The Robin Report - Issue 12 - March 2012

do did Wh w Av at pa ro on ge 18 ng ?

Issue Five 2012

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To Go, Or Not To Go …Into India As They Shoot Themselves in The Foot

If you’re an entity that’s thinking about making a foreign direct investment in India, either as a capital investment or a commercial venture, the country is certainly not providing compelling reasons for doing so.

However, as they say,“ …let’s get past these so we can move forward.” continued page 3

with Darshan Mehta

President and CEO of Reliance Brands Page 7

I N S I D E t h is iss u e • TO GO, OR NOT TO GO …INTO INDIA ...........................1 Robin Lewis

• Q&A with Darshan Mehta ...1

• Dear Reader ..........................2

•H ow to Get a Bigger Share of Foreign Visitors' Wallets....………….10 Andrew Mantis

•D erailing the Showrooming Scare........12 John Barbee, Andrew Billings, Benjamin Mokotoff and Jon Watschke

• What’s Up With Today’s Activewear?........................14 Emily Thompson

• WHY I'M AGLOW WITH UNIQLO...………………..16 Jane Singer

• THE ‘DO NOTHING’ AVON BOARD TOO LITTLE, TOO LATE — DIVIDEND IN JEOPARDY...........18 Michael Coady

• Exploding the “Fit” in Corporate Culture Makes the Impossible, Possible!.....20 Tanya Shaw & Judi Richardson

• Flash Dance........................22 Warren Shoulberg

• The Back Page .........…...…. 24

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Dear Reader Globalization is no longer some esoteric conversation about how the world’s coming together, inter-connecting cultures and commerce, and wonderful stuff like that. For U.S. brands, retailers and all consumer-facing industries, globalization, or growing their businesses internationally, has become a necessity.

“shooting themselves in the foot,” actually both feet, even beyond the pre-existing obstructions.

Having said this, read the article which details all the “why nots” for entering India, but then, surprise, dives into why you should be planning and/ or actually moving into India now.

Put simply, if you are thinking twice about entering, you should think And, the “BRIC” countries, so named a third time and just do it. by an economist at Goldman Sachs Also in this issue, we have an in(Brazil, Russia, India and China), depth interview with Darshan were deemed at the turn of the century, emerging engines of growth. Mehta, President and CEO of Reliance Brands, who speaks with And so they were, even faring well refreshing candor about opportunities through the Great Recession. for global brands in India. And he should know; he has been highly Now, however, their growth has successful bringing a portfolio begun to slow as the developed of iconic brands to his country. world continues to struggle on the edge of further recessionary, finanNever to shy from controversy, we cial and political turmoil, all acting take a deeper dive exploring some of as a drag on the BRICs. Even so, their GDP growth is roughly double the reasons behind Avon’s downward spiral and attempt at resurrection. that of the developed countries, It’s a no-holds barred revelation Europe, and the U.S. in particular. about Avon’s board’s Achille’s heel.

Or should we say 11 heels.

So, while the BRICs are not rising at their earlier blistering pace, for U.S. companies to sideline their entry into We also offer an enticing selection of topical and timely reports on GDP growths ranging from 5 to 8 overlooked opportunities in the percent would be foolish. However, U.S. cross-borders market; showfocus should be on the BICs, since Russia seems to be on a “sabbatical” rooming, the bane of all brick and mortar retailers; what’s behind from its BRIC colleagues, hovering the Uniqlo phenomenon; a report at around 3 percent growth with all on whether flash sites are just a kinds of complications, big deficits, flash in the pan; new performance rising inflation, and a host of other breakthroughs in athletic wear; and issues attendant to its plutocratic why developing an innovative and type government. sustainable corporate culture may be the saving grace for organizations And, I’ve chosen to focus on of every size.

India in this issue because of all the negative press of late, exploring the reasons behind numerous barriers I invite you to travel with us as we help to demystify and deconstruct to entry, and reasons for companies what makes the business of retailing not to even consider entry. On top so compelling. of a slowing economy; rising inflation; the pre-existing and various infrastructure issues; pervasive corruption; and inefficient, largely Robin Lewis has over forty years of strategic ineffective distribution capabilities, operating and consulting experience in the retail and related consumer products industries.

India’s government (also suffering He has held executive positions at DuPont, VF bureaucratic sclerosis) recently Corporation, Women’s Wear Daily (WWD), and enacted some unfriendly and onerous Goldman Sachs,among others, and has consulted for Kohl’s Department Stores, and dozens of foreign tax initiatives, as well as In addition to his role as Publisher and rescinding a ruling that was friendly others.

CEO of The Robin Report, he is a professor at to foreign retail and brand entrants. the Graduate School of Professional Studies at The Fashion Institute of Technology.

Essentially India has recently been

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To Go, Or Not To Go… Into India

As They Shoot Themselves in The Foot continued from page 1

For starters, economic growth in India has dropped to its lowest level in nine years, down to 5.3 percent GDP for Q1, 2012, from its blistering rates of 9 to 10 percent during its prized inclusion as one of the “BRIC” countries along with Brazil, Russia and China, all of which are now in some mode of slowdown.

Further, as of this writing, Standard & Poor's said that India could become the first of the so-called BRIC economies to lose its investment-grade status, already at BBB-, the lowest possible investment grade rating.

However, the economy and its investment grade notwithstanding,

government ruling that would have allowed multi-brand retailers, such as Walmart, to own 51 percent of their business in India; and single brands, such as Nike, 100 percent ownership.

It has reverted back to the necessity for U.S. multi-brand stores to only establish wholesale joint ventures, and single brands back to owning only 51 percent. Prime Minister Singh protested the ruling essentially to protect India’s small shopkeepers, forever its primary retail model.

Further, India has imposed new taxes on foreign businesses, even retroactively on past deals. Talk about a reason to have second thoughts

India has imposed new taxes on foreign businesses, even retroactively on past deals. Talk about a reason to have second thoughts on entering or leaving India.

India seems intent on shooting itself in the foot politically, particularly as it relates to attracting foreign investors, as well as the bureaucratic stifling of its own marketplace, thus threatening to exacerbate its decline.

India ranks a pitiful 132nd in the World Bank’s “Ease of Doing Business” countries, between Nigeria and the Palestinian Territories, due to its sea of red tape and sclerotic bureaucracy.

The country recently rescinded a 2011

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on entering or leaving India. In fact, the outflow of capital, partly attributed to this move, is considered one of the reasons for the rupee’s 13 percent fall since the beginning of the year.

And, just to add another significant “not to go” reason: according to the annual Corruption Perceptions Index, published by Transparency International, India gets a score of 3.1 (any score under 5 is considered significantly corrupt). However other

emerging country peers are similar: China at 3.6; Brazil at 3.8 and Russia at 2.4. Perhaps the most onerous of corrupt practices is bribery to members of the judiciary, police, registry and permit services, and officials in connection with buying, selling or renting land.

To top it off, there is almost a total lack of punishment for offenders.

Given these examples of barriers to entry, one could say that India as the world’s largest democracy is both good news and bad. The good news is obvious over the long term. The bad news is that, unlike China where the state can dictate initiatives that may override the interests of its people for the longer term interests of the state, India must govern according to the will of its constituents. And this is further complicated in India as politics are skewed along regional lines (28 states) with widely different perspectives on how business should be conducted in their areas, according to Ron Somers, President of the U.S. – India Business Council (USIBC).

Accordingly, he cited six states with Chief Ministers who are enthusiastic about foreign investment: Gujarat; Maharashtra; Tamil Nadu;Kamataka; Andhra Pradesh and, now Uttar Pradesh.

In addition to its political and economic speed bumps, India’s infrastructure continues to be totally “unfriendly” to the efficient and effective distribution of goods and services.

There are other “foot shooting” political and economic impediments and barriers to entry, but the above are sufficient to cause foreign investors to pause.

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To Go, Or Not To Go… Into India

As They Shoot Themselves in The Foot continued

for those of you old enough to remember that period between 1950 and 1980, (if not, you should heed what I’m about to say), it was the most explosive era of growth in the history of this planet. And, it was further accelerated on the steroids of marketing, the “golden age of advertising,” and enormous demand creation.

To this point, Darshan Mehta, President and CEO of Reliance Brands, and contributor to this issue, (see accompanying Q&A), pointed out that unlike most developed economies, in India a business does not have to create demand.

It already exists. He said, “I think the largest challenge is what I call the mindset challenge. Most, if not all of the marketers from the western world, are tuned to focusing their arsenal on creating the consumer or creating demand. In India, consumers exist; what you need to do is find a way of reaching them. The biggest challenges are the distribution channels.”

So Why Even Think About Entering India?

Having stated some of the reasons “not to go” to India, a very logical and prudent plan may be to advise yourself and colleagues to wait until India gets its act together and lays out a much larger welcome mat.

However, I would advise that even though we’re in the middle of global economic turmoil, with India exacerbating its own slowdown with the issues cited above, that now, in fact, is the time not to simply start thinking about entering India, rather one should be proactively

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planning for entry. And, there are many reasons why one should be doing so.

