The Robin Report - Summer 2017 by The Robin Report

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SUMMER 2017

STARTUPS WITH BIG IMPACTS PAGE 14

THE RISE & STILL-FALLING

ICONIC AMERICAN BRAND

DISCOUNT RETAILERS MAKE A MOVE PAGE 17

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TABLE OFTOC CONTENTS

Featured Contributors LORI MITCHELL-KELLER

DAVID PORTALATIN

ROBERTO RAMOS

global general manager of Consumer Industries

Vice President industry analyst, food consumption, The NPD Group, Inc.

Vice President of Global Strategy and Creative Services at The Doneger Group

Lori Mitchell-Keller is global general manager of Consumer Industries at SAP. In this role, she leads the Retail, Wholesale Distribution, Consumer Products, and Life Sciences Industries.

CEO, EDITORIAL DIRECTOR Robin Lewis COO, EDITOR Deborah Patton

Roberto David Portalatin is vice president, industry analyst, food consumption at The NPD Group, Inc., and is a nationally known expert on consumer behavior.

Roberto Ramos is senior vice president of Global Strategy and Creative Services at The Doneger Group.

Inside this Issue The Rise & Still-Falling Iconic 3 American Brand

Amazon and the Parking Problem Paco Underhill

ADVERTISING SALES AND RATE INFORMATION deborah@therobinreport.com

8 An Anthropologie Study Warren Shoulberg

Micro-Influencers Dana Woodeport

CONTRIBUTING COLUMNISTS

10 It’s Not an Apocalypse, It’s a Renaissance

Everything You’ve Heard About Cotton is Wrong Catherine Salfino

ART DIRECTORS Steffi Sauer, Deanna Stewart

Mike Brown Pamela N. Danziger Marie Driscoll Kristen Etheredge Eric Hertz Len Lewis Robin Lewis Lori Mitchell-Keller David Merrefield Kate Newlin David Portalatin Roberto Ramos Judith Russell Catherine Salfino Warren Shoulberg Paco Underhill

Robin Lewis

Lori Mitchell-Keller

Retail as Endangered or Evolving Species? Kate Newlin

Startups with Big Impacts Marie Driscoll

Discount Retailers Make a Move David Merrefield

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Surviving Merger Mania Len Lewis

Brewdog – A New Age Company Pamela N. Danziger

Debunking the Millennial Brand Preference Myth Judith Russell

Change Behavior, Not Employees Kristen Etheredge and Mike Brown

Finding Opportunity in the Post-Aspirational Kitchen David Portalatin

Snapbreak Roberto Ramo

The New Standard for Shopping Centers Eric Hertz

Dana Wood

Copyright © 2017 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.

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THE RISE & STILL-FALLING

ICONIC AMERICAN BRAND By Robin Lewis

This article is not an attempt to match Edward Gibbon’s epic book, The Rise and Fall of the Roman Empire, in quantity or quality, although its quantity might seem as intense. And it’s not another bashing of Eddie “the magician” Lampert, or “fast buck” Eddie, or whatever I have called him. It is a long, really long, but serious story of one of the greatest brands in the history of the world. At its pinnacle, it was bigger than Walmart. So I believe the story is worthy of its length. I also believe there are many strategic lessons to be learned from the incredible “rise” of Sears and from its nearly four decades of “falling.” I know the attention span of some of my readers will be challenged, but grab a Starbucks and plow through it. I think you will be glad you did.

whose shopping options were slim to none. And with its 1,000-plus pages containing everything a human being would want or need, from their cradle, to an entire home they could live in, to the coffin they could be buried in, it was perceived by those families to be as big and amazing as Amazon’s marketplace. The entire family would eagerly gather around this Sears “store” in their living room to enjoy the dazzling experience of browsing, selecting and ordering whatever their hearts desired, at affordable prices. And if they couldn’t pay it all at once, Sears would help them out with payment terms.

THE BEGINNING In 1886, the combined vision of Richard Sears and Alvah Roebuck was every bit as genius as those of Jeffrey Bezos and Steve Jobs. The tools Sears and Roebuck had to work with were just not as advanced. With 60 percent of the U.S. population living in rural areas, they launched the Sears catalog, which was equivalent to the internet and smartphone of today. Essentially, Sears was distributing its entire store into the living rooms of America’s middle class,

Furthermore, a growing number of those products were exclusive to, and some even produced by, Sears. In this early stage, Sears was truly on the leading edge of value-chain control through vertical integration, one of the three imperative strategies for success (neurological connecting experiences and preemptive distribution being the other two), as defined in my co-authored book, The New Rules of Retail. Just as the consumer was at the center and the beginning, middle and end of every thought, idea and innovation that Jobs and Bezos created (and Bezos still does), so too were Sears and Roebuck equally consumer driven.

Just like the smartphone as the marketplace for everything on earth has turned consumers into the point of sale (as it sits in their pockets wherever they are), so too did Sears “follow” its consumers into their homes, thus making it the point of sale. (Thinking Amazon, anyone?) Then from a store (catalog), in their living rooms, as the population began migrating from rural areas to the newly forming towns, cities and then suburbs, and particularly after the construction of the interstate highway system in the 50s, Sears adjusted its distribution strategy to follow those consumers to ensure that its stores were the first ones to reach them in their new neighborhoods. In fact, Sears was the developer and ultimate anchor for the very first shopping centers in the country, and its business expanded along with the mall movement across the United States. Sears thus executed its strategy through multi-distribution platforms (thinking omnichannel anyone?), and physically demonstrated the extent of its investment in the consumer. This was also a preemptive distribution strategy, the second of the three mentioned above: go where the consumer is, and get there first, faster and more often than the competition. Sears was beginning to become untouchable.

SEARS SUPREMACY: THE 60s AND 70s During the 60s and 70s, Sears transformed its model from being a catalog and brick-and-mortar retailer to becoming a powerful go-to brand that also created and produced its own private-branded products. Sears was continuing to move toward a totally vertical integrated value chain. They had a view of marketing that embodied all the activities of value creation, including research and development, branding/ imaging, communications/advertising, publicity and distribution. These functions were arguably nonexistent in most retail businesses at the time. Continued on page 4

FEATURE Continued from page 3

They firmly believed that relentless consumer research and product development and testing (as opposed to gut instinct) were the only sure paths to successful innovation. And successful they were. A constant stream of brands and products were rolled out through the largest distribution machine in the world. The number of “firsts” and private, exclusive Sears brands was mindboggling: the first steel-belted radial tire; Craftsman tools; DieHard batteries; Kenmore appliances; Toughskin jeans; Cling-alon hosiery; the Comfort Shirt; the NFL and Winnie-the-Pooh exclusive licenses; and many others. These exclusive brands were made possible by Sears’ unique merchandising structure and process. As the owner of many of its suppliers, or as the primary buyer from others, its vertical integration facilitated a continuous process of joint research, innovation, testing and therefore a continuous stream of new and exclusive products and brands. It provided the foundation of Sears’ value proposition, and was an enormous advantage over competitors.

Sears did not have to compete head-on with the department stores (because it had its own exclusive brands) or with the discounters (they couldn’t operate on the higher cost structure necessary to match Sears’ offerings). Most important, Sears’ sales associates were the early equivalent of Apple’s T-shirted Geniuses. They were thoroughly trained and proficient in the Sears rule book and could instruct customers how to use every brand and product in the store. Furthermore, all Sears stores were decentralized when it came to merchandise decisions. Therefore, store managers ordered and bought the products and quantities according to their local consumers’ preferences. Through this localization, there was a clear competitive advantage. And they didn’t need “big data” analytics. Although, imagine the possibilities if they did have that capability at the time. For all the reasons just mentioned, Sears was uniquely nailing the neurological connection and engaging experiences for consumers (the third “new rule”) that no other retailer could touch at the time. During this period, Sears was the equivalent of Walmart today. And it powered into the 70s as an unparalleled master of retailing, bigger than the next five largest

value chain) and veer into a quarter century of decline that sadly continues to this day. What happened?

MISREADING THE TEA LEAVES Sears conducted a major study in the early 70s that alerted them to the following major shifts which were exacerbated by growing market saturation and the slowing economy. • Sears’ customer base was getting older and turning into two-income families, plus women were becoming the most important shoppers. • The youth of America were not getting married as early as their parents had, and they were seeking their own shopping sources such as the rapidly growing specialty chains. • Sears’ profitability was shifting from merchandise, which had been contributing 80 to 90 percent of profits, to services, which were contributing 75 percent by the end of the 70s (including installation, credit extension and its Allstate insurance business). • Competitors were closing the gap— JCPenney in the malls and Kmarts appearing on every corner. The specialty store upstarts were also staking a claim in the malls, and Walmart was a preview of coming attractions.

Most important, Sears’ sales associates were the early equivalent of Apple’s T-shirted Geniuses. They were thoroughly trained and proficient in the Sears rule book and could instruct customers how to use every brand and product in the store.

Sears also pursued product innovations for all consumers. Their open acknowledgment of their desires for better quality and better performance and for honest, low prices, made Sears a “democratic” retailer. It was a resource for all Americans, not just the middle class. High- and low-income consumers of all ages and genders shopped at Sears. Thus, it had a unique niche—in the sense that it wasn’t niche at all. Sears’ then-CEO Robert Wood said, “The customer is your employer, and the moment we lose their confidence is the beginning of the disintegration of the company.”

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retailers combined, with 900 large stores and over 2,600 smaller retail and catalog outlets, accounting for an incredible one percent of the gross national product. More than half the households in the country had a Sears credit card, and a survey at the time confirmed that it was the most trusted economic institution in the country. Then in the mid-to-late 70s the unraveling began. Tragically, after 84 years of building one of the greatest brands the world had ever seen, it would take Sears just a few years to lose its unique competitive position (awesome experiences, preemptive distribution and vertically integrated and controlled

The result of this study, along with many other internal issues that were coming to a head, which included political infighting between stores and merchandising management; mounting costs; and a calcifying culture, ultimately forced Sears management to seek a new direction. They began to believe that the key to growth was not to be found in the core competencies that had driven the success of the company. They started to look into new businesses that would be complementary and synergistic. So, Sears moved in a completely different direction. This was the critical juncture in Sears’ history.

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THE TUMBLING 80s Even as the Sears Tower was going up in the late 70s and early 80s, to become the company’s new Chicago headquarters, much of its world, inside and outside, was starting to crack. And to make matters worse, the larger economy was tanking. While Sears’ profits were plummeting in 1979 and 1980 because of the combination of inflation-raging interest rates, rising operating costs, loss of direction, mounting competition and organizational disarray, Sears new CEO at the time, Ed Telling, determined that the retail business had matured, and retreated to the Tower with his new team to work on building what he called the “Great American Company.” Sears as a diversified conglomerate of financial, real estate and insurance services. At the same time, he assigned another executive, Edward Brennan, to head up the retail business. Ironically, Brennan was charged with saving what truly was the Great American Company—the Sears retail business. At this crucial crossroads in Sears’ history, CEO Telling was essentially turning his back on, and leaving the scene of, the disaster to chase his dreams. He would initiate and oversee the dismantling of arguably one of the greatest American companies in history. Telling’s dream was of a great synergy between financial services and the core retail business. Sears already owned Allstate Insurance, and it went on to acquire Dean Witter Reynolds financial services, Coldwell Banker real estate and, later, Discover Card. It also created the Sears U.S. Government Money Market Trust Fund and formed the Sears World Trade Company. The synergy was to come from Sears using its stores, catalogs and Allstate Insurance offices as additional locations where they could insert the financial service businesses. It expected to lure the millions of Sears’ customers across the aisle to purchase financial services, and vice versa. Telling boasted to the press about their “socks and stocks” strategy. Chief among the several factors necessary for this grand strategy to work, however, was a successful and growing core retail business to generate the crossover and new traffic expected. But this was not the case. Not only was the core business beginning to decline during this period, but the customers also questioned Sears’ authority on financial skills and management, citing confusion about where Sears now belonged in their lives. What was it—retailer, banker, financier, real estate mogul or a “money store”? What did it stand for? Does this ring

a bell in describing their position today? Don’t worry, I’m getting to that. In the end, rather than an inspired synergy, Telling’s so-called Great American Company was one of the first major strategy missteps that sent Sears into its long decline. In fact, instead of a synergy for growth, the strategy likely caused a reverse downward synergy. Along with the already daunting task of turning the retail business around, Telling’s

The once-proud culture turned arrogant, then bureaucratic. The constructive balance between stores and merchandising and marketing deteriorated into constant infighting. This conflict, along with the loss of their private and exclusive branding strategy (giving way to national brands) and cost cutting, led to the unraveling of Sears’ fully integrated (and/or exclusively controlled) product development and production sourcing. This was further exacerbated when it shuttered its R&D and consumer research departments.

As the new head of retail, Brennan did make some bold moves in the early 80s, enough to achieve a short-lived spike in business and confirm his promotion to CEO in 1984 upon Telling’s retirement.

idea to “bolt on” a completely different business just compounded the complexity and confusion of accomplishing either. So, Telling’s dream did not come true. In fact, the financial services businesses might as well have been independent entities of a holding company. They ended up contributing only incrementally (with the exception of Allstate, which Sears held even before Telling, and eventually the Discover Card). By the early 90s all the financial services, real estate and insurance businesses were sold off as Sears entered another decade-long search for direction. As the new head of retail, Brennan did make some bold moves in the early 80s, enough to achieve a short-lived spike in business and confirm his promotion to CEO in 1984 upon Telling’s retirement. Some of his initiatives for a “new Sears” included: improving stores and merchandise presentations; adding national brands; trying to strengthen apparel lines; launching a “Store of the Future” concept as a template for refurbishing stores over a five-year period; rolling out Business System Centers and paint and hardware specialty stores (a beginning probe for competing in the specialty tier); and the launch of a national ad campaign. However, all these initiatives turned out to be merely opportunistic tactics. The ad campaign’s underlying message said it all: Sears has everything. So, while Sears gained a momentary boost through Brennan’s initiatives, it had definitely lost its once-supreme position and still lacked a clear strategic direction.

Sears’ small-store preemptive and multichannel distribution strategy, also initiated under Brennan, would prove to be too little too late, as well as underfunded, since more capital was being infused into the financial services business. Finally, it was confronting the arrival of Walmart as the new, hot discounter in small towns. Cutbacks in store expansion also left many of its original stores anchored in declining locations. For 10 years Sears focused on the so-called synergy for growing financial services while ignoring the store. The “store of the future” was a flop. And everyday-low-price branding strategy failed. During the 70s and 80s total retail space doubled in the United States, while Sears concentrated on closing and remodeling. It halfheartedly dabbled in specialty store concepts that turned out to be too late and insufficiently funded. Sears’ return on equity in 1984 was at 14 percent. In 1992 it stood at 9.6 percent. Virtually all Sears’ earnings between 1985 and 1992 came from the financial services businesses. And for all of Sears’ numerous cost-reduction efforts during the 1980s, its cost-to-sales ratio continued to be almost double that of Walmart and well above the rest of its competitors.

Continued on page 6

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Finally, with the $3 billion sale of the financial services business, which at the time was claimed to have reduced debt, many experts said there would not be enough left for capital spending on the stores. Sears was not only on a severely declining revenue and income trajectory, it was waffling on a strategic positioning in the no-man’s-land of being “everything for everybody.” Therefore, it was competing against the discounters from below, the department stores from above, the specialty stores in front, and the newly emerging bigbox specialists from the front, and the rear. In the process, Sears had become a traditional retailer instead of the greatest brand and marketer with the strongest consumer connection the country had ever known. It was time for a new leader.

THE 90s: THE SOFTER SIDE OF SEARS In 1992, Arthur Martinez became only the second leader from outside Sears in its history (“General” Robert Wood being the first). By then, Sears had shed all its financial services businesses. Martinez came in with a strategic vision for Sears and developed a plan for fundamental transformation, primarily focusing on women’s apparel, with an advertising slogan emphasizing “The Softer Side of Sears.” Having come from the Saks department stores, he would also move Sears into more of a department store positioning. This and other strategic initiatives showed initial success.

Despite the potential of the credit business as the growth engine for the retail business, Martinez simply could not change the culture of Sears. In fact, in Martinez’s book, The Hard Road to the Softer Side: Lessons from the Transformation of Sears, he stated that toward the end of his tenure he felt Sears was falling back into the same trap he inherited when he took over in 1992: “Just do more of the same, only work harder.” He was also asking himself the same question as when he arrived: “What is this company going to be? What does it stand for?” At the end of the 90s, Sears had no more of a strategic compass than it had 10 years before. It was time for yet another leader. Does this sound like musical chairs on the Titanic? Oh yes, it’s sinking.

