Thursday, October 28, 2010
Let's start with checkouts. Getting out of a store is probably the customers' number one pet peeve and the number one labor cost center for a store. And for decades, retailers have been trying to figure out a solution to both. Over twenty years ago, we saw the first self-serve checkouts at a Kroger store in Atlanta. Awkward and unwieldy at first, this technology eventually has become commonplace in many retailers, accounting for well over 25% of transactions. So, what's next? At the Kroger store in Hebron, Kentucky, you can see one approach. Their experimental Advantage checkout is a futuristic, high speed scanning belt that automatically scans products vs. the one at a time self-scan version. It looks a bit like an airport xray machine. Today, it is clearly early--there's more labor associated with running the experiment than the simple old-fashioned way. And, scan accuracy still has a way to go and exceptions remain a challenge. However, fast forward five years and this could be an enormous time and labor saver.
Another way to go about this is handheld scanning in aisle, which has been around for nearly ten years, indicative of how long the technology learning curve can be. However, in the new Carrefour Planet prototype in Lyon, they have made a big press in driving checkout innovation. For Carrefour, scan 'lib is an ambitious effort, supported in multiple areas in the store. As opposed to what we have seen in the US, the marketing and visual presence is a major difference and the "take" rate seems high.
Sticking with supermarkets, let's take the checkout process one step further. What if you didn't have to go in the store at all. Two retailers are experimenting with forms of curbside pick-up. Publix has two test locations and we saw one in Tampa. Simple enough in proposition, the customer pulls up into a designated parking space and communicates with the staff who brings their order to the car. There is some in-store marketing associated with the process but it is still relatively low key. At a minimum, it eases the process of in-store pick-up.
Taking this to another level is Auchan, which has two different offers in the market. One is ChronoDrive, a standalone effort that offers drive up pick-up service directly at a dedicated warehouse location. They also have AuchanDrive, which is located next to existing Auchan stores. It takes the effort further with dedicated drive up and a pick up session. There's a bit more technology involved where the customer types in a pin code that signals the staff. They claim several hundred customers per day, which is quite impressive.
OK, we admit to being vending junkies. And, the more bizarre, the better. There are some amazing vending options in Japan and some pretty cool ones cropping up in Europe. From the scratch baked pizza vending option in Italy to a fresh baked baguette in France, vending is certainly getting more ambitious. In the Monoprix store in Paris, 1 Euro gets you a fresh baked baguette, fully cooked in 60 seconds! The bread, by the way, isn't bad--hot, fresh and stayed soft for the day. The fact that it was sitting in front of a bakery didn't make much sense--it would seem to have more play where you can't get fresh bread.
Finally, pop-up hasn't gone away and we are moving fully into pop-up season. One cool marketing effort comes from Target (of course). Promoting their revamped P Fresh stores in Chicago, they created a pop-up marketing effort on Michigan Avenue, giving away bags of groceries to promote the extended offer, in conjunction with a lot of other media efforts (billboards, mobile trucks, newspaper) through the city.
Cool ideas for sure. Transformative, perhaps. Great speech material? Absolutely.
Friday, September 17, 2010
A few months back, Walgreens announced a planned expansion into the food business. The first evidence of this was the announcement of expanded food offers in so called "food deserts", typical inner city locales in urban markets. The first half dozen or so of these have debuted in Chicago already.
In a separate test, Walgreens also has planned an entry into the convenience fresh foods business. Imagine a place to buy fresh produce, sandwiches, salads and meals in nearly 7,000 Walgreens locations across the country, appealing to the time starved mom who is already shopping in their stores? That's the market opportunity being explored by these test stores.
The first location opened at North & Wells in Chicago's Old Town neighborhood. A second was nearly complete at 30 N. Michigan and another seven were planned this year.
While the area is branded fresh.real.now, individual products (entrees like pasta chicken marinara or lasagna) were branded under Corner Kitchen. The product generally looked fresh and appealing with reasonable prices. The branding certainly creates visibility and the location is prominent within the stores.
The real question: will customers (those busy moms) trust Walgreens as a fresh food source in the same way that they trust the brand for pharmacy? While the product looked good, the Walgreens brand is not necessarily synonymous with fresh and many retailers have struggled with selling packaged products. And, selling fresh goods can be a killer when they have to be thrown away--we saw a lot of produce, as an example, that has a very short shelf life.
We'll revisit again once they get these fully up and running. We suspect that there will be a lot of tinkering with the merchandise mix and that it will take time to build awareness (and acceptance) of the concept.
