amounts of transactions through managing customer relationships and creating a store environment that makes the shopping experience easier and more enjoyable.
“Over the past year or so, we are starting to see retailers ‘anniversary’ major cost-cutting initiatives, and the next area to cut is store payroll and that is the Golden Fleece you don’t cut,” Adrienne Tennant, a specialty retail analyst with Wedbush Morgan Securities, said. “I suspect we are going to see companies start to actually build up and start to invest in the way the stores look.”
Daniel Barteluce, a New York-based architect who has worked on stores including Burberry, Bergdorf Goodman, Kate Spade, Cartier and Temple St. Clair, said current themes prevalent in retailing design today include less merchandise on the floor to avoid looking like a discount store and making stores feel more residential, like the shoe department at Bergdorf Goodman, and less gimmickry. Other trends are neutral colors and creative lighting.
He also said stores are looking to become regionalized in their appearances to attract different customers. For example, the Burberry store in Beverly Hills was built with a small stage and it was a hit with its customers.
Another way to generate sales is through improved customer service, particularly by honing in on existing customers.
David Siever, a global consumer packaged goods practice leader with Archstone Consulting, said he faults retailers for cutting the quality of training and the recruitment process, causing their service levels and point-of-sale accommodations to suffer.
Now, Siever said, stores are looking to expand their “share of wallet” by increasing their sales among customers with whom they already have a relationship. To do this, he said retailers need to collect more data on the existing customer, the primary target for promotional efforts.
Analysts point to high-end retailers such as Saks Fifth Avenue Enterprises, Neiman Marcus Group and Nordstrom as leading the way out of the sales doldrums through top-notch customer service.
The luxury crowd finished October with a same-store sales flourish, as its consumers got back to shopping with a vengeance, picking up designer handbags and suits.
Leading the way SFA logged a 14.2 percent increase last month, followed by NMG, up 9.7 percent following its 13.6 percent gain in September. Nordstrom managed a 3.5 percent rally.
“Increasing top-line sales has been one of the key initiatives of the company for the past three years,” a Nordstrom spokeswoman said. “We have been looking at improving the merchandise mix to make sure we have the right item, at the right price at the store when the customer wants it,” she said. “To do this, we need to make sure we have the sales people on the floor who are knowledgeable and passionate about taking care of the customers’ needs.”
Staying in stock is critical. She credits Nordstrom’s perpetual inventory system, which was recently rolled out throughout all of its stores. For example, in July, men’s sales increased by $16 million with $18 million less inventory.
And at SFA, the company has intensified attempts over the past four years to get cozier with its customers, determine their needs and get them to shop the store more often. The company has been conducting extensive qualitative and quantitative consumer research, as well as using focus groups and a Gallop survey, to improve service and enhance loyalty programs. In the process, it’s built up a warehouse worth of data.
As reported, SFA formed a customer relationship management division and hired Rob Rosenblatt, a former American Express executive, as senior vice president to run the unit.
“CRM is the single most important initiative we have at the company as a means of growing and insuring our vitality,” Sheri Wilson-Gray, executive vice-president and chief marketing officer, said. “We want to understand the needs of our customers and make sure we are meeting them.”
At Talbots, a spokeswoman said customer relationship management is now at the heart of its brands. “We are doing a lot more appointment selling where a customer can set up a private time to shop our stores with one associate dedicated to her at her convenience, including before and after store hours,” she said.
But at the root of all customer relationship management is how well consumer data can be mined and incorporated into a retailer’s assortment, advertising, prices and store layout. After all, as Chuck Rubin, a partner in Accenture’s retail practice, said: “Those retailers who are able to transfer the tremendous amount of customer data available to them and convert that to real insight and to real action are seeing sales growth.”
Retailers are just beginning to realize the value of the data they have and their ability to use information to increase sales, by targeting infrequent shoppers, by letting them know about upcoming sales or, for instance, by letting a customer who buys a lot of sweaters know about a new shipment.
And thanks to the powers of the Internet, retailers today have many more ways of reaching out to their customers.
J. Jill, a Quincy, Mass.-based multichannel retailer of women’s apparel and accessories, knows the intricacies involved in managing a retailer’s customer database since it began as a direct business. That business, which consists of its catalogue and Web site, represented almost two-thirds of Jill’s total sales volume in fiscal 2002. Sales from the catalogue channel represented 44 percent of its total sales volume in fiscal 2002, a year during which it mailed pieces to about 78 million catalogues. Through Dec. 28, 2002, it had 1.1 million customers who had placed a catalogue, e-commerce or intranet order with the company in the last 12 months and 3.2 million names in its customer database.
Their long experience with database management may give some retailers with roots in the catalogue and Internet worlds a bit of an advantage going forward.
Olga Conley, chief financial officer of J. Jill Group, said, “In the catalogue world, if you don’t know how to manage a database down to the most minute level of detail, then you are out of business.”
Conley said retailers can use databases to glean how often the customer shops, what she spends and the last time she made a purchase.
Many stores have deferred investments in store appearance and fixturing during the last few lean years, but store appearance again is becoming synonymous with customer satisfaction. Retailers are looking for facelifts again as they seek to further differentiate themselves in ways other than product.
“Anytime you improve your relationship with a customer, you improve loyalty and loyalty is what is going to drive sales to you as opposed to someone else,” Conley said.
While that’s true for all stores, it’s particularly important in the teen sector, where the “same old look” doesn’t cut it in either merchandising or decor.
“There is something about the coolness factor being in and around the store,” Wedbush Morgan’s Tennant said, noting that stores such as Hot Topic, Hollister and Abercrombie & Fitch derive traffic and sales benefits from their popularity as places to be as much as they are places to shop.
Dawn Stoner, a specialty retail analyst with Pacific Growth Equities, pointed out, “The value equation won’t go away even as the economy improves, but there are a variety of ways to convey value to consumer apart from being cheap and discounting. You can do it through unique products, customer service, through an interesting shopping environment and exclusive products.”
The analyst pointed to Hot Topic being able to muscle its way ahead of its teen peers by partnering well with its vendors and developing unique and often exclusive products, even if the duration of the exclusivity is limited.
“They are the only ones out there with a particular color or a twist that gives them an edge,” Stoner said. “That is how some of the companies are able to generate strong top-line growth, despite being in a challenging economic environment.”
Still, industry consultant Emanuel Weintraub said price and product are still the name of the game, although not always in the ways that people discern.
“Businesses are looking at those elements that don’t add value because consumers at the end of the day ask first if they like a product and then how much it costs,” he said. “If you have bad food in the best restaurant, you aren’t going to go back there.”