Global Retail Executive Council

The Retail Experience: JAPAN - The Zenith of Customer Service

I've been back for well over a week now from our trip to Japan and in addition to the terrible jetlag (which is finally wearing off), there seems to be something going on in me besides terrible jet lag. It's a sort of melancholy I get when I go into a store here in the United States. Any store... grocery, boutique, big box... you name it, it doesn't matter. I haven't been able to properly put my feelings around this emotion until today.

It was a sudden jolt... a moment in which I needed help and none was to be found... standing stranded in a dressing room half-undressed waiting for help and hearing the staff person chatting with another associate for a good five minutes while I stood... waiting and waiting and waiting... what I wanted at that moment was my JAPAN-LEVEL CUSTOMER SERVICE!!!

What is Japan-level customer service (or JLCS for short) you ask? Well, if you have been to Japan, you know exactly what I mean. There is a pervasive spirit focused on simply meeting the needs and desires of the customer.

It's the going to the hotel lobby needing a battery charger for your camera at 7 o'clock at night.. and the concierge ensuring that by the next morning you not only know what store carries the battery you need (it's Bic Camera, by the way...), but that it will be held for you, you will know what train you need to take to get it, AND the proper Japanese translation for the request will be written out for you to hand to the store employee. Yes... that's JLCS.

Now you might say... "That's only if you have a concierge in a fine hotel...right?" No. JLCS is anywhere and everywhere. From the ubiquitous combini (convenience stores) to drug store to high-end boutiques in the Ginza, service is SERIOUS business and they all seem to know that and deliver on it. As a customer, I would never know if one of the people that took care of me was having a bad day or that they thought my request was over the top. Every shopping experience came with a sense of anticipating my need and a true desire to fulfill it. Though I haven't yet been to EVERY country around the world, Japan is hands down the one country so far to which ALL retailers should aspire in terms of service.

As operational efficiency and product assortment become the norm throughout the industry, retailers have to find new ways to stand out and make money... and they should be looking to service. This, my retail friends, is the one area where the customer can be king, and you can make more profit.

I would like to share with you two examples. I could give you HUNDREDS, but these two truly stand out.

EXAMPLE #1. Giorgio Armani, Ginza.

We spent a great deal of time in the Ginza looking at department stores as well as the upscale fashion clothing flagship stores. This area of Tokyo is recognized as one of the most luxurious shopping districts in the world. I personally am in awe of their splendid-ness, but honestly am not a customer (though of course, I would be if I could...). However... in terms of brand... my heart belongs to Giorgio Armani. Always has, probably always will. So now that I've outed my bias toward the brand, I want to call attention to what I never expected.

I walked into this 5-story store (Surprisingly an entrance from the Ginza station as well as street level.) and expected the same type of service greeting I get when I've been in most luxury stores... ignore me OR make me feel somehow like I might lift something and run. Neither make me all too comfortable... ;) Anyway... I went in to look around and made my way to the second floor women's fashions where I was warmly greeted. I then quietly began my appreciation (okay, it was worship) of all the beautiful suits and gowns. At one point my hand must have lingered a bit longer on a raincoat. (I recall I basically touched the top of the coat at the hanger.) I moved to another room never having been pushed or made to feel suspect and as I motioned towards leaving it was at this point where the sales woman approached me and said in Japanese (I speak Japanese, but definitely look like a "gaijin"...) "It seems you may have liked the blue coat, would you like to try it on?" to which I expressed my fondness for the coat, but that I needed to leave due to a meeting we were heading to. Long story short, she encouraged me to try on the coat and after I did (and graciously declined to purchase it, thinking perhaps the purchase would require the sale of at least one of my kidneys) she thanked me for taking the time with her and trying on the coat despite my busy schedule. Then she rushed off to get me an Armani bag compete with a copy of the newest Armani catalog and DVD. As she escorted me to the glass elevator with my "parting gift," I was thinking how I didn't feel bad for not getting the coat, but how impressed I was by how gracious and attentive she was. As the doors closed to the elevator taking me down, I watched her maintain a deep bow even after it was quite clear I was no longer really able to see her. In summary... I left the store blown away.

