Will Back-to-School be the start of better days for retailers?

DISCUSSION TOPIC

Retailers Get Ready for Back-to-School – 6/10/09

TOPIC SUMMARY:

Classes have yet to let out for the summer but quite a few people in and around retailing are already looking toward the back-to-school season as the next test of just how well the business is coming along.

“I’m not arguing that business is going to be positive,” Jeff Van Sinderen, a retail analyst with B. Riley, told Reuters. “I’m arguing the declines will start to moderate, that’s what we’d like to see happen. If business is up, I’d be surprised.”

“The question to me is the amount of the decline, and probably low single digits would be our guess,” said Sandra Reese, principal at Grant Thornton Corporate Advisory and Restructuring Services, who also spoke with Reuters.

An emphasis on trimming inventory has some hopeful that while retailers may see a slight dip in year-over-year sales, they might be able to squeeze more profits from dollars spent. Recent reports have suggested that merchants are engaging in much less discounting than they had toward the end of last year and the beginning of ‘09. 

Discussion questions:  What are you looking for in the upcoming back-to-school season? Do you think there will be any surprises? Will we see retailers doing things a bit differently to find the right emphasis on top and bottom line growth?

My post: 

I do think we’ll see signs of life this back-to-school season.  The students themselves will drive some of it, because their spending power has not taken a hit from stock or housing losses.  The best of the retailers out there will continue to innovate and offer cool must-have apparel. My concern is that with so many retailers still unable to get solid financing, most will play it safe, get too basic and alienate the core customer.  The winners are likely to be the H&Ms of the world, who have shown the ability to continuously source and deliver great looks at terrific prices.  I predict a reasonably decent BTS, leading into a reasonably decent fall and holiday.  But only because last year was so dismal.  The weaker players will file Chapter 11 in growing numbers and the strong will significantly grow market share.  Watch for newer niche players with no debt and interesting products/concepts to rise up. 

Mike Osorio, your Dare to be Contagious! ™ strategist

www.OsorioGroup.com

What do you think?  Please add your comments and add to the discussion!

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http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/13798

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The Psychology of Consumer Sentiment

DISCUSSION TOPIC:  P&G CEO Advises Candidates to Stay Positive

TOPIC SUMMARY:

Procter & Gamble’s chairman and chief executive A.G. Lafley wants the future President of the United States, whomever that may turn out to be, to remember that there is a psychological component to economic performance and that it’s important now that Senators John McCain and Barack Obama are running for the nation’s top office that they remember to stay positive about the underlying strength of the American economy.

“You know we are in a business where psychology matters – even in the staples business – and in the economy psychology matters,” Mr. Lafley told the Financial Times. “It could go negative on the economy, that could be a problem … We will talk ourselves into a worse recession.”

Discussion questions:  How critical is the psychological component to consumer spending? Is a strong retailing environment a by-product of consumer optimism and, conversely, are periods of weak sales created by shopper pessimism?

My post:  This is such an important topic.  The crisis of faith in the American economy today is a combination of real issues, perceived issues, and the basic mistrust of our current president and his government’s ability to tell the truth and/or do anything meaningful to make a positive difference.

The new president (I believe it will be Obama) will have an incredible opportunity to demonstrate trustworthiness and speak with clarity and power of his vision of an improved American economy and place in the world.  I am quite optimistic that after 8 years of a disaster presidency, that our new president (again, likely Obama) will lead us to both perceived and actual improvements in our economy and our faith in our individual and collective futures and the place America will have in the world economy.

It is perfectly OK for Lafley to publicly ask our next president to work the psychology of consumer sentiment and build a vision for a better future.  Kennedy did it, Reagan did it – watch Obama do it next!

Mike Osorio, your Dare to be Contagious! ^TM strategist

www.OsorioGroup.com

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Xanadu: the latest mega-development

DISCUSSION TOPIC:  Critics: Xanadu Stinking Up Jersey Swamp

TOPIC SUMMARY:

It’s impossible to imagine that Kubla Khan’s vision of Xanadu bore any resemblance to the monumental (some would say monstrous) mall project of the same name that is growing on the edge of the Meadowlands swamp in northern New Jersey.