Thursday, August 19, 2010
Today’s offer with The Gap is typical in many respects in its structure—$50 worth of Gap merchandise for $25. http://www.groupon.com/deals/gap-inc-chicago
It is very atypical for several reasons:
This is a national Groupon. We did a quick check in several cities and saw the same offer around the country.
It’s the first deal we know of for a national chain the size and magnitude of Gap
Like most Groupon deals, this one tipped, and tipped early. Groupon typically displays the number of coupons purchased, which makes it easy to do the math and figure out the dollar value. Interestingly, they chose to eliminate the number and most individual cities simply say that thousands have been purchased. At 8:30 a.m. in Chicago, 8300 Groupons had been purchased, which quickly translates to over $200K in value. And most users were not even awake! On a national basis, we suspect that this will be a real test of the Groupon bump—can they move the needle on a chain the size and magnitude of The Gap? The potential dollar amount will be huge—certainly in the millions…
Perhaps today is Groupon’s coming of age, in combination with one of brick and mortar’s most venerable (but troubled) brands.
Thursday, July 29, 2010
As we have pointed out before, however, the divide between the two nations has never been smaller, at least as concerns retail, which has become increasingly internationalized. On the High Streets of London (or Tokyo, New York or Seoul), retail reads like a true United Nations. One short strip along Kensington High Street says it all and does foretell the real future of retail—Japan’s Uniqlo sits next to U.K.’s TopShop which is nestled against US brands American Apparel, Diesel, and Urban Outfitters.
This leads us to one universal truth: The future of retail will be defined by great retailers, global in nature that can effectively provide a consistent branded experience while making the necessary refinements to succeed at a local market level.
Of course, this is far easier said than done as our retail visits confirm. If we were forced to sum up the UK experiences into one key difference, it would be housed around the term Refined Sensibility. There is a higher degree of information provided, consistently better storytelling and an overall refinement in the offer that seems to be missing too often in the US.
What’s on the US side of the ledger? Based on what’s crossed over to date, we would sum it up in another word, Theater.
· The Whole Foods on Kensington appears to be closer to hitting its stride after a financially disastrous debut. We saw much better distribution of traffic than in prior visits with the suggestion that they are finally finding their footing (though we would never want to be paying their rent!). Losses in the UK continue but they seem to be in a more manageable range.
· Easily the most spectacular store in our visit was the new Anthropologie store on Kings Road in Chelsea. Housed in a former antique market space with high ceilings and stunning stained glass, this is truly a cathedral for retailing—they could charge admission to this open, airy, inspiring retail playground.
With retail playing at an elevated level in both countries, we will expect to see a lot more crossovers in the future. British fast fashion is already making inroads with TopShop, which has had a big opening in SoHo (ours, not theirs)and we expect AllSaints to make a similar splash as it brings its vintage grunge rock sensibilities over to New York this year.
Figure 3: All Saints
Friday, May 28, 2010
Figure 1: The throngs at E-mart's Opening
There is obvious opportunity in the market, with 1.3 billion people and a rapidly growing GDP. The opportunity is so evident, in fact, that China has attracted the interest of just about everybody of global scale. This includes Wal*Mart, Carrefour, Metro and Tesco, the four largest retailers in the world in order as well as an impressive list of other Asian competition and a host of local Chinese companies. Further complexity ensues when analyzing the business by region (different competitive dynamics are in place depending on the geography) and by city. The fact that there are literally dozens of Chinese cities with populations in excess of 1 million people is equally mind-boggling. Fun fact: there are 24 cities larger than Chicago (populations in excess of 3 million).
However, this opportunity brings intense competition and a vast array of cultural and geo-political issues that make success in China far from a sure thing. First, the competition in the market is extremely strong. We were extremely impressed by RT Mart (a Taiwanese competitor with 150 or so stores in the market partially owned by French giant Auchan), which had outstanding execution in fresh foods. Fresh in China really means “fresh”, often live, with as few barriers between customers and the product as possible:
Figure 2: A look at RT Mart's Produce Department
Equally impressive is Carrefour, the French hypermarket retailer that was an early pioneer in the China market and nominally the market leader. They essentially created the notion of what a hypermarket is in China. One of the units we visited reportedly does in excess of $200 million per year (and we believe it based on the crowds and merchandise density observed). The store’s high service levels (mostly staffed by suppliers) and incredible breadth and depth really stood out:
Figure 3: Carrefour's Wall of Shampoo
In general, the market is defined today by price. From a retail standpoint, there is little regard for inventory productivity or much sophistication with technology. Labor is so inexpensive and readily available that sheer manpower keeps the store in good operating order.