OK so now you could argue... "yeah, but that's how the high end fashion experience is SUPPOSED to be. Right?" Now mind you I have had great service at luxury stores before, but this was a whole new level: a combination of the style and quality of the Armani brand with warm and welcoming service unlike that in other shopping hotspots like 5th Avenue, Oxford Street, and the Champs Elysee.

EXAMPLE #2. Fujiya Confectionary Store, Ginza.

Fujiya is one of Japan's better known candy brands and I decided that my 6 year old daughter's sweet tooth just might be satiated with the gift of a candy or two. The small store was teeming with shoppers, but one of the associates made sure to tell me immediately that she knew that I had entered the store with a "irashaimase" followed with a direct comment letting me know that she would be right with me after she finished with the customer in front of her.

Once it was my turn she helped me to navigate through the myriad of sweets and select just the right ones. Never once pushy or acting put out by my questions. At the end she held out my purchases, showing me the expiration date on each packaged cake/candy making sure that I still wanted to purchase them being that they were perishable. She also inquired as to whether the items were gifts and immediately took to wrapping each item exquisitely and point out any items that were fragile so that would arrive to their recipient intact.

At the end of the purchase, she came around from cash wrap, bowed, thanked me for my patronage and handed me my parcel. Now I know that some retailers in the US are taking to this idea of coming around the cash wrap and handing the bags to their shopper, but it hasn't caught on fast enough as a common practice.

I could go on and on... Examples abound: fast food restaurants, convenience stores, grocery stores, bakeries, pharmacies, and even a 100 yen store... all delivering consistently exception service, at least by the "are you SURE you don't want the extended warranty with that?" standards we Americans are accustomed to. Certainly there are exceptions here, but the opportunity to embrace service as a differentiator quite a "greenfield" in many areas outside Japan, and the return from exquisitely packaged sweets to the casual jumble of my first grocery shop on my return left me pining for even a little taste of JLCS...

(And ironically, JLCS extends to "self-service" as well, embracing state of the art vending systems... a subject we will be exploring soon in this blog...)

The Battle of the Basket, Part Three: The CPG Arsenal

As explained in Part One of GREC’s coverage of the Battle of the Basket, retailers and CPG brands are currently involved in a cold war over winning the “hearts and minds” of shoppers. In Part Two, we explored some of the weapons in the retailer’s arsenal. In this piece, we will explore some of the weapons CPG brands are using to fight back:

• Changing the battlefield: moving into emerging markets. Because U.S. and other mature markets are so saturated, CPG brands are increasingly focusing on emerging markets around the globe to reach an entirely new segment of shoppers. For example, Philips Electronics has aggressively moved into India. After all, as India’s middle class grows, more people are able to afford electricity, which makes India a perfect market for lightbulbs. Similarly, Colgate has sold strongly in China since 1991, and Nestle has recently moved some of its products into Latin American markets. CPG manufacturers are already creating loyalty in countries retailers have yet to even set foot in.
• Better propaganda: leveraging social media. This is one of the most important tools any company should use, and a few CPG brands are using the power of the web to great advantage. The T-Mobile Dance video on YouTube is a brilliant example of the holy grail: Getting an advertisement to go viral. And with over 18 million views and counting, T-Mobile has to be thrilled. Similarly, Kotex’s new line of tampons has already received a reasonable level of notoriety on the internet, with an ad campaign designed to remove the stigma from women openly discussing tampons. Through news reports covering television networks’ refusal to broadcast the word “vagina,” as well as funny commercials satirizing the “ridiculous” nature of typical tampon commercials, Kotex is achieving a viral success of its own. (Full disclosure: My dad works for Kotex. But it’s still a great campaign.) Social media gives shoppers and outlet to share their devotion to a product, and CPG brands are well positioned to capitalize on honest product love. However, social media is a double-edged sword, as evidenced by Nestle’s recent meltdown on Facebook, which led to a noticeable drop on the company's stock price.
• Guerrilla warfare: personalizing the brands. CPG brands are increasingly segmenting their consumers to make the brands and campaigns feel more personal. Why target women in general, for example, when you can target women of a certain age group or race? General Mills is a great example of this tactic, as they are currently attempting to tailor their brands for Hispanics, millennials, and baby boomers.
• Coalition approach: creating a manufacturer superbrand. Many CPGs have been doing this for years, but it is increasingly essential for all brands to have this approach. In Australia, Unilever has recently decided to brand all its ads with an overall Unilever brand. So all Dove, Streets Ice Cream, and Lipton advertisements, to name a few examples, will include the distinctive Unilever big “U” logo, combining the brands into a family of sorts.
• Improving intelligence: focus on data from the consumer. Typically, it has been difficult for CPG manufacturers to gather feedback from consumers, since the data on purchases was controlled by the retailers, who then utilized that information to capture sales with their own private brands. However, CPG manufacturers are now spending billions to acquire information from their consumers, which gives them a potent alternative approach to bring to bear against retailers armed with market basket data.
• Confusion and diversion: variety, variety, variety. Many CPG brands understand the importance of offering a large assortment for the shopper to choose from, which makes the brand stand out compared to the private label options, which usually has very limited variety. For example, according to Crest’s website, the company currently offers over 40 different types of toothpaste. While retailers are definitely paring back their assortments, CPG companies can create new sources of demand by introducing new products and convincing shoppers that the new product makes the old - including retail private brands - obsolete. After all, who would settle for just plain "mint" when "citrus splash" is an alternative?
• Smart weapons: location-based advertising. Some CPG brands are at the forefront of utilizing mobile promotions to drive customers who are shopping nearby to the stores, such as Kate Spade in Nordstrom or Mattel in Target. Shoppers can opt in to receive the promotions, which can deliver targeted coupons to the user’s mobile device when it senses they are in a mall near a Nordstrom, for example. This gets the shopper to not only enter a store where the CPG brand is sold, but to also specifically seek out the brand itself.