The project, which has been beset with financial challenges, environmental challenges and critics who know ugly when they see it, continues to move forward largely as the result of one man’s unwavering commitment to the 2.4-million-square-foot entertainment and shopping complex.

That man, Laurence Siegel, is the driving force behind Xanadu, a $2.3 billion project that when complete will include features such as the first indoor ski slope in the U.S., a wind tunnel for sky diving lessons, a wave machine for indoor surfing, and a 287-foot-high Ferris wheel (Pepsi logo positioned prominently in the middle) that will offer riders close-up looks at the Manhattan skyline. Xanadu will also include a movie multiplex with an Egyptian theme (locals scratching their heads over that), dining options galore and acre-upon-acre of upscale shopping destinations.

As a New York Times article pointed out, many who have seen the plans and renderings of the project have reacted adversely. Richard J. Codey, president of the New Jersey State Senate, described it as “yucky-looking.” Others, RetailWire has been told by local sources, refer to the project now as “Xanadudu.”
No matter the naysayers, Mr. Siegel is convinced that Xanadu’s success will dwarf its massive size. “Look at the majestic nature of this space. You’re going to come here just for the ‘omigod’ factor,” he told The Times.

Discussion questions:  What do you think of the Meadowlands Xanadu strategy to create a huge retail and entertainment complex? Are these types of developments in line with where the consuming public is headed?

My post:

Despite the design concerns, the combination of cool & unique entertainment with great stores should create a success for Xanadu.  This project reminds me of, and is dwarfed by, the mega hotel/shopping/entertainment projects in Dubai.  With the economy likely to be tough for quite some time and making vacations less affordable, residents in the NY area will be glad for a unique “almost vacation” getaway, similar to Mall of America.  I believe we will see more of these projects over the years and they will certainly put pressure on existing malls to reinvigorate their offerings to compete for share of ever-shrinking time and wallet.

Mike Osorio, your Dare to be Contagious! ^TM strategist

www.OsorioGroup.com

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Kids learning to be thrifty?

DISCUSSION TOPIC:  Kids Without Cash

TOPIC SUMMARY:

In the past it has seemed as though teens had an inexhaustible supply of cash. Whether it was from part-time jobs, money from the Bank of Mom and Dad, birthday, graduation, gifts, etc. – kids were out and spending.

Now, it seems, even indefatigable teens and their wannabes (tweens) are cutting back due to a lack of funds. The costs of products that kids buy are going up with everything from gas to a slice of pizza to jeans at prices this generation has never seen before.

According to a piece by USA Today, teen hiring has been down five percent since March of last year. The same report noted that some economists believe this could be the worst year for teen spending since the early 1990s.

Same-store sales at retailers targeting teens were down 0.5 percent last year compared to increases of 3.3 percent in 2006 and 12.1 percent in 2005, according to figures from the International Council of Shopping Centers and UBS.

Discussion questions:  How acutely affected are teens and tweens by the current state of the economy? How important are teen and tween dollars to retailers? How should retailers be adapting to current conditions to maintain the link they have with these consumers?

My post:

How parents communicate to their kids impacts those kids’ reaction to all societal topics:  drugs, sex, violence, and certainly the economy and responsible financial decision-making.  The current economic situation provides parents with a terrific opportunity to teach valuable life lessons regarding thrift, savings, value, and prioritization. 

Certainly the simple fact that parents have cut back allowances and other funding methods has led to less teen spending.  The lower the family is on the economic ladder, the more acutely this is felt.  Those lost dollars are of great import across many parts of the retail landscape including convenience and grocery stores, quick-serve restaurants and of course, teen and tween apparel and accessory stores.  Retailers must focus on their own value proposition, be it price, quality, service, social networking, etc., and should not start focusing on price if that hasn’t been their calling-card.  Stick to your niche – this economic valley too shall pass.

Mike Osorio, your Dare to be Contagious! ^TM strategist

www.OsorioGroup.com

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http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/12908    

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Should retailers raise prices?

DISCUSSION TOPIC:  Inflation Rears Its Ugly Head

TOPIC SUMMARY:

Another retro trend from the seventies is working its way back to retail. Unfortunately, it’s inflation.

