Global Retail Executive Council

The Battle of the Basket: Part One... "The Winds of War"

The past few weeks have seen a flurry of stories as the "cold war" between retailers and CPG manufacturers over the hearts and minds of consumers has been escalating and heating up. 

Getting this blog post going has been a heck-of-a-lot more challenging than I originally thought it would be. Suprisingly, it wasn't a procrastination issue (which MANY times it is for me) but one where the information I could use to draw from just keeps on coming in and I've been waiting for the right time to write. 

Last February, the buzz around private label goods started really heating up.  It's not like it was "net new", but every segment - from grocery to fashion to consumer electronics... even beer & wine - kept spinning out story after story about retailers laying new claims to brand territory. I started to consider even way back then what did this really mean - not only to the consumer, but the entire ecosystem of retail. The recession was a sobbering reality and social media a massive movement that was just beginning to hit retail. Add to that the distant thunder of the mobile phone's impact on retail and brand channel strategy and suddenly the players are all on the field and spoiling for a fight. Even the store shelves are changing... store brands are suddenly prominent at eye level, with national brands relegated to the top and bottom rows.

Fast forward.. and suddenly a few months an increasing number of articles appear about the changing relationship between retailers and CPG. As with many skirmishes, it's almost impossible to tell who fired the first shot, but clearly the bullets are flying back and forth... and each side is slowly bringing the big guns to bear for a larger battle:

• Costco refuses to restock Coca-Cola products in their warehouse clubs. The reason? "Coca-Cola has not provided Costco with competitive pricing so that we may pass along the value our members deserve."
• Kroger and P&G trade blows. Kroger refuses to accept P&G's digital coupons, deciding the idea of loading coupons from multiple sites was less useful than keeping shoppers locked on kroger.com. Then P&G launches a direct ecommerce site as a "learning lab."
• Walmart reduces its SKUs, hitting brands hard. It's not a temporary response to the recession, it's a long-term acknowledgement that for many consumers, price trumps brand loyalty.

So the battle begins, and war has been declared. The opponents: retail & CPG. The battlefield: the store shelf. What they are fighting for: the almighty shopper's basket.

These examples are but small skirmishes, but they portend a growing conflict. Over the next few weeks, stay tuned as this "war correspondent" explores the dynamics and strategies of the combatants:

Part Two: The retailer's arsenal... tools and tactics to seize shopper loyalty

Part Three: The brands strike back... shifting the field of battle away from the store shelf

Part Four: The embattled consumer... casualty or victor?

Does the Japanese economy have anything to "Kampai" about?

In light of our upcoming trip to Tokyo for JAPANSHOP, RetailTech Japan, and IC Card World where we'll be exploring and sharing with our GREC members the newest technologies in retail, next generation store design, and developments in mobile/NFC technology, I wanted to highlight a recent MarketWatch "blip" on The Wall Street Journal Digital Network that I find very telling about where Japan's economy is heading.

If you were to isolate one area where a shift in consumption and purchase could easily give you a killer indication as to how good or bad things are, the beverage industry in Japan in my opinion would be it. Everywhere (and I mean EVERYWHERE) you go in Japan you will find beverage vending machines. When I lived there nearly 20 years ago in a home, surrounded by rice paddies, in a very rural town on the Eastern side of the main island of Japan (HON-SHU) I could walk just 50 yards out in front of my home and purchase coffee, sodas, and even beers from two roadside vending machines! And even my own daily morning routine, like so many Japanese "salarymen" and "office ladies", was to plunk in 120 yen for a cold or hot (depending on the time of the year) coffee on my way to school.

Another typical social behavior connected strongly to beverages in Japan is that most Japanese do not entertain - for business or pleasure - in their home, and instead head straight to coffee shops, or - after work - Izakayas (Japanese pubs) to connect and socialize with one another. 

So why did the recent economic report on the decline in beverage sales in Japan have me so worried? Well, it's simple: Less beer and less canned coffee sold from vending machines means that the same "belt tightening" that led to layoffs and pay cuts in the US is now in full swing in Japan as well. Companies use the afterhour bar scenes regularily to continue the business of the day, and the exchange of Kirin, Suntory, Sapporo and other beers with one another are almost ceremonial. If I'm right, and this isn't happening as frequently as before and the sales of beer are way down, it means that discretionary budgets are being cut or eliminated within companies... this alone will dramatically change the way business is done. The decline over last year and just January alone (typically a huge celebratory month in Japan) in beverage sales is staggering. More belt tightening through passing by the vending machines in favor of the pot of tea at work also signals a continued economic decline.