Let Me Count the “Why’s”

Why now? While the fact that India is lagging China’s meteoric growth accomplishments by about 7 to 10 years could be viewed negatively as a sign of continuing inertia, it could equally be viewed as a signal that now is the time to enter, just before takeoff so to speak. At this moment in time, one might compare India’s economy to that of post-WWII United States, poised on the edge of unprecedented growth. And,

The macro-backdrop for this growth is India’s GDP. Currently at about $1.4 trillion, and even though its growth has slowed recently, by various estimates it’s expected to reach about $2 trillion in 2015 and upwards of about $3.5 trillion by 2020. Along with this growth, annual disposable income doubled between 2006 and 2011, (see chart 1), and is expected to continue on its proportionate trajectory, essentially projected to nearly double again between 2011 and 2018. Through this macro-economic prism, just as there have been successful “first mover” U.S brands and retailers into China over the past decade, now is the time to move into India. In fact, there are other consumer, cultural, economic

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and legal characteristics that would indicate that India has the potential to outgrow China in share of market.

Furthermore, as is so often the case in the U.S., economics will eventually trump politics in India. As they say: “follow the money.” And, in the case of a capitalistic democracy such as India and the U.S., the search will lead you to the power. So, just as our large corporations and financial institutions wield enormous influence over the lawmakers and regulators in Washington, their counterparts in India (such as Tata Group, the Reliance Corporation and many others), whose interests are growth and profit-making, know that over time India must open its doors more widely to foreign direct investment, as well as elevate its hugely impoverished citizenry to establish a more consumption driven economy.

Therefore, it’s logical to assume that India’s barriers to entry for capital and commerce will come down.

The question, of course, is when.

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A last point about India’s young and growing consumer segment is that it could well be the factor that allows India to “leapfrog” ahead of China in the next decade.

India is also the world’s largest English speaking population. According to Mehta, India’s “national language is English.” He went on to say, “I lived in Bangalore for eight years, the socalled local language was Kanadda, but the national language on paper was Hindi. But if I didn’t speak English, I couldn’t live in that city. If I spoke only Hindi, I couldn’t catch a cab. The commercial language – every single application to the government of India – for a visa, to do commerce, to send money, foreign investment, is in one language, English.”

The Kids Have It

As Ron Somers was quoted regarding the potential “distraction” from mutual investment and trade during the election cycle in both countries, “That’s when business must lead the way.” Two-way trade between the countries according to the USIBC, was $25 billion five years ago, is currently at $100 billion, and they anticipate it reaching $500 billion by 2020.

The very real and growing treasure in India is its youth. Of its 1.2 billion citizens, 54 percent are under the age of 25. While most of the developed world has reached maturity (both commercially and demographically), India’s youth engine, with increasing disposable income, is poised to drive massive consumption growth as well as in different categories of goods and services.

The other good news part of India’s democracy is that it abides by the rule of law. Thus, foreign entities are provided a degree of protection against counterfeiting and other fraudulent activities so prevalent in other countries, including China.

According to Mehta, while about only 30 percent of India’s population resides in cities (of which there are about 59 with at least one million people and another 400 with about half a million), he expects the migration from the

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rural areas into the cities to continue.

And the largest percentage of these new city dwellers will be in their twenties. So, while the number one expenditure among consumers today, is for food, second for housing, next for transportation, and with apparel coming up fourth, according to Mehta, these young consumers are likely to re-prioritize consumption favoring fashion, footwear, beauty products, entertainment and leisure.

A last point about India’s young and growing consumer segment, is that it could well be the factor that allows India to “leapfrog” ahead of China in the next decade. China, having imposed its so-called “one-child rule” per family has aged their population, which will therefore serve to decelerate future growth.

Apparel Retailing on the Youth Rocket

Speaking of the “kids having it” (their growing disposable income), they also are “wanting it,” namely those things young people around the world want.

So, the fashion and apparel retailing sector promises to be a leading industry in India’s drive towards modernization.

Already at around $70 billion, according to Euromonitor International, consumer expenditures apparel and footwear sales

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To Go, Or Not To Go… Into India

As They Shoot Themselves in The Foot continued

the U.S. and hoping it works. Look at the car market. The most successful marketers in India have not been the Germans, not the Americans, but the Koreans and Japanese. They first understood the consumer, then worked backward.”

“Action Expresses Priorities.”

Mahatma Gandhi

are projected to reach over $216 billion by 2020, (see chart 2). Also note how India surpasses China and worldwide percentage of total expenditures on apparel and footwear to 9.2 percent by 2020. Chart three projects apparel sales only through 2016, with a breakdown by category. Note the higher growth rates for the women’s and children’s categories.

developed countries.

Of course, more American brands and giant retailers such as Walmart and others would be attracted to India if its government would re-instate the ruling that allows 51 percent ownership by the multi-brand retailers and 100 percent by the mono-brands such as Nike, Gap, etc. As stated above, I believe this will happen. It’s just a matter of time.

In addition to the driving engine of the young, their disposable income and highly-urban location, they will be taking on more sophisticated lifestyles, more socializing opportunities and along with it, the need to present a more fashionable and modern appearance.

Thus, the hunt for the coolest fashion looks and brands will be a top priority for this group.

Tips

While apparel has traditionally been larger in the men’s category (with only 20 percent of India’s urban women in the workforce), women’s apparel is poised for take-off on that youth rocket as well, and will eventually win top share as it has in all

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As stated earlier, Mehta’s point that retailers, unlike in the developed countries, do not have to create demand. It exists, big-time. The challenge is in getting to it, (distribution). Further, it would suggest that brand building should not be on the top of the priority strategy list, (Indian shoppers are likely already familiar with American brands anyway).

Furthermore, according to Mehta, those “power” brands and retailers who enter the Indian marketplace, “they must rethink their strategies for reaching the consumer, rather than just duplicate what they did in

In closing, it’s appropriate during this period of global political and economic turmoil to quote India’s former great leader. If India’s recent “actions express its priorities,” one could be of the opinion that they are deleterious to the growth of its economy, the elevation of its people and its progress towards becoming a modern-day leader among developed countries.

However, while the government may be acting on priorities they believe are in the best interests of India, I am of the opinion that they are counter-intuitive to the longer term priorities of its people and its business communities.

So, back to the good news and one of the biggest “why’s” for entering India: it is the world’s biggest democracy, and therefore the will of its people, its business communities and their priorities will ultimately prevail.

If you were thinking twice about entering India, think a third time, and just do it. However, do it with an Indian “partner” entity that can assist in traversing all of the current “why nots,” as well as where and how to connect with Indian consumers who can’t wait to buy your brand.

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w i t h D ar s ha n M e h ta President and CEO of Reliance Brands

Robin: Can you give me a perspective as to

why our retailers and brands ought to be looking at India more closely now?

Darshan: There are three ways to answer that question. To speak on their behalf, they should be looking at India just because the U.S. is a saturated and mature market with an aging population, so the headroom for growth can only happen by robbing from someone else’s plate. Fundamentally, starting with the Baby Boomer generation, the 40 to 50 years of unmitigated retail and consumer boom that the U.S. went through is in some forms – in many forms – tapering off. So they need to discover unconquered territories.

Darshan: Yes, sure, it’s what new money does – it lives in a branded world, in a Western dream.

Over the past 30 to 40 years, in the post-colonial world, many Indians have migrated to the U.S. – doctors, engineers, etc. India is neck-andneck with China as almost the biggest source of foreign students in U.S. universities. There are about 120,000 students coming out of India to study in the U.S. every year. Increasingly, over the past 10 years, a large number of them are coming back, and bringing with them their experiences.

Logically I had suspected that space should have been Europe.

I suspect now that it comes to the third-tier larger markets, in terms of land mass, population, and GDP. It brings one to markets like Brazil, Russia, India and China. From our viewpoint, it is a fallacious approach to bring up India and China in the same breath. Depending on what you base it on, we are seven to 10 years behind China.

Although geographically we are neighbors, China is better off spoken in the same breath as the USA.

We are the world’s largest English speaking population. Our national language is English. If you travel to India and turn on the television in your hotel room, we have the same or similar shows on half of our 120 channels that you’re watching in New York. I spent a few years in advertising. My guru in the ad business said “Your mother tongue is the one in which you cry.”

Most of us cry in English. You have a language asset. You’re not just talking to an audience that understands English, you’re talking to an audience that thinks in English.

Why else should someone come to India? By process of elimination, we are one of the largest untapped markets in many, many ways.

Robin: How are American brands perceived by consumers in India compared to those in China? Chinese consumers are totally hot for American brands, no matter what they are.

Does that exist in India as well?

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Here’s another asset: India is one of the youngest countries in the world. About 500 million people in India were born after 1980. They don’t know what the British Raj was, they have no hang-ups from the colonial era. When you come to a country with a population of 1.17 billion and growing, (even though almost 20 percent, or 200

million are without drinking water), for the next 10 years you still have tremendous growth. India now has 59 cities with at least a million people.

One very large retailer will not go into towns with fewer than a half million inhabitants. There are more than 400 cities with more than half a million people. So wouldn’t you want to go to the youngest population in the planet who loved everything about your brand?

Robin: What about the economic picture?

Darshan: To give you some statistics, the size of the consumption pie is a trillion dollars. GDP is $1.4 trillion, and one of the highest savings rate in the world. Slightly less than one-third of what we earn, we save. The trillion dollar consumption pie will grow to $3.4 trillion by 2020. The number-one expenditure is food; two is housing; three is transportation; and number four is apparel.

And in that growth we’re talking about a $55 to $60 billion apparel market expected to grow to $200 billion by 2020. And, again, it’s a young population (median age is 24), which will continue to grow because there are still a lot of babies.

About 35 percent are living in urban areas, which makes a very powerful proposition for a brand marketer from a strategic standpoint.

Robin: What are some of the obstacles, challenges of supplying and entering that market?

