Nostalgic for Mervyns

Founder’s Sons Plan to Revive Mervyns – 2/17/09

TOPIC SUMMARY:

Three sons of the founder of Mervyns have purchased the department store’s name, intellectual property and online properties with plans to revive the brand. John Morris, along with his two brothers Jeff and Jim, agreed to purchase the assets in bankruptcy court for about $162,000.

“It’s great to have it back in our family after 31 years,” John Morris, principal of Morris Management, a private-equity and real estate investment company, told the Wall Street Journal. “We strongly believe we have a very strong, loyal base of families in the Western states that would support Mervyns.”

Mervyns filed for Chapter 11 bankruptcy protection in July of last year and in October said it would liquidate its remaining 149 stores after the holiday season.

The buyers are still exploring options, whether solely focusing on reestablishing an online presence or reopening stores.

“It was tough to watch what happened,” John Morris said. “Mervyns had always performed well. The demise of the retail operation was caused by factors other than the performance of the stores.”

While certainly challenged by the current economy, analysts were mostly positive about a re-launch of Mervyns.

“It’s a great idea,” said George Whalin, president and CEO of Retail Management Consultants.  “If they could get back in business it would be terrific. There is some real value in that name.”

Discussion questions:  What do you think of bringing back Mervyns? If you were to design a department store chain from scratch these days, what would it look like?

My post: 

I admit this is an emotional vs. a rational response:  I would love to see the Mervyn’s of old brought back:  a high service, family oriented purveyor of moderately priced quality apparel and home accessories in neighborhood locations.  Unfortunately, success today in apparel retail requires much more than a nostalgic name.  If the Mervyn’s brothers have a real merchant’s vision for the customer experience and the product mix right for today’s consumers they may have a shot.  My advice?  Start slow with a handful of locations where particularly loyal customers are clustered and with a consistent and passionate merchant and customer experience vision.  Otherwise, don’t bother.

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

www.OsorioGroup.com

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http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/13555

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Employees Forced to buy Panasonic’s Products

DISCUSSION TOPIC

Employees Make it, Then Buy it – 2/23/09

TOPIC SUMMARY:

While many companies worldwide are debating the wisdom of bonuses for employees at all levels, Panasonic has gone even further. The company is demanding that they give something back by supporting the business with purchases of unsold equipment.

The Times in the U.K. carried a report from its Asia correspondent about the memo sent out to 10,000 Panasonic staff exhorting them to spend the equivalent of £1,000 (U.S. $1,440) each by July. Apparently the policy isn’t new, as executives “have been ‘encouraged’ for years to fill their homes with Panasonic goods as a symbol of corporate loyalty.” As the targets are mostly at management level, a spokesman said that “the company did not expect refusal rates to be high” despite the fact that salary and bonus cuts were also announced.

Discussion questions:  What do you think of policies around encouraging or even requiring employees to purchase company merchandise? Will seeing a company’s employees buying its products encourage shoppers to do the same?

My post: 

The Japanese culture may allow this to transpire without the backlash such actions would have in the US.  However, that doesn’t make it any less wrong.  This action is nothing less than a forced pay cut which will do nothing but harm the individual employee at a time when they are already taking forced salary reductions.  Worst of all, even if the majority of the employees make the forced purchases, it will not be enough to move the needle on Panasonic’s results.

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

www.OsorioGroup.com

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From Snooty to Friendly Luxury Service

DISCUSSION TOPIC

Snooty Attitude Tones Down at Luxe Boutiques – 2/27/09

TOPIC SUMMARY:

According to The New York Times, a quick glance at a man’s watch and shoes has been a common and effective tool for sizing up potential customers at designer boutiques. Working heavily on commission, a sales clerk gains invaluable insight into which shoppers to chase and which to ignore.

Such practices have also tagged clerks at high-end stores with a reputation for snootiness and all-out rudeness. But the Times notes that virtually overnight, the brutal recession has changed those attitudes to a “level of customer service rivaling that of Disney.”

MaxMara recently held employee seminars on enhancing the shopping experience “of anyone who walks through the front door,” and the article claims other stores “are making more effort to greet and engage.”

