The Robin Report - Issue #1-2013- February 2013 by The Robin Report

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Issue One February, 2013

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NORDSTROM: GHOST OF

“VINCE LOMBARDI” LIVES ON With Some 65,000 Quarterbacks

i n s i g h t s

I N S I D E t h is iss u e • Dear Reader ........................ 2 By Robin Lewis

• Nordstrom: Ghost of Vince Lombardi Lives On ....3 By Robin Lewis

• Sam and Sandy ................. 7 By Paco Underhill

• Finding the Best Fit: The Modern Woman’s Solution .............................8 By Tanya Shaw

• The Ten Commandments of Home ............................10 By Warren Shoulberg

• MK is no LV: It’s Not Coach Either ....................12 By Marie Driscoll

• Michael Kors: A Tale of Two Brands ......................14 By Jane Singer

• Y Do I Care? .......................16 By Grace Ehlers

• Tesco Felled By Hubris, Leaves U.S.A. .......................18 By David Merrefield

• Sleight of Hand ...............20 By Emily Thompson

• How Can You Get There If You Can’t See It? ...........22 By Toni Yacobian

• The Back Page ...................24

Dear Reader It’s zombie-land out there. Nobody talks anymore. They tweet and text. Nobody meets anymore. They tweet, text, email and occasionally have phone conferences. And, we don’t need the Manti Te’o hoax (“catfishing” or whatever it is), to know that tweeting, texting, Facebooking, Skyping, falling in love with an avatar on Second Life and whatever else I don’t know about yet, is the new "dating." Digital simulation and stimulation is the new human touch.

However, I believe it’s safe to say, that if that day comes (which is possible), Nordstrom will be one of the few, if not the only one, that will never buy into robots (even if programmed in-house).

On one level, the virtual world is more awesome, exciting, rewarding, easier, more convenient, less intense, less demanding and so forth, than the real world. So, on that level, a person might rather be an avatar and get the heck out of this “messy” human world. And I fear many of them do just that, at least mentally. I know I’m exaggerating, but only to make the point. Anyway, for the majority of us who don’t literally “check out,” retailers must, at the very least, provide as many of the latest gizmos, gadgets, techie toys, videos, etc., both in store and online. Virtual reality must be as much a part of the shopping “experience” as the store’s real-world restaurants, gelato and coffee stands, fashion shows, and whatever else.

Sure, many retailers and brands are committed to doing the same thing, and many do deliver. However, Nordstrom’s enduring competitive advantage, the “secret sauce” so to speak, that elevates them to another level, are its associates. They are the final human engagement, the individual touching and tipping point that must represent the entire DNA and value of the Nordstrom brand, at the nanosecond the customer is turning their dream into reality, at the point of sale.

Yes, Nordstrom led in technology, perfecting the omnichannel, and adding the digital component into its shopping experience. However, they continue to focus everything they do based on how it will “delight” customers beyond expectation. And their Wow scary! But, not to get all philosophical top- and bottom-line numbers, year after on you, what does this have to do with retail year, provide evidence they are enormously successful on the consumer satisfaction meter. strategy? The short answer: everything.

Moving on from the experience aspect, another indication of “machine replacing man” comes out of some Cisco research that finds 85% of consumers want selfservice access to digital content in-store (for price comparisons, ratings/reviews and expert advice). Only 11% want information and advice from store employees and 10% from social networks, and the influence of friends and family has fallen since 2010 from 60% down to 49%.

Nordstrom associates will never be robots or avatars. They are the real deal. They are the best, in fact, so much so, that delighted customers may think they have just lived a “second life” moment in a Nordstrom store, which means they will want to keep coming back and back again.

Other great articles in this issue explore the back story to Tesco’s failed launch in the U.S.; an intense look at the Michael Kors brand strategy (or lack thereof); why JC Penney can’t overlook Home; tools and technology that are designed for busy women; how Sandy revealed an endangered retail species; why return-on-visit is a term you can’t ignore; why the authenticity of cotton drives sales; and why you’d better care about the key words that trigger the So, consumers keep raising the bar on Next Gen’s credibility meter. All in all, experience expectations (both virtual and this issue is full of what real), and therefore, retailers must keep raising the bar on the cost of doing business you need to know now, just to stay in the game. And, of course, on and why it matters. the other hand, they are being sucked under Enjoy the read! by the vortex of discount pricing, a subject I’ve covered in previous articles. Certainly, Lewis has over forty years of strategic one has to wonder how long this madness Robin operating and consulting experience in will continue. the retail and related consumer products industries. He has held executive positions Will Robots Replace Associates? at DuPont, VF Corporation, Women’s Wear Daily (WWD), and Goldman Sachs,among Well then, will we see the day when robots others, and has consulted for Kohl’s will replace human associates? Why not? Department Stores, and dozens of others. To answer this question all you need to do In addition to his role as Publisher and CEO is read my lead article on Nordstrom. If of The Robin Report, he is a professor at the robots ever do begin to replace associates, Graduate School of Professional Studies at The Fashion Institute of Technology. they will be Nordstrom-programmed.

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NORDSTROM: GHOST OF

Retail 101, according to Blake and the rest of the Nordstroms who run the company, is nothing more than delighting customers beyond expectations. Technology and all other parts of the operation and the value chain are merely supportive “tools” for accomplishing and enhancing that “#1” goal.

“VINCE LOMBARDI” LIVES ON With Some 65,000 Quarterbacks by Robin Lewis

One of the major reasons Nordstrom was so successful in achieving what could be considered “best in class” in developing its “omnichannel,” was that they did not build it from the “inside out” to the customer, based on some detached business objective. Rather, every step of the very complex, seamless integration of the online and brick-and-mortar businesses was made with total focus on what would deliver greater satisfaction to the customer. They built it from the “outside in.”

I wrote an article in 2004 in which I compared Nordstrom with the Green Bay Packers at their peak between 1958 and 1968 under coach Vince Lombardi. Guess what? Lombardi’s spirit lives on within the Nordstrom team, roughly 65,000 strong, and all of them “quarterbacks.” To revisit the past, the opening paragraph I wrote eight years ago was as follows:

technological initiatives for Nordstrom’s huge earnings and sales gains that year, Blake Nordstrom was quoted as saying: “I think any gains that we’ve had have less to do with technology and more to do with Retail 101.

he late, great Vince Lombardi, renowned T coach of the Green Bay Packers from 1958 to 1968, never got confused over the concepts of “strategy” or “tactics.” And he never confused his team about them either. He viewed football as a “game of inches” and the superior execution of the “basics” of the game, such as blocking and tackling. I know the Nordstrom family hails from the city of Seattle, and I know basketball was their game. And basketball certainly is not a game of inches. However, to hear Blake Nordstrom, President of Nordstrom, talk about their recent “wins,” it’s like listening to the ghost of Vince Lombardi, albeit at a somewhat lower decibel level. While many experts at the time cited

Now, eight years later, sales are estimated by FactSet to increase by 14% to about $12 billion for 2012 (a roughly $5 billion increase over 2004 revenues of $7.1 billion). Making these numbers even more impressive are the year-in, year-out, profitability metrics: same store sales and sales per square foot, (see accompanying chart).

I thought ‘hmmm,’ sounds like “blocking and tackling” to me.

To paraphrase Blake Nordstrom, “It’s not about us being ranked on top or ‘best in class.’ It’s about doing what’s best for the customer. In fact, forget ‘best in class,’ the consumer is constantly raising the bar, and since they are setting the standard, we’re continually resetting ours upward.”

Furthermore, the greatest “tools” of all at Nordstrom are its roughly 65,000 Also, during the past eight years, Nordstrom (euphemistically speaking) “quarterbacks,” continued to invest heavily in technology its sales associates, including the growing and perfect its “omnichannel” capabilities. number of 1300 personal stylists, all of In fact, they are widely acknowledged whom are personalizing service for each as being a technology leader among and every customer. This team is Nordtheir peers. But, again, Blake Nordstrom, strom’s widely recognized competitive in his humble demeanor, would say the advantage, its “secret sauce.” And, similar same thing: essentially, it’s not about to Vince Lombardi and his Packers, technology, it’s about “Retail 101.”

NORDSTROM 10-YEAR FINANCIAL HIGHLIGHTS 2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012 (EST)

Sales

$5.6 B

$6.0 B

$6.4 B

$7.1 B

$7.7 B

$8.6 B

$8.8 B

$8.3 B

$9.3B

$10.5 B

$12.0 B

Operating Income

$204 M

$196 M

$398 M

$647 M

$885 M

$1,106 M

$1,173 M

$648 M

$696 M

$991 M

$1,119 M

$1,400 M

Same Store Sales Growth

(-2.9%)

1.4%

4.30%

8.50%

6.00%

7.50%

3.90%

(-9.0%)

(-4.2%)

8.10%

7.20%

7.00%

Sales Per Squre Foot

$321

$319

$327

$347

$369

$393

$435

$388

$368

$397

$431

$444

Gross Profit % of Sales

33%

35%

36%

37%

38%

35%

36%

32%

37%

SG&A as % of Sales

30%

29%

28%

27%

25%

26%

29%

Source: Nordstrom Annual Reports

Issue One February 2013

Nordstrom has always, and still does, “grind it out,” play by play, inches to first downs to touchdowns, winning year after year after year, using the most fundamental play in retailing: satisfying the customer. But totally unlike Lombardi, Nordstrom gives its “quarterbacks” complete autonomy and authority, “on the field,” to call whatever play they believe is necessary to score: satisfying customers’ “dreams.”