Darshan: For those businesses approaching India, they must

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wit h D ar s h a n M e h ta President and CEO of Reliance Brands

In India, consumers exist; what you need to do is find a way of reaching them. rethink their strategies for reaching the consumer, rather than just duplicate what they did in the U.S. and hoping it works. I think the largest challenge is what I call the mindset challenge. Most, if not all of the marketers from the western world are tuned to focusing their arsenals on creating the consumer or creating demand. In India, consumers exist; what you need to do is find a way of reaching them.

The biggest challenges are the distribution channels. Of the classic channels of mono-brand stores, multi-brand stores, e-commerce, outlet and department stores, they are either non-existent or still very nascent. E-commerce is eight to 10 years behind the rest of the world.

If you find a way of reaching the consumer, you’ll have no problem with demand. The example I always use is telephony. In the year 2000, there were a total of 25 million phones – land and mobile. Ten years later, there were 747 million phones. The supply created demand. You could not have planned for that.

Robin: So India is poised on the edge of what the U.S. had in front of it at the end of WWII, explosive growth. But, I know there are tremendous issues with distribution infrastructure, legal barriers, etc.

Darshan: One of the things India has not done is make it easy to

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attract foreign capital. We didn’t have a real estate bubble because a foreigner can’t buy a house in India. The maximum exposure of the banking industry to housing cannot exceed 7 percent by law.

If I have a parcel of land, I can build a home, a shopping center, or an office block. The latter two are earning assets. But if I’m a developer, the easiest thing is to build a house. A large component of the landmass in India is going toward housing, because it’s very easy to turn over. The result is that the cost of land is rising rapidly, and there are not a lot of malls or shopping centers being built.

However, e-commerce is opening up rapidly. We have the third highest number of Internet users.

Robin: Most U.S. brands in most sectors are focusing on the consumer here. All the localization and customization efforts are examples of that and moving forward rapidly across the board.

Is the same thing happening with the apparel players in India?

Darshan: I don’t think the apparel players have discovered India yet. Over the last seven years, I must have met with one large iconic retailer about seven times.

But, either they said we have a big upside in the home market, so why should we make the effort to cross the ocean? Or, they had big issues to fix in their home market. On the other hand, the first time I brought the VF Corporation over to India,

they said thank you for bringing us here. Let’s do a joint venture.

In footwear, incidentally, Reebok and Adidas are six or seven times bigger than Nike, and the Nike brand recognition is HUGE in India. From 1991 to 2000, they were limited to licensing arrangements. Now all three have a 100% subsidiary, as Reebok and Adidas do, but Reebok and Adidas – they’re five times bigger individually than Nike.

Robin: How do you enter India?

VF and Adidas were smart enough to partner with someone who understands the Indian consumer and how to do business.

Darshan: I’ll tell you, and we can talk anecdotally. I’ve seen this from very large luxury brands on the one end and active brands on the other end. They take the business over from the licensee; they pick a person of Indian origin in their system who works in their New York office, someone for example who has lived in the U.S. for the past 10 years, went to business school, is pretty sharp.

But typically what happens is that this person becomes whiter than even the New York people, and his nose is in the air. He’s going to live out of a suitcase for the next three years so his children can continue to go to school in the U.S. So unfortunately that guy is neither an American nor an Indian.

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Also, there is too much made out of this whole thing about lack of regulation and boundaries and borders. Puma, Nike, Levi, Adidas, these are all extremely large iconic names with 100 percent subsidiaries in India. The same laws exist in the U.S., in the U.K. and India.

We still quote English case law in our courts, we use double-entry bookkeeping GAAP accounting standards here just like U.S. Today, in India, you can set up a company in exactly 24 hours.

If I’m not finicky about the choice of name, and it’s available, I can set up a company quickly. You can go on the Internet and fill out the documentation. From that to the banking process, it’s pretty simple.

Once you have a DIN number, then you’re all set.

When you come to multi-brand retailing, that means this country has an apprehension just like in the U.S. when Mr. Sam Walton was building the big boxes; no one wanted him to put the little mom and pop elderly couple’s store out of business. Same thing here in India. Having said that, Walmart has 100 stores, and has formed a partnership with India telecom company Bharti. Tesco is forming a joint venture partnership with the Tata Group. My understanding is they’ve chosen these companies because they’re large companies with deep pockets and a big risk appetite. So if I’m a 49 percent partner with my brands, these kind of businesses take 10 years to grow, and for a decade I’m writing a check to fund the losses.

Robin: What about the different models – joint venture, licensing

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deal, 100% subsidiary. Which are the best models?

Darshan: I don’t think there’s a one size fits all. It’s more the mental makeup of that company. There are lots of models. It would be wrong for me to say that one is better than another. My only advice is once you pick a model, don’t do only a threeyear or five-year deal. India is not a three-year or five-year model.

If you do a marriage by trial, it remains a short-term arrangement, then the partner milks the brand in five years. It needs to be a winwin situation. Jockey, by the way, is a 25-year license. Arrow is a 20-year deal.

Robin: Who’s on your wish list – the top two or three brands that you’d love to be in India?

Darshan: Indians are more European in their mindset than Americans. The fashion quotient is higher. So an H&M will work here. The women’s side of our market is underserviced. Among the top 5 percent of our society, Indian women are as cosmopolitan as anywhere else. No social taboos, where they can go, nightclubs; it’s a fairly gender equal society.

American brands have a very high recall. When we launched Tommy Hilfiger in 2004, even Tommy himself was surprised that everyone knew him. Tommy went from zero to $100 million between 2004 and 2012, and PVH paid a hefty price to acquire 50 percent of that business back from the Murjanis. At the time, when I launched Tommy in India, the next most expensive polo shirt was half the price of Tommy’s. I’m amazed at how much footwear

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a woman can buy, but we only have six Aldo stores and two Nine West stores in a country this size. Can you believe it? Lingerie as a market is a huge potential here. So my wish list is to have BCBG dresses, Steve Madden shoes, Victoria’s Secret lingerie, and Coach accessories in India Robin: Why is the women’s share of apparel so much lower than men’s?

Darshan: When the economy comes into new money, men spend on themselves first. Then the women start to get out of the house, and catch up. Very often gaps in the market happen. India sells 130 million pairs of jeans per year –this in a country that didn’t grow up wearing jeans. That’s a crowded market, like the dress shirt markets, still growing at 15 percent per year Robin: Any last thoughts?

Darshan: One of the things I tell my people virtually five times every day is ‘Never ever let the thought cross your mind, so that it doesn’t cross your speech, that you work for a company that has $18 billion in cash sitting in the bank, and that we have a sovereign credit rating a notch higher than India’s, because then the arrogance flows in to the partnership. So you approach the partnership with humility and learning. Don’t let the baggage of your success elsewhere blindside you. New markets can be a big blow to your ego.’

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How to Get a Bigger Share of Foreign Visitors' Wallets By Andrew Mantis The current economy poses challenges for all merchants, but stresses on brick and mortar stores are particularly heightened. The wave of closures that accompanied the Great Recession was only the start of a protracted move for chains to reduce their excess amounts of retail square footage; according to many retail analysts, America remains significantly “over-stored.” At the same time, the rapid and steady rise of e-commerce makes for greater displacement, with increasing numbers of Americans preferring to do their shopping from their homes or offices, or even from their phones. Brick and mortar stores, it seems, are left to duke it out for their share of an at-best limited domestic pie.

Fortunately, that domestic pie is not all there is. Foreign tourists and business travelers have been finding America to be the Golden Land -- of shopping, anyway -- and overwhelmingly they are not doing that shopping online but in person, in brick and mortar stores. What this means is that merchants can leverage cross-border spending to drive U.S. domestic sales as well as share growth, if they can find a way to target and keep those foreign customers. Key to building a cross-border strategy is an understanding of where to focus merchant efforts.

That is, merchants must now put the same kind of effort into identifying and understanding their foreign customers as they do their shoppers here at home.

Awareness of the importance of foreign customers is already present in some industries. Hotels and restaurants in major destinations, of course, as well as car rental companies and airlines understand the importance of this segment to their overall business, even if they don’t have a particularly detailed description of it. And merchants in certain retail sectors and brands may have a sense that they are particularly attractive to foreign shoppers. But in many cases, that is as far as the understanding goes.

Few enough retailers even know what portion of their sales volume comes from cross-border traffic, but this figure by itself is not sufficient foundation for a marketing strategy.

In the current economic environment, guesses and intuitions are insufficient; merchants must be able to accurately identify their current and potential market.

To begin with, merchants should know from which countries their foreign customers are coming from. This is by no means intuitive, or a reflection of the overall foreign tourist and business traveler population. In the case of one retailer, we found that almost half of their cross-border volume was due to shoppers from only three countries. The attractiveness of a product, brand, or sector will differ from country to country, depending on factors as varied as tariff policies, culture, and domestic availability.

Identifying the geographic sources of foreign shoppers allows a retailer to market to those shoppers even before they arrive in the U.S., whether through general advertising campaigns, joint marketing programs with airlines, or other techniques. More advanced analytical techniques may be used to build a ‘best customer’ model, which can be employed in more powerful direct marketing strategies.

As important as it is to know from which countries foreign shoppers come, it is equally important to know where they’re shopping. What are the top destinations for foreign spend? This knowledge can help a merchant in a number of ways: First, it can increase the effectiveness of marketing campaigns. Advertisements in the language of the target market in local media, and joint promotions with local hotels, for example, can be highly effective tools for attracting new customers and building loyalty from a segment that is already inclined to purchase.