While the GDP is indeed increasing, it stands today at about $7,000 per capita. This number is deceiving on a number of levels given that there is vast disparity in income among regions and among consumers within the region. The GDP in Shanghai is nearly double the national average reflecting greater prosperity but there still remains a huge divide among the haves and have-nots with a growing but still scarce middle class.
While there is a rush to entry, and big expansion plans named by the majors, no one really occupies a definitive position today. A vast majority of the market is still done in unorganized trades in mom and pop retailing and wet markets that are prevalent everywhere. The last time we saw any market share figures, the leading chains have somewhere in the neighborhood of 2% share. While it is impossible to really gain a measure of profitability, high development costs and razor thin margins don’t bode well for short term profitability.
Friday, April 30, 2010
As in every part of the world, global influences are rapidly spreading. In country after country, the influence of globalization is apparent, from fast food franchises to high-end luxury goods and fast fashion. As we were walking through the new and exciting NooN shopping center, the roster of tenants reads like an international who’s who of fashion.
This is the site of H&M’s first store in Korea, occupying partial space in several floors of the six story structure. H&M continues to improve its branding, visual merchandising and communications as the format evolves from its relatively no-frills beginnings to a true lifestyle powerhouse.
Zara and Mango, the two Spanish global brands also have presence. Zara felt a bit lost, perhaps unsure of its positioning. The thinness of merchandise and negative space used so effectively in Europe is not to be found here. Supply chain may play a factor in promising quick replenishment.
A floor of the center is devoted to sports fashion brands. Nike, Adidas and Puma all have brand shops, along with Foot Locker, strangely. Strangely, of course, because it’s selling the same brands that are in their dedicated shops. Of course, brand management in Korea always leaves something to be desired. In the incredibly (take our word for it) dense and crowded streetscape, we can encounter shops of these very same brands multiple times within a three block radius. And, you can see everything from a full-blown flagship store to a tiny footprint boutique.
The fifth floor actually begins to show some Korean (or at least Japanese) flavor and heritage. It houses an extraordinarily cool collection of small independent boutiques, offering the “best of” fashions of Japan, Korea and the U.S. The sixth floor is a food court and yes, Starbucks and Coldstone Creamery can be found. The Singapore export Breadtalk has a small café here in addition to their street presence, with a delightful collection of bread and pastry with exhibition style baking.
The dynamic parts of Seoul continue and the shopping district maintains its unique Korean identity in the thousands of shops and boutiques that dot the landscape. But, with these International brands (and spectacular Japanese brands like Muji and Uniqlo also present), it is easy to forget where you are. Only momentarily, one might add, since the sizes available don’t quite match our carb-filled American bodies!
The rapid global presence of the powerhouse fast fashion brands of Zara and H&M is amazing to contemplate. Inditex (Zara’s parent) does business in over 70 countries with sales of over $13 billion while H&M is present in 30 countries with sales right behind. They have redefined the fashion business and seem to translate their business to great effect across the world.
U.S. retailers, once the innovators, are struggling to keep pace. The world is indeed getting smaller.
Thursday, April 22, 2010
Fast forward to three years ago and we were in the midst of writing our latest book, Greentailing and other Revolutions in Retail. We attempt in this book to be provocative and look ahead in the key trends that will influence retail as we move into the future. Along with green, these trends include shifting demography, the rise of experiential retailing, brands going retail, services growth and new ways to reach consumers outside of traditional brick and mortar. But, as the title suggest, Greentailing vaulted ahead of the pack.
What have we learned about green since we began researching this subject:
· Green is important to around two-thirds of customers. While only a small percentage (around 17% at last count) are actively green, another 50% or so will consider green in their purchases and activities.
· The stigma around green products is disappearing. The perceived quality is going up which is encouraging trial and usage.
· Customers will not pay more for green. At most, consumers are willing to pay around 5% more for a green product.
· Retailers, from a customers’ point of view, are not doing enough
Taken together, these facts present the challenge and opportunity of going green. We developed a simple model called T.A.S.C. to present an overview of effective retail strategy:
· Think Green. Build green into the mission of the company
· Act Green. Utilize various energy savings, waste reduction and recycling programs and invest in conservation and sustainability to run more efficiently.
· Sell Green. Carry more products that offer “green” benefits
· Convey Green. Communicate your green strategy to consumers in a compelling way
Of these four, Act green has gained the most traction because of the tangible savings and benefits arising from it. The two consumer fronting areas: Selling Green and Conveying Green need the most work still. Figuring out what products truly are “green” is extraordinarily confusing for the consumer and the lack of uniform standards and labels exacerbates the issue. And, retailers are not getting enough credit for what they already do. Conveying Green is a significant opportunity. We can say that there is significantly more marketing activities around Earth Week 2010 than we have ever seen. Hopefully, more consumers get the message.