THE 2000s: SINKING SLOWLY With a primarily financial background, Lacy was made CEO in 2001, he immediately moved to grab the low-hanging fruit by doing what he had done best as CFO under Martinez. He slashed costs and further pumped up the credit business. With a primarily financial background, Lacy would be the fourth non-merchant in a row to run the company, and the second, after Martinez.

In less than a year, The Wall Street Journal reported that Lacy was considering By 1998, revenues had increased about abandoning the apparel business altogether 30 percent to roughly $36 billion, and after a 25 percent drop in net income in profits rose from losses of close to $3 billion the first quarter of 2001. He admitted at to a gain of over $1 billion. an analyst meeting that Sears could not find its place in fashion, stating, “We At the end of the 1990s, Sears had no more of a strategic compass almost don’t than it had 10 years before. It was time for yet another leader. have any personality.” However, when sales and income started to drop in 1998, there was speculation that the seemingly spectacular turnaround may in fact have been due to Sears’ aggressive focus on growing its credit card business, beginning in 1993. By 1997, 60 percent of all sales transactions were done with credit cards, and experts suggested that over 60 percent of Sears’ bottom line was coming from the credit business.

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As apparel growth slipped, critics increasingly took shots at Martinez’s efforts, which now appeared short-lived. However, Lacy realized that the cost of radically changing stores and replacing lost clothing sales (stagnant, at about $8 billion) would be too steep. By 2003, Sears had experienced 18 consecutive months of sales declines, and the credit business was responsible for over two-thirds of total net income. In reaction, Sears bought

Lands’ End, thereby going deeper into the apparel category, where it had had no success since the late 70s. If Martinez lost his control of the culture, Lacy was losing it on all fronts. Sears still didn’t know what it stood for. Indeed, Sears seemed to be poised for its final descent. Adjusted for inflation, Sears volume declined about 20 percent from its pinnacle in the late 70s, and continues to drop today.

SEARS STRUGGLING TO STAY AFLOAT In 2004, a strategic financial visionary named Edward “Eddie” Lampert came to the rescue. Head of his own hedge fund, ESL Investments, and a former Goldman Sachs risk arbitrageur, Lampert has a genius for spotting great deals among distressed companies that he considers to be undervalued. He then buys a major stake at a bargain price. Having made such a deal for the equally distressed Kmart a couple years before his move on Sears, he combined the two companies under the name Sears Holdings (to be owned by ESL Investments, with Lampert owning 41 percent of the stock). He and his newly appointed team declared to Wall Street and the world that they were going to return Kmart and Sears to their rightful positions as successful, iconic retail brands. In keeping with his track record, Lampert and his team slashed costs across the boards to boost per-share earnings and improve returns on capital, even though both retailers were hemorrhaging before he bought them. Comparative store sales were, and still are, declining month-over-month. However, by cutting people, advertising and research costs and slashing store maintenance and capital improvements, he improved profitability and share prices. Lampert could then leverage the earnings and cash to invest in more promising growth opportunities with higher returns—not necessarily back into the dying businesses.

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After several years of cost cutting, even amid a flurry of tactical initiatives, Sears Holdings still does not clearly stand for anything so compelling that consumers make Sears (or Kmart) their destination of choice.

STILL FALLING The combined sales of Kmart and Sears in 2005 when Eddie took the helm was about $50 billion. As reported last December, after its 20th consecutive quarterly decline in sales and revenues, the combined top-line number had dropped to about $25 billion. More warning lights are on the bottom line. They lost $2.2 billion in 2016 and over $5 billion over the last three years. And during the past decade, the number of Kmart and Sears stores has dropped from more than 3,800 to 1,430. In the face of this dark reality, Mr. Lampert made this preposterous comment in the annual meeting in early May 2017: “We don’t need more customers. We have all the customers we could possibly want.” The factual reality is that not only does he need more customers, he needs to keep the ones he has, who, according to the top and bottom line numbers, seem to be leaving in droves. According to a statement from Sears Holdings’ annual report for the fiscal year ending in January, there appear to be no rabbits left, or hats to pull them out of, in Lampert’s bag of tricks. The report stated, “Our historical operating results indicate substantial doubt exists related to the company’s ability to continue as a going concern.” It cited that continuing operating losses were choking off liquidity that might limit its access to new merchandise and new funding. From day one, when Lampert acquired Sears and merged it with Kmart, he operated the business as though he had absolutely no retail experience, which of course he did not. He declared in a 15-page manifesto in 2005 that traditional measures

of retail success, such as same-store sales, were no longer relevant. This statement reminded me of CEO Ed Telling’s proclamation that “the retail business is mature,” as he retreated into Sears Tower to oversee its first unravelling during the 80s. Cost-cutting, slashing capital spending and store maintenance, closing stores, putting other stores in REITs, selling assets like the Craftsman tool brand and putting Kenmore and DieHard into the for-sale line-up, all of these were, and still are, tactical moves to just survive another day. They are not the strategic decisions required to find another path for growth.

IS THERE A SEARS IN OUR FUTURE? Today there are many focused “masters” competing in each of Sears’ many businesses. Indeed, Sears’ 30-year quest to regain its former glory has certainly eroded its relevance to consumers, or at least severely tested their patience. Simply put, Sears is still in the middle of a perfect storm. The seminal question is whether the following three storm fronts will allow Sears the time to find a meaningful position:

Perhaps the most powerful negative driver for the Sears demise are the millennial and Gen Z consumers, who find everything about Sears, including the iconic brand itself, “old world.” Certainly, the poorly maintained stores offer no compelling, experiential destination for these consumers. They have unlimited, better or equal shopping choices, many of which are located closer to where the consumers live. And there’s Amazon, growing at the rate of 20-30 percent and eating everybody’s lunch. Additionally, Sears’ omnichannel efforts have arguably been too little and too late. Sears’ captivity in malls is another major issue, as declining traffic is driving the majority of them to repurpose or close.

Competitors have more efficient and effective business models, focused and positioned with dominant value propositions and elevated shopping experiences, attacking each or several of the conglomeration of Sears’ waning businesses (appliances and tools included). This includes a repositioned JCPenney, as well as competitors such as Walmart, Kohl’s, Target, Home Depot, Lowe’s and the multiplicity of specialty chains, all of which have a major advantage because of their lower operating costs and real estate flexibility. Thus, they gain more pricing leverage and greater

profitability, as well as better proximity to the consumer. Between 1998 and 2010, the number of competitors within a 15-minute drive from Sears grew from 1,400 to 4,300 stores.

Economy and industry dynamics are a weakened, post-recession economy and an oversaturated retail industry.

THE FINAL FALL? I have written about the demise of Sears almost from the first day of Eddie Lampert’s acquisition and merging of the two “Titanics,” as I called Sears and Kmart. I did, and still do, admire and respect Mr. Lampert’s financial brilliance. But financial brilliance alone is not enough to turn around two enormous and already tanking retailers when he took them over. And perhaps nobody could have turned those businesses around. Certainly, under Lampert’s micromanaging control and his cost cutting and resistance to invest in store maintenance, much less anything else, not even the most talented turnaround artist and leader would have been able to stop the bleeding. I sadly conclude this story of one of the most famous and recognized iconic brands in the world. And while you are reading this, Sears may in fact be filing for bankruptcy, which better minds than mine are predicting will happen in July of 2017. While we are waiting for that to happen, let this be a cautionary tale to some of our major brands in business today who are mirroring where Sears was in the 80s. Be forewarned. The only possible good news is that the death of Sears will reduce a severely over-stored industry. Amen

ROBIN LEWIS Publisher and CEO of The Robin Report

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 dozens of retail, consumer products and other companies. In addition to his role as CEO and Editorial Director of The Robin Report, he is a professor at the Graduate School of Professional Studies at The Fashion Institute of Technology.

HOME

{ AN }

STUDY By Warren Shoulberg

nthropology is the study of how human societies interact. Anthropologie is a case study of how certain human societies shop for home products. What a difference a few letters make. Anthropologie, the upstairs neighbor in the Urban Outfitters hierarchy of store brands, is attempting to do something that is virtually unprecedented in the world of retailing: take a brand that has been largely fashion driven, with a smattering of home, and substantially up the home furnishings quotient.

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While mixing home products into an apparel environment has been the foundation of general merchandise stores, be it a department store or a discounter, it is a fairly unusual concept in the world of specialty store chains. Some people may remember that several retail lifetimes ago, Pier One used to carry some clothing. They disappeared a long time ago, replaced by endless riffs on candles, drinkware and poorly made small tables.

Not that that was always the case. The first Anthro store, opened in 1992 in Wayne, Pennsylvania—not too far from current corporate headquarters in downtown Philadelphia— featured a near-50/50 split of home and fashion.

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In the reverse equation, perhaps you recall that fashion retailers like The Gap, Victoria’s Secret and Banana Republic have dabbled in home products from time to time, usually with equally as dismal results. The fact of the matter is that home and fashion are two very different animals: different supply chains, different sell-through rates, different turns, different markdown structures, and very different in-store/online shopping experiences. There are good reasons why IKEA doesn’t have a junior sportswear department and Uniqlo isn’t selling toaster ovens.

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URBAN LEGENDS Urban Outfitters, from the start, had a different strategy. In both its namesake division and Anthropologie, there has always been a home furnishings component, mostly centered around textiles and decorative accessories like candles, wall art and assorted novelty paraphernalia. More recently, Urban has added a significant amount of home to its online business, moving into furniture like sofas and tables and serious tabletop offerings. Anthropologie kept its home story somewhat more modest, both in-store and online. It has tended more to home accent décor merchandise with a little bit of furniture and some textiles. Not that that was always the case. The first Anthro store, opened in 1992 in Wayne, Pennsylvania—not too far from current corporate headquarters in downtown Philadelphia—featured a near50/50 split of home and fashion. Founder Richard Haynes always positioned the brand as a step up from the original Urban unit, which appeals to a 20-something shopper who may or may not be living in their parents’ basement. The Anthro customer target was older—30-45, with a corresponding older taste and income level. Before not too long, fashion took over the store, resulting in a more recent 80/20 apparel/home split. Corporationwise, counting Urban and the Free People fashion unit, which doesn’t carry any furnishings, home accounts for about 17 percent of overall sales, which last year were nearly $3.5 billion. It has not been smooth sailing for the company over the

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a foray into unchartered territory. And one in which it is not entirely alone. Fast fashion apparel retailers H&M and Zara are both moving into home products, the former both in-store and online, the latter just on e-commerce so far. Each operates stand alone home stores in Europe. And let’s not forget sister company Urban Outfitters, which continues to broaden its home assortment. But all of those retailers are targeting a younger, less-affluent customer, younger millennials, and the

past several years. The stock is sitting near recent historical lows and comments from Haynes about the general retail malaise haven’t helped.

FURNISHING A SOLUTION Even if Wall Street isn’t drinking the Kool-Aid yet, Urban clearly sees home as part of the solution. Last September Haynes told analysts that it would significantly up its home game. Discussing why home would work in Anthro stores, he said the store’s target customer’s “desire to buy home products has not decreased. To the contrary, the Anthropologie customer spends as much per annum on home products as she does on apparel, so we see a significant opportunity to offer a much fuller assortment of home products and capture more of her spend."

A NEW HOME To get an idea of how that is going to be manifested, you need to head downtown to the first Anthropologie store to take on the new home strategy, in the Financial District of lower Manhattan, just a few blocks from the World Trade Center. The store—which counts Nobu as its next store neighbor if that gives you a rough idea of the projected customer demographic— measures out at about 20,000 square-feet, with close to half of that devoted to home. From the street level, the store at 195 Broadway (the original AT&T corporate

The spacious department is laid out with room settings, something new for the store, accessorized with not-for-sale props that reinforce the design aesthetic.

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On that same call, David McCreight, CEO of the Anthropologie Group, outlined a strategy that had the store moving away from just offering decorative accents and more gift-oriented merchandise and becoming more of a legitimate, full-line home furnishings retailer with core products like upholstered furniture as well as dining room and bedroom furniture. Ultimately, the executives said, they would reduce the apparel side of the store from its current 71 percent to just over half. Beauty would continue to hold down about 5-8 percent of the merchandise mix but the rest would be home. This would mean some larger stores going forward—perhaps as many as 25 to 50 flagship-style stores at double to triple the size of the current average of 10,000 square feet—as well as some retrofits of existing units. Ultimately, Urban said it will double the size of its home business to 20 percent of corporate sales—$700 million based on current sales—within three years.

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headquarters) looks like a typical fashion-focused outlet, but take one flight down and fashion takes a backseat to a dramatically expanded home offering. Here you’ll find real home furnishings. There are couches and chairs, tables and shelving, mirrors and framed art, bed and bath, rugs and mats, dinnerware and drinkware. All this in addition to the candles, decorative pillows, picture frames and other decorative doodads that have been mainstays throughout the years. The spacious department is laid out with room settings, something new for the store, accessorized with not-for-sale props that reinforce the design aesthetic. Display fixtures are consistent with that design environ: no pegboards or rack systems here, thank you. Also new is a custom furniture Design Center area, where shoppers can pick a frame, select a covering from a fabric library and submit a special order. An oversized video screen helps walk the customer thorough the process although there were an abundance of Anthro-approved and -attired salespeople on the selling floor on a recent visit. All of this merchandise—and much more— is duplicated on the website, including an extensive custom furniture section with ordering capabilities. Home-specific direct mail catalogs reinforce the story.

A FUTURE FOR FURNISHINGS All of it represents a significant investment in the category, one that obviously the store believes in. As such it represents

emerging Gen Z shopper. Anthropologie is firmly banking on the older millennial and Gen X shoppers who have traded up and are entering their prime home furnishings consumption years. Its competition is not H&M or Urban, or even IKEA or West Elm. It is going up against the meat of the home furnishings spectrum, mainstream retailers like Bed Bath & Beyond and Macy’s, not to mention lifestyle chains like Pottery Barn, Crate & Barrel and even RH. These are not lightweights and are going to do whatever is necessary to defend their home turfs. But as crowded as the furnishings space is, it’s nothing compared to fashion so in that respect the Anthropologie positioning makes sense. And if you believe the theory that the millennials are moving into their prime home furnishings purchasing years it is even more plausible. As with everything in retailing, it all makes sense in theory. But Anthropologie knows all too well that while anthropology is very much a science, retailing is anything but.

WARREN SHOULBERG Editorial Director, Home Furnishings Business Publications Warren Shoulberg is editorial director for several Progressive Business Media publications for the home furnishings industry. He keeps his passport up to date.

DIGITAL MARKETING

APOCALYPSE It’s a Renaissance

It’s Not an

By Lori Mitchell-Keller

We’re facing a peculiar time for retailers. As institutions like Macy’s and Ralph Lauren are continuing to close their brick-and-mortar stores, many have pegged this as the “Retail Apocalypse” and point to Amazon and e-commerce as the culprits. However, it can’t be the end of retail, considering discount retailers like TJ Maxx and fast-fashion stores like Zara are on the rise with new store openings.

While there are several elements playing a role in retail success, the most important is the ability to be responsive to customer demand. It is essential to leverage data to understand consumer buying habits and ensure expectations are being met. Brands now have more data about shoppers than ever before. They need to put that data to work to address tailored consumer wants and needs.

Retail is going through a period of disruption and change akin to a renaissance not an apocalypse. Retailers are reawakening to the ideals of personalized yet highly scalable retailing by leveraging digital technology and unparalleled consumer insights. The speed at which brands need to respond to demand has drastically accelerated, and retailers are working tirelessly to get a foothold in today’s fast-evolving retail landscape. From offering a multitude of options for delivery and pickup, to transforming in-store experiences, retailers are innovating to meet growing expectations.

Overall, there’s a massive shift in retail and we should expect the landscape to adapt in the coming years. Those that embrace this will lead the charge through the renaissance.