Second, knowing that stores in a particular area attract the bulk of a merchant’s customers from a particular country allows the merchant to adjust the selection and shopping experience to meet the needs and tastes of that segment. A store may need to add staff that is proficient in a particular language. Apparel stores that receive heavy traffic of shoppers from below the equator may want to

Foreign tourists and business travelers have been finding America to be the Golden Land -- of shopping, anyway -- and overwhelmingly they are not doing that shopping online but in person, in brick and mortar stores.

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Consumer Insights From MasterCard Advisors

have a selection of clothing that is seasonally appropriate to the home country, along with brands that might be more popular there than in the U.S. The effectiveness of this kind of information is greatly increased when it is supplemented by data on the seasonality of the purchases. There is no point in a store investing in a particular merchandise assortment, or staffing, or other specific strategy to reach certain foreign shoppers during periods when those shoppers don’t travel to the U.S. Patterns of traffic from different countries will give clues to travel seasons as well as specific purchases, and a data-driven approach to targeting cross-border spend must be able to identify these seasonal trends.

Finally, a local analysis of cross-border spend can go beyond marketing implications. Given the current state of the economy, retailers are paying particularly close attention to their market share. This demands awareness not only of one’s own performance, but also that of one’s competitors. At MasterCard, we have been able to look at a merchant’s cross-border sales compared to an

Issue Five 2012

aggregated, anonymized competitive set in the same market, allowing a retailer to benchmark its performance against the localized sub-sector, not just overall, but with its intended customers. This can be invaluable both to identify opportunities and to discover that what might have at first appeared to be soft sales was in fact a gain in market share against an even softer sector performance.

While cross-border transactions will not be enough to rescue all brick and mortar stores, they can provide some merchants with an opportunity to grow both sales and market share. To capitalize on that opportunity they will need accurate granular information about those transactions, the analytic ability to make sense of that data, and the strategic wherewithal to put the data to use.

Andrew Mantis leads the MasterCard Advisors Information Solutions Merchant practice. He can be reached at Andrew_Mantis@mastercard.com

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Derailing the Showrooming Scare

By John Barbee, Andrew Billings, Benjamin Mokotoff and Jon Watschke

It’s easy to see why showrooming is keeping many brick-andmortar retailers up at night. In fact, it looks like the beginning of a bad epidemic-outbreak movie — some retailers even feel powerless to slow its advance and are reduced to simply watching, one by one, as those around them succumb and close their doors for good.

But in reality, retailers aren’t powerless against showrooming. They have a choice: they can either combat showrooming or embrace it. The decision to combat or embrace it depends on the level of susceptibility a retailer may face, which in turn depends on the demographics of the retailer’s target customers, product price points and merchandise type.

Demographics. A recent Kurt Salmon and Prosper Corporation survey of 8,000 consumers revealed that 70 percent of consumers ages 25 to 54 with smart phones use them to comparison shop, up from 62 percent a year ago. And of those who use their smart phones to comparison shop in-store, almost one in three ultimately buys the product online, according to ClickIQ. Older consumers are getting more comfortable with showrooming as well. The Kurt Salmon survey found that 49 percent of consumers ages 55 to 65 use their smart phones to comparison shop. And as the population ages, the percentage of the population showrooming will continue to grow.

Perhaps not surprisingly, wealthier consumers are also more likely to showroom. The Kurt Salmon survey showed that 65 percent of consumers with incomes over $150,000 a year comparison shop on their smart phones, compared to only 56 percent of consumers who earn under $50,000 a year.

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Price point. By shopping online, customers can save up to 10 percent on sales tax and potentially more off the price of the desired item. As price increases, so do the financial benefits of purchasing online. And the more commoditized the product, the more susceptible it is to showrooming.

Thus Apple’s unique products and tight control over MSRP pricing make it less susceptible to showrooming than Best Buy. Competitive pricing on certain commoditized items, combined with other strategies to combat showrooming, can help boost sales without undermining profitability. Much like grocery stores are able to sell two-liter bottles of soda at a loss because they earn it back on the bag of chips most customers buy along with the soda, an electronics retailer could competitively price a TV and then earn their margins back on accessories, installation, a warranty and service. But a strategy of competitive pricing alone could spell the end of the story as price comparison tools and online acceptance invariably grow.

Product category and type. Kurt Salmon’s research has found that some product categories are more prone to showrooming than others. For example, although furniture is expensive, it is not very susceptible to showrooming because the shipping cost is often high; moreover, shopping for furniture is highly experiential and many products are exclusive. On the other hand, electronics are perhaps the most susceptible—they are generally pricey

Best Practices from Kurt Salmon

and it’s easy to find the same product online at a considerably lower price.

Items like apparel and jewelry fall somewhere in between—an emphasis on fit and fashion nuance is important, but as online players become more adept at creating easy return and exchange processes, barriers to showrooming apparel will fade. For now, value-based apparel retailers like T.J. Maxx, Marshalls and Ross may be less vulnerable to showrooming than their full-price counterparts.

In summary, a retailer’s level of risk— based on customer demographics, price point and product type—will help identify the most effective response to showrooming: combat it, embrace it or some combination of the two.

Combat it. Combating showrooming includes creating an innovative store experience, providing exceptional service and offering unique products.

Leading retailers are fighting back against showrooming by playing to the strengths of the in-store environment.

Start with an engaging customer experience. One of the store’s unique advantages is the ability to interact with, and test out products. A great example is REI’s fake rock surfaces for testing out hiking boots. Create an experience that truly cannot be replicated online, such as Abercrombie & Fitch’s dark, perfume-heavy nightclub feel or Costco’s free samples and treasure-hunt vibe.

Also consider what types of valueadded services would be a good fit for certain products and customers.

This extends beyond the initial shopping trip to the post-purchase experience.

Offer some type of in-store class— like lululemon’s yoga classes and community networked running clubs.

Home Depot runs tutorials on everything from painting to building a deck; Williams-Sonoma offers classes on cupcake decorating and grilling.

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Or retailers can provide a free service, such as product maintenance or repair, to entice customers to return to the store. Or, take a page from REI and offer an exceptionally easy returns process. Use imagination and ingenuity to foster a connection to the brand and make the store not just a place for transactions, but an experiential destination.

Many retailers are also trying to fight showrooming by creating differentiated products. But the key here is to create products that are different in truly meaningful, significant ways. Technology already enables price comparison between like items, so just making a few simple tweaks won’t cut it. Instead, focus on creating products that are truly differentiated from, and better than, the rest. Retailers need to give customers a reason to want to pay a little more.

Recent history aside, Target has been creating differentiated products for years with its private labels, including Missoni and Up and Up. Brookstone and Deckers have also succeeded in creating products that are truly differentiated and therefore shielded from showrooming.

Of course, creating truly differentiated products is only the first step for retailers. It is equally important for them to educate customers—in and out of the store—about why the customer should believe their merchandise is a cut above the rest. Ultimately, providing a unique customer experience, exceptional service and top-notch products lays the foundation for a successful strategy to combat showrooming.

Embrace it. Instead of fearing showrooming, leading retailers are beginning to use it to their advantage by bringing the benefits of the online experience into the in-store environment.

By embracing the positives of the online experience and combining them with the clear benefits of the in-store environment and competitive pricing, stores have a chance to provide both a compelling experience and greater convenience for customers.

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Which elements of the online experience should be included in the store?

For starters, online shopping usually comes with a wealth of information that’s often missing from traditional in-store environments. From the moment the customer steps into the store, the experience should include the option for direct, personal interaction with a knowledgeable and trained sales associate—if that’s what customers want. If not, provide tablets or interactive kiosks that provide product information, reviews and availability.

Nordstrom, with its reputation for customer service, was surprised that many younger customers were using its app while shopping in-store instead of approaching salespeople. Rather than fighting this, Nordstrom added WiFi to its stores and is testing re-charging stations and providing clusters of iPads for shopper use. Sephora has started using tablets loaded with videos about how to apply makeup and cameras so customers can see themselves experiencing what they just learned in the video tutorial.

Retailers are also including traditional and QR barcodes next to their products that customers can scan for more information; and retailers such as Target are encouraging shoppers to scan these codes in exchange for rewards, using apps like Shopkick.

Leading retailers are also beginning to integrate social media feeds into the information they have available in-store. For example, Adidas recently started using touch-screen walls in some of its stores that include digital representations of the product along with information on availability, price and real-time Twitter posts on the product. During a two-week pilot, Adidas saw sales of a soccer cleat available through the wall increase

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fivefold compared with a similar shoe unavailable through the wall.

But retailers could easily take this a step further and integrate Amazon and other online sites into their own interfaces. No reviews for a given product on your own website? Why not show Amazon’s reviews? Better yet, why not show Amazon’s price?

An increasing number of customers will comparison shop no matter what, and by providing them with that information in a setting controlled by the retailer, the retailer has the chance to convince them that the extra expense of buying from the store is worth it. Consider it the “buy and have it now” price. While this is an extreme, this practice may need to include complementary elements like post-purchase offerings—classes and technical support—a flexible returns policy or even donating a percentage of the purchase price to a local charity to connect the store and its customers back to the community.

So what does the future of showrooming hold? As savvy consumers gain even greater access to information and technology, even pure-play direct-toconsumer retailers will be increasingly subject to intense price comparisons.

For example, Kurt Salmon’s research revealed that customers have even “showroomed” a popular online shoe retailer by ordering multiple pairs of shoes, trying them on, returning them all, and then purchasing them from another website at a lower price. In this race to keep pricing competitive, retailers across all channels will be increasingly required to demonstrate their value beyond the product itself.

