originally appeared in USA Today:
Starbucks lovers, don't choke on your latte. The $450 Starbucks card is here.
Just in time for the holidays, the trend-setting coffee behemoth on Wednesday will be at the forefront of what could be yet another cultural hot button: the super premium gift card.
The Starbucks Metal Card isn't made of plastic, but steel. Each specially etched card, loaded with $400, costs $50 to make, which Starbucks says explains the $450 price tag.
Starbucks will make only 5,000 of them. But you can't buy them at any Starbucks store. They'll only be sold via the luxury goods website, Gilt.com. The card comes with gold-level Starbucks card membership benefits, such as gifts and freebie refills on brewed coffee and tea.
Some stores will never even see this card, according to vice president of card and payments at Starbucks.
But not everyone is impressed. This is a card for the 1%, according to a well-known cultural anthropologist. It's all about status, and to tell you the truth, I don't know if I'd want to be seen with one of these.
The move by Starbucks blends two growing trends: consumer love of gift cards and upper-end exclusivity. The costly gift card follows another recent, pricey rollout: a limited brew coffee sold in 46 Starbucks stores, which fetches $7 for a 16-ounce cup.
I won't be at all surprised to see other retailers follow according to National Retail Federation vice president of operations.
Its appeal is exclusivity, according to executive vice president at Gilt.com, When you're waiting in line at Starbucks, the next person in line won't have it.
On Thursday, Starbucks members will have first access to the card on Gilt.com's website before it's available to all on Friday.
For collectors, it could be huge. Some limited-edition Starbucks cards have sold on eBay for thousands of dollars.
Showing posts with label Retail. Show all posts
Showing posts with label Retail. Show all posts
Wednesday, December 12, 2012
Wednesday, April 18, 2012
Retail Employment Seems to be Rising
Story first appeared in Bloomberg Business Week.
Applicants weren’t deterred by the heavy rain that fell in San Francisco when local Jamba Inc. outlets opened their doors for the smoothie chain’s first nationwide summer job fair on March 27.
There were many stores that were packed, and the managers were interviewing under tents out in the rain. Even with the bad weather they had a great turnout. The Emeryville, California-based retailer is opening new stores and looking to fill 2,500 positions across the country.
Other merchants, including specialty retailer Mattress Firm Holding Corp., also plan to add jobs this year. The Houston-based company says it’s looking for 200 workers to beef up its sales and corporate staffs as it expands. The response of such companies is easing concerns about an April 6 U.S. jobs report that showed retail employment declined by about 34,000 in March from the previous month.
As shoppers spent money on goods ranging from electronics to clothing and furniture, retail sales rose last month by 0.8 percent, the Commerce Department reported yesterday. The increase was almost three times higher than forecast by economists in a Bloomberg survey. Receipts at chain stores climbed 4.1 percent from a year earlier, the International Council of Shopping Centers reported.
Sales Creates Hiring
Growth in sales tends to create hiring. The strength in first-quarter retail spending means we should see a meaningful snapback in retail hiring this quarter. This also means that businesses will be researching retail worker's compensation insurance rates to accommodate all the new workers.
Stores will be adding jobs this year, not unlike what was seen on a year-over-year basis last year. There are concerns out there, but on the other hand there’s momentum in hiring and in spending.
That momentum sometimes has been slow and uneven. Last month’s drop in retail payrolls was the biggest decline since October 2009, and merchants have regained only a third of jobs lost in 2008 and 2009, according to the Kronos Retail Labor Index, a measure of the health of the sector’s labor market prepared by Macroeconomic Advisers LLC.
Retailers have been adding about 35,000 employees a month, on average, for the past six months. While that’s below the pre-recession average of 55,000 in 2006 and 2007, it’s sufficient to see a slow rise in retail employment. The retail sector over the last three months has trended higher at a very solid pace.
One in Four Americans
The numbers are important because retailers employ about one in four Americans, according to their trade group. Retail sales accounted for 50 percent of consumer spending in 2011, Commerce Department data show.
Investors have driven up their shares as spending increases. The Standard & Poor’s Supercomposite Retailing Index, which includes Macy’s Inc. and Gap Inc., has gained 17 percent this year through April 16 compared with 8.9 percent for the broader S&P 500.
Varvares and other economists call the March payroll report an anomaly caused by the mild winter. Balmy weather in much of the country might have coaxed shoppers out in January and February, leading merchants to add or retain workers in those months at the expense of March hiring.
Low-Employment Sectors
Still, the first-quarter sales rally won’t necessarily translate into a hiring boom. Some of last month’s growth was due to higher gasoline prices and expansion in low-employment sectors of the industry, including deep-discount chains Dollar Tree Inc., Family Dollar Stores Inc. and Dollar General Corp.
Large stores have become highly efficient at managing their workforce, for example scheduling staff only during peak shopping hours.
Internet-based sales expanded faster than brick-and-mortar sales, growing by 9.3 percent in March from a year earlier compared with 6.5 percent, the Commerce Department reported, as online retailers, including Amazon.com Inc., continue to raid traditional merchants’ customer base. Retail-trade employment, long term, is not growing.
Industry Changes
Industry changes are evident. Some large department stores are restructuring to adapt to more-nimble competitors and changing shopper demand. Plano, Texas-based J.C. Penney Co. this month said it will eliminate nearly 1,000 positions. Sears Holdings Corp., based in Hoffman Estates, Illinois, plans to close 62 of its 4,010 stores in the first half of the year and has not estimated the number of jobs lost. Richfield, Minnesota- based Best Buy Co. will shutter 50 big-box locations, the company announced in March, cutting 400 jobs in its corporate and support areas plus an unspecified number of store personnel.
Others are aggressively expanding. Macy’s, the owner of its namesake and Bloomingdale’s chains, said in February that it may hire 4,000 new employees this year, matching the 4,000 positions it added last year.
Ulta Salon Cosmetics & Fragrance Inc., based in Bolingbrook, Illinois, plans to hire 2,000 employees this year to staff 100 new stores and a distribution center for its makeup and hair-care products.
The optimism extends to smaller merchants, too. South Moon Under, a privately held mid-Atlantic fashion retailer, has seen 15 consecutive months of improved sales at its 15 stores, climbing back to pre-recession levels last year. Now the Berlin, Maryland, company plans two new locations and will add 50 people to its 325-person staff in the coming months.
For more national and worldwide related business news, visit the Peak News Room blog.
For local and Michigan business related news, visit the Michigan Business News blog.
For healthcare and medical related news, visit the Healthcare and Medical blog.
For law related news, visit the Nation of Law blog.
For real estate and home related news, visit the Commercial and Residential Real Estate blog.
For technology and electronics related news, visit the Electronics America blog.
For organic SEO and web optimization related news, visit the SEO Done Right blog.
Applicants weren’t deterred by the heavy rain that fell in San Francisco when local Jamba Inc. outlets opened their doors for the smoothie chain’s first nationwide summer job fair on March 27.
There were many stores that were packed, and the managers were interviewing under tents out in the rain. Even with the bad weather they had a great turnout. The Emeryville, California-based retailer is opening new stores and looking to fill 2,500 positions across the country.
Other merchants, including specialty retailer Mattress Firm Holding Corp., also plan to add jobs this year. The Houston-based company says it’s looking for 200 workers to beef up its sales and corporate staffs as it expands. The response of such companies is easing concerns about an April 6 U.S. jobs report that showed retail employment declined by about 34,000 in March from the previous month.
As shoppers spent money on goods ranging from electronics to clothing and furniture, retail sales rose last month by 0.8 percent, the Commerce Department reported yesterday. The increase was almost three times higher than forecast by economists in a Bloomberg survey. Receipts at chain stores climbed 4.1 percent from a year earlier, the International Council of Shopping Centers reported.
Sales Creates Hiring
Growth in sales tends to create hiring. The strength in first-quarter retail spending means we should see a meaningful snapback in retail hiring this quarter. This also means that businesses will be researching retail worker's compensation insurance rates to accommodate all the new workers.
Stores will be adding jobs this year, not unlike what was seen on a year-over-year basis last year. There are concerns out there, but on the other hand there’s momentum in hiring and in spending.
That momentum sometimes has been slow and uneven. Last month’s drop in retail payrolls was the biggest decline since October 2009, and merchants have regained only a third of jobs lost in 2008 and 2009, according to the Kronos Retail Labor Index, a measure of the health of the sector’s labor market prepared by Macroeconomic Advisers LLC.
Retailers have been adding about 35,000 employees a month, on average, for the past six months. While that’s below the pre-recession average of 55,000 in 2006 and 2007, it’s sufficient to see a slow rise in retail employment. The retail sector over the last three months has trended higher at a very solid pace.
One in Four Americans
The numbers are important because retailers employ about one in four Americans, according to their trade group. Retail sales accounted for 50 percent of consumer spending in 2011, Commerce Department data show.
Investors have driven up their shares as spending increases. The Standard & Poor’s Supercomposite Retailing Index, which includes Macy’s Inc. and Gap Inc., has gained 17 percent this year through April 16 compared with 8.9 percent for the broader S&P 500.
Varvares and other economists call the March payroll report an anomaly caused by the mild winter. Balmy weather in much of the country might have coaxed shoppers out in January and February, leading merchants to add or retain workers in those months at the expense of March hiring.