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What are retailers doing to succeed?

rsonalization Through P eTechnology

Consistently delivering a personalized, cross-channel experience is something retailers need to do well in order to thrive, and 31 percent of companies have

caught on to this. To understand customers in real-time, retailers must establish a universal customer master database. Brooks Brothers is a company that is using personalization to maintain and grow their business. By moving to a cloud delivery model, Brooks Brothers staff has immediate access to the customer information they need worldwide. Because on-site implementation is not required when a cloud delivery model is used, the employees are empowered instantaneously. In addition, brands like Maui Jim are using analytics to elevate their customer experiences. Through its use of technology, the sunglasses retailer puts the control back in the hands of the consumer. Maui Jim developed a website that allows shoppers from across the globe to browse its extensive online catalog and create their own versions of Maui Jim sunglasses. Using e-commerce to expand its sales, the retailer is able to offer personalized services while still providing products that are consistent

ROBINREPORT

with the company brand. Through its use of technology, Maui Jim has experienced an increase in orders, revenue and overall social awareness. Brooks Brothers and Maui Jim are just two examples of brands leveraging personalization and technology to ensure success.

ta and Analytics in the D aSupply Chain

In a recent interview, ALDO Group’s COO Bryan Eshelman stated the following: “Consumers don’t want to walk into a store in August and see fall goods. They’re in the summer mindset. They have an event this weekend and they want to find a cute sandal to go with their dress, not long, heavy boots for winter.” Fast fashion is taking hold in the retail industry, and ALDO is in tune with trends. While it used to take over a year to get a product through the design stage and into stores, such as shoes for the summer season, that process is being transformed by consumer demands. Shoppers expect to see something, buy it and wear it almost instantly–and retailers need to be able to keep up with this to thrive during the renaissance. Retailers with a digital core like ALDO can collect data to track inventory and the location of products in real time, as well as gather information on customers and markets. This approach enables

“ C

them to provide each store with specific items of interest at the right time. ALDO’s digital transformation and ability to apply data analytics to the supply chain process gives it the speed and agility needed to win new customers.

nichannel O mConsistency

Retailers need to meet the customers where they are, which includes a variety of sales channels. Retailers must ensure consistency and connectivity across all channels, while at the same time tailoring for personalization. To do this, there needs to be a digital core in place that holds a single profile of the customer. A great example of leveraging data insights across multiple channels is Under Armour. Through dynamic software, Under Armour collects and analyzes data in real time to understand consumer workout habits. The retailer leverages information gathered from wearable technology and previous shopping histories to anticipate the needs of their customers and develop highly sought after products. In addition, based on built-in sensors that can detect wearand-tear, customers receive notifications when it’s time to order new shoes. Under Armour plans to use its advanced insight

to cut its 18-month supply chain by up to 40 percent–further heightening its customer experience. Leveraging the data available to retailers is crucial to success and Under Armour is doing this in an impressive way. They are innovating at a time when consumers are not only asking for it, but demanding it.

Embrace the Renaissance This is not the end of retail, nor of brickand-mortar stores. The industry is simply going through a period of transformation as innovations in technology and consumer demands are changing the landscape. There are retailers who are redefining the industry as we know it and I can’t wait to see what’s next. Like the artists of the Renaissance, get creative and embrace this period of change!

LORI MITCHELL-KELLER global general manager of Consumer Industries

onsumers don’t want to walk into a store in August and see fall goods. They’re in the summer mindset. They have an event this weekend and they want to find a cute sandal to go with their dress, not long, heavy boots for winter.

Lori Mitchell-Keller is global general manager of Consumer Industries at SAP. In this role, she leads the Retail, Wholesale Distribution, Consumer Products, and Life Sciences Industries with a strong focus on helping SAP customers transform their business and derive value while getting closer to their customers. Mitchell-Keller brings over 25 years of experience in the software and consumer goods industries, including more than 15 years as an executive driving business strategy while building strong and sustainable relationships with customers, partners, financial analysts and industry experts.

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– Bryan Eshelman, ALDO Group’s COO

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MARKETING

RETAIL as ENDANGERED or EVOLVING By Kate Newlin

Species?

As we consider the ever-quickening pace of retail brand decline and retailer retrenchment, I am reminded of the professional experiences that have molded my world view. Early in my career, I was the tourism representative of the Galapagos Islands, 650 miles off the coast of Ecuador in the Pacific and home to all the varieties of animal, plant, fish and bird life that were catalysts to Charles Darwin’s theory of evolution. Put simply, a radical range of life existed on all the islands, but each evolved differently on each island. No two atolls produced the same type of finch, so there were 47 varietals of the same species for him (and us) to study. Sticking with Darwin’s theory, we are witness to the real-time evolution of the retail industry, our 47 different varieties of the retail finch. Some brands adapt. Some retailers innovate. Some malls re-engineer. Others, not so much. Think of them as penguins living happily on the equator (think about that for a moment). These tiny creatures, barely a foot tall, are thriving thanks to the cold Humboldt Current coming up from Antarctica, coupled with an ability—and willingness—to evolve into a smaller body mass over time. Many hundreds of years, at least. Except, of course, brands and retailers don’t have that long to figure it out. They need to find their nutritionally laden, cultural currents in the deep, shark-infested waters in which they find themselves paddling right now.

Apple’s Focus: Hearts that Want to Help Let’s face it. There are few navigational charts for this roiling ocean of change, replete with storm clouds on the horizon. But there are a few polestars: Apple, for example; Starbucks as another, Oreos is

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yet a third! Perhaps nobody understood the “I don’t know how we got here, but I’m going to survive” phenomenon as well or described it with more clarity than Steve Jobs, circa 1995. Remember he had been booted from Apple, when the board wanted Pepsi’s John Sculley to run the thing in a business-like, marketing-driven, professional way. In Jobs’ words: The companies forget what it means to make great products. The product sensibility and the product genius that brought them to that monopolistic position gets rotted out by people running these companies who have no conception of a good product versus a bad product. They have no conception of the craftsmanship that’s required to take a good idea and turn it into a good product. And they really have no feeling in their hearts usually about wanting to really help the customers. His idea is worth considering as we look at J.Crew, for example. An article in The New Yorker makes the case explicitly. Two billion dollars in debt, staring at bankruptcy, laying off 150 people, closing the bridal business, leaving 100 more positions unfilled. The preppy narrative cum cult world of Mickey Drexler slouching towards a nasty denouement for one of the most heralded retail brands of the early 2000s. Why? Well, I posit it’s because the company got big and stayed big, based on an assumption that its vision of what the consumer should want, should aspire to be would be eternally sound. They created a virtual Crew World that worked … until it didn’t. Once the culture shifted away from that multi-tasking coolness, the company was stranded in a materialistic cul de sac with no exit. J.Crew became more fully enchant-

ed by its own parallel universe, a virtual reality populated by “on-brand” looking, life-styled denizens of an imaginary “have it all” affluence that was prescriptive and therefore restrictive in its fashion mandate. “To be this person you must look this way,” it seems to say. “Become the you we imagine you should want to be by wearing us.” The customer evolved out of Crew World, but J.Crew could not. It became mired in its own brand, disconnected from the “feeling in their hearts about wanting to really help the customers.” J.Crew becomes victim of Natural Selection on a fast-track timeline.

I’m My Own Brand, So Screw Yours Consumers in a consumer society are a paradoxical lot. They know your brand, but increasingly they are their own brands, the Brand Manager of Me, in charge of the endless curation of their Me brand image via Instagram feeds, Facebook, Pinterest, SnapChat, and Twitter. When big brands try to co-opt those individual narratives,

The customer evolved out of Crew World, but J.Crew could not. It became mired in its own brand, disconnected from the “feeling in their hearts about wanting to really help the customers.

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they corrupt them, irritating the audience with interpretations of presumed aspirations. They may get it right for a bit, but when the cultural set point of ambition shifts, the brand look and feel moves quickly to obsolesce and thus to slo-mo extinction. We are not living in the mass-produced ambition of a J.Crew world now. We live in a smaller, warmer, more personally curated world. The mechanisms through which Big Brands help us ratify ourselves through their very bigness are broken, ineffective. Untuckit. Bonobos. My discoveries for me. Not yours for your imagined me.

If J.Crew were really to “have feeling in their hearts about wanting to really help customers,” that delicious Jobsian criterion, they would never have shut Bridal. Why? Because it’s the perfect and yes, smaller, brand look, price and name to help a very specific customer in need of very specific help: Teen girls and their mothers searching for a prom dress. Really? Yes. The bridal name gave it a grown-up cachet and the shopping experience is an absolute fantasy run-through, foreshadowing in a thrilling way the wedding dress moment to come. But presumably because the division didn’t make its numbers or served as a distraction, whoosh! There it goes, abandoning its customers in desperate

all the way back to childhood. Oreos Fireworks are coming in time for the 4th of July. Gorgeous as the Galapagos Islands are, they provide a cautionary tale for all of us competing, surviving, adapting and seeking to thrive in the larger world, while hoping to avoid becoming flightless cormorants, lovelorn giant turtles and blue-footed boobies: Innovate or die. Evolve or become extinct. Anticipate the future, don’t try to catch up to it. Or at its most basic, know your customers, listen to them, and serve them with a heart that wants to help.

We hear it consistently in our work, particularly as we listen to shoppers who share their most Consumers in a consumer society are a powerful shopping experiences. paradoxical lot. They know your brand, A decade ago it was about the retail brand, as in “I was at but increasingly they are their own brands, the Macy’s with my mother,” or Brand Manager of Me, in charge of the endless about a specific mall they visited curation of their Me brand image. searching for a specific and important item. More recently, it’s been so universally about need for something evocatively specific an internet search for a hard-to-find item through which to enter the brand that we’ve had to probe specifically to portal. Why? To allow the company get actual out-of-home experiences. Each to focus on the failing general, of those is resolutely searching for the undifferentiated, price-sensitive small, little known, boutique, “I can tell my and commoditized business they friends about the experience” journey. As know it to be. often as not, their search is for a perfect cheese to go with a wine. Not shoes to go If I worked at J.Crew, I’d be putting with a dress. They want the advice that together an employee stock option plan comes from a passionate sales person, not and begging the board to sell Bridal to us. the standardized “here’s how to wear this Writ small, this is a big idea. This is how and what to wear this with and when you think like a penguin on the equator. to wear it” that comes with in-store and Stranded on the iceberg of Big J.Crew as catalog how-to messaging, working hard it floats irrepressibly towards the melting to serve as the sales help they need at sun of the Equatorial Pacific, such a that moment of need. specific offering is doomed. Freed up and bobbing in the current, it can respond, The Zeitgeist of Now adapt and frolic with its teen audience. We live in a moment of sweeping choice, empowered by the internet, of course, but propelled by a certain whiff of individualism, feigned or real, in the Zeitgeist of now. Such a proliferation of options as we are met with when we Google “chinos women,” for example, obviates the need for a brand: Do we care if the pants come from J.Crew, or Lands’ End or Urban outfitters or Gap or H&M or L.L. Bean, or Uniqlo, or Banana Republic? It is exhausting to consider, especially when suddenly we see another option: makeyourownjeans.com. We can design the perfect pair. Our perfect pair. On brand for our brand.

Some consumer brands break out of the prison of their own construction, of course. Starbucks gets it consistently right—and episodically wrong every so often—but the arch of the brand is always bending toward new products and services to meet customers at their moments of need throughout the day and night. Look at Oreos. If they had defined the brand only as a “cream-filled chocolate wafer sandwich cookie,” they’d be in big trouble now. Or gone. But instead, they brand the emotional content: The fun and excitement in the brand’s DNA reaching

KATE NEWLIN Principal of Kate Newlin Consulting Kate Newlin is a business strategist working with senior executives at critical crossroads in the development of their brands, categories and portfolios. She uses a five-step methodology respected for its ability to surface unmet consumer needs that provide strategic competitive advantage for her clients. She is the author of Shopportunity! How To Be A Retail Revolutionary.

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INNOVATION

STARTUPS WITH BIG RETAIL IMPACTS The Robin Report has written extensively about the many retail business models that are rooted in the 80s, mostly oblivious to the technological advances that could streamline inefficiencies, better allocate capital while also increasing customer satisfaction. Today, most retail C-suite executives are inundated with a steady stream of new technology vendors that promise the moon and the stars. These retailers know technology will support omnichannel customer-centric initiatives; the question is, how to choose?

By Marie Driscoll

Three retail tech startups are worth a read, and more. They solve big problems, are easily implemented, and can have a positive impact on sales and margins. They are early-stage companies with “genius” founders that have attracted smart investors with a deep understanding of retail’s pain points and how these solutions could move the needle.

Solving for Speed at PredictSpring Social and mobile commerce apps have rapidly become a part of the daily life of most consumers who have expectations for instant answers, experiences and products. Call it insatiable instant gratification. Consumers demand a millisecond response time. According to Google, it takes 22 seconds for the average mobile landing page to fully load, Research indicates 53 percent of people will abandon a mobile site if the load takes longer than three seconds, clearly leading to low mobile conversion rates. In fact, Amazon reported that one second in latency costs them one percent in sales—or one billion dollars annually. PredictSpring solves this requisite need for speed with its mobile commerce platform and technology that powers native mobile and in-store apps with Instant Search, Dynamic CMS, and One-Touch Checkout. Its competitive advantage is speed, with the ability for mobile web and mobile apps to load more than 30 times faster than the leading existing technology, or in 2/10s of a second. PredictSpring easily integrates directly to the existing e-commerce platform, providing a quick, seamless omnichannel experience for consumers to shop anywhere, anytime, with a single touch of a button. Consumer engagements and conversions improve. In addition to consumer-facing mobile solutions that make a mobile app launch easy from web, email, social media and paid channels, PredictSpring developed two in-store technologies: a store associate clienteling app that supports personalization strategies; and an endless aisle for in-store kiosks. These solutions have attracted 30 retailers and brands to date, including Calvin Klein, Cole Haan, Tommy Hilfiger, New York & Company, Skechers, and Vineyard Vines. Typically, they have seen strong growth in user engagement and GMV (gross merchandise value), such as 100 to 300 percent increase in app conversions and 10-15 times higher engagement on mobile apps versus other mobile platforms.

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Mobile is today’s nexus, connecting us to all things social and commerce. According to Deloitte, more than half of all time spent on retail sites occurs on a mobile device. M-commerce is the fastest growing retail channel, accounting for 35 percent of all retail e-commerce transactions. Brands that leverage mobile as a primary channel to engage with consumers, whether online or in-store, will outpace brick-and-mortar retail. Platforms that remove barriers to purchase and simplify browsing, checkout and payments will win too. PredictSpring is that platform. Avery Baker, chief brand officer at Tommy Hilfiger, summed up PredictSpring’s benefits, saying “Our mission was to democratize the runway and make every look immediately available to all consumers around the world. Our social channels amplify the dynamic, engaging story around our runway shows, and we wanted to take this to the next level with the integration of shopping functionality via a dedicated mobile app. The PredictSpring approach creates a seamless consumer experience that reflects how the current generations of digital natives are using social media and interacting with their favorite brands today.”Founded in 2013 by Nitin Mangtani, the visionary behind Google Shopping and other early mobile commerce pioneers VISA and Motorola, PredictSpring has attracted a number of highly regarding early-stage investors and VCs, including Novel TMT Ventures, founded by Silas Chou’s two sons, Luis and Bruno Chou; Ken Seiff’s Beanstalk Ventures; and the Benvolio Group, the investment arm of Lew Frankfort, chairman emeritus of Coach. The total raised to date is $13.25 million, most recently a $11.4 million Series A closing in June 2016.

ROBINREPORT

Moving Off-Price from Excel into the 21st Century Off-price has been one of the more robust retail channels since the Great Recession, capitalizing on consumers’ desire for fashion and branded goods at value prices. High-touch service isn't an issue, just leave them to their treasure hunt. Even the 10-minute wait to checkout isn’t a deterrent. And so far, e-commerce isn’t a threat, with little demand from loyal off-price shoppers demanding omnichannel functionality. In fact, e-commerce represents one percent or less at TJ Maxx and Ross Stores, versus an average of 17 percent for specialty apparel brands and department stores.

INTURN’s software is designed to improve pre-negotiation efficiency, improve vendor (seller) liquidity and, by tracking selling and buying data, create BI (business intelligence) that supports predictive analytics. An estimated $250 billion of off-price inventory is sold globally and current practices result in billions of lost revenues. To quote INTURN investor and managing partner of Beanstalk Ventures, Ken Seiff, “This is the last frontier untouched by retail technology. While nearly every aspect of the retail experience has been automated, the sale of off-price inventory remains a very manual and inefficient process.”

Shopping in a huge box with few amenities and stock full of low-priced branded product is the physical retail format of the decade, and the outlook remains solid, driven in part by value-seeking millennials. Since the financial crisis of 2008, off-price retailers have gained share at the expense of traditional department stores and specialty apparel retailers. Off-price retailers will be a solution for many shopping center developers seeking to lease shuttered JC Penney, Macy’s, and Sears locations. Brands often prefer working with off-price retailers too, given the simplicity of the transaction, i.e., no allowances or markdown money as is common practice with department stores.

Founded in 2013 by Ronin Lazar, INTURN has customers in 35 countries, including some of the world’s most renowned brands and retailers. Investors and backers include Forerunner Ventures, Novel TMT (Andrew Fine, INTURN co-founder), Lerer Hippeau Ventures, Beanstalk Ventures, Benvolio Group, and other strategics. Total raised, $13.55 million in three rounds, most recently $9.7 million Series A January 2016.