There’s no silver bullet to cure showrooming, but two strategies—combating and embracing—or a combination, may be a sufficient antidote. Above all else, showrooming is a game changer, and retailers will not benefit from ignoring the issue or believing they are above it.

John Barbee, Andrew Billings, Benjamin Mokotoff and Jon Watschke advise the world’s leading retailers on their strategic and operational challenges. They can be reached at john.barbee @kurtsalmon.com, andrew.billings@kurtsalmon .com, benjamin.mokotoff@kurtsalmon.com and jon.watschke@kurtsalmon.com.

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What’s Up With Today’s Activewear?

By Emily Thompson

Over the past year, the volatility in cotton fiber costs compelled some manufacturers and brands to, at least temporarily, experiment with using alternative fibers. Now that the price of cotton has settled in line with historic averages, there is renewed interest in cotton for performance athletic apparel. And as the line between fashion and active apparel continues to blur, cotton is coming into focus as the common thread.

Take Charged Cotton®, the performance enhanced cotton-rich line launched in 2011 from sports retailer Under Armour®. Famous for compression clothing and strictly synthetic blends, the company attracted significant attention when it replaced the tagline “Cotton is the Enemy” with “Mother Nature made it. We made it better.”

It appears consumers have responded positively; Under Armour’s 2011 Annual Report speaks to the potential that the Charged Cotton® line holds for the company: “We see Charged Cotton® as a path to nearly quadrupling our addressable market in ‘active use’ apparel while blurring the lines of the much larger active wear market over time.” Others agree; Morgan Stanley analysts recently predicted that the line will account for 3 percent sales growth in 2012 and as much as 6 percent total sales growth for the company in 2013.

headline “for working out & hanging out,” while GapFit, Gap’s line of activewear, does not mention exercise. The tagline reads: “For life as you live it.”

“The economy, too, is still a significant factor here,” Kitchings says. “Our research indicates that just 48 percent of consumers are very or somewhat optimistic about their personal financial situation, and nearly four in ten respondents (37 percent) indicate that their ability to purchase athletic apparel has been affected by the

“Athletic apparel now straddles the line between strictly workout wear and active lifestyle wear, and that has an impact on how it is marketed,” says Kim Kitchings, Vice President, Corporate Strategy & Program Metrics, Cotton Incorporated.

“Consumers want items that can do both.”

And crossover apparel is big business. Activewear is a $28 billion business, the Sporting Goods Manufacturing Association (SGMA) reports. Given that 93 percent of consumers wear such apparel for activities other than exercise, according to the Cotton Incorporated 2012 Sports Apparel Survey, that number might only grow.

Most consumers (85 percent) say they wear athletic apparel around the house, followed by "to run errands" (65 percent) and to shop (42 percent). Only 7 percent of all respondents use their athletic apparel solely for exercise, down from 10 percent in 2009 – and it seems marketers have begun to take note (chart 1). Target’s online selection of athletic apparel falls under the

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Consumer Facts from Cotton Incorporated Lifestyle Monitor tm

current economy,” according to the Cotton Incorporated Lifestyle Monitor™ and Sports Apparel Surveys. “Consumers are thinking carefully about purchases, and those items that have more than one purpose are probably more likely to make the cut.” And it seems thinking carefully about each purchase includes a thorough examination of the item itself. In 2012, 83 percent of consumers were likely to read the hangtags or labels on the garment when shopping for athletic apparel, compared to 49 percent of consumers purchasing clothing overall.

“But athletic apparel can’t be a onesize- fits-all approach,” says Kitchings. “Men and women are looking for different things in these kinds of purchases; women are primarily concerned with fit, while men are concerned with performance features.”

Indeed, data from the Sports Apparel Survey support this; though cotton may not have a significant presence at retail in this category, it has not stopped consumers from seeking it out. Nearly nine in ten consumers (87 percent) indicated that they have purchased cotton exercise or athletic apparel, driven significantly most often with fit/comfort (38 percent) as the main reason, according to the Study (chart 3).

Some brands have expanded their offerings, seeking this cotton-conscious consumer. The resort category, aimed to keep consumers fashionable and comfortable in warmer climes, is an ideal outlet. In its recent resort collection, the Lily Pulitzer label incorporated the moisture-wicking TransDRY® technology into its cotton polos.

"The new Lilly Pulitzer Island Polo with TransDRY® fabric is the perfect way to look chic even when breaking a sweat," says Jane Schoenborn, fashion director for Lily Pulitzer. "Our secret is the TransDRY® technology, which dries in half the time as traditional cotton and doesn't cling. Paired with our colorful, printed skorts, Lilly girls have an easy, resort-ready outfit that keeps them fashionable and dry -- whether working or playing."

Athleta, the female-focused athletic e-tailer, also offers two workout -- or walk-about --tanks with the TransDRY® finish.

Issue Five 2012

Lilly Pulitzer and Athleta have honed in on the features most important to cotton-conscious consumers; among those respondents that have purchased cotton athletic apparel, more than half (56 percent) sought out cotton apparel with breathability, followed by stretch (36 percent) and absorbency (29 percent).

“Cotton is just breaking ground in the performance athletic market,” says Kitchings, “so it is not surprising that consumers are currently four times more likely to look to synthetics for performance benefits. However, our attitudinal research indicates a strong inclination among consumers to not only try cotton performance apparel, but a willingness to pay more for it.”

Almost seven out of ten respondents to the Sports Apparel survey say they would be willing to pay more for apparel that: has the fit they prefer (71 percent), moisture absorption benefits (69 percent), keeps them dry (69 percent), remains odor free (68 percent), and has the same styles as synthetics (64 percent).

“There are certainly market opportunities available for cotton in the athletic apparel market,” Kitchings says.

“Only time will tell if retailers respond and increase their cotton-rich offerings to appeal to these consumers.”

Emily Thompson is the Associate Director, Editorial at Cotton Incorporated, the research and marketing company representing upland cotton. For more information on the Lifestyle Monitor Survey, please contact her at ethompson@cottoninc.com. The data found in this article, as well as additional relevant information, can be found at CottonLifestyleMonitor.com.

TM

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why I'm AGLOW with UNIQLO

By Jane Singer

I first heard of Uniqlo several years ago when the company opened a pop-up store in Rockefeller Center. People were raving about the inexpensive cashmere sweaters.

Always interested in a bargain, I checked it out. I was underwhelmed. Not enough sizes, a real mish-mash as I recall. It was dark and dreary. A dull basement space that was completely unexciting.

I returned to Uniqlo from a neutral point of view. However, this time around, the energy in the store, the sharp pricing the great overall merchandising and promotion, plus the fiber/product exclusivity, was so pro positive, that I have gone to the cheerleading side.

Over the last two years I received a couple of Uniqlo turtleneck ‘HEATTECH’ tops as gifts. These are made of a proprietary fabric that keeps you warm in winter by generating and

and these are located in key urban locations. The Fifth Avenue store is 89,000 square feet. One of the company’s key strategies is to open larger urban anchor stores to showcase the brand concept of offering ‘high quality basic clothing to the world.’ In the last few years, since the opening of the Soho store in New York, global, urban, flagship stores have opened in London, Paris, Shanghai, Osaka, Seoul and in the Ginza.

Uniqlo’s first store opened in Japan in 1984. At the end of FY2011, Uniqlo had sales of 600.1 billion Yen in Japan which translated to a 5.5 percent share of the total Japanese apparel market.

By 2020 the company’s goal is to reach $50 billion in global sales and $10 billion in operating profit. In Japan, Uniqlo estimates that 48 percent of its sales are in women’s; 42.5 percent men’s; and 16 percent kids and babies. The percentage

“We can not win a dominant position in global markets simply by imitating other companies. Instead, true to our unique clothing concept, we seek to create clothes of the future with the potential to change the world.” - Tadash Yanai, Chairman of Uniqlo retaining heat. The items can be worn as an under-layer or just alone. The fabric is kind of stretchy, “highly resilient and durable,” anti-static, odor resistant and designed to maintain its shape after repeated washings.

And it does.

A couple of my friends, the gifters of HEATTECH tops, are Uniqlo devotees.

There has been a free-standing Uniqlo store in Soho for the last five years and now, for nearly a year, there is flagship store at 53rd and Fifth Avenue. There is also a Uniglo store on 34th Street.

These account for the sum total of three Uniqlo stores in the United States.

A California store will open in San Francisco this year as will a New York metro suburban location.

As of February, 2012, Uniqlo International had 849 stores in Japan and 234 stores outside Japan. Typical store size is 1600 square meters, roughly, 16,160 square feet. Flagship stores are larger 16

mix seems to hold true worldwide. Uniqlo has a significant proportion of sales in men’s apparel even though women’s clothing typically dominates apparel category sales. Uniqlo’s merchandise mix is primarily basics; T-shirts, jeans, and a good assortment of underwear and socks for men, women and children.

Promotions are rational and regular with deep discounts on key items, are advertised heavily in New York, and well executed at store level. Brand positioning, “Clothing for All,” is clear, distinct and well articulated at all points of customer contact. The tone of the brand is fun, relevant and uplifting. Prices are low and extremely competitive offering exceptional value.

Uniqlo is owned by Fast Retailing, Co., Ltd., a Japanese holding company founded in 1963. Uniqlo is Fast Retailing’s primary business although it also owns Theory, Comptoir des Cotonniers and Princess Tam Tam. The business model is SPA -- specialty store retailer

of private label apparel -- which controls all stages of the business from design and production to final sale. Uniqlo has established a virtuous cycle of end-toend control of the entire business process from planning and design of the product to final sale including the development of unique and proprietary fabrics.

