The Robin Report - Issue 8 - September 2011 by The Robin Report

Issue Eight 2011

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THE NEW AMERICAN DREAM Where Have All The Hippies Gone? By Robin Lewis

The American Dream that many so-called “hippies” of the 1960s counterculture movement embraced, chanting their mantra of “Peace and Love,” became something very different once the 1970s, which Tom Wolfe named “the Me decade,” came along. Somewhere along their free-loving, pot smoking, corporation bashing, military and government hating, revolutionary “road,” the hippies (or a majority of them) took the wrong fork and created a very different dream.

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Dear Reader As I write this, the “Dog Days” of summer are indeed upon us. Originally coined by the early Romans, the term refers to the period from early July to mid-August when the constellation Canis Major, or big dog, is bright and visible in the night sky. “Dog Days” were popularly believed to be an evil time “when the seas boiled, wine turned sour, Quinto raged in anger, dogs grew mad, and all creatures became languid, causing to man burning fevers, hysterics, and phrensies” (Clavis Calendarium).

When you ponder the world economic situation, including right here in the good old US of A, does this definition work for you?

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From Me to We, From More to Less: Five Value Shifts That are Changing our World

By Robin Lewis

with Ken Hicks CEO of Foot Locker, Inc.

If you were to ask Ken Hicks what he does for a living, he’d tell you “I sell sneakers.” We got the opportunity to sit down with this down-to-earth, Harvard Business School-educated, part-Native American straight-talker from Texas, who shared with us his views on the athletic footwear business, the economy, global opportunities, and what it takes to be a power retailer in today’s competitive environment.

Q. Ken, you’ve been at the helm of Foot Locker for almost 2 years now, during which sales rebounded to $4.8 billion and then $5 billion, after having declined for the prior four years, and net income more than doubled. How did you achieve this turnaround, and what challenges and opportunities do you see for the year or two ahead?

Consumers have been transformed, but not by the recession. The metamorphosis, which started long before the economic downturn, will prevail regardless of what Congress, The Fed, or Europe does. Here’s what everyone from Proctor & Gamble to Neiman-Marcus needs to know about the most dramatic and important shifts in American values since the mid-century flight to suburbia.

A. M att [former CEO Matt Serra] had done a very good job positioning the company to be safe and secure with a sound financial base. The problem was, merchandise-wise, we had allowed ourselves to get too finite. We’d moved into too much basketball. Our customer profile had gotten more and more narrow - minority male between the ages of 15-25, so we had a much smaller customer base and when the downturn came, that customer base got hit the hardest by unemployment, so we were in a challenging time.

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I N S I D E t hi s i s s u e • Dear Reader ...........................1

• Q&A with Ken Hicks…...........1

• THE NEW AMERICAN DREAM ...1 Robin Lewis

• F rom Me to We, From More to Less................1 Robin Lewis

• T ech Tools that bring the consumer into focus ........6 Kurt Salmon

• F un Facts about Furniture ......................….....8 Warren Shoulberg

• You Talked Back! ................13

•H old the (Window) Dressing...............................18 Paco Underhill

•W hose fragrance am I wearing? Why, my own, of course! .….……………….20 Dana Wood

• Borders Today, Barnes & Noble Tomorrow .......... 22 Robin Lewis

•R ETAILERS AND STORES SELLING STUFF ………..….....…22 Robin Lewis

• quotes to remember……...24

Dear ReadeR > Continued from page 1 Operative words like evil time, anger, and hysterics could pretty well be attached to the human condition around the global economic mess. Certainly, as you watch on TV the blathering, posturing and largely impotent politicians around the world, any or all of those words would apply, and come up with more if you’d like to. And these economic “Dog Days” are likely to carry into the fall, and potentially right through the holiday season. My blog on www.TheRobinReport.com, “Batten Down The Hatches,” pretty well sums up my assessment of our economic condition due to political sclerosis and the inability to address a “double-dip” that may very well be bearing down on us (also see last issue’s article: “From Inflation To Stagflation To Deflation.”) But, enough of this. Our Report cannot solve these problems. All we can do is attempt to provide insights on how you can successfully and profitably work through them and beyond. Accordingly, since the consumer is Job #1 for you, read “The New American Dream: Where Have all The Hippies Gone?” which defines how today’s consumers are transforming our culture and lifestyles and, specifically, how they are totally reassessing value as well as their own values in life. For further emphasis, clarity and tactical application: “From Me to We, From More to Less: Five Value Shifts That are Changing our World,” describes this metamorphosis, which started long before the economic downturn, and will prevail regardless of what Congress, The Fed, or Europe, does. Both articles define how you must change to satisfy these new demands, and are therefore a must read for everyone from Proctor & Gamble to NeimanMarcus to Walmart. Take notes. “Borders Today, Barnes & Noble Tomorrow,” discusses the issue that even though the “Pac-Man”- like Internet has disrupted distribution models in every industry, it is totally destroying music, movies, and now, books. And, if you’re in the brick and mortar “store” business, selling “stuff,” you will be next on Pac-Man’s list. Unless you can create an overwhelmingly compelling reason for a consumer to salivate just thinking about coming into your space, you are a dead retailer walking. Because you are not in the retail business, you are in the consumer satisfaction business. Apple created an overwhelmingly fun, compelling and satisfying education experience, and by the way, all of those devices being taught about happened to be for sale. The rest is history.

All of the articles in this issue, from Warren Shoulberg’s “Furniture Fun Facts,” to Dana Wood’s piece on the customized beauty sector, to Kurt Salmon’s “Tech Tools to Reshape the Customer Experience” either directly or indirectly correlate with the consumer shifts taking place, and provide nuggets of knowledge to help you navigate those shifts. And lastly, Paco Underhill’s insightful observation on the “haves” and the “have-nots” addresses the bifurcation and widening income gap, and how the world of retailing is responding. In closing, keep a stiff upper lip, as they say across the pond. We will get through this economic nightmare even though there will likely be more monsters lurking around the bend. However, I am certain that if you evolve and transform your businesses on a path similar to that of the “millenials,” we can all wake up on a new “yellow brick road” to live that new dream. Go forth and have a great read!

Robin Lewis has over forty years of strategic operating and consulting experience in the retail and related consumer products industries. He has held executive positions at DuPont, VF Corporation, Women’s Wear Daily WWD), and Goldman Sachs,among others, and has consulted for Kohl’s Department Stores, and dozens of others. In addition to his role as Publisher and CEO of The Robin Report, he is a professor at the Graduate School of Professional Studies at The Fashion Institute of Technology.

Robin Lewis and Michael Dart, in their seminal study of modern US retailing, examine why and how the industry is quickly evolving — and what it will take to be successful in this new world. Critics and industry leaders agree: The New Rules of Retail is a must-read for anyone interested in the industry. Available at Amazon.com in hard cover or Kindle form, and at a bookstore near you, or on our website at www.TheRobinReport.com.

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with Ken Hicks, CEO of Foot Locker, Inc.

Sales dropped by about a billion dollars, we had to close stores, and then the team sat down and we came up with a strategic plan that would allow us to grow. We set a vision to be the leading global retailer of athletically-inspired shoes and apparel. We needed to go back to being the

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running shorts, so you had to go to a competitor, then why not just go to the competitor and buy the shoes and the shorts in the same place? So, it helps us sell more shoes. As you walk by the store, the thing that defines the banner that you can see easily is the apparel. I walk by a Foot Locker, I see more performance apparel. I walk by a Champs, I see the NBA stuff in the store. I walk by the FootAction store, I see “Jordan” or some “Levi’s Jeans,” I see something up there that changes more frequently than the shoes and is more visible than shoes. I can only put so many shoes into the store, and it would look kind of strange because with the shoes on the wall, I wouldn’t have anything in the middle of the store, so it helps me utilize the real estate that I have. It allows me to accommodate the customers and give them service. And, finally, it should be a higher margin than branded shoes – it wasn’t, which was one of the challenges we had. The apparel margin was less than the shoe margin. We weren’t turning apparel; and the apparel we had was very inexpensive stuff. We’ve upped the quality, and are selling it for higher prices. We’re turning it faster, and doing a better job replenishing it.