Private label is here to stay, and as CPG brands do battle with retailers over mindshare, they must remember it's a war not a skirmish. Constant innovation and a focus on real consumer value will continue to produce competitive products, and the ongoing "complexification" of product categories will continue to create new opportunities in the highly competitive playing field.

And a personal note to end the piece. In my own CPG-centric family, my dad's eager announcement of Kotex's new viral ad campaign was greeted by my mom's sarcastic response, “How can you people be living your normal lives when this amazingness is happening?” CPG brands are hoping for many others shoppers to similarly shout with glee, but in the end... will settle for a soft sigh of contentment as they choose the national brand at the store shelf.

JAPANSHOP coverage part one: Franchise Show 2010

While in Tokyo for the JAPANSHOP/Retailtech conference, we had the opportunity to walk through the show floor of the 2010 "Franchise Show" featuring hundreds of exhibitors offering everything from new kinds of fast food to specialty eyeglasses.

Aside from the sheer joy of having free food samples handed to us every 10 feet, as we walked through the floor, several trends became clear:

• The Japanese cultural way of shopping is changing. One of the hottest topics at the expo were variations on the "second hand store" theme, a trend unheard of in Japan twenty years ago. The economic realities of a global recession stacked on an as-yet-fully-recovered economy mean that doing more with less is a reality for many Japanese, and the benefits of a healthy resale market are overcoming cultural biases toward keeping goods and purchasing new.


•  "Mobile dining" is coming to Japan. The cultural taboo of eating and walking may also be under siege as many styles of cuisine are now coming in food trucks. Though this wouldn't qualify as a new trend in the United States (particularly the Pacific Northwest), American consumers are used to "dining and dashing," eating food while on the go, which is not the norm in Japan. The new food trucks in Japan eschew the traditional small seating areas of a yakitori stand or a tiny little izakaya restaurant, instead requiring that patrons either get their food "to go" for home or break tradition by eating while walking down the street.



• Service still reins supreme. Japan is a very service-centric culture, with store staff offering a high level of customer service by nature - with no tipping. This same concept comes to the franchise world through a "total convenience service" that offers everything from lawn and garden care to automotive repairs to home cleaning... all from one company.


• US brands were... absent. One of the most surprising things was that US and Western brands - even those that franchise agressively - were largely absent from the show. In fact, it was only Curves that had a presence. While there was no dearth of fast-food concepts (ranging from Go Go Curry to new non-melting ice cream to giant takoyaki... which are soft-ball sized cream-puffs filled with, yes, octopus...), there were NO Western food franchise brands at all. It's not as if the Japanese don't enjoy the food (Krispy Kreme donuts were offered as a gourmet snack on Singapore Airlines business class flights to Tokyo recently), but the overwhelming variety of food franchise concepts were variations on and standardizations of traditional Japanese foods.

