Global Retail Executive Council

The rebirth of Circuit City

The headlines have read "Circuit City is the Web's newest zombie" after Systemax (owner of electronic retail brands Tiger Direct and CompUSA) purchased the brand and Web assets of Circuit City and relaunched the circuitcity.com with a familiar look and feel.

After purchasing CompUSA's brand and some assets for about US$30 million in 2008, Systemax re-opened some of the former retailer's stores in the southeast USA, leading to speculation that the same thing may happen with Circuit City. Given that Best Buy stands alone as the only large-scale big box electronics specialty retailer operating in the United States, reintroducing a limited scale competitor seems likely.

Moving into brick and mortar retailing, Systemax will likely find pressure to bring some of its policies more into alignment with current competitors: it's return policy is already under fire by consumer groups for barring products from return without specifying exactly what they are, a stark contrast to more liberal return policies at competitors like Costco.

And Systemax may well have gotten a great bargain: they got the Circuit City brand and Web site for US$14 million... the US taxpayers paid US$62 million and all we got was the opportunity to guarantee pensions for the former retailer's employees.

Amazon.com brick-and-mortar: much ado about something?

Earlier this week, TechFlash reported that Amazon had been granted a patent for "ornamental design for a building structure," leading to much speculation about their impending brick-and-mortar plans. While much of the hype is likely unwarranted, it is worth considering in the light of a couple other trends and developments.

Brick-and-mortar Amazon isn't new: the ecommerce giant experimented with "Amazon Fresh" grocery pickup locations, but terminated that offering in February 2008.

So what might Amazon do with the stores?

• Considering that Amazon has already moved into the "service provider" model for retailers, could they be offering a "store in a box" that is LITERALLY a store in a box? The model looks like it might use shipping containers as a base material... Imagine a small footprint physical store, combined with supply chain, distribution and warehousing, tech infrastructure, and transaction processing. This might be the missing link in Amazon stepping more fully into the service market for retail.
• Amazon also just launched a new service offering DVD and BluRay buyback, complimenting its existing video game buyback service. Given that Wal-Mart has just moved into the video game side of this via in-store kiosks, a physical presence that offered both instant cash/credit for trade-ins AND a selection of items to purchase immediately might be a great fit. The category is ripe for some sort of automated physical environment with limited (or even no) staff.
• Two words: Kindle demo. While Amazon's reader is doing well, it is a big leap to plunk down $400 without having ever experienced the device first hand. Amazon has approached this by letting prospective Kindle buyers connect with existing owners in different cities around the US. Having small format locations where people could test the Kindle, get instant gratification from an immediate purchase/setup and host the meetings might give Amazon's ebook platform a boost against rival Sony, whose ebook can be experienced first hand at Target stores around the country.

The Retail Experience: BARCELONA - Reinventing the mall

It is possible to learn quite a bit from a visit to the mall.  No, really.  Some city planners say that malls are devoid of character or culture and no matter where you roam you couldn't truly distinguish one from another.  It seems to me that if you look only at the surface of things, many may appear very similar in format... small fashion-centric stores, food court, and larger department stores positioned at the main entrances, but on the whole I think many critics miss the point of malls. They are very convenient, enclosed from the elements, and can surprisingly be very unique in their offerings.  

So with so many positive attributes, why are so many malls in the US struggling to survive? The second largest of the United States shopping mall owners has filed bankruptcy and just yesterday the largest mall in my state put a part of their property up for sale to try and pay off debtors.  As I read this news I wonder if there is any way of reviving this shopping institution?

My most recent trip to Barcelona had me staying at a hotel directly across the street from Diagonal Mar Centre. My time was very limited and I spent most of my day at the World Retail Congress (great speakers this year by the way) so there wasn't much opportunity to really look around, but my first night in I needed to pick up some toiletries. The most obvious place to do that was the mall. 