“ We had shoe people trying to do apparel. The expression I use is ‘we always wanted to do apparel in the worst way, and we did.’ We had to figure out how to do it right.” place to go for sneakers. So the vision was important… global was important, and we decided we’re going to be athletically inspired, we’re going to be shoes and apparel, and we’re going to be a retailer. Q. How did you go about achieving that? A. We developed six strategies. First one was to be a power merchandiser, to be very good at what we do. There were some things we were doing a little bit here and a little bit there, but now we were going to be really powerful, we were going to be focused. Also we’re going to develop a distinct positioning for each of our brand banners. We had several banners but they had all moved to the same place, so we needed to differentiate. We had three stores all competing in the same mall. One of the reasons we’re having this success in the US is that we’ve differentiated our banners and appealed to a broader customer base than we had. The third strategy was to develop a more compelling apparel assortment. While apparel is a minority of our business, it was about half the drop that we had. We were selling $5 polos, which we shouldn’t have been doing. Walmart doesn’t sell five-dollar polos. Q. Why in the world did you want to go deeper into apparel? A. For several reasons. One, sales growth; it’s an opportunity. And, people buy apparel more frequently than shoes, so it attracts people to the stores more often. Two, it’s a natural add-on to the business, so as I sell a pair of shoes, here’s a hat that goes with it, here’s a shirt that goes with it. Third, it helped us a lot with running shoes. Running was one of the businesses that we wanted to step up, so to speak. If you bought a pair of running shoes from us, but we didn’t have

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Q. Did your apparel experience and background with JC Penney help? A. I t definitely helped. The problem was we didn’t have any apparel merchants, so we went out and hired people who knew apparel. We had shoe people trying to do apparel. The expression I use is “we always wanted to do apparel in the worst way, and we did.” We had to figure out how to do it right. Last quarter apparel sales grew by over 20%. The fourth strategy is to make our stores and Internet sites exciting and engaging places to shop, to improve the customer experience. Q. As you know, I am very big on the customer experience. Explain that a little. A. Well, for instance, in House of Hoops, it’s very inviting We have a basketball floor, great product, using great ideas; we’re putting more mannequins to show how things go together and make it more exciting. At this Foot Locker in Toronto, we’ve got our visible wall, which has all the shoes to show that we’ve got a lot of shoes. At Lady and Champs,

Q&A with Ken Hicks,

CEO of Foot Locker, Inc.

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“ You go into stores now, they don’t have people. We are one of the few stores in the mall that has people. We had to take advantage of having people there to sell, to make it an interesting, exciting place to shop.” we’re showing a lot more apparel and how things go

together. But I think the most important thing is to have great product, so we work with our vendors to have new exciting products, exclusive products, and to have great service through the associates. Q. Do you have formalized training programs for the associates? A. Y es, we work with the vendors to develop them, we use videos primarily, things like snaptags where you take your phone, take a picture of a barcode and it pulls up a message, talks about the shoe. We just introduced two new websites, one of them is Sneakerpedia, a blogger site for sneaker enthusiasts, and the other is Striperpedia, an information site, that answers questions like “OK, if I pronate, what would be a good shoe for me?” We also have ratings for shoes. We are one of the few stores in the mall that has people. We had to take advantage of having people there to sell, to make it an interesting, exciting place to shop. The fifth strategy involved growth opportunities. We’ve got a 3,400-store base, and if we grow each a little bit, even 3-4%, that’s a big number. We’ve got international as a growth opportunity, which was up 20%. Internet is a big opportunity. Our goal is to get each of the websites (footlocker.com, Champs.com) to be 10% of each of the banner’s business. We’ve got new ideas. House of Hoops – we plan to have over 40 by the end of this year. We’ve got a prototype of a Run store - we have a freestanding one in Union Station, a store within a store across from the Empi re State Building, and a mall store at Menlo Park. That business is a reasonably small business, whose purpose is really to learn a lot about running, to benefit the 3,400 Foot Locker stores.

Q. Do you see the Foot Locker brand out of the whole enterprise as being the growth engine? A. I see Foot Locker providing significant growth. We also have a Lady Foot Locker and a Kids Foot Locker in the US; we also have Foot Locker in Europe, Canada, and Asia Pacific, and we’ve got a couple franchises in the Middle East and Korea. We do 20% of our business overseas. People look at Foot Locker and think it’s this big behemoth, but we look at them as different divisions and franchises, each positioned differently. Take Foot Locker Europe. We have over 500 stores, we think we can go up by 50% in the next four or five years. We have opportunity globally because we’re not limited, we can tailor the offering to the market. In Italy, it’s all about fashion, in France it’s more basketball, in Germany, much more performance. Q. Do you think the price increases everybody’s talking about are going to stick? How hard do you think the inflation is going to hit Foot Locker? A. It’s going to have an impact. For us, though, the question will be “Will the higher prices offset the lower units?” We haven’t seen all the price increases for next year yet. But what we’ve learned from the vendors is that they’ll be thoughtfully implemented, rather than just “OK, we’re going to raise all prices x%.” Remember, most of the people have never seen the product before; it’s not like gas, a commodity, where people say, I bought gas last week, I know when the price went up. And gas is gas. But new exciting productthat’s the other thing, it’s something new and different. Many of our customers are minority and moderate-

nd the last strategy is continuing to build on the strong A team that we have. I think we’ve made progress there, but like anything else, that’s never done.

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income customers, where we’re their special thing; we’re their luxury. Maybe they’ll forego a movie or going out to eat to buy the sneaker. It’s about newness and excitement. Whether they pay $140 or $150 for a pair of (Nike) foamposites isn’t a function of the price of the shoe. It’s a function of do I have about $150? I’m not as concerned about cost increases as I would be if I were still at Penney’s. We work with our vendors on exclusive styles and colors. We have athletes like Kobe Bryant come for events for Footlocker and House of Hoops. We did a shoe with Taboo of the Black-Eyed Peas for Footaction, which has a more street customer. We had a launch last week, and there was a line outside the store. The newness coupled with a tie to sports is a real draw to our customer. We are the Louis Vuitton or Tiffany’s of Middle America. They say “I want something special. I’m going to buy a pair of Adidas.” Q. Well the fad items, like toning shoes, and Crocs; is there anything out there that you think will impact the industry? A. The big thing now is lightweight running. The shoes I’m wearing and the Lunars or the Frees from Nike, the Flex from Reebok – everyone’s got lightweight running. When I talked to one of the experts from the industry he said “64% of the running shoes are bought with the express intent to not be run in.” I think light running has huge potential because first of all, it’s much more practical; second, it serves a purpose, and not just running. It’s portable, functional, comfortable and cost-effective. You can roll them up and pack them more easily, which makes them very appealing to women. Toning got a little outsized – it will be 8 or 9% of the business, not 20%, like some people thought. Q. What are the top-selling footwear brands that you have? A. Nike, Adidas, Reebok, and Asics. Since basketball was so big, we were underpenetrated in the technical running. But now we have the Mizuno, Asics and Brooks that we should.

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Q. How does the health of the different professional sports league affect it? A. Now that the NFL problem is solved, I’m concerned with the NBA. First of all, we sell more basketball shoes; second, it’s much more personality-driven than football. There are a lot of people in football, but you don’t have a Lebron, or Dwayne, Walls, or Michael Jordan. So, we’re working with the vendors, developing contingency plans to try and work with it; it’d be naïve to say there’s no impact, but I think we’re working to try and manage around it if there is a strike. Q. So the whole enterprise is about 3,400 stores, and the largest close-in-kind competitor Finish Line, but you also compete with big box and Zappos? A. Finish Line is a good competitor. We also compete with Dick’s Sporting Goods. Zappos sells sneakers, but it’s not a sports company, it’s much more female than male, and we’re much more male-oriented with the exception of Lady, and sneakers are a side business for Zappos. They sell shoes, some of which happen to be athletic. People who look to buy athletic shoes other than just for pure foot covering, saying “I want to know something about the people I’m buying them from, I want to know that they’re good shoes.” They know we stand by them. Q. What are the biggest competitive challenges for you over the next few years? A. Well, the biggest challenge of course is the economy. I don’t think the recession’s over, but I do think we’ve learned to live at the bottom. Hopefully, we will come out of it at some point. One thing that’s helped so far is the FICA tax reductions. Every person got an extra 2%. So if you’re making $60,000 a year, $5,000 a month, you’ve got an extra $100. The problem is that goes off at the end of this year. So then it will look like you’re making $100 less a month. I’m definitely concerned about the economy. But I’ll buckle my chinstrap and go up against anybody and compete, and compete well. Like the old joke about the two guys in the woods, and they see the bear, and the one guy starts tying his shoelace. We’ll outrun the other guy.

Tech Tools that Bring the consumer Into Focus Q&A with Andrew Zgutowicz

Best Practices from Kurt Salmon

It’s no secret that new technologies are reshaping some of the retail industry’s most fundamental rules for success. Some of the biggest impacts will likely be felt in a retailer’s customer experience strategy as it adapts to emerging technologies, new channels and changing consumer preferences. Below, Kurt Salmon retail strategist Andrew Zgutowicz answers some of our questions about the potential changes.