Low-Employment Sectors
Still, the first-quarter sales rally won’t necessarily translate into a hiring boom. Some of last month’s growth was due to higher gasoline prices and expansion in low-employment sectors of the industry, including deep-discount chains Dollar Tree Inc., Family Dollar Stores Inc. and Dollar General Corp.
Large stores have become highly efficient at managing their workforce, for example scheduling staff only during peak shopping hours.
Internet-based sales expanded faster than brick-and-mortar sales, growing by 9.3 percent in March from a year earlier compared with 6.5 percent, the Commerce Department reported, as online retailers, including Amazon.com Inc., continue to raid traditional merchants’ customer base. Retail-trade employment, long term, is not growing.
Industry Changes
Industry changes are evident. Some large department stores are restructuring to adapt to more-nimble competitors and changing shopper demand. Plano, Texas-based J.C. Penney Co. this month said it will eliminate nearly 1,000 positions. Sears Holdings Corp., based in Hoffman Estates, Illinois, plans to close 62 of its 4,010 stores in the first half of the year and has not estimated the number of jobs lost. Richfield, Minnesota- based Best Buy Co. will shutter 50 big-box locations, the company announced in March, cutting 400 jobs in its corporate and support areas plus an unspecified number of store personnel.
Others are aggressively expanding. Macy’s, the owner of its namesake and Bloomingdale’s chains, said in February that it may hire 4,000 new employees this year, matching the 4,000 positions it added last year.
Ulta Salon Cosmetics & Fragrance Inc., based in Bolingbrook, Illinois, plans to hire 2,000 employees this year to staff 100 new stores and a distribution center for its makeup and hair-care products.
The optimism extends to smaller merchants, too. South Moon Under, a privately held mid-Atlantic fashion retailer, has seen 15 consecutive months of improved sales at its 15 stores, climbing back to pre-recession levels last year. Now the Berlin, Maryland, company plans two new locations and will add 50 people to its 325-person staff in the coming months.
For more national and worldwide related business news, visit the Peak News Room blog.
For local and Michigan business related news, visit the Michigan Business News blog.
For healthcare and medical related news, visit the Healthcare and Medical blog.
For law related news, visit the Nation of Law blog.
For real estate and home related news, visit the Commercial and Residential Real Estate blog.
For technology and electronics related news, visit the Electronics America blog.
For organic SEO and web optimization related news, visit the SEO Done Right blog.
Monday, April 16, 2012
Best Buy Losing the Fight
Story first appeared in the Los Angeles Times.
How can Best Buy be saved?
The question has been swirling around the huge retailer for a couple of years, as its same-store sales have been falling. But it picked up steam last week with the sudden resignation of the Chief Executive, who had been in his job less than three years.
The unceremonious departure looked at first as though it was connected with his professional performance, which hadn't thrilled many Best Buy watchers. But it soon transpired that the reason had something to do with questionable personal conduct, reportedly involving a female subordinate.
His method of leaving his job was the most modernistic step he's taken in years — personal behavior has been trending higher in recent years as a rationale for top-level firing in both industry and sports.
In most other respects, Best Buy under recent leadership was moving backward. The stores have been looking more forlorn and less like the teeming shoppers' carnivals of years past, and the inventory choices shrinking. Meanwhile the sales staff comes off as less knowledgeable and more indifferent. Former customers of the extinct Circuit City and Border's, the last big retailers to go down this road, must be feeling a sense of deja vu.
The challenges facing Best Buy are easy to discern. It's caught between the Scylla and Charybdis of Apple and Amazon.com. Apple has become a retail juggernaut, generating astronomical sales estimated at $5,600 per square foot at its snazzy toy-stores-for-grown-ups.
Best Buy's figure, according to its most recent annual report, is $866 per square foot — respectable for a retailer in its class, if not in Apple's league. Amazon consistently beats Best Buy on price, even without counting the advantage it gets by not charging sales tax for many customers outside its home state of Washington.
That advantage will soon be extinct in California, as it is in several other populous states. But even without the sales tax bump, Amazon beats Target andWal-Mart as well as Best Buy on the prices of many items, as investment analysts at William Blair & Co. recently documented.
Like Best Buy, those chains suffer from "showrooming," in which customers try out merchandise on their sales floors and then place their orders at Amazon for less money. But Target and Wal-Mart aren't facing the sickness unto death that appears to be confronting Best Buy. Not at the moment, anyway.
Sure, judging Best Buy against premier marketer Apple and online-only Amazon is a mite unfair. Apple stores sell essentially five branded products with cult-like followings (Mac desktops, Mac notebooks, the iPad, the iPhone and the iPod).
Amazon doesn't have to build and maintain walk-in stores; on the other hand, after launching in 1995, it spent so relentlessly on distribution and technology systems that it didn't show a profit until 2003. But that spending yielded what today stands as the best customer experience on the Web.
Every retailer is different, like Tolstoy's unhappy families, and good lifeline-caliber ideas can be found anywhere. The architect of Apple's retail store strategy, came from Target at a time when Apple's lack of any retail strategy threatened its very existence.
Nothing is stopping Best Buy from picking out the best ideas in the field and adapting them to its own space. At least that would be an improvement over its current strategy, which seems to be to pick out everyone's worst ideas and try to take them to the bank. These include its shift toward smaller, mall-based storefronts with limited merchandise.
The former CEO's last major announcement before resigning was that he would close 50 of the chain's 1,100 U.S. big-box stores while expanding small-format locations.
So what are the best ideas?
One is that expertise sells. The first Apple stores opened in early 2001 — believe it or not, this was before the iPod. Since then, they've built on the company's reputation for hip design and first-class technical service. The products are laid out on tables to encourage the touchy-feely experience. Employees are ubiquitous but unobtrusive.
The techs at the Genius Bar seem trained in Apple technology to the last brain cell. The hard sell is so deeply submerged in the store experience that you may not even know you've been sold until you're out the door with a MacBook in hand. But you'll think the staff has identified your need and found a way to meet it.
Another retail lesson worth internalizing is that a chain doesn't have to be pitched toward the affluent to offer good service.
Nordstrom, which occupies a high-end market segment, is known for its attentive sales staff. But walk into a Men's Wearhouse and you don't have to chase after a salesperson with a butterfly net — typically you're greeted promptly by someone in full command of the inventory on the floor. By the way, Men's Wearhouse collects more revenue per square foot of selling space than Nordstrom ($451 versus $431), according to the firms' most recent annual reports.
Put these two notions together, and you might just have a new Best Buy paradigm. As our lives become more enslaved by technology, the need for expert help sorting out how best to integrate every Bluetooth- and Wi-Fi-enabled thing grows greater.
Best Buy nodded to this reality with its techie-staffed Geek Squad. The Squadsters are not especially well-trained to divine a customer's tech-related problems and cobble together a solution from all the inventory at hand. In any case, the last time I was in a store, two of them gave me two completely different answers to the problem I brought them; I suppose it's to their credit that only one of them was wrong.
The chain could do worse than to hire and train more employees with real knowledge of technology and an incentive to solve customers' dilemmas instead of selling them useless extended warranties, which is by far the most offensive aspect of dealing with Best Buy.
And how about staffing up? It hasn't been unusual for the first salesperson to accost me inside a Best Buy to be an embedded sales agent for a service such as Verizon or DirecTV. Yet the big idea in the last Christmas season was to hire only half as many seasonal workers as the year before.
Then there's the dilemma of online. Conventional retailers wasted years treating their online arms as though they were fifth columns.
Best Buy's online integration has been so poor that in the week before Christmas it canceled what may have been thousands of online orders placed as early as November for lack of inventory, certainly a mortal sin in customer service.
The chain may be crippled by "showrooming," but why not offer customers looking over items in the store an incentive to place their orders through Bestbuy.com rather than Amazon? And the company may have to bite the bullet and extend its price match policy to cover not only its brick-and-mortar competitors but online merchants too.
All this points to lower profit margins ahead, but that's the cost of investing in new strategy and tactics. But if the choice is between rebuilding your customer base or letting it fade away like those of Circuit City, CompUSA and other retailers done in by, well, Best Buy, the road is clear. The worst thing that could happen to the chain is for the question to change from "how Best Buy can be saved" to "can it be saved," especially if the answer is no.
For more national and worldwide related business news, visit the Peak News Room blog.
For healthcare and medical related news, visit the Healthcare and Medical blog.
For local and Michigan business related news, visit the Michigan Business News blog.
For law related news, visit the Nation of Law blog.
For real estate and home related news, visit the Commercial and Residential Real Estate blog.
For technology and electronics related news, visit the Electronics America blog.
For organic SEO and web optimization related news, visit the SEO Done Right blog.
Monday, October 25, 2010
Target, Toys R Us, other Retailers boost Jobs for Holidays
USA Today
Holiday retail sales are expected to be up only slightly this year, but the news may be better for those looking to work in retailing around Christmas.
Increased online sales, more temporary stores and guarded optimism about the season are leading some retailers to expand their workforces more than usual for the holidays.
The National Retail Federation predicts holiday sales will be up just 2.3% this year. John Challenger, CEO of consulting firm Challenger Gray & Christmas, says recent sales increases will lead retailers to step up hiring but he predicts it will fall short of pre-recession levels. Holiday hiring hit a 22-year low in 2008 and increased by 54% last year.
