China’s Confident Consumers

January 3, 2013

China’s Confident Consumers

All:

 

The Chinese have taken to consumerism with ease, embracing thousands of new products, services, and brands. But the flipside is that the Chinese market changes at a speed capable of leaving all but the nimblest of companies breathless, as McKinsey’s 2011 survey of Chinese consumers highlights.1 Three findings stood out. Even in the face of rising inflation, Chinese consumers are more confident this year than in 2010 about their financial prospects. Among urban consumers, the number of first-time buyers—a group that has been a major driver of category growth in China—is declining. Finally, although brand awareness is rising, we see little sign that brand loyalty is following suit. In fact, more and more consumers choose among a growing number of favorite brands.”

 

The preceding quote is from the latest “DFS Learning e-Blast” article, China’s Confident Consumers, by Yuval Atsmon and Max Magni.

 

In this November 2011 article from McKinsey Quarterly, the authors discuss the recently published 2011 Annual Chinese Consumer Survey by McKinsey Insights China.

 

At a time when our PRC business is exploding in virtually all our retail locations, it is important for our leaders to understand the underlying factors influencing Chinese consumer behaviors.  By understanding the evolving Chinese consumer mindset we can make better decisions on how we serve this important client today and into the future.

 

More from the article:

 

The survey shows the extent to which consumers value brands more than price or channel, largely because they believe that branded products are safer, of higher quality, and more reliable than nonbranded ones. But faith in brands still does not translate into brand loyalty. In fact, both the number of consumers who always choose from among a relatively small set of brands—whom we refer to as “repertoire loyalists”—and the number of brands in their repertoire continue to rise. The average Chinese consumer now chooses among three to five brands in any given category, compared with two to three brands two years ago. In some categories, such as apparel, where luxury brands have grown hugely popular, the contrast is sharper still.”

 

Read the short article to learn more!  The full survey is available here as well.

 

Mike Osorio, your Dare to be Contagious™ strategist

www.OsorioGroup.com

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

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The Lure and Growth of Outlet Malls

August 27, 2011

DISCUSSION TOPIC

Outlet Malls Adding Square Footage 08-26-2011

At least in terms of real estate, outlet malls are the stars of retail. The channel appears to be the only one witnessing noticeable square footage growth.

A series of articles recently detailed the appeal of factory outlet malls while pointing to expansion efforts in markets around the country. The first ever outlet opened in Oklahoma City in August. A new outlet shopping center is being built in San Clemente, CA.

The expansion comes as apparel sales at factory outlets rose 17.8 percent for the 12 months that ended in April, NPD Group told The Weekly Herald in Washington.

“Americans are so focused on price,” Lee Peterson, executive vice president of creative services at WD Partners, told the Chicago Tribune.

But a number of factors besides budget-shopping are driving outlet center’s growth:

  • Overcoming stigma: Outlet centers over the years have lessened the perception of a bargain-bin atmosphere. Steve Craig, chief executive of Craig Realty Group, which owns Citadel Outlets in Los Angeles, told the Los Angeles Times, “Ten years ago, if I said, ‘Come shop at an outlet,’ they’d say, ‘Oh, no, I shop at Neiman Marcus.’ I don’t get any nose cringes anymore.”
  • Luxury appeal: Nordstrom, Neiman Marcus, Barneys and Saks are also all opening up more outlet locations. Bloomingdale’s and Lord & Taylor are opening outlets for the first time.
  • Vendor expansion: Newer vendor brands such as Not Your Daughter’s Jeans, Vince Camuto shoes and Under Armour are aggressively expanding outlet locations.
  • Marketing ramps up: Bus tours and hotel shuttle packages are often now offered to attract tourists to the mall. Coupons and radio ads are being used to drive nearby traffic.
  • Hybrids: Hybrid malls combining full-price and outlet stores are opening. Macy’s recently announced plans to open its first traditional department store in an outlet center.
  • Location! Location!: With limits, many outlet centers appear to be opening closer and closer to towns and cities.
  • Economics: It’s not only lower rents, but common area assessments (no elevators/escalators, no collective heat/air conditioning) and staffing costs are lower than traditional malls. At the same time, Chicago Premium Outlets in Aurora generates $700 a square foot while Simon Property’s top-performing outlet mall, Orlando Premium Outlets in Florida, generates $1,300 a square foot, according to the Chicago Tribune.