It's been almost 13 years since I've been back to Japan (Despite my long absence, I consider it my second home.) I am really looking forward to not only see what major developments have occured in the world of retail, but observing how the Japanese consumer is changing and how business as usual is being redefined. And, slow down aside, I have no doubt I'll be able to find my favorite canned coffee in vending machines all over.... and if anyone wants to help the Japanese beverage industry by buying me a beer, I'll happily accept.

Best Buy enhances mobile retail strategy with new Android app and iPhone upgrade

With its recent revamp of its iPhone app and the announcement of an app for the Android smartphone platform, Best Buy is clearly leading the retail pack in terms of support for multiple platforms. Both apps are nicely formatted to the platforms and do a great job of presenting information from bestbuy.com in an easier to navigate way. And embracing a multi-handset strategy that allows a greater percentage of Best Buy shoppers to use the app is a core element of a true "mobile retail" approach.

But despite Best Buy's leadership in UI and handset support, they still have a couple big features missing that keep the apps from being truly amazing shopping tools.

• Too much focus on the "mobile Web" instead of the phone as a shopping tool: The search features are good, and Best Buy does a nice job making the parameter selection optimized to the phone UI, but shoppers on the go with their smartphones want different information... Many of the tasks the search and product information is optimized for simply are better conducted on a desktop, while many urgent/mobile tasks remain unaddressed by the apps (e.g. "I need a refrigerator under $500 that is in stock at the Best Buy near my house... which models do you have that meet that criteria?")

• Very little support for in-store shopping: Again, Best Buy errs on the side of too much mobile Web, too little shopping. Completely missing are features like store maps, or even enhanced information on what product lines are carried in each store. The focus seems clearly to be on getting shoppers into the stores rather than helping them once they get there.

• Missing features competitive apps already have: Best Buy's app misses one of the key features that competitors big and small adopted months ago: use of the camera as an interface. If I'm in a Best Buy store and want to get information on a product, I'll be more likely to open Amazon Remembers and snap a photo of the cover and the flip it open and type in the SKU into Best Buy's app.

Li-Ning brings new Chinese brand to the United States

For all the commentary on China's manufacturing prowess, one fact that is often overlooked is that Chinese consumer brands are beginning to become mainstream as brands in the United States and Europe. While many people know that their Apple iPhones and Nike shoes are manufactured in China, far fewer are aware of the origins of the Haier refrigerator or the Lenovo laptop they purchase at Best Buy.

Chinese consumer brands are on the rise, and this shift in power was evidenced today by the grand opening of Chinese footwear and apparel company Li-Ning's first US store in Portland, Oregon. Li-Ning may be new to the United States, but the company distributes through 7000 stores in China, and with revenues in 2008 of $983 million... it's bigger than the H&M operation in the United States. Never heard of Li-Ning in the US? You wouldn't be alone, but keep in mind... the founder (Li Ning) is the man who lit the torch at the Beijing Olympic games in 2008. So thinking of him as the Wayne Gretzky of China wouldn't at all be off the mark. 

Li-Ning's entry into the US portends bigger things: the placement of their first retail store in Portland (equidistant between Nike's and the now defunct adidas store, smack dab in the heart of athletic shoe central) heralds a new competitive threat to dominant athletic shoe brands in the United States, but also a potential learning lab for how to expand their retail and brand presence in Europe, which is currently only served by franchise stores.

At the store opening, LA Clippers star Baron Davis talked about his involvement in the design of his signature shoes, now available through Li-Ning. One of the most interesting comments he made was that most shoe companies just show up with the shoe and expect the athlete to wear them, endorse them, and like them... whereas Li-Ning designers worked hand in hand with him to make sure the shoe reflected high functionality and a unique style. 