Retailers overall added more than 220,000 new workers between March and September, Challenger says. Privately held retailers, however, have been slow to hire, so they are well-positioned to add people if sales warrant, says Melinda Crump of Sageworks, which provides data on private companies. Payroll costs as a percentage of sales are down 12% for independent retailers this year over last, she says.
What's prompting the hiring:
•More temporary stores.Toys R Us is hiring 45,000 seasonal workers this holiday season, up 10,000 from last year. The additional workers will staff 600 new temporary stores the chain will open this fall. Brookstone, the gift and gadget retailer, is adding 36% more holiday workers — 900 people altogether — this year than it did last year for the expected increase in business and to work in 150 temporary stores and kiosks.
"We're bullish on the holiday this year, and, yes, we're hiring," Brookstone CEO Ron Boire says.
•More in-store business. A recent survey by retail finance company CIT found 68% of retailers expect to hire more workers this season than last; the same percentage said they expected revenue to increase in the next 12 months. Macy's is predicting a 3% to 3.5% rise in sales in the second half of fiscal year 2010 and says the 65,000 holiday workers it plans to hire is a slight increase over last year. Kohl's plans to hire 40,000 seasonal workers, up 20% from 2009.
•More online sales. Arise Virtual Solutions, which provides several major retailers with customer service people who work out of their homes, says it plans to hire 6,000 more of these call-center people by the end of the year to cope with the increase in online sales. Arise CEO Angela Selden says these at-home workers adapt easily to the ebb and flow of business. Lexsine Mitchell, an at-home customer service representative for Arise since 2004 with 426 people reporting to her, says the work fits her life as a single mom.
Increased online sales, more temporary stores and guarded optimism about the season are leading some retailers to expand their workforces more than usual for the holidays.
The National Retail Federation predicts holiday sales will be up just 2.3% this year. John Challenger, CEO of consulting firm Challenger Gray & Christmas, says recent sales increases will lead retailers to step up hiring but he predicts it will fall short of pre-recession levels. Holiday hiring hit a 22-year low in 2008 and increased by 54% last year.
Retailers overall added more than 220,000 new workers between March and September, Challenger says. Privately held retailers, however, have been slow to hire, so they are well-positioned to add people if sales warrant, says Melinda Crump of Sageworks, which provides data on private companies. Payroll costs as a percentage of sales are down 12% for independent retailers this year over last, she says.
What's prompting the hiring:
•More temporary stores.Toys R Us is hiring 45,000 seasonal workers this holiday season, up 10,000 from last year. The additional workers will staff 600 new temporary stores the chain will open this fall. Brookstone, the gift and gadget retailer, is adding 36% more holiday workers — 900 people altogether — this year than it did last year for the expected increase in business and to work in 150 temporary stores and kiosks.
"We're bullish on the holiday this year, and, yes, we're hiring," Brookstone CEO Ron Boire says.
•More in-store business. A recent survey by retail finance company CIT found 68% of retailers expect to hire more workers this season than last; the same percentage said they expected revenue to increase in the next 12 months. Macy's is predicting a 3% to 3.5% rise in sales in the second half of fiscal year 2010 and says the 65,000 holiday workers it plans to hire is a slight increase over last year. Kohl's plans to hire 40,000 seasonal workers, up 20% from 2009.
•More online sales. Arise Virtual Solutions, which provides several major retailers with customer service people who work out of their homes, says it plans to hire 6,000 more of these call-center people by the end of the year to cope with the increase in online sales. Arise CEO Angela Selden says these at-home workers adapt easily to the ebb and flow of business. Lexsine Mitchell, an at-home customer service representative for Arise since 2004 with 426 people reporting to her, says the work fits her life as a single mom.
Thursday, October 21, 2010
New Sales Outlets a Big Deal for Small Businesses
USA Today
Robert Siegel uses his hands to create brightly colored porcelain clay ceramics. But it was his feet that came in handy when he first tried to sell his wares.
"I literally got started carrying things into stores and saying 'Do you like it? Do you want to buy it? Do you want to sell it?' " says the craftsman. "It was boots on the ground." He carted his pottery in and out of New Jersey and Pennsylvania boutiques, and had mixed success.
Some places were like, 'Get out of my store. Don't even walk in here carrying a product again — make an appointment," he says. But others were receptive: "Some stores said, 'We'll take you in on consignment.' "
That initial success gave Siegel the confidence to show more of his goods at craft shows, as well as launch an e-commerce site. His next expansion opportunity comes soon. A friend of his parents hooked him up with a Neiman Marcus home decor manager located in Beverly Hills. In December, Siegel will display his pottery at an event for select shoppers.
"It's a big opportunity," he says. "Hopefully Neiman's picks me up nationally and I become a full-time vendor."
Small distribution steps are a big deal for growing businesses. Each new sales outlet is a potential path to increased revenue and brand recognition. "It's one of those major milestones ," says Thom Ruhe, director of entrepreneurship at the Kansas City, Mo.-based Ewing Marion Kauffman Foundation, which looks to bolster entrepreneurial activity. Companies can "can mark the day they made the leap."
Yet like many other successes in the life of a small business owner, it usually takes trial and error to determine the most lucrative sales path.
Entrepreneur Todd Greene says his first stab at selling his HeadBlade — a razor specifically designed to shave head hair — didn't turn out the way he had hoped. Greene brought 500 HeadBlades to a Venice Beach, Calif., sales booth. Eight sold.
Greene's takeaway: The touristy, entertainment-oriented ocean venue was a good place for selling pizza, t-shirts, sunglasses and novelty items — but not head shavers. He has since refined his distribution plan, and now sells his razors online and in the shaving aisles of major drug-store chains.
"My mission now is to keep growing," he says.
Sales stumbles are common as a company grows, says David Hennessey, marketing professor at Babson College. There are different factors to consider such as deciding where to sell the product and determining what profit margins will work. And there is always room for errors. Yet, Hennessey says: Do your homework.
"Use the research tools that are out there to determine market demand," says Kauffman's Ruhe. "See where there is interest and put your time and money there. You want to fish where the fish are."
Other tips on forming new sales channels:
• Get the company name out there: Tweeting, blogging and posting comments on review websites are great ways to build brand recognition, says Joan Broughton, interim executive director at the National Retail Federation's Shop.org. Online buzz can pique the interest of customers and retail buyers who might stock the product in their stores. "Just put yourself out there."
• Prove that a product is wanted: Creating an e-commerce sales site is a relatively easy — and inexpensive — method to build up initial sales for a product, says Rue. And those sales can demonstrate to wholesalers and retailers that the product is wanted. "You also want to try to show a little bit of traction," he says.
• Seek the advice of peers: Kathy Kramer, creator of the Invisibelt — a flat-clasped belt that doesn't have a bulky buckle — says she often talks to other business owners who specialize in the woman's accessories market to get sales leads. "I reach out to companies similar to mine," says Kramer, who has sold her belt in stores, online and through home shopping channel QVC. "You have to have the attitude of 'I have no shame, I will hunt anyone down' " to talk about business.
•Check the competition: See what sales channels competitors are using to get their products out there, says Rue. Shop.org's Broughton also says to check out competitor's e-commerce sites to glean information on what works for them. "Get a sense of what best practices are," she says.
•Tap into trade shows: Family team Carol Abersold, Chanda Bell and Christa Pitts say that face-to-face interactions at trade shows let them better explain how parents and kids could utilize their now popular 'The Elf on the Shelf 'children's book and toy and trade show displays. ( Elf on the Shelf, a toy and book based on a holiday tradition in the Abersold household, was sold at 18 retail outlets in 2005. The product is now available in more than 10,000 U.S. and Canadian outlets.
•Know when to say 'no': This family-run business had little financial resources at first, and the woman didn't want to take on more orders than they could handle. So they made a conscious decision to enter new retail markets at a slow, steady pace.
"We had a very strategic plan and didn't want to grow too fast," says Pitts. "We wanted to start locally, then build in our state (Georgia) and then expand to the East Coast. We had to grow in a way that supported our infrastructure. We had to be strategic in who we said 'yes' to."
"I literally got started carrying things into stores and saying 'Do you like it? Do you want to buy it? Do you want to sell it?' " says the craftsman. "It was boots on the ground." He carted his pottery in and out of New Jersey and Pennsylvania boutiques, and had mixed success.
Some places were like, 'Get out of my store. Don't even walk in here carrying a product again — make an appointment," he says. But others were receptive: "Some stores said, 'We'll take you in on consignment.' "
That initial success gave Siegel the confidence to show more of his goods at craft shows, as well as launch an e-commerce site. His next expansion opportunity comes soon. A friend of his parents hooked him up with a Neiman Marcus home decor manager located in Beverly Hills. In December, Siegel will display his pottery at an event for select shoppers.
"It's a big opportunity," he says. "Hopefully Neiman's picks me up nationally and I become a full-time vendor."
Small distribution steps are a big deal for growing businesses. Each new sales outlet is a potential path to increased revenue and brand recognition. "It's one of those major milestones ," says Thom Ruhe, director of entrepreneurship at the Kansas City, Mo.-based Ewing Marion Kauffman Foundation, which looks to bolster entrepreneurial activity. Companies can "can mark the day they made the leap."
Yet like many other successes in the life of a small business owner, it usually takes trial and error to determine the most lucrative sales path.