Q: Broadly, how should retailers be thinking about technology today? A: The point is not technology for the

sake of technology. Instead, retailers need to focus on how they can use technology to provide a unique and compelling customer experience—consistent with their brand— across multiple channels. Today’s customer is very tech savvy, and she’s using not just one, but multiple technologies, throughout the entire decision cycle. For example, in one of our most recent surveys, we found that 27% of consumers visit their favorite retailer’s website once a week or more, while 50% visit it monthly. That’s a staggering number when you think about it. And we all recognize the power of social media, which consumers see as a separate space for interaction with a retailer. Today, 22% have visited their favorite retailer’s Facebook page. We expect that number to keep growing in lockstep with the popularity of the medium itself.

Q: So let’s take the Internet as an example. How might a retailer create an online experience consistent with an in-store shopping experience? A:

People increasingly shop online for products—from shoes to eyeglasses—that conventional wisdom told us required a lot of trying on in-store. The key in an online environment is to replicate a high-touch, try-on environment online through the use of interactive tools. For example, several online eyeglass retailers let users upload a photo of themselves and test hundreds of frames against it. These online retailers are already extremely competitive on price, so offering the customer a simple, easy and potentially fun experience helps give them an edge with some consumers.

Q: Social media is another big component of the online customer experience. How is the way consumers use social media sites going to change, and how can retailers take advantage of that change?

A: Sites like Facebook and Twitter are increasingly becoming a type of “news aggregator” for more than your personal life. These sites are less about conversations with your friends and are instead becoming a go-to source for everything important to you. This is a great opportunity for retailers, since we know that advocacy and word of mouth can be such powerful tools. It’s not about using social media as a way to drive people to another site or to take another action; it’s about creating a space for discussion. Q: And how is the in-store customer experience evolving? A: I would say it’s changing to provide greater convenience and customization. Convenience from an operational standpoint in that new technologies enable faster checkouts and less-stressful shopping experiences. Information is also much more easily accessible, from kiosks and tablet-wielding sales associates who www.TheRobinReport.com

provide both product details and availability of different sizes and colors in other stores and online. But some of the best practices in customer experience allow this new information to be customized to each individual consumer. From virtual dressing rooms that allow consumers to try on dozens of outfits with a flick of the wrist, to sensors that pick the best shoe for a runner’s gait, the ability to take information and use it to help customers make better product choices in a convenient setting is a primary goal of customer experience, no matter the channel.

Q: How big a game changer are smartphones? A: They have the ability to shift a retailer’s competitive edge. For years, it had been getting harder and harder for some retailers to compete on price alone, and smartphones really helped drive that message home. A consumer can now instantly compare prices between your in-store offerings and other retailers’ bricks-and-mortar and online offerings, and the comparison might not always

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“retailers need to focus on how they can use technology to provide a unique and compelling customer experience — consistent with their brand — across all channels.” be to your advantage. Instead, retailers who can’t compete on price alone now have a heightened imperative to compete on customer experience and product offering. Here, smartphones can provide an opportunity to display additional information by scanning a QR code, and this information can speak to the unique features and high quality of your product instead of focusing on price. In the past, retailers would often have to provide the equipment needed to access this type of

information, but now, customers can access this information on their own devices at considerably lower cost to the retailer. Andrew Zgutowicz is an expert in customer-facing technology and has over 15 years of experience advising industry leaders.

Fun Facts about Furniture By Warren Shoulberg

Imagine if you crossed a car dealership with a funeral parlor. What you’d have would be a furniture store. The retailing of furniture may not be the most archaic, antiquated and illogical form of merchandising in American business today…but it’s pretty damn close. Anytime anyone talks about the best retailers in America, that conversation hardly ever includes a furniture retailer.

It has more than 300 stores, some franchised, some company owned. It is about to undertake an aggressive expansion move into China. And you never heard of it. 2. Who’s the best? The preeminent furniture store in America is Robb & Stucky. Actually, it was Robb & Stucky. They just went out of business. The brilliant high-end chain of 30 stores rode the housing boom in Florida, Nevada and

Imagine if you crossed a car dealership with a funeral parlor. What you’d have would be a furniture store. Virtually every consumer products category in America has a world-class, national retailer that dominates the category. Not furniture. Virtually every consumer products category in America has a world-class, national brand that is instantly recognizable. Not furniture. Think about it. Furniture is usually the third most expensive thing a person will ever buy, after a house and a car. Yet most people visit a furniture store about as often as they stop by a mortuary. With an often similar shopping experience, too. So, what you don’t know about furniture retailing could fill…well, could fill this column. 1. Who’s the biggest? As a reasonably intelligent businessperson who has a keen interest in American retailing, you would think you would know who the biggest furniture retailer in the country is? I bet you don’t. It’s Ashley Home Stores. Ashley, a privately owned company based in Arcadia, Wisconsin, is also the largest manufacturer of furniture in the country. It does over $3 billion a year in sales.

elsewhere in the Sun Belt…and then crashed and burned when the housing markets in those states collapsed. Robb & Stucky stores were elegant, strongly merchandised showrooms with well integrated assortments of accessories and coordinated home products like textiles, china and glass, and even flowers. Most furniture stores are tombs of brown boxes, but these stores were actually places you wanted to go to, not had to go to when your couch collapsed. It was a terrific store. You would have liked it. 3. What would Warren do? Warren (Buffet, that is) does like furniture retailing. So much, in fact, that he owns four of the larger, better regional chains in the country. He started with a local Omaha operation called Nebraska Furniture Mart and then bought up others in New England, Texas and the West. They are good retailers and he’s resisted the temptation to buy up any of their lesser brethren. Buffett knows the dangers of the home furnishings market. He likes to say that Berkshire Hathaway started out as a textile company and then he decided he wanted to make money. Buffett got out of textiles immediately.

4. Ethan Allen could be one of the great retailers in America. If only it didn’t have to sell furniture to get there. It performed one of the greatest transformations in business ever – on the scale of IBM or Cadillac – going from a staid, colonial kitsch store to one with smart merchandising, sophisticated marketing and nicely styled product, under the direction of one of the brightest CEOs in corporate America. The trouble is that, like any store that sells furniture, it is disproportionately dependent on the sale of housing to succeed. Some furniture industry insiders estimate that as much as 20 percent of the sales in the category are directly linked to a housing related activity, like a purchase, a move or a major remodeling. With the housing market in a slump that makes the Mets look good, Ethan Allen is a victim of its circumstances. Even the Green Mountain Boys never had to suffer so much. 5. Rooms To Go wants to be the McDonalds Happy Meal of the furniture business. But it ain’t gonna happen. R2G—yup, that’s what the trade calls it – took the concept of the packaged deal and put it on furniture steroids. Buy the sofa, tables, lamps, rugs, pictures and even the candy dishes all for one matchy-matchy package and presto! Instant living room. The aesthetics may not be quite up to everyone’s standards and the quality… well, you get what you pay for when you pay $899 for a room full of stuff. Rooms was started by the family that used to own the old Seaman’s Furniture chain in the Northeast. They sold that to private equity, moved to Florida and started R2G. But like most furniture retailers, it doesn’t have the marketing budget or strong enough branding message to get to the next level. It has painted itself into a corner… so to speak. www.TheRobinReport.com

6. Lifestyle furniture stores get a lot of headlines but don’t sell a lot of furniture. Stores like Pottery Barn, Crate & Barrel and Restoration Hardware -- the trade calls them “lifestyle stores” -- whatever that means -- are looked at as style leaders and trend setters, but the amount of furniture they sell compared to Rooms To Go and Ikea is relatively small. Pottery Barn was for years the poster child of furniture trends and everybody and his Chinese brother-in-law knocked off their dark wood/brushed metal hardware look to the point where it’s become the khaki pants of the furniture business. Now, it’s Restoration Hardware’s turn. Its Metro Retro Repro look -- try saying that fast a few times -- combining vintage, French-inspired designs interpreted in repurposed and reclaimed wood is fast becoming as ubiquitous as Diet Pepsi. And as guilt-free too. Like Pottery Barn, it will be interesting to see what Resto’s act two will be like. (Curiously enough, the same executive, Gary Friedman, is responsible for both landmark looks, first at PB and now at RH.)