From refrigerators to running shoes, Chinese brands make headway in the United States

Quick, think of a Chinese brand you can buy on store shelves in the United States or Western Europe. Sure, Tsingdao Beer shows up even in convenience stores, but beyond that... it has historically been difficult to find products that were not only MADE in China, but branded there in well.

 Over the past few years, this has begun to change. IT organizations around the world were unfazed at the transition of the ThinkPad line of laptops from IBM to Lenovo, and US shoppers can find Haier appliances at Sears and Best Buy. And just as the "Made in Japan" moniker on cameras evolved from a knockoff of a major brand to the proud emblazement on Japanese native brands-gone-global like Canon and Nikon, "Made in China" is a phrase whose meaning is in flux.

 For years now, China has led the world in the production of apparel, but the overwhelming majority of those garments carry tags from Western brands from DKNY to Old Navy. Boutique fashion brands like Shanghai Tang have spread to the United States and Europe, but their appeal is limited to those who can shop high fashion, and middle class and value shoppers have seen only "Western" brands on their shelves.

But all that may change as Chinese athletic apparel manufacturer Li-Ning brings its retail stores - and wholesale distribution - to the United States. Athletic wear is no stranger to non-US brands: adidas, Mizuno, Asics... all familiar names from Footlocker to the local running store. But these established brands, along with native powerhouses Nike, Reebok, and New Balance, are about to be joined by Li-Ning, a brand familiar to China through 4700 stores and a 20 year history in China. So why do we think Li-Ning is going to thrive in such a crowded, competitive category?

• Credibility with athletes. Li-Ning's shoes and apparel attract not only high profile athletes like Baron Davis and Shaquille O'Neal, but high profile strategic partnerships as well: in 2004, Li-Ning partnered with the Department of Sports Science and Physical Education at the Chinese University of Hong Kong.
• Subtle style. Ironically, while the most visible difference between most shoe brands is the logo, Li-Ning's style is what sets it apart. The clothes and shoes reflect both an Asian influence and a high-performance Western style, looking clearly different from competitors at both the high and low ends of the category.
• Value price point. Li-Ning's clothes sit in the upper end of the quality and style scale, but are mid-priced, offering shoppers a higher value proposition than competing brands. 

So what challenges will Li-Ning face entering the US?

• Misaligned sports. While high profile players like O'Neal and Davis will help move Li-Ning's basketball shoes, American shoppers are far less familiar with Chinese Olympic champion Lin Dan who endorses Li-Ning's badminton collection, let alone what constitutes "performance table tennis wear." Li-Ning will have to bridge the gap between sports that are popular in Asia (badminton, table tennis and kung fu) and those that resonate with US shoppers.
• Performance versus style. American shoppers buy "performance" gear in categories that they personally don't perform in (buying your kid those Air Jordans doesn't exactly guarantee an NBA slot)... largely for style reasons. It remains to be seen how well Li-Ning will balance remaining credible with true athletes that demand performance with appealing to style conscious masses.
• What sport can I use this for? Li-Ning doesn't know it yet, but in addition to market leading positions in kung fu, badminton and table tennis performance wear, it can be an inadvertent leader in running apparel and travel clothing as well. Li-Ning clothes designed for one sport not only work well for others, they offer a new level of style currently unmatched by entrenched competitors.

Time will tell if Li-Ning is successful, but having launched their first store right in the heart of the Nike-adidas stronghold of Portland, Oregon, they aren't thinking small.

New guest post: An overview of the state of organized retail in India

GREC is delighted to introduce our newest guest blogger, Ramesh Sethuraman. Ramesh currently leads the Integrated Store Solution Business Advisory Services team and supports the Customer Experience practice at Wipro Technologies. In that role, he heads a team of consultants in the areas of in-store technology, e-commerce, mobile retailing, and social media. With 11 years of retail industry experience, and clients ranging from Wal-Mart to SAP, Ramesh brings a wealth of expertise and a unique perspective on retailing - particularly the Indian retail ecosystem - to GREC. And in his first blog post for GREC, Ramesh explores the dynamics of one of the world's fastest growing - yet most challenging - emerging markets.