Entrepreneur Todd Greene says his first stab at selling his HeadBlade — a razor specifically designed to shave head hair — didn't turn out the way he had hoped. Greene brought 500 HeadBlades to a Venice Beach, Calif., sales booth. Eight sold.
Greene's takeaway: The touristy, entertainment-oriented ocean venue was a good place for selling pizza, t-shirts, sunglasses and novelty items — but not head shavers. He has since refined his distribution plan, and now sells his razors online and in the shaving aisles of major drug-store chains.
"My mission now is to keep growing," he says.
Sales stumbles are common as a company grows, says David Hennessey, marketing professor at Babson College. There are different factors to consider such as deciding where to sell the product and determining what profit margins will work. And there is always room for errors. Yet, Hennessey says: Do your homework.
"Use the research tools that are out there to determine market demand," says Kauffman's Ruhe. "See where there is interest and put your time and money there. You want to fish where the fish are."
Other tips on forming new sales channels:
• Get the company name out there: Tweeting, blogging and posting comments on review websites are great ways to build brand recognition, says Joan Broughton, interim executive director at the National Retail Federation's Shop.org. Online buzz can pique the interest of customers and retail buyers who might stock the product in their stores. "Just put yourself out there."
• Prove that a product is wanted: Creating an e-commerce sales site is a relatively easy — and inexpensive — method to build up initial sales for a product, says Rue. And those sales can demonstrate to wholesalers and retailers that the product is wanted. "You also want to try to show a little bit of traction," he says.
• Seek the advice of peers: Kathy Kramer, creator of the Invisibelt — a flat-clasped belt that doesn't have a bulky buckle — says she often talks to other business owners who specialize in the woman's accessories market to get sales leads. "I reach out to companies similar to mine," says Kramer, who has sold her belt in stores, online and through home shopping channel QVC. "You have to have the attitude of 'I have no shame, I will hunt anyone down' " to talk about business.
•Check the competition: See what sales channels competitors are using to get their products out there, says Rue. Shop.org's Broughton also says to check out competitor's e-commerce sites to glean information on what works for them. "Get a sense of what best practices are," she says.
•Tap into trade shows: Family team Carol Abersold, Chanda Bell and Christa Pitts say that face-to-face interactions at trade shows let them better explain how parents and kids could utilize their now popular 'The Elf on the Shelf 'children's book and toy and trade show displays. ( Elf on the Shelf, a toy and book based on a holiday tradition in the Abersold household, was sold at 18 retail outlets in 2005. The product is now available in more than 10,000 U.S. and Canadian outlets.
•Know when to say 'no': This family-run business had little financial resources at first, and the woman didn't want to take on more orders than they could handle. So they made a conscious decision to enter new retail markets at a slow, steady pace.
"We had a very strategic plan and didn't want to grow too fast," says Pitts. "We wanted to start locally, then build in our state (Georgia) and then expand to the East Coast. We had to grow in a way that supported our infrastructure. We had to be strategic in who we said 'yes' to."
Tuesday, September 7, 2010
Estée Lauder Touches Up Makeup Push
The Wall Street Journal
Cosmetics Company Touches Up Department-Store Sections With Express Lanes, Browsing Areas
To lure shoppers to its department-store beauty counters, Estée Lauder Cos. Chief Executive Fabrizio Freda is tossing aside generations-old traditions like hidden price tags, nagging consultants and glass cases that keep makeup out of reach.
The moves are an attempt to hold the attention of increasingly fickle cosmetics shoppers, which has become an escalating challenge for beauty-industry executives.
Younger consumers don't want to be hostage to department-store sales staff. Meanwhile, websites, television shopping networks and even grocery stores have become tougher competitors for consumers' beauty dollars.
In an effort to reshape Estée Lauder's U.S. department-store base, which is nearly one-third of the company's revenue, executives from the company's Clinique, Estée Lauder and MAC brands have been testing new counter designs that allow shoppers to browse on their own, new promotions and express lanes for busy shoppers.
"There is huge opportunity to restart sales growth and shopper traffic in department stores," says Mr. Freda.
The cosmetics industry turned to U.S. department stores around World War I, in part for a reputational boost. "Cosmetics weren't entirely respectable then," says Geoffrey Jones, a Harvard Business School professor of business history. "They were more associated with actresses, or worse."
But the rise of competitors in recent years has seen upscale department stores' share of the $58.9 billion U.S. beauty market shrink.
The recession also took a bite: Beauty-product sales in U.S. department stores declined 9% to $8.1 billion in 2009 from the prior year, compared to a drop of just 1% for the U.S. beauty industry as a whole, according to market-data firm Euromonitor International Inc.
Executives at Estée Lauder, based in New York, have worked to offset the decline by opening more of their own stores, selling products on TV and boosting online selling. Mr. Freda spent much of his just-completed first year as CEO aggressively pushing the company overseas, including a focus on skin care in Asia.
Now, faced with mounting competition from cheaper drug-store brands and upstart niche brands touted by retailers such as Sephora, owned by LVMH Moët Hennessy Louis Vuitton SA, Estée Lauder executives are refocusing on their main sales channel.
Shaking up beauty departments involves cooperation between cosmetics manufacturers and retailers, because the counters and sales staff is typically funded jointly in closely guarded agreements. Mr. Freda says the economic downturn has helped ease negotiations.
"The recent recession has opened up many companies—for sure ourselves and many of our retail partners—to be willing to put more dynamic change into the way we go to market," he says. "We are cooperating, I believe, better than in the past in the area of change."
U.S. department-store chain Macy's says the changes at Estée Lauder brands' counters are part of broader adjustments to its beauty section, including offering shoppers more opportunities to browse independently.
"We see younger consumers in particular who like to test and play on their own, so we're working closely with manufacturers to accommodate that," says Muriel Gonzalez, Macy's chief beauty merchant.
Department stores have much to gain from improving their beauty business, typically the most profitable section of the store, says Citigroup analyst Deborah Weinswig. Attracting beauty shoppers is also critical to creating customer traffic. Some 80% of women who use mascara replace it at least two to three times a year, according to an NPD Group survey. At least two-thirds of women say they replenish their facial cleansers and moisturizers every two to three months.
"If you can get a consumer to love a brand and product, they will keep coming back to your store to replace it," says Karen Grant, an analyst for NPD.
Central to Mr. Freda's strategy is offering shoppers new reasons to visit department stores. The Estée Lauder brand declared the evening of July 22 "America's Night to Repair" and spent four hours giving away some 400,000 samples of its Advanced Night Repair eye treatment or face serum across some 2,200 stores.
When handing over a sample, beauty advisers collected consumers' names and phone numbers and phoned them 10 days later to see how they liked the product.
Overall sales of the Estée Lauder brand increased by a double-digit percentage the week of the event, says Jane Hertzmark Hudis, global president of the Estée Lauder brand.
Walking through Clinique's new counter in Bloomingdale's New York flagship, Lynne Greene, president of Estée Lauder's Clinique, Origins and Ojon brands, demonstrated the new ways women can now shop for the brand's cosmetics: An express line for consumers who already know what they want, areas to browse on their own, and seats for those who want a full consultation.
Employees who staff Clinique's express line try to deliver the product in 60 seconds and are coached not to offer shoppers other products unless they seem especially curious.
"If a shopper isn't asked to see any other products, we see them physically relax," says Ms. Greene. "Then, sometimes, they start browsing. Frequently, we get another purchase because of that."
Signs now list Clinique's prices, a practice adopted during the recession. "Consumers didn't want to ask, 'How much is it?'" says Ms. Greene.
Even Estée Lauder's MAC brand is rethinking its approach. The brand, whose selling space resembles a photo studio, has been testing new hand-held devices that let staffers ring up purchases.
"People today are looking for real know-how, but they want to be served in the way they choose," says John Demsey, group president of several Estée Lauder brands, including MAC.
The moves are an attempt to hold the attention of increasingly fickle cosmetics shoppers, which has become an escalating challenge for beauty-industry executives.
Younger consumers don't want to be hostage to department-store sales staff. Meanwhile, websites, television shopping networks and even grocery stores have become tougher competitors for consumers' beauty dollars.
In an effort to reshape Estée Lauder's U.S. department-store base, which is nearly one-third of the company's revenue, executives from the company's Clinique, Estée Lauder and MAC brands have been testing new counter designs that allow shoppers to browse on their own, new promotions and express lanes for busy shoppers.
"There is huge opportunity to restart sales growth and shopper traffic in department stores," says Mr. Freda.
The cosmetics industry turned to U.S. department stores around World War I, in part for a reputational boost. "Cosmetics weren't entirely respectable then," says Geoffrey Jones, a Harvard Business School professor of business history. "They were more associated with actresses, or worse."
But the rise of competitors in recent years has seen upscale department stores' share of the $58.9 billion U.S. beauty market shrink.
The recession also took a bite: Beauty-product sales in U.S. department stores declined 9% to $8.1 billion in 2009 from the prior year, compared to a drop of just 1% for the U.S. beauty industry as a whole, according to market-data firm Euromonitor International Inc.
Executives at Estée Lauder, based in New York, have worked to offset the decline by opening more of their own stores, selling products on TV and boosting online selling. Mr. Freda spent much of his just-completed first year as CEO aggressively pushing the company overseas, including a focus on skin care in Asia.