Perhaps the most interesting "news" from the launch event was that Li-Ning had signed an agreement with Champs Sports (the 600 store banner of Footlocker) to exclusively sell Li-Ning footwear and apparel in mall-based stores for 2010. Though details were understandably somewhat sparse, the existence of both a wholesale and retail strategy for the brand bodes well for their success. It will be very interesting to see how Champs Sports positions the new brand amidst a crowded field of competitive brands (see the graphic at right for the logolist that appears on the Champs web site... Li-Ning faces an uphill battle for positioning against entrenched rivals for the shopper's mindshare: traditional athletic shoe giants like Nike and adidas... as well as "emerging athletic lifestyle" brands like Ed Hardy slapping tired designs on technical fabric to appeal to fashion conscious "athletes").

It is precisely that overlap that causes the most excitement and consternation about the Li-Ning brand position in the US marketplace. The truth is that a very stylish technical shirt that would absolutely appeal to cool-weather acclimated Portland runners... is being marketed as a tai chi competition women's top (though in truth, the elegance of the design and the price point should be giving competitors like Lululemon and Lucy sleepless nights). The market for "competitive tai chi clothing" in the US is miniscule, but technical running gear? Massive. So Li-Ning faces the challenge of how to get US shoppers to understand how and why to buy their clothes, as the sports which have given rise to Li-Ning's incredible popularity in China (table tennis, badminton, tai chi and kung fu) are not entry points for fashion sales in the US the way that basketball, football, and baseball are.

GREC will be bringing more coverage of Li-Ning's US entry over the next few weeks, including observations on the merchandising strategy, store design, and global retail execution model. But for tonight, we close with a video clip from the press conference:

The Retail Experience: The Future of Fitting Rooms, Part Two

In Part One, I discussed the setbacks retailers face in the fitting room department. The overall message is that the fitting room could and should be a central part of the shopping experience, where the customer is guided (but gently!) towards purchasing options. Ideally, the fitting room should be a destination in itself, so the customer is more likely to bring clothes into a fitting room, even if the goal is to see the actual room! There are many ways retailers can achieve this objective, from simple techniques to more sophisticated options, and many retailers provide strong examples of what the future of the fitting room will look like.

My favorite example of a simple technique to improve the fitting room is from a blog post by Sarah Freedman, in which she describes the treatment she received at Ted Baker in Glasgow. With her brother tagging along (and not happy about spending the day shopping), she promised she would be quickly in and out of the store. However, when her brother sat to wait for her, he was greeted by an associate offering him a beer! Obviously, this immediately changed his opinion of shopping with his sister, and he was no longer urging her to leave the store (in fact, he may have even urged her to spend more time in the store!). This simple focus on not only the customer, but also their shopping companion is a brilliant method of making the fitting room experience much more beneficial for both retailer and consumer. Not only did Ted Baker get Sarah to spend more time trying on outfits in their store, but everyone involved had an extremely positive experience that inspired her to tell everyone about. And I’m willing to bet the next time you’re in Glasgow, you’ll check out their Ted Baker store. I know I will!

Even more appealing is the Dressing Room Bar and Boutique in New York City, which acquired a liquor license and has a FULL BAR inside their store. Let me repeat - a clothing store with a FULL BAR INSIDE. They even offer entertaining drinks, such as the “Dressing Room Special,” or - my favorite - the “Waiting Boyfriend,” which is a shot of whiskey and a Miller High Life for $5. (To the owner of the Dressing Room: If you want GREC to visit and review your store, I’d be more than happy to be flown out to New York to do so!)

There are tons of examples of retailers like Ted Baker or the Dressing Room who focus not only on making the fitting room a fun experience for the shopper, but also the shopper’s companions. One of the most appealing techniques is used in places like Lyell in New York, where shoppers and their companions are given their own secluded room to have mini-fashion shows in, separated from the rest of the store by a curtain. This way, the shopper doesn’t have to parade in front of the whole store if they don’t want to, and it creates a more intimate and fun shopping experience for everyone involved. Even simple comforts like including a television for the waiting friends, or comfortable couches to sit on can do wonders for making the experience a memorable one for everyone involved.