Being the largest industry of the nation, contributing over 10% to the country's GDP, Indian retail industry is currently valued at USD 350 billion. It is estimated to grow to USD 450 billion by year 2015. Serving over 1.17 billion domestic consumers, it accounts for 8% of employment.

 So far, only 5% of the Indian retail industry is organized.  Though several leading Indian corporations such as Reliance, Aditya Birla, K Raheja Group and Future Group have entered into organized retailing with massive investments and bullish growth plans, they are still struggling hard with rapid expansion.

Demographics and psychographics of Indian retail consumers play a vital role in evolution of organized retailing in India. The major stumbling blocks that limit the expansion or rather explosion of organized retailing includes

1.   Limited consumer spending capability – As per Indian government standards, if a person earns over $10 a month is considered to be above poverty line. As of Jan 2010 India's per capita income is seen at INR 33,540 (Approx USD 720). Unfortunately, as per World Bank estimates, 41.6 percent of India's population lives below $1.25 per day and 75.6 percent live below $2 per day. This limits the consumer spending capability to a phenomenal degree. However, this segment of population significantly contributes to the retail consumption which is not being or rather cannot be tapped by large retailers entered / entering into the organized retail sector.
2. Micro-level bulk breaking - With limited spending power, the population with an earning below $2 per day is engaged in micro consumption significantly matters for retail industry.  For example, in western countries volume of Head & Shoulder shampoo sold per unit is 14.2 fl oz (420 ml). Where as in India most of the consumers (over 50%) purchase shampoo in small sachets (5 ml volume). Unfortunately large format retailers can’t sell at micro volume as otherwise cost of POS transaction and customer service against the average basket size will climb up significantly, pulling down retailers’ margins.
3.  Well established Mom and Pop retailers – With approximate floor space of 200 - 400 Sq Ft the neighborhood mom and pop stores (popularly known as “Kirana Stores”) have highest level of market penetration in India. These retailers sell grocery to the neighborhood consumers in unbelievably small volumes (e.g. 50 grams of sugar or a sachet of shampoo). With no technology investment (not even electronic scales or simple POS for generating sales receipts), these micro format retailers stands as a major challenge for the large format retailers. Consumers with less spending power neither can, nor do they want to travel 2-3 KMs of distance to purchase USD 1 worth of grocery and save 10 cents. Even if they do, probably they will spend the money saved towards transportation.
4. Shopping on credit - Over 50% of the working population in India work as daily laborers and most of them receive their pay on weekly basis. Local Kirana retailers have built trust and relationship over several years with the local people and give the grocery on loan. Once the customer gets salary, they settle the account with the retailer. This is not possible for large format retailers from organized sector due to obvious reasons.
5. Real estate and infrastructure cost – During past decade, Real estate cost in India has escalated significantly. Due to this, a major portion of retailers’ investments are directed towards real-estate and infrastructure development.  Large format retailers open stores in a prime location where the real estate cost will be at premium (at least 30%) when compared to near by residential areas. Also they spend significant amount for setting up store ambiance and aisles. Whereas this is not an issue for micro format retailers, as small commercial spaces are available on monthly rental across all residential areas and neither these retailers, nor their customers care about the ambiance, as the average time spent by customer per shopping trip in Kirana stores is less than 4 minutes.
6. Labor cost & Attrition – Though labor cost is cheaper in India, labor retention is a major challenge for large retailers in the organized retail sector. Minimum educational qualification for store employees of organized retail is 10^th or 12^th grade and these employees shift jobs within 6 months of joining. This indirectly adds more pressure on store manager and other existing store employees. Whereas Kirana stores are mostly run by individuals or families; even if there are employees, they are either school dropouts or illiterates. As the basic skill requirement for an employee in Kirana store is to pack the good and collect the money, they don’t worry about the employee attrition.
7. Technology cost – Population near the poverty line don’t care about loyalty schemes, Point of sale, Self service checkouts or any other retail technologies. Their primary focus is on lower price and value for money.  Due to this attitude, they feel satisfied with the Kirana store shopping. At the same time for organized retailers, technology ROI adds up pressure to increase selling price of the product. For installing basic POS system, mom & pop retailers need to invest at least USD 500 (Computer h/w + software) which sometimes is the total cost of the stock in hand for many Kirana stores.
8.  Value Added Services – While organized retailers try to provide best customer service to customers inside the store, still services like free home delivery or handling order over phone are not possible from their end. Where as Kirana retailers excel in these types of services. In addition, they sell services such as pre-paid mobile top up vouchers, cigarettes (individual unit or 1 count) and other small things such as chocolates (as single units).
9. Supply chain network – Supply chain of organized retailing is still in the initial phase of evolution. Unlike western countries, the Indian city roads where most of the large retail stores are located can’t handle large trucks and trailers. Currently the large retailers in the organized sector have tie up with third party logistic companies to move goods from their warehouse to their stores. These 3PL service providers use vans that carry only 15-20% of the trucks load. But on the other end the supply chain for Kirana stores are well matured and need only smaller amount of replenishment. Consumer products for each Kirana store are being distributed through local stockists in the urban areas and sub-stockists in rural areas. This enables faster and frequent replenishment cycle (almost daily) in a more economic way. Also from convenience standpoint, for Kirana retailers, stockists are just a phone call away. Where as for major organized retailers the system based inventory management and store order fulfillment is still a challenge.
10. Merchandising – While organized large format retailers are struggling hard to sell their private labels, Kirana retailers procure numerous non-branded / locally manufactured products and sell them to its customers without much difficulty as the merchandise mix in their store is limited to the preference of the local consumers.
11.  Support from CPG companies – Unlike western countries, CPG companies in India have dominance over retail industry and were able to succeed with the unorganized retail sector. While CPG companies want to sell their products through organized retailers, they also want to be sure that small retailers in the current unorganized retail sector are not being affected due to entry of large retailers in to the market, as Kirana stores are the biggest source of their revenue.  As a result, leading CPG companies such as Hindustan Unilever, Marico and Dabur launched initiatives such as Super-Value, Mera and Parivaar respectively aiming to activate the general trade channel by giving consultancy and support to Kirana store owners. Unfortunately, this initiative was not a huge success, as the Kirana retailers did not want the CPG companies to dictate guidelines for their business.