It was nearly 9 pm and the mall on the whole was still very busy for a Tuesday night.  Once I entered Alcampo Hipermercado, I could understand why.  Alcampo was still packed with shoppers on both the food and the home goods levels.  The product assortment, great prices and even home delivery service for larger purchases made both the hypermarket and the mall the go-to place for daily shopping, not just a weekend "shoppingtainment" destination as so many American malls strive to be. What differentiates the mall experience in Spain - as well as many other European and Asian cities - from malls in the US is that the goods and services offered that are woven into the fabric of the community.  Grocery has long been left out of the American mall - not that stand-alone grocery stores would be a good addition to the average suburban mall - but why don’t we have true hypermarkets in the US? And could they be a part of the formula for resurrecting the struggling mall format across America?

And there was one other thing that caught my eye (and my taste buds) as I exited Diagonal Mar. (Yes, I get excited shopping for food - shoes aren’t my only vice…)  It was the specialty food kiosk located right outside Alcampo selling -  JAMON!!! Jamón Ibérico to be exact.  A beautifully organized and displayed grouping of sweet, sweet pig legs.  I had to wait a bit here to purchase my 100 grams as there was a long line even at this hour.  I was remiss that I didn’t know the differences in the grades or speak Catalan, but I concluded that no matter which leg I selected my slices from; my patience would be rewarded. And I can tell you in all honesty... it was worth every minute of wait to enjoy the simple pleasure of melt-in-your mouth goodness that is Spanish ham.

The intriguing thing about Diagonal Mar is that it embraced the extremes of shopping in a way few American malls have. On one hand, the mall is anchored by a quality hypermarket, offering one-stop shopping for daily needs. On the other, specialty retail isn’t limited to cloned fashion stores: where US malls focus on selling food to eat in the mall, specialty food stores offer a reason to come to the mall besides shopping for clothes.

I think that the key to all this is that a mall needs to truly serve the needs of the community it is in, and as those needs change, new and existing mall developers need to incorporate innovative ideas like hypermarkets and specialty food to lure in shoppers whose needs are changing as well.

WRC09 Day Two Morning Plenary: Jim Stengel

Jim Stengel, former CMO of Proctor & Gamble, opened his talk with this evaluation of consumer shopping behavior:

"This is more than a correction... this is a fundamental shift."

Some statistics:

• 90% of shoppers are telling us that they are making long term shifts in their behavior. It's not a weather change, it's a climate change.
• Private label is growing at 2x rate of national brand
• 82% of every UK shopping trip has a private label product ON THE LIST
• Coupon usage is up 43% around the world

Jim outlined what he called the "Five Ripples of Opportunity:

1. Stand for something that matters

Reflect what is important to the shoppers you serve in everything you do.

Darty (French retailer, appliances and electronics): They stand for incredible trust, the trust you would have in a family member. Growing at 10% in last quarter.

Marks & Spencer: "Plan A: because there is no plan B": Were not known prior to 2007 as being particularly green. They unveiled "Plan A" in 2007 and is now one of the most admired green company in the UK. They invite the consumer to be involved, making commitments to embrace sustainability, fair trade, etc. (BRILLIANT: their reusable shopping bag only costs 10p and is guaranteed with replacement for life if it wears out) Last quarterly numbers, sales up 2%.

2. Play a role in consumers' lives

El Palacio de Hierro (Mexican): Has taken women's thoughts and feelings about the shopping experience to a new level. They've abandoned the cliches about the relationship between woman and her family in favor of femininity. From a print ad: "One phrase separates a girl from a woman: I have nothing to wear." Absolutely gorgeous television ad with shoes "There are two things a woman cannot avoid: cry and buy shoes." Last quarter result, up 5%.

3. Focus on ownership not purchase

Apple: Genius bar in stores allows customers to engage with one another as well as with Apple staff... it raises competency of the consumer, which drives satisfaction and increases penetration and loyalty. Focusing on what happens when you OWN the product, and creating advocates and zealots in them.