Putting the findings to a test, the Times reporter, Eric Wilson, went undercover. Donning an outfit described “if not poorly, then as plainly as possible in a sweatshirt, jeans and dog-walking shoes,” Mr. Wilson visited a string of boutiques along Madison Ave. in New York City.

For the most part, luxury boutiques passed the test with flying colors.

Discussion questions:  Do you think the snooty reputation at high-end stores has toned down given the recession or has it always been widely overblown? If there is a longstanding snooty attitude in high-end selling, is it in any way justified?

My post: 

Certainly many boutiques provide lousy service.  In the case of high-end stores, this is typically described as snooty and rude.  In lower-end stores it might be described as uncaring or non-existent.  Service in the past and present has more to do with the vision of the retailer and the people they hire to manager their stores and service their customers, than the current economics.

In today’s environment, retailers of all kinds are pushing like never before to go out of their way to be helpful, courteous, and welcoming.  This is particularly true in stores where the brand mission is service oriented to start with.   It is likely to be found where the brand typically stands for service and quality – a fairly common aspect of luxury brands.  The reporter’s example of lousy service in Gucci, however, proves that the people you hire to manage & staff your stores determine the service that will be offered.

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

www.OsorioGroup.com

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http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/13581

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Luxury Brands Fire Sale

DISCUSSION TOPIC

Luxury Hits the Sales Rack – 2/25/09

TOPIC SUMMARY:

Luxury-goods sales are expected to fall 15 percent this year, according to Bernstein Research, as even the well-to-do are trading down or cutting back on unnecessary expenditures. According to the Wall Street Journal, luxury brands must decide how much of the slump is cyclical and how much reflects a permanent change in consumer behavior.

The slowdown represents a sudden turnabout for a sector that some felt could be recession resistant. From 2003 to 2007, the global luxury market grew on average seven percent a year, and future growth was expected to be driven by “an ever-expanding minority of ultra-wealthy individuals.” Many of these individuals were expected to come from emerging markets.

But Saks began slashing prices by 70 percent on designer clothes before the holiday season even began, and soon Neiman Marcus and Barneys joined Saks in cutting prices and canceling orders. Smaller boutiques such as Scoop and Intermix in New York City were forced to sell their goods for less than they bought them.

According to the Journal, the steep discounts in the high-end channel ended up “toppling longstanding agreements on pricing and distribution, and destroying the very air of exclusivity that designers are trying to sell.”

Discussion questions:  Should luxury brands and designers be lowering prices? How risky is it for high-end brands to bring in lower prices or lower-priced extensions? What’s the best strategy to do so?

My post: 

Like so many of the economic “miracles” of the last 20 years the luxury segment grew beyond it’s natural state driven by easy credit and the top end of the middle market consumers reaching for aspirational symbols of wealth and status.  The luxury manufacturers and retailers who have avoided the excesses of many of their consumers by avoiding the lure of expansion through taking on enormous debt and who have remained true to their artisan heritage will survive and even thrive in what is sure to be a slower growth sector for many years to come.  The emerging market consumer will continue to drive growth for many but a new sense of sanity will likely pervade this category for many years to come.  The brands that choose to create lower price products for H&M and other value retailers will manage to continue growing for a time but will likely lose the luster of their true luxury heritage.  It the design of the product remains excellent they may find a new niche for their brand at lower price points.  Otherwise those brands will either wither and die, or become simply a moderate brand.  That may be fine for investors, but surely removes them from the pantheon of true luxury brands.  You’ll never see Hermes or Cartier in H&M and I wager brands like these will be here in 2109.

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

www.OsorioGroup.com

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http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/13575

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Retail Successes – Even Now

DISCUSSION TOPIC

Retailers That Are Looking Good – 2/13/09

TOPIC SUMMARY:

The economy certainly hasn’t been good for the retail business but that doesn’t mean there aren’t retailers that are doing well. There are obvious examples such as Wal-Mart, Aldi, Amazon.com and some dollar store chains that have found ways to achieve growth while competitors have struggled.