Retail prices are expected to rise in many categories – e.g., apparel, footwear, toys and electronics – that have largely enjoyed a deflationary cycle over the last two decades. For retailers, many will be challenged to raise prices without irritating customers who have grown used to bargains.

The reason for the price gains are mainly due to higher manufacturing costs coming from China. Among the factors driving up the gains: rising wages in China, the devaluation of the dollar against the (RMB), escalating raw material costs such as steel, and rising fuel costs that are increasing freight costs and the cost of plastic. And many of these drivers – particular the weakening dollar against the yuan – are expected to get worse before getting any better. According to an article on Slate.com, some Chinese factories are now asking their American customers for price increases of as much as 20 percent to 30 percent.

That leaves American retailers to devise new pricing strategies to avoid overwhelming consumers hooked on $3 T-shirts and $30 DVD players. A manager of several discount stores confided to Slate.com that his company has started raising prices of certain goods while putting others on sale. Others are considering bringing in lesser quality goods to meet price points expected by consumers, or being more aggressive around opportunistic buys.

Longer term, suppliers will be challenged to find a manufacturing hub as cheap as China. Other countries seen as possible replacements, such as Vietnam and India, don’t have infrastructure to handle the volume production that the world depends on for cheap goods. Other countries expected to gain a stronger look include Indonesia, Mexico, Malaysia, as well as Brazil or Kenya.

Discussion questions:  How can a retailer maintain its value proposition to consumers in industries facing inflationary pressures? Should they be raising prices sooner rather than later?

My post:

I predict the silver lining in the current situation will be the failure of several so-called retailers which are really private equity owned financial instruments (some of which has already started).  When a retailer’s strategies are based on the basis of short-term financial results needed by short-term financial owners, a sustained downturn will frequently crush that retailer.  The ability of a retailer to raise prices appropriately based on real market conditions depends on the level of trust built with their customers over time.  Trust comes from strategies based on the customer and the brand vision.  Retailers who have built trust can phase in price increases because their customers will trust that this is appropriate given the market realities.  

Prices must be raised now vs. later to ensure the continued financial health of the enterprise.  Those retailers with strong trust-based relationships with their customers will continue to thrive, and those that don’t, won’t.

Mike Osorio, your Dare to be Contagious! ^TM strategist

www.OsorioGroup.com

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http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/12906    

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Influencing Word-of-Mouth Marketing

DISCUSSION TOPIC:  Friends and Family Seal the Deal

TOPIC SUMMARY:

If you want to influence a consumer’s purchasing decisions, then it’s almost always best to get to their family and friends first. If you can convince family and friends to recommend a product or service, then you’re a long way down the road to making the sale. But how, just exactly, do you get friends and family to make a recommendation? That is the grail that most marketers seek and few find.

According to ZenithOptimedia, word-of-mouth (WOM), specifically those recommendations from family and friends, ranked highest in purchasing influences in the firm’s Touchpoints ROI Tracker study.

Discussion questions:  How do brands that generate positive word-of-mouth and personal references do it? How is it that (any brand you’d like to identify) is able to generate recommendations from family and friends when others do not?

My post:

The only way to generate positive word-of-mouth and personal references is by having a great product/service delivered in a manner that exceeds customer expectations.  Companies cannot manufacture referrals and positive comments.  When they try, it is usually disastrous.  The way to have engaged customers is through engaged employees.  If companies want positive word-of-mouth and referrals, they must start by focusing on their employees.

That said, there are tools that companies can use to analyze, if not influence, the dialogue.  The growing influence of social media outlets like Facebook, YouTube and others provides companies with both a way to analyze current word-of-mouth opinions and a means to react to any negative perceptions.  Used wisely and sincerely, communication through these portals can provide a company with good intelligence and a platform for customers to speak out.

Mike Osorio, your Dare to be Contagious! ^TM strategist

www.OsorioGroup.com

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http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/12886    

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Mixed race and the effect on marketing

DISCUSSION TOPIC:  How should mixed race affect target marketing plans?

TOPIC SUMMARY:

A recent article in the New York Times entitled Who Are We? New Dialogue on Mixed Race discusses a consumer segment that we don’t hear about much: people who don’t neatly fit into the five racial buckets now being used by the U.S. Census.