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Pottery Barn’s parent, Williams Sonoma, is still licking its furniture wounds over the meltdown that was Williams Sonoma Home. The business lives on online, but is gone from brick and mortars, another victim of the housing slump that took no prisoners. The better furniture business remains one of the decidedly unbetter businesses out there. 7. IKEA will eventually destroy the entire American furniture store. And I mean that in a good way. The American consumer can get a custombuilt computer, usually from China, in 48 hours. She can pull into a Mercedes dealer and two hours later drive out in a $125,000 luxury automobile. Amazon will deliver some products to her the same day she clicks. But she often has to wait 16 weeks for a bedroom set. IKEA wants no part of that. Come into the store, walk around the maze like a trained hamster and cart your living room out to your car. It looks pretty good too, although you usually have to put

it together yourself and it probably won’t last forever…or even close to forever. But that doesn’t matter. The customer buying IKEA products just bought her clothing at H&M. She has a new iPhone but she’s going to get a new one in 18 months when the next version comes out. She doesn’t want to buy furniture she can hand down to her kids. Her kids wouldn’t want it anyway. And she has absolutely no intention of waiting three months for a credenza. She wants her furniture and she wants it now. IKEA knows that. The rest of the furniture industry does not. Well, congratulations. You now know all you need to know about furniture retailing. In fact, more than you ever wanted to know. And OK, I lied: This wasn’t so much fun. But everyone knows there’s no fun in furniture. Warren Shoulberg is editorial director of several Sandow Media business titles, and has been writing about the home furnishings business for longer than he cares to admit. He is working on his new book, Stupid Business. No word yet on whether any furniture stores are in it.

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THE NEW AMERICAN DREAM Where Have All The Hippies Gone? This 1970s dream embraced a nirvana scenario which included a bunch of stuff, accumulating more of it, and better yet, bigger stuff. Money and power, of course, were basic ingredients in this recipe. So, what’s the new American dream? Well, while we were busy worrying about unemployment, the stock market, and the housing crisis, at a time when these things are harder to come by than ever before in our lives, the descendants of the old dream-makers have created a new American Dream. And in many ways, the new dream is better than the old one! The economic setback is no big deal to these new, young pioneers, who do not care about owning McMansions or driving to the country club in their Bentleys or accumulating more money for the sake of it. The new pioneers are the kids and grandkids of these old boomers (ironically, many of them aging “hippies” who once dreamed as their kids now do, but, who got lured into the old American “me” dream). These new dream builders looked at, and some even lived in, the big houses, surrounded by lots of stuff, and said: “I don’t think so. I’m outta here.” Their “yellow brick road” leads not to opulence, but to openness and mobility, quality over quantity, backpacks over Barca-loungers, bicycles over Bentleys, minimalist homes on lease over opulent real estate with mortgages, community over self, and matters of the mind over material possessions. Essentially, the new American Dream finally defines a way to reach the pinnacle of Maslowe’s hierarchy of needs, that of self-actualization, in a way the “Me” generation never achieved: maximizing personal potential and making a lasting and significant contribution.

Issue Eight 2011

This is the “emerald city” for today’s young adults. This dream doesn’t require great wealth, which ultimately diminishes life. This dream leads to wisdom which never stops growing and never dies. And, the only “bubbles” this dream will create are those that float into the future and never pop. So, this economy, whatever its outcome, is in some ways simply a positive accelerant for the new dream creators, the young pioneers in search of a higher, more sustainable and fulfilling happiness, directly opposite that which the old American Dream created. WHO ARE THESE NEW DREAM MAKERS? Futurists, consultants and anthropologists interested in such things would likely define the core group of “new American dream makers” as millennials, people aged 18-25. They would also cite one of their defining characteristics as incor-

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researched this cohort, says it is important to not underestimate the power of young minds. “People under 30 changed the way we communicate (see the founders of Google and Facebook) and helped propel Barack Obama into the presidency. They have a genuine passion for good, forcing businesses to clean up their act and pay up on their promises of social responsibility. And they are energetic and passionate about their own power (with the help of social media) to change the world.” Now, before I get too carried away, giving you the impression that the entire millennial cohort is a bunch of idealistic purists, and all about community, community, community as opposed to me, me, me and more, more, more, let me acknowledge that there are certainly sectors within the cohort that are still attached to the pursuit of “bling” and all the other self-aggrandizing aspects of the old American dream. One has only to watch some of the latest music videos

The economic setback is no big deal to these new, young pioneers, who do not care about owning McMansions or driving to the country club in their Bentleys or accumulating more money for the sake of it. rigibility: not able to be corrected, improved, or reformed. Indeed, that same characteristic was attached to their “boomer” grandparents in the late 1960s. And, just as it required this incorrigible and ideologically driven nature to build the old American dream, it will take the same determination and righteousness of cause to create the new dream. Marian Salzman, CEO, North America PR, of Euro RSCG Worldwide, one of the largest integrated marketing communications agencies, who has tracked and deeply

or reality TV shows for evidence of this. However, I believe those sectors will be marginalized over time. Furthermore, this group is not driving the aforementioned cultural changes purely out of the “goodness of their hearts,” and ideologically for all of mankind. Rather, in my opinion, it’s a result of simply being disgusted with what defined the old American dream. And, fortunately, for our planet and mankind – both of which can no longer provide the American dream without having the planet implode - the timing of this is not only perfect, it’s imperative.

THE NEW AMERICAN DREAM Where Have All The Hippies Gone? Millennials are also not without a mild case of narcissism. This will impact everything from consumer product marketing to human resources management. As Ms. Salzman said, “You can’t really ask them to live and breathe the company, because they’re living and breathing themselves – and that keeps them very busy.” Mild narcissism and incorrigibility are also traits common among great leaders. If unleashed en masse to lead our culture to a new and better place, these new dreamers will certainly have the power to make it happen. POSITIVE FORCES DRIVING THE NEW DREAM According to a study by Euro RSCG Worldwide, people are “trading hyper-consumerism for a consump-

tion that’s more subdued, considered, and sane: rightsizing (owning less stuff), growing up (gaining control and accepting personal responsibility), seeking purposeful pleasure (being aware of their capacity to influence by what they buy), and embracing substance (finding what’s real).” Ms. Salzman views teenagers as being on the edge of “a new frontier of social culture. They’re changing the field of marketing, altering communications, inventing new lexicons and adopting still-embryonic innovations. Once we were impressed, maybe even a little confounded, when a teen guided us through a new social technology. But today the situation is far beyond that. Teens are the ones who are inventing, not guiding; they’re creating, not using. The teens of today have never known a world

without hyper-connectivity. They’re finding that the moment they possess two critical things they never had before – the tools of social power and a reason to use them – they are transformed. And so is the rest of society because of it.” Another “dream changer” is the virally explosive phenomenon of social networking. Salzman says it’s the “age of the social mind. Social networking is opening the world to causes, awareness, social responsibility, social action. And blurring is taken to the extreme: Life meets work for the ultimate convergence. Yes, you can reach anyone, anytime, but that has led to an “always on” culture leading many of us feeling the need to unplug. Time is now the ultimate luxury item and our most precious resource.”

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You Talked Back! Robin Report Editor and marketing consultant Judith Russell offered her observations on why this generation of new dream makers will persist and prevail in their quest. “The less one is a slave to one’s stuff, the freer one is. A whole library of 5,000 books can fit in the palm of your hand, instead of taking up walls and boxes in your house. It’s even a bit Zen, being able to carry everything you own, and very much in keeping with what our founding fathers were thinking - the whole foundation of freedom, on using your mind, your intuition, not just the fact that you inherited a title or a manor or an estate. It’s very democratic. There’s no need to prove your success with outward trappings. How many of the great works of 18th and 19th century English literature were about the curse of possessions? “Spiritual leaders have been telling people to give away what they own for centuries - could it be we’re finally listening to the advice, realizing it doesn’t conflict at all with capitalism, social consciousness and self- actualization? In fact, it all makes sense. “Then there’s the whole part about relationships with others, the social part, which is key...staying connected 24/7 no matter where you are...talking with friends in Kenya and Scotland as often as the ones next door. The fact that relationships are more important than winning, that process trumps goals (“there is no finish line”), and that it’s possible to overthrow governments via Facebook are all threads running through the new American dream.” Yes, the new American dream is becoming a reality. And, for our culture, for the other cultures in the world, and for our economy, our democracy and for the sustainable future of the human species on this planet, it could not be coming at a more critical time.

Issue Seven’s “From Inflation to S tagflation to D eflation ” prompted the following reader responses :

Excellent article, Robin – frightening to read, but so important for all to recognize…To me it seems like the middle class (world-wide) will continue to be the punching bag in this never ending cycle. The banks (I think it is a cabal of 6 now?) will continue to perpetuate their feast or famine lending and banking practices – currently famine to SMBs and homeowners. What to do?? To start, lift the veil of mystery off the derivative markets – hopefully that will help institute some basic checks/balances on commodity speculators, etc… Enact “real” banking oversight and regulations – bring back the Glass- Steegal act or something like it! Sorry Jamie Dimon! You are absolutely correct that the social/consumer marketing tech bubble will not be able to catapult entire economies around the world. China just built a 26 mile bridge connecting a major port and growing city – I have twitter/ facebook/Pandora/linkedin on my android phone – what is more important to job growth and trade!! Granted I can know instantly what Kim Kardashian is up to... Where did the 50% of the QE money end up?? In my opinion debt and lending is the key to unlock the demand side of this awful equation. But that would mean the banks would have to make one or two points less on their margins in the coming quarters – like that would happen! But Dollar General is willing to, hmmmmm…..Thanks for keeping us thinking! Ray Hewins

Director of Sales I DONEGER CREATIVE SERVICES Robin I was wondering if you had ever considered a cross-promotion with either Gillette or Schick? After reading your latest piece, I believe that offering a free pack of razor blades with each subscription would show that you’re really anticipating the needs of your readers. It can be a little messy, but properly securing a rubber hose to your tailpipe is just so damned time-consuming... Seriously, though - after the continual pummeling from the market and the resulting fluctuations in business, as you point, out there’s a real risk that we -- on a national, business, and personal level – become punch drunk and unsure which way to turn. Although painful, it’s worth being reminded that accepting this as the “new normal” only ensures that it will be. Bennett S. Gross

President I CALLYDUS GROUP LLC

So, to all of you I wish “Sweet Dreams.” Want to weigh in with your opinion? Email us at Robin@TheRobinReport.com.