That said, pity today’s off-price buyer, armed with little more than an Excel spread sheet. The buying process of off-price retailing is archaic, reflecting 30-year-old business practices that are ripe for innovation. INTURN has the B2B software platform that can replace lengthy Excel sheets of codes and sale rate negotiations (order, volume, sizes, discount metrics) for each order with a more robust solution that pairs product information with images as well as all requests, offers/counteroffers, and offer calculations located in one place. This potentially reduces the back-andforth buying process from weeks to as little as 20 minutes while reducing human error. In doing so, INTURN can correct for the bane of every wholesalers’ and retailers’ existence: aging and depreciating inventory, the single largest line item of most retailers’ and brands’ P&L. Quicker buys would bring fashion product to consumers sooner—in season, and potentially at higher prices for both wholesalers and retailers. Everybody wins, consumer, wholesaler, and the brand selling the goods and the off-price retailer buying the product. continued on page 16

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INNOVATION

continued from page 15

Technology Driving Superior Localized Selection & Allocation If retailers could get the right product in the right store at the right time, wouldn’t everyone—retailer, vendor and customer—be happy? Predictive analytics based on machine learning tools originally developed at MIT and considered to be “one of the 50 greatest innovations ever produced by MIT’s Computer Science and Artificial Intelligence Laboratory,” is helping retailers optimize their overall inventory in an omnichannel environment, resulting in sales and profit gains. Celect, a cloud-based, predictive analytics SaaS platform, uses machine learning based on retailers’ existing data. This includes inventory, transaction data, online data such as browsing history, shopping carts, and purchases to reveal preferences, optimizing inventories and assortments across a retailer’s store fleet, and providing insights into high-potential departments and categories at specific stores. The platform reveals the best stores to source online purchases while incorporating new relevant data and trends. Historically, most merchandising decisions have been made using simple spreadsheets and gut instinct. With Celect, retailers now have a more precise and granular way to understand how customers choose between products, and how products interact with each other. These insights reveal true product demand and surface new opportunities for optimization that might otherwise have been missed with traditional segmentation approaches. Simply put, Celect’s software quickly processes millions of data points from multiple sources in order to predict future demand. This results in prescriptive recommendations that are actionable. In addition to standard data such as inventory and transaction logs, Celect encourages other types of data such as social feeds, product reviews, in-store

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analytics, and browsing history as they all hone in on customer preference and ultimately should result in better product assortments. Bryan Eshelman, COO of ALDO Group, said it best, “We have now reached a tipping point with consumers expecting everything available everywhere all the time. Lip service is no longer an option—meeting this expectation while simultaneously reducing inventory is simply impossible without advanced analytics.” Celect’s technology boasts proven results, including a seven percent increase in in-store revenue with optimized product assortments and a 45 percent profit increase reflecting margin improvement and fewer markdowns. Celect experienced a 250 percent revenue gain in 2016 and has about a dozen retail clients. Two MIT professors, Vivek Farias and Devavrat Shah, founded Celect in 2013 based on their research on modeling consumer purchasing choices. Total equity funding raised is $15.2 million; most recently $10 million Series B February 2017, led by Activant Capital with participation from Fung Capital and August Capital.

MARIE DRISCOLL Equity Analyst 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 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.

ROBINREPORT

Discount Retailers Make a Move

By David Merrefield

hen you’re in the retail business there’s no end to the way competitors and disruptors can derail you. Online competition has to be top of mind, but there are cultural disruptions as well, such as the decline of shopping malls plus the just plain old-aging out of old-line retailers. Sears comes to mind.

Then there are the Germans. Germans? Well, if you’re in the food retail business, you might have noticed that our German friends have suddenly become major players in the grocery discount sector. Chains that are German-owned or -influenced now account for most of the sales growth in the U.S food retail sector, and they’re fielding the biggest part of new store development. None of these discounters are American owned.

together with Save-A-Lot, which is Canadian owned, but has a new top executive team in place that has a Lidl connection. German-owned Trader Joe’s is also part of the discount equation.

Save-A-Lot Let’s take a quick look the discounters, starting with recent developments at Save-A-Lot, where there has been a lot of action lately. Save-A-Lot is a homegrown discount concept, founded in Missouri in 1977. As is the case with all discounters, Save-A-Lot seeks to sell a limited number of products in a small store space at a substantial discount to the prevailing market.

Two decades ago, Save-A-Lot was acquired by Supervalu, the grocery wholesaler based in Minnesota. Eventually, Save-A-Lot grew to well over 1,300 stores spread across 37 states. More recently, Supervalu encountered economic headwinds and sought to generate needed cash by spinning off Save-A-Lot into a separate company, or by selling it outright. The latter happened. Not long ago, Save-A-Lot was acquired for $1.4 billion by Onex Corp, the investment firm based in Toronto. Onex then brought in two top executives, Kenneth McGrath and Kevin Proctor, as Save-A-Lot’s CEO and chief investment continued on page 18

Discounters pose the biggest competitive challenge to conventional supermarkets on the horizon today. For example, long-time supermarket stalwarts Kroger and Publix are both facing sales declines and drops in same-store sales. That’s new. Both chains had chalked up gains in those metrics for years, but they’re losing ground now. And as we’ll see, the discounters are just getting started, so a lot more competitive activity, including some online retailing, is in the offing. The three discounters that pose the biggest threat to incumbent supermarkets are Aldi and Lidl, both German owned,

Discounters pose the biggest competitive challenge to conventional supermarkets on the horizon today.

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FOOD MENSWEAR & GROCERY

continued from page 17

officer, respectively. Both those executives were key members of the management team Lidl sent to the U.S. to ready the market for store rollouts. As for Supervalu, it’s expected to sell off the bulk of its remaining retail assets to facilitate a return to more or less pure grocery wholesaling.

Lidl That brings us to Lidl. As readers of The Robin Report well know, Lidl is a gigantic discounter based in Germany with 10,000 stores in 26 countries. Its U.S. headquarters is in Virginia. A few years ago, Lidl made known its intention to open stores in the U.S. It has since acquired many store sites in New Jersey and Georgia, and is looking for more sites in Ohio and Texas. It has already developed distribution centers in Maryland, Virginia and North Carolina and is just now opening its first round of 100 new Lidl stores in the East, with another batch of 80 or so to follow. Interestingly, it had a backstage distribution operation in place long before the first store was opened. The distribution capacity seems vast for the number of stores it contemplates for the near-term future. That could indicate that Lidl doesn’t entertain failure as an option. Or there may be some other strategies at work.

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In Europe, Lidl’s parent company, the Schwarz Group, has experienced quite a bit of topside executive churn as it brought in new executives to institute strategy changes. In Germany, Lidl has abandoned new format experimentation and is trimming new store rollouts as it becomes an online retailer of non-food goods, such as kitchenware and household goods. If that strategy is to be migrated to U.S., it could explain its dense and currently largely idle distribution apparatus.

Aldi Then there’s the German-owned Aldi, which is now expanding aggressively in the U.S. after many years of quiescent expansion. Aldi’s U.S. headquarters is in Illinois. It now has 1,600 stores in the U.S. and plans to have 200 more open in a year or so. Aldi is also renovating stores

in numerous locations where Lidl plans to run stores. At the moment, Aldi is one of the chief threats to supermarket operators, especially those in the Midwest, but in many other places too. Here’s how Aldi is powering up over the competition: Aldi recently started opening numerous stores in the Southwest, prompting, in part, Save-A-Lot to abandon Nevada and California. Closer to its home, Central Grocers, the wholesaler-retailer based in Illinois, is liquidating, while Indianabased Marsh Supermarkets is bankrupt. Ironically, Supervalu recently became Marsh’s wholesale supplier. What’s going on here? To fathom the impact discounters can have, consider that Aldi’s price points are about 21 percent below Walmart’s. That means that prices prevailing at smaller supermarket chains are being undercut by several additional percentage points.

Trader Joe’s Finally, let’s add Trader Joe’s to the German-retailer mix. It’s a sort of soft discounter; a store that doesn’t have the lowest prices, but still manages to dwell a little below prevailing market prices. Trader Joe’s was also developed domestically, but is now German owned—in fact owned by a division of the same family that owns Aldi. Those parent companies are separate, so Aldi and Trader Joe’s share no connection in the U.S. Nonetheless, Trader Joe’s becomes the fourth player in the discount trifecta.

What Happened? It’s curious that the discount food retailers noticed a market niche that was under-exploited by the supermarket companies that have operated for generations in the U.S. The reason may

Nearly all forms of retailing are seeing shifts from the big-store format to the value channel, and to online retailing.

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be that discounters don’t look much like conventional supermarkets. They run much smaller stores—perhaps a quarter the size of many supermarkets—and they offer very limited lines of product. In short, long-established supermarket chains overlooked the discount sector because it didn’t fit the mold of how they operated or the price points they could afford. That continued during a time when consumers were looking for ways to live more economically. Consumers still do so despite ongoing improvements in the economy.

Save-A-Lot tends to sell a much higher percentage of national brands, probably a function of the fact that it’s supplied by Supervalu, which must keep a lot of national brands at the ready for its various retail clients. That’s likely to change under the new ownership.

goods manufacturers—sometimes so dependent that such monies account for food retailers’ entire profitability. The incentive to stay far away from private brands is high since private label manufacturers offer no allowance money.

It’s also curious that the discounters are positioned against heritage supermarkets in the same way Amazon is positioned against non-food heritage retailers such as department, apparel and consumerelectronics. Both discounters and Amazon have a relatively low overall market share at the moment, but both own just about all the share- and sales-growth activity and potential. Beyond that, nearly all forms of retailing are seeing shifts from the big-store format to the value channel, and to online retailing. The bright spot for food retailers is that they’ve been comparatively immune from online competition, although that is changing.

Time to Worry Now let’s take a look at why the discounters saw that an unoccupied retailing niche existed. We’ve already seen that inertia by incumbent food retailers accounts for a lot of their failure to anticipate the discount sector, but there’s one more factor at work and it’s one that should have manufacturers of branded grocery products and supermarket operators alike worried. That factor is private brands. Aldi’s product mix is 95 percent or more private brands. Much the same is true of Trader Joe’s. If Lidl follows the models it uses in most of its operating areas, it too will have a very high percentage of private label goods.

Discount food retailers noticed a market niche that was under-exploited by the supermarket companies that have operated for generations in the U.S.

The private brands used by the German discounters are far from being genericlike. They are high-quality products in attractive packaging. Most consumers, regardless of their economic means, are proud to have them in their pantry. And, truth be told, they’re more interesting than the ubiquitous branded goods. European-based retailers picked up on the private brand strategy because that’s how stores in Europe operate, especially continental Europe. Even conventional supermarkets there have a very high percentage of their goods in private brands, upwards of 50 percent. In the U.S., private brands account for roughly 20 percent of goods, often less. The reason for that is U.S. and U.K. supermarkets are especially dependent on allowance money from branded

So, in a way, the story of the discounters is the story of the ascendency of private brands over branded goods. The discounters aren't alone. Other retailers such as Ikea, H&M, Uniqlo, Ann Taylor, Gap, and even Apple are essentially private-brand retailers. The tectonic plates are shifting.

DAVID MERREFIELD DRM Initiatives, Inc.

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.

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TALENT MANAGEMENT

Change

Behavior, By Kristen Etheredge & Mike Brown

NOT EMPLOYEES

etailers intuitively understand that everything positive that happens in their stores happens through people. Current employees, specifically the average employees, from sales associates through regional leaders who constitute the majority of the workforce, hold the key to improving operating performance and business results. That’s not just motivational rhetoric or the latest human resources theory, it’s a fact supported by repeatable results. Shifting Performance is a new approach to workforce improvement from A.T. Kearney, offering a proven, non-disruptive, rigorously analytical, repeatable path to improved business results. It utilizes analytics to answer some of retailing’s oldest and most basic problems, deliver measurably enhanced business outcomes, and create a betterquality customer experience. The process helps retailers achieve their growth and profitability goals by building on existing but potentially hidden strengths in the workforce—helping average employees learn from and adopt the behaviors of top performers.

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comps, payroll and shrink, Shifting Performance takes a broader view by building a performance equation that quantitatively defines how groups of employees add value. The equation takes a comprehensive view of what employees’ “good” performance looks like and then evaluates it, considering market and store factors that might influence outcomes. The performance equation measures micro and macro metrics, but can also consider factors such as opportunity, market maturity, consistency of achievement and sustainability over time into consideration.

Finding the bright spots Tapping the power of the middle Rather than focus on the tail ends of the performance curve—trying to grow and retain high performers or salvage or change out the low performers—Shifting Performance focuses on the average performers who are the real heart of any retail organization. This middle group of employees typically constitutes 70 percent of the workforce. Given their scale, even a small increase in this group’s efficiency and effectiveness delivers significant improvement to the store.

Taking a hard approach to what’s been a soft problem As we said, Shifting Performance takes an analytical approach to a problem that is typically viewed as a qualitative human resources challenge—understanding the behaviors, experiences and activities that enable employees to be successful. Instead of looking only at a few key macro-metrics such as year-over-year

Once it is determined how value is delivered, a new performance equation is defined as the standard for evaluating employees. Once we have defined the performance equation we can see how value is delivered. These new criteria allow us to identify high performers who are truly delivering exceptional value to the organization, and those in the middle (the target group for Shifting Performance). Often times, we are able to also identify some “hidden gems” who, for one reason of another—like being a great manager in a tough market—might have been overlooked or labeled as average. Once high and middle performers have been identified, we begin a combination of survey work, focus groups, interviews and observations to understand the differences in their behaviors, illuminating both what it is they do and how it is they do it. A behavioral survey asks target group employees to describe how they spend their time, what they see as their most important behaviors/actions, and which tactics and strategies they use to achieve their goals.

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These behaviors might include actions as seemingly simple as getting to know employees as individuals, applying specific skills/tactics in analyzing reports, modeling successful selling behaviors, and setting and focusing on effective interim targets.

distributed throughout the middle of organization so they become a regular part of how work gets done.

By correlating the survey with the performance equations, we can see what high performers are doing differently (“bright spot” behaviors) as compared to the majority of the employees However, the real trick is to identify those behaviors, tactics and strategies which are truly different from the middle group and are “teachable,” as opposed to inherent personality characteristics.

Finally, Shifting Performance delivers real results. Here are two actual examples:

Once we understand the what, we use a combination of focus groups, interviews, and observations to understand the how behind the behaviors. Finding out how high performers do what they do is much more important than just identifying what it is they are doing because the how allows us to teach others what they need to do differently. In one recent example, we saw distinct differences between top performing and average district managers’ approaches to store visits. Average performers had a tendency to conduct a lengthy 40-point checklist each time they visited a store. At the end of the visit, store managers were left with a bullet list of “tasks” that needed to be performed by the next visit. Follow-up on these tasks was inconsistent. Conversely, top performers consistently focused on a small set of impactful metrics and behaviors. These metrics and personal objectives were agreed upon at the beginning of the season and were consistently reinforced throughout. During the review, high-impact actions were identified and discussed. And they immediately followed up with store managers to ensure prioritized actions were taken and planned results achieved.

Battle-tested solutions This approach works because the behaviors surfaced by the analysis aren’t disruptive and have already been proven

Real examples, real improvement

• In the case of a retail store chain, A.T. Kearney identified opportunities to boost store contribution by six percent by implementing just four key behaviors that would shift the performance of average and low-performing district managers.

This approach works because the behaviors surfaced by the analysis aren’t disruptive and have already been proven within the existing corporate context.

within the existing corporate context. Success doesn’t depend on new piein-the-sky thinking or some externally derived best practice benchmark. These are identifiable, measurable and concrete actions that others in the organization are already using to achieve superior results. Through this triangulated approach combining qualitative, regression and comparison analyses, we identify which critical few “bright spot” behaviors directly correlate to high performance, which often requires a refocus of existing assumptions. In a recent example, we were able to reduce the number of best-practice high-performing behaviors previously identified by the client from a list of almost 30 down to four that really made the difference in store performance. Once key behaviors have been identified and articulated in a way that can be taught, we develop a plan to replicate them through vehicles and corporate initiatives such as revised metrics and dashboards, employee trainings, quick-use tools, tips/ tricks, and playbooks launched and

• Impressive as those results may seem, implementing Shifting Performance was responsible for identifying a 10 percent revenue uplift at one of our Direct Selling organization clients.