Now, faced with mounting competition from cheaper drug-store brands and upstart niche brands touted by retailers such as Sephora, owned by LVMH Moët Hennessy Louis Vuitton SA, Estée Lauder executives are refocusing on their main sales channel.
Shaking up beauty departments involves cooperation between cosmetics manufacturers and retailers, because the counters and sales staff is typically funded jointly in closely guarded agreements. Mr. Freda says the economic downturn has helped ease negotiations.
"The recent recession has opened up many companies—for sure ourselves and many of our retail partners—to be willing to put more dynamic change into the way we go to market," he says. "We are cooperating, I believe, better than in the past in the area of change."
U.S. department-store chain Macy's says the changes at Estée Lauder brands' counters are part of broader adjustments to its beauty section, including offering shoppers more opportunities to browse independently.
"We see younger consumers in particular who like to test and play on their own, so we're working closely with manufacturers to accommodate that," says Muriel Gonzalez, Macy's chief beauty merchant.
Department stores have much to gain from improving their beauty business, typically the most profitable section of the store, says Citigroup analyst Deborah Weinswig. Attracting beauty shoppers is also critical to creating customer traffic. Some 80% of women who use mascara replace it at least two to three times a year, according to an NPD Group survey. At least two-thirds of women say they replenish their facial cleansers and moisturizers every two to three months.
"If you can get a consumer to love a brand and product, they will keep coming back to your store to replace it," says Karen Grant, an analyst for NPD.
Central to Mr. Freda's strategy is offering shoppers new reasons to visit department stores. The Estée Lauder brand declared the evening of July 22 "America's Night to Repair" and spent four hours giving away some 400,000 samples of its Advanced Night Repair eye treatment or face serum across some 2,200 stores.
When handing over a sample, beauty advisers collected consumers' names and phone numbers and phoned them 10 days later to see how they liked the product.
Overall sales of the Estée Lauder brand increased by a double-digit percentage the week of the event, says Jane Hertzmark Hudis, global president of the Estée Lauder brand.
Walking through Clinique's new counter in Bloomingdale's New York flagship, Lynne Greene, president of Estée Lauder's Clinique, Origins and Ojon brands, demonstrated the new ways women can now shop for the brand's cosmetics: An express line for consumers who already know what they want, areas to browse on their own, and seats for those who want a full consultation.
Employees who staff Clinique's express line try to deliver the product in 60 seconds and are coached not to offer shoppers other products unless they seem especially curious.
"If a shopper isn't asked to see any other products, we see them physically relax," says Ms. Greene. "Then, sometimes, they start browsing. Frequently, we get another purchase because of that."
Signs now list Clinique's prices, a practice adopted during the recession. "Consumers didn't want to ask, 'How much is it?'" says Ms. Greene.
Even Estée Lauder's MAC brand is rethinking its approach. The brand, whose selling space resembles a photo studio, has been testing new hand-held devices that let staffers ring up purchases.
"People today are looking for real know-how, but they want to be served in the way they choose," says John Demsey, group president of several Estée Lauder brands, including MAC.
Friday, July 9, 2010
Italian Retailers Brace for Summer Sales Flop as Shoppers Spurn Discounts
Bloomberg
Michele Nicolaci, a salesman at Fendi SpA in Forte dei Marmi, a trendy seaside town in Tuscany, says his store’s clothing usually sells itself. Not this summer.
“I’ll have a hard time meeting my sales targets,” Nicolaci said. “This looks like a hard summer, everything from the weather to people generally being kind of down.”
The summer sales season, one of two times each year when retailers like Benetton SpA and Prada SpA mark down prices, normally accounts for about 12 percent of annual Italian revenue for the clothing and shoe industries. This year’s sales period coincides with unemployment at an 8-year high, consumer confidence slipping to a 16-month low in June and hotter-than- average temperatures in city centers from Milan to Rome.
Revenue from summer sales will fall 5 percent this year to 4.2 billion euros ($5.3 billion), or 117 euros per shopper, according to estimates from Confcommercio, the country’s retail trade group. The World Cup flop by Italy’s soccer team will also cost the economy about 140 million euros, according to a Chamber of Commerce report on June 25.
Italy’s blue-shirted “Azzurri” had their worst World Cup performance in more than three decades, failing to win all three of their matches after taking the title in 2006.
Soccer ‘Fiasco’
“No one wants an all-blue jersey after Italy’s fiasco,” said Andrea, 28, a sales assistant at Adidas AG’s store on Via del Corso in Rome. He declined to give his full name, citing company policy. “We had to change our displays overnight.”
Letizia Moscardino, a 27-year-old paralegal in Rome, said she couldn’t pass up a 40 percent discount on dresses at the Max & Co. store on the city’s Via Condotti. Even with the 300-euro expense, she’s spending less than in past summers.
“In other years, I might have gone for fancier labels,” she said. “My summer shopping budget is lower this year.”
The heat is playing a part too, said Alberto Visentini, 51, owner of a Milan sporting goods store, noting that temperatures reached 35 degrees (95 degrees Fahrenheit) on July 2, the first day of the sales season in Rome and Milan.
“People don’t want to go out shopping when it’s so hot,” he said.
Household purchasing power fell for a sixth quarter in the three months through March, according to a report today by the national statistics office, Istat.
‘A Farce’
“That decline is a result of the economic crisis,” Mariano Bella, chief economist at Confcommercio, said in a July 1 interview.
To combat the spending slump, retailers are seeking creative ways to skirt regulations and offer discounts outside of the permitted sales periods. Adiconsum, one of the country’s biggest consumer groups, says buyers often get ripped off during official sales seasons by retailers who overstate discounts or flog old merchandise and claim that it’s new.
“It’s anachronistic to continue talking of regulated sales when it’s obvious to everyone how, with various promotions and discounts and liquidations, the whole thing has become a farce,” Adiconsum national secretary Pietro Giordano said in a June 28 statement.
“I’ll have a hard time meeting my sales targets,” Nicolaci said. “This looks like a hard summer, everything from the weather to people generally being kind of down.”
The summer sales season, one of two times each year when retailers like Benetton SpA and Prada SpA mark down prices, normally accounts for about 12 percent of annual Italian revenue for the clothing and shoe industries. This year’s sales period coincides with unemployment at an 8-year high, consumer confidence slipping to a 16-month low in June and hotter-than- average temperatures in city centers from Milan to Rome.
Revenue from summer sales will fall 5 percent this year to 4.2 billion euros ($5.3 billion), or 117 euros per shopper, according to estimates from Confcommercio, the country’s retail trade group. The World Cup flop by Italy’s soccer team will also cost the economy about 140 million euros, according to a Chamber of Commerce report on June 25.
Italy’s blue-shirted “Azzurri” had their worst World Cup performance in more than three decades, failing to win all three of their matches after taking the title in 2006.
Soccer ‘Fiasco’
“No one wants an all-blue jersey after Italy’s fiasco,” said Andrea, 28, a sales assistant at Adidas AG’s store on Via del Corso in Rome. He declined to give his full name, citing company policy. “We had to change our displays overnight.”
Letizia Moscardino, a 27-year-old paralegal in Rome, said she couldn’t pass up a 40 percent discount on dresses at the Max & Co. store on the city’s Via Condotti. Even with the 300-euro expense, she’s spending less than in past summers.
“In other years, I might have gone for fancier labels,” she said. “My summer shopping budget is lower this year.”
The heat is playing a part too, said Alberto Visentini, 51, owner of a Milan sporting goods store, noting that temperatures reached 35 degrees (95 degrees Fahrenheit) on July 2, the first day of the sales season in Rome and Milan.
“People don’t want to go out shopping when it’s so hot,” he said.
Household purchasing power fell for a sixth quarter in the three months through March, according to a report today by the national statistics office, Istat.
‘A Farce’
“That decline is a result of the economic crisis,” Mariano Bella, chief economist at Confcommercio, said in a July 1 interview.
To combat the spending slump, retailers are seeking creative ways to skirt regulations and offer discounts outside of the permitted sales periods. Adiconsum, one of the country’s biggest consumer groups, says buyers often get ripped off during official sales seasons by retailers who overstate discounts or flog old merchandise and claim that it’s new.
“It’s anachronistic to continue talking of regulated sales when it’s obvious to everyone how, with various promotions and discounts and liquidations, the whole thing has become a farce,” Adiconsum national secretary Pietro Giordano said in a June 28 statement.
Wednesday, July 7, 2010
Retailers Try Sweetening the Deal to Open Purse Strings
Associated Press
Tired of waiting for spending to rebound on its own, retailers are taking matters into their own hands. Stores like Sam's Club, Target, Toys "R" Us, Staples and Office Depot are offering unconventional promotions meant not only to attract visitors to stores, but also to get them feeling profligate.
Sam's Club is introducing a program in which it facilitates loans for shoppers of up to $25,000, backed by the Small Business Administration. Target will give its credit card holders 5 percent discounts. Toys "R" Us offers a holiday fund program in which it adds to shoppers' savings, and Staples and Office Depot are giving away office products for a penny or at no cost.
"A lot of the government programs have come to an end," said David Bassuk, a managing director in the global retail practice at AlixPartners, a financial consultancy. "So retailers are taking it upon themselves to do everything they can to get the consumer to spend, even opening up their own wallets to give money back to the consumer."