Issue Eight 2011

From Me to We, From More to Less: Five Value Shifts That are Changing our World

increasingly possible through technology, the Internet and globalization. And we took on debt to help further the dream. The end result: an economy transformed from value creation, to value consumption, which now totals 70% of GDP, and a consumer omnipotent enough to change our culture, our lifestyles and our world. Don’t Just Fulfill My Needs: Satisfy My Dreams A fundamental shift is changing how consumers are now seeking and defining happiness and satisfaction. Recent studies have found that there is little positive correlation between the increase of wealth and increased happiness. In the United States, a 2002 study by Ed Diener and Robert Biswas-Diener entitled Social Indicators found that once household income reaches $50,000, happiness levels tend to plateau, even compared to households with an income of over $90,000, suggested consumers become sated with, and perhaps even turned off by, “stuff.” The most recent economic collapse and subsequent slowto-no recovery has had significant impact on consumption, with consumer behaviors varying widely by demographic and income segments. However, major shifts in what consumers need, desire, demand and expect have been taking place since long before the Great Recession. While the economic downturn may be accelerating some of these changes, it did not cause them. Rather, a major cultural evolution and a total reassessment of value and values are responsible for the most dramatic changes in what consumers are demanding today. Essentially, this re-examination of cultural lifestyles and consumption behavior finds consumers elevating their desires to levels best characterized by “self-actualization,” or the pinnacle level of Maslow’s “Hierarchy of Needs.” The theory, first published in the early Forties but increasingly accepted today, postulates that as each level of a person’s needs becomes fulfilled, he moves up to the next level to seek to satisfy a “higher level” need. Once basic physiological needs are satisfied, like food and shelter, safety must be satisfied, followed by social needs like love and belonging, then esteem, and finally, self-actualization, or fulfilling one’s individual potential. Of course, none of this shifting would be happening if we had not become “the land of plenty” and plenty more, as we were fulfilling the old American dream of acquiring land, social status and things. And, the piling on of more stuff than people need, unlimited and instantaneous access was made

The same holds true in other developed countries. In Japan, for example, there was a fivefold increase between 1958 and 1987 in real income, but no increase in average self-reported “happiness.” Another study ranked countries by how happy their people are, and Denmark, despite soaring income tax rates and lack of wealth, was rated the happiest country in the world. There is growing evidence that while increased wealth may lead to increased purchasing, it does not buy happiness or satisfaction, and may explain why spending on experiential categories like travel, entertainment, and discretionary services has outpaced that of many consumer goods. As consumers seek higher states of well-being, and a new American dream similar to Maslow’s “self-actualization,” there have been five major consumer value shifts. 1. From Needing Stuff to Demanding Experiences The classic “game-changer,” was “from Maxwell House in a can to Starbucks.” Another more current example would be from choosing to buy a computer off of a shelf in Comp USA, to tripping over oneself to get to the Apple experience. With so many closets, kitchens and garages full of stuff, the appetite to keep buying more is falling dramatically. A study

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conducted at Cornell University measured the comparative satisfaction of material versus experiential purchases over time, and found that the level of satisfaction drops dramatically for material purchases and increases for experiential purchases. Another reason consumers choose experiences over stuff is that the experience is co-created by provider and consumer, often making its perceived value much higher than its price. Abercrombie & Fitch provides the environment of a “cool, sexy” shopping experience, and Lululemon provides yoga classes. However, the consumers, at the moment they are in the environment, are reacting and shaping that experience to themselves, to their individual mood of the moment. Each time they return to the Starbucks, Apple, A&F or Lululemon experience, it will be new, unique and different, which remains a powerful motivator and further elevates the value of the experience. Conversely, the price of mere goods is most often intrinsic to their physical value. The purchase selection from among a lot of stuff can be evaluated on the basis of physical and common criteria, including price. Comparison shopping for goods is easier than ever today. However, co-created unique experiences cannot be compared, making them more anticipatory and exciting, and worth more. Consumers will also spend twice as much time enjoying the experience, and thus will likely spend more. Other examples are: online flash sales sites Gilt Groupe and Ideeli, which have developed cult-like, addicted followings; the fresh, fun, friendly food emporiums Whole Foods and Trader Joe’s; and the preference for buying a fishing rod at Cabela’s, a world of sporting goods experiences with free fly-fishing lessons, a two-story indoor mountain climb, waterfalls, and trout ponds. Consumers are also expecting some level of experience from wholesale consumer brands and services of all types, simply because they can. This is driving wholesale brands such as The North Face, Ralph Lauren, Apple, Microsoft, P&G’s Tide and Mr. Clean brands, and many others to roll out their own branded retail stores, like the always-packed three-story

M&M’s World in New York’s Times Square, so they can better provide these experiences. They get to their consumers directly and more quickly, and because they own and control the point of sale, they control the presentation and the whole brand experience, from imaging to music to events — essentially the brand’s entire DNA. This is an enormous and sustainable competitive advantage when compared with being jammed into a departmentalized retail environment, where the retailer will have “cherry-picked” items from the brand’s line and presented it to consumers stuffed on racks and shelves. So, not only do these co-created experiences compel consumers to want to return to them more often, becoming addicted so to speak, they also elevate the value of the “store” and everything in it. And great experiences provide great pricing power. 2. From Conformity to Customization Consumers are moving away from desiring mass-marketed megabrands, meant to be a shared identity with fellow consumers. During the middle of the last century, when there were fewer brands to select from, national brands were important. Consumers felt they were part of the in crowd if they wore the same logo as their friends and peer groups. Consumers still want what’s cool, but the definition of cool is now more individual. Today, as new brands proliferate on a daily basis, targeting specific consumer niches, consumers are shunning the need to be included, and are instead pursuing exclusivity. One catalyst for this shift, of course, is easy access to information and knowledge about all products and services. So consumers now want something special, even customized, for their own particular desires, real or perceived. In fact, brands like the Gap and Starbucks, which originally grew quickly in response to seemingly limitless markets, discovered that having a store on every corner, so to speak, was a major factor in their decline and are now attempting to become less

A study conducted at Cornell University measured the comparative satisfaction of material versus experiential purchases over time, and found that the level of satisfaction drops dramatically for material purchases and increases for experiential purchases. Issue Eight 2011

From Me to We, From More to Less: Five Value Shifts That are Changing our World

ubiquitous. The brand that’s available to anybody can quickly become undesirable to everybody, as consumers seek exclusivity. Leading fashion trend forecaster David Wolfe of the Doneger Group describes the new consumer landscape this way: “It’s bye-bye mainstream and hello to thousands of tiny consumer tribes.” These tribes, in pursuit of special, exclusive value, are driving major changes in all consumer-facing businesses. The structure of the marketplace will be redefined as an infinite number of finite market segments (“communities”) being served by an infinite number of finite brands, micro-marketed through mediums that specifically target those niches. Many of the branded apparel specialty retailers understand this consumer shift. Accordingly, they are spinning off segmented niche brands, growing their original brand by extending it into other product and consumer markets. Examples include J. Crew, spinning off the CrewCuts kids brand and comfy casual Madewell. Urban Outfitters gave birth to Anthropologie and Free People. Each targets a different consumer segment, providing an eclectic mix of apparel and selected hard goods. Victoria’s Secret, the intimate apparel powerhouse, launched the wildly successful PINK in order to attract a much younger customer. The shift toward exclusive niches also favors lifestyle brands such as Ralph Lauren, or Nike, or The North Face, and others, which are not linked to a single product or classification of products, or to one consumer segment. They can therefore launch into any consumer or product segment that is compatible with their brand positioning. The brands that were launched and heavily marketed as single-product mega-brands, such as Levi’s jeans, have found it extremely difficult, if not impossible, to extend their brands into other product or consumer markets. Furthermore, consumers, with their closets overstuffed with all kinds of brands, will tend to try a brand that isn’t being worn by everybody else, rather than choosing yet another one of the ubiquitous mega-brands. After all, in 1980, they had a choice of about six major blue jean brands. Today there are hundreds. Retailers from traditional department stores to hardcore discounters are being forced to meet the expectations of the exclusivity-seeking consumer. Accordingly, they are accelerating their pursuit of exclusivity agreements with designers and national wholesale brands as well as their private branding programs. And, all of them are pursuing, in varying stages, “localization” – type programs, again to cater to special, local consumer preferences.