Final thoughts Shifting Performance is an effective way to improve operating results by changing employee behaviors, not just changing employees. The implementation of viable, objectively measurable performance enhancements does more than just make employees in the middle of an organization more productive by shifting their performance. We believe it will pay additional dividends in the form of longer retention of key employees (a critical issue at retail), enhance collaboration and the communication of best practices and, ultimately provide your customers with a better and more efficient shopping environment. This process can be used at all levels of the organization, from regional managers to front-line sales people. All that’s necessary is that the group in question be of sufficient scale and share a consistent value contribution mechanism. In retailing the bottom line is, of course, always the bottom line and Shifting Performance drives topline growth that directly translates into bottom-line results while, at the same time, driving sustained capability development.

KRISTEN ETHEREDGE

MIKE BROWN

Partner at A.T. Kearney’s Leadership, Change & Organization Practice

Partner at A.T. Kearney’s Consumers Goods & Retail Practice

Kristen Etheredge, Ph.D. is a partner in A.T. Kearney’s Leadership, Change and Organization practice, where she specializes in helping clients design and implement large-scale business transformations, while optimizing the organization and effectively managing disruptive change. Kristen has worked across a wide range of industries from consumer goods/retail to manufacturing/energy. Kristen is based in A.T. Kearney’s Dallas office.

Mike Brown is a partner in A.T. Kearney’s Consumers Goods and Retail practice where he works with clients on revenue and profit improvement through innovative omnichannel channel customer experience and operations initiatives. Michael has published and spoken on a variety of omnichannel strategy and operations topics in the national press including The Wall Street Journal and Forbes. Michael is based in A.T. Kearney’s New York office.

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TBD

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The New Standard for Shopping Centers By Eric Hertz

It is becoming increasingly apparent that shopping centers need to provide stimulating, energized environments to lure consumers away from their computers and Amazon Prime accounts. There is nothing less engaging than a complex of sterile, half-empty common area rotundas and walkways with dreary soft rock soundtracks, antiseptic lounge areas and not a welcoming face in sight.

The time when shopping centers could serve as simple conduits to their retailers is gone. It’s not enough to provide ample parking, clean walkways and adequate lighting–although I’ve heard some senior industry executives maintain this is still the case. These same executives concede that the average store visits per mall trip have declined by roughly 50 percent over the past five years–from 6/7 to 2/3 stores per mall outing. Consumers have done their research online, and see the mall as a virtual fulfillment center for finalizing purchases and picking up merchandise they have already ordered. Regrettably, the large majority of shopping centers continue to operate in passive mode–leaning on their retailers to engage and entertain their customers. But there is a growing awareness among the most savvy operators that the mall itself is a critical component of the shopping experience. Engaging customers in an entertaining and emotionally fulfilling visit will bring them to the mall more frequently and keep them there longer. What constitutes an outstanding shopping center experience? Here are four breakthrough trends which demonstrate how some shopping centers are transforming into experiential destinations in their own right, together with outstanding examples of each. Many of these concepts have been pioneered in global markets before finding their way to the U.S. retail landscape. But they are definitely on their way. Continued on page 24

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Continued from page 23

CUSTOMER EXPERIENCE

1. Transcendent Customer Attractions Entertainment is no longer a mall amenity–it is now a necessity. The most successful entertainment initiatives incorporate over-the-top attractions which generate substantial word-ofmouth and energize the entire mall environment.While these innovations typically require a significant up-front investment by the developer, they often can recover their initial cost many times over by boosting overall customer traffic and dwell time, while in some cases benefiting from hefty admission charges. • Ski Dubai Snow Park A 240,000 square-foot indoor ski village completely housed within the gargantuan Mall of the Emirates operated by Majid al Futtaim in Dubai. Initially designed as a traffic-building attraction for the mall, Ski Dubai has become a major profit center in its own right, with an admission charge of over $500 for a family of four. MAF has also positioned the snow park as the centerpiece of a high-end restaurant hall, with several full-service establishments overlooking the slope. The outcome: Mall of the Emirates is one of the leading family entertainment destinations in Dubai, exponentially boosting customer traffic, time spent in the mall, and number of store visits. • Chi K11 Art Space, Shanghai China has been a leading innovator in the incorporation of cultural institutions within major urban shopping centers. One of the most striking is the “Chi K11 Art Space” which has become a primary attraction at Shanghai’s “K11 Art Mall,” where it is a key differentiator for the mall within the highly competitive Shanghai shopping arena. K11 brands itself as an “art playground where culture, entertainment, shopping and living (in that order) revolve around art.” Chi K11 is listed as one of the top 10 museums in Shanghai, and its professionally curated exhibits communicate an aura of high culture and sensibility to the overall mall experience. K11 Art Mall engages its visitors in a compelling sensory and commercial experience–far beyond their actual shopping itineraries.

2. P ersonalized Concierge & Shopping Services The common perception of a shopping center concierge station is two or three bored-looking employees sitting motionless behind an enclosed counter. Increasingly, however, forward-thinking mall developers are utilizing personal shopping services to help their consumers curate the diverse range of mall offerings to meet their specific interests and tastes. A prime example of this trend is the Personal Shopper Service at South Coast Plaza, Costa Mesa, CA. It is ironic that South Coast Plaza, one of the largest malls on the West Coast with over 250 retail tenants and $1.5 billion in sales, has transformed that woebegone perception by installing a team of personal stylists available to any of its customers for wardrobe selection and image consultation. No doubt SCP, owned by the Segerstrom family, has the ideal customer base for such a service: It’s the highest grossing luxury mall in California, located in the heart of coastal Orange County. But its Personal Shopper Service represents the type of large-scale investment in staffing, training and physical housing that most developers, even the largest, have been reluctant to commit. And yet the SCP Personal Shopper Service and related concierge services (i.e., restaurant reservations and tickets to the adjacent arts center) have contributed significantly to the center’s remarkable productivity as well as its competitive advantage within the affluent, international Southern California luxury retail marketplace.

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3. Connection Within an Iconic Locale Urban shopping centers often have the distinct advantage of being near or adjacent to historic buildings and institutions. Two of the most forward-thinking developers have effectively synthesized a dramatic connection with their iconic neighbors: • The Grove L.A. This legendary L.A. marketplace speaks “experience” so effectively that it’s a wonder its founding concept has rarely been duplicated. The Grove, owned by Caruso Affiliated, was constructed 12 years ago alongside the L.A. Farmers Market, together with an internal trolley system linking the complex with the market. The mall was thus able to capitalize on one of L.A.’s most treasured community institutions, as well as the aura of authenticity surrounding the market. At the same time, The Grove enhances the neighborhood with a vibrant open-air structure (not an enclosed mall!) built around a central plaza featuring choreographed water fountain shows. In the process, The Grove has become a community in and of itself.

mall, opened in August 2016, is enhanced by a soaring cathedral-like ceiling which conveys a unique sense of spirituality and ethereality. The structure, known as the Oculus, connects on an emotional level with the adjacent World Trade Center Memorial site. From a practical standpoint, Westfield WTC connects seamlessly with one of New York’s largest transit hubs as well as the adjacent Brookfield Place mall in Battery Park City. And its tastefully curated assortment of retail and restaurant components maintains a level of dignity appropriate to its sacred locale.

• Westfield World Trade Center There can be no more iconic location than lower Manhattan’s World Trade Center site. This 365,000 square-foot

4. Coordinated Mall-Wide Customer Service Initiatives It is not always necessary or possible to create a highprofile entertainment experience to deliver an elevated level of customer service. In fact, even smaller and mid-sized centers can significantly up their customer service game by coordinating their own consumer outreach initiatives with those of their retailers. A sterling example is located in the far reaches of Eastern Canada: Halifax Centre, Nova Scotia has developed a fully evolved customer service program in collaboration with its retail tenants. Titled the “Together We’re More” Program, the center has engaged its retailers in an ongoing initiative designed to maximize customer service throughout the property. Mall representatives participate together with retail sales specialists in training workshops focusing on world-class customer service techniques. Over half of the

center’s 150 tenants take part in the program, which has produced overall productivity increases of up to 20 percent for participating retailers. Halifax Shopping Centre demonstrates that even properties with modest budgets can significantly lift the bar on delivering a highly personalized level of customer service. And the concept is really very simple: shopping centers, while essentially real estate constructions, can easily leverage the intrinsic customer service expertise of their retail tenants to provide their customers with a fully coordinated, world-class shopping experience.

ERIC HERTZ President, Center for Retail Real Estate

Eric Hertz is president of the Center for Retail Real Estate, a comprehensive learning and development resource for the retailing and shopping center industry. He has served as senior vice president of education for the International Council of Shopping Centers, where he directed global management training programs for shopping center executives. Prior to joining ICSC, Eric developed leadership development programs for a broad range of fashion brands and retailers, including Brooks Brothers, Calvin Klein, Liz Claiborne and Nautica. He has directed executive education programs at the Fashion Institute of Technology, and has served as a lecturer and executive coach at Columbia Business School and the University of North Carolina..

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RETAIL MILLENNIALS INSIGHTS

N O Z AMA By Paco Underhill

riving from the Jacksonville, Florida airport into downtown, you pass by one of Amazon’s new distribution centers: a mammoth building of more than a million square feet surrounded by a 5,000-place parking lot. It is a reminder that while e-commerce is called digital, much of the goods sold and the process of getting it all to the buyer is distinctly analog. Making the same journey in from the northwest Arkansas airport to Bentonville, you pass a Walmart distribution center that looks almost the same on the outside, only it’s at least 20 years older. For The Robin Report readers, it is important to remember that it is the front end of the retail process that’s in question today. In other words, it's the head of the beast not the body we are stressing out about. The body is holding up pretty well. Supply chain management innovations have benefitted everybody in the world of big retail. The problems of getting the right stuff to the right place is still real and still in need of ongoing refinement, but progress over the past 20 years has been remarkable. As often reported in the these pages, retail’s greatest accomplishment has been the unglamorous engineering of cost out of the supply chain. Go inside the warehouses of Walmart, Target, CVS, Kroger and Whole Foods—or Amazon—and you would be hard pressed to see any differences. Peeps, the biggest wrinkle in retail is figuring out what happens when all that stuff leaves the distribution center.

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and th

M E L B O R P

THE AMAZON ADVANTAGE

THE BIG-BOX ADVANTAGE

A few months ago, I signed up for Amazon Prime. I called it a personal lab experiment. I learned to cruise daily deals and for a month or two, ordered bits and pieces that fit into a home renovation project I was working on. I liked the Prime video offering, in contrast to Netflix. I got to download a bunch of films before I’d go on the road and pick and choose among them with instant viewing. The selection was not as good as Netflix, but for what I was looking for, on-the-go entertainment, it was just fine. As my renovation job slowed down, I asked myself what else I could be ordering. I had my first epiphany when I went to order toothpaste and realized the price on Amazon was noticeably more than I was paying at my local Stop & Shop.

Industry data clearly show that most big-box merchants can compete with Amazon successfully on commodity items if the customer is willing to pick them up at the store. Walmart and Kroger have the trucking part of the distribution chain down cold. The challenge is to fulfill three critical last-yard steps for customer pick-up.

As a student of human nature, I start from the basic premise that once we reach age 35 or 40, 80 percent of our weekly purchases are routine. We don’t need to agonize over brands of laundry soap, bottled water, or coffee. We know what we want. We still like to shop for personal taste-based items like meat, cheese, fruits and vegetables and bakery items. We want the option to fulfill our routine commodity purchases quickly and cheaply, and do the shopping and choosing in-store that gives us pleasure. Price aside, the auto-replenishment feature of Amazon Prime is a no-brainer when it comes to convenient commodity purchases.

Organizing the individual order at the back of the store. For nonperishables, it's easy. What is intriguing is that pick-up at the store could eliminate e-commerce’s dirty little environmental secret, which is the profligate use of cardboard. If the order is packed in a returnable plastic bin, cardboard consumption could be cut by more than half.

The timing on the pick-up. Each hour that passes from the time that bin is ready to be picked up and it getting picked up is money lost.

Making sure the bin gets to the back of the customer’s car as quickly and painlessly as possible.

Step one is not rocket science. What happens in the distribution center and in the back of the store are streamlining engineering and personnel issues. French and Russian merchants are leveraging their private warehousing and trucking systems as fulfillment engines for e-commerce, not only their own merchandise, but also in contract for

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others. Their use of recycled plastic bins is common. The pick-up process in many other countries is scheduled online, with customers choosing their pick-up time windows. A small charge is sometimes levied if the time window is missed.

two-thirds of the way back, and a narrow corridor in the rear with trucking bays. If we could blow up the pad, we might be able to do something radical. But we are stuck with the footprint and we need new ideas.

CALLING FOR DELIVERY INNOVATIONS Mainstream America doesn’t have doormen to accept packages. Drones may work in exurban settings, or at gated mansions, but the concept of drone service to the Levittowns of America is hard to imagine. UPS, FedEx and USPS are working well, but secure delivery issues persist. For non-doorman apartment dwellers and many living in single-family residences, home delivery is problematic. The Amazon boxes or lockers have not taken off. And even with the lockers, we still have to lug the stuff to the trunk of the car. We need innovations!

A NEW PARKING PLACE If we visit the strip mall where so much of American weekly consumption is anchored, we can see where step three is an ongoing problem. American parking lots are chaotic. On a busy late Thursday afternoon, the competition for a prime parking location can be fierce. Conversely, on Monday morning the walk from your car to the front door is short. But it’s those other times of the week that the walk can be frustratingly long. Parking lot management is passive. Yes, some handicap spaces exist, but mostly it’s asphalt, strips of paint, a few tired signs and random shopping cart holding pens. At the aging strip mall the basic layout of the pad is still parking in front, stores

Place a pick-up center at the edge of the parking lot away from the stores. The center could be designed as a series of moveable containers or even a repurposed shipping container with openings on one side.

With a parking redesign and active management, the Krogers, Walmarts, Whole Foods and Best Buys can be given a whole new lease on life. The following blue-sky ideas are not proven concepts. What’s important is to think differently, with solutions anchored in logic. • Place digital signage for sections of the parking lot that changes by day of the week and day part. Prime parking spots during commuting hours are reserved for store pick-up; let’s call it a 10-20 minute window. You can get to the dairy case and also get your bin. The average time spent in that strip mall declines by 40 percent. • Place a pick-up center at the edge of the parking lot away from the stores. The

center could be designed as a series of moveable containers or even a repurposed shipping container with openings on one side. Shoppers have the option, based on their online notification, to pull up to the pick-up center and have their bins loaded directly into the back of the car. While you pick up a full bin, you can drop off your empties. •M ost American big boxes are looking to shrink their footprint. One innovation might be to create a corridor down one side of the box connecting back of the store to the front façade and parking. That alley facilitates the creation of the pick-up zone at the front of the store. The American shopping trip for weekly purchases is crying for reinvention. Imagine if we could stop off on our way home from work, adding only ten minutes to our commute, and get what we need, saving money in the process. Wouldn’t that be a winning formula? To get there, we need a better partnership between big boxes and their strip mall landlords to manage usable space. We also need better master-plan mall redesigns that are based on human behavior and convenience, not impersonal cost efficiencies. We can reimagine the parking lots as distribution sites. We can re-engineer the pick-up experience. We can promote the environmental advantage of pick-up over the Amazon cardboard shipping eco-nightmare. We can use ingenuity instead of expedience. Or even better, we can ask our customers what they actually want to make their pick-up experiences better. The future of shopping is about technology applied to customers’ lives, preferences and pocketbooks.

PACO UNDERHILL CEO and Founder of Envirosell Paco Underhill leads 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.

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THE BUSINESS HOMEOF BEAUTY

MICRO-INFLUENCERS:

CAN THE BEAUTY INDUSTRY’S OBSESSION DU JOUR ACTUALLY DELIVER ANY MEANINGFUL, MEASURABLE ROI? By Dana Wood

ear Reader, can we be frank with each other and just admit that the only reviews that are 100-percent legit are those by individuals who have ponied-up their own hard-earned cash to actually buy the product they’re commenting or posting about?

say, anyone with the last name Jenner, micro-influencers are in the crosshairs of virtually every forward-thinking brand on the planet. Per the current wisdom, if you can get one these hyper-credible micro-influencers on board to sing your product’s praises, your brand is golden.

You know, “real” people. Civilians. I’m talking about Sally Sue from Sioux Falls, sitting in her home office and click-clacking away on her computer keyboard because she’s super-jazzed about some new miracle crème or pricey eyeshadow palette she just spent the better part of her last paycheck on. Now that we’re in agreement about true “review legitimacy”—even if no one wants to publicly cop to it—I’d like to kick the tires of the beauty industry’s new darling: micro-influencers. Touted as paragons of credibility because they have several million fewer followers on Instagram, Snapchat or YouTube than,

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THE NUMBERS GAME Not that there’s any hard-and-fast definition of what a micro-influencer even is, mind you. Glossier founder and CEO Emily Weiss—who knows a thing or two about influence herself—defines microinfluencers as individuals with as few as 500 social media followers. And she recently tasked 150 of them, all already Glossier customers and members of its “community,” to get the word about the brand’s new skin serums.