Another simple way to make the fitting room a more enjoyable experience for the shopper is to focus on three main aspects: the lighting, the mirrors, and the hooks. According to USA Today, the “old” way of lighting in fitting rooms was using simple overhead fluorescent light. However, this often leaves clothes looking much different than they would in the outside world under real light, so "new" fitting rooms are tending to provide a more natural light to cut down on the amount of outfits returned after the customer decides they don’t like the way it looks in the real world. Similarly, “old” mirrors often were distorted, making the shopper appear skinnier. However, “new” mirrors in dressed-up fitting rooms do what mirrors should do: accurately reflect the consumer’s appearance. And as far as hooks go, USA Today found a near-ubiquitous complaint from shoppers is that there are either not enough hooks to hang their belongings, or there aren’t enough. This is solved easily enough - give the shopper more hooks and places to put their belongings when they’re trying on outfits!

Of course, there are also more complicated challenges retailers face, such as the challenge of making sure the customer can be constantly attended to by associates. If you’ve ever needed to call an associate while trying on items at Victoria’s Secret, you may not know the name but you’re probably familiar with Alert Technologies: their system lets shoppers call for assistance at the touch of a button, as well as giving staff an overview of which fitting rooms are available, full, or in need of service. Tech services in the dressing room such as this create a much more seamless, ordered experience for the customer and makes the entire process of trying on and purchasing items much less stressful for everyone involved.

Taking that idea even further is the fairly recent addition of “smart mirrors” in dressing rooms, which open up the possibilities to a near-endless amount. Smart mirrors can do just about anything: In addition to calling the associate for assistance, the customer could even select on a touch screen an item they would like delivered to their fitting room, to save themselves the embarrassment, for example, of having to ask for or hunt down an item in a larger size. Internet-enabled smart mirrors can also be used to send pictures of the customer in an outfit to their friends’ mobile devices for immediate “yes/no” reactions on outfits, to help the customer make up their mind. And with RFID tags, smart mirrors can immediately recognize any items brought into the fitting room and provide on the screen a slew of information - from care instructions to what country the cotton in the product came from, even to suggesting matching shoes or accessories in stock! The possibilities really are endless, and stores such as Prada in New York are just beginning to experiment with these new devices.

However, it remains up to each individual retailer to decide what fits best within its budget and customer demographics. Obviously, if you deal primarily in clothes for the elderly, installing the most advanced smart mirror system in your dressing rooms probably won’t go over so well with the clientele as it would in, say, a store aimed at teenagers and young adults. But every retailer should look at their own fitting rooms and figure out a way to make it more appealing. It’s really up to you; would installing an advanced technological system help your customers, or would simply providing more hooks, better lighting, and the occasional beer do the trick? (My two cents: Beer, please! Lots of beer.) 

The Retail Experience: The Future of Fitting Rooms, Part One

It goes without saying that there are many factors retailers must consider to ensure their customers have a pleasant experience in which they not only spend money in the store, but want to come back again. Everything from the way a customer is greeted to the manner in which they are sent on their way should be carefully tailored to ensure a successful shopping visit. However, while retailers spend intense efforts on revamping and planning their stores, one major component has been overlooked by many for far too long, and it’s time retailers make a change. I’m talking, of course, about the fitting room.

 Many retailers fail to understand the importance of the fitting room, instead opting to give their customers a glorified closet - a small, five-by-five room with roughly two hooks, and a few mirrors at the end of the hall. The incredible potential for the fitting room is overlooked by many, to the detriment of their own profits.

Imagine this scenario: You’re browsing through a rack of shirts and a store associate approaches you and suggests a shirt. Do you buy it? Or say you’re purchasing a dress and as the cashier is ringing up your sale, they point you to accessories and suggest a pair of earrings. Do you walk over and grab the earring? Most shoppers wouldn't, and this behavior is only amplified by the economy: Retail Forward reports that the recession is causing 34% of female shoppers to spend less on impulse purchases, so gently nudging shoppers towards additional purchases has become even more vital.

Think of it this way: During the three main segments of a typical apparel shopping experience, when is a customer most likely to choose what they're going to buy? - when they're browsing the racks, actively trying on clothes in the fitting room, or at the point-of-sale? Given that shoppers in the fitting rooms are examining the way they look and feel in the clothes they are potentially going to purchase, doesn't it seem natural that they are far more likely to be in "purchasing mode" in that environment, and therefore more open to trying on suggested additional items?
Dressing room feeling blah and familiar?
Don't worry, there's "room" for a new "model"...