The Competitive Edge Then, and Now, and Always

The customer, the customer, the customer —say it one more time, please. No lip service, no fancy strategic PowerPoint

to proactively (yet unobtrusively) reach out to each customer with personalized recommen-dations. Chairman Enrique Hernandez, Jr. was quoted in the Annual Report, “Customer service is more than just a catchphrase or corporate initiative at Nordstrom. It is our core at Nordstrom —the fundamental value proposition, the most important competitive advantage and the top priority of every single employee.” Amen. Not brain surgery; not rocket science. But kind of like a “game of inches,” right? So, how many first downs, touchdowns and championships have all this blocking and tackling achieved?

The Nordstrom goal is to “provide outstanding service every day, one customer at a time." presentations, no hyperbole on the subject. The entire Nordstrom team, simply and pragmatically, has one goal burned into their DNA for each and every “play:” to achieve a customer’s delight, beyond expectation. The Nordstrom goal is to “provide outstanding service every day, one customer at a time." If the consulting buzzword, “consumercentric” had a birth date, Nordstrom was its mother.

Instant Replay: “Fumble and a Turnover”

Without going into a lengthy timeline of the company, founded in 1901 (check out Wikipedia for the full history), there was a period during the early 1990s when Nordstrom experienced a down turn, much of it caused by a recession, exacerbated by an earthquake in the San Francisco Bay Area in 1989.

Then in 1997, the first and only nonNordstrom was appointed CEO. At the time, Nordstrom was generating $4 to $5 billion in revenues, operating about 104 “First down” and delighting yet another customer continues to be driven from the stores in 23 states (71 full-line, 23 Racks, three Façonnable boutiques and two freevery soul of the company encapsulated by the lead statement in Nordstrom’s 2011 standing shoe stores) including catalogues and the beginning of online sales. Over Annual Report: “As a customer-driven business, we aspire to continually improve the next three to four years, Nordstrom the level of service we offer.” Later, Blake found itself struggling for profitable growth, even while an aggressive new Nordstrom was quoted, “The foundation store strategy was being pursued. of our company is personalized service.” Nordstrom principals walk the talk. Jamie Nordstrom, great grandson of founder John W. Nordstrom, now President of Nordstrom Direct, is not content with simply the best “omnichannel” in its class. Rather, he envisions investing more than $1 billion to accelerate the “personalization” of their e-commerce operations: mining individual customer information to be able 4

In 2000 and 2001, a major management realignment, including the CEO’s exit, brought the family back in control. Bruce Nordstrom came out of retirement to assume the Chairman’s position, while his sons Blake, Erik and Peter became co-presidents of the business, merchandise, and stores respectively; positions that they continue to hold. Ironically,

as 2001 marked one of Nordstrom’s worst years, it also happened to be the 100th Anniversary of its founding.

The Recovery: Inches to First Downs to Touchdowns

Following the management realignment in 2000, Nordstrom went through two years of recovery and repositioning, all while struggling through a recession. Finally, its efforts gained traction in 2003 resulting in solid revenue and income growth, (see accompanying financial chart). Much stronger momentum followed in 2004 and continued through 2012, even as it slightly “dipped” through the worst of the Great Recession, albeit faring better than its major competitors. Nordstrom seized the 2003-2004 downturn as an opportunity to reposition its merchandising strategy, refocusing on its “sweet spot” of luxury goods at affordable prices. It also made a heavy investment in information technology with a company-wide perpetual inventory system that could track sales in real time throughout all of its stores, thereby enabling Nordstrom to have the right products for its customers, in the right place, at the right time, thus winning the “Super Bowl” of productivity. Also, as a part of getting its merchandising “mojo” back, Nordstrom introduced some edgier fashion items in a department called “via C.” This played right into the heart of the younger segment of its core customer base. It further leveraged another competitive advantage of appealing to a broader and younger customer age range of 25 to 64, compared to Neiman Marcus, estimated to be between 43 to 64, and Saks Fifth Avenue at 35 to 55. Nordstrom closed out 2003 as its most profitable year ever with $242.8 million in net income on record sales of $6.49 billion. Same-store-sales rose by 4.3%, its best performance in 10 years. Having recovered and regained a significant growth trajectory, Nordstrom planned on maintaining the momentum by continuing to expand its technology initiatives, including what was to become the “best in industry” integration of its stores and e-commerce operations. They also pulled back from new store openings (at the time, planning only 11 openings between 2004 and 2008). Instead, they focused on improving www.TheRobinReport.com

the shopping environment and experience in existing stores, ultimately leading to even greater productivity.

Fast Forward to 2012: Ecstatic Customers = Ecstatic Numbers As mentioned, it’s estimated that Nordstrom's blocking, tackling and its “quarterbacks” adherence to “Retail 101” is expected to grow sales this year by 14%, to about $12 billion, according to FactSet. And operating income is projected to increase to 11% of sales, or about $1.5 billion. Of the total business, the 117 Nordstrom full-price stores contribute about 70% of sales, while its 119 Rack outlet stores account for roughly 20%, and its Internet business, the remaining 10%.

Regarding online sales, it’s important to note that since Nordstrom added “Free Shipping, Free Returns, All the Time” (about a year ago, and again leading the industry with its focus on satisfying customers), they have experienced three quarters of 35% gains online. This is far beyond the 12% growth in the U.S. for online overall, according to Forrester Research. Plus Nordstrom continues to win. Three additional “games” Nordstrom continues to win among its peers, all largely due to its obsession with customer service: same-store-sales growth; salesper-square-foot; and operating income. As in 2011, Nordstrom is again expected to achieve same-store-sales growth of about 7% in 2012, and sales-per-squarefoot of around $444, up from $431 in 2011. And according to newsletter SmartTrend, Nordstrom will finish out 2012 still ranked number-one with the highest operating margin among department stores at 11%. The top five rankings in 2011 were: Nordstrom at 9.9%; Kohl’s at 9.5%; Macy’s at 5.3%; Saks at 5% and Bon-Ton at 1.6% By the way, this kind of stellar profitability is not only a result of an ecstatic customer, buying more, and more often; it is also driven by the fact that Nordstrom is not a “promotional” department store —because it doesn’t have to be. Enabled by a seamlessly integrated online and in-store business, inventory is unified across both channels. Thus, an online order from New York could be shipped from the floor of a California store.

Issue One February 2013

Simply, orders are directed to stores with excess inventory, reducing the need for markdowns. Furthermore, while some experts believe the growing Rack store business provides Nordstrom an outlet to discount excess inventory, Nordstrom views its Rack strategy as proactively responding to consumers’ desires for “off-price” fashion, which is indeed the fastest growing sector in retailing. Their acquisition of HauteLook, the online “flash sale” site, is another example of serving the customer first. In fact, Blake Nordstrom has been quoted saying, "What we've learned is that our Racks do well when they're closest to our flagships. We think there's a great synergy." While that seems counterintuitive, because the pricing is lower—at about a third of the size of the full-price stores and with much lower SG&A costs—the Racks are highly profitable. It’s also believed by some experts that the Rack is targeting the younger end of Nordstrom’s core consumer segment enabling Nordstrom luxury at an affordable price. The stores also appeal to younger tastes: urban locations; one-floor design; and a faster, more convenient shopping experience, enabled by mobile check-out devices. In fact, a much more aggressive growth strategy is planned for the Rack stores to expand to 230 by 2016, almost double the number today at 119. There is not a current plan to add to their 117 full-price stores in the U.S., although Nordstrom does see great opportunity in Canada where they plan to open eight or nine full-price stores and 15 Racks over the next couple of years.

A Winning Playbook

As Vince Lombardi once stated, “The achievements of an organization are the results of the combined effort of each individual.” The reason for Nordstrom’s continual success in implementing its top-ranked service is that its focus on delighting customers is embedded in the culture. It was the Nordstrom “DNA” from its founding on day-one in 1901. Blake Nordstrom expresses the fact that they view the culture as their most important asset. In the book, The Nordstrom Way, by Robert Spector and Patrick D. McCarthy (published in 1995), the authors” state that Nordstrom hires “nice people.” Bruce Nordstrom said at the time, “We can hire nice people and teach them to sell, but we can’t hire salespeople and teach them to be nice.” The author asked, “Then who trains the salespeople?” Nordstrom answered: “Their parents.” The fundamental tenet that continues to strengthen the culture is embedded in the now-famous employee handbook —a single card with 75 words. It supports total credence to the inverted organizational pyramid, giving the associate on the “floor” complete autonomy and authority when engaging and serving a customer.

In other words, the Nordstrom “quarterbacks” call whatever play they feel is needed to score. The concise handbook reads:

Welcome to Nordstrom

We’re glad to have you with our Company. Our number one goal is to provide outstanding customer service. Set both your personal and professional goals high. We have great confidence in your ability to achieve them.

Nordstrom Rules:

Rule #1: Use best judgment in all situations. There will be no additional rules. Please feel free to ask your department manager, store manager, or division general manager any question at any time.

