The Robin Report - December 2012 by The Robin Report

not so super. page 14

Issue Eight December 2012

i n c u b a t i n g

n e w

i n s i t s

Happy Holidays from the

robin report!

INSIDE this issue • Dear Reader......................... 2 By Robin Lewis

•e Bay: From Disruptee to Disruptor.........................3 By Robin Lewis

• A toys Story.........................6 By Warren Shoulberg

•A New Strategic Growth Opportunity..........8 By Toni Yacobian

•A re Apparel Retailers Shooting Themselves in the Footprint?...............10 By Judith Russell

•S upervalu’s Unsuper Future.................................14 By David Merrefield

• Un precedented Change Agents?..............................16 By Jill Butler

• Under Pressure..................17 By Paco Underhill

• He’s Got It!.........................18 By Grace Ehlers

•W ell-Wrapped at Retail: Savvy Consumers Meet Smart Retailing This Holiday...............................20 By Emily Thompson

•G etting a Return on Post-Holiday Returns........22 By Andrew Mantis

• The Back Page....................24

Dear reader We are living in an era of enormous disruption. And, it’s happening in almost every aspect of our lives: politically, economically, socially, culturally— and across all industries. Just as the industrial revolution disrupted the world, so too is what some experts call the “information revolution.” The disruptive driver of this revolution is technology, powered by the Internet and unprecedented globalization, compounded by an equally enormous entrepreneurial zeal to use this driver for further disruption and innovation. Of great importance for all of us is that we be alert to those areas of our lives that are being, or about to be, disrupted. Are we, or will we be a disruptor or a “disruptee,” so to speak? And, since disruption typically results in either destruction or uncomfortable change, both can be painful. Therefore, it behooves those who are alert to get ahead of the curve and understand why, how, and what will be disrupted, so they can proactively take control and manage, in their favor, whatever disruptive changes must inevitably happen. Essentially, by embracing change, they become positive “disruptors,” disrupting, destroying, or changing old ways and creating new ones. President Obama was to be a “disruptor” in his first term, but instead, became a “disruptee” due to a combination of his own leadership flaws, strategic and tactical failings and choice of priorities, augmented by fierce antagonists on the other side of the “aisle.” Re-elected, he’s still faced by the disruptions that occurred before his watch, added to during his first term and, if left unchanged during his final term, could turn severe disruptions into permanent destruction. We’re all hoping the President can re-craft his leadership skills to meet the different and larger needs for them today. And, he must find the inter-personal skills (à la “Big Dawgs” schmooze machine), which he sorely lacked in his first term. Then the better minds on both aisles can join together to disrupt our growing mess on so many fronts, and create a new growth-positive America. Closer to home, our lead article describes how John Donahoe, CEO of eBay, is converting eBay from being

a “disruptee” into a disruptor. He is proactively making major strategic and structural changes to the model, positioning it for rapid growth by taking the lead in the mobile space and laying the foundation for a global marketplace, which will earn a spot in Amazon’s SWOT analysis under “threats.” And, by the way, even if one sees the disruption coming, proactively “taking the bull by the horns,” to control, manage, and develop positive transformation is a major long-term strategic project. It’s already taken Monahan roughly five years to move eBay onto a more powerful launching pad. Another disruptor, Ron Johnson, CEO of JC Penney, has been leading transformation for less than a year. Granted, the arterial hemorrhaging of traffic, sales and earnings has been horrific, but in my opinion, to have been expected given the magnitude of disruption required to reinvent the business model. We have many other great articles in this issue, all intended to disrupt your thinking (I promise, its’s all with good intentions). David Merrefield poses a wake-up call to SuperValu, the once giant grocery brand, that has disrupted itself into near ruin. And more cautionary tales: Warren Shouldberg tells a modern-day tale of Toy Story with the saga of Toys “R” Us. Judith Russell brings clarity to the showrooming phenomonen; Paco Underhill provides a provocative perspective on innovation with a disruptive parable; and Toni Yacobian calls a warning shot on the need for innovation in growth strategy. Jill Butler muses about the great disrupter: women. And on an upbeat note, Emily Thompson gives us a snapshot of the holiday shopping season; Grace Ehlers adds three new retailers to bellwether brands to watch; and Andrew Mantis provides fresh insight on how holiday returns can actually be a business builder. Have a great read, and may your disruptions always ensure you live long and prosper! Oh, and of course, have a warm and wonderful holiday season. We all deserve it—for our families, friends and our future.

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ure le premat e t t li a e b her It may zon that t ating a m A n r a ler to w udly acce hem. lo e m o s t are st behind ju s p e t s t o fo But, in today’s digital, wide-open world of warp-speed innovation, disruption and fierce competitive races to preemptively establish dominant positions, even frontrunner Amazon has to be on ready alert. And the disruptive noise is coming from a recent victim of disruption itself that has since been revitalized: eBay, who is emerging as a “disruptor” in its own right. I choose eBay, because I beIieve its relatively new CEO, John Donahoe (who took the helm in 2007), has a similar view of his business model as does Jeff Bezos for Amazon. Neither is limited to the confines of traditionally defined “retailing” (or even more so for eBay as simply an auction house). But rather each of them professes to an unlimited scope of being a “marketplace” that provides a “real estate” and distribution platform for any or all sellers and buyers around the world, providing all support services necessary to pursue and complete transactions, including the delivery of the value to the end consumer. Of course, at roughly $12 billion in annual revenues, eBay has to be considered a distant challenger to Amazon’s nearly $50 billion. But, the real world corollary between distance and time is not in the lexicon of the cyber-world. That’s why Jeff Bezos’ Amazon mantra from “day one” has been, “get big fast” (read: preempt all competitors to the number-one position). Well, maybe he should tweak his mantra to read: “get bigger faster.” Granted, Amazon has grown 300% since 2006, and now has an over 20% share of total worldwide e-commerce traffic. So,

Issue Eight December 2012

the question becomes: can it sustain that kind of blistering growth as it gets ever larger? And, even if Amazon slows down, eBay’s turn-around is in its embryonic phase, so it’s impossible at this point to predict any growth rate scenario that would put them within striking distance of Amazon any time soon.

From Acceleration to Deceleration to a Recession “Not Wasted”

also advancing their platform for businesses to buy ads and sell products for free. And, today, all three offer competing auction platforms and online payment services. And on top of a decline in listings, eBay began to detect “questionable” listings. For example, a buyer might have bid and bought an item for $1, to find out they owed $200 in shipping fees. Bidders and buyers were also being targeted by sellers for fake “second chance” offers. And on the sellers’ side, they were complaining of higher fees. EBay’s rating integrity was also coming into question, and its search engine for users to sort through its more than two million products was in need of an upgrade. In fact, some experts referred to eBay’s site as chaotic.

EBay was founded in 1995 as an online auction platform, or an online “flea market” as some called it, by Pierre Omidyar, a French-born programmer who was inspired by his wife’s interest in collecting So, by the time Whitman left in late 2007, Pez candy dispensers. mounting competition and maturity were pressing down on the online auction Meg Whitman was hired and appointed CEO in 1998 (formerly a Disney and Bain business, eBay sellers and buyers were unhappy, growth was decelerating, & Co. top executive). And she stepped on the accelerator. In six months she took and its stock was in decline.Enter John Donahoe on the cusp of the Great Recession. eBay public at an initial market value As I was embedded in Wall Street at the of $700 million (which sounds small time, I began to sense the telltale signs by some of today’s multi-billion dollar of the looming apocalypse. And whether IPO’s). By 2007, it had a value of $46 or not John saw the signs as he took the billion with revenues of close to $7 billion. helm at eBay, he certainly did not let the Between 2000 and 2004, revenues were rising at the blistering rate of 77% a year, oncoming recession go to “waste.” fueled by acquisitions and aggressive It was to be a time of stabilizing the global expansion. decelerating growth rate, revitalizing the core businesses, including a “cleansing” By 2004, the stock had soared to a high and greater discipline, control and of $58 a share. And then, deceleration; transparency in the buying and selling in January of 2005, eBay announced operation; and the development of new the first quarter in which its revenues rose less than 50% over the prior year. By the first quarter of 2007, revenues grew a relatively meager 27%. A big part of the decelerating growth could be attributed to the increasing competition in the online auction space: Yahoo had built a more comprehensive retail offering; of course Amazon by then no longer just a book store, was selling everything from designer apparel to electronic devices; and Google was

ebay

from disruptee to disruptor continued from page 3

growth engines for eBay—all designed to re-accelerate eBay’s trajectory.

From “Disruptee to Disruptor” As he waded into the daunting task, which was certainly heightened by the distraction of a recession, Donahoe was recently quoted by Bloomberg News: “One of the unique things about the Internet is a company can be a white-hot success and become a global brand and reach global scale in just a few years— that’s the good news, but then somebody can turn around and do it to you. There’s constant disruption. One of the first things I had to do here was face reality. EBay was getting disrupted.” Well, here we are, about four years hence, with Donahoe having greatly succeeded in stabilizing, revitalizing and developing new growth engines, even as growth continued to decelerate through 2009 and their stock price dropped to $10 a share, down over 80% from its peak. Nevertheless, Donahoe’s moves during this period resulted in revenues growing from about $7.6 billion when he took over to nearly $12 billion in 2011, with its stock price climbing back to almost $50 a share, and his new growth strategies are starting to kick in. Of note, one of Donahoe’s first priorities in revitalizing the core business was to transform its “chaotic” website for both buyers and sellers. He developed a fee structure that favored those sellers with higher volumes and better ratings. And, for buyers, he invested in upgrading eBay’s search engine for better sorting through its 200 million products, including the ability to more quickly identify the higher rated offerings. The feature implemented a ranking system that took into account time remaining, feedback scores, quality of listing pictures, and other criteria. He also performed a complete design overhaul to provide easier access for buyers which also gave product categories a custom look, rather than its earlier more generic design. Indeed, eBay is poised once again to be a powerful disrupting force in the global marketplace.

A Snapshot in Real Time

Currently, eBay’s revenues are driven by its three main operating segments: Marketplaces, Payments and recently acquired GSI Commerce, each contributing about $6.6, $4.4 and $.7 billion respectively to 2011 revenues. Marketplaces includes the original eBay.com auction site and some 300 million listings, along with Shopping.com, Half.com and the StubHub ticketing business. It also has a worldwide “classifieds” business, a part of which includes Craigslist. The Payments business primarily consists of the PayPal operations, including a collaboration with Discover Financial services, Bill Me Later (a deferred payments service), and recently acquired payments provider, Zong. And GSI Commerce (acquired in 2011) expands eBay’s ability to partner with major retailers (outlined below). EBay trades about $2,000 worth of goods every second and has about 100 million active users doing transactions, millions of merchants using one or more of its platforms, and a developer community with more than 800,000 members using its API’s. While the original auction model transactions were primarily of secondhand items, today 70% of the items are new. Also, over 50% of its business is done outside of the U.S., with a major presence in 40 countries.

eBay Bets Heavy on Mobile

Perhaps the most significant win for Donahoe arising out of his growth strategies was his big bet on mobile retailing, which he stated, “… continues to be a game-changer.” The “bet” on mobile’s future dominance is focused on redesigning and adding enhancements to its website to compel mobile shoppers to make eBay their destination of choice. Perhaps more significantly, eBay’s PayPal business as the leader in facilitating safe and secure mobile payments, provided another competitive advantage to their enhanced site with its one-click payment capability. PayPal also has more active accounts than Discover and American Express and is accepted by more than 60 of the top 100 online retailers in the U.S., including Walmart, HewlettPackard and Home Depot, among others. EBay is also able to offer users the ability to fund their accounts through their mobile phones, a feature made possible by eBay’s 2011 acquisition of Zong, a cell phone payments provider. And eBay’s acquisition of Critical Path in 2010 gives it mobile app development expertise. As Donahoe said: “We thought they were the best, so we bought them and got a couple hundred of the best software developers in the world working exclusively for us.” This kind of focus on innovation is bound to sustain eBay’s leadership in the mobile commerce space. For example, they have recently released a global payment system called PayPal Here that is a more flexible and comprehensive alternative to the popular Square mobile payment technology.

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Donahoe largely attributes eBay’s 2012 third-quarter stellar results to his early bet on mobile. Net income surged 22% over the year earlier quarter to $597 million and revenue rose 15% to $3.4 billion. And, within those numbers, PayPal contributed $1.37 billion, a 23% increase over the year ago quarter, and Donahoe predicts at that rate PayPal will surpass its core Marketplaces revenues in three to five years. Of the overall mobile business he was quoted, “We’re the largest mobile commerce and payments provider in the world.” EBay’s mobile apps have been downloaded over 90 million times around the globe, and sellers are now posting two million items per week from their smartphones, and during the quarter, over 600,000 new users made their first eBay purchase from a smartphone. According to Donahoe, “A woman’s handbag is purchased on eBay mobile every 30 seconds.” And, he went on to say, “Mobile is revolutionizing how people shop and pay.”

And, by the way, another big advantage for eBay over Amazon is its highly supportive and collaborative commitment to these major brands. Amazon has a reputation of identifying hot products being sold by various of its retail and brand customers which it then sources, promotes and sells for itself at lower prices, essentially competing with its customers. And, in another swipe at Amazon, eBay is currently testing a new mobile app called eBay Now. You got it, if you think it sounds a lot like Amazon Prime (offering unlimited free two-day shipping for $79 a year). In San Francisco, eBay’s test market, they allow customers to buy products from Target, Macy’s and Walgreens using their phones and having them delivered the very same day.

A Race to Out-Apple Apple?

Preemptive Distribution, a Neurologically Addictive Experience and Value Chain Control

Finally, while Amazon is rumored to be opening a physical store in Seattle to test In addition to Donahoe’s bet on mobile the sales and experience of its Kindles, and investment in a stream of innovative books, and other electronic gadgetry enhancements, which according to many (inspired by Apple’s success), eBay has experts, moved eBay ahead of Amazon, been opening physical “pop-up” stores, he likely had Amazon in his “cross-hairs” in London, New York and San Francisco, with his acquisition of GSI Commerce as well as several online. So far, they have in 2011 for an astounding $2.4 billion. been for special occasions, holidays in 2011, and some have been “tie-ins” with Even though a small part of eBay’s total celebrities and designers during fashion revenues, at 5% or about $700 million weeks. Recently they opened a two-day in 2011, GSI Commerce provides another pop-up in New York called eBay Selling growth engine, ultimately scalable to a posi- Style Studio, where people can list stuff tion directly competitive with Amazon. they want to sell on the site with eBay’s “Chic Squad” on hand to walk them GSI will not only enhance eBay’s Market- through the process. I wonder if these places business through its e-commerce pop-up shops are precursors to a larger and interactive marketing services, strategy to launch permanent retail stores it also extends eBay’s relationships (or “showrooms”) carrying local market with major brands and retailers, including product preferences that can be ordered Toys “R” Us, Aeropostale, Kenneth Cole, and paid for on the spot via smartphones. Adidas, Calvin Klein and others. These Given Apple’s success as an ”e-player” collaborations are now possible with GSI’s crossing into the physical space, along capabilities in website development and with the proven fact that consumers who maintenance, order fulfillment, customer shop in both the digital and physical stores service functions, and online marketing spend over 50% more than those shopping campaigns, among other functions. just one channel, my prediction, given Donahoe’s obvious vision for eBay,

Amazon in the “Cross Hairs”?

Issue Eight December 2012

is that these pop-ups are just a warm up to the main event. Furthermore, and as written in my coauthored book with Michael Dart: The New Rules of Retail, and in recent articles in The Robin Report, one of the “new rules” for all consumer-facing businesses is the necessity to operate on all possible distribution platforms to be able to preemptively distribute (ahead of competitors) one’s value to consumers wherever, whenever and however they want to purchase. E-commerce alone cannot achieve such preemptive distribution. Another “new rule” which favors physical stores over digital, is the necessity to provide a unique shopping experience, a compelling enough experience to neurologically connect with consumers, so that they will go out of their way to return again and again (ie. Apple, Starbuck’s, Lululemon, and others). And, the final rule, without which preemptive distribution and a neurologically “addictive” experience are impossible to achieve, is that a brand or retailer must have maximum control over their value chain. So, with a “drum roll,” my opinion is that even though eBay is roughly “five lengths” behind Amazon, (at one-fifth its size), given John Donahoe’s strategic moves and vision, not the least of which was his “bet” on mobile (including the PayPal advantage and other innovations), all of which makes eBay the leader in that space, and now with the GSI Commerce capabilities, I believe eBay is indeed, poised to break out of the pack, accelerate its pace and to press heavily on Amazon’s lead. In fact “getting bigger faster” may end up being eBay’s well-earned mantra, as they transform from being a “disruptee” to a “disruptor.” Robin Lewis has over forty years of strategic operating and consulting experience in the retail and related consumer products industries. He has held executive positions at DuPont, VF Corporation, Women’s Wear Daily (WWD), and Goldman Sachs,among others, and has consulted for Kohl’s Department Stores, and dozens of others. In addition to his role as Publisher and CEO of The Robin Report, he is a professor at the Graduate School of Professional Studies at The Fashion Institute of Technology.

By Warren Shoulberg

here’s a certain irony in the fact that the world’s very first category killer was also the first of its bigbox ilk to be severely challenged and nearly decimated by the even bigger-box mass merchants…and now may also be leading the way once again in learning how to co-exist and maybe even thrive in a world dominated by discounters and onliners.

What a long strange trip it’s been. But Toys”R”Us should be very grateful it is not dead, and the tale of Toys is largely instructional for the entire channel of distribution known as ‘super specialty retailing.’ Toys was there for the channel’s glory days, nearly succumbed to the merchandising maladies that took down many of its box brethren, and has experienced a retail resurrection that—if not quite a miracle—worthy of store sainthood is nevertheless remarkable in its own right. None of this could have been even remotely predicted back in1948 on Washington DC’s 18th Street NW when a post-war entrepreneur named Charlie Lazarus opened a baby furniture store called Children’s Supermart. As big stores go, it wasn’t much. But back then, it seemed to be the right store for the right time as newly formed post-War families started booming out babies and needed a place to buy all the paraphernalia—cribs, strollers, whatever—that came with the territory. Lazarus—who would become one of the faces you’d find in a dictionary listing for the word “merchant”—soon began adding kids toys and eventually toys for older children as well. Several years later, he started using a mascot

for the store; a cartoon giraffe curiously known as Dr. G. Raffe. Eventually he adapted the more informal name of Geoffrey and, increasingly focused on toys, he began touting the slogan, “Toys are us.” What it lacked in proper sentence structure, it caught on and… well, you can see where this is going. In 1957, Lazarus opened the very first toy superstore, morphing the slogan into the typographically snappier (if elementary school teacher veryunfriendly) Toys”R”Us. The formula was simple: cram as many skus as possible from one general merchandise classification—in this case toys—into a large, bordering-onugly warehouse out on the suburban highway; charge good but not great prices; and stand to the side when you open the doors on Saturday morning. And boy did the formula work. Toys was a runaway success in a time when department stores were starting to eliminate high-maintenance, low-margin

categories; specialty shops were getting left behind in the country’s mass migration to the suburbs; and discount stores were still pretty low-rent when it came to merchandising. Toys”R”Us created the category killer concept… well before the model even had a name. The retailer took an unfortunate detour when it was acquired by Interstate Department Stores in the mid-1960s, becoming one of the myriad regional discount operations that could never make the transition to the more sophisticated merchandising style that competitors like Kmart (yes Kmart), Target, Bradlees and Caldor were bringing to the playing field. Interstate went bankrupt and emerged as Toys”R”Us, and during much of the 1980s and 1990s, Toys was unstoppable. It opened hundreds of stores and sold billions of dollars worth of toys and at one point owned a reported 25% market share in the category, a percentage unmatched by few if any other retailers in America…ever. Like most things, it didn’t last forever. There are lots of theories for the tumble Toys took, starting in the ‘90s and continuing into the start of the new century. You can pick and choose from the following:

1. The big mass merchants finally realized the value of toy departments

—especially in the fourth quarter—and moved aggressively into the category, particularly Walmart, which undercut Toys’ pricing while cherry picking their assortments for the hottest products.

The rise of the Internet—even if the first wave of etailers like toys.com were pretty lame—gobbled up market share, using the same price and assort-

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ment gambit as Walmart. It took Toys— as it did most in-store retailers—a long time to catch on to the Internet.

3. Toys let their stores go to hell.

Never beauties in the first place, they became dark, dreary caverns inside with dark brown ersatz-mansard roofs outside that seemed to be from another plasticine era…because they were.

Charlie Lazarus wasn’t around anymore. By the time a bunch of private equity and real estate guys—including such well-known names as Bain, KKR and Vornado—took Toys private in 2005, it was barely breathing and many retailing pundits (including this particular pundit) figured they were a goner. But guess what? Nearly a decade later, Toys is still around, and if not quite in the top tier of the country’s best, most successful retailers, it is doing OK…better than OK in fact. Granted, Wamart still has a larger market share in toys and the fact the company remains private seven long years after the money guys moved in—an eternity in a business world where the flip is usually three to five years—would seem to indicate that the numbers (which are in fact public) don’t really quite add up yet. But let’s face it, the past decade has not been kind to the entire category killer domain. Once powerhouse players like Linens’n Things, Borders, CompuServe and many others have gone to that great strip center in the sky and even many of the existing players in the space like Barnes & Noble and Office Max continue to struggle. The fact remains that Toys is doing a lot of things right these days. Among them:

A full embrace of the Internet. Toys has become one of the better examples of in-store operations

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integrating its online efforts into its overall model.

Expanding its Babies’R’Us unit. Created in the 1990s, largely on the back of an acquisition of a regional player called Carolina Baby, Babies now has over 250 stores and with a demographic needing more hand-holding than toys; it’s a category more immune to mass retailers and online. (The irony that this takes Toys back to its juvenile furniture roots is hopefully not lost on anybody.)

International expansion. Another initiative started decades earlier, Toys is perhaps the most aggressive US retailer in the overseas market with a mix of owned and licensed stores now totaling close to 750 locations in 35 countries. All of those factors are important but none of them would be worth much if the store’s merchandising strategy hadn’t been reframed. Mrs. Walton—not to mention Mmes. Target, Amazon and eBay—didn’t raise any dumb retailers. All you have to do is look at the retailer’s ‘The Great Big Toys”R”Us Book,’ which dropped the last week of October, to see that the company has gotten its merchandising mojo back. It is a brilliant piece; 80 pages of retail voodoo working every trick in the promotional book, all to great effect. Kohl’s and Macy’s should be embarrassed by how they stack up against this baby. It hits all the hot buttons:

1. Selection. Starting on the cover and continuing relentlessly through the entire book are countless variations of the “All the toys, all the time” theme. Subtle it is not. Effective it most certainly is.

2. Price. Again, it starts on the 1. A massive remodeling of its store cover—“Now we price match everybase. Most of the monkey-poop brown thing”—and is repeated throughout. roofs are gone and the stores are more cheerful, upbeat places to shop now.

There are enough “sale,” “save” and “percent off” balloons to get the most jaded shopper all hot and bothered.

3. Tricks. For the coupon junkies, there are two full pages to clip.

For the gift-with-purchase fans, there are endless offers. On other pages, it’s a BOGO feeding frenzy. Add in layaway —a given these days—and a loyalty program and the buying buffet is complete.

Exclusives. Every retailer is working this angle, but Toys plays it better than most with a wide assortment of “only-here” offerings.

5. Out-and-out exuberance. Less

quantifiable and certainly more of an intangible, the book practically reeks with happy, laughing kids obviously enjoying the products sold at the store. It’s such an obvious technique and one so often overlooked by retailers who think they are above that tug-to-the-heartstrings ploy. Toys"R"Us is playing in a very tough world. Brand name products, like mass toys that can be shopped purely on price, are the bread-and-butter of Amazon and Walmart. Ultimately its customers— and Wall Street—will decide if Toys has gotten it right and will endure. But in the meantime, as a case study on what to do right—and wrong—Toys”R”Us has much to be admired. Just as long as spelling doesn’t count.

Warren Shoulberg is editorial director for several Sandow Media business publications in the home furnishings industry and is hoping some publisher is interested in his latest book, “Stupid Business.”

A NEW STRATEGIC GROWTH OPPORTUNITY By Toni Yacobian

Where will retailers find their next big growth opportunity? Supply chain advantages are maturing and lifestyle marketing is no longer novel. For national retailers, beautifully merchandised stores are located in about every mall and on every street corner in the country. or disappoint customers. There’s no question about room for improvement and growth; the question is: how to systematically improve the interaction in a decentralized, geographically dispersed structure complicated with budget constraints, layers of field management, and high employee turnover. How can we institutionalize the urgency "to help customers buy" and take advantage of these obvious customer and revenue opportunities? In short, to perform better, we need a new strategy.

Furthermore, retailers are frustrated by their inability to get more return on the huge investments they make each year on labor, real estate, product, and marketing. Traditional approaches to growth are no longer working as well as they used to. To get better results, we need to think in new ways and operate differently.

The Next Big Opportunity: “Operational-ize" the In-Store Customer Interaction

Retailers, reluctantly, have a ‘gut feeling’ that their customers are not getting a consistent in-store brand experience. Most executives are disappointed in the customer interaction capabilities of store teams. At the same time, customer expectations continue to increase as shopping options expand. Most of us can recall at least one positive in-store experience. Apple stores certainly deliver them regularly. The store team focuses on you from the moment you enter the store. There is a governing

manager ensuring your connection is made properly. A skilled associate interacts with genuine curiosity, not in a pushy way. You are provided relevant information about the products you are interested in. The experience adds value to the product and the brand. Sadly for most consumers and retailers, memorable customer experiences are the exception and not the rule. So, why can’t retailers deliver more consistent in-store customer experiences? They’ve tried training initiatives, new technologies, and process improvement programs before, but with little sustainable success. The primary challenge is the sheer SCALE of a successful retail business. There is a real challenge of delivering a positive, profitable customer experience in a retail chain with 800 stores that operates 360 days/year, which means it has 288,000 open store days. On average, each store receives about 350 customer visits a day, totaling over 100 million opportunities annually to delight

Designing Quality In-Store Customer Experiences

Why not apply business processes similar to those used in other operational areas to design and deliver high-quality customer experiences? In the supply chain, retailers have sophisticated business methodologies and defined measures for success. As a result, very high standards are consistently delivered. Can retailers apply the same operational expertise to in-store customer experiences? We believe—actually we know— they can! First, retailers must recognize that creating consistent in-store customer experiences is a company-wide effort. Every layer—from corporate leadership to the floor associate—has an influence on a customer’s in-store experience. Policy changes or traditional training programs delivered independently aren’t effective in changing behaviors across so many layers of the organization. For consistent in-store customer experiences to become a reality,

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retailers need to rethink three critical design elements: 1. New customer-centric metrics. Traditional measures like comp store sales and sales-per-hour don’t tell us anything about the customer. Measuring in-store experiences requires tracking customer visits, then mapping those visits to the right sales, staff, and store performance data. The level of detail a CEO needs for measurement is very different than the information needed for field or store management, but they all need to be connected to systematically improve the customer experience. The innovative measure is ROV – Return On Visit. If ROV becomes the central metric for the organization, mandated by the CEO, it will highlight missed customer buying opportunities and accurately reward customer-centric performance. It simplifies retail measurement enormously. 2. Customer-opportunity based performance standards. Once we measure a store’s current performance using ROV, the question is, “what SHOULD the store’s performance be?” Setting store goals based on customer opportunity is completely new for retailers and, when done correctly, it unlocks huge missed revenues that exist in every retail fleet. Some stores will have the opportunity to grow by 50%. As with other operational processes, retailers need clear expectations and objective standards for defining ‘quality in-store customer experiences’ and the organizational behaviors that create them. Developing more aligned goals, combined with clear behavioral standards for all levels of the field organization, makes execution more elegant and predictable. 3. Customer-centric processes and business rhythms. Designing the right system requires more than observing measures and hoping to hit the standards. The field organization needs step-by-step processes that systematically move stores from where they are, to where they need to be. The business rhythms between the layers Issue Eight December 2012

of management need to be augmented to include new processes that identify what actions stores need to take to capture the missed customer opportunity. This isn’t difficult; however it does require leadership to coordinate and align customer-centric objectives.

The Ingredients of Buying Environments

Delivering Quality In-Store Customer Experiences

Better measures, standards, and processes are the foundation for creating better customer experiences in individual stores. To deliver customer experiences consistently across an entire chain of decentralized stores, retailers need two more ingredients. 4. Role-specific planning and measurement technology. Everyone in the organization needs to look at measures and processes in the same way – with information relevant for their roles. That means we need technology to deliver individualized data to the CEO, to field leadership, and to thousands of employees, chainwide. More data is not needed. On the contrary, what is needed are fewer and more precise metrics that are mapped to specific actions that can then be monitored and evaluated, making execution more efficient and effective. 5. In-store professionalism. At the end of the day, customer experiences are most influenced by the behaviors of store employees. Over the past 20 years, store managers have been trained, and are expected, to be operators. Today we need more than operational expertise. Using the 'operational' approach, managers need to learn how to systematically coach behaviors that lead to consistent customer experiences. This process approach allows managers to run stores in a more predictable and professional manner that enables store associates to succeed and deliver better results overall.

Creating more consistent, higher quality in-store customer experiences is the ‘brass ring.’ Retailers who use all five of these components to improve their in-store customer experiences can expect between 15% and 30% more revenue from existing customers, stores, and staff. While these efforts require corporate commitment, most retail chains have huge opportunities to dramatically improve their in-store customer experiences. It's an exciting new strategic growth opportunity that not all retailers are aware of, nor are they actively pursuing. In our next article we will take a deeper look at using granular data and new metrics to uncover ‘hidden’ business growth opportunities as well as the many reasons why these opportunities for performance improvement exist. 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.

Are Apparel Retailers Shooting Themselves in the Footprint? The Shift To E-Commerce May Be Too Much, Too Soon

On a recent afternoon I spent 20 minutes doing errands that a year or two ago would have taken me about eight hours to do. Instead of jumping into my SUV and taking multiple trips to various big box and discount stores in my town, I strolled into my home office, powered up my trusty PC, and “went to town” in a different way. With a few clicks of a mouse I bought two or three carloads’ worth of stuff ranging from garden tools and patio furniture to office supplies and groceries. Most of my purchases were made on pure-play e-commerce sites. Comparison shopping helped me get very good prices and free delivery. One category of merchandise failed to figure into my flurry of e-consumerism, however: I did not buy a single stitch of clothing. I am one of those people who prefer to shop for clothes in brick-and-mortar stores. I need to see, feel and try on clothes before I buy them to make sure they fit, look good and meet my quality standards. I do not trust computer monitors to accurately display important details like fabric, color, drape or weight. It turns out I am not alone in this. According to e-commerce intelligence firm eMarketing, total U.S. e-com-

merce sales rose to $200 billion last year, or 7% of the total retail business. It is estimated that the portion of total apparel sales purchased online is much smaller—by some estimates only 5%. Making matters worse, returns of online apparel sales are as high as 40% for some retailers.

By Judith Russell

already know that a brand looks good on you, and what size you wear in that brand, and the fabric quality standards of that company, your chances for dissatisfaction with an online clothing purchase are pretty close to 100%.

Online apparel sales, though growing, remain a relatively small part of the business because consumers need to touch, see and try on. Sucharita Mulpuru, analyst with technology powerhouse Forrester Research, feels that “the in-store experience remains a critical part of the buying process for discretionary items like apparel.”

One woman told me, “It takes all the fun out of clothes shopping. I look forward to coming out of the dressing room and hearing the feedback from others. I like to have the cashier wrap up my purchase in tissue paper and place it in a nice bag and hand it to me, and then get to walk around carrying the pretty bag. Internet orders arrive in cheap plastic bags in cheap brown paper envelopes.”

The exception to this, according to Mulpuru, are flash sale sites like Gilt Groupe and Rue La La, which continue to enjoy meteoric growth. There, the spontaneity afforded by the Internet is the experience, and customers are all too willing to forego trying-on for the thrill of the hunt.

One man in the group told me that “Although buying clothes online seems convenient at first, once you find out the item doesn’t fit, you have to pack it back up and haul it back to the post office, or call UPS for a pickup. Suddenly it’s not so convenient anymore.”

I recently asked a group of trade show seminar attendees, most of whom were under 40, if they were frequent online shoppers of apparel. To my shock, no hands went up. I then asked (to make sure they were listening) how many hated shopping for clothes online. All the hands went up.

And forget about impulse purchases. Another attendee was turned off by the lack of inventory during a recent trip to a Gap store. “I needed a pair of khakis for an event that night,” he complained. “They had three pairs of khakis, which of course were all extra large. The sales clerk told me I could

The problem, they were only too happy to explain, is that unless you

order my size online in the store for free shipping continued on page 12

Are more consumers buying online because they want to, or because they have less choice? Are apparel retailers reducing their physical selling space because of the consumer’s preference toward e-commerce as a shopping channel, or is this a financial strategy in search of justification? Are brands prematurely pushing the consumer to e-commerce by closing some stores and shrinking others? 10

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Issue Eight December 2012

Are Apparel Retailers Shooting Themselves in the Footprint? continued from page 10 to my house. That didn’t help me since I needed them right away.” Despite complaints by the many industry and lay people I read about and talk to, though, e-commerce is an increasingly important focus for apparel companies. Every major apparel retailer is crowing about its double-digit online sales growth. According to eMarketer, although apparel lagged for years behind other categories in online sales growth, it’s now growing faster than any other e-commerce product segment. Over the last four years, online apparel sales growth has accelerated—from 10% in 2007 to over 20% in 2011. Some industry experts are forecasting that it will represent almost 20% of total apparel sales by 2016. However, the growth numbers don’t tell the whole story. Just because a consumer buys a product online doesn’t mean he or she didn’t see it in a brick-and-mortar store first. Perhaps the store didn’t have the desired size or color, so the shopper ordered in online—maybe even from his or her smartphone while still in the store. Or the consumer found the item at the store initially, tried it on, and loved it, but waited until it went on sale to order it—online. Or perhaps after discovering the product at one store, and “showrooming,” (using a mobile device to search the web for a better price while shopping)— she bought it elsewhere. Since it’s virtually impossible for stores to track this kind of activity, they credit their increased e-commerce sales to exceptional website design, rich customer e-mail lists, and cuttingedge social media. What’s particularly disturbing to us brick-and-mortar loyalists, however, is that as online sales grow, many apparel retailers are beginning to reduce their store count and average store size, making the in-store experience less compelling.

One mall developer (who requested anonymity) said there isn’t a major specialty store chain today that isn’t frantically trying to cut its total physical footprint. “Everyone’s desperate to cut expenses, and store occupancy and labor costs are the biggest line items. Right now I’m being asked to renegotiate leases even before the term is up. We don’t want to lose important tenants, so we’re being forced into flexibility and concessions we wouldn’t have dreamed of five years ago.” Specialty chains Gap, Old Navy, Ann Taylor, American Eagle and Destination Maternity have dramatically reduced their store count over the past two years. Last year Ann Taylor reduced the square footage of almost 20% of its stores by 30 to 40%, a project it plans to continue in the next couple of years. Many department stores are doing it as well, citing the need to “localize.” The apparel market isn’t growing, so its brands and retailers can only increase revenue by taking share from competition in what is arguably the most competitive environment in the history of soft goods retailing. The successful ones do this by staying top of mind with their target customers, by delivering their offerings faster, better, cheaper and with the best customer experience.

Instead of investing in a compelling in-store environment that engages consumers in an emotional, neurologically connecting way, some retailers are making the mistake of trying to do too much with less. They’re cutting store-level inventory (assuming customers will order out-of-stock colors or sizes online while still in the store), making stores smaller, and moving away from the in-store merchandising techniques that really enhance the shopping experience. Many are claiming that since e-commerce is their fastest growing channel (even though it’s still a very small portion of sales), they’ve chosen to invest more into web stores and online technology and less in store design, rent, store labor and all those tangible elements that contribute to the in-store experience. This is a shortsighted and very dangerous direction. When consumers spend the time and gas to visit a store, they want it to be worth it, or they might not come back. The in-store experience enhances the brand proposition for all customers, regardless of whether they prefer online or in-store shopping. Are more consumers buying online because they want to, or because they have less choice? Are apparel retailers reducing their physical selling space because of the consumer’s preference toward e-commerce as a shopping channel, or is this a financial strategy in search of justification? Are brands prematurely pushing the consumer to e-commerce by closing some stores and shrinking others? If so, then this strategy could backfire in a major way, tarnishing brands and sending customers to the competition faster than you could click a mouse. Judith Russell is a marketing and strategic planning consultant, and writes for several apparel and retail trade publications. She has worked in the textile, apparel and retail industry for 30 years, and has been an enthusiastic clothing shopper for as long as she can remember.

www.TheRobinReport.com

Issue Eight December 2012

If you don’t look too closely, Supervalu— the nation’s sixth-largest grocery purveyor —looks pretty good . In its most recent fiscal year it scored $36.1 in sales volume, driven by a widely diverse portfolio of assets. Those assets include a large-scale wholesale business plus many retail stores ranging from small chains of to large-scale retail chains and a hard-discount chain. In all, Supervalu has more than 2,400 stores. Supervalu’s asset diversity evolved, for the most part, over a period of cautious and self-financed growth spanning its 135-year history. The company is based in Minneapolis, but operates from distribution centers in nearly 30 states, effectively blanketing much of the nation. But there are big problems under the surface. When Supervalu is brought into sharp focus, it starts to look troubling. Clarity reveals it to be currently heavily laden with unaccustomed debt and its profitability long sinking and now vanishing. It gets worse. Its competitive positioning is melting away and its corporatemanagement team is in fast-turn mode. Supervalu stock is trading near the $2-mark, except for an occasional upward spike driven by buyout rumors. Earlier this year, its stock sold for about $8; five years ago it approached $45. So What’s an Iconic Brand to Do? In response to its mounting challenges, Supervalu has turned to a capitalconservation mode. It has gone through wave after wave of layoffs, many at the corporate level, others at the store level. At mid year, in response to a quarterly report too disastrous to sugar-coat, the board fired Chief Executive Craig Herkert, who had joined Supervalu in 2009 from Walmart. Wayne Sales, board chairman, was appointed his successor. The board discontinued

the quarterly dividend after 60 years of unbroken payment. Most dramatically, the board also announced it was open to selling all or parts of Supervalu and that it had engaged Goldman Sachs and Greenhill & Co. to help beat the bushes to flush out buyers. The Back Story How did Supervalu reach such a state of disrepair and what, if anything, can be done to salvage the situation? And what will happen if no buyer for any of it can be found? Let’s start at the beginning to see if much of what appears to be Supervalu’s strength is actually the core of its weakness. Supervalu is fundamentally a voluntary grocery wholesaler. Voluntary wholesalers seek to operate at a profit, although there are also non-profit cooperative wholesalers owned by groups of retailers. The co-op model has many weaknesses and their numbers are dwindling. Wholesalers—voluntary or co-op— acquire product from a myriad of manufacturers, aggregate it in vast distribution centers and then compile truckloads of disparate product to be dispatched to independent retailers’ supermarkets. Many of the independents are one-off operators of a single supermarket, typically under a franchised banner such as IGA or the owningfamily's name. Many independents operate in rural areas or smaller country towns. An independent-store owner with as many as five or 10 stores would be considered sizable. That distribution method stands in contrast to those of large-scale chains, such as Kroger or Safeway, which operate their own product-acquisition and distribution apparatus. This almost

guarantees that large-scale retailers can offer lower price points since distribution is operated as a breakeven enterprise. Wholesalers must up- charge supplied retailers several percentage points to generate their own profitability. During the course of its history, Supervalu acquired several retailer banners, and so gradually edged into the retail business itself. Wholesalers, such as Supervalu, generally enter corporately owned retailing because of perverse incentives: A store or chain the wholesaler supplies decides to sell, or it files for bankruptcy. To prevent the loss of the sales volume the distressed retailer represents to the wholesaler, the wholesaler buys it. The same may happen if a retailer threatens to take its business to a competing wholesaler. In sum, wholesalers such as Supervalu may end up with an unintended portfolio of retail stores, only some of which can be buffed up to resell or even lead back to profitability. Supervalu’s corporately owned roster of smaller retailers include Shoppers, Farm Fresh and Hornbacher’s. In addition to the business negatives wholesalers run into by owning retailers, they also may project negative optics: incumbent retailers long supplied by the wholesaler may find themselves in the paradoxical situation of being in competition with retailers owned by their wholesaler. When that happens, supplied retailers may start to question the wisdom of doing business with the very wholesaler who is also their retailer competitor. The Great Leap Forward But not all retail acquisitions go sour. One of the better acquisitions Supervalu made occurred in 1994 with its buyout of Save-A-Lot. Over the years, this chain of limited-assortment, hard discount stores represented one of Supervalu’s best growth opportunities. Supervalu’s slow creep into retailing www.TheRobinReport.com

was abruptly reversed in 2006 when it took a huge leap into retailing by acquiring the majority of the retail assets of Albertsons for $12 billion in a deal led by Cerberus Capital Management.

a whole range of companies were being encouraged to take on debt in a bid to quickly beef up their value to investors and shareholders. In fact, it became fashionable to go into debt.

The deal was one of the most complex ever undertaken—then or now— because it involved a buyout and two simultaneous flips. In one move, some 700 freestanding Albertsonsowned Sav-On and Osco drugstores went to CVS; and in another move, about 660 Albertsons supermarkets were flipped to a new entity known as Albertsons LLC.

Trouble in Paradise The euphoria about Supervalu’s deal died down quickly. Through no fault of Supervalu’s, the economy took a nosedive. Shoppers refocused on finding low prices. This didn’t play to Supervalu’s strength; it hadn’t been a low-cost provider to its independent customers or its corporately owned units for years.

The latter arrangement set up the curious situation of creating two Albertsons chains; one owned by Supervalu, the other owned by Cerberus. And the inside story was that the real task of Albertsons LLC was to dispose of what were the dogs of the other Albertsons. Today, only 200 of them still remain and are actively operated under the Albertsons banner.

I attended a trade association seminar more than a dozen years ago at which a Supervalu executive spoke candidly, bemoaning the fact that Supervalu was delivering “insult pricing” to its consumers. He meant that Supervalu’s retail price points were so far above prevailing market prices that shoppers actually felt insulted.

The multiple transactions left Supervalu with what was considered to be the most viable assets of Albertsons in the form of about 1,100 supermarkets under multiple banners of Albertsons’ earlier spate of acquisitions including JewelOsco, Shaws and numerous others. The deal also larded Supervalu’s books with unaccustomed debt that it had to learn how to manage At first, the deal looked stellar for Supervalu. After all, the economy was doing well in 2006, which made the new debt load seem less consequential. The acquisition catapulted Supervalu’s annual sales to about $44 billion, on a pro forma basis, or about twice what they had been the previous year. That propelled Supervalu to the position of the nation’s third-largest food purveyor, trailing only Walmart and Kroger. The deal also converted Supervalu to a predominantly retailing company. Ten years ago, Supervalu drove 47% of its sales volume from wholesaling. Now less than a quarter of its volume comes from wholesaling. In analyzing Supervalu’s huge buyout move, it’s important to remember that prior to the Great Recession of 2008,

Issue Eight December 2012

Supervalu also faced headwinds integrating its new stores into its operations. Albertsons itself had made recent acquisitions that went to Supervalu. They were far from integrated into the Albertsons systems. This only exacerbated Supervalu’s difficulties with aligning its new stores with its own systems and methods. Moreover, many of Supervalu’s newly acquired stores had been neglected and were in dire need of renovation. In short, at the very time Supervalu needed to do a lot of capital spending on facilities and to lower price points, it was hamstrung by newly assumed debt and couldn’t do so. Waves of Change When Herkert was imported from Walmart to become CEO in 2009, his mandate was to find a way to turn around Supervalu. Unfortunately, Herkert’s vision—or lack of it— was to find ways to delay the day of reckoning with the hope that the recession would lift quickly enough to salvage the situation before it got even more ugly. Specifically, he made moves to trim costs, lower price points in specific categories, and make minor tweaks to stores to enhance the shopping experience.

Another key element of his strategy, though, seemed more promising. That was to pump up the Save-A-Lot discount chain, the only part of the company showing much life. He aimed to double the size of the chain to about 2,400 stores in five years. Herkert’s strategy was simply too little and too late. Quarter after quarter went by, and sales and profits dwindled, Herkert continued to insist that his plan would take hold given more time. He did speed things up by closing numerous underperforming stores, selling some distribution assets and weeding the company of many workers, some at store level and hundreds from its headquarters staff. Ironically, Herkert rid the company of the same executives he had brought aboard earlier in his tenure. And so it went until this July when Supervalu reported its first-quarter results. It became obvious then to even the most optimistic that Supervalu had reached a tipping point and that it was almost certainly unsalvageable in its current form. There was an alarming drop in same-store sales by 3.7%, a revenue decline of 4.7% and a profit drop of 45%. Not long after the quarterly report was issued, Herkert was out and other drastic actions aimed at slowing the downward tumble were implemented. Of course, the biggest action of all was to make it known that the entire company, and any of its parts, were for sale.

Wayne Sales, the incoming CEO, halted virtually every element of Herkert’s plan, including the price initiatives, the rollout of Save-A-Lot units and most capital spending. He also announced the closure—not even the sale—of 60 stores, including 22 Save-A-Lots. The new plan seems to be to hanging on long enough for a buyer to emerge. Back to the Future Some trade observers say that very few of Supervalu’s assets will attract a buyer. The most optimistic prediction is that parts of Supervalu could be sold as ongoing enterprises or simply as real estate. One possibility is that a buyer for Save-A-Lot could surface, although

the fact that 22 of them are about to be shuttered bodes ill. Even more complicated, all but a few hundred of the 1,330 Save-A-Lots are owned by licensees and are not, strictly speaking, Supervalu’s to sell. And then there’s the wholesaling business that could be attractive to the right buyer. Also it’s fairly certain that even if a buyer for the whole Supervalu enterprise manifests, that buyer would most likely see Supervalu as a company to dismember and parcel out. Another possibility is that Cerberus could acquire Supervalu to sell off its parts, reuniting the two Albertsons chains. Few are predicting that Supervalu will file for bankruptcy, let alone be driven to liquidate, although there is historical precedent for just that; in 2003 Super-valu’s closest industry peer, Fleming Cos., did shut down

abruptly and liquidate. To be sure, Fleming faced a different set of challenges than does Supervalu. Since the dark days of the summer of 2012, Supervalu’s fortunes have skidded further. Its second-quarter results, issued in October, featured a loss of $111 million, including expenses related to downsizing. Let’s hope that whatever is next for Supervalu starts to unfold soon. In any event, the Suervalu we’ve long known will never be the same. 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.

Unprecedented Change Agents By Jill Butler

We women saw it coming, we have experienced it. And our purse from which we purchase is speaking loud and clear. We are overwhelmed with too much stuff, too many choices, too much time spent shopping for more of the same. We have enough! We are fed up with it! Enough is enough! Because in the end, what is one more thing going to do for me, my spirit, my creativity, my appearance? Nada. When enough is enough of the same old, same old, we are turning to authenticity and meaningful experiences. We seek out handmade unique creations; shop at farmers' markets; shop in our closet; and re-gift without shame. We are re-learning the true nature of gifting; to gift ourselves with quiet time, gift others with our talents, and gift the world with who we are for causes that matter to us—our partners in life, our kids, families and communities. And we are also gifting ourselves with time-out from shopping as entertainment. We no longer need to fill an emotional void with the 'got to haves.' The 'got to haves' have changed to ‘want to haves.’ We are leading change in the most fundamental ways. It is back to the future in a shape shifting of values. We're turning to caring for our homes instead of hiring

others to do so. We are connecting back into feathering our nests that have been neglected emotionally and in their care. We're digging in our gardens; we're growing vegetables for the joy of the visceral experience. We're starting to actually use our gorgeous kitchens with the ‘must-have' granite counters. But we're caring less about the granite, and more about the quality of the food, while sitting around the table sharing what matters most. This is not just a prosaic exercise; it’s the real deal! We are the agents of a sea change. We long to connect emotionally with others; to collaborate, to communicate face to face. We are making different choices not because we can, but because we see the need to do so. And when it comes to buying, we women want to buy less, to buy better, and to buy consciously. We are shaping your future. Jill Butler is an author/illustrator, designer, as well as a creativity coach and visionary keynoter. Her most recent creative collaboration was with Human Resources at GE in visually transforming their content for their training manual and support materials for GE Women’s Leadership Practices, a worldwide program. With a database of over 10,000 images created by Butler, and a unique ability both as a designer and facilitator, Based in Chester, Connecticut, Jill Butler… art&design, offers a unique services for creating art and messaging for off-site meetings, conferences and trainings. For more information: www.jillbutler.com, 860.525.5155.

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Under Pressure Those of us with memories of 1950’s kitchens may remember pressure cookers: a heavy metal pot with a rubber gasket that we were always told was a bomb and a really good way of killing vegetables. I have not seen a pressure cooker in an American kitchen for 30 years. Even my foodie royalty friends don’t have one. And unless you took Home Economics in the 1950s or 1960s, you probably have no idea how this supposedly dangerous appliance works. Yet across the developing world, it is a primary tool of kitchen liberation. The old bomb we feared, as stories of exploding pea soup splattering grandma’s kitchen wallpaper, has been re-engineered. Pressure cookers are widely available in Walmart and on Amazon.com, in all varieties. The principle of the pressure cooker is simple. In a compressed environment, water vapor, or steam, can be raised to very high temperatures without burning its ingredients. The steam is forced through the food, cooking it cleanly and quickly with no loss of flavor or nutrition. Thus, you can put a cup of water and three potatoes in a pressure cooker, and seven minutes later, you are eating spuds. Brown rice doesn’t take an hour; it cooks in 15 minutes. In any cuisine that is based on legumes and grains, from hummus in the Middle East to dahl in India, cooking has traditionally tied women to the kitchen for hours every day. Even if basic staples are made once or twice a week, the preparation and cooking time involved often precludes a woman who is caring for a family the ability to also hold down a full-time job. A good pot of beans can take two to four hours to cook; having a pressure cooker can cut weekly meal prep times by more than half. Styles and sizes vary too. Across the Middle East and India, a middle class kitchen has multiple types of pressure

Issue Eight December 2012

By Paco Underhill

cookers: small ones, big ones, even multi-layered ones to allow a multitude of foods to cook separately in the same pot. Because it uses less fuel than the traditional simmer cooking style, it helps with expenses and also makes for a cooler kitchen, and more pleasant cooking experience.

Women remain one of the critical bellwethers on technologic adaptation. Their thought processing is not about a product’s speed or internal function, but rather its impact on quality, and ease of life. Don’t tell her what it is; tell her what it does and how it could make her life easier, safer, cleaner, better.

This breathtakingly efficient device has done more to liberate and empower emerging market women than any other appliance in the past 20 years. Indian cookbooks are filled with references to the number of whistles cooking a meal requires, referring to the number of times the cooker reaches it maximum temperature and the safety valve releases steam (or whistles). Potatoes might need two whistles; lentils four; and black beans, six whistles. The first whistle may take two or three minutes, each subsequent whistle takes fewer. You can do the simple math on cooking times.

All across the hardlines retail world, whether brick-and-mortar, or online, we see egregious mistakes in how products and entire product lines are marketed and presented for sale. It is not the speed of a microprocessor that makes a computer what it is; it is a computer designed for people as a tool to communicate, share and search — to find solutions by crunching or cruising large databases of information quickly and effectively. The overriding virtue of laptops and tablets for women, students, business people, and travelers, is that they are powerful enough yet light enough to tote back and forth to work or school. The pixel count for any camera selling for less than $300 is useless for almost any customer. She wants to be able to take good pictures and store them safely. The bandwidth of a mobile phone is less important than the value of being able to reach her family reliably, and in emerging economies, to be connected to healthcare treatment.

The re-birth of the pressure cooker is another example of emerging market innovation. LG, the Korean consumer electronics manufacturer, has recently launched a mini washing machine. It hangs on the wall over a toilet and is connected to water and waste lines. It is the size of a hat-box and can take care of a day’s dirty laundry. No, it can’t wash a king-size comforter or six bath towels, but for a working woman, or for any traveler, it is quick, easy and effective. It fits into a small space without intruding, and the installation is relatively simple. I want one for every hotel room I occupy. It would make traveling with carry-on luggage even more viable.

The military may buy technology, but in 2012, the consumer is buying appliances. Will the pressure cooker make a re-entry into the American Kitchen? I’m interested. Give it a try. No pressure. Paco Underhill is the CEO of Envirosell (www.envirosell.com) a behavioral research and consultancy firm focused on commercial environments. His columns and editorials have appeared in The New York Times, Money Magazine, The Washington Post and The Wall Street Journal, among others. Underhill is the only foreigner to hold a position on the Board of Advisors at Hakuhodo–Japan’s second largest advertising agency.

He’s Got It:

Menswear in the Information Age In my last article we gave you three shops that were bellwethers of an emerging trend: a bottom-up trickle effect that has innovative brands skewing small. Here are three more bellwether retail stores that are becoming the go-to brands for modern young men, and are further redefining and reprogramming their customers’ experiences, online and off. What’s interesting about these three is that the founders are innovators who play to the online and offline strengths of their aging Millennial consumers, act as a disruptive force for traditional retailers, and capitalize on their customer-centric behaviors that are defining this generation.

Many innovative next-gen retailers are fully informed, and framed by the digital age and gifted in using all its disruptive tools. One such business that is uniquely online customer-focused is menswear retailer Indochino; a custom tailoring service based in Vancouver and Shanghai. Catering to the individual, Indochino provides each global customer with a 10-minute online measuring process and then delivers a custom tailored suit “at your door anywhere in the world” in four weeks.

By Grace Ehlers

The suits (including tuxedos) retail from $399-$699 each, making custom tailoring a reality for the next generation that thrives on Mad Men over the Mod movement. Co-owners (and Millennials) are Heikal Gani, and Kyle Vucko. Heikal was inspired to create Indochino after diligently researching and then overspending on his first suit that was ultimately a disappointment, and needed extensive (expensive) tailoring after the fact. Gani’s initial disappointment in buying his first suit mirrors the paradox of an entire generation that has come of age after an adolescence of unprecedented customization, yet find themselves without choice in bespoke, affordable tailored menswear. This generation as preteens customized their skateboards, Nike sneakers—even developed their own brands through social network profiles. Why wouldn’t they also want a fully customizable experience in investing in their first suit—all done online? In counterbalance to the rush towards customization is a desire for curation. In menswear, one of the most trusted sources of curated style is STAG, located in the annual influencer South by Southwest mecca, Austin, Texas. STAG’s tagline, “Provisions for Men” defines their robust online site and brick-and-mortar shop with manly amenities and clothing for modern men. The shop personifies the Texan boy-adventurer and captures a very of-the-moment sentiment on the part of men in their 20’s, 30’s and 40’s that is an effort to make the urban, intellectual man more ‘grizzled' and manly. The Atlantic’s notorious “End of Men” article launched in 2010, may have inspired the success of STAG’s refined but rustic clothing that is selling like hotcakes; they are projecting double-

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digit percentage growth again for next year. Don Weir, co-owner of STAG describes their success, “Unlike some more specialized menswear boutiques, and partly because we're located on a street with really heavy foot traffic, we make it point to try and offer something for most everyone who walks through our doors—but always with our own, unique spin on the offering. Along with the menswear assortment that makes up the bulk of our store, we sell original paintings from local artists, concert posters from local graphic designers, books on the Austin music scene, vintage furniture and clothing picked in Texas, locally made leather goods, and all sorts of other goods that would be hard to find elsewhere.”

Content Director and Fashion Director of American Apparel Alexandra Spunt and Mathew Swenson, and web engineer Nan Yu. Their slogan, “We offer the finest essentials at truly disruptive prices. Online only, no middlemen, edited collections.” could be foreboding to traditional retailers. Combining the talents of in-house online developers to create a sleek interface, and the strategy of creating street cred and exclusivity at launch, through invitationonly marketing to shop the website, Everlane merges the cool sense of Silicon Valley with the sensibilities of traditional high-quality menswear retailing. Looking ahead, the future of a resilient customer experience may be by delivering a trusted interface interaction rather than physical store design and in-person customer service. Everlane is the small-scale online model that could be the tip of the iceberg of a battle that will redefine the future of retailing pitting online and offline worlds. Their website says it all: “We believe in a new way. Online only, we create the finest essentials without traditional retail markups.”

Each of these three brands has identified opportunities in the menswear market and is providing unique solutions to enhance and elevate the customer experience. And although (full disclosure) two of the three have womenswear components in their business models, each is heavily concentrated on the male consumer. These three brands are bellwethers because they put customer experience first and foremost, provide curated collections, and use online tools to attract today’s young customers. Their approaches may be nontraditional and digitally enhanced, but their financial goals could not be more traditional. Editing the many available choices as a curator is key with this generation that is looking for guidance and direction. And interestingly, it may be the software engineers and coders in collaboration with innovative, disruptive retailer visionaries, backed by risk-taking venture teams, who are truly redefining the future of retailing. 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.

Online retailer Everlane targets a gap in the menswear market: accessibility of the fast-fashion world combined with with high-quality, classic styling. In Everlane’s case, it is purely virtual, and their ecommerce profit is funneled into ensuring highquality fabrics in their own menswear line. Founded by former venture capitalist Michael Preysman, the team is comprised of former Gap merchandiser Edoardo Monterubello, former Issue Eight December 2012

Well-Wrapped at Retail: Savvy Consumers Meet Smart Retailing This Holiday By Emily Thompson

Consumers may be wary this holiday season, but there are bright spots ahead. According to the National Retail Federation, overall holiday spending is projected to increase 4.1% this year, from $563 billion in 2011 to $586 billion in 2012. Technological advances have made it easy for consumers to shop from anywhere, at any time, and this year they are taking note; the NRF also projects that online holiday sales will grow 12% from 2011 to 2012, reaching $92 to $96 billion. On average, holiday shoppers plan to spend approximately $568 on gifts this season, up 14% from $497 in 2011, according to the Cotton Incorporated Lifestyle Monitor™ Survey. “What consumers give year to year doesn’t necessarily change much – but the way they’re making those purchases has changed tremendously over the last decade,” says Kim Kitchings, Vice President, Corporate Strategy and Program Metrics, Cotton Incorporated. “The rise of e-commerce and its ease of use, and now the increase in smartphone usage as a means to make purchases, have enabled

Consumer Facts from Cotton Incorporated Lifestyle Monitortm

consumers to shop wherever, whenever.” This is certainly a boon to the more than half (52%) of consumers who say they find holiday gift shopping to be stressful, according to Monitor data. That stress may be due in part to procrastination; only about a third of consumers (32%) start holiday gift shopping in November, while an equal percentage (18%) start shopping in October and December. Just 14% of consumers say they buy holiday gifts throughout the year, Monitor data reveal. Savvy shoppers plan to rely on a variety of mechanisms to ensure they get the best price; from doing more comparison shopping (45%), looking for deals on days like Black Friday (45%), to shopping around to find the best deals (43%), according to Monitor data. “This is really the new normal,” Kitchings says. “I think these actions allow consumers to take the time to choose and spend their money wisely.” Devices like smartphones and tablets, too, enable consumers to take their time and comparison shop online. Among those planning on buying holiday gifts this year, 82% plan on using the Internet to shop for them, relatively flat from 84% in 2011. And among consumers planning on using their smart phones to shop for holiday gifts this year, 49% say they will use them to purchase items, up significantly from 28% in 2011. Sixty three percent say they will use them to comparison shop, while 52% will locate stores and 37% will read customer reviews. In 2011, tablet users spent 20% more per order on average than desktop online shoppers and 50% more than smartphone users, according to Adobe Digital Marketing Insights. Using a tablet also allows consumers to extend shopping to earlier or later in the day, perhaps before work or after the kids have gone to bed.

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“There is an absolute convenience in shopping online, but for apparel gift givers, there’s still something to be said for a trip in-store to touch and feel the item,” Kitchings says. And consumers are certainly planning on spending significantly more on clothing gifts this year ($226 compared to $169 in 2011). Planned expenditures on clothing gifts are up 50% among women, 13% among men, 40% among those ages 35-70; and 16% among those ages 13-34. “What’s interesting here is that planned clothing expenditures are up 33% among adults with or without children, indicating that clothing gifts will be a popular choice for non-parents this year too,” Kitchings says. Meanwhile, retailers are pulling out all the stops for consumers. Big-box stores like Kmart and Wal-Mart have streamlined their layaway programs, making it simpler for lower-income shoppers to use. Monitor data indicate that more than one fifth (21%) of gift-givers plan to use layaway to buy holiday gifts this year, up from 16% in 2010, and that percentage increases to 33% among shoppers making $25,000 or less. But as retailers are also eager to reach those high-income shoppers, exclusive lines have become one lucrative way to drive sales. This year, EBay is partnering with designers like Chris Benz, Jonathan Adler, Tibi, and Steven Alan for its Holiday Collective this season. And recently, the industry was abuzz with news that Target and Neiman Marcus were teaming up to offer designer lines for the holidays.

Issue Eight December 2012

“Given that it’s the biggest retail push of the year, the holiday season really underlines how important it is for the industry to stay on trend,” Kitchings says. “Whether it’s geometric prints or non-traditional colored denim, we need to give people a reason to update their wardrobes.” Maintaining a holistic approach to retail is one aspect. “We can’t lose sight of in-store atmosphere, and creating that sense of wonder and awe,” Kitchings says. “Window shopping, whether browsing onlineor browsing in-store, is another piece of that.” Indeed, Monitor data bear this out; 42% of consumers say they get clothing ideas from store displays or window shopping, indicating it is still a viable means to woo consumers to the registers. Ultimately, Kitchings says, what may move the needle for consumers this holiday season is ease and efficiency; when they have done their research and are ready to make the purchase, it must be a fast and seamless process. “In a sense, today’s consumer is always shopping, and it’s imperative that retailers are able to capitalize on that, and turn that browse into a buy.” Emily Thompson is the Associate Director, Editorial at Cotton Incorporated, the research and marketing company representing upland cotton. For more information on the Lifestyle MonitorTM Survey, please contact her at ethompson@cottoninc.com. The data found in this article, as well as additional relevant information, can be found at CottonLifestyleMonitor.com.

Getting a Return on Post-Holiday Returns

Consumer Insights from

MasterCard Advisors

By Andrew Mantis

As a merchant, you’ve watched holiday shopping seasons come and go, and you’re well aware that in the last few years, consumer spending behavior has been through radical changes. It’s been a slow recovery since the precipitous drop in holiday spending in 2008. The excessive pre-holiday stocking of inventory and concomitant mad spending seem to be bygones. Savvy retailer that you are, you’ve become very smart at balancing inventory with sales, and you’ve planned inventory very carefully this season. You’ve made wellinformed estimates of consumers demand for the upcoming holiday season. According to industry analysts, this year’s second quarter saw the slowest inventory growth in the U.S. since 2009, and in light of that,

you probably don’t have huge concerns about overstocking. Nevertheless, when you placed those orders into your suppliers’ line months ago, the world was a different place. Which gets us to this point one thing that hasn’t changed, and it’s almost as certain as death and taxes, is that there will still be a flurry of post-holiday returns and exchanges

coming back through your doors come December 26th. How will you handle them? As you’ve kept your stock lean and mean this year, there’s already a much more highly specialized collection of merchandise coming back than in previous years. While in prior years, these returns have always stretched your customer service goodwill to its limits, this year, and in this uncertain economy, you’re a little concerned about how to handle returned merchandise. You can actually turn these returns into a positive for your business, if you know what you might be expecting. Knowing what the customer wants, and even better, what they’re going to need in the future, is a data-driven advantage.

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Retailers now have the means to understand how customer segments shop even when they are not shopping at your particular store. And when customers stream in with their post-holiday returns and exchanges, which is now being made convenient even for shoppers who purchased their goods online, you can turn it into deeper, qualitative market research by collecting in-store data to assess what all those customers would like to see more of, or less of, or what new items they might be interested in purchasing in the future. You want to stay relevant and connected to the customer, and take out as much of the guesswork as possible. Many shoppers who barely set foot in the stores before the holidays come out after them, in hopes of finding huge markdowns on their favorite brands. This is heightened, in part, by gift cards they’ve received during the holidays. It’s well known that customers often will spend more than the face value of their gift card—the card acts as an incentive to get them into the store and buying a few things just for themselves. With many consumers taking advantage of the “omni channel” experience— the ability to pick up or return online purchase in-store, you can create more opportunities to reach your customers and turn it into an advantage for your business. The trick is to use their return—or desire to use their gift card—as an opportunity to engage with your existing customer base, and make new customers out of shoppers who don’t usually shop in your store. So again, it is in your best interest to make the return experience as positive as the initial shopping experience—if not more so. Broader data analysis based on customer behavior outside of your store has many additional uses, such as making holiday inventory orders less of a guessing game

Issue Eight December 2012

and more of a predictive strategy. MasterCard analysis can tell you, for example, that certain aggregated samples of shoppers spend at your competitors’ stores, and on what—giving you the chance to get them to come across the street and shop at yours, drawn in by your unique offers.

allows you to build your plan around those stronger categories. Combine that with on-the-ground customer interaction, and you’re golden. On the one hand, this will enable smarter supply chain planning for future stocking and inventory. And on the other, it will simultaneously engender customer loyalty, as customers feel reached

Ultimately, by understanding your customer base better, you will be able to sell more to them, year-round—and big data can help you with that. It’s useful to look at categories of spend. Are there specific retail subsectors that are doing better than others? MasterCard data from the past 3 years shows that January has posted strong year over year gains. Total U.S. retail on a seasonally adjusted basis rose from +4.3% year over year in January 2010, +5.2% in January 2011, and +5.5% in January 2012—all healthy gains. So there’s a possibility of riding that wave. Looking within those numbers, however, there are strongly contrasting stories. Apparel showed strength—up +0.8% year over year in January 2010, up +2.8% year over year in January 2011, and up +4.9% in January 2012. On the other hand, Electronics showed a consistent downward trend for each of those Januaries. Clearly the Electronics sector has better Decembers than Januaries.

out to and heard… particularly when they see their suggestions appear on your shelves and racks. We hope that this year you were spot on with your orders, but you won’t know for certain until after December 26th and beyond. And of course there’s the wild card of the resolution of the fiscal cliff come the turn of the year—all the more reason to get a plan in place, get the data on your side, and try to get ahead of the curve. It all comes down to knowing your customer. Ultimately, by understanding your customer base better, you will be able to sell more to them, year-round—and leveraging valuable data insights can help you with that. And by the time the next holiday season comes around, you’ll be ready with just the right inventory and the right amount of it for your customers.

The lesson here is that figuring out how customer segments shop in different categories, when and even where, can be a powerful tool. Focusing on categories that are forecast to be strong—based on data showing that spending has been stronger in those sectors—

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

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Out of Control Holiday Sales Hero: Disrutptor or Disruptee?

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