A piece on Kiplinger.com points to four other chains – Best Buy, Bed Bath & Beyond, Urban Outfitters and GameStop – that have remained solid and show promise for coming out of the recession stronger than before.

Best Buy and Bed Bath & Beyond are looking particularly strong because, having fought off major competitors, Circuit City and Lines ‘n Things respectively, they now find themselves in business with one less significant rival to deal with.

Best Buy has cut costs – the company just announced a layoff of an additional 250 people at its headquarters – as sales of consumer electronics have softened but is in a position to look at purchasing some of Circuit City’s better locations once the bankrupt chain has completed its liquidation.

Bed Bath & Beyond is on solid footing with Linens ‘n Things out of the way. And unlike its vanquished rival, Bed Bath & Beyond is debt free. “In retailing, the mantra right now is ‘Balance sheet, balance sheet, balance sheet,'” said. Don Wordell, manager of RidgeWorth Mid-Cap Value fund.

Urban Outfitters, according to Kiplinger, “is as close as you’ll come to a recession-proof clothier.” The chain saw total revenues increase 22 percent in 2008 versus the previous year while stores open at least a year achieved a sales increase of eight percent.

The company, which operates stores under its namesake banner as well as Anthropologie and Free People, gets high marks for smart management that offers a nice mix of branded and private label clothing, accessories and home furnishings in quirky yet customer-friendly store environments. “Urban Outfitters knows how to merchandise really special things,” said S&P analyst Marie Driscoll.

GameStop has benefited from America’s love of video games. Beyond that, it has thrived in part due to its strong used game business. The company’s gross margins are in the 50 percent range on used games, helping it to make “more selling $30 worth of used products than it does selling $60 worth of new products,” according to Janney Montgomery Scott analyst Tony Wible.

Discussion questions:  What impresses you most about the chains discussed here? Are there any common threads they share that have made them successful while competitors have struggled?

My post: 

The elimination of significant, albeit weak competitors is certainly an easy way to show good results.  Even Gottschalks, the struggling Fresno-based regional department store chain had a great January with one of the best trends in the nation – but mainly due to the closings of Mervyns locations, one of their key competitors.  The impressive story is BB&B – debt free in an industry that seems to have choked on the fountain of easy debt that financed what has turned out to be unsustainable growth.  Finally, all the named retailers have a compelling customer offer.  Without that, even losing competition and low or no debt won’t save them.  The two keys:  excellent balance sheet and a compelling customer offer.  But it never hurts for a significant competitor to close its doors!

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

www.OsorioGroup.com

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http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/13565

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Starbucks branches out to instant coffee

DISCUSSION TOPIC

Starbucks Rolling Out Instant Coffee – 2/13/09

TOPIC SUMMARY:

Instant coffee is for amateurs, right? Don’t real coffee drinkers grind the beans from fresh and go to the coffee pot or preferably the French press from there?

Starbucks has built its business around the cachet of drinking gourmet brewed beverages but now the chain is rolling out a soluble (see: instant) coffee under the Via brand name.

The new instant coffee seems like a departure from Starbucks core identity but, according to three unidentified executives interviewed by AdAge.com, it will clearly differentiate from instant brands including Folgers, Sanka and Brim.

“It’s a breakthrough in soluble coffee,” a person identified as being “close to the project” told AdAge.com.

The development of Via is said to be the brainchild of Starbucks CEO Howard Schultz and is expected to get strong marketing backing from the company. The product, which is scheduled to be introduced at Starbucks’ annual meeting on March 18, will initially be sold in the chain’s cafes. There is no word if it will eventually migrate to grocery stores.

Discussion questions:  Will entry into the instant coffee category dilute the Starbucks brand or is it the right product for current economic times?