According to the article, “The old categories are weakening … as immigration and the advancing age of marriage in the United States fuel a steady rise in the number of interracial marriages. The 2000 Census counted 3.1 million interracial couples, or about 6 percent of married couples. For the first time, the Census that year allowed respondents to identify themselves as being two or more races, a category that now includes 7.3 million Americans, or about 3 percent of the population.”

It’s not yet a big segment, but it’s one that’s growing in terms of visibility and identity, in part fueled by the mixed race heritage of Senator Barack Obama.

Though some choose a multiple race identity, others tend to stick to a one-race label; the decision of choosing a racial identity is often a deeply personal one. According to the article, racial identification “is influenced by how and where they were reared, how others perceive them, what they look like and how they themselves come to embrace their identity.”

Discussion questions:  Have the old racial categories become irrelevant? What are the implications for those companies that are specifically targeting specific racial groups with a marketing campaign?

My post:

From my observations and experience, issues surrounding race tend to diminish with higher education and income levels.  The more people understand others people and feel comfortable about their own financial status, the less likely they are to seek labels to insulate themselves against “others”, based on race or other definitions.

I believe the rich dialogue brought on by both Senator Obama’s and Senator Clinton’s candidacies is beneficial toward getting our country to move beyond race and gender stereotypes.  I am optimistic that we are on the right track in this regard.

The marketing question will, in turn, become moot as cultures mix together both via interracial marriages and simply through proximity.  The focus should always be on listening to what the customer is saying and observing what they are doing.  That is always the recipe for marketing success.

Mike Osorio, your Dare to be Contagious! ^TM strategist

http://www.osoriogroup.com/

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The “Lipstick Indicator”

DISCUSSION TOPIC: Times are tough, so women are shopping – for lipstick

TOPIC SUMMARY:

In an article on the Australian site The Age they report:

Interest rates might be rising and food and fuel prices soaring, but it is going to take much more than that to wrest a woman away from her favourite lipstick.

Industry experts, including Steve Ogden-Barnes of the Australian Centre for Retail Studies at Monash University, say cosmetics is one category that is “recession-proof”.

“When things get tight, people might put off buying the new plasma or the new sofa, but there is no way a woman is going to leave the house without her make-up on,” he says.

In fact, there is a widely held belief that when times get tough cosmetic sales not only survive but thrive. They call it the “lipstick indicator”.

Originated by Leonard Lauder, chairman of the Estee Lauder Group, in the wake of the 9/11 attacks when lipstick sales in the US doubled, the theory goes that when things get tough women seek comfort in feel-good items. And while they may not be able to afford a $3000 handbag, they will fork out up to $30 for a lipstick.

Discussion questions:  Do you believe in the “lipstick indicator”?  Is it or will it hold true in America as in Australia?

My post:

My own unofficial polling of cosmetic industry professionals indicates that the “lipstick indicator” has largely held up over the years.  However, today’s economic issues have made even cosmetics businesses less than robust. The Aussies have the benefit of their commodities-based economy (somewhat similar to Canada in this regard) to bolster weaker areas and offset price hikes.  The US is suffering worse than most of the overseas economies and this is causing slackening business even in the cosmetics world, although not as severely as in other product categories.  In this way, the “lipstick indicator” continues to hold true.

Mike Osorio, your Dare to be Contagious! ^TM strategist

http://www.osoriogroup.com/

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Go to the full article at TheAge.com:
http://www.theage.com.au/news/national/times-are-tough-so-women-are-shopping-151-for-lipstick/2008/03/29/1206207499094.html   

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The Amazing Shrinking Product

DISCUSSION TOPIC:  Brands Shrink to Avoid Price Hikes

TOPIC SUMMARY:

Companies faced with higher cost for raw materials often find that a decision needs to be made. Continue production as-is and lose money if the price for the item isn’t increased; keep on manufacturing but raise the price or alter the product itself to reduce the cost of making it.

For many manufacturers, reformulations have been the chosen path to meeting consumer demand while protecting profitability. Of course, when changes are noticed, as in the case of a smaller candy bar or fewer rolls in a pack of paper towels, there is bound to be grumbling. This is especially true at a time when consumers are watching prices rise at a much faster rate than their take-home pay.