Retailers who are trying to get into the Indian Retail bandwagon need to understand these factors and devise their entry strategy to succeed both in short and long term.

Through Indian government has approved and gradually opening up the retail sector to FDI, global retail giants like Carrefour is still on wait and watch mode, as many of the existing retailers are still struggling to stabilize. As an organization understanding the above factors, the German retail giant, Metro has entered into Cash & Carry store format targeting small retailers as their customers.

Currently, Walmart has tied up with Bharti group and has entered into the Indian market. They have understood that the best way to succeed in Indian market is to focus more on the Kirana retailers and have decided to open up Cash & carry stores across India during the first wave. For next couple of years they would like to learn the market dynamics through experience and then would like to adopt other retail formats.

So far Kirana retailers are not having any negative impact due to entry of large organized retailers into the market. However, many of them started understanding the future threats such as government mandating implementation of basic POS system. To overcome these challenges, Kirana retailers are slowly trying to transform themselves to become future ready. This definitely could be the first step to make the Indian retail industry organized at micro level.

Indian government should encourage and support these Kirana retailers to become process and system savvy by creating awareness and provide subsidy for technology implementation. By simply imposing any laws over the industry, without understanding future implications would do no good to the industry.

 

References:

India’s Population 2010

http://www.indiaonlinepages.com

Economic Survey 2009-10

http://www.indiastat.com/news/271/statistical-highlights.aspx

India's per capita income seen at Rs33,540

http://www.domain-b.com/economy/general/20100208_capita_income_oneView.html

FMCGs sell more via large stores

http://www.rediff.com/money/2008/jan/07fmcg.htm

Kirana rules the retail pie

http://retail.franchiseindia.com/article.php?title=Kirana+rules+the+retail+pie

India's 'real' poverty

http://www.prb.org/Articles/2010

Budget2010 : Retail FDI, at last?

http://business.in.com/readconversation.php?id=10822

The opinions expressed here represent authors own and not those of his employer or the site where it has been published.

JAPANSHOP kicks off in Tokyo

 With about 250,000 attendees expected over the next three days, JAPANSHOP/Retailtech kicked off today in Tokyo. Though we've only scratched the surface, exploring the franchise portion of the show, we'll be bringing in depth coverage both of the design/architectural side and a comprehensive look at the retail technology on display.

The audience at the show seems largely Japanese and Chinese, with only a handful of US and