While the heap of recent articles exploring outlet centers growth were overwhelmingly positive on the channel’s prospects, it was stated that location remains a drawback for consumers not fond of driving far distances. Although many appear to be opening closer to traditional mall towns and cities, brands are still said to worry about opening outlets too close to their full-price department store or mall customers.

Another issue is merchandise quality, although it appears to be a minor complaint. While outlets in the early days did sell a large quantity of the prior-season liquidation goods formerly found at full-price locations, an estimated 85 percent of apparel — even at luxury stores — is made specifically for outlets at inferior quality to offer the needed lower prices. Outlet shoppers either don’t know or don’t care. But Boston University professor Ellen Ruppel Shell, author of Cheap: The High Cost of Discount Culture, warned in The Oklahoman, “It’s really a case of buyer beware to know what you are getting. And the sales clerks don’t always know.”

Discussion questions:  What’s your assessment on how the factory outlet channel has evolved and its future prospects? What limits do you see for factory outlet center growth? What warnings, if any, would you offer brands?

My post:

Retailers must tread carefully here.  On the one hand, centers in places like Oklahoma City are a phenomenal way for retailers such as Polo Ralph Lauren, Saks Off 5th, and others to penetrate a fast growing and underserved demographic at a relatively low cost of capital and ongoing labor/overhead.  In addition, given that the current economic malaise is likely to continue in much of the US for the next several years, Outlet locations allow a retailer a much needed growth opportunity particularly for publicly traded companies whose stock price is largely driven by growth (or lack thereof).

On the other hand, luxury and upmarket brands must carefully consider the risks to brand equity.  The more this channel grows, particularly in close proximity to urban centers, the higher the chance of degradation of brand perception.  Long term, this could hurt brand equity and growth.  However, as most upmarket brands operate on a global platform, there can be two strategies:  One which capitalizes on what appears to be a long term trend toward price driven retail in the US and potentially some markets in Europe, and another which focuses on the high growth Asian and emerging market economies which allow for high margin, regular price selling.

A great example of this is the Timberland brand.  In the US, I can buy a Timberland knit polo shirt for $60, ~$48 on sale at Macy’s.  Pricier than similar product from moderate brands, but I’m willing to pay the price for the quality, fit and the prestige of the brand.  Recently in Singapore, I needed a casual shirt quickly while attending a conference.  With only 15 minutes to shop, I went into the Timberland store in the Shops at Marina Bay Sands and spent the equivalent of $104 for a similar knit polo shirt.  Clearly this brand is taking advantage of this two-pronged strategy as are many others.  Currently the only “outlet product” they sell is online and only footwear, but you see my point.  Sad to be a brand only operating in the US these days…

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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Go to the full discussion at Retailwire.com:  Outlet Malls Adding Square Footage

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Tesco S Korean Subway Virtual Store

July 6, 2011

DISCUSSION TOPIC

Tesco Takes Virtual Store to Subway Riders in South Korea 07/06/2011

TOPIC SUMMARY:

Tesco was looking for answers in South Korea. According to a video from the company (be sure to watch it), its Home Plus chain was second largest in the market and investigating ways to gain share without adding physical stores. Management reasoned that hard working South Koreans needed something that would make their lives easier.

The answer that Home Plus came up with was to take the store, a virtual one at that, to consumers inside a subway station.

The virtual location is laid out exactly the way a typical Home Plus store would be. The company has created photo layouts of products it sells with a unique code for each product. Consumers scan the QR codes for the items they wish to purchase and then check out. Orders are automatically delivered to the consumer by the end of the day.

According to the chain’s video, the virtual store has brought it thousands of new customers and its online sales in South Korea have increased by 130 percent.

Home Plus’ virtual store is just one of many innovations likely to come to retailing with the development of mobile technologies.

Discussion questions:  What do you think of the Home Plus virtual store? Does it have applications in the U.S. market?

My post:

Tesco has often created innovative shopping solutions and this is simply their latest.  They have focused on the specific shopping needs and behaviors of the South Korean consumer and designed a unique method to combine two activities, commuting on the subway and shopping for that day’s grocery needs, into one.  The whole allure of mobile platforms i.e. tablets and smart phones, is the potential for allowing people to shop wherever they are.  The virtual subway store enables people to shop the way they like – either independently on their device at the on-line store, or “roaming the aisles” via the virtual store.  Based on the stated results, the consumer is reacting well.  Over time, this method may lose it’s novelty but it is a brilliant way to entice more consumers to try the online store.