Continuous consumer and sales feedback allows the company to maintain quality and minimize cost. HEATTECH, one of Uniqlo’s proprietary fabrics, has been refined every year based on consumer requests for more softness, warmth and color. To maintain quality control across the production cycle Uniqlo has a team of technical specialists, known as the Takumi Team. These textile specialists are sent directly to partner factories in China to offer technical instruction and supervision throughout the manufacturing process.

Uniqlo reports that its United States business is expanding favorably with the Soho flagship store continuing to generate double-digit growth in same-store sales.

The Soho store serves 24,000 customers on a typical Saturday. The opening of the ‘global flagship’ Fifth Avenue store was highly successful paving the way for additional U.S. expansion. Uniqlo considers the Fifth Avenue store an opportunity to communicate the Uniqlo brand and ‘what we stand for’: “UNIQLO clothes are MADE FOR ALL-- highly-finished elements of style in clothes that suit your values wherever you happen to live in the world.” Uniqlo considers its brand proposition a concept that “sets us apart from apparel companies whose sole purpose is the pursuit of fashion trends.”

The founder and Chairman of Uniqlo, Tadash Yanai, and the richest man in Japan, understands that “we can not win a dominant position in global markets simply by imitating other companies.

Instead, true to our unique clothing concept, we seek to create clothes of the future with the potential to change the world.” This outsized philosophy is echoed in the company’s mission statement: "To create truly great clothing with new and unique value, and to enable people all over the world to experience the joy, happiness and satisfaction of wearing such great clothes.” www.TheRobinReport.com

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The first time I visited the Fifth Avenue store a live band was playing. The atmosphere is exciting. Technical and graphic visual displays are colorful and informative. The energy in the store is high. The store is alive with brightness, color and excitement. It is clean and crisp, although a bit cavernous; 89,000 square feet is a lot of space to fill with T-shirts and jeans, socks and underwear.

The entrance features a multi-storied double escalator in a vaulted space.

Not exactly Steve Job’s floating staircase, but, extremely effective. One associate told me that people come just to see the escalator. Actually, I think they come for the overall experience, for something new and cutting edge, for the international flavor, the hipness of the scene, the energy, and for a good buy.

I conducted an informal survey and several in-depth one-on-one interviews to try to understand what was so compelling about the store, the brand, the product and the experience -- and whether Uniqlo was delivering its brand promise. I spoke to both men and women, from early twenties to early eighty’s.

Some shoppers did not know or shop Uniqlo, largely because it is not in a location convenient to them. But those who shop Uniqlo regularly love it. One slim figured, twenty-something young man, confident in his personal style, loves Uniqlo for the fit. “It fits me, there are no fat people in Japan,” he explained.

He was dressed in a Uniqlo shirt, undershirt and cotton whale chinos paired with a Hermes belt, Hermes watch and his signature Belgian loafers. Another man I spoke with regularly mixes his $5,000 Ralph Lauren and Tom Ford suits with Uniqlo shirts. “Most clothes at this price point are ill fitting, but these fit.” Some of these customers have traded Uniqlo for Gap. Many shop Uniglo monthly and “haven’t been to Gap for years.”

Gap is “much more for middle America dressing. Uniqlo is an urban, cool look.”

Another man who buys shirts regularly at Uniqlo describes it as “a newer, more interesting version of H&M and a death penalty for the Gap.” He finds it “cool, new and a remarkable value with heating shirts that seemed like nothing I had ever seen.” This customer liked the store so much he decided to buy the company stock in addition to the “great warm 100 percent down jacket for $50 that can fit in a small bag…an obscene value.”

Another man bought three Uniqlo down

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jackets in Japan, “one in each of the weights they make.”

Some customers like the store experience.

“Uniqlo is a fun store to walk around.

The customers are interesting to look at.” “I like the concept of the store. Lots of color, lots of basics, but with a twist.”

“The stores are very organized and easy to shop in. Great customer service. Great prices.” Other customers echoed the sentiment: “Fun to pop in there and see what’s new.” “Attentive service...help in finding sizes…got a navy linen blazer there this season…nice fabric, style that I’m so happy with for about $100.”

A young woman, and recent college graduate told me that although she doesn’t like to shop, Uniqlo is her favorite store. “I love that their clothes are simple, look interesting, seem to be good quality, fit me well and most of all are very inexpensive.” Another customer, old enough to be her grandmother, does like to shop and she is a Uniqlo afficiando. “The products are shelved in a most eye catching way… makes you want to refold everything in your closet…the cashmeres are sized for easy access and the temptation to throw a few at once into the mesh bag is great….as the seasons turn, the products change, but they always seem to be exactly what I need.”

Clearly Uniqlo has found favor with these customers. Part of the appeal certainly is newness. Retail has always been a game of new. But, I am convinced that Uniqlo’s appeal is greater than its newness factor.

The brand positioning is distinct and very

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21st century. The brand values are ageless and gender neutral. The product quality, overall shopping experience, pricing, presentation and promotion support a strong value proposition.

Gap had one store in 1969. It now has 3,000 company-owned and 200 franchised stores with FY2011 net sales of $14.5 billion. Gap appealed distinctly to Baby Boomers with product and lifestyle that defined a generation’s dressing. Uniqlo is a brand positioned for a new age, a new century. With new, and more global values, a distinctive point of view and an ability to execute it successfully.

Going forward, can Uniqlo open enough stores to become the dominant casual apparel retailer in the United States soon enough to capitalize on its momentum and keep its brand relevant? Will more mainstream, middle American shoppers embrace the global, new age values inherent in Uniqlo’s brand proposition? Has Uniqlo built a culture that is sustainable when its visionary leader retires or steps down?

Will Uniqlo push Gap aside as it enables Americans to experience “the joy, happiness and satisfaction of wearing such great clothes?” Time is of the essence and only time will tell. Gap, put your house in order!

Jane Singer is a consumer product marketing consultant specializing in branding and marketing strategy.

She began her career at Grey Advertising, has held senior executive positions at BBDO, Bozell Worldwide, and Marc USA, and has worked with clients including Kmart, Neiman-Marcus, Rite Aid Drug Stores, Office Depot, The Sports Authority, Visa, Liz Claiborne, vF Corporation, Gold Toe, and others.

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THE ‘DO NOTHING’ AVON BOARD TOO LITTLE, TOO LATE — DIVIDEND IN JEOPARDY By Michael Coady Rarely has a new CEO jumped into a big-time, high-profile turnaround situation such as Avon Inc. presents.

And if history is any guide, the ‘Do Nothing’ Avon Board of Directors will not be of any help.

Sherilyn S. McCoy who took over the CEO slot on April 23rd must hit the ground running. And not only must she put out short-term fires, she also has to develop a long-term strategic plan — on the run. Simultaneously, she must learn a new (for her) directsell business model. Plus she has to deal with SEC probes of bribery charges in China; insider trading accusations; and a myriad of operational malfunctions. In fact, many are questioning her first major judgment call concerning Avon, and that is accepting the job in the first place.

McCoy, who was formerly Vice Chairman of Johnson and Johnson, was passed over for the CEO job at the $65 billion pharmaceutical giant in February. McCoy gets high marks for reinvigorating the pharmaceutical division at J&J facing patent expirations on major drugs. She did not have as much luck when she took over J&J’s consumer business that was hit hard by manufacturing problems leading to the recall of products ranging from Tylenol to baby lotions.

Andrea Jung, former CEO and current Executive Chairman, who has controlled the ‘Do Nothing’ Board for over a decade gets the blame for Avon Products’ current sorry state of affairs, and she deserves more than her fair share. But the real culprit is the Board of Directors. Inexperience cannot be the explanation. The majority of the Board has had some experience with the direct selling model, as six of them have been members for 10 or 18

so years. How deeply they understand the model is another question.

to tack, but lacked a rudder, and sailed along into a major hurricane.

By the time the ‘Do Nothing’ Board acted, the company was already spiraling out of control. Unless Avon’s McCoy turns out to be Houdini, and can pull a rabbit out of a hat, it may well be too late to save the 125-yearold direct-selling beauty company.

Out of step with the marketplace, Jung failed to build a first-class digital program at Avon. Maybe her greatest failing was to transform the Avon Web site into a powerhouse selling tool. In fairness, she did understand the need to expand Avon internationally, which she did. To some degree she also upgraded and broadened Avon’s product line and attempted to widen its retail distribution. She launched partnering initiatives with both J.C. Penney and Sears. Although Sears never got off the ground and Penney’s failed miserably. When the recession hit, Jung faced some tough choices.

Unfortunately the choices she made led to her ouster and to the current dismal state of the company.

Money talks. It is looking more and more likely that there will be a cut, if not total elimination of its dividend.

Currently, Avon’s dividend is 92 cents a share on an annual basis. It has historically increased its dividend every year until this year when it announced that it was holding steady.

And what was the ‘Do Nothing’ Board thinking when it aggressively ignored Coty’s nearly $25 a share offer to buy the company? It may well have been Avon’s shareholders last chance to get out at a relatively decent price.

If Avon kills the dividend, it will further depress the stock, which was selling in June 2012 at around $16, to around $12 a share or lower.

With current Board guidance, or lack thereof, it could be a long climb back for Avon shareholders to see another dividend. A dramatically lower stock price combined with lower earnings and promises of more to come finally awakened the ‘Do Nothing’ Board.