4. Cultivate smart and savvy shoppers

Ann Taylor Loft (US): Recognized early that consumers are spending less on apparel and the era of "disposable" clothing is over. Women need help creating new outfits with the investment clothes they have, so they partnered with Tide Totalcare to educate consumers on how to take care of your clothing.

5. Create joint value for retailers & brands

Suppliers dominated during the 80s and 90s, with pre-eminent global and national brands. Then in the early 2000s, retailers began to dominate with rationalizing their SKUs and major private label brand investment and penetration. Going forward, shoppers will dominate.`

WRC09 Day Two Morning Plenary: Marvin Traub

Retail legend Marvin Traub delivered the morning plenary for day two of the World Retail Congress. His speech was an insightful overview of the lessons that helped him reshape Bloomingdales during his tenure there and then as the leader of Marvin Traub Associates.

One of the most impressive points of his speech was the thorough understanding of the impact of technology on consumers and shopping, including an overview of e-commerce, m-commerce, social networking, and data analytics.

A few quotes from the presentation:

• "I've been a retailer for over 60 years, and never have I seen such a challenging economic environment."
• "We are living in an atmosphere of ongoing pessimism... customers are turned off, traffic is down dramatically, and virtually all aspects of discretionary spending are down. Retailers need to take a innovative look at our stores. What can inspire people and bring them in?"
• "Growth over the next decade will come from the overseas and emerging markets."
• "Technology is changing the world and the retailer of the 21st century needs to recognize this."
• "There are over 200 million users on MySpace... if MySpace were a country it would be the 5th largest country in the world."
• "Social responsibility is bringing a new level of passion and energy to the shopping experience."
• "VALUE is the priority, not necessarily inexpensive or sale, but consumers want quality at a reasonable price."
• "I have always believed that retailing is about change.  Now is not the time to shy away from innovation or uniqueness."

WRC 09 Day One Closing Plenary: John Donahoe, president and CEO of eBay

John Donahoe, president and CEO of eBay is delivering the closing plenary session for day one of the World Retail Congress.

The presentation theme is that online and offline retailing are merging.

JD: Consumers are blurring the lines between online and offline, not retailers. They are using whatever channel is the most convenient and powerful for their needs. They don't view a typical purchase as either online or offline, they simply view it as "buying a pair of shoes".

We're probably only two years away from a consumer taking a picture/scanning something in YOUR store, checking prices online with their iPhone from your Web site and competitors, and making the purchase decision in your store... but with other options.

(Interesting note: the example he gave as "two years away" is already possible... through eBay's primary online competitor, Amazon.com... Amazon's iPhone app will convert a photo of a book, DVD or CD into an entry on their "Amazon Remembers" list, pulling up the Amazon.com page - optimized for mobile - for that particular product).

One thing that was mentioned but only cursorily is Skype. It's been announced that eBay will sell Skype sometime this year, and the vision that Donahoe laid out for the future of eBay didn't reference Skype at all. That said, he did make a point of calling out some interesting statistics about Skype:

• 8% of international long distance minutes are on Skype
• Day of iPhone launch, it became the top iPhone application in 40 countries
• Within three weeks of Skype for iPhone launch, 10% of iPhones have it on it.

AND, once again, we got noticed and called out... first by Declan Currie of the BBC during his interview with Sir Stuart Rose at the Retail Week Conference in London... and just now, John Donahoe mentioned in his presentation that he saw our very own development director Melissa Fryback Skyping back to talk with her kids!

Great question from audience: How threatened are you by social media sites and when do you think Facebook will become an online retailer?

JD: We embrace Facebook. People are spending time on Facebook they used to spend on eBay. We can either feel threatened, or we can embrace it. So now you'll see eBay listings on Facebook, and Facebook profiles showing up on Skype. In the Internet, there's this notion of coopetition. I mean, we're Google's biggest customer: we buy more Google key words than anyone else in the world. But we're also a competitor with Google Checkout and PayPal. It's about helping customers navigating the Internet.