Would it work in the U.S.?  Probably not in the same way.  The subway experience in the U.S. is far different than in Asia.  In addition, home delivered online grocery shopping is not well penetrated in the U.S. as compared to South Korea.  However, the point here is for the retailer to consider placing the virtual store in an area where the consumer would enjoy shopping.  Where might that be in a U.S. metro market?  I am not sure – but I would not dismiss the possibility.  Grand Central Station?  A section of wall in a large office tower?  Interesting to imagine.

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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Go to the full article at Retailwire.com:  Tesco S Korean Subway Virtual Store

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Lower prices at Neiman’s?

June 28, 2009

DISCUSSION TOPIC

Neiman Marcus Capitulates on Price 6/15/09

TOPIC SUMMARY:

After reporting a 24 percent decline in third quarter sales, Neiman Marcus Group disclosed plans to offer more lower-priced goods and promotional marketing events. On a conference call last week, Burt Tansky, Neiman’s CEO, said that while customers hadn’t questioned the chain’s prices in the past, “we are sensing a shift in our customer’s mind-set.”

The new merchandising strategy, according to The Wall Street Journal, “will strengthen our position in mid-price” goods, the company said, and equates to a “rebalancing” of its mix to include some lower-priced goods among its designer collections.

However, Mr. Tansksy cautioned, “This is not something that will occur overnight,” and the larger impact won’t happen until Spring 2010. In the meantime, more promotional and other events are being planned to boost sales.

Mr. Tansksy also said he doesn’t see a turnaround occurring soon. “We believe that the recovery is tentative and any improvement will be gradual,” he said. As a result, it is pursuing a “conservative” merchandise-buying plan for the fall and will curtail capital spending by 25 percent in its next fiscal.

Neiman’s move follows several similar ones by other luxury purveyors to lower prices:

  • Barneys has been opening more of its “Co-op” discount stores while closing some of its regular boutiques;
  • Saks announced plans to open several of its “Off 5th” outlet stores while skewing pricing at its full-price stores more toward affordable merchandise;
  • Pottery Barn Kids, following in the footsteps of its parent Pottery Barn, will substantially increase the number of lower-priced products it offers starting this fall;
  • Longtime fashion designer Max Azria in early June reached an agreement to develop a Miley Cyrus/Max Azria collection for Wal-Mart Stores. Prices top out at $20 per item.

Tiffany is among the fewer and fewer high-end stores stating that it would not cut prices.  But the luxury jeweler is finding its customer looking for bargains as well, even to the point of haggling at counters.

“Everyone feels compelled to ask the question for fear of feeling foolish after the fact,” Tiffany chief executive Michael Kowalski said at the Reuters Global Luxury Summit in New York. “And yes, the questions are being asked more often and the answer is the same — the price is the price is the price.”

Discussion questions:  What’s the best strategy for Neiman to offer more value in their offerings without impairing its upscale positioning?

My post: 

I find this development disheartening.  I have always admired Tansky’s firm resolve to remain a true luxury retailer and never succumbing to the lure of lowering their standards due to short term economic difficulties – no matter how severe.  In fact it was Tansky who belittled former CEO Terry Lundgren’s “much better” strategy in the early 90’s when he tried to add moderately priced product, with disastrous results.  The customer for this product can find it in any other department or specialty store, and in Tansky’s words, the true Neiman Marcus customer is not interested in buying lower-priced merchandise.  Within each luxury brand’s assortment, there is the opportunity to lower the average price points through careful product selection and increasing the mix of accessories, etc.  It is a monumental mistake to risk the brand of Neiman Marcus by adding moderate product.  I fear the real reason for this isn’t Tansky changing his tune – but rather the private equity owners forcing his hand in order to deliver short tem results.  Private equity buyers seldom hold onto their purchases for more than 3-5 years.  Could a sale of NM be in the cards in the next 24 months? 

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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Go to the full discussion at RetailWire.com:
http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/13804

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New Target program guarantees unbeatable prices

May 12, 2009

DISCUSSION TOPIC

Target Revives Dropped Price-Matching Program 5/12/09

TOPIC SUMMARY:

Target dropped its price-matching program in 2002. That, as they say, was then because now it looks as though the retailer may be on the verge of bringing it back. Target has tested the program in two markets since March 15 and began a third in its own Minneapolis backyard on May 1.