Of the over-the-counter stimulus plans, the one at Sam's Club is the most unusual.
Sam's Club began testing the program in May and will soon start marketing SBA loans of $5,000 to $25,000 for its members nationwide. Superior Financial Group, which is managing the loans, gives Sam's Club members a $100 discount on the application fee and lower interest rates because of how much business it expects to get through the arrangement.
The company says it does not expect the program to be a big moneymaker, though it earns $50 for each financed loan. The point is to get customers spending more freely -- and, it hopes, spending at Sam's Club.
Michael Golata was someone who had been watching his spending carefully. As a contractor in Louisville, Ky., for United Parcel Service, he drives emergency medical equipment to hospitals when MRI or CT scan machines break down.
When he asked UPS if more routes were available, the company told him there was so much work that he should bring on as many drivers as he could afford. There was just one problem: Golata owned one truck, and he was driving it all the time. Online, he had found a used white Dodge Sprinter for $12,500. With just a few thousand dollars in cash, he tried to get a bank loan but was denied. Golata, a Sam's Club member, clicked through the retailer's website and found a page describing SBA loans offered by the retailer. He filled out an online application, and, by the next day, got a phone call from Superior Financial telling him he was approved for a $10,000 loan, with an interest rate of 7.25 percent over 10 years.
Other retailers are taking slightly different routes to economic recovery. Beginning in the fall, Target will offer holders of its Target-branded credit and debit cards 5 percent off every purchase.
Toys "R" Us is asking consumers to create a sort of grown-up piggy bank, and put money into a holiday fund that can be spent only at the toy store. Toys "R" Us will add 3 percent to the account's balance in mid-October.
Office Depot is practically giving away products. Trying to lure back-to-school shoppers, it will soon sell some supplies, like glue sticks and scissors, for less than $1.
Staples is offering several products for a nickel or a penny.
Sam's Club is introducing a program in which it facilitates loans for shoppers of up to $25,000, backed by the Small Business Administration. Target will give its credit card holders 5 percent discounts. Toys "R" Us offers a holiday fund program in which it adds to shoppers' savings, and Staples and Office Depot are giving away office products for a penny or at no cost.
"A lot of the government programs have come to an end," said David Bassuk, a managing director in the global retail practice at AlixPartners, a financial consultancy. "So retailers are taking it upon themselves to do everything they can to get the consumer to spend, even opening up their own wallets to give money back to the consumer."
Of the over-the-counter stimulus plans, the one at Sam's Club is the most unusual.
Sam's Club began testing the program in May and will soon start marketing SBA loans of $5,000 to $25,000 for its members nationwide. Superior Financial Group, which is managing the loans, gives Sam's Club members a $100 discount on the application fee and lower interest rates because of how much business it expects to get through the arrangement.
The company says it does not expect the program to be a big moneymaker, though it earns $50 for each financed loan. The point is to get customers spending more freely -- and, it hopes, spending at Sam's Club.
Michael Golata was someone who had been watching his spending carefully. As a contractor in Louisville, Ky., for United Parcel Service, he drives emergency medical equipment to hospitals when MRI or CT scan machines break down.
When he asked UPS if more routes were available, the company told him there was so much work that he should bring on as many drivers as he could afford. There was just one problem: Golata owned one truck, and he was driving it all the time. Online, he had found a used white Dodge Sprinter for $12,500. With just a few thousand dollars in cash, he tried to get a bank loan but was denied. Golata, a Sam's Club member, clicked through the retailer's website and found a page describing SBA loans offered by the retailer. He filled out an online application, and, by the next day, got a phone call from Superior Financial telling him he was approved for a $10,000 loan, with an interest rate of 7.25 percent over 10 years.
Other retailers are taking slightly different routes to economic recovery. Beginning in the fall, Target will offer holders of its Target-branded credit and debit cards 5 percent off every purchase.
Toys "R" Us is asking consumers to create a sort of grown-up piggy bank, and put money into a holiday fund that can be spent only at the toy store. Toys "R" Us will add 3 percent to the account's balance in mid-October.
Office Depot is practically giving away products. Trying to lure back-to-school shoppers, it will soon sell some supplies, like glue sticks and scissors, for less than $1.
Staples is offering several products for a nickel or a penny.
Monday, July 5, 2010
Rivals Fizz over Wal-Mart Soda Prices
Chicago Tribune
Beverage pricing points to retailer's influence on rivals, suppliers
Walk into the lone Chicago Wal-Mart to stock up on pop in the summer heat and there, rising like a palm tree in an oasis, is a stack of Coke cases at a special price: 24 cans for $5.
A brand-name beverage like Coca-Cola for about 20 cents a can is more than a great deal. It's a sign of Wal-Mart's purchasing might, a warning shot to competitors and less than good news for the beverage industry.
Experts call that kind of intimidating power "disruption," and it will come to the Chicago area in a bigger way now that Wal-Mart plans to open a second store in the city, on its way to what it hopes will be dozens more urban locations.Squeezed by higher bottling costs and a decade of stagnant pricing, beverage companies had only recently managed to persuade consumers to pay more for soda, according to industry analysts. Now, in one swoop, Wal-Mart has gotten attention for itself while taking a bite out of soda sales at other chains.
The promotion, which began shortly before Memorial Day, is pushing other retailers to roll back prices to pre-1990s levels to compete. And it has stirred new fears about Wal-Mart's ability to wield its massive buying power to work against the interests of the industries that supply their stores.
"They just have so many stores that they can really push back, they can really squeeze, not just soft drink companies but other food firms, to force them to take the hit and take their margins down," said Philip Gorham, an equity analyst with Chicago-based Morningstar who covers the beverage sector.
Wal-Mart's power is indisputable. It is the largest retailer in the world, which gives it the ability to negotiate with manufacturers to get lower prices that other stores, particularly smaller independent ones, may struggle to match.
Price cuts on such products as soda are part of an aggressive initiative Wal-Mart announced in October 2008 and began to roll out in spring 2009. In May of this year, deep discounts on products like pop, ketchup and other items raised Wal-Mart's pricing lead versus other competitors fivefold compared with the previous month. Analysts say the promotions are expected to appear around every holiday through the second half of this year.
"Wal-Mart is so huge that any action they take tends to have a big consequence. So if they do a rollback on a core product, they drive huge volume, so much that they disrupt the supply chain of producers," said David Garfield, who is based in Chicago and leads the Consumer Products practice of AlixPartners.
Soda is the single-most consumed beverage in the U.S., and a $70 billion-plus market. For many retailers, it is also considered an important driver for pushing traffic into their stores. But for the megachains like Costco and Wal-Mart, soda is less important, which gives them more negotiating clout.
"There's been a power shift over the past 10 years where the power has shifted from packaged-goods firms to these huge grocery store chains," said Gorham at Morningstar.
A dispute over pricing in 2009 led Costco to stop selling a number of Coca-Cola brands in its stores. And while the two sides eventually made up, it represented the first time a retailer was bold enough to go up against a powerful brand like Coca-Cola.
Wal-Mart can afford to be bold, and its impact is readily seen. Median sales decrease 40 percent at similar high-volume stores when a Wal-Mart enters the market, 17 percent at supermarkets and about 6 percent at drugstores, according to a study published in June 2009 by researchers at multiple universities and led by the Tuck School of Business at Dartmouth College in Hanover, N.H.
Stores that fail to prepare by adopting a new strategy to survive tend to feel the greatest impact. Similar high-volume stores, like Target, fare the worst when a Wal-Mart moves into an area because they are forced to compete by reducing regular prices, the study found.
"We're fiercely competitive on price and routinely shop our competitors, including Wal-Mart, to ensure we're providing our guests with the best possible value," said Jennifer Mooney, a spokeswoman for Target.
Mooney also said the chain has a promise to match any print-advertised price on an identical product featured by a local competitor, including Wal-Mart.
Drugstores like Deerfield-based Walgreens are the least impacted, according to the study, and are generally able to stay afloat by increasing their assortment size.
"Overall we compete very well with Wal-Mart," said Jim Cohn, a spokesman for Walgreens. "We cater to a wide customer base, and often the need or occasion for a Walgreens shopping trip is different from many of our competitors."
Supermarkets, the study found, can survive by doing their best to differentiate themselves from Wal-Mart, rather than attempting to compete.
Karen May, a spokeswoman for Jewel-Osco, said the company has responded to Wal-Mart's deep discounts by offering a variety of promotions "every day" and by promoting low-cost private-label brands. She said Jewel-Osco has not seen a change in pop sales since Wal-Mart's promotions began.
A Dominick's spokeswoman said "customers have other fluids they continue to look for," including water, sports beverages and energy drinks.
But a recent analysis by J.P. Morgan found that Wal-Mart's rollbacks on pop have already upset grocery stores and have the potential to disrupt the beverage industry.
Following Wal-Mart's soda promotions in anticipation of Memorial Day weekend, national soda sales shifted dramatically to Wal-Mart and away from other grocers, the equity research firm found. Memorial Day weekend is traditionally seen as a lift for beverage sales, but sales volume dropped 9 percent during the four weeks ended June 12, according to data from the Nielsen Co.
More of that disruption may come to Chicago.
Today, just one Wal-Mart stands within Chicago's city limits. But following a six-year battle to open more stores in Chicago, the behemoth saw progress last week when the City Council voted unanimously to let Wal-Mart build a second store on the South Side.