If a retailer offered you a brand exclusively, would you be interested?

JD: Sure. We don't restrict how brands sell on or off eBay. eBay will never have its own private label. We will not compete with our sellers.

You've had to contend with lawsuits from luxury goods companies over counterfeiting. Could you comment on that?

JD: We take counterfeiting very seriously. We have 3000 people working full time fighting fraud and counterfeits. We have a branded product program where they can take down listings immediately if they are counterfeit. What's happening is, and I'll be direct, some retailers are threatened by online, and the counterfeit issue is a trojan horse for them.

WRC09: Plenary Session "Lessons from the Global Economic Crisis"

There have been a number of interesting thoughts raised in this session, but two merit being called out specifically. William Fung, managing director of Li & Fung, presented a startling fact that 10% to 15% of the world's container ships have been mothballed over the past few months. This is a shockingly high number, and a major indicator of how much the overall FLOW of trade has been impacted by the economic slowdown.

Dr. Fung also spoke about how the terms accepted by suppliers to retailers have shifted in response to the economic pressures. Whereas in the past, they might have demanded payment within 30 days, 60 days has become the norm, as suppliers are more willing to give reailers the time to get the product onto the store shelf and ideally SELL before payment. He did caution, however, that expecting 90 or 120 days is perceived by the supplier community as expecting them to float the retailers business beyond the cost of the goods.

Another intriguing idea was presented by Ajay Kapur, who suggested that some of the major consumer trends happening in China and the Middle East were directly related to demographic shifts in the behavior of young men. In China, a rising ratio of single young men to young women (resulting from too many policies to discuss in depth) is creating an increasingly competitive situation for men seeking to get married, and hence there is an increase in "precautionary savings" that is reducing the proportion of earnings that is being spent in retail. China has almost the lowest percentage of its GDP spent on household consumption (35%... as opposed to the US where a whopping 70% of GDP is household consumption). The other trend he highlighted was that, despite the media attention, the level of violence among young men in the Middle East has declined over time, leading to an increased "stake" in global retail by a previously fully disenfranchised group.

The eye opener here is that there are MAJOR forces at play that underlie many of the "trends" we see in retail, and without taking them into account, retailers will be doomed to fighting a losing battle to create retail structures on a shifting and misunderstood ground.

Live from the World Retail Congress in Barcelona: "Making Sustainability Good Business"

We're live at the World Retail Congress in Barcelona, where we're having a bit of Internet connectivity issues which need to be sorted before our Twitter feed gets going.

The first session of the conference is focused on sustainability, and interestingly, there's very little "real" content being delivered on the basic idea of making sustainability a profitable part of core business. Several retailers have spoken about the "tips and tricks" they are doing, but the basic issue is being slowly circled rather than addressed:

How much do consumers care about sustainability and how do their desires affect a retailer's core strategy?

Guy Champliss, Head of Intelligence Unit for Havas Media, opened the session with a pair of statistics that illustrate the dichotomy of consumer desires and retailer response:

48% on consumers say they would pay a 10% premium for goods produced in a socially and environmentally responsible way... but...

64% view companies' communications about this as a "marketing tool"

So maintaining the trust of the consumer is absolutely critical, and is at the heart of making sustainability profitable.

Lucy Neville-Rolfe, Corporate and Legal Affairs Director of Tesco, reinforced this view with the idea that the best way to drive sustainability is improve "green consumption" by providing incentives to consumers to change their own behavior. For example, lowering the price of LED light bulbs will drive adoption of them. So instead of looking at sustainability as a change of basic retailing, it can instead be an outcome of basic retailing principles.

Consumers will always make choices that are in their own best interest. Sustainability is no different; retailers have to work in partnership with suppliers and consumers alike to create an environment where sustainable choices are "right" for everyone.