What took them so long?

Former Chairman and CEO Jung harnessed her persona to Avon, and while building her own image as one of America’s most powerful women in business (elected to the General Electric and Apple boards), piloted Avon into what may well be a death spiral. The ‘Do Nothing’ Board sat back and watched, as Avon was caught in a time warp with a marketing star at the helm who knew how

On the global economic front, was the Board aware that geographic markets that have a built-up and sophisticated retail infrastructure, such as the United States and Western Europe, are taking market share from most direct sellers? The combination of Internet sales, drug chains, department stores, big box stores, and the television shopping networks, as well as the thousands of independent beauty discount stores, are putting the squeeze on direct seller Avon.

Avon’s North American group, (Mexico is listed under Latin America) has been dramatically trending downward resulting in a 2011 fourth quarter loss of $240 million. The same trend is appearing in Western Europe and parts of Asia.

Was the ‘Do Nothing’ Board aware that while Latin America, particularly Brazil and Mexico as well as Eastern Europe are still flourishing, they will eventually weaken as competitive retail www.TheRobinReport.com

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channels open up in their regions?

Was the Board aware that market forces that have propelled Avon toward embracing the multi-level marketing model should make a properly functioning board uneasy? It is doubtful that this revenue model can work on the huge international scale necessary for an Avon with some 6.4 million worldwide reps and a turnover approaching 30 percent a year.

This multi-level model is often called a “pyramid scheme” because reps earn commissions not only on the products brought by their own customers, but also on products bought by the reps they hired, as well as on products bought or sold by the reps those reps hired. There

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unsustainable level. Companies like Amway openly rely on this multilevel marketing strategy. And while Avon has certainly benefited from it in the past, they primarily relied on its direct sales to customers for growth. It leveraged its giant advertising budget to create demand and maintain brand image. In the last few years it changed direction and began aiming the bulk of its advertising to recruit new sales reps. It even went so far as to run a 2009 Super Bowl ad to attract new reps.

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at nearly a billion dollars. When main-line cosmetic companies get stuck with unsold merchandise they push it out the back door and sell it to discount retailers. This practice is called diversion and is widely used. Beauty industry sources say they never see Avon Products in what they call the “Grey Market.”

And the ‘Do Nothing’ Board certainly did not distinguish itself

In fact, in 2011 while I was CEO of a website called Fashionetc, and trying to sell advertising to Avon, I was told by a senior marketing executive that “virtually all of our

Unless Avon’s McCoy turns out to be Houdini, and can pull a rabbit out of a hat, it may well be too late to save the 125-year-old directselling beauty company. is great pressure to hire new reps, as they in and of themselves are a source of revenue. New reps in fact can become the most important source of income. A new Avon rep will buy a significant amount of product (at a 50 percent discount) when first starting out. This gives the company a bump in sales similar to the one a wholesaler gets when selling to new retail doors. This has always been a lure for Avon, but especially so in this difficult economy. On top of this, add the revenue from all the sample and promotional materials a new rep buys from the company to aid in her selling efforts. This potentially results in hundreds of dollars from each new hire. Multiply this by a couple of million new reps each year and pretty soon you are talking real money. While this has always been a factor at Avon, when the great recession hit, Jung took this scheme to a higher and arguably Issue Five 2012

advertising is aimed at recruiting sales reps.” The danger is the acquisition of new reps can become the primary business product, with sales of beauty products to customers secondary. As the economy improves and new reps become more difficult to recruit, the fragility of this model becomes all too obvious.

The ‘Do Nothing’ Board is acutely aware of the well-documented bribery scandal that has the Chinese and the SEC investigating whether Avon executives bribed Chinese officials to gain a foothold in the world’s largest marketplace.

Several executives have been fired and the company has spent hundreds of millions of dollars in legal fees. Avon is cooperating with these investigations.

If all this is not enough, industries sources say Avon is sitting on a huge inventory problem with some estimates placing the cost of goods

when it finally acted and hired a new CEO, but kept Andrea Jung as Executive Chairman. They even retained her as head the Board of Directors. Perception is everything, and Avon’s website Board listing leads with Jung, above McCoy. Whether Jung’s perfectly manicured culture presence will be anything more than a minor nuisance remains to be seen.

McCoy, to say the least, has a nearly, if not impossible job ahead of her.

If she turns this around she will become a business legend. If not Avon, thanks to its ‘Do Nothing’ Board and Chairman Andrea Jung may well become one of American business’s great disasters.

Michael Coady is a media and marketing industry consultant, and the former CEO of Fairchild Publications. He was Editor In Chief of Women’s Wear Daily, founding Editor of W Magazine, President and CEO of Los Angeles magazine, and President and CEO of online publication FashionEtc.com.

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Exploding the “Fit” in Corporate Culture Makes the Impossible, Possible!

An interview with Tanya Shaw, Founder and CEO, Unique Solutions and Judi Richardson, Executive Vice President of Corporate Culture, Professional Development and Quality Assurance

Robin Report: Tanya, you are in the midst of rapid growth as a company – increasing staff by 1000% in a year, and have moved from one location to 65 in nine months, to over 200 by the end of this year. What has your corporate culture strategy been through the past year?

Tanya Shaw: You hear stories of small companies growing too fast — I knew we needed the right people in place to lead key pieces of our tremendous growth. The foundation for that team’s success is to create the right corporate culture to reach short-term targets and longterm vision. And we feel we have a unique and transformative strategy.

Judi has been critical in helping to build our corporate culture.

Working together, we have developed our philosophy— not about seeing people as a fixed cost — but rather, harnessing and maximizing human creative potential to add value and create a meaningful new corporate culture model. True collaboration is about actively creating relationships; inviting people to move from a single vision to shared vision; and recognizing and encouraging each individual’s constructive contribution.

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RR: Judi, what is Tanya onto here?

Why is corporate culture so crucial to the success of Me-Ality’s rapid growth?

Judi Richardson: We read everywhere about the importance of culture; for Me-Ality, I see it as “leaderfull” mindset working together to create the environment for executing strategy with focus, agility and innovation. We work smart to increase the quality of awareness as well as conscious intention — and what I call transformative momentum — while always ensuring alignment with our corporate imperative.

We are also mindful that the root word of culture is “cult.” It is tempting and all too typical to recruit and hire “in our image.” So it is for that very reason we promote awareness of the importance of diverse ways of thinking, processing, and backgrounds that contribute to creativity and innovation. We invest in resisting our own biases and assumptions to be the only reality. What I’ve learned in my global experience is that we have access to something very valuable in our differences that we can never have in sameness.

Our diverse teams promote deeper dialogue and higher creativity.

RR: Me-Ality is known for being experts in “fit” as it relates to fashion. We hear the term all the time, people who “fit” in organizations. How does Me-Ality work with that kind of fit?

TS: Fit comes into play in our recruiting, hiring, and measurements. And as in our size matching service, we are breaking the rules.

Although there are areas in which specific targets can be traditionally measured in our organization, there are other areas in which we are breaking new ground by developing the mindset and metrics to measure the skillset of moving quickly and developing agility.

JR: This is why we “explode” the idea of “fitting” into a corporate culture. At Me-Ality, we have the non-negotiable foundation of our corporate culture, and each and every person contributes to the expansion of that culture as they join our corporate community.

At most workplaces, including ours, we often spend more time with each other than we do with our families. So we work to create the kind of corporate culture in which we all want to work and play in on a day-to-day basis.

Our culture is always evolving, and when it is ultimately built,

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it will create a sustainable culture in which we will always want to work for a company that instills pride.

When we recruit, we instantly recognize people with vision because they aren’t afraid to share their hopes, their dreams, and their aspirations. They truly inspire us -– they know the best way to predict the future is to create it together.

RR: Can you share some of the specific techniques used in a dayin-the-life in the world of Me-Ality?

JR: In two words: Peak Performance.

We go above and “Meyond!!”

We bring into play the Peak Performance methodology to positively, productively and strategically influence the conversations, quality of leadership, quality of lives and our Me-Ality workplaces.

We work across the organization — from senior executives to support staff — in our “Size Matching Stations.” We use “Velocity Coaching” to create an environment of achievement and fulfilling work as we all recognize, train and teach the model behind “catching people

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doing things right.” We encourage everyone to be fully expressive and to embrace how his or her role in our organization goes beyond the traditional role of “what is mine to do.” We expand and break those rules! This unleashes the brilliance of our team making the perceived impossible, possible. For instance, we created a technology (the only one in the world to scan fully clothed) that was cost prohibitive to scale up. We used the same strategy for success, to make the impossible, possible, with both executives and the development team, and we were able to bring the technology to a sustainable price point.

We promote a creative community.

We know that creative people enjoy what they are doing and tend to describe themselves as passionate.

As a result they are apt to behave more positively towards their colleagues, customers, and people they come into contact with as we sustain a creative environment.

In our experience, staff turnover decreases and consistency and sustainability — both requirements for success — increase.

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RR: And are you having fun?

JR: Not only are we are having fun, we are seeing ROI from this growth!

We have one “uber passion” over all others — the power of leading a transformational movement that results in transformative growth.

It is a distinct way of thinking; a special perspective on the world allowing us to see unique patterns.

When we are mindful of these patterns and bring them to light, we can then play out alternative scenarios, strategically moving our vision forward even in the face of apparent obstacles.

TS: It is powerful to see the transformations we are impacting in both our people, company as a whole and the industry.