Other industry watchers widen those micro-influencer parameters to a range of 10,000 to 100,000 followers. And on the far end of the scale, Entrepreneur magazine considers anyone whose follower count falls just short of 1 million to be a micro-influencer. Remember the good old days, when bigger was better? When all brands had to concern themselves with was the pure number of followers a potential “brand ambassador” had? That was the clueless “eyeballs” era, a time when it was considered a major coup to merely have a celeb or red-carpet hairstylist, makeup artist or facialist name-check your brand in any way, shape or form. Now that we’ve shifted from eyeballs to engagement, however, it’s a very different story. Today, marketers want to see that a post or YouTube video has garnered, at the very least, a sizeable number of

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“likes.” Next in the hierarchy of quantifiable engagement comes shares and comments—the consumer has been so motivated by the celeb, brand ambassador or red-carpet expert’s post or video that she wants to pass it along or chime in with her own thoughts about the product. Lastly, of course, is the ultimate holy grail—the elusive unicorn—of consumer engagement: conversion to purchase.

NOW, LESS MEANS MORE (AND IT’S CHEAPER, TOO)

This isn’t news. Consumers have a long, documented history of not wanting to buy products shilled by celebrities. Remember that time Oprah Winfrey inadvertently sent a paid tweet about Surface—a Microsoft product—from her Apple iPad? Bye-bye credibility. But if distrust is the default reaction to paid endorsements, why would enlisting a micro be any more credible than a macro? Micros are getting paid too. Not nearly as much as macros—not by a

The company, which bills itself as “the only digital resource that provides influencer, media, PR and brand contacts, news, events and industry intelligence in one convenient place,” hits the nail on the head in its eye-popping debrief: “Proving the impact of a campaign, or the degree to which an influencer has inspired an audience and precipitated action can also sometimes take place

Guess who comes up short on engagement? The influencers with the highest number of followers, now known as macro-influencers.

Guess who comes up short on engagement? The influencers with the highest number of followers, now known as macro-influencers. Yes, as strange as it sounds, there’s an inverse relationship between followers and engagement.

long shot—but money is most definitely changing hands. Even if it’s only a few hundred dollars, it becomes a transactional, rather than organic, relationship.

According to a 2016 study by Washington, D.C.-based Markerly, an agency that facilitates relationships between brands and “real people” influencers, macros with follower counts of at least 10 million get “likes” on their posts a paltry 1.6 percent of time, while micros get likes 8 percent of the time.

From a credibility standpoint, I’ve seen two definitions of micros recently that I feel made sense: regular consumers who are passionate about a product (aka the aforementioned Sally Sue from Sioux Falls), and individuals who work in a given market category or are somehow otherwise experts.

When it comes to comments, says Markerly, there’s an even greater disparity; micros get 13 percent more than macros.

Here’s an example of the latter micro, the expert: Let’s say an athleisure manufacturer wants to get the word out about its new luxe track pants. Following the micro-influencer strategy, they hone in on a local Crossfit trainer, who has a rabid following of 1,000 fitness nuts, and just so happens to live in the same town in which the athleisure brand is based. That local trainer is in the trenches, interacting with and motivating clients, and living the fitness lifestyle. Her followers trust her judgment and hang on her every recommendation. Bingo! Engagement. And, fingers crossed, eventual product purchase.

So why is that? Is it because the consuming public is onto what a racket the whole product-promotion game is? Has it finally dawned on them that their favorite macro is paid lavishly (as in the equivalent of their entire annual salary for a single post) to gush over some new detox tea or eyelash booster?

surrounds determining whether that’s money just tossed down the drain.

MACRO, MICRO…IN TERMS OF ROI, WE’RE STILL LOST In its new report, “Measuring ROI On Influencer Marketing,” London-based Fashion & Beauty Monitor points to the explosive fees some top-tier influencers are now garnering (up to $100,000 for a single post) and the mass confusion that

over a long period of time, which can be very difficult to determine through web analytics.” At least in some part, this dearth of data stems from a lack of record keeping, or even interest, on the brand side. In its report, Fashion & Beauty Monitor cites a recent survey by the Internet Advertising Bureau of more than 100 agencies. A full half of those agencies admitted that they “make no attempt to measure the financial return” of paid-influencer social media activity. Even more shocking, another 33 percent of those same survey respondents say they don’t even believe tracking ROI was of value. So if ROI isn’t important, what is? One respondent in the Fashion & Beauty Monitor waxed-on about the “positive sentiment” an influencer can generate for a brand. Positive sentiment is great. But is it money in the bank? It’s 2017: maybe it’s time to stop measuring positive sentiment and move on to counting cold, hard cash.

DANA WOOD Beauty Journalist A beauty journalist for 20+ years, Dana Wood has served as beauty director for BRIDES, Cookie and W magazines, has written for numerous national publications, and is an author and a blogger. She also spent several years in the Luxury Products Division of L’Oréal, as AVP Strategic Development.

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CONSUMER TRENDS

Everything You’ve Heard About Cotton Is Wrong by Catherine Salfino

On May 23, 2017 Cotton Incorporated and Sourcing Journal Online co-hosted a media and apparel industry event provocatively titled, “Everything You Know About Cotton Is Wrong.” The goal of the event, according to Kim Kitchings, Cotton Incorporated senior vice president of Consumer Marketing, was “to counter misperceptions about cotton— with facts.” The event entailed a series of presentations from Cotton Incorporated staff that included a primer on cotton commodity economics and an overview of how cotton-farming technologies have evolved over the past 35 years. A diverse panel on “Cotton in the 21st Century and Beyond” prompted a lengthy and intriguing discussion with the panelists and the audience. “Cotton remains the preferred fiber among consumers,” explained Kitchings, “but there is a great deal of conflicting information about it, especially as it relates to cotton’s

Pruden addressed issues of water and pesticide use, providing citations for data presented and a conjecture as to how the facts have become distorted over time.

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environmental impact.” The event addressed these conflicts head-on with “The Top Ten Alternative Facts About Cotton,” a presentation by Cotton Incorporated senior director of public relations James Pruden. Pruden addressed issues of water and pesticide use, providing citations for data presented and a conjecture as to how the facts have become distorted over time.

Alt Facts For example, one alternative fact that was refuted was that cotton uses 25 percent of the world’s pesticides. Pruden pointed out that there is no organization that monitors pesticide applications around the world, which makes the statement dubious to begin with. There are, however, companies that measure sales of global pesticides and other chemicals used in agriculture. One such source, Informa, reveals that in 2016 cotton accounted for five percent of pesticide sales. As Pruden explained, pesticide sales can be used as a broad proxy for application, but are more indicative of purchases than of volumes used. The University of Mississippi does monitor insecticide applications on cotton grown in the United States. According to the university’s Cotton Crop Loss database, U.S. cotton growers applied insecticides on average of two times in the 2016 crop year.

ROBINREPORT

Another alternative fact involved the depletion of the Aral Sea. Once the world’s fourth-largest lake, the Aral Sea has retreated significantly in recent decades. Cotton’s detractors blame what they claim to be cotton’s “excessive water needs.” The actual cause, according to Pruden by way of a Columbia University study, was a poor engineering decision by the Soviet government, which controlled the region around the Aral Sea in the 60s. During that era, the Soviets decided to divert the two rivers feeding the Aral Sea to the surrounding desert. The idea was to transform the desert into farmland to grow, among other crops, cotton. Over time, the myth arose that cotton crops require large amounts of water. To put it in perspective, Pruden stated, “It takes more water to grow an acre of lawn grass than an acre of cotton,” that calculus coming from data in “The Life Cycle Assessment of Cotton Fiber and Fabric” (2010).

than one-third of consumers say they put effort into finding sustainable apparel,” said Bastos, adding, “and this is consistent across generations.” Bastos’s presentation showed comparable findings for the industry. According to a recent poll of textile companies, fewer than one-quarter of respondents say their company verified facts presented to them through media, or by suppliers or NGOs. Interestingly, the same poll indicates that 92 percent of respondents believe sustainability to be a cultural movement that is here to stay.

remains the “Cotton

preferred fiber among consumers, but there is a great deal of conflicting information about it, especially as it relates to cotton’s environmental impact.

”

Reactions to the research occurred in a panel discussion that included Dr. Jesse Daystar, associate director of the Duke Center for Sustainability and Commerce; Garry Bell, vice president of corporate marketing and communications for the Canadian apparel brand Gildan; Bryan Dill, head of key accounts at Archroma US; and Dr. Keerti Rathore, professor of Soil and Crop Sciences at Texas A&M University.

The emphasis on citations at first – Kim Kitchings, glance may appear excessive, but Senior Vice President of Consumer Pruden explains that it is purposeMarketing, Cotton Incorporated ful. “Virtually all communications Bell stated, “Consumers are coming out of Cotton Incorporated looking for credibility from the undergo several layers of vetting, brands. Consumers are looking for including a review by the United brands that are transparent and States Department of Agriculture. put the information out there.” To facilitate this, Gildan has We are the global knowledge base for cotton. This level of developed an app through which shoppers can track a T-shirt vetting ensures that the information we are providing the throughout its lifecycle. Dill pointed to the traceability hangtag media and the industry is accurate and represents the best accompanying garments dyed with Archroma’s Earth Colors and most current data known to us.” dyes, which allow consumers a similar level of transparency.

Sustainable Future

So why is there so much misinformation about cotton and why does it persist? Pruden replied, “Competition and time. Consumers know and love cotton. As a textile fiber it is the one to beat. Competitive fiber companies—and even some passionate, but mis- or under-informed NGOs—thrive on the fact that people are busy and don’t have the time or the inclination to peel back the layers of the claims they read on a label or a web site.”

Dr. Daystar summed up the discussion by saying, “Sustainability is here to stay and it is important for brands and retailers. There are lots of labels and claims, so it’s really hard to sort through all that as a consumer. Organic is not always better and it is important to put numbers behind the claims.”

CATHERINE SALFINO

This too is supported by research. Melissa Bastos, director of market research at Cotton Incorporated, shared in her “The Business of Sustainability” presentation that consumers care about sustainability, but rely on manufacturers and brands to build that into the final product. “According to responses to the Cotton Incorporated Lifestyle Monitor™ survey, less

Fashion Retail Reporter Catherine Salfino covers fashion and retail. Her work has appeared in the menswear publications Daily News Record, Women’s Wear Daily, Saks POV, and the Sourcing Journal.

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STRATEGY HOME

SURVIVING MERGER MANIA By Len Lewis

I ask retailers lot of questions and one of my favorites is, “What keeps you up at night?” One of the most telling answers came from a senior supermarket executive several years ago who replied: “Waking up in the morning and finding out my company was acquired by A&P.” His attitude was understandable, and one that was shared by many in the industry after decades of hubris-driven mismanagement that snaked its way into every acquisition the now defunct chain made for over 30 years, finally leading to its epic and long overdue demise.

CORPORATE SINKHOLES However, this isn’t about one company’s mistakes, although it is a textbook case of how not to do business. Let’s look at a broader issue that needs to be explored; namely, no matter how good the fit a merger or acquisition might seem, corporate marriages can easily become financial and operational sinkholes. More to the point, the failure to fully integrate businesses culturally, operationally or technologically results from the corporate version of the seven deadly sins: lust, gluttony, greed, sloth, wrath, envy and pride. However, let’s add one more to the list. The most pervasive sin of all—ego! Leave it at the door or run the risk of getting tangled up in your own self image.

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To begin, let’s clear up one misconception. The so-called merger of equals is a myth. Eventually, one company, or group of executives that fancy themselves empire builders, winds up dominating the other. And these Alphas are not always the most savvy business planners. Often it’s the group whose blinding egos prevent acquired companies from maintaining their own hard-won reputations and whose operations end up folded into the warm and sometimes smothering embrace of the mother ship.

LIFE AFTER MERGER

• Would the beleaguered Lululemon Athletica be better off under Nike’s tutelage or not? • Will whomever acquires Jimmy Choo have the same love affair with the brand as Carrie Bradshaw and leave the iconic brand to stand on its own stilettos? • Might PetSmart, which has not been able to get much e-commerce traction, end up putting too tight a leash on Chewy.com, whose brand has become synonymous with customer service?

However, think about some other, less benign possibilities.

The Harvard Business Review has estimated that the failure rate of mergers and acquisitions is somewhere between 70 and 80 percent. Some never get out of the gate while others are stymied by a complex regulatory process. Then there are the few that manage to leverage each other’s strengths and retain their unique identities.

• Will Amazon continue to let Zappo’s be its own quirky self? And will the online behemoth’s acquisition of Whole Foods forever change the dynamics of the grocery business or will it be Amazon’s Waterloo in grocery?

But it’s the post-merger failures that can really kill one’s appetite for growth by acquisition and create a toxic environment for innovation. In fact, other studies indicate that 30 percent of mergers fail within the first three years.

• Will Albertsons—the king of plain vanilla, middle of the road retailing—continue on the acquisition trail in the brick-and-mortar and digital business?

FATAL ATTRACTIONS

There are, of course many successful marriages. The one that comes to mind for most consultants and Wall Street types is Disney and Pixar, which observers have called a match made in heaven that breathed new life into the Mouse House.

With worldwide M&A activity at record levels and approaching nearly $1 trillion per quarter it’s easy to see the attraction for dealmakers. But the negative impact

ROBINREPORT

of these deals has often been underestimated while the potential synergies, or at least the timeline at which they are instituted, are overestimated. Basically, not all firms have good acquisition strategies and even those that do have a hard time sticking to them once the rubber meets the road. The first step in smoothing out any post-merger scenario between two companies is the basic reorganization and integration of both companies in order to take advantage of each other’s strengths and identify or eliminate weaknesses. This is the point at which the basic standardization and streamlining of operations and people takes place, according to Harvard researchers. It can also be a potential minefield if middle and upper management feels threatened enough to put the kibosh on change. This is also the time to recognize a merger for what it is—a marriage where both parties are going to spend a lot of time together—for better or worse, in sickness and in health. This seems to be underscored by research from McKinsey & Co. showing that only 16 percent of merger-related reorganizations deliver their objectives on time, while 41 percent take longer than expected. And in 10 percent of cases, the needle on the misery index starts moving in the wrong direction and the reorganization plan just ends up harming both companies.

AVOIDING CULTURE CLASH Much of this angst is the result of too little attention being paid to cultural issues during the integration process. As such, McKinsey has developed a muchneeded five-step process for a smoother reorganization process: 1. Develop profit-and-loss statements as an integral part of any M&A plan to calculate the cost of change and the level of disruption it will cause, not only to operations but the human element as well in order to keep employees from looking for a new job. 2. Uncover and understand the strengths and weaknesses of each organization, preferably before the deal is closed.

These transactions are not a matter of simple mechanics. During and following an acquisition there is a tendency for a small circle of decision makers to keep things close to the vest.

But if you could pinpoint one thing that could cripple a good merger or acquisition more than anything else it would be this: culture clash! Much of that has to do with people, not numbers. These transactions are not a matter of simple mechanics. During and following an acquisition there is a tendency for a small circle of decision makers to keep things close to the vest. But limiting communication can exclude the people in areas like marketing and sales who are closest to your customers and whose input would be invaluable.

BUILDING BRIDGES And as important as synergies are, don’t push too hard too soon. This can cause disruption among people who are already nervous about the outcome of the acquisition. As such, M&A gurus will tell you it’s not only about what you do, but when you do it and to take a good, hard look at the long-term effects of what you’re doing. Some of that can come from former employees who may now be with your company or from sites like LinkedIn that can assist you in profiling managers. 3. C onsider not only what the organization looks like but also how it works in terms of management, business processes and systems, as well as the capabilities and behaviors of its employees. 4. T his may be the hardest step, according to McKinsey, noting that executives tend to trust their teams to handle new acquisition transition plans. But this is the time for them to get more deeply involved with synergies, understanding the new company’s strengths and weaknesses and make refinements. 5. “ Launch, Learn and Correct Course.” Few reorganizations work perfectly from the beginning especially when you have two organizations with completely different cultures. Encourage everyone to point out the new organization’s “teething problems,” openly debate solutions, and implement the appropriate fixes as soon as possible.