3. From Plutocracy to Democracy Armed with their reassessment of value, consumers have shifted from accepting the notion that only the wealthy deserve luxury to demanding “democracy” — affordable luxury for all classes. This shift helped create a new consumer segment, “luxury aspirants,” and drove the launch of many brands to cater to the up-market “yuppie” core of that segment. Brands such as Coach, Lacoste, Bloomingdale’s, Dooney & Burke, Tori Burch and others have successfully captured the contemporary, young, not-quite-rich but well off luxury consumer. Further down-market, the democratization of luxury is driven by designers creating diffusion sub-brands for mainstream retailers. Continuing a trend begun by Halston thirty years ago, Jean Paul Gaultier has designed for Target, Norma Kamali can be found at Wal-Mart, Vera Wang at Kohl’s, and Nicole Miller at JC Penney. Stella McCartney has done a line for GapKids. The impetus for this is not only consumers seeking higher quality value for their money, but the designers’ need for growth in over-competed, slow-growing markets. As consumers have increased access to information through their mobile electronic devices, or PCs, they can compare prices in a matter of seconds and can better assess real price /value relationships. So, blind acceptance of any price tag on a luxury item, just to be able to flaunt a flashy item and logo among one’s wealthy peer group, is giving way to a growing demand for real value and quality. 4. From Just New to New and Now New no longer trumps all. Consumers still want new, but they also expect to have it right here, right now. Innovation itself is not enough to win in a 24/7 world, where what’s created today is cloned tomorrow. It’s now necessary to knock yourself off every day of the week. A good example of the shift to “new and now” is Zara, a division of Arteixo, Spain-based Inditex, and part of the “fast fashion club” which includes H&M, Forever 21, and others who are racing to adopt its model. With over two thousand stores around the world. Zara offers both supply-chain and product innovation by delivering two new lines every week to each of its stores. In what is probably a first in the industry, the line mix may be different for two different stores just a few blocks apart, based on the consumer

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preferences of each. Zara’s average core consumer annual visitation rate is seventeen, compared to a retail industry average of about four, simply because Zara fans are compelled to see the twice-weekly new lines. They are also compelled to buy something right away if they like it, knowing it might not be there the following week. Costco often has a “treasure hunt” component in the middle of the store to offer a “new and now” experience with interesting, selective and often not-repeated merchandise. Trader Joe’s does the same thing by often changing and replacing top-selling items. The Gilt Group online membership club utilizes the same principle. It offers limited quantities of new and exclusive luxury merchandise in the form of membershiponly sales every thirty-six hours, which has members rushing to their computers every day so as not to miss the sales. 5. From Self to Community Consumers are in the middle of a total reassessment of value and values. Me is giving way to we. Less is now more. Quality is beginning to win over quantity, and community, friends, family and lifestyle are replacing stuff. One of the more positive results of accessible abundance is that many more consumers are now able to achieve a kind of self-actualization in which their material desires are being satisfied and they are able to move toward maximizing their human potential: to seek knowledge, inner peace, and aesthetic. Logically, this shift includes heightened interest in community over self. One major manifestation of this shift, as well as one of its ongoing enablers, is the phenomenal growth of social networks. While these rapidly populating worldwide “communities” are the commercial targets of many retailers and consumer product companies, they are finding that traditional marketing tactics do not work with them. Marketers must be given permission to enter these communities, and they are not going to be allowed to sell in the classic way. Businesses must shift from talking to, or talking at, to conversing with the consumer. New Internet retail clubs like Net-A-Porter are communities with millions of members, which happen to also sell product. There are plenty of ways to create a community environment offline, too, as many craft stores, like Michael’s, and Sporting Goods stores like Golfsmith are doing: offering training classes, events and shows, all of which makes members feel part of a broader community.

Issue Eight 2011

This shift toward self-actualization has an altruistic element to it as well. The consumption binge of the last quartercentury reached epic proportions, and then crashed early in the new millennium. This experience fed into the realization among consumers that money doesn’t buy happiness and that “less is more,” even among the wealthy. Concurrent with the shift from plutocracy to democracy, ostentation has given way to understatement. Furthermore, consumers are finding satisfaction in taking up causes, such as environmental advocacy and charity work. The remarkable strength of this trend is driving businesses to attach their commercial efforts to these same causes. Walmart is a great example of leading “sustainability” initiatives in the retail and consumer product industries: reducing the toxic emissions of their huge trucking fleet; selling only incandescent light bulbs; forcing its vendors to reduce the volume of their packaging; and much more. The day after the devastating earthquake in Haiti in 2010, the high-end online fashion club Rue La La suspended its daily online sale and instead directed its members to the Red Cross website, suggesting they divert their planned Rue La La spending to the Haiti cause. On the other hand, the giant Nestlé company was blindsided by environmental activists using social media to attack them for their purchases of palm oil, an ingredient in Kit Kat candy bars, from an Indonesian company that, according to Greenpeace International, has cleared endangered rainforest land to plant palm trees. Protestors posted a negative video on YouTube, deluged Nestlé’s Facebook page and Tweeted claims that Nestlé is contributing to the destruction of Indonesia’s rain forest, potentially exacerbating global warming and endangering orangutans. So, just as those who do the right environmental thing will attract and even convert consumers, those who don’t are at great risk of suffering public relations disasters and losing business. It’s Time To Change The Game The winning businesses of the future will understand and respond to this overriding cultural and lifestyle transformation that is taking place, and along with it, the five major shifts in what consumers desire today. The retailers and brands that become compelling communities generating ideas, causes and/or other altruistic concepts, and where one can have an exhilarating, unique experience, as opposed to just buy stuff, will not only achieve great success, but they will have “changed the game,” by creating a 21st Century sustainable, new paradigm.

Hold the (Window) Dressing By Paco Underhill

The world of shopping – and shoppers - is neatly divided into haves and havenots. While the recovery of the luxury retail business, due largely to its successful globalization efforts, has been in the forefront of the news a lot lately, at the opposite end of the spectrum another equally strong and important movement is underway. As a market researcher, I like to separate the thinking I do sitting down looking at numbers and tables from the insight I get from the four months of the year

people who earned their piles of dough in the course of their own lives. This shift toward nouveau riche is occurring in other countries as well, though it’s happening at different times and rates. In Shanghai and Beijing, new mall after new mall is anchored by Gucci, Prada, Burberry and Rolex. China may be manufacturing cheap goods for American firms, but it is also luxury’s fastest growing market.

I have never watched a single segment of American Idol or Survivor. Most nights I’m still working. Even if I were to TiVo the shows, as many do, I’d never get around to watching them. Most of the people I know are in the same situation. For all the finger pointing at investment bankers for their role in today’s financial quagmire, no one should dispute their work habits, or envy their long hours.

However, this is a group of “haves” that is different from those a generation ago.

The self-made, hard-earned nature of affluence is having an impact on luxury retailing. Consumers are demanding value, even in high-end luxury goods. They’re shopping around, using the Internet, getting more for their hardearned dollar and hard-won success. Couponing is on the rise in some of the most affluent neighborhoods. They want entertainment, an emotional experience.

Based on my on-the-ground observations, our retail world is now a clear reflection of this have/have not dichotomy. Both ends of the spectrum want more for less, but what they want, and how they want it, is very different. I spend on my feet in malls and stores and observing and talking to people across the world. Like most retail pundits, I am cynical about government data as it relates to things like personal income, unemployment, and consumer spending. By its nature it deals in aggregated numbers whose relevance is often questionable.