Supporting such individual empowerment and incentivizing associates’ goals to provide outstanding service, “one customer at a time,” Nordstrom’s compensation program is commissionbased on performance. Without going into great detail, in addition to the commission formulas, there are other incentives including a generous 401(k) program, awards, bonuses, stock purchasing advantages, and other programs. According to a study by the Great Place to Work Institute in 2009, the average salesperson’s annual salary at Nordstrom was $38,900 compared to the average department manager salary of $49,500, and many salespeople were making in excess of $100,000 per year. Another study conducted by the Bureau of Labor Statistics in 2007, covering 4.5 million retail salespeople, found that the average wage was $11.79 per hour, while Nordstrom salespeople were making $18.00 per hour. In short, the empowered authority, the compensation incentives, and the possibility of their framed picture being displayed and revered on the walls of the Nordstrom stores, drives these “nice” and smiling employees to extraordinary heights to make their customers happy. By now, we have all read or heard of many of the legendary stories of Nordstrom service beyond the call of duty. In fact, these acts are so numerous that before each store opens in the morning, the store manager will gather their employees to relate the best stories of the previous day. 6

Stories abound of customers being reimbursed for returned items bought in competitors’ stores, or for items actually worn or used for long periods of time. Associates rushing to find items for customers in urgent need, and traveling after hours to deliver them on time, is not uncommon. Clerks have been known to pay shoppers' parking tickets, lend cash to strapped customers, and to send tailors to customers' homes. And there are hundreds of other examples … too many to repeat for the purpose of this article. Think about it. Each and every square foot that is occupied by a Nordstrom or Rack associate engaging a customer is yielding huge top and bottom line returns, all based on that associate’s priority goal to satisfy their customer’s “dreams.” Yes, superior customer service is a simple concept and imperative in today’s intensely competitive marketplace. It is unanimously declared a priority by every retailer. However, accomplishing it requires awesome execution, which Nordstrom, by the numbers, keeps achieving.

Ecstatic Customers = Ecstatic Numbers = Ecstatic Employees Finally, it’s no surprise that ecstatic customers lead to ecstatic numbers, which ultimately lead to “ecstatic most valuable player” employees.

A career site, CareerBliss, ranks companies in its annual listing according to how they treat their employees and on employee “happiness.” Nordstrom leads the list of 10 retailers. The determination takes into account employee reviews (over 10,000) of their employer, based on work-life balance, compensation of senior management, benefits and job security. And Nordstrom has been listed for 15 consecutive years on Fortune’s 100 best companies to work for (one of only 13 companies to remain on the list each year).

A Neurologically Connecting Experience

Yes, if the product and the price are not right; if the shopping environment is cluttered and confusing; if there are no amenities—food, entertainment or other experiences—customers will walk out the door to another competitor.

Certainly the Nordstrom shopping environment and “experience” meets, and often exceeds, customer expectations, enhanced by its numerous restaurants; its crisp, clean, well lit and assorted merchandise; and wide aisles. But all of it pales in comparison to the most important moment in all of retailing’s existence: the moment when the customer’s “dream” can be tipped into reality —the moment of purchase. If that moment becomes more than just a physical transaction, if it’s filled with not just a smile, but over-the-top engagement, empathy, interest and warmth, then that customer will stay longer, buy more and will come back, over and over again. Indeed, not only is this human “touching and tipping” point Nordstrom’s competitive advantage, it is what I call in my co-authored book, The New Rules of Retail, a neurologically connecting experience. We espouse the fact that when a retailer like Apple, Starbucks, Lululemon and Nordstrom provide an overwhelmingly compelling experience, it goes beyond just connecting emotionally with customers, it connects with their minds, strongly enough to compel them to keep coming back to that experience: as we say in the book, to become “addicted.” That, my friends, is what also turns Nordstrom’s dreams into the reality of winning the “Super Bowls” of samestore-sales growth, sales-per-square-foot, and over-the-top operating income. So no “hail Mary’s” or fancy plays for the Nordstroms or their 65,000 “quarterbacks.” Maybe a third-down pass now and then in the form of new technology, but then it’s back to “Retail 101,” and the “quarterbacks” calling the plays that they need to score a customer’s delight. Nordstrom’s strategy, and “The Nordstrom Way” as we might call it, is really “execution” as Vince Lombardi would call it. It was clearly summed up in the following quote from Blake Nordstrom in the Wall Street Journal back in 2004, and it still resonates today: “It doesn’t sound very glamorous to say that what’s next is to continue to improve on the little things in front of us, but that’s what we’re going to do.” And that, ladies and gentlemen, is what wins ball games.

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Sam& Sandy Sam is Palestinian with family in Ramallah. He has lived in the USA for more than 25 years. He and his cousin run a small convenience store on West Fourth Street in the middle of New York’s increasingly tony West Village. It has almost everything—from fancy cookies, canned goods and cleaning supplies, to charcoal and stomach remedies. For 15 years, I’ve bought newspapers, juice, quarts of milk and an occasional BLT (cooked by the Mexican counter man; after all, Sam is a good Muslim). Sam, his cousin, or younger relative, Ali, is on location from 4:00 in the morning to midnight, seven days a week. As this historic neighborhood has gentrified, the population density has declined. The brownstones that were cut up into small apartments 25 years ago have been restored into huge single-family houses for aging globetrotters, many of whom have more than one home. Sam sells coffee and sandwiches to the local residents’ workmen who are constantly upgrading the properties; and bottled drinks to the tourists coming to visit the ‘Sex in the City’ block. Street traffic may be up, but business is trending down. Immigrants have long been the backbone of American retail entrepreneurship. Unlike Europe, there is no tradition of a merchant class; no long history of selling goods to a built-in clientele. In the new world, the willingness to invest one’s heart and soul, put in long hours, and often enlist family members to labor for nothing other than meals and clean sheets has been the price of entry. Like the family farm in the American frontier, it has been the family store for the immigrant classes in America for the last 125 years. Immigrants across North America carved out segments and while there were exceptions the Greeks seemed to run diners; the Irish ran bars. The founders of both Bloomingdales and

Issue One February 2013

threshold of having to fork over health insurance and other benefits. Further, North American retail is non-unionized so the power still rests with management.

But this is a story about Sam and his bodega on West Fourth Street. When Hurricane Sandy hit New York City, the store closed a little early and then opened a few hours late, minus power. by Paco Underhill The milk and yogurt spoiled quickly and was thrown out. Yet the store stayed open through the power outage for the Gimbels were lower-class Jews selling next five days. Cans of soup, toilet paper, schmatas. Even in the past 10 years, the paper towels, crackers and charcoal Koreans run dry cleaners, the Pakistani were all sold at the marked price. No run gas stations, and Indian families op- gouging. Sam sold whatever he had, erate the aging motels along the highway. and the store became a place for some If you track graduates from America’s gossip and news. Did Sam make any elite business schools, almost none take money? Probably not, especially their first job working for retail compaconsidering his perishable losses. How nies. Retail on this side of the pond is did the family get to work and get home still about homegrown grass roots talent, to the housing project where they lived even if that home is a relatively new one. in Brooklyn? I don’t know. I do know that when the power came back, I walked But in emerging markets, retail has in and handed Sam a hundred bucks. another connotation entirely. Retail He took it with a very puzzled look on attracts new, smart and ambitious workers his face. And I wasn’t the only neighbor whose social backgrounds, education and expressing gratitude. skin tone often don’t fit into a country’s elite. Retail is one place where advanceLocal still means something. A local ment is possible based on individual bank understands its customers. At merit. That advancement could take many HSBC, which claims to be my local forms. Global merchants expanding into bank, my personal banker has changed emerging markets are surprised to find four times in the past five years. I get how willing and trainable a segment e-mails asking for more of my business of their sales staff is. While it may be and wonder what they are smoking. a temporary or seasonal gig for a student The pharmacist in the Rite Aid down or out-of-work professional in the United the street changes every year. These States, in many emerging markets, retail brands and their employees have no is an honorable, respected professional path. idea who their customers really are. In contrast to the “mom and pop” stores in America, labor costs for major retailers remain one of the few controllable parts of the machine. Our software programs that predict labor needs are increasingly accurate. Modeling based on weather, day part and other factors let managers balance part-time workers to a T, keeping their hours just below the legal

Sam’s lease is going to run out at some point in the not too distant future, and we’ll likely get another Marc Jacobs store. Sam’s bodega will go the way of the neighborhood laundromat and Chinese take-out restaurant. I’ll miss Sam and so will my neighbors, especially if Hurricane Sandy comes back for a visit. Paco Underhill is the CEO and Founder of Envirosell, a behavioral research and consulting firm with 10 offices globally. Paco and Envirosell’s work has been featured in The New York Times, 20/20, National Public Radio, Smithsonian Magazine, Wall Street Journal, and other major news media. Paco is also the author of What Women Want, which was published in soft cover edition by Simon & Schuster in July 2011; Call of the Mall, a walking tour of the American shopping mall; and Why We Buy, the bestselling book about retail in history. In addition, Paco’s columns include regular features in major trade publication DDI Magazine, as well as Goldman Sachs’ in-house publication.

Finding the Best Fit: The Modern Woman’s Solution By Tanya Shaw

Moreover, 74.9% of women identified themselves as the primary shoppers for their households in 2011, according to the annual MRI Survey of the American Consumer. But it’s not all on equal footing at home. Despite overcoming obstacles to achieve professional equality with their male counterparts, domestic traditions for women such as household shopping still persists in today’s society.