One of the major challenges retailers face is how to better connect customers to the sales associates in the dressing room. How many times have you found yourself needing assistance when trying on clothes, only to have to hunt down someone to help you? The problem is even worse when shopping for (ahem) "intimates", where you don’t want to chase down an associate in your underwear, so you have to put your clothes back on in order to go search out help. It’s no surprise that, according to Marge Laney of Alert Technology, "97% of customers that we surveyed have left a fitting room and just walked out of the store at one time or another ... They just say, 'Screw it, I don’t need it that bad.' and leave."

On the other end of the spectrum is the associate who is too involved in the shopping process. Many people think of clothes shopping as a social experience, bringing along friends or family to offer opinion. But even if a shopper is alone, it doesn't mean the associate has to become the consumer's new BFF. As my mom so eloquently put it about a recent trip to a local clothes store in which the clerks paid her a little TOO much attention: “The salespeople are freaky -- they’re what Scientologists must be like. ... I go in to try on pants, and before I know it they’ve brought me 14 shirts and 5 pairs of shoes.” This shouldn't ever be the case, because it threatens to overwhelm the consumer and potentially drive them out of the store.

So it’s up to each individual retailer to figure out how to balance providing too much assistance to the customer and not providing enough. You obviously want your customer to end up spending more at your store than they intended, but you also don’t want them leaving feeling as if they were pressured into trying on clothes they didn't want or donating their life savings to a cult. There idea is for retailers to transform their fitting rooms from what is essentially a broom closet with a hook on the wall into an essential part of the shopping experience, and create an experience so exciting people tell their friends about it.

Now that we've given you the bad news about the state of the dressing room, stay tuned for part two where we discuss how to change things: from new innovations in lighting to new technologies that make mirrors seem magic. Stay tuned!

Target's "Great Save"... great idea, but execution challenges

Tonight we toured a brand new Target store in a new retail development near the Portland Airport. On the whole, the store was beautiful. Signage and visual merchandising was crisp and modern, the food section was WELL above average, and the siting and location of the store was top notch.

But we immediately noticed a few problems. First, when my companion started looking at women's clothes, she was mortified. Gone was the stylish "Tar-zhay" looks which set the standard for affordable haut couture for the masses, and in its place was a hodgepodge of increasingly awful styles... from the large (oh so large) selection of rompers (and two notes: when did rompers become de rigueur for women above the age of 16? and when did it become permissible to make them with big elastic bands in the back?) to the vaguely Amish looking sleepwear... it was shudderingly bad. But, ours is not to reason why when it comes to the vagaries of fashion. Plenty of other blogs cover that... better.

But what struck us strongly was how poorly the new trial "Great Save" section accomplished its goals. Basically, this is Target's attempt to compete with Sam's Club and Costco by having a warehouse club section within the Target store. It's not a bad idea, but the execution leaves a lot to be desired. First, the area is a hodgepodge of large quantities of national consumer brand items (think gallon container of Cheddar Goldfish) with off brand and generic merchandise (three awful looking lamps in a box for $19.99). It's woefully confusing, and if Target simply filled this section with large/case quantities of national consumer brand goods, they'd have something worth shopping. Assort slightly differently than Costco and you'll have shoppers lining up to buy 48 packs of Doritos for their kids' lunch boxes.

What really made the experience a near-epic fail was that the signage and pricing was... well.. spectacularly inconsistent. The Bluray DVD section had individual titles marked on shelf tags at $12 each... with a large shelf sign proclaiming all the items in the section "on sale" for $14.99... but they were all actually on sale for $10 - something we only discovered after taking two discs to the price check scanner across the aisle. 

What's the point of having a "Great Save" if you make the signage so inconsistent the shopper can't understand it?

Clearly, the concept needs work. Combined with how badly the Tar-zhay fashions resonated... Target needs to rethink what is trying to convey to shoppers. Right now, it's a muddled mess. Even the employees were confused: a very nice clerk informed us that the reason the signage under plastic bins advertised apple juice for $2.99 was that the signage wouldn't print correctly and they had to move the apple juice boxes. Good thing we weren't shopping for either storage or kids' lunch fixins'.

But, on the plus side, they did have some gum that I like at the register. So they did get a $.99 impulse purchase out of the visit.