My post: 

Most will claim this just the latest stumble by Schultz and another nail in the coffin of their eventual demise.  I disagree.  First, the move into another aspect of their core product category is smart marketing.  Second, there are many reasons for using instant coffee that has nothing to do with “the perfect cup of coffee”:  An ingredient for recipes, quick coffee while traveling, and more.  Finally, there is a huge instant coffee business out there for people who actually make instant coffee every day in their homes.  A percentage of these will certainly be willing to pay a premium for this brand name.  My only criticism will come if it is launched only in the cafes.  It belongs in the grocery store along with Starbucks whole and ground bean coffee, ice cream, and bottles of Frappuccino.  The stock may have stumbled and their mystique has become a bit damaged, but there are still long lines at most Starbucks stores I frequent.  I predict they will be just fine, and will have the last laugh as the economy improves and even before.

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

www.OsorioGroup.com

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http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/13551

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Business Success from Empathy?

DISCUSSION TOPIC

Empathetic CEO Leads McD’s to New Heights – 2/5//09

TOPIC SUMMARY:

There are a lot of reasons one could point to as “the reason” behind McDonald’s success in recent years. There are restaurant remodels, changes to the menu, a focus on value, etc.

While all of the above are certainly contributors, a piece on Forbes.com by Dev Patnaik and Peter Mortensen, co-authors of Wired to Care, posits that the real credit goes to McDonald’s CEO Jim Skinner for “building a widespread sense of empathy… for the company’s customers.”

According to Messrs. Patnaik and Mortensen, Mr. Skinner’s ability to get McDonald’s employees to see how the world and their company looks through the eyes of consumers has enabled them to provide something of true value to those who patronize the fast food chain.

Organizational empathy has also helped make McD’s more efficient. According to the authors, “Empathetic companies don’t get paralyzed by a sea of contradictory information. They have the acuity to cut through the noise and focus on what really matters. Most important, they find ways to lay the foundations for new growth regardless of what their competitors are up to.”

Discussion questions:  Do you agree with the premise that Jim Skinner’s greatest accomplishment has been in making McD’s a more empathetic company? How do you think that empathy is demonstrated in the day-to-day business of McDonald’s?

My post: 

This a very timely and important article to discuss.  I will not claim that empathy is the reason behind McD’s turnaround, but clearly the point of giving the customer what they want through a huge organization of individuals with varying priorities is almost a miracle.  As the authors state in the article, “Skinner’s success reminds us that in a crisis, the best way to get ahead is the best way businesses have done it for centuries: Have a gut sense for what people need and give it to them.”

The “miracle” is in Skinner finding the path to get the 30,000 McD’s employees to focus their talent and time on improving the customer’s experience.  Call it empathy, but Skinner has been able to be seen by franchisees and company staff as relevant, knowledgeable and inspirational.  Therefore, they have listened to his message and have focused as a cohesive organization on delivering for the customer.

Other than Sausage McMuffins with Egg (which are my guilty pleasure), I am not a McDonald’s customer – but I love the story.  Hopefully more CEO’s will read the author’s book, Wired to Care, and move their organizations in a similar direction.

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

www.OsorioGroup.com

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http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/13533

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Apple stumbles

DISCUSSION TOPIC

Apple Goes Soft in Fourth Quarter – 2/4/09

TOPIC SUMMARY:

Apple Stores open at least a year saw customer traffic fall off 1.8 percent in the December quarter and sales drop 17.4 percent, according to Charlie Wolf, a hardware analyst with Needham.

Mr. Wolf said that visitors to Apple Stores during the holidays “were not in a spending mood.”

This has to be a concern to Apple, which a Barron’s article points out, sells computers and other gadgetry that tends to be more expensive than competitive products on the market.

A falloff by Apple has to be a concern to mall owners and managers since the chain has consistently attracted consumers and registered sales that Mr. Wolf said were “undoubtedly the highest among retail chains in the country.”

Discussion questions:  Is there cause for concern for Apple Store operations? Where do you see opportunities for Apple to benefit during the economic downturn?

My post: 

Despite the universal falloff in retail spending across all categories, including luxury retailers, it will shock many to see Apple participate in the malaise.  To this point their focused vision, gorgeous stores, innovative products and flawless execution have enabled them to deliver stunning results and to this point defy the economic downturn. 