The chain says it hopes to open dozens of stores in the city through a community partnership agreement that would mean millions of dollars for Chicago charities and a guaranteed higher-than-minimum wage for Wal-Mart employees in Chicago.
Wal-Mart's impact goes beyond retailers, but the exact impact on manufacturers isn't clear because few will discuss private negotiations. Some brands have said that Wal-Mart pays for big promotions itself, essentially taking a loss on some sales to bring in more traffic. There are indications that manufacturers also are making concessions to keep Wal-Mart from bullying them off the shelves.
A Wal-Mart spokeswoman said the company does not comment on pricing strategy, industry speculation or sales on a particular product. She said lower soda prices are part of the company's commitment to "helping families save money so they can live better."
Representatives for Dr Pepper Snapple Group and PepsiCo Group did not reply to requests for comment. Coca-Cola said the company does not comment on customer relationships.
Analysts say when customers see cheap pop in bulk quantities, the tendency is to stock up, which means a lull in sales following a promotion.
"The risk of such rollbacks are several," J.P. Morgan wrote in its analysis. "For one, a rollback creates a powerful lift and thus demand for a product, necessitating a production spike and disruption to the supply chain. Inventories can be thrown off kilter. And ultralow pricing poses a threat to brand equity."
Pradeep Chintagunta, a marketing professor at the University of Chicago Booth School of Business, said retailers are less likely to react to low pricing when a single Wal-Mart moves to an area. But the threat of dozens of Wal-Marts could mean significant changes for Chicago, particularly among chains that rarely localize their promotions on a store-by-store basis.
Kusum Ailawadi, professor of marketing at the Tuck School of Business, said chain retailers usually promote according to "zones," although they could benefit from a more nuanced strategy.
"Let's say you now define this as a Wal-Mart zone. Retailers I've spoken with have said, 'We essentially cut our prices down almost across-the-board but especially in the departments where we have more overlap with Wal-Mart,'" she said.
A brand-name beverage like Coca-Cola for about 20 cents a can is more than a great deal. It's a sign of Wal-Mart's purchasing might, a warning shot to competitors and less than good news for the beverage industry.
Experts call that kind of intimidating power "disruption," and it will come to the Chicago area in a bigger way now that Wal-Mart plans to open a second store in the city, on its way to what it hopes will be dozens more urban locations.Squeezed by higher bottling costs and a decade of stagnant pricing, beverage companies had only recently managed to persuade consumers to pay more for soda, according to industry analysts. Now, in one swoop, Wal-Mart has gotten attention for itself while taking a bite out of soda sales at other chains.
The promotion, which began shortly before Memorial Day, is pushing other retailers to roll back prices to pre-1990s levels to compete. And it has stirred new fears about Wal-Mart's ability to wield its massive buying power to work against the interests of the industries that supply their stores.
"They just have so many stores that they can really push back, they can really squeeze, not just soft drink companies but other food firms, to force them to take the hit and take their margins down," said Philip Gorham, an equity analyst with Chicago-based Morningstar who covers the beverage sector.
Wal-Mart's power is indisputable. It is the largest retailer in the world, which gives it the ability to negotiate with manufacturers to get lower prices that other stores, particularly smaller independent ones, may struggle to match.
Price cuts on such products as soda are part of an aggressive initiative Wal-Mart announced in October 2008 and began to roll out in spring 2009. In May of this year, deep discounts on products like pop, ketchup and other items raised Wal-Mart's pricing lead versus other competitors fivefold compared with the previous month. Analysts say the promotions are expected to appear around every holiday through the second half of this year.
"Wal-Mart is so huge that any action they take tends to have a big consequence. So if they do a rollback on a core product, they drive huge volume, so much that they disrupt the supply chain of producers," said David Garfield, who is based in Chicago and leads the Consumer Products practice of AlixPartners.
Soda is the single-most consumed beverage in the U.S., and a $70 billion-plus market. For many retailers, it is also considered an important driver for pushing traffic into their stores. But for the megachains like Costco and Wal-Mart, soda is less important, which gives them more negotiating clout.
"There's been a power shift over the past 10 years where the power has shifted from packaged-goods firms to these huge grocery store chains," said Gorham at Morningstar.
A dispute over pricing in 2009 led Costco to stop selling a number of Coca-Cola brands in its stores. And while the two sides eventually made up, it represented the first time a retailer was bold enough to go up against a powerful brand like Coca-Cola.
Wal-Mart can afford to be bold, and its impact is readily seen. Median sales decrease 40 percent at similar high-volume stores when a Wal-Mart enters the market, 17 percent at supermarkets and about 6 percent at drugstores, according to a study published in June 2009 by researchers at multiple universities and led by the Tuck School of Business at Dartmouth College in Hanover, N.H.
Stores that fail to prepare by adopting a new strategy to survive tend to feel the greatest impact. Similar high-volume stores, like Target, fare the worst when a Wal-Mart moves into an area because they are forced to compete by reducing regular prices, the study found.
"We're fiercely competitive on price and routinely shop our competitors, including Wal-Mart, to ensure we're providing our guests with the best possible value," said Jennifer Mooney, a spokeswoman for Target.
Mooney also said the chain has a promise to match any print-advertised price on an identical product featured by a local competitor, including Wal-Mart.
Drugstores like Deerfield-based Walgreens are the least impacted, according to the study, and are generally able to stay afloat by increasing their assortment size.
"Overall we compete very well with Wal-Mart," said Jim Cohn, a spokesman for Walgreens. "We cater to a wide customer base, and often the need or occasion for a Walgreens shopping trip is different from many of our competitors."
Supermarkets, the study found, can survive by doing their best to differentiate themselves from Wal-Mart, rather than attempting to compete.
Karen May, a spokeswoman for Jewel-Osco, said the company has responded to Wal-Mart's deep discounts by offering a variety of promotions "every day" and by promoting low-cost private-label brands. She said Jewel-Osco has not seen a change in pop sales since Wal-Mart's promotions began.
A Dominick's spokeswoman said "customers have other fluids they continue to look for," including water, sports beverages and energy drinks.
But a recent analysis by J.P. Morgan found that Wal-Mart's rollbacks on pop have already upset grocery stores and have the potential to disrupt the beverage industry.
Following Wal-Mart's soda promotions in anticipation of Memorial Day weekend, national soda sales shifted dramatically to Wal-Mart and away from other grocers, the equity research firm found. Memorial Day weekend is traditionally seen as a lift for beverage sales, but sales volume dropped 9 percent during the four weeks ended June 12, according to data from the Nielsen Co.
More of that disruption may come to Chicago.
Today, just one Wal-Mart stands within Chicago's city limits. But following a six-year battle to open more stores in Chicago, the behemoth saw progress last week when the City Council voted unanimously to let Wal-Mart build a second store on the South Side.
The chain says it hopes to open dozens of stores in the city through a community partnership agreement that would mean millions of dollars for Chicago charities and a guaranteed higher-than-minimum wage for Wal-Mart employees in Chicago.
Wal-Mart's impact goes beyond retailers, but the exact impact on manufacturers isn't clear because few will discuss private negotiations. Some brands have said that Wal-Mart pays for big promotions itself, essentially taking a loss on some sales to bring in more traffic. There are indications that manufacturers also are making concessions to keep Wal-Mart from bullying them off the shelves.
A Wal-Mart spokeswoman said the company does not comment on pricing strategy, industry speculation or sales on a particular product. She said lower soda prices are part of the company's commitment to "helping families save money so they can live better."
Representatives for Dr Pepper Snapple Group and PepsiCo Group did not reply to requests for comment. Coca-Cola said the company does not comment on customer relationships.
Analysts say when customers see cheap pop in bulk quantities, the tendency is to stock up, which means a lull in sales following a promotion.
"The risk of such rollbacks are several," J.P. Morgan wrote in its analysis. "For one, a rollback creates a powerful lift and thus demand for a product, necessitating a production spike and disruption to the supply chain. Inventories can be thrown off kilter. And ultralow pricing poses a threat to brand equity."
Pradeep Chintagunta, a marketing professor at the University of Chicago Booth School of Business, said retailers are less likely to react to low pricing when a single Wal-Mart moves to an area. But the threat of dozens of Wal-Marts could mean significant changes for Chicago, particularly among chains that rarely localize their promotions on a store-by-store basis.
Kusum Ailawadi, professor of marketing at the Tuck School of Business, said chain retailers usually promote according to "zones," although they could benefit from a more nuanced strategy.
"Let's say you now define this as a Wal-Mart zone. Retailers I've spoken with have said, 'We essentially cut our prices down almost across-the-board but especially in the departments where we have more overlap with Wal-Mart,'" she said.
Friday, February 26, 2010
Dollar Tree Profits Climbing
Forbes
Discount Isn't Dead. High-end retailers are on the mend, but Dollar Tree shows the low-price chains are still attracting consumers.
Pricy retail chains were bruised by the recession, but recent earnings reports show cost-cutting has helped several right the ship. That doesn't mean the other end of the price scale is suffering though, as discount retailer Dollar Tree breezed past fourth-quarter earnings estimates Wednesday.
Bargain-conscious consumers flocked to the discount chain, helping Dollar Tree report better sales and bigger profits. Earnings jumped 32.2% to $1.52 per diluted share from $1.15 per share a year ago.