Think about the differences between the House of Windsor and House of Warren Buffet and their respective work ethics and values. Speaking personally, I did not know ten years ago who had been “voted off the island,” just as today

In most parts of the world, the booming 21st century market for luxury goods is strongest in those products that are the symbols of affluence: shoes, watches, handbags, cars, luggage and personal electronics. Those symbols are worn and recognized easily. What has been a tougher sell to the newly wealthy are those items whose appreciation

Based on my on-the-ground observations, our retail world is now a clear reflection of this have/have not dichotomy. Both ends of the spectrum want more for less, but what they want, and how they want it, is very different. Manhattan’s Bleecker Street fashion district is overcrowded, and in London and Moscow posh restaurants are backlogged in reservations. The luxury sector is now serving the new class of consumers whose affluence is less than two decades old, but whose appetite for high-end brands is seemingly insatiable. In the US, there was a magic moment in the mid 1990s when the majority of wealth went from old-money aristocracy to

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cost increases that are not negotiable, from housing and medical care, to mobile phone service and gasoline. If the commodity price increases that have piled up earlier this year get passed on this fall, how will the have-not consumer respond? So far, the cost of the living has been ameliorated by savings in the supply chain process, yet this fall, we can no longer conceal that the cost for food, apparel and other necessities is going up. While riots are not around the corner, American spending habits are very much in flux, and our financial future is uncertain.

is anchored in a more subtle sense of refinement, like fine furniture or a custom tailored suit. In these areas, the retail challenge becomes the merchant’s ability to communicate value. Why does this item cost one price and a strikingly similar item cost ten times as much? However, over time, this challenge will be overcome. Though Saks and Neiman’s are enjoying a rapid recovery, slip out to Flint, Michigan or rural Texas and you will see a very different world. Real unemployment is over 30 percent if you count everyone that has dropped out of the formal job search. However, there is a booming grey and black market for employment in segments of the United States that could be approaching what you find in Greece or parts of Spain where the unregulated and thus unmeasured parts of the economy account for more than 30% of a given local market. Many of these workers are undocumented, paid in cash, and not counted in government figures. An estimated 15% of American households have no bank account. If you think this has little impact on retail, think again. It has resulted in a surge in business at flea markets, farmers markets, pawn shops and garage sales. Personto-person sales for used goods like cars, furniture, and other goods through The Pennysaver, Craigslist and other classified media are also on the rise. Many of these transactions are done in cash, off the books.

Issue Eight 2011

What’s scary is that the have-nots are very aware they have been marginalized. If the poor in the 19th century got to peek in the doors and carriages of the rich, in the 21st century the poor have seen the lives of the wealthy up close on television and in the movies. A sixyear-old from the hillside slums of Rio has the almost the same knowledge of brands as a six-year-old from Grosse Point. In their darker moments, the modern political scientists have to be worried that if the disparities of the 18th and 19th centuries brought us Marat and Marx, the Facebook revolutions of the Arab world represents the process of how modern economic and political anger is manifested. It isn’t just North America and Europe. You wonder what goes through the mind of the Chinese People’s Liberation Army member from a small village in Hubei which has trouble getting clean water, seeing the new airport in Beijing, or the monorail in Shanghai, wondering where his government’s priorities are. Inches away from the front gate of the Four Seasons Hotel in New Delhi starts a breathtaking drop in economic standards that is as extreme as any found in human history. In much of the rest of the have-not world, the struggling is against the forces of downward mobility. Sam Walton knew that his most important customer was the single mother raising her children. Our global lower classes are faced with

There are some sure things. The American market for private label trails other parts the first world; one easy way of trading down is to move to the store’s own branded products. Labels like President’s Choice, 360 and Kirkwood are here to stay. Aldi, the no-frills discount supermarket chain which is owned by a very private trust in Germany, grows underneath the radar screen, market by market. They now have over 1,000 stores in the US. If what has happened in Europe is any indication, the uberdiscounters are winning the same victory that American mass merchants won twenty years ago, in that there is no shame in being seen in their parking lots. Buying used or previously-owned stuff has lost its stigma and is seen as simply being smart. The business of odd lots and end lots has never been better. One very private merchant I visit periodically is Ollie’s Bargain Outlet, whose home office hides behind a run-down strip mall in Harrisburg, Pennsylvania. It sells rugs, books, furniture, power tools and foodstuffs. Distressed merchandise, often sold out of distressed real estate, offers real bargains and yet the store’s return policies are liberal. This billion-dollar, 102-store business focuses on the simple reality that retail is the interim step between the back of a delivery truck and the trunk of the customer’s car. Everything else is window dressing. Paco Underhill is the CEO of Envirosell (www.envirosell.com ) a behavioral research and consultancy firm focused on commercial environments. His columns and editorials have appeared in The New York Times, Money Magazine,The Washington Post and The Wall Street Journal, among others.

Whose fragrance am I wearing? Why, my own, of course! Custom beauty products are poised to rear their lovely heads again By Dana Wood

On paper, it sounds like the ultimate beauty experience: To plop down in a swivel chair at a cosmetics counter, or be ushered into a well-appointed cabine in the back of some gorgeous perfume shop, and have a just-foryou foundation or “signature” scent whipped up right in front of your very eyes. Really, what could be more luxe, more satisfying for a full-fledged beauty junkie? But if it’s so great, why has custom-blending come and gone over the years? Why does even a big old Estée Lauder-backed custom brand like Prescriptives fade into the ether? Certainly not from a lack of interest on the part of consumers – love, actually, in my case. At the risk of revealing my age, I’ve been hanging around the beauty editor block long enough to have ridden several waves of custom-blending. I’ve had a fragrance created for me by a little line called Memoire Liquide; an entire collection of matching foundation, tinted moisturizer and concealer blended by Prescriptives; a much-beloved purplish blush concocted by the now-defunct Visage Beauté when Revlon owned it for five minutes in the early 90s; and incredibly chic red lipstick personally whipped up for me by Trae Bodge, one of the founders of Three Custom Color Specialists. But 14 years after launching Three Custom with two partners, and sticking with it through thick and thin, Bodge is out of the beauty-blending game, and has moved on to other ventures within the biz. And in hindsight, she’s not convinced made-to-order is the way to go. “Every couple of years, custom is ‘the next big thing,’” she says. “A few companies jump on the trend, give it their all, and then often the service disappears.” Why have beauty brands had such a tough time sustaining a custom business model? “The primary issue is scalability,” says Bodge. “Something that is custom-made requires more time and expertise than its ready-made counterparts, and although there is always a lot of buzz right at the beginning, a rude awakening often occurs

when expansion is attempted. As the service rolls out to new locations or simply grows due to popularity, maintaining the same level of service and quality of product often presents a seemingly insurmountable hurdle.” In other words, the costs have been prohibitive, and the demand not yet great enough to justify the investment. However, the time might be ripe for custom beauty blends – the ultimate in giving the consumer exactly what she wants when she wants it – to make a big and permanent comeback. The successful players in this game, however, will be those that proceed with a combination of brains, caution and marketing savvy. Perhaps that’s why a new – and yes, buzzed-about – custom skincare line called Truth Art Beauty is starting slowly, with just four SKUs. Launched by Harvard Business School classmates Caron Proschan and Emily Graham earlier this year, the limited range (Eye Balm, Face Nourish, Body Salve and Body Buff) has a 100 percent natural slant and is customizable with ingredients like organic red raspberry oil and gingko extract. And although the duo is expecting to attract extremely knowledgeable clients to its website (right now, the line is Internet-only), one needn’t have a PhD in chemistry to tweak the products to her (or his!) exact specifications. “While the beauty-literate consumer is certainly one of our key demographics, we’ve designed our platform to be as user-friendly and intuitive as possible by associating ingredients with key skin benefits,” Proschan explains. “People can choose an ‘antioxidant’ boost over a ‘redness reducing’ boost. We’ve found that even users with limited knowledge of ingredients, including quite a few men, have chosen to experiment with customizing and have found the process easy and accessible.” So accessible, in fact, that Proschan sees a bright future for Truth Art Beauty, including the addition of more skincare SKUs, color cosmetics, and bricks and mortar distribution. “We hope to grow into a major brand,” she says, “and we’ll offer a mix of customized and non-customized products in order to be flexible with the needs of different customers and channels.”

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The road might be a bit tougher for fragrance. Perfume industry veteran Paul Austin, whose Austin Advisory Group counsels both fragrance makers and fashion types, has long been privy to the difficulties in creating custom scents. The challenge, he says, is in successfully commanding top dollar, and convincing consumers that they’re getting a product that is quantifiably superior to the hot fragrance du jour stocked at Neiman Marcus. “In bespoke scents, the authority of the craftsman is what gains the consumer’s confidence,” says Austin. “A perfumer’s credentials, along with such trappings as ‘expensive’ bottles, rare ingredients, and an esteemed location for the consultation and creation, are important. Without these, it is impossible to command a premium and convince someone that they are obtaining a scent that is superior to what is found in a department store.” And as Austin points out, consumers are more likely to crack open their wallets for products they can see – i.e., makeup – than those they can only sniff. Which might explain the popularity of Giella, a custom makeup line now entering its tenth year. Though she now also offers a handful of ready-made items, Giella Poblocki says the key to success was the early emphasis on customblending. And today, bespoke foundation is still her bread and butter, followed by made-to-order nail lacquer. Yes, nail lacquer. While that would seem like a head-scratcher – why not just pop into Rite-Aid and nab a bottle? – Poblocki says customers routinely ask for copies of limitededition shades, particularly by Chanel. In other words, if you’ve been wait-listed for this season’s version of Vamp, you’re much better off heading to one of Giella’s 15 counters, including its flagship Henri Bendel outpost.