I believe that this is not a major long term concern for Apple.  It is merely the reality that consumers are cutting back on all but the essentials, including iPods and other cool Apple products.  The relatively small drop in visits (-1.8%) shows that people still love the product but just can’t part with the money at the moment – but will be back to buy as their confidence in their financial situation improves.  Apple has the financial strength to weather this storm – which for them will be relatively brief compared to the majority of boring me-too retailers out there.

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

www.OsorioGroup.com

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http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/13529

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DISCUSSION TOPIC

Mapping Employee Collaboration – 2/3/09

TOPIC SUMMARY:

A mapping technique, called social-network analysis, is increasingly being used by corporations to understand how their workers communicate with each other. Under the rather simple method, employees are each asked who they turn to for help. A map is then drawn revealing dark patches around employees who work closely with others and lighter areas where there’s little interaction.

According to an article in The Wall Street Journal, companies are using such mapping techniques to understand weak points in internal networking activities. It also promises to help identify “unheralded stars” as it has been shown that the best collaborators in organizations aren’t discovered in performance reviews.

The article states that collaboration efficiency has become more important as workers are spread across the globe.

Discussion questions:  What are the best ways for managers to encourage employees to collaborate with each other? What do you think of the potential for mapping techniques around social-network analysis for organizations?

My post: 

My experience shows that “mapping” of employee behaviors is extremely limiting in drawing conclusions about employee communication tendencies.  The real issues lie in two areas:

First, a cohesive company vision or lack thereof determines the important behaviors of leaders and therefore impacts employee behaviors.  A scattered vision creates scattered leaders, which creates employees with erratic communication habits.

Second, and more importantly, people are who they are.  If an employee is naturally collaborative, they will create the networks and means to communicate that they need – whether or not the company puts in programs and systems to facilitate that behavior.  Likewise, an employee who is unsocial or quiet will not take advantage of company systems. 

Tools like “social-network analysis” are brilliant sounding products that consultants can sell to companies that lack a cohesive vision and/or fail to hire employees who naturally collaborate.

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

www.OsorioGroup.com

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http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/13525

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The Character of Starbucks

DISCUSSION TOPIC

Starbucks Takes on the Egg McMuffin – 2/2//09

TOPIC SUMMARY:

While Starbucks last week announced another round of job cuts, a bigger surprise to many was that the upscale coffee chain was entering the breakfast value-meal race. Using uniform national pricing, Starbucks in March will begin offering “several breakfast pairings” at “attractive price points.”

The move represents an about-face for Starbucks. Last July, chief executive Howard Schultz said the company was “not going to go down the fast-food lane” in offering combo-meal discounts. He argued that Starbucks’ customers were willing to pay a premium for the Starbucks “experience.”

But last Wednesday, Mr. Schultz indicated that more of a value-proposition would be added to its breakfast offerings starting in March “to correct misperceptions and drive stronger offers into the market.”

News of breakfast-value offerings came on the same day Starbucks announced it would layoff 6,700 employees, close 300 more doors, and scale back store openings for 2009 on the heels of weak earnings in its quarter ended Dec. 28. Same-store sales were down 9 percent in the period.

Discussion questions:  What do you think of Starbucks’ plans to offer value breakfast deals? How can Starbucks offer a better value-proposition without affecting its premium positioning?

My post: 

I find this announcement disheartening.  I have long enjoyed the Starbucks breakfast (and lunch) food offerings – high quality, consistent, tasty and reasonable for what it is.  In fact, when I moved to Hong Kong last year I was happy to find even more offerings in the stores here.  I am more than willing to pay more for a quality quick-service meal in the Starbucks environment than a cheaper meal at McDonalds.  Of course McDonalds is doing well.  Their strategy to upscale their offering hit at just the right time. The bottom of the Starbucks customer base is certain to give Mickey D’s a try.  However, most will return to Starbucks when the economy improves – but only if Starbucks is still perceived as a premium aspirational experience.  This ongoing search for a vision is scary for a brand that had strayed little from it’s core message until times got tough.  You always find out what a company’s character truly is when sales slump. I guess we’re finding 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/13529

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