The retailer has been matching lower prices in its competitors’ ads at 22 stores in the Orlando area and 28 others in Denver for the past two months. The chain rolled out its “Unbeatable Prices. Guaranteed.” program in Minneapolis and Medina earlier this month with the expectation that it will result in a national expansion of the price-matching initiative.

Target believes it has figured out a way to get around the problems it found in 2002. Then, competitor prices were verified at the checkout, causing delays at the front-end. Now, all pricing will be verified away from the checkout at the store’s service desk.

Delia McLinden, a spokesperson for Target, told the Minneapolis Star Tribune that the program was being retested because they “want to speak boldly about value and low prices and give customers peace of mind.”

The Minneapolis/St. Paul Business Journal pointed out in an article that “Target has been ratcheting up its emphasis on prices for the past year, as consumers cut back on discretionary purchases during the recession.”

Discussion questions:  How much will Target’s “Unbeatable Prices. Guaranteed.” program help it achieve a stronger price image with consumers? Does a program like this risk diluting the equity Target has built for its brand over the years?

My post: 

I have always been a big fan of Target.  I am “one of those” who avoid Wal-mart if at all possible due to the feel of the place.  Target provides good prices (even if not as low as Wal-mart) with nice ambience and some really cool product via their focus on design.  Unfortunately, they have drifted in the last few years and lost some of their message.  It didn’t change my enjoyment of the shopping experience there but clearly Wal-mart gained share as they stayed true to their low price message and dealt with much of their bad publicity.

I haven’t seen the new price-matching program in action, but I will assume the two test markets have shown strong results or they wouldn’t be expanding the program.  Target is known for execution, so I will assume they have the bugs worked out of dealing with the customer requests.  I think the marketing message is right for the times and as long as they keep to their design ethos, it will prove to be a good move.

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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Go to the full discussion at RetailWire.com:
http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/13736

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Zara, H&M rock American retail

March 26, 2009

DISCUSSION TOPIC

America‘s Favorite Retail Imports 3/26/09

TOPIC SUMMARY:

They’re fast fashion. They’re cheap chic. They’re moving up on America’s favorite places to shop even though they were definitely not made in the U.S.A.

As a piece on Forbes.com points out, consumers here are increasingly drawn to the high style and low prices of chains such as Sweden’s H&M and Spain’s Zara. Others including Uniglo from Japan and Mango from Spain are still relative newcomers that have achieved some success. Another import in the same vein, Topshop from the U.K., is scheduled to open its first store in the U.S. next week in Manhattan.

Zara was the first to make its way to the U.S. market back in 1989. The company uses an in-house design staff, its own factory and tightly controlled distribution network to get new product to the stores in as little as two weeks. This year the chain is looking to add 10 stores in the U.S. It currently has stores in 13 states and Washington, D.C.

H&M, which has 169 U.S. stores, came to the U.S. in 2000 and plans to open 16 new locations in 2009.

“Foreign retailers deliver an [inexpensive] product that is not perceived as a uniform,” Marshal Cohen, chief retail analyst at The NPD Group, told Forbes. “They offer what you want, when you want it, as well as self-expression through fashion.”

Discussion questions:  What is it that makes Zara, H&M and other apparel retailers from outside the U.S. successful here? Do you see domestic chains picking up ideas and competing more effectively in this area? Is there one – Zara, H&M, Mango, Uniglo or Topshop – that you are particularly impressed with?

My post: 

These retail stars were shining well before the current economics made their formula a darling of the media.  Zara and H&M have been in the US for a while now and not only are their openings huge local “events’, but they seem to maintain their followings of teen to 40-something fans effortlessly as they consistently add small quantities of fun, cool fashions for cheap.  Now Uniqlo and Mango are gaining traction with Topshop coming soon.  American fashion fans are eating up this foreign feast as they have tired of the majority of American specialty and department stores’ miles of boring overstocked sameness.  Simple message:  fun, fast, affordable fashion, constantly refreshed.  Forever 21 is one exception to the rule, but most of American retail now buried in debt and teetering has to wake up to what the customer is looking for.

Mike Osorio, your Dare to be Contagious! TM strategist

www.OsorioGroup.com

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

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Go to the full discussion at RetailWire.com:
http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/13637

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Nostalgic for Mervyns

February 27, 2009

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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Go to the full discussion at RetailWire.com:
http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/13555

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