Women are clearly leading the way to the future. With more and more women holding significant positions in today’s workforce, it’s no secret that professional parity continues to improve. According to a recent Pew Research report, women made up almost half of the workforce in 2009. Furthermore, in terms of education, women earn more bachelor’s (57.2%), master’s (60.4%), and doctoral degrees (52.3%) than men, and just fewer than half (49.0%) of all first professional degrees. (National Center for Education Statistics, 2010) It’s also no secret that today’s “Wonder Woman” wears many hats for many different roles: working professional, supportive partner, caregiver, and primary shopper—just to name a few. Today’s Modern Woman is a multitasking, working mother. According to the Department for Professional Employees (2008), 71.2% of women in the overall labor force had children under the age of 18. Many of these women are single mothers as well. Even in households with two caregivers, recent data from the Bureau of Labor Statistics (2012) found that housework duties still fall predominantly to women. 8

With so many responsibilities and duties placed on professional women, shopping for clothes may be perceived as a yet another chore to mark off the list in everyday life. And, shopping today is made even more time consuming and complicated, as sizes vary widely with no universal standards, making shopping amongst multiple brands and retailers a real chore. Accordingly, busy female shoppers may resort to estimating their sizing needs; making snap purchases without a guarantee of fit;and inevitably, waste precious time returning merchandise to retailers. Traditionally, women have relied on fitting rooms prior to purchase to offer a sizing solution. But this involves a greater time commitment and still doesn’t guarantee a successful purchase. And there’s another challenge that faces women; they tend to be the primary shopper for everyone. Many of today’s Modern Women also shop for their partners and/or children who may not be with them at the time of purchase. If they are shopping on their laptops, tablets or phones, the sizing riddle becomes increasingly challenging for both women and retailers. So how can retailers meet the size and time challenges of today’s professional women and ultimately earn brand loyalty? Enter Me-Ality’s size-matching station, meID profile, and free “intelligent shopping” service. Utilizing its patented body scan system, Me-Ality’s millimeter wave technology and proprietary software collects more than 200,000 points of reference on the human body. The scan process only

Me-Ality

Market Insights from Unique Solutions takes 10 seconds, is 100% safe, and the customer remains completely clothed. These precise body measurements are compared against each piece of clothing offered by the company’s partner brands and retailers. The result is a personalized shopping guide highlighting the sizes and styles that fit the consumer best —completely removing the guesswork out of shopping, regardless of clothing category or brand sizing. With each individual scan, the user receives a unique profile identifier (also known as a “meID”). When shared, it allows other users to access an individual’s recommendation and to make purchases on their behalf in-store and online. The service is free to the consumer and currently can be experienced at approximately 70 mall locations throughout the country. For retailers, the retail service creates higher potential for sales and reduced returns due to size. For holiday 2012, the National Retail Federation expected returns to reach a new record of $46 billion. While retail marketing is an essential key to success, taking steps to reduce all returns, including the size-related ones, is worth examining. Happier customers mean more return customers. No one can afford to lose the Modern Woman shopper; she represents a significant ripple effect of satisfied customers.

Tanya Shaw, Founder, President and CEO Tanya has spent her career providing strategic solutions to many aspects of "individuality" and "fit". She has been recognized with numerous awards including: Ernst & Young Entrepreneur of the Year, Sarah Kirke Award for Top Canadian Woman in Hi-Tech and Outstanding Young Canadian Award. Tanya serves on the Board of the Diocesan Franciscan Society, the Faculty of Management Advisory Board at Dalhousie University and the Advisory Board of the Fashion School at Kent State University. Tanya is a member of the 2010 class of Henry Crown Fellows at the Aspen Institute.

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Issue One February 2013

The

Commandments of Home TO: Ron Johnson, Plano, TX FROM: A Higher Authority RE: The Way to the Promised Land

sheriff in Plano before long. So, as Johnson tries to part the retail seas and find a route for JCP to succeed, I say it is his Home business that is going to help lead the way. More so than at any other national general merchandise retailer, JCP Home is a larger percentage of overall sales, led by soft home. That has always been a core strength of what those in the trade still call “The Penney Company,” and regardless of the name over the front door these days, if Home doesn’t work, JCP doesn’t work. That’s why every time Ron Johnson visits that test store near corporate headquarters in Texas, he’d better be holding a tablet – preferably an iPad – containing the 10 Commandments of Home. So, at the risk of burning a few bushes, here’s a look at the shalts and shalt-nots they need to be practicing down in Plano, if they want passage out of the retail desert.

By Warren Shoulberg

Cecil B. DeMille, where are you now that we need you? The expedition that Ron Johnson is leading the Penney-ites on will not last 40 years – he’ll be lucky if he gets 40 months – but in just about every other way, the trek is of biblical proportions. Johnson is trying to free one of the most enslaved retailers in the business from what seems an eternity of lackluster merchandising, dysfunctional buying and a generally disjointed business strategy that seems to go in every direction but forward.

Frogs and pestilence have nothing on this saga. Whether he can lead the company to the Promised Land remains to be seen. Frankly, 2012 was just a warm-up and the real test comes this year when JCP has to start anniversarying its lame numbers that started last February. If they can’t beat those comps, Bill Ackman – the hedge fund honcho who has been manipulating this whole thing from the other side of the balance sheet – is going to show why patience is not one of his virtues and there’ll no doubt be a new

Thou Shalt Not Have Multiple Merchandising Strategies. When Johnson came on the scene a year ago he promised a simple, singular merchandising plan. It’s been anything but. In his haste to avoid using phrases like everyday-low-pricing or coupons, he has danced around enough euphemisms to fill up the Old Testament. And, this past holiday season the store was all over the place – there were sales that were refused to be acknowledged as sales. There were coupons called everything but. One analyst even went so far as to praise Penney for this new promotional bent, comments that no doubt caused Johnson to sweat profusely in his Izod sweater. Johnson has to define his strategy – to his buyers, his salespeople and his customers – and he has to stick with it. Walmart customers know they will get low prices. Kohl’s shoppers know they will buy everything on sale. Macy’s customers know they need coupons. JCP shoppers don’t know what they are going to get.

II.

Thou Shalt Not Have Fromthe-Grave Images or Likenesses. Joe Fresh is fresh, sure, but Michael Graves? Conran? Even Martha? Johnson has chosen a curious collection of

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has-beens, barely-weres and generally used-up brands and names on which to stake its home business. The brands he inherited – Royal Velvet and Liz Claiborne – are not much better.

III.

Thou Shalt Not Take Budgets in Vain. Right now, JCP is burning through cash faster than you can build a 21st Century Golden Calf. The plan was that all of the changes in the store were going to be financed by cash flow and savings from cost cutting. But the burn rate is increasing while sales continue to plummet. Putting 100 shops into 800 JCP units is one hell of a tab, but it’s the basis of the entire turnaround strategy. Don’t be surprised to see those plans scaled back if cash flow doesn’t improve soon. But as with many things for the supremely confident all-ornothing strategy Johnson espouses, it makes you wonder if there’s a back-up plan…and what in the world it might be.

IV.

Thou Shalt Remember the Holidays. These month-long promotions are going to kill Penney. For better or worse, shoppers expect big sales on President’s Weekend, Columbus Day and every other cockamamie holiday. March is not a holiday. Maybe schools and offices aren’t even closed on days like Valentine’s Day and Election Day, but no matter: there’d better be a sale that day – and a preview-shopping day the day before…or else.

Thou Shalt Honor Thy Mother and Father…and All the Other Older Shoppers. When Johnson first presented his grand plan, he talked about how Penney was only getting four out of 100 shoppers into the store as customers, and if he could even increase that by one, that would represent a 25% increase in traffic. True, but that logic was based on keeping those original four shoppers as customers and there’s every reason to believe that is not happening. The traditional Penney shopper is among the most loyal customers a business could have: after all, she’s been shopping the store for generations. But she doesn’t quite get the new JCP. From the Home perspective, she still wants her floral sheets and promotional towels. For any plan to succeed at Penney it must find

Issue One February 2013

a way to retain the existing customer base while bringing in new shoppers.

VI.

Thou Shalt Not Kill the Window Coverings Department. Once upon a time – and not all that long ago – J.C. Penney controlled more than a third of all the curtains and draperies sales in the country. It was an amazing position, virtually unparalleled in general merchandise retailing. Before Johnson came to town, prior management was already starting to scale that business back. It’s labor intensive, somewhat messy, and more than a little complicated. Yet that’s the kind of thinking that has turned many department stores into glorified clothing stores. The truth is, window coverings are a core business, one that gets the newly formed household into your store and exposes them to the rest of your merchandise offerings. It is the shoe department of Home. It needs to thrive.

VII.

Thou Shalt Not Commit Advertising Adultery. The groundbreaking ad programs run by Target and Apple are among the most important and influential campaigns in the history of the business. The fact that Johnson was affiliated with both companies is impressive. But the JCP advertising we’ve seen over the past year is among the most derivative, unoriginal and ineffective example in marketing. It started off last February setting the stage for what was to come… but the “it” never came. When the holiday ads promoting products and prices finally broke, they bore no real resemblance to the campaign that had preceded it and they never stood a chance against the Macy’s and Kohl’s spots that hit it hard. You can get away with just your logo without a voiceover if you are, in fact, Apple or Target. But not if you’re JCP…or Penney…or whatever your name is.

VIII.

Thou Shalt Not Steal Okay, so maybe going after Martha Stewart wasn’t exactly stealing, just an inside job, with Ms. Stewart a willing accomplice, but it was clearly an attempt to take another retailer’s possession. I happen to be one of those who believe

Martha Stewart does have a lot of life left in her brand and that using her as a linchpin for Home is not necessarily a bad idea. But the Martha move was fraught with peril right from the start, trying to box out Macy’s. Now Martha is not going to be a very big part of the picture this year – at least – and there is not a credible Plan B from all appearances.

IX.

Thou Shalt Not Bear False Promotions. Home remains one of the most price-promoted products in the store. Let’s face it, nobody really needs another set of white towels or a new frying pan. That’s why, unlike fashion where new styles drive business, or cosmetics and fragrances where the newest name gets a shopper all hot and bothered, sales are what makes people buy home products. When Ralph Lauren first got into the home business three decades ago, he refused to run sales and tried to sell everything at full boat. It was a disaster. It wasn’t until Ralph relented and got on the White Sale schedule that the brand started to click. It’s one of the reasons Walmart’s home business is underdeveloped compared to its closest competitors. Everyday low pricing does not work in Home. If you don’t believe me, ask a Bed Bath & Beyond shopper with a handful of 20%-off coupons.

Thou Shalt Not Covet Kohl’s or Any Other Store For That Matter. Give Johnson credit for this one. He really is trying to create a new retailing format. For years, Penney tried to be Kohl’s and it learned there already was one. It’s the same lesson Target learned when they started to do an end-run around Walmart 15 years ago. Ultimately this will be the way Ron Johnson is judged: can he create a store that is different enough from his competitors while similar enough to still be competitive? That’s the only way we’ll know if JCP gets to the Promised Land… or just wanders around aimlessly until it becomes utterly lost.

Warren Shoulberg is editorial director for several Sandow Media business publications and he still believes in Ron Johnson… but less than he used to.

MK is no LV: It’s Not Coach Either

Is this any way to manage a Jet Set brand? Maybe, if you’re looking for a quick exit.

Listening to Michael Kors CFO Joe Parsons speak at ICR on January 16, 2013 on the Kors Jet Set aesthetic—spanning wings, wheels and water—I was reminded of the brand Louis Vuitton, also rooted in luxury travel.

by Marie Discoll, CFA

Past performance is not indicative of future results, or is it?

Well, Kors may capitalize on travel’s allure, though I would argue that flying for all but the very wealthy I make the comparison to Louis Vuitton for several is similar to herding cattle—and not at all glamorous reasons, beginning with its origins as a provider of luggage even for the luxury traveler. The Michael Kors brand in the 1850s. In October 2010, I visited Paris (not just has enjoyed phenomenal sales growth in the past four because I love to travel… and I especially love Paris) years as evidenced by a 49% CAGR, with sales growth to see the installation of a Coach shop-in-shop at the accelerating in 1HF13 to a 73% clip. Income grew even Printemps flagship on Boulevard Haussmann, and do faster at 124% four-year CAGR and 135% in the most a store tour of Ralph Lauren’s new Left Bank flagship recent six-month, year-over-year period, reflecting on Boulevard Saint-Germain. While I was there, I visited a 1000+ basis point increase in gross margin. This is the Musée Carnavalet (the museum of the history of Paris). principally due to a growing proportion of higher margined I never quite understood the fascination and demand handbags, accessories and small leather goods (SLGs). for Louis Vuitton until I walked through the museum’s There are strong double-digit same-store-sales gains, exhibit, Voyage en Capitale, Louis Vuitton & Paris. ranging between 36% and 45% in the most recent six quarters which also helped to increase the bottom line. On exhibit were the tailor-made trunks for nobility, North American store count almost tripled since 2009 celebrity and the wealthy. The exhibit told the brand story to 214 (from 74). rooted in travel, a phenomenon that excites the imagination with the romance of new places and people, and different This heady growth is reminiscent of another pacesetter— cultures and experiences. What holds more allure Tommy Hilfiger in the 1990s, led by the same Silas Chou and than travel? At the show, I discovered the basis of the Lawrence Strulovitch who are on the board of Michael Kors. brand’s aspirational DNA, which combines best-of-class Tommy Hilfiger grew from $107 million in 1992 to $1.7 quality and aesthetic with fashion’s excitement and billion in 2001, before dropping to $836 million in 2008. superior execution at every touch point. At Tommy, sales grew by expanding wholesale, entering new categories, and growing off-price. The brand also Is Michael Kors brand association with Jet Set travel propelled the growth of a new lifestyle category, Urban. designed to be the LV of the 21st Century? But when that demographic moved on to newer (and more

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authentic) urban brands, Tommy lost the Hip Hop shopper as well as the mainstream mall mom. Sales and earnings shortfalls followed, and the shares plummeted 39% in 2000 when the company announced 2001 profits would drop by 30% to 40%. I worry that the celebrity Michael Kors enjoys due to his past participation in Project Runway could be just as fleeting as the Hip Hop related success of Tommy Hilfiger. What’s the brand management strategy?

One truism for good brand management visible at companies as varied as Coach, J. Crew, Louis Vuitton,

with Michael Kors 23.8%; by 2017 analysts project Coach’s EBITDA margin to expand moderately to 36.4% a full 780 basis points wider than the 28.6% projected for Michael Kors. Recently Coach reported weaker than expected North American sales and EPS, prices, and Capital IQ of CapIQ estimates, plus shares were off about $10 or 16%. Nonetheless, why exactly does Michael Kors stock trade at more than 100% premium (31X versus 15X) to Coach shares based on forward p/e multiples? I’m not sure investors are fully cognizant of the creative machinery and superb execution at Coach that is not easily to replicate. Coach designs for its full-price locations and flows new collections monthly, employing a broad and shallow inventory discipline (read little inventory risk).

I worry that management is so focused on optimizing current demand that they are diluting the long-term value of the brand. Ralph Lauren and Zara, is getting the supply/demand equation right. Controlled supply creates demand. Look at the success of J. Crew’s limited edition collection, which frequently sells out quickly; or Zara’s fast fashion and Coach’s full price product, both with shallow inventories. Limited supply nurtures brand equity, grows demand, and supports full price. Compare that to what Michael Kors is doing in its full-price locations, wholesale accounts, and the off-price channel. This holiday season, Michael Michael Kors handbags and SLGs were discounted 50%+ at Macy’s, Century 21 and Nordstrom Off the Rack in New York where many international shoppers get their first access to the brand. In fact, the Kors flagship on Fifth Avenue was already offering pre-holiday discounts. This is very disturbing for me. I worry that management is so focused on optimizing current demand that they are diluting the long-term value of the brand. When will the momentum end? It’s always hard to be ahead of trend, be a latter-day Cassandra (who foretold the fall of Troy), and prophesize doom. Doom maybe overstatement, but trading at 31X EPS estimates for the next 12 months versus 19X for a peer group of 12 apparel and accessory brands and retailers; 15X for Coach shares; 19X for Ralph Lauren; and 18X for LVMH, I see little upside. While sales and earnings are likely to achieve better than industry growth for 24 months, multiple contractions are likely. Looking at CapIQ revenue and EBITDA (earnings before interest, taxes, depreciation and amortization) estimates through 2017, the incremental revenue in 2014 is $600 million for both, and thereafter, Michael Kors is projected to add about $100 million more to revenues annually than Coach, arriving at $4.4 billion revenues in 2017 to Coach’s projected $7.5 billion. Moreover, on an EBITDA basis, Coach’s EBITDA margin of 35.4% in 2012 compares Issue One February 2013

Full-price sales trends, along with regular communications with its consumer base, reveal best-selling silhouettes and colors, which Coach then produces for its factory stores, deriving economies of scale with its deep inventory commitments. Fewer than 20% of Coach clients crossshop full-price and outlet channels. The factory product is derivative of the flagship merchandise, arriving in the outlet channel six to 12 months after the original product sold at flagship. Coach operates these two distinct channels targeting two different shopper profiles with different merchandise. Not so at Michael Kors, where products follow a more traditional seasonal pattern. Kors doesn’t offer the same level of excitement and newness that Coach does with its strategic flow of new merchandise monthly. I recently heard Chanel’s Global CEO Maureen Chiquet who entertained questions for almost 90 minutes at the Global Luxury Retail Forum. In sum, luxury brands are about exclusivity; they are in the desire business; and it is strategic not to be everywhere. ‘Nuf said! Note: Forward p/e’s are based on closing prices on January 15, 2103. Full disclosure: I have a small position in Coach and a healthy inventory of Coach bags and accessories. Marie Driscoll is a highly experienced equity analyst focusing on apparel brands, apparel retailers, and luxury goods stocks. She has served in key analytical and business development roles in leading financial research firms. Access to industry leaders, financial acumen, and analytic insight support her actionable investment advice. Marie was recognized three times in The Wall Street Journal’s “Best on the Street” analyst survey, capturing the first place ranking for stock selection in the Clothing & Accessories industry in 2009. Marie started Driscoll Advisors late in 2011 providing consulting services to academia, industry, and non-profits. Previously (2003-2011) she was with Standard & Poor’s equity research department as Director of Consumer Discretionary Retail.

A Tale of Two Brands by Jane Singer I’ve long been a Michael Kors fan buying gorgeous double-faced wool dresses on sale at Bergdorf Goodman or in the Michael Kors store on Madison Avenue— only at 70% or more off, after Christmas and in the early summer. These dresses, and some pants, skirts, jackets and wonderful cashmere sweaters, are lined up like so many soldiers in my closet ready for almost any outing. The styles remain basically the same year-in and year-out. Beautiful fabrics such as the double-faced wool, along with heavier wools and tweeds, matte jersey, raw silk, satin, and cotton twill for summer. All styled classically and elegantly. Feminine. Flattering. Simple sleeveless sheaths and separates with some accessories, handbags and shoes to round out the collection. Wearable, luxurious, classic American style. But now, since Michael Kors has gone public, the positioning of a lower tiered line, Michael by Michael Kors, into a global lifestyle brand seems a distinctly different brand proposition and one that is, perhaps, at odds with the couture line. Of additional concern is the thought that the couture line has suffered as a result of the greater attention to, and investment in, the lifestyle brand. The lifestyle brand is designed and merchandised for a different and younger customer who likely has never seen, heard of, or cared about the Michael

Kors collection or its understated, classic American positioning and style. These customers know Michael Kors from his successful appearance on Project Runway; from Michael Kors advertising; and from Michael Kors licensed watches, handbags and small leather goods featuring a prominently displayed MK logo in shiny brassy, brass. The new Michael Kors brand is described by management as a “global luxury lifestyle brand with a multi-channel strategy, unique design and strong infrastructure …a compelling assortment of luxury merchandise and exceptional service in a Jet Set store environment.” The term “Jet Set” appears often in company communications. As a child of the 60’s when ‘Jet Set’ actually meant something—picture Princess Margaret flying off to Mustique, Bianca Jagger going anywhere. And before international travel became so much more like getting on a bus at the Port Authority than departing in style at the Eero Saarinen designed TWA terminal at Kennedy— “Jet Set” was defined as: “An international social set made up of wealthy people who travel from one fashionable place to another.”

My concern for Michael Kors is that the company is diminishing its brand capital to build the global lifestyle brand where a big return on equity is hoped for. 14

Well, the young people in current Michael Kors advertising aren’t getting on any planes. They are portrayed as a somewhat diverse group, upscale, a bit glitzy, and they seem to be having fun clubbing while staring at the camera and wearing lots of watches, sunglasses, bracelets and pocketbooks—the new heart of the brand. The first time I got one of the ‘look books’ in the mail for Michael Kors—which is actually Michael by Michael Kors, or Kors by Michael Kors—the brand architecture seems not to be clearly defined, I thought: “Wow: these styles are cute and look how cheap they are!” But upon inspection in one of the ‘lifestyle’ boutiques, I realized the difference. A bare hint of the actual Michael Kors classic style, but with an edge. A zipper, a brass plate, some jewelling, leather or other accoutrement to add pizzazz, and a price point that can appeal to a broader, younger customer base. Now the professional in me is wondering if the dual branding can work. Will the couture line suffer from inconsistent positioning in both product and communications and the emphasis on the lifestyle brand which clearly must make up the majority of the business and will be the engine for continued growth? Is it possible to have a “global lifestyle luxury brand” when the top tier of the brand is subsumed by, and different than, the more mass appeal, lower tiered products? Unlike Ralph Lauren, who invests heavily in the top tier, and whose brand architecture and product is well defined and well controlled both in store and in communications from Collection, through Black Label, Blue Label and the more mass distributed Lauren sub brand (yes, that too along with Michael, by Michael Kors or Kors by Michael Kors can be found at TJ Maxx and Marshalls) Michael Kors seems to me in need of the brand police. I made several store visits and conducted qualitative research to find out how the brand duality is playing out with customers. The Madison Avenue store, which really does showcase the total

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couture or ‘runway’ line is often an empty crypt. According to one associate, when lifestyle customers come into this store they say: “DUH! What is this?”

Of greater concern are those customers who equate the broader appeal with diminished quality which further weakens overall brand equity.

The customers I interviewed who did not know the difference between the lifestyle and the couture product, and who judged the lifestyle brand on its own merits, seemed to get at least part of the message the lifestyle brand is sending: "Mid-priced similar to Tory Burch… Youthful clothes at good prices." I interviewed one customer from Australia in the Michael Kors accessories boutique at Bloomingdales who was ooing and aahing over the handbags. “What do you like about Michael Kors?” “I just love Michael Kors.” “Well, what do you like about the Michael Kors?” “I just love everything about Michael Kors.” “Do you think about the clothes when you think about the brand?” I asked. “No, I don’t know anything about the clothes. I’ve never seen the clothes.”

One customer purchased a Michael Kors dress for her son’s wedding. Now she feels that he “is more mass market today than seven or eight years ago.” Another customer describes the brand as “Now crummy...the big fake watches…the purses with huge logos…” An elegant Westchester customer “used to buy Kors when I was younger. I think it was more high-end then. Their bags are all in the discount stores now.”

But those who know the brand and have had some history with it tell a different story. They recognize the difference and see that while there is some value and style in the lower-tiered line, the overall quality has been diminished by the lifestyle expansion. One customer described the lifestyle brand as: “very classic, casual with a tiny bit of exaggeration…but, actually, when I saw it up close the quality was just so-so.” Another, “I love the style, but the quality is just OK.” While still another has turned away from the brand altogether: “I really don’t buy or wear Kors…my overall opinion is that it is too brassy and sort of stale.” A fourth rejected the line "…the lower priced version of the brand as a bit too mainstream and mid-market for me.” Some customers were disappointed that Michael Kors is no longer exclusive: “It’s really nice stuff, used to be much more exclusive and special, now a bit overexposed.” While others found that the product lacks distinction or originality: “The bags are copycats of LVMH, Prada, Ferragamo, Fendi, you name it… the same bag styles are stolen then blinged up a bit.” “I could buy a bag, but, I find them not that original… prefer Hermes, Prada, Chanel.”

Issue One February 2013

Brand equity is something that is built over time. A brand is a promise fulfilled. An expectation of a certain quality, style, design, price point and image that over time comes to represent something a specific group of consumers can count on. A good deal goes into building brandequity. Once it is built, it needs to be nurtured with continuing consistency in product, fit, pricing, promotion and fulfillment of consumer expectations. It is always tempting to draw on the equity that has been built in a brand (or a house, or a valuable portfolio of any kind). But what goes in must be drawn down judiciously and wisely. Because, once withdrawn and spent, there is the distinct possibility that there will be nothing left. My concern for Michael Kors is that the company is diminishing its brand capital to build the global lifestyle brand where a big return on equity is hoped for. This is easily achieved in the short term by investing in new stores and advertising and promotion to support the lower tiered brand. But, I think attention must be paid to the top tier of the brand. The couture line/runway collection, executed successfully, is what will continue to provide Michael Kors with design and fashion authority. This is the equity that goes into the brand bank which offers the opportunity for a “jet setting lifestyle global brand” which may in reality be nothing more than stores filled with handbags and watches featuring those brassy MK logos. But to remain valuable, the MK logo must mean something and that something requires significant investment and acceptance on the runway and

by customers. Otherwise I fear the brand risks descent into that nether world of meaningless mass market brand extensions. One customer described it well: “I used to think of Michael Kors as an upscale modernist—as in clean line— classic with a very current vibe. Now it strikes me as a down market imitator. We have a Michael Kors store in a mall in Pittsburgh so I go in about once a year but have never bought anything—seems like a bit of too trendy risk.” I heard recently that one Michael Kors executive earned $50 million dollars after the initial public offering. Good for her I say. But, for future long-term investors and customers, maybe not so much. Time will tell, and it takes a long time to build companies with design authority and heritage. Certainly, there are some longterm success stories. But, in the end, many brands take profit by selling down the price line until there is little value left whatsoever.

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.

Do I Care? And Why You’d Better Care About These Five Words of Activation

By Grace Ehlers

Brands love me. They find me in the recesses of my social interactions and they ask (read: incentivize) me to be their brand ambassador. Who am I? I am any Millennial/Gen Y, and broke as we are reputed to be, we are quickly (like in the next five years) about to start outspending your other favorite customers, our parents, the Baby Boomers. And brands (not all, but definitely the ones we will be interacting with for years to come), are quickly taking the initiative to not only put themselves where we are, but also to make themselves known as one of us. You might ask, “How do they do that? How does Nike become a twenty-something?” I will tell you how: they speak to us like we speak to each other. Because for the first time, your brand is in conversation between posts made by my own twenty-something friends. And how better to relate your brand to me and my friends than by using terms we use, or that excite or interest us. Clearly, I am not talking Internet-speak (LOL)—I am talking activation words; words that convey to us who we want to be; how we understand the world to be; or even how we would like the world around us to become. Because those who understand the way Gen Y ticks, understand that more than anything else, we are an aspirational generation. Helping us aspire— feeding your brand vocabulary with words or concepts we aspire to—activates us as customers that want to interact with your brand, both socially and commercially. I’m going to share with you five words of activation that have the potential to activate your Gen Y or Millennial customer, and why knowing what each one means and why it matters will let them know you know the “Y.”

Adventure

Far from the Space Mountain type of adventure, Millennials dream of the kind of adventures that they can write home (i.e. Facebook) about. The more obscure, the more secluded, the better. Drag racing in Patagonia? Surfing in Thailand? These are the ways Gen Y lets its hair down. “Why,” you ask? Because we are a riskaverse generation 365 days a year. When the opportunity to take a walk on the wild side presents itself, we’ll take it. For the rest of the time, we read modern adventure blogs like Atlas Obscura, or the Adventure League that let us dream about our adventurous other-selves. It’s why Cadillac’s “Cadillac ATS vs. The World,” where affable professional drivers race through breathtaking-but-nearly-fatal cliff-side highways and caves, “An adventurer’s dream. A driver’s dream.”

has nearly two million views. It’s why twenty-year-olds want to join the Explorer’s Club.

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INVENTION

Similar to the sentiment of exploration and adventure, Ys’ entrepreneurial heartstrings are pulled with every start-up or design think tank they can find. It is why philanthropic websites like Kickstarter have achieved such stellar success—not because their audience was dying to give away money in the middle of the Great Recession, but because they want to be a part of funding the process of invention and innovation.

CODE

No, we aren’t trying to get you speak in code, but coding is a passion—yes, a passion! Gen Ys wish they knew how to do half the things their coder/ hacker friends can do. Not only that, the stereotypical hacker nerd is now at the top of the social food chain, a shot straight up from the bottom rank years ago. Coding is the language we will teach our children; it is the “Do you know Microsoft Office?” of future job interviews. And the Internet community is responding to it with agencies like Codeacademy offering free, gameified coding tutorials that will, in fact, teach you how to code if you give it enough of your free time. In other words, engage the coder-wannabees —all of us—Gen Y.

CURATION

Everyone. Is. A. Curator. Now. Of everything, and of anything. It is the Gen Y way of sorting through the virtually infinite amount of information we receive every day and every moment of the day; we curate our Google Reader feed; our Netflix Instant Queue; our online presences; and our lives offline. Our unanimously favorite brand, Apple, and now Windows, is taking cues from our need to collect what is relevant to us and position each in a way that makes sense to us. It should come as no surprise then, that with the first of the Gen Y children the term “learning disabilities” is now “learning differences.” Personal differences in approach and perspective is the new normal, and this is a generation that wants to celebrate and showcase theirs.

VIRAL Viral is today’s

“mainstream,” the organic way the Internet disseminates new information. “Going viral,” means that something (a video, an article, an image, a what-have-you) has caught on and reached an exponentially larger audience than it would usually reach, anywhere from thousands to millions of impressions. What’s more is that Gen Y is only the beginning of virality—the generation after Y is beginning to be known as Gen V, for Viral. Watch a tween on a laptop and you will understand that the hierarchy of information has been flattened.

By understanding the significance behind these five words of activation, you will begin to understand your ever-growing Gen Y consumer base; what makes them tick, and how to activate them with words that make them feel you know what they are talking about. No more “transparency” talk; no more “innovative design” speak; and definitely no more “greenwashing” (don’t get me wrong, we like green, just not in the way it’s getting thrown around). Speak to us like you would in the cafeteria, as one of us, and we’ll speak with you.

Issue One February 2013

Grace Ehlers is a trend forecaster, Gen Y consumer expert and freelance consultant in digital media strategy. She lives in Williamsburg, Brooklyn where she often finds that everyone in the grocery store is under 30.

Tesco Felled By Hubris, Leaves U.S.A.

Quitting the country is the easy part. Now, what about all that infrastructure? Chronicle of a Failure Foretold Years from now, MBA students will be puzzling over how Tesco, the British food retailer, could have stumbled so badly in its venture in the United States. Well, more than stumbled. As I predicted more than a year ago in a news feature in the Robin Report, Tesco has called it quits in the U.S., just five years now after entering the country.Tesco racked up a horrendous record: it managed to open about 200 stores in this county, most in California, plus a few in Arizona and Nevada. It burned through well in excess of $3 billion counting startup costs and cumulative losses during its time in this country. At no time did Tesco turn even a modest profit with its Fresh & Easy stores, as they were dubbed. That dismal outcome stands in ugly contrast to its stated ambitions. Tesco predicted it would have many hundreds of stores in the U.S. by now. It envisioned a quick leap to the East Coast with fill-ins elsewhere yielding a network of 10,000 stores. The reality of the situation has cost the career of Tim Mason, Tesco’s U.S, chief officer. When Tesco announced in December it was quitting this country, it also said Mason would immediately leave the company. Mason was a 30-year veteran of the company and at one time was seen as the next chief executive officer of all of Tesco.

By David Merrefield

Mason gave it a good shot. He moved to California from Britain with his wife, Fiona, and three of their seven children to direct the fledgling Fresh & Easy empire. Fiona took up golf to wile away the hours while Mason toiled. To the good for Mason, he left with a huge buyout and an astoundingly generous pension. Tesco now faces the challenge of how to withdraw from the U.S. without abandoning its assets here entirely. Flashback Fact checking But before we assess Tesco’s exit options, let’s take a look at how Tesco got into such a fix. After all, total failure didn’t seem to be in the cards when Tesco arrived on these shores. Tesco is a huge company with annual sales of about $103 billion. It operates a total of about 6,200 food stores in more than a dozen countries; it’s no stranger to operating in diverse cultures. Tesco is the world’s third largest food retailer, trailing only Walmart and Carrefour. It’s difficult now to recall the fear Tesco struck in this country because of its deep pockets, success elsewhere, and outsized ambitions. Many supermarket operators and industry observers were convinced Tesco represented a huge competitive threat to supermarkets. Some even predicted Tesco could humble Walmart. I was never of the opinion that Tesco would ride roughshod over established

The chief reason Tesco failed in the U.S. can be summed up in one word: “hubris.” Tesco did very little market research in its target territory.

retailers. During the Fresh & Easy run-up toward store openings, and at the time stores started to roll out, I predicted in Supermarket News, the trade publication of which I was chief editor at the time, that Tesco would have a very tough go of it in this country, and wouldn’t fulfill many of its ambitions. I also pointed out that numerous European food retailers have tried to establish a presence in this country, and each one that tried to introduce a new model failed. My voice of reasonable doubt was a lonely one at the time. The chief reason Tesco failed in the U.S. can be summed up in one word: “hubris.” Tesco did very little market research in its target territory. Instead, it sent a team of about 50 executives to California to study how consumers shopped. This effort was amusingly code named “Project Aquarius.” By befriending consumers and entire families, the intrepid Tesco Aquarian team tried to leverage customers’ ideas about what they might want in an entirely new shopping venue. Clearly, this was a futile pursuit. Consumers may be good at learning how to tease value and convenience from the shopping options set before them, but they are not professional marketers. They have no valid notion of what a store format that doesn’t exist should look like, or even what they’re missing from their current options. Nonetheless, a blueprint for the new Fresh & Easy format was developed, and Tesco started to acquire a number of locations so multiple stores could be opened simultaneously. The idea was to fire a big burst of openings that would startle incumbent food retailers and leave them helpless before the new format. More than that, Tesco developed a vast and costly 1.4 million square foot

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distribution center topped by a huge rooftop solar array to power it. By the way, it’s the largest solar unit in California. Next door, a factory was constructed to manufacture the fresh-prepared meals and pre-packaged produce items to be offered in the stores. All that happened before a single store was opened. Failure Forecasted The effect of all this spending and activity was to greatly increase the cost of potential failure. In fact, it pushed Tesco into a “do or die” position right out of the gate. A more prudent approach would have been to open a few store locations supplied by a third-party wholesaler so format adjustments could be made a low cost. Sure enough, format adjustments were required all right. When the first Fresh & Easy stores were opened, the conspicuous lack of shoppers signaled that something was amiss. Indeed, nearly everything was amiss. The Fresh & Easy stores, at 15,000 square feet or a bit more, were far smaller than local consumers expected. So was the limited product offering, consisting of restaurant-quality, freshprepared meals; a small grocery line; pre-packed produce; and beer and wine. The product range was simply too small, and had the huge inconvenience of forcing consumers to make yet another food-shopping stop to get what was missing. Also, American shoppers have never been big fans of pre-packed produce. The stores featured consumer-operated checkout kiosks only; there were no staffed checkout lanes at all. Many shoppers were, and still are, reluctant to use self-checkouts, preferring a slightly higher level of service. Finally, the stores were judged by consumers as being uninviting, stark and cold, lacking much in the way of decor and charm. The name was uninspired, too. Many consumers joked that Fresh & Easy must be a place to buy soap, deodorants or femininehygiene supplies. Tesco is apparently untroubled by that since it has started to use the Fresh & Easy name in its supermarkets in Britain as a private label line. Issue One February 2013

In the end, Fresh & Easy presented to consumers as little more than a chain of up-market convenience stores that sold prepared meals for home consumption. This could have played well in an urban environment, but it was all wrong for California.

style, or to Walmart for its small-store food format. It’s more difficult to envision a buyer for the distribution and manufacturing center. It’s also possible that an investor could buy the whole business to parcel out to numerous buyers.

Exit Strategy

As something of a precedent to Tesco’s plight, in 2004 British retailer J. Sainsbury sold its Shaw’s chain of supermarkets in the Northeast U.S. to Albertsons so it could refocus attention on its drooping sales back home. The Shaw’s saga didn’t end well. Albertsons, with Shaw’s in tow, was later sold to Supervalu. Shaw’s was for long a millstone around Supervalu’s neck. Albertsons new owner, Cerberus Capital Management, will most likely feel the weight of Shaws too.That might be seen as a cautionary tale for potential Fresh & Easy buyers.

So now Tesco must figure out how to depart the U.S. with as little harm as possible and, it hopes, without simply shuttering assets and walking away. Regrettably for Tesco, its options are few at the very time the need is greatest. Tesco is facing slumping sales and profits in its home country, where it generates the vast proportion of its revenue, and needs to refocus attention there. The best departure outcome for Tesco would be to quickly unearth an investor or retailer that would buy the entire enterprise and continue to operate with the hope that profitability could somehow be achieved. This is not likely. Tesco could also seek a partner that would do much the same under Tesco’s license, offering a way to lift investors above the hazard of purchasing the whole thing. This is less likely. The most likely and most difficult outcome is that Tesco must sell the stores and distribution assets piecemeal. Some of the store sites could have utility to dollar stores, a surging store

In sum, Tesco’s prospects for an exit strategy are about as bleak as its potential for success was from the start. The only good thing is that those MBA students will have a project in addition to the AOL-Time Warner fiasco to mull over. David Merrefield is principal of DRM Initiatives, Inc., a retailer consulting group. He is the former Vice President and Editor of trade publication Supermarket News. He is based in New York City.

Sleight of Hand

Consumer Facts from Cotton Incorporated Lifestyle Monitor

The Touch, the Feel — but Not the Performance — of Cotton By Emily Thompson

The recent ruling by the Federal Trade Commission (FTC) to fine four retailers, including Amazon.com and Macy’s, for mislabeling textiles made from bamboo rayon as simply “bamboo,” underscores the seriousness with which the government is enforcing truth and clarity in labeling. Some onus, however, is also on consumers, some of whom are largely unaware of recent fiber substitutions in traditionally cotton-dominant apparel—a shift that can impact the care and thus, perceived value, of their purchases. The ubiquity of cotton in apparel and home textiles has made it the fiber to beat, or at least the one to imitate. Manufacturers of synthetic fibers and some wood pulp rayons have become adept at duplicating the tactile softness long associated with cotton. To consumers, cotton is a known quantity, especially where the feel, or hand, and laundering are concerned. Many consumers have discovered, to their dismay, a sleight of hand in the form of fiber substitutions in traditionally cotton-rich apparel. High cotton prices in 2011 resulted in some retailers and manufacturers substituting synthetics for cotton, or blending cotton with other fibers to keep margins in check, but consumers found the quality lacking. Sixty-three percent of consumers said they felt bothered that retailers and brands may be substituting synthetic fibers for cotton in their T-shirts, and the same percentage of consumers were bothered by the possibility in their denim jeans, according to Monitor data. Furthermore, consumers reported a willingness to pay more to prevent future fiber substitution; 56% said they would pay more to keep cotton from being substituted in their jeans and T-shirts. 20

“Even though consumers’ quality expectations have remained historically consistent, they are not immune to price changes at retail; more than seven out of 10 consumers say clothing prices have increased from last year, according to Monitor data,” says Kim Kitchings, Vice President, Corporate Strategy and Program Metrics, Cotton Incorporated.

Additionally, a majority of consumers say the clothing they purchased recently does not last as long as it used to, the fabric of their clothing is thinner than it used to be, and nearly half say clothing typically made with cotton is now made from other fibers. “Given these changes, it is not surprising that 44% also say the quality of clothes www.TheRobinReport.com

they recently purchased has declined just from last year,” says Kitchings. Post-recession consumers, though, continue to focus on price tags, since price has always been a key driver for purchasing decisions. In 2000, 58% of consumers reported purchasing clothing on sale, which increased to 68% in 2012. A look at 2012 holiday shopping behavior gives credence to this theory: 76% of consumers said they planned their holiday gift purchases this year, relatively flat from 2011, according to the Monitor. And 67% of consumers said they typically researched gifts online before buying in-store, while many consumers opted to reserve their shopping for major sales days like Black Friday (42%), Cyber Monday (41%), National Free Shipping Day (24%) and Thanksgiving Day (16%). Price, however, is only one aspect of how today’s consumers perceive value. “While consumers accept that apparel prices are higher today than they were two or three years ago, they do not want to pay more for less,” says Kitchings. One key component of the value equation is apparel longevity. Cotton fiber substitution and blending may

have addressed one-half of the value equation, but fell short on the other half with the unintended consequence of complicating home care and laundering. “Consumers get cotton; they understand how to wash and dry cotton garments,” says Vikki Martin, Director, Quality Research and Product Evaluation, Cotton Incorporated. “But high percentages of non-traditional fibers in items like t-shirts and denim, for example, must be cared for differently, which can ultimately affect longevity.” “Consumers are still very much price-conscious,” says Kitchings. “They may feel the item and check the price tag before they buy, but it’s only when they’ve brought the garment home and worn it when they realize they didn’t get what they expected.” Unlike price, garment care is currently low on the consumer check list. Topping consumer concerns are fit (97%), comfort (95%), quality (92%) and price (92%). With equal value placed on quality and price, it is surprising that while 48% of consumers say they check the garment care label before they purchase an item, a full 43% say they do not check the garment

Issue One February 2013

care label until after they have worn the item, according to Monitor data. For retailers and brands, addressing the new consumer value proposition entails keeping one eye on pricing and the other on managing consumer expectations of quality and performance. Labels help, when they are read and when they are clear. “Not only does the word ‘Cotton’ on the fiber content label induce a feeling of trust and understanding, but the Seal of Cotton graphically conveys the fiber content, giving consumers a sense of confidence in their ability to care for the garment, based on experience and trust in the brand,” explains Kitchings. “More than eight out of 10 consumers recognize the Seal right away. A label that says ‘bamboo,’ or even ‘rayon from bamboo,’ is less clear.” Emily Thompson is the Associate Director, Editorial at Cotton Inc., the research and marketing company representing upland cotton. For more information on the Lifestyle MonitorTM Survey, please contact her at ethompson@ cottoninc.com

What performance measures and goal-setting metrics are you currently using? How do you know they accurately reflect individual store performance? Are they helping to create a high-performance culture? We are immersed in a data-driven environment and increasingly dependent on metrics and tools to measure and monitor our businesses. But most of us are willing to admit that transforming data into valuable insights is an ongoing challenge. In the December Robin Report, I introduced a new customercentered metric—Return-On-Visit (ROV)—that enables retailers to uncover hidden opportunities to drive incremental sales. Before we take a deeper dive into how ROV and other new metrics can provide better insights, let’s take a quick look at the limitations of traditional performance measures and goal setting.

There is no shortage of measurement tools and management reports. The era of “big data” has clearly arrived on the retail scene, principally fueled by: • Advanced POS systems that capture and disseminate vast amounts of transactional-level information. • The development of data-mining techniques that pinpoint the buying habits of customers. • Easily created custom reports at all levels of the organization that may or may not lead the end user to make the right decisions. However, my experience suggests that these advances— as impressive as they are—have not delivered on the promise of enabling faster and more effective decisions at each level of the organization. To the contrary, they have often created information overload at all levels, with store managers struggling to balance operational tasks and customer service; field managers attempting to prioritize and filter competing corporate initiatives; and corporate managers wrestling with the fundamental questions of what really drives store performance. Sifting through mountains of data and reports to identify actionable insights has become a full-time job for field and corporate managers, and the interpretation of the results is often unclear. More data doesn’t equate to better decisionmaking and can actually cause slower, less confident decision-making, shifting priorities, and confusion about how to best replicate individual store successes across the entire fleet of stores. Unfortunately, in some cases, it can also lead to poor, or suboptimal, decisions.

The potential shortcomings of current measurement approaches come into sharper focus when we consider store performance goals. For most retailers, revenue goal planning is quite accurate at a company level on an annual and sometimes even quarterly basis. But don’t store teams also need specific daily goals so they can confidently make their week and their month? Won’t precise daily store goals, based on a ‘scientific method’, help each store team perform more effectively? As an industry, we haven’t refined goals adequately at the store level. There are many factors, when combined, which can distort the accuracy of daily store goals: differences in traffic patterns; seasonal influences; and other local factors just to name a few. Our research at Yacobian reveals that at a daily level, a store’s performance versus goal can often be greater than +/-50%, which obviously can be very troubling. Conversely, when we aggregate daily store data, a 200-store region measured over a month may see a variation of less than 5%. At a total company level, the quarterly variation might be less than 2%. Based on our research, we have identified two typical patterns: • Rolling up overall results over a large number of stores and over longer time periods masks improvement opportunities that exist at a daily store level. • The high level of daily variation contributes to the belief among store teams that daily goals are based on “rough guesses” which will even out over time. Based on these practices, store managers don’t give much credibility to daily store goals. Plus, when stores have daily goals that aren’t viewed by managers as reasonable, these

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By Toni Yacobian

goals generally aren’t seen as important or actionable, reducing accountability among store teams. When field managers drill down about the reasons for missing a daily goal, they often hear anecdotally, “it was just slow” or “customers are just looking.”

against customer opportunity were very different. Store A had a 20% larger opportunity for sales and yet sales were up only 10%. Store B had a 5% reduction of opportunity and yet the store team was still able to increase sales by 10%.

A related and perhaps more fundamental analytic issue is the use of comp sales targets to establish store goals. This results in all stores being assigned a similar modest annual increase (e.g., 3% to 6%) based on last year’s sales. This ‘non-scientific method’ does not take into account the many factors that influence each store’s ability to achieve their specific goal—e.g., the customer opportunity or the number of customers coming through the door.

The difference in customer visit yield was clearly substantial; Store A’s yield was down 10% and Store B’s yield was up 15%. Senior management realized that its measurement system and goalsetting approach was not as accurate and effective as they had assumed.

Here’s a real-life example that sheds some light on the complex challenges. One of Yacobian’s clients was rewarding two stores with comp sales increases of 10% from the prior year. Store A had a 20% increase in customer visits, and Store B had customer visits decline by 5%. The leadership team quickly agreed that these stores should not be rewarded the same way, since their performances

Issue One February 2013

This case study reveals that despite the proliferation of financial, operations, and customer metrics and reports, most retailers lack consistent processes for assessing performance and taking action. Different metrics on different reports are used by different people at different times. As a result, most senior managers have no clear “line of sight” between top-level objectives and store results; field leaders are unable to quantify and prioritize improvement opportunities; and the organization lacks a consistent understanding of what drives store performance.

Toni Yacobian has spent the last 25 years re-defining the intersection of customers, staff, and products to inspire associates, better serve customers, and systematically grow sales. The Yacobian Group (TYG) is a technology firm that has developed a comprehensive system called BlueDay. It allows everyone in the retail organization to make better decisions—from the CEO to the part-time associate. With it, retailers have the knowledge of why stores are hitting or missing goals, what to do about it, and how to do it. BlueDay provides integrated software, business processes, behaviors, and comprehensive learning tools to maximize performance every day. Better | Decisions | For All.

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THE Back Page

Quotes to Remember

JEFF BEZOS AND THE NORDSTROMS THINK ALIKE

“We innovate by starting with the customer and working backwards,” said Jeff Bezos. His credos: long-term thinking, customer obsession, a willingness to invent. AMEN HENRY FORD DIDN’T MINCE WORDS WHEN IT CAME TO “GOVERNMENT”

"Any man who thinks he can be happy and prosperous by letting the Government take care of him, had better take a closer look at the American Indian."

ANOTHER INSIGHTFUL VIEW OF OUR CONTEMPORARY CULTURE

“What happened to the future—we wanted flying cars instead we got 140 characters,” said Peter Thiel, co-founder and CEO, PayPal CLAUDIO DEL VECCHIO, RETAIL GIANT FIRST, PHILOSOPHER SECOND

“We are not good because we are old, but rather, we are old because we are good.” Claudio Del Vecchio, Chairman and Chief Executive Officer, Brooks Brothers

FAST FORWARD TO OUR CURRENT SCLEROTIC MESS IN WASHINGTON

“Both parties are shooting themselves in the foot and our future in the head.” Thomas Friedman Contributing Columnists Michael Coady Marie Discoll Grace Ehlers David Merrefield 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 © 2013 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.