This means taking the time to build bridges between management and employee teams from both companies, not erecting barriers to keep them separate. Creating a culture that empowers people and enables them to thrive is fundamental to the integration process according to experts in the field. If you leave people in the dark surrounded by shadows of fear without showing them a clear career path in the newly joined organization, you’ll find them hunkering down to update their résumés. Think of mergers and acquisitions in terms of a redesign. Would you treat one part of the store differently than another? Some categories will play a larger role than others. But the ultimate goal is to sell everything in the store.

LEN LEWIS Editorial Director of Lewis Communications Len Lewis leads a New York-based editorial planning,research and consulting firm. He can be reached at lenlewis@optonline.net or via his website www.lenlewiscommunications.com.

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INNOVATION HOME

Brewdog A New Age Company With a New Age Way to Grow a Global Business By Pam Danziger

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ROBINREPORT

cotland-based BrewDog brewery is a different kind of company that has a very different way of doing things. The genius is in the beer. If building a local world-class brewery in 10 short years, ready to play on an international stage, is the goal, then, to paraphrase, “I’ll have what they’re having.” But the genius is also in the co-founders’ irreverent attitudes and business approaches that have gained them a solid fan base and built a nontraditional business model. As a promotional stunt to drive funding from fat-cat London bankers, BrewDog parachuted dozens of costumed taxidermy cats from a helicopter during London rush hour. With heavy media coverage, the stunt was immediate click-bait. There is method in BrewDog’s madness: Each cat carried an investment prospectus for the company’s next round of “Equity for Punks” crowdfunding. And it yielded results: $5 million worth, well on its way to the company’s ₤ $25 million goal.

How to Kick-Start a Brand BrewDog challenged the industry with the launch of its Tokyo brew and its claim as “the strongest beer ever brewed.” The beer industry association, with big-league members including Carlsberg, Diageo, Heineken, InBev and Molson Coors, filed an injunction claiming BrewDog violated the industry’s Code of Ethics. A mediawide firestorm erupted as BrewDog fought back, countering that Portman was impeding the development of smaller brewing companies. After an eight-month legal battle, BrewDog was cleared of all charges and allowed to continue its contrarian marketing campaign.

Founded in 2007 by James Watt and Martin Dickie, both 24 years old at the time and bored by the industrialbrewed beers and ales then available in the U.K. market, they started crafting tiny batches of extraordinary beer. In the beginning, the founders followed the standard business-building playbook: going to the banks to finance their first brewery and distributing the brew through normal channels. Within just a year, BrewDog quadrupled its brew production, as a growing fan base of U.K. beer enthusiasts shared James and Martin’s disdain for the usual industrial swill and supported their original mission, “to make other people as passionate about great craft beer as we are.” But then the alcohol industry’s establishment, The Portman Group tried to shut out the disruptive interloper.

After attracting 55,000 Equity for Punks partners through four U.K. campaigns, BrewDog set to invade the world’s largest craft beer market, the U.S. Adapting its crowdfunding model to the U.S. investment market, it has already garnered buy-in from 5,000 Punk partners at $95 for two shares. The new U.S. brewery, located in Canal Winchester, Ohio, just outside of Columbus, will join its Scotland-based Ellon brewery to supply the world with BrewDog beer. As the Canal Winchester brewery ramps up production, the company has opened its first U.S. DogTap taproom to

“ BrewDogs’ Equity for Punks crowdfunding model has

been the driving force in building its

BrewDogs’ Equity for Punks crowdfunding model has been the driving force in building its breweries and locating its pubs where its loyal Punk investors live. These investors are also funding its overseas expansion and it has landed on our shores, bringing the BrewDog beer experience to the U.S.

BrewDog’s invasion into the U.S. Market

Perhaps it was due to this first David vs. Goliath battle, or James’ and Martin’s entrepreneurial zeal, but this initial dog fight set the company along a new course in opposition to the traditional brewery business. They developed what they call an “anti-business business model” based on building a community that shares not just love for BrewDog beer, but actual ownership in the company.

introduce the brand to the states-side market. Five additional BrewDog pubs

breweries and locating its pubs"

Named in honor of its flagship Punk IPA, it’s first Equity for Punks crowdfunding campaign was launched in 2009 and initially attracted over 1,300 investors, with two shares in the company offered for a modest $95 investment. In addition to shares, Equity Punks also get discounts in each of the company’s 29-and-counting U.K. BrewDog pubs and 16 international locations, plus an invitation to its “Annual General Mayhem” shareholders meeting. And BrewDog continues to nip at the heels of the beer establishment with new media-worthy events including a game of beer golf where James and Martin teed up to drive industrial brewed beer bottles into oblivion. Who can’t help but cheer BrewDog along in its media-savvy quest to make more people passionate about great craft beer?

are in the works for the U.S., as well as a beer-themed hotel adjacent to its Ohio brewery, crowdsourced through Indiegogo. A unique feature of the DogHouse Hotel will be a sour-beer brewing facility co-located in the hotel itself, so guests can have bragging rights for sleepovers in an actual brewery. Ben Stewart, heading up sales and marketing for BrewDog USA, says, “There are a few hotels where you can stay near a brewery, but there is only one where you can wake up inside a brewery.” Adding to the hopped-up beer experience for guests will be Punk IPA on tap in the rooms, Beer Spa treatments with bespoke hop oils, and in-suite beer fridges in the shower. BrewDog has big plans for the U.S. market, which co-founder James Watt notes is a “country that loves to supersize.” He continues, “We want to take our craft beer revolution global. From building a brewery, to opening craft beer cathedrals across the country, and even giving our American fans the chance to own a part of the business, we are going big. We still have a long way to go, but we can’t Continued on page 36

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INNOVATION

A New Age Company With a New Age Way to Grow a Global Business Continued from page 35

wait to firmly plant our BrewDog flag on the Land of Independence.”

Why BrewDog is Important Not Just to the Beer Market You don’t like beer or you don’t compete in the craft beer market, so why is BrewDog an important company to know about? Because of its over-thetop, new-age business model, a model that other brands could emulate. I first learned about BrewDog browsing through a copy of Mid-Atlantic Brewing News. The article reported that the executive director of Gloucester’s Main Street Preservation Trust, located in Tidewater area of Virginia, was lobbying its local community to recruit the required 500 Punks to pony up the minimum $95 investment to be one of the first U.S. BrewDog pub locations. Thanks to director Jenny Crittenden’s personal efforts, she claims Gloucester is way ahead of other cities vying for the honor, including New York, Chicago, San Diego and Houston.

The BrewDog Punk partners have a real vested interest in the overall success of the brand. The brand belongs to them, not them belonging to some brand’s club. “We just announced that for those who invested in round one, their shares are worth 2,800 percent more than they were originally,” Ben says. The ultimate end game for the company is to “float the business on the stock market, so those people who invested in shares will get real monetary value,” Ben explains. For some, the opportunity to cash out has arrived. A recent strategic equity investment by San-Francisco-based TSG Consumer Partners values the company at $1.24

and selling their stuff out of the back of a van. The founders had an idea for a product that they could create and that they believed would make a meaningful difference to others, and which people would pay for. And they were right. BrewDog has pushed the boundaries and made missteps along the way, which they are not afraid to admit.

“ Crowdfunding can no longer be viewed as alternative finance;

this is the democratization of finance.”

BrewDog has previously selected sites for its nearly 50 worldwide locations relying upon real consumer-loyalist data to set up shop. “With over 55,000 ‘Punk’ partners, we have heat maps of where our Equity partners live,” Ben says. So site selection becomes as easy as looking at a map to see where BrewDog fans congregate. Ben adds, “It’s a clever way to look at locations based upon our established base of ‘Punks.’ It’s a nice way to give back to our people and it also makes sense that you have a base of a lot of people who believe in what you are doing.” BrewDog’s personal connection to its brand loyalists is enhanced by the storyboards in local pubs with pictures of its local equity partners. Such efforts go far beyond traditional brand loyalty rewards programs, club and membership models, and other traditional loyalty-building concepts.

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billion, and rounds one through four Equity for Punks partners are offered a chance to sell 15 percent of their shares (capped at 40 shares per investor) at the $1.24 billion valuation. In keeping with the company’s crowdfunding model, Equity Punk partners were given a chance to vote in advance on the proposed TSG investment, with 95 percent of shareholders favoring the deal. TSG’s funding is slated to provide growth capital for new breweries in Asia and Australia. “Our new partnership with TSG is a launch pad for us to turbocharge our mission to make the world as passionate about craft beer as we are, but it’s also a validation of our crowdfunding model,” James Watt explains. “Our Equity Punks now own part of an independent business that has attracted an awesome partner who will help grow their investment even further. Crowdfunding can no longer be viewed as alternative finance; this is the democratization of finance.” BrewDog’s founders started like thousands of other entrepreneurial dreamers, hands-on hobbyists working out of a garage to craft their products

But by not taking themselves too seriously, though never compromising their mission, they have made bold moves that have ignited the passion of people all over the world. If they had played it safe, they probably would have built a nice little business, like so many other aspiring entrepreneurs. But they didn’t follow the traditional game plan and that’s what makes their story so important. In exchange for their loyalists’ support, BrewDog gave them a valuable stake in the business that assures long-term customer loyalty and business growth in the future.

PAMELA N. DANZIGER Consumer Insights Consultant

Speaker, author, and market researcher Pamela N. Danziger is internationally recognized for her expertise on the world’s most influential consumers: the American Affluent. Her new minibook, What Do HENRY’s Want? explores the changing face of America’s consumer marketplace. As founder of Unity Marketing in 1992, Pam leads with research to provide brands with actionable insights into the minds of their most profitable customers.

ROBINREPORT

Debunking

It’s also no secret that millennials, consumers roughly between the ages of 18 and 35, are the most important demographic group impacting apparel and other style-driven markets today. Although they control only about a quarter of all dollars spent in fashion categories, their spending is expected to increase almost 40 percent in real terms over the next 15 years as they approach their peak spending years. Their unique approach to consumption, with focus on technology, value, convenience, experience over stuff, authenticity, and transparency are by now the stuff of legend. But the widely held notion that younger consumers want no part of traditional retail brands or channels is an overly simplistic one according to the study findings. Millennial consumers, it turns out, have a penchant for many of the same stores and brands as their older GenX and Baby Boomer cohorts, a fact that could have major strategic implications for both next-gen and traditional retailers.

the Millennial Brand Preference Myth By Judith Russell

Millennial shopping habits differ greatly from those of prior generations. But their apparel brand preferences? Not as much as one might think. After arriving home last month from college, Jake Thomas (not his real name) spent the next few days doing what any young man emerging from a fortnight of final exams and papers would do: He slept until noon; ate enough home-cooked food to make up for a semester of dining-hall fare; and spent eight hours a day on social media and Netflix binges.

categories. It turns out that Kohl’s, despite its recent stumbles, is actually the favorite retailer of millennial women and the number-three favorite among young men, after Amazon and Macy’s.

Understanding the reasons for this, as well as for the meteoric rise of some newer next-gen players that seem to be launching on an almost weekly basis, and figuring out how to adapt to the demands of this consumer, will help traditional retailers capitalize on the opportunities available to them in the new retail landscape.

Millennials Favorite Clothing Retailers

Then, when he realized his summer wardrobe needed sprucing up, he didn’t grab his MacBook Air and tap into next-gen websites like Everlane and Revolve. He instead headed to a strip mall shopping center near his suburban New York home. Jake takes his wardrobe and appearance seriously, and can arguably wear any brand he chooses with his generous monthly allowance. His store of choice? “I like to shop in Kohl’s,” said the 20-year-old matter-offactly. “The stores are easy to get around in, and have a big selection of brands I like to wear, like Levi’s, Nike, Under Armour and Hanes. These brands know what they’re doing. And the prices and sales are fantastic.”

Amazon Old Navy

J. Crew

Macy’s Nordstrom Nike Kohl’s

Millennials Shifting Clothing Shopping to Online

JCPenney

Walmart American Eagle

Kohl’s

Amazon

Old Navy

Forever 21 Macy’s

JCPenney

Forever 21

American Eagle

Nordstrom

American Eagle

Old Navy

Walmart

Amazon Target

The report was based on a survey conducted in collaboration with fashion publisher Condé Nast that examined millennial brand and store favorites across a broad range of fashion

Zara

Gap

Macy’s

MAINSTREAM WOMEN

Jake’s preference should come as no surprise, according to a recent Goldman Sachs report co-authored by Lindsay Drucker-Mann, Jason English, Heath Terry, Matthew Fassler, and Richard Evans examining U.S. millennial brand and retailer affinity.

H&M

MEN

Kohl’s

“IT GIRL”

Source: Goldman Sachs Global Investment Research

Economic Gain, Retail Pain It’s no mystery that the relatively healthy macroeconomic backdrop is not translating to growth at retail where a tremendous secular (rather than cyclical) upheaval is underway thanks to the new shopping platforms, channels, payment options, and other developments disrupting the sector.

If Jake’s older sister, whom we’ll call Maggie, had her way, she’d never have to set foot in a physical store. When not working at her chemical engineering job, she can be found curled up with a book or cycling on the roads near her Houston home. Her goto retailers are e-commerce sites Amazon, JCrew.com and Zappos. She recently discovered and immediately fell in love with resale app Poshmark. For immediate needs, she often heads to her local H&M or Old Navy.

“The money I don’t waste on clothing and footwear goes into savings and my travel fund,” said the 25-year-old, who plans take a two-month leave from her job next year to tour the world. One of the most dramatic findings revealed in the Goldman Sachs/Condé Nast report is the rapid rate at which fashion shopping is Continued on page 38

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MILLENIALS

Debunking the Millennial Brand Preference Myth | Continued from page 37 moving online. A large proportion of younger consumers spend most of their money on fashion categories in e-commerce channels, with clothing the highest penetration. Though many in the industry are suffering from a condition that has come to be called “Amazon Denial,” the online giant is the key fashion player today, and the only retailer that turned up in the study’s top-10 favorites in every fashion category examined. For men, it is

the number one or two across every category. Many millennials, like Maggie, use Amazon as a shopping app or marketplace, an online mall from which they purchase their favorite thirdparty brands, sometimes at premium prices. But Amazon has its sights set on dominating fashion in its own right. Goldman Sachs estimates it will start small, leverage third-party sellers, then scale to attract brands into the fold. Amazon’s continued progress in apparel

Top Ten Favorite Millennial Brands by Product Category CLOTHING

UNDERWEAR

ACTIVEWEAR

SHOES

BAGS

will mirror its steady march forward in other categories like media and electronics. Last year the e-commerce giant quietly launched seven private label brands in addition to courting more wholesale brands to work directly with. Not coincidentally, it became the favorite shopping app for millennials.

Fashion-Conscious Women Maggie’s college classmate, let’s call her Melissa Block, a management consultant based in Columbus, Ohio, prefers a combination of online and offline shopping. She shops for clothes for work at off-price and designer outlet stores, but prefers websites like Asos, eBay and Gilt for her workout, casual and going-out clothes. She has been shopping more at Zara, loves the Canadian brand Aritzia, and makes frequent stops at the sale rack at Lululemon. “I need to look professional at my job, so brands like Tory Burch and Kate Spade are a good investment, even though they’re not really my personal style. For weekends, I don’t want to overspend on clothes that I’ll be sick of in six months.”

M A I N ST R EA M WO M E N Old Navy Forever 21

American Eagle

Victoria’s Secret Fruit of the Loom

Aeropostale

Aerie

Levi’s Nike Rue 21

Calvin Klein

Nike

Converse

Coach

Michael Kors

Adidas

Steve Madden

Victoria’s Secret

Vans

Chanel

Champion Danskin

UGG Adidas

Guess Vera Bradley

Old Navy

Nine West

Louis Vuitton

Target

Michael Kors

Fossil

Fabletics

New Balance

Prada

Hanes

Gap

H&M

Nike

Under Armour

She paused and then admitted: “I also don’t want to be seen too many times in the same outfit on Instagram.”

Lululemon

Lane Bryant Maidenform Jockey

Hollister

Skechers

Kate Spade Gucci

“IT GIRLS” Old Navy Zara

Victoria’s Secret

H&M

Calvin Klein

Forever 21 American Eagle Gap Free People J. Crew Loft Express

Nike

Kate Spade

Adidas

Nine West

Chanel

Under Armour

Aerie

Victoria’s Secret Sport Fabletics Old Navy

Hanky Panky Gap

Gap

Agent Provocateur

Athleta

Natori

Coach

Steve Madden

Hanes La Perla

Nike

Lululemon

Converse

Christian Louboutin

Michael Kors Fossil

Vans Adidas

Louis Vuitton Gucci

Aldo

Betsey Johnson

Sam Edelman

Marc Jacobs

Skechers

Tory Burch

M EN Nike

Hanes

Nike

Coach

Adidas

Cole Haan

Fossil

Calvin Klein

Under Armour

Tommy Hilfiger

Puma

Adidas

Levi’s

Fruit of the Loom

Adidas Old Navy

Jockey Under Armour

Lululemon Reebok

New Balance Jordan’s

Ralph Lauren

Champion Jordan

Skechers

J. Crew

American Eagle Banana Republic

Adidas

Calvin Klein

American Eagle

Express

Gap

When she feels an outfit has overstayed its welcome in her closet, she posts in for sale on Ebay or Poshmark.