Judi Richardson, Executive Vice President, Corporate Culture, Professional Development and Quality Assurance

Tanya Shaw Founder and CEO, Unique Solutions

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Flash Dance sale. Zac Posen apparel was the first to go up on the Gilt site and eight hours later, it was all gone -- and Gilt was on its way.

A funny thing happened to all the flash sales web sites: they became retailers.

Perhaps no emerging retail format since the glory days of the original big boxers has arrived with more hype, more press and more uncontrolled exuberance than flash sale sites. Originally called pop-up sales, these sites bounced around under several generic labels until they gradually settled down under the flash site name.

So, today general merchandise websites like Gilt, Rue La La, Ideeli and HauteLook, as well as home-specific sites like One Kings Lane and The Foundary have become well established members of the community of businesses that sell stuff to people.

But any resemblance between flash sites and regular retailers is no longer coincidental: Whether they will admit it or not, these web sites have become every bit as entrenched in the world of retailing as any other store in the country.

That’s not the way it all started. While some people may claim otherwise, Gilt was really the first flash site to go live when founders Alexis Maybank and Alexandra Wilkis flicked on the switch in November of 2007.

The idea was to combine the power of online e-tailng with the insider appeal of a Seventh Avenue sample sale, throw in a dash of Loehmann’s treasure hunt with a touch of Costco membership. and come up with a brand place to shop.

As the brick and mortar pop-up store was just coming into its own, Gilt was originally called a pop-up online

These timed sales – 36 hours then, closer to two or three days later – could only be shopped if you were a Gilt member. Like the original warehouse membership clubs, there were some criteria, but frankly, the chief one seemed to be the ability to fill out a short online form and be able to find the “send” button.

Gilt was soon joined by all manner of similar operations and within two years, the channel was pretty well established. In 2009 One Kings Lane – the address is to real estate as Betty Crocker is to the census bureau – was born as the first home-only flash site.

Give or take a few sales, Gilt, Rue and some of the others moved into home as well and while hard numbers are hard to come by, home is anywhere from 10 to 20 percent of these general sites’ sales. Click forward to today and a couple of fascinating things have happened…and one even-more fascinating thing has not happened. What has happened is that many of these sites have moved off their original timed, very-limited-inventory models to offer longer-run sales with a seemingly open-ended amount of goods in the warehouse. Gilt and One Kings Lane particularly, while still adhering to the flash model as their core business, has each adapted ongoing sales as part of their offerings. If these aren’t quite in-line, re-orderable programs they are the next best thing.

Sounds like a regular retailer to me and don’t be surprised if there will be a lot more of this to come.

What has also happened is that the merchandise offerings are no longer overstocks, closeouts and other assorted discarded orphans. Many vendors are on regular rotations with these sites, putting sales up every six to 18 weeks depending on the product. And very often the prices on these products are no better – no worse either it should be noted – than what you’ll find at other retailers, both in-store and online, on most given days. If both of these characteristics remind you of the off-price channel

Sooner or later the flash world will start to consolidate just as every other business segment has and what’s left will take its rightful place in the retail food chain.

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By Warren Shoulberg

of distribution it’s because they are pretty much the same model.

What’s happening too is that some of the sites have moved onto themed sales rather than sales keyed around specific brands or suppliers. Right now there are plenty of summer beach and vacation sales going on at many of the sites and the brand names – once the raison d’être of most flash sites – are subordinated to the general theme. Gee, I think I might have seen one or two traditional retailers do something like that.

One more thing that’s happening is an increased use of one-of-a-kind and vintage merchandise, particularly from One Kings Lane. Just as retailers such as Anthropologie, Ralph Lauren and even West Elm have had success mixing in one-ofa-kinds with regular goods, the flash sites have discovered the same formula. Put all those things together and it sure sounds a whole lot like conventional retailing, don’t you think.

But the one thing that hasn’t happened is what sets flash sale sites apart from general retailing right now. And that’s that all of those flash sites are alive and well and, so far, not going away.

For a classification that has now been around for more than four years we have yet to see any shakeout of any consequence. In fact, we’re seeing more players come into the space, like The Foundary and Fab. Contrast that with virtually any other channel where the number of important players has been reduced to two or three at most.

That will not last indefinitely. Gilt is almost universally believed to be getting itself ready to go public. One Kings Lane has just gotten some new private equity financing. HauteLook was bought by Nordstom last year and who knows who else is out shopping…or being shopped. Sooner or later the flash world will start to consolidate just as every other business segment has and what’s left will take its rightful place in the retail food chain.

And this flash dance will be over.

Warren Shoulberg is editorial director of several Sandow Media home furnishings business publications and is a charter member of way-too-many of the flash sites.

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Reader Feedback My round-up of industry leaders weigh-in on the abrupt departure of Michael Francis from JC Penney drew many comments from our readers. For the original post, go to

www.therobinreport.com/a-jc-penney-hayday-for-the-bears.

Here’s a comment from a leading home retailer, and my responsE:

Dear Robin, Like you I am still a believer in the grand plan. Primarily because I want to see retail as we know it get out of this ridiculous cycle of sale, sale, sale + another 15% off sale on today's only sale. With the retail landscape changing so fast, I do not see how this current model (at the dept store and specialty level) can stay as-is for the long haul. I like the approach of "good value at a good price" with a little teaser incentive to buy at a certain time. But then again, I am a guy. Unfortunately Johnson is trying to disrupt an industry via a traditional retailer - one of their own going rogue. All that baggage cannot just be tossed out overnight.

Plus the shop-in-shop or town hall strategy is not even up and running yet - so lets see how it goes. Finally, I agree that Francis just over focused on the new branding (which turned out very nice) but dropped the ball on the message. Maybe this is a case of trying to accomplish too much to fast but let's face it - Francis and Johnson seemed to have forgotten that there are a lot of zombies walking around the mall...

Thanks for your note and it’s good to know I’m not the “Lone Ranger” in my belief in Johnson’s long-term strategy. It gets lonelier and lonelier each day as the JCP transformation evolves. As I’ve said before, vision and long-term strategy is one thing, implementation another. And, because Johnson’s re-visioning of JCP, indeed of all department store models, is so fundamentally disruptive and gamechanging (to say nothing of its grand, high volume presentation to the entire world), its implementation is not only bound to be full of unexpected trip wires, but each one of them will be minutely and painfully scrutinized by the press, the financial world, and competitors.

So, as each misstep in implementation occurs, along with the expected short term drop in traffic and sales, the key question at the end of the day is: how many trip wires, and how much time, and how much revenue loss will the Board and shareholders allow before they push back against Johnson and his visionary objective?

He’s betting consumers are ready for his revolutionary concept and will buy into all of it -- once they see it and understand it. The naysayers are betting the consumer likes and expects the department store model just the way it is, thank you, including the tsunami of coupons, discounts, deals, and on and on. And, they point to the precipitous decline in business at JCP to support their claim.

And, yes, there are a lot of zombies walking the halls of the malls.

But, just remember, when heroin addicts can no longer get a rush from another injection – when they become inured to the drug -it’s the beginning of the inevitable “crash” followed by recovery and a new life without drugs.

Are the consumer addicts ready? We will see.

Want to weigh in with your opinion? Email us at Robin@TheRobinReport.com.

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THE Back Page

Quotes to Remember

THIS IS WHAT COMES OUT OF THE “MOUTHS OF BABIES” – SPARE ME AND GOD SAVE OUR ECONOMY

J ust before ringing the bell in celebration of Facebook’s IPO, founder Mark Zuckerberg had this to say:

" Right now, this all seems like a big deal. Going public is an important milestone in our history. But here's the thing.

Our mission isn't to be a public company. Our mission is to make the world more open and connected."

Mark, listen up! Your #1 priority in running a public company (valued on the idiocy of mass hysteria), is what? Growing the business and making money!

HOW MANY PEOPLE LIKE THIS DO YOU KNOW

“ Faced with the choice between changing one's mind and proving that there is no need to do so, almost everyone gets busy on the proof." - John Kenneth Galbraith, Canadian-American Economist LET’S NOT GO THERE……OOOPS! COULD NOT RESIST

• I changed my iPod's name to Titanic. It's syncing now.

• When chemists die, they barium.

• When you get a bladder infection urine trouble.

• Jokes about German sausage are the wurst.

AND THIS IS ANOTHER GREAT DEFINER OF OUR TIMES – CERTAINLY OUR GOVERNMENT

“ Perfections of means and confusion of goals seem, in my opinion, to characterize our age.” - Albert Einstein

Contributing Columnists Michael Coady David Merrefield Judith Russell Russ Schaehrer Warren Shoulberg Jane Singer Paco Underhill

CEO, Editorial Director Robin Lewis COO, Editor Deborah Patton Art Directors Jodi Kostelnik Steffi Sauer IllustratoRS Jodi Kostelnik, Joey Parlett and Steffi Sauer

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Copyright © 2012 Robin Lewis, Inc. All rights reserved.

Copying or reproducing, by any means whatsoever, of The Robin Report, or any distribution hereof, in whole or in part, without the express written consent of Robin Lewis, Inc. is strictly prohibited. The Robin Report is published monthly for senior executives in the retail, fashion, beauty, consumer products and related industries. The mission of The Robin Report is to provide new strategic insight into major industry and business events. It is intended to be concise for quick reading, provocative to stimulate thought, and humorous for fun and enjoyment. The opinions expressed herein are not, and should not be construed as investment or other advice.

All expressions of opinion are subject to change without notice. To order a print or electronic subscription to The Robin Report, please visit our website at www.TheRobinReport.com.