The discount retailer recorded a 12.4% uptick in total sales to $1.6 billion, while same-store sales, a metric that measures growth at stores open at least a year, were up 6.6%. The company didn't forego expansion either, upping total square footage by 6.6% during the period.
Dollar Tree doesn't plan on slowing down the growth. It forecasts same-store sales improvement in the low-to-mid single digits for the first quarter of 2010 with sales ringing in between $1.29 billion and $1.33 billion. Square footage will climb by 6.3% during the quarter.
"The firm will continue to benefit from healthy customer traffic as value-conscious consumers turn to the deep-discount chain for low-priced daily necessities," said Morningstar analyst Zoe Tan in a note.
Several higher end retailers also reported earnings this week. While Dollar Tree has roped in cost-conscious customers with discounted novelty items and an expanded selection of consumables, Saks and Nordstrom cut costs as the sluggish economy slowed down
Investors sent shares of Dollar Tree rocketing to an all-time high on Wednesday, before closing with a 12.3% gain.
Bargain-conscious consumers flocked to the discount chain, helping Dollar Tree report better sales and bigger profits. Earnings jumped 32.2% to $1.52 per diluted share from $1.15 per share a year ago.
The discount retailer recorded a 12.4% uptick in total sales to $1.6 billion, while same-store sales, a metric that measures growth at stores open at least a year, were up 6.6%. The company didn't forego expansion either, upping total square footage by 6.6% during the period.
Dollar Tree doesn't plan on slowing down the growth. It forecasts same-store sales improvement in the low-to-mid single digits for the first quarter of 2010 with sales ringing in between $1.29 billion and $1.33 billion. Square footage will climb by 6.3% during the quarter.
"The firm will continue to benefit from healthy customer traffic as value-conscious consumers turn to the deep-discount chain for low-priced daily necessities," said Morningstar analyst Zoe Tan in a note.
Several higher end retailers also reported earnings this week. While Dollar Tree has roped in cost-conscious customers with discounted novelty items and an expanded selection of consumables, Saks and Nordstrom cut costs as the sluggish economy slowed down
Investors sent shares of Dollar Tree rocketing to an all-time high on Wednesday, before closing with a 12.3% gain.
Thursday, March 5, 2009
Costco Leads Expected String Of Retail Warnings
As Originally Posted in The Wall Street Journal
Costco Wholesale Corp. warned that its fiscal second-quarter profit will fall "substantially below" Wall Street estimates -- foreshadowing what's expected to be a glum parade of downbeat news in the January retail-sales reports that come out Thursday.
Costco, the nation's largest warehouse club chain by sales, had outperformed the retail pack for much of 2008. But Wednesday it said U.S. same-store sales in January were flat compared with a year earlier, while sales at its foreign stores, including markets such as the U.K. and Japan, fell 9%, partly because of unfavorable currency exchange rates.
Citing the "uncertainties surrounding the economy," Costco Chief Financial Officer Richard Galanti declared that the company will no longer publicly forecast financial performance for the remainder of its current fiscal year ending Aug. 30.
Most big retailers report January sales Thursday, and many analysts and consultants are predicting more companies will yank earnings forecasts altogether, as growing unemployment depresses consumer spending and clouds timetables for recovery from the recession.
At Costco, the recession cut into its sales of nonfood items and crimped profit margins in recent weeks as the company lowered prices to spur sales and boost market share, said Mr. Galanti.
Still, he struck an optimistic tone, saying that he believed the pressure on Costco's margins would soften in coming weeks as manufacturers lowered prices for retailers in response to falling commodity costs.
"Who knows where bottom is and how long it will last," Mr. Galanti said in an interview. "But relative to other retailers, we believe we are winning market share, not losing it."
In general, warehouse and discount retailers such as Costco and Wal-Mart Stores Inc. have held up better in the weak economy as consumers seek out lower prices, while luxury retailers have been among the worst hurt. Tuesday, Neiman Marcus Group Inc. reported a 24% decline in same-store sales and warned that it would post a quarterly loss.
Industry experts believe more retailers will announce job cuts and other belt-tightening moves as they brace for a brutal business climate in the first half of 2009, and possibly longer. Macy's Inc. Monday announced 7,000 layoffs as part of a broader corporate reorganization. Numerous retailers including Target Corp., Best Buy Co. and Sears Holdings Corp. have recently announced corporate staff cuts.
Thomson Reuters, which maintains an index tracking 35 top retailers, predicts January same-store sales will fall 2.3% compared a with a year earlier. Remove Wal-Mart from the equation, and the weighted-average decline grows to 5.7%.
In particular, it expects double-digit sales declines from department-store and apparel chains, which have been hit particularly hard by discretionary spending declines.
January is traditionally a slow time for retail sales, making up a small fraction of annual totals, but analysts are closely watching this month's figures for signs of which major retailers continue to struggle with bloated inventory levels well after the holidays -- and which may be failing.
The reduced demand is leading retailers to step up efforts to carry fewer, better-selling brands, or to pare back stocked inventory, requiring suppliers to replenish shipments more frequently.
That was already a retail trend but is being accelerated by the recession, said Lorcan Sheehan of ModusLink Global Solutions Inc., which helps companies manage supply chains.
"It is a difficult time for the number-two, three and four brands," Mr. Sheehan said.
While Costco posted net sales of $5.10 billion for January, flat with $5.11 billion a year earlier, Costco's Mr. Galanti saw some hopeful signs. Television sales were up after sharply discounted promotions that included bundling pairs of high-definition sets, and membership renewal rates were at record levels.
Still, the warning that the company would miss analysts' earnings estimates for the second quarter ending Feb. 15 -- and lack of guidance about what the future would hold -- clearly disappointed investors.
In 4 p.m. composite trading Wednesday, Costco shares were down on the Nasdaq. But shares were up slightly in after-hours trading.
Thursday, December 4, 2008
Boutiques Get Squeezed
Independent fashion boutiques flourished in recent years as young women snapped up the latest designer apparel, no matter the price. But now, in the current crunch, they are among the retail industry's hardest hit.The credit crisis and the sharp downturn in consumer spending have left many boutique owners as cash-strapped as their customers. Factoring firms that normally keep goods flowing to stores by buying designers' accounts receivable have stopped approving shipments to some boutiques. That has forced the owners of these stores to pay cash on delivery -- or to use their own personal credit cards -- so they can stock their stores with womens clothes for the all-important holiday season.
Paying by credit card "is a game that will take you down" because of the high interest rates, says David Katzav, co-owner of New York-based Big Drop, a four-store chain that sells high-end denim and contemporary women's clothing in Manhattan and Miami. But Mr. Katzav says he has no choice. About 20% of his vendors won't ship to his 18-year-old chain unless he pays up front or provides a credit-card number, he says.
Factoring firms typically buy accounts receivable from designers and other apparel makers to help them finance production and make payroll rather than have to wait the typical 30 to 60 days it takes for retailers to pay their bills. Since summer, however, Hilldun, a factoring firm that extends credit to such designers as Peter Som and Derek Lam, has stopped approving shipments to about 40% of the 5,000 retailers it deals with, up from 25% to 30% previously, according to Gary Wassner, president and chief executive,
He says the increase is mostly a result of boutiques being cut off. Young boutique consumers are no longer "behaving like Sarah Jessica Parker" in "Sex and the City," he adds.
The boutiques' problems are being exacerbated by competition from Neiman Marcus, Saks Fifth Avenue and other high-end chains, which have been slashing prices to attract shoppers.
"Boutiques don't have the same breadth of assortment" as those chains and can't use apparel as a loss leader to attract consumers who might also buy higher-margin items like cosmetics, says Melanie Cox, chief executive of Scoop NYC, a New York-based chain of 14 upscale boutiques.
Scoop has had "no significant changes in our factoring situation," Ms. Cox says. But she adds that she been proactive, calling meetings with lenders and factoring firms to present worst-case-scenario cash-flow projections and to manage expectations.
Information about boutiques' finances is hard to come by because they're mostly small and privately held. So far this year, sales at privately held women's clothing stores -- which include boutiques -- have fallen below last year's levels, according to market researcher Sageworks Inc. From 2002 to 2007, by contrast, sales at these stores strongly outpaced those of department stores, Sageworks says.
Designer Tracy Reese, who makes dresses priced between $400 and $1,000, notes that factors have long been wary of independent boutiques but that "the numbers are even greater this season." As a result, she says, she has been asking small retailers to provide credit-card numbers in advance of shipments.
The situation is affecting her production plans, she adds, requiring her to delay production as long as possible to ensure that she doesn't get stuck with merchandise that retailers can't pay for.
Rather than cut prices to compete with high-end department stores, some boutiques are persuading designers to swap unsold merchandise for new designs, according to one owner who claims success with this strategy but declines to be named. Their hope is to freshen up their sales floors for the holidays as well as to preserve their profit margins.
Designers don't want the boutiques to cut prices. Many of them share the burden by reimbursing retailers for some of their markdowns at the end of the season, and they worry that markdowns will tarnish the image of their brands.Linda Dresner, who owns designer-apparel boutiques in New York and Michigan, says she got an email from a vendor last week "begging me to please hold prices until after Thanksgiving." Ms. Dresner, who has prepared for a difficult season by cutting winter orders 25% compared with last year, says, "I am going to hold off for as long as we feel comfortable."
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