Discussion questions:  Do you think most consumers are understanding in the current environment when it comes to manufacturers downsizing and/or raising prices on established brand products? Is there a right or wrong way to go about handling the announcement of a product being reformulated in a smaller size? What role is there for a retailer to play in the current scenario where products are being altered to avoid hefty increases in prices to consumers?

My post:

The process of reducing size or changing ingredients to reduce manufacturing costs is called “incremental degradation.”  This can be a slippery slope.  The effects of tiny reductions in size or quality are not immediately apparent to consumers and certainly fatten the bottom line.  Managers begin to rely on incremental degradations to maintain margins and assume the consumer will continue to not notice.  Eventually, though, these incremental degradations add up and the consumer stops buying either because they notice the difference or because they just don’t like the product like they once did.  When this happens, it is too late to reverse course because the relationship with the customer is damaged.  Particularly if yours is a product known for quality, incremental degradation is a dangerous path.  You either believe in quality or you don’t.  Make a choice.

It is a much better strategy to implement incremental augmentation:  subtly adding value to your products which will tend to increase customer loyalty and keep your customers loyal even when prices eventually need to rise.

Mike Osorio, your Dare to be Contagious! ^TM strategist

http://www.osoriogroup.com/

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GO TO THE FULL DISCUSSION AT RETAILWIRE.COM:
http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/12853  

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Disney buys retail stores back from Children’s Place

DISCUSSION TOPIC:  Disney Gets Back into Retail

TOPIC SUMMARY:

Walt Disney Co. said last week it wants to return to running its Disney stores in North America. Re-owning the stores “can be an important extension of the ‘Disney’ brand” and would serve as a launching pad for the company’s growing number of creative franchises, according to Disney.

On the other side of the bargaining table, The Children’s Place, which licensed the Disney Store chain for the U.S. and Canada in November 2004, appears to have no problem handing it back. Disney Stores recorded a $107.3 million operating loss in 2007.

Since the sale, Disney has grown dissatisfied with the sluggish pace of store remodeling under Children’s Place. But Disney itself had long struggled with its North American stores in the past.

As with Warner Bros., critics said Disney had opened too many mall stores and failed to change them often enough to preserve novelty.

But Disney asserted last week that it can run its North American stores profitably as a smaller operation just as it does in Europe, where it owns 120 Disney Stores. That “right size” is from 200-225 stores. Children’s Place runs 335 Disney Stores and intends to close the stores Disney doesn’t want prior to selling back the franchise.

Discussion questions:  Do you think it’s a good idea for Walt Disney to take back its North American retail business? What do you think of their plans to reduce the size of the chain and exploit its newer franchise properties? What steps should be taken to bring Disney Stores back to profitability?

My post:

When Disney sold their retail stores to Children’s Place in 2004, they were trying to unload its stores as part of a larger effort to dispose of noncore assets such as sports teams. The once-profitable retail chain hit a high of 700 stores in 2000. Since then, Disney had been trimming the number of stores, while losing money on the operation.  Children’s Place saw the acquisition as strengthening their leadership in the newborn to age 10 category, while Disney believed Children’s Place’s commitment to quality, the Disney brand, and entertainment retailing would maximize the Disney Store opportunity.  They were trying to sell the European stores as well, although that never occurred.

Fast forward almost four years and the times have changed.  Children’s Place was never able to find the profitability key for the franchise and product design & innovation was lacking.  They did not close enough poor performing units and actually increased the number of stores.

Disney recognizes now that owning a smaller number of well-run stores in good locations can be reasonably profitable and serve as a wholly-controlled brand-building platform.  The keys though are “well-run stores” and “good locations”.  If this can be accomplished through hiring a number of excellent retailers and taking advantage of the current economic situation to renegotiate leases in the best locations and close the unwanted stores, this move could be quite positive.

Mike Osorio, your Dare to be Contagious! ^TM strategist

http://www.osoriogroup.com/

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GO TO THE FULL DISCUSSION AT RETAILWIRE.COM:
http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/12841  

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