Issue Eight 2011

Without question, Poblocki’s willingness to match limitedrun and discontinued shades of lipstick and lip pencils, not to mention those nail lacquers, is a genius move. And thus far, “thousands” of customers have availed themselves of the service. The goal now is to take her business up a few notches. “I know growth is important, and that I’ll need a partner to grow it to the next level,” she says. If customized beauty products are to gain share of the business – and given the move away from mass marketed mega-brands toward exclusivity, micro-marketing, and individualism, indications are that they will – all but the fast-growing superstars need to join forces with bigger, established companies with deeper pockets and existing counter space who can expand the concept. And if big beauty brands want to grow, they may have little choice but to jump on this bandwagon, a possible key strategy in department stores’ quest to gain back market share from drug stores, discounters, and specialty stores. The customer experience advantage alone gives it great promise. Says former bespoke queen Bodge. “While custom shouldn’t necessarily be the cornerstone of every business, it can add a cachet that is very valuable - in terms of personalized customer service, resultant loyalty and the marketing/PR opportunities it inherently provides.” Dana Wood has served as Beauty Director for both W and Cookie magazines, has written for numerous national publications including Glamour, InStyle, Harper’sBazaar and Self, and spent several years in the Luxury Products division of L’Oreal as Assistant Vice President, Strategic Development. Her first book, Momover: The New Mom’s Guide to Getting It Back Together, was published in 2010 by Adams Media.

Borders Today, Barnes & Noble Tomorrow By Robin Lewis

There is absolutely no reason for anyone to go to a bookstore today unless they are assured a compelling experience. The only way B&N can avoid a Borders-like implosion is by offering a Starbuck’s café, book signings, perhaps education of some sort (how to write a novel), or other experiences that will cause the consumer to make an effort to visit. Nobody can survive the disastrous fate that “just selling stuff ” assures, even on the Internet. Because the exact same stuff, even new stuff, can be found and acquired instantaneously, anywhere, anytime, and for a lower price. Apple does not sell stuff, not even computers. They sell a highly experiential education first, and then it just so happens that they have the most innovative, sleek and cool digital devices in the world. (Some Apple stores even evolve into singles bar- like social scenes.) And, guess what, nobody even cares about the price. And, guess what else, Apple is the fastest growing, most productive retailer (with an average sales per square foot of $4000) in the entire history of global retailing.

Apple is the fastest growing most productive retailer (with an average sales per square foot of $4000) in the entire history of global retailing. So, how do you avoid demise? How do you stop thinking of yourself as a retailer, and your place of business as a store or website, and your offerings for sale as products, and your pricing as competitively valued? How do you begin to transform your business, to evolve to the next level? You must step back from your thicket of trees,” which would be the complexities and immediacy of running your business day in and day out, and ponder your “forest,” which would be the big picture of how consumers have changed, how the Internet has disrupted all of commerce, how the competition has changed their behavior, and how the only growth possible now, and in the future, is through fighting “share wars:” either

RETAILERS AND STORES SELLING STUFF

stealing a customer away from a competitor or getting your customer to buy more from you. If you do this, and understand the “forest” you are pondering, you will understand that you must shape your business model into the form of a community, and the community must be full of all the things people like about communities: friendship, common interests, like-minded people, a warm, pleasant and exciting environment with lots of fun things to do and experience. If you do this, your community (read: your business), will populate faster than Groupon’s daily deals. And, they will not leave. And, they will not care about price. Just do it!

Is A Dead Business Model

By Robin Lewis

If you keep on thinking of yourself as a retailer (see “Borders Today, Barnes & Noble Tomorrow,” above) and your place of business as a store or website, and your offerings for sale as products, and your pricing as competitively valued, then you will most certainly die. This is not a new concept. The same kind of myopic thinking and how it can constrain growth was the focus of a marketing paper by former Harvard professor, Theodore Levitt, published in the Harvard Business Review in 1960, titled “Marketing Myopia.” The thesis makes the point that managers who narrowly define the business (or industry) they are in by the products or services they create or sell are myopically limiting their growth potential. Contemporary examples of such constricting views would be those who would define their

business as a magazine, newspaper or book publishing as opposed to being in the information business, which infinitely expands the potential for creating all kinds of information and distributing it across a multitude of mediums, now including, of course, the Internet. Other examples: the petroleum business vs. the energy business; the railroad vs. transportation business; and more. So, are you in the retail business, which can be defined by the selling of goods to end users, not for resale, but for use and consumption by the purchaser? Or, are you in the consumer satisfaction business? And, if so, what is it that you can uniquely satisfy them with? As most of you know, in the early 1990’s, Vittorio Radice, then new CEO of Selfridge’s department store in London, declared that they would no longer define Selfridge’s as a department

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store selling stuff. He redefined Selfridge’s to be the “coolest” destination in London for fun, entertainment, a social outing and for discovering new things, including services. Oh, and by the way, there would also be “cool” brands which you could buy during the “coolest” of experiences you were having in London. So, one could broadly define Radice’s Selfridge’s as being in the consumer satisfaction business. And, he satisfied them with a unique experience. A couple other well-worn examples on this side of the pond are: Lululemon – are they selling yoga-wear or a yoga lifestyle experience? And: Abercrombie & Fitch – are they selling casualwear or sex (a sexy experience)? And, there are other winning examples of those who have escaped the confines of myopic thinking to infinitely expand the potential products and services they can sell as “by-products” so to speak, of the consumersatisfying experience. I cannot stress enough that Apple does not sell stuff, not even computers. They sell a highly experiential education first, and then it just so happens that they have the most innovative, sleek and cool digital devices in the world. Amazon’s unique consumer-satisfying experience emanates from its founding idea to make it easy for people to buy stuff, and

this implies incredible service. So, they can sell anything, and are proceeding to do so. Facebook’s experience is about helping people to easily share their lives with friends. I know that for most traditional retail leaders, running huge, or even small companies founded and defined by the “retail stores selling stuff ” business model, find it almost impossible not to think this way. Worse, the model is perpetuated because it’s easier to squeeze out incremental growth (or just survival), by doing the same things, the same way as they have always been done, than it is to blow up the paradigm and fundamentally “change the game.” Blowing it up may not be necessary, but building a plan and process to transform the business is imperative for survival. Yawn, yawn, you’ve heard this before, over and over. Well, I’m saying it once again. And, analogous to what they were saying in Washington DC about our budget deficit (but did not listen to their own advice), “you cannot kick this can down the road one more day.” It’s now or never. Step out of the “trees,” see and understand the “forest” and if you have not already done so, figure out how you can uniquely be in the consumer satisfaction business.

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Issue Eight 2011

Quotes to remember WARREN BUFFET’S OUTLOOK ON THE ECONOMY: “There’s always a new normal.” YEAH, SURE WARREN – AND, DO YOU WANT TO DESCRIBE IT, AS IF IT WILL AFFECT YOU ANYWAY? PEGGY NOONAN ON CHINA’S VIEW OF THE US: “ Those inclined to take an unfriendly view toward us increasingly see us as a paper tiger, because they hold our paper.” SHE’S GOT THAT RIGHT. AND, HERE’S CHINA’S TAKE ON THE “GOLDEN RULE”: “He who has the gold sets the rules.” AND SINCE WE LOVE CHINESE PROVERBS, HERE’S ONE FROM 400 BC THAT STILL WORKS FOR OUR TIME: “ When the music of a nation becomes fast, wild and discordant, it shows the nation is in confusion.”

THREE CHEERS FOR THE BEAUTY BIZ! “ I’m tired of all this nonsense about beauty being only skin-deep. That’s deep enough. What do you want -- an adorable pancreas?” – Jean Kerr, American author and playwright HERE ARE SOME INSIGHTS FROM “THE GIPPER”: “ Politics is supposed to be the second-oldest profession. I have come to realize that it bears a very close resemblance to the first.” POLITICS TOTALLY ASIDE, REAGAN WAS A GREAT LEADER. AND, WHERE IS IT NOW, WHEN WE SO DESPERATELY NEED IT? AND FINALLY, A CAUTIONARY NOTE FROM my brother-in-law John Downey: “ The early bird gets the worm, but the second mouse gets the cheese!” OF COURSE, IF YOU PREFER WORMS OVER CHEESE – GO FOR IT!

PUNS FOR EDUCATED MINDS • No matter how much you push the envelope, it’ll still be stationery. • A grenade thrown into a kitchen in France would result in Linoleum Blownapart. • If you jumped off the bridge in Paris, you’d be in Seine. • A rubber band pistol was confiscated from algebra class, because it was a weapon of math disruption.

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Copyright © 2011 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.