Has Greentailing been the revolution we predicted? It is perhaps too early to say. While it has dominated headlines, it is still not clear that a retailer can build a sustainable advantage by being green. Important? Yes. Necessary to compete? Absolutely. Game changing? Not yet…
Friday, March 26, 2010
We just visited a fascinating experiment from Sears called Kenmore Live Studio. Dubbed a “social media factory”, the basic idea is that this will become a physical space to showcase the Kenmore brand. While we’ve been lamenting a lack of creativity, this is certainly a concept that is pioneering a new direction.
Kenmore Live Studio is located on the corner of North and Wells in Chicago. It is a curious place to put the concept, a trade area that is more restaurant and/or art gallery than retail. It will not have the walk-by traffic that one would associate with “pop-up” locations but may be fine for the purposes of a destination draw. The space is designed to be a gallery of sorts for the Kenmore brand, with the focal area being a stage/demonstration area for cooking classes and live events. This content is then edited live and disseminated via Kenmore’s Facebook page….www.facebook.com/Kenmore. The format just opened with plans to be around for six months. Generally closed during the day, the main interactions will be on evenings and weekends. They have already hosted chefs, a cookie cook-off and a demonstration for organization tips.
This is an intriguing idea—part social media, part pop-up—that explores new ways that brands will begin to interact with customers in the future. Interestingly, nothing is for sale, so the real measure will be in visibility for the Kenmore brand (or, at minimum, new Facebook friends. There are now just 439 of us, so there is tremendous room for growth for a brand that is in tens of millions of American homes).
We did not see the concept in full action though we did drive-by on a weekend night and the huge flat screen TV does draw interest from the streets. You can also watch the space live on Facebook and measure crowd appeal. The success will obviously lie in content programming—a quick look today reveals no “scheduled” events, only past ones, and this kind of medium needs constant attention.
To the bigger picture, we wonder about the mother brand, Sears, and its future. While it seems to clearly be losing the brick and mortar war in the Sears format (year upon year upon year of comp store declines is our real indicator, not how much profitability can be wrung from the box…), they do seem to be doing a lot of things right in the e-commerce space. The web site and sales continue to grow; they remain leaders in creating site to store solutions with ideas like My Gofer and do seem to be very aggressive with social media, mobile apps and the like. Much of this may be window dressing if the core stores can’t turn around but slowly, perhaps, the image of Sears is beginning to change.
Kenmore Live Studio is another compelling glimpse into a multi-channel future.
Tuesday, March 16, 2010
With our recent blog on the closing of Fashionology, we seem to be spending more time writing obits than we do celebrating the opening of new ideas. This is surely a sign of the times: the optimism inherent in these brand extensions simply doesn’t exist today. Both Reuhl and Martin & Osa suffered from a combination of bad timing as well as a struggle in truly finding their identity.
Straight out, we were big fans of Martin & Osa (even typing this blog has me in M&O fashion). We loved the lifestyle approach, particularly evident in the early stores where music, books and eclectic merchandise also accompanied the fashion. There was the wonderful back stories of the intrepid adventurers (yes, they were real folks) that anchored the men’s and women’s collections. The store design was visually stunning and cool and had some awesome dressing rooms!
Ah, but what about the product? It seemed maddeningly hit or miss. But, of course, this was highly dependent on which customer it was being designed for. The price points and styles jumped all over the map, which led to some great (for the shopper) markdowns but undoubtedly hurt the bottom line. In fact, they announced over $40 million in losses on the 28 stores which led to the inevitable plug pulling. We loved some of their fashion but it was never entirely clear as to what precisely Martin & Osa’s role would be (it seemed to want to play somewhere in the Banana Republic/J. Crew genre but never had those concept’s clarity). The clothing was casual but didn’t really transition to the workplace. It was conservatively styled but lacked some flair to make it the right choice for a night out. And, while we knew of several men who owned pieces, the women’s side (which, of course, is always more important) never seemed to connect on quite the same level.
But, we found ourselves rooting hard for the concept to find its legs. It has great imagination—it failed to back that up with product that matched the ambition. We look forward to a day when we can glowingly write about new ideas that are trying to break through the clutter. In the meantime, we suspect there are a few more of these unfortunate obits still on the way.
Wednesday, March 3, 2010
Walgreens’ recent acquisition of Duane Reade and Ahold USA’s purchase of the venerable Ukrop’s chain has put us in a reflective mood. First, these and some other recent acquisitions (Tops acquiring P&C Food) or attempted acquisitions (Albertsons announced offer for Bashas; Simon’s offer for General Growth) suggest that we might be beginning to see some real M&A activity after a fairly prolonged drought brought upon the freezing of capital markets. However, most of the acquisitions would be classified as “strategic” buys, retailers buying retailers, which suggest that the private equity guys still remain largely on the sidelines.
The notion of a “strategic” buy is really at the heart of what we’re musing about. On the surface, both acquisitions are simple enough to understand. They are real estate motivated—Walgreens getting access to 250 or so coveted locations in the densest market in the US and Ahold, through its Martin’s division, extending its store base in Virginia. However, acquisitions are rarely “simple”, as culture, format uniqueness and long ingrained shopping habits play a large role. In both of these cases, giant chains are taking over relatively small companies so the assumption is that the smaller companies will be quickly absorbed into the bigger firms’ brands and cultural folds.
As we dig further into the details, both begin to get interesting. Shortly after acquiring Ukrop’s, an announcement was made that the Martin’s name would become the main banner. This makes a world of sense from a synergy standpoint but also erases one of the most venerable names in food retailing off the map, not to mention an institution in their hometown of Richmond. Right or wrong, this is not a slam dunk decision but easily understood. Shortly thereafter, the first and highly unlikely culture test came into play—hereafter known as the great Girl Scout cookie incident. Seems that Ukrop’s has a long-standing tradition of allowing local charitable institutions to sell outside their stores--Ahold does not and banned the practice. The publicity that ensued (mostly negative for Ahold) is almost comical in scale but highly illustrative of the dangers of messing with culture. The much bigger deal ahead is that Ukrop’s, due to religious beliefs, never sold beer and wine and closed their store on Sundays. Again, Ahold is making a simple decision to reverse those sales killing decisions this Spring and it should theoretically yield almost an instant 20% sales gain. But, as the Girl Scout flop shows, messing with a brand is serious business.
The dust has yet to settle on Walgreens/Duane Reade. Again, on the surface, the locations Walgreens will secure are almost priceless and will allow for penetration in the New York City market that would be impossible to duplicate. A few short years ago, the Duane Reade brand (and stores) was in critical condition. Famously cluttered and with indifferent service, it was a brand New Yorkers loved to hate. But, the current management team has done a remarkable job of making over the chain. A new logo, stunning new store design, new private brand programs, an emphasis on higher end beauty and a re-dedication to customer service woke up Duane Reade (and was probably a significant contributor to the $1 billion + purchase price). So, now what? It would be an easy decision to turn these stores into Walgreens and gain instant synergy. Or, does Walgreens choose to let Duane Reade remain independent and perhaps be the template for urban stores? Whatever the decision, Caveat Emptor (let the buyer beware)—there is more to a Brand than meets the eye.
Friday, January 8, 2010
Fashionology’s fate was probably sealed a year or so ago when ICSC named it one of the country’s Hot Retailers for 2009. This tween based concept that allowed customers to custom-create their own t-shirts and other apparel certainly had promise and a number of cool elements. But, as we have seen so many times before, there is a huge difference between a promising concept and a successful one. We had just visited (and shopped) at Fashionology and the ideas and flaws were readily apparent.
What was great about Fashionology? The ability for girls to custom design their own clothing brings out the Project Runway in all of us and the high tech and high touch machines made it easy to bring the customization to life. At the end, the customer could have their picture digitally taken with their creation and e-mailed to their friends or posted on the Fashionology site. The store could handle birthday parties and it would be a blast. And yes, we did buy something for our daughter, who said she loved the design.
It’s easy to see how it grabbed initial publicity. However, getting named a “store of the year” or “hot concept” often seems to lead to failure rather than success.
Our visit revealed some gigantic problems. As clichéd as it may seem, the retail adage of ” location, location, location” always seems to come into play. The first (and it turns out) only retail location was in Beverly Hills, on Canon Drive, a good block away from the real (and really expensive) retail activity. But, even had it gotten closer to the heart of Beverly Hills retail, it still would have been the wrong place for this concept, which would have been much more at home and much more accessible to its customers in a mall.
Additionally, it was expensive. By the time we were done “blinging” our shirt and buying a few buttons, we were staring at a $40 + price tag, which is a lot for a girl’s long sleeved shirt. Fun to do once but not necessarily a place to build a wardrobe. Patterns, colors and styles were also fairly limited, which further reduced the overall appeal.
Fashionology announced a January 21 closure. As with many concepts with promise, the fixes may have made a huge difference, beginning with a better location. But, funds obviously dried up and we may never know if there was something lasting here. It reminds us again just how difficult it is to start up a retail concept. Fashionology joins the unfortunate ranks of new concept failures.