Champion

Adore Me

Ralph Lauren

Melissa falls into the category the study calls “It Girls,” fashion-conscious millennial women with stronger ties to brick-and-mortar retail than the average millennial. Even though she’s also shifting her purchases online, Melissa spends proportionally more in physical stores than her less fashion-conscious counterparts. She also places more emphasis on in-store experience details like service, curation and in-store events. For fashion inspiration, she turns to her social media network of friends and bloggers. She sends dressing room photos to friends and family via snapchat to elicit feedback before making a crucial apparel purchase.

Vans

Nike

Louis Vuitton Ralph Lauren Tumi

Clark’s

Adidas

Converse

Calvin Klein

Puma

Herschel

Source: Goldman Sachs Global Investment Research

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Gucci

“It Girls” tend to be more affluent, but are also the most value-conscious group among millennials, more often looking to limit spending or seeking deals like cash back and coupons. Like Melissa, this consumer is driving the growth in pre-owned marketplaces like Mercari, direct-from-factory buying such as Wish, and the use of shopping apps to do more research ahead of purchase. The favorite “It Girl” brands based on brand affinity and favorability ratings are Victoria’s Secret, followed by Nike, Coach, Kate Spade, Michael Kors and Lululemon.

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If “It Girls” are the leading indicators to more broad-based millennial female behavior, we can expect these brands, marketplaces and platforms to have plenty of room for future growth.

Importance of Physical Stores Though physical retail has been challenged by the rise in online shopping, decline in foot traffic, and closing of stores, the study found that the more invested in fashion a millennial consumer is, the more likely it is that he or she will shop in a physical store. Styleconscious consumers like Jake Thomas find that hands-on product engagement is the best way to ensure a flattering fit. Melissa likes the personal service afforded by a brick-andmortar store. These consumers value brands, curation and promotions, and prefer deal over convenience. But that physical store must offer a superior shopping experience. The favorite millennial clothing retailers identified by the study include Forever 21, Nordstrom, H&M, Macy’s, Kohl’s, Walmart and J.Crew. Increasingly, consumers also like to shop from the brands themselves, with Nike a particularly dominant retailer. Millennials also tend to be open-minded and early adopters regarding shopping channels. When asked about her favorite purchase ever, Melissa Block answered without hesitation: “A Chanel bag that I found at an estate sale: $20. I was shaking as I handed the money to the woman. She must have thought it was a fake, but I Googled it and knew it was real.”

Brand Affinity Rumor has it that millennials are less into brands than their Gen-X predecessors were. And although this certainly applies to some brands, like Abercrombie & Fitch, whose sexually charged marketing and oversizedlogo-merchandising missteps became too much for many young consumers, millennials love brands, and have their favorites, which they use to express their own personal style and values. The study found that top brands among millennials include fast fashion and specialty brands such as Forever 21, Old Navy, H&M and Zara, established players like Coach, Kate Spade, and Michael Kors, and iconic names with increasing momentum such as Adidas, Nike, and Lululemon. Above all in the lingerie space is Victoria’s Secret, the brand that essentially defines intimate apparel in the U.S. market. In addition, the report identified some important brands to watch, like subscription activewear site Fabletics and network sales-based LuLaRoe.

Not surprisingly, apparel is the most fragmented category in terms of consumer favorites. For men, Nike, Ralph Lauren, Levi’s, and Adidas were the most frequently cited as favorite brands, but only about a third of men in the study cite these brands as their favorites.

enhanced in-store experience. Despite the hefty cost, free shipping and returns are table stakes today. Many of the top-ten millennial retailers and brands, like Amazon, Victoria’s Secret, Nike, Kohl’s, JCPenney, Nordstrom and others, have considerable runway for growth if they approach these consumers properly.

For women, Old Navy, Forever 21, American Eagle, Gap and H&M ranked highest among the clothing brands, again with only a third of women mentioning them. For “It Girls,” Zara replaced Gap in the top five.

Established and up-and-coming apparel brands and retailers need to establish a presence on digital platforms such as Snapchat, Instagram and Pinterest. And, like it or not, retailers also need to develop an Amazon strategy, because that’s where a significant number of millennials want to shop.

Athletic Appeal Millennials are an active generation, with workouts a part of their everyday routine. The importance of athletic apparel and footwear to this demographic cannot be overstated, and Nike reigns supreme as the number-one brand across all millennial sub-segments, with Under Armour, Lululemon, Adidas and Puma also significant. Rising star Fabletics, a division of JustFab.com, and Victoria’s Secret Sport were also top-10 favorites of women, particularly among “It Girls.” An interesting finding in the study is that Under Armour, though highly ranked in athletic apparel, is not a favorite footwear brand. Not only did it not appear in the top-ten favorite footwear brands for any of the millennial segments, it didn’t even show up in the top 20.

Implications and Opportunities Retailers seeking ways to connect more deeply with millennials should focus on the more fashion-conscious among them. But they need to meet them on their own turf, with compelling brands, understandable pricing strategies, social media and blogger marketing, and an

Maggie Thomas says she’s had great success ordering national brands on Amazon and with the ease of ordering and returning via Prime and the great product suggestions the retailer “selects” for her, will probably start trying the private-label product as well. Jake Thomas, who loves to get dressed up, but rarely has the occasion to do so, has a different perspective on the future. The college junior says he’s already thinking about where he will buy his first post-graduation suit. “I like Brooks Brothers a lot. Such a milestone deserves a splurge.”

Millennial Consumer as Agent of Change Millennial consumers are being recognized beyond their large and growing wallet power for the influence they exert encouraging and enabling older Gen-Xers and Baby Boomers to adopt new shopping and lifestyle behaviors. In other words, millennials are not only shopping differently, they’re getting others to do so as well, creating a set of behaviors that serve as a benchmark for how overall consumption is trending and will evolve in the future. This dynamic of the millennial as agent of change is manifesting itself across a wide swath of shopping, consumption and social interaction behaviors. And these consumers are not only disruptive, but also still emerging. In other words, we haven’t even begun to see the impact.

JUDITH RUSSELL Marketing & Strategic Planning Consultant Judith Russell is a marketing and strategic planning consultant specializing in the apparel industry.

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CONSUMER TRENDS

Finding Opportunity in the Post-Aspirational Kitchen By David Portalatin

onsumers rarely stay in the same frame of mind for long, and they often change in surprising, unexpected ways. So while the pre-recession shopper might have made aspirational luxury purchases such as Louis Vuitton luggage or a Chanel handbag to infer social status, more recently consumers have exhibited, as often reported in these pages, more frugal approaches to shopping. They have become dollar store denizens, theyâ&#x20AC;&#x2122;ve avoided unnecessary credit card debt, and have shown a marked preference for the intangible over the tangible. Weâ&#x20AC;&#x2122;re calling this new type of consumer the post-aspirational shopper.

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Millennials are quintessential post-aspirationals, and one way their shopping habits play out is in their favorite place, the home. In fact, we’ll take it a step further and say that their very favorite place is the kitchen… particularly the wellequipped kitchen. Retailers like Pirch have gotten a jump on this trend. Given the prevailing conventional wisdom, it may come as a surprise that millennials aren’t always thrifty. Indeed, there’s evidence to the contrary. Checkout TrackingSM data from a recent study shows that millennials will spend more than twice as much per order when shopping online in the home/kitchen category than in brick-and-mortar stores. This gap grows even wider when analyzing the spend of older millennials (the 25-to 34-year-olds) vs. the younger ones (18-to 24-year-olds), where an average in-store spend of around $19 on home and kitchen items jumps to $46 online for younger millennials and a whopping $54 for older ones. Another attribute of post-aspirational shopping behavior is the rise of the “signature item.” Such items are best thought of as an attempt by a consumer to stand out in a personally significant and unique manner. This could very well be coming from the same psychological trait as the aspirational LV luggage mentioned earlier, only it’s a much more down-to-earth and practical bit of spending. And the place where these signature items are gaining traction as much among baby boomers as among millennials is—you guessed it—the home, and especially the kitchen. Millennials long for

Our Checkout Tracking data shows that consumers between the ages of 25 and 34 contributed 61 percent of U.S. small appliance dollar sales gains in 2015. experiences, and boomers want to maintain connections as they age. The home is the common ground for both these generational trends. Home cooking, home entertaining, and home décor are extraordinarily important to both millennials and boomers. Holidays, of course, are the prime time for gathering and bonding over food and its presentation. Retailers should be aware that, according to Checkout Tracking, which looks at consumer purchases at the receipt level across demographics, home and kitchen holiday online purchases are concentrated during Black Friday weekend. Retailers seeking to gain market share of such purchases among millennials and boomers will want to focus their efforts on those time periods.

“Cooking” at Home, vs Eating Out Perhaps the biggest single opportunity in the “signature item at home” world involves selling conversationstarting small appliances such as high-end coffee makers and pressure cookers, to millennials. Our Checkout Tracking data shows that consumers between the ages of 25 and 34 contributed 61 percent of U.S. small appliance dollar sales gains in 2015. It’s no wonder millennials can’t save up for or afford down payments on homes—they have to have the best of everything now, rather than waiting and saving for a grander future. To this end, when it comes to what constitutes eating at home versus dining out, the lines become somewhat blurred. We’ve noticed a trend of “home meals” that consists of bringing prepared meals home to serve with fabulous kitchenware—pointing to some excellent retail opportunities. In our “2016 Eating Patterns in America” study,

data analysis shows that even when consumers do prepare food at home, more than 11 percent of in-home dinners are built around an entrée that came from outside foodservice. In addition, digital ordering, which is an order via the internet or a mobile app for either delivery or pick-up, accounts for 3 percent of total restaurant traffic, or about 1.9 billion visits. And 50 percent of digital orders come at dinnertime, and 35 percent of digital ordering includes parties with kids. Additionally, 50 percent of dinner meals purchased at a restaurant are taken home to eat. The larger opportunity is clearly in serving millennials who dedicate a much higher share of spend to foodservice than do other demographic groups, even though they account for 200 million fewer restaurant visits than the same age group roughly a decade ago. In terms of food consumption, the well-equipped kitchen will feature ways to prepare (or at least reheat) and serve meals in beautiful, unique ways that the post-aspirational consumer is prepared to pay for. The message we have for retailers is to make sure home and kitchenware, including food, are beautifully presented. Try to offer the most unique, well-merchandised products and settings, and make sure it’s available online—or in any other channel the shopper may want to look for it. With the right data, it’s easy as pie!

DAVID PORTALATIN Vice President industry analyst, food consumption, The NPD Group, Inc. Roberto David Portalatin is vice president, industry analyst, food consumption at The NPD Group, Inc., and is a nationally known expert on consumer behavior. He can be reached at David.Portalatin@npd.com.

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TRENDS

SnapBreak: By Roberto Ramos

FA S H I O N ’ S M U C H - N E E D E D

TIME OUT IN THE ERA OF SOCIAL

he notion of time plays a powerful role in inspiring and guiding fashion. Designers formulate their creative perspectives through the influences of the past, the urgency of the present, and the possibilities ushered in by the future. The result is a very unique reflection of the prevailing Zeitgeist. That is why we can easily come up with a stylistic narrative for any era, whether it is the roaring twenties, the hippie, folk and rock-infused sixties, or the simultaneous maximalist yuppie and punk undercurrents of the eighties. Time also guides how the fashion and apparel industries organize themselves. Harking back to the functional purpose of apparel, the industry’s creative workflow is structured around seasons, with design work taking place up to a year in advance before a piece of apparel is delivered. This advance timing presents a cushion for an entire process that involves sourcing, production, distribution, sales and marketing. Any slight misstep in this sequence means money, adding pressure to an already dynamic creative industry.

“ The hyper-immediacy and omnipresence of digital and social media are putting the consumers’ impulses front and center in the discovery and shopping journey.”

TA K E T H R E E T E N S E S Fashion’s relationship with time is becoming more complicated, however, if that’s possible. The hyper-immediacy and omnipresence of digital and social media are putting consumers’ impulses front and center in the discovery and shopping journey. This shift has been powerful because it has enabled an intrinsic side of human nature: our need to act on our desires in real-time.

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This focus on immediacy presents a new wave of creative and business challenges, and opportunities for brands and businesses. On the one hand, accelerated timelines push brands to be bold, resourceful and fluid in their creation process and more spontaneous in how they connect with consumers. On the flip side of this new way of working is a dizzying environment that can dilute creativity, instill a “Keeping Up With the Joneses” mindset, creating a glut in the marketplace. The biggest exemplar of the industry’s crunch factor is fast fashion, a global business behemoth that brings to the masses accessibly priced, trendright apparel inspired by runway collections. Fast fashion done right works because it delivers a powerful value proposition: great style for less, all the time, with ongoing novelty for a consumer experimenting with identity and style. Fast fashion gone wrong, however, can result in shoddy products and a price race to the bottom.

Fast fashion’s full push towards impulse shopping has sped up greatly with the rise of digital and social media and its enabling of a “see now, buy now” economy, a lot of which is mobile led. This new on-demand economy has also ushered in a new set of “time-as luxury” players such as Uber, Blue Apron and Peloton, further broadening the definition of what luxury can and should be. While this shift to a more real-time experience with the consumer at the helm is good and likely permanent, there is a strong argument to be made that it might not be sustainable in its current accelerated mass production

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form, and it might not be right for all brands, especially those whose brand equity revolves around desire, craftsmanship and a non-commercial appeal.

Time is then becoming one of our biggest luxuries, and how it is treated can either augment or reduce a brand experience.

At the crux of it all is a much needed recalibration around taking more time, as a strong and growing consumer need for balance emerges as a natural reaction to our highly digitized lives. We see this shift in the rise and appreciation of the slow food movement, wellness and meditative practices, and the popularity of gatherings such as music and idea festivals. In essence, we want more time and space for ourselves, and are looking to fill up that time with richer, more inspiring and life-affirming experiences. Time is then becoming one of our biggest luxuries, and how it is treated can either augment or reduce a brand experience. The following are some guiding frameworks around how brand leaders should leverage time.

Focus on the Big Story. It’s easy to develop social-media timing tunnel vision regarding your business and brand. Instead, look at your brand’s full story arc, beginning with the original vision and story that made it standout, the founders who came up with the core vision. How do you see the brand years from now? What is the driving ethos and value system, and how do you safeguard it? How do you leverage it to innovate? Embrace the Slow. Consumers are developing a greater appreciation for ideas and craftsmanship. Tilt your timeliness and resources to give more space to the creative and development process, and try to capture as much of that essence in ways that can be leveraged, e.g., through creative storytelling. Invest in safeguarding time-honored traditions as artisans are the new innovators.

Catchwords for this include real-time content creation and always-on social media. We’re convinced there is a hunger for brands to create more desire by saying less and being more. Apple excels at this, shunning the communications barrage in favor of important moments of unveiling. Less Is More. Across the board, remove confusion and clutter. Think of more focused and edited collections. Think of less clutter on the floor, less signage, and communicational and promotional framework that feels less intrusive and overwhelming. Find more whimsical and fun ways to deliver sales. Focus on Building Relationships. Take time to get to know your customer. Focus on transformative insights that will allow you to deliver a more inspiring discovery and shopping experience. Don’t overwhelm them with stuff. Instead, give them what they want, find ways of surprising them and thanking them for their business. Think of ways to take loyalty programs to the next level, and to make them feel in love with your brand. Hit Pause, Build Perspective. A vision for tomorrow begins with how you see the world. Make sure you’re inoculating yourself against tunnel vision by expanding your horizon, pushing yourself to meet new people, do new things, and powerfully fail and learn in new ways. Do all of this in a way that syncs body, mind and spirit, ushering a new vision. In essence, a perspective which breeds creativity and innovation takes time; nurture it properly. As Diana Vreland posited, “The Eye Has to Travel.” Make sure you and your brand do so and time will be on your side.

ROBERTO RAMOS Vice President of Global Strategy and Creative Services at The Doneger Group

Create Desire. Consumers are very sensitive to brands that try too hard. We see this constantly with brands trying to be omnipresent, with seemingly always having something to say.

Roberto Ramos is senior vice president of Global Strategy and Creative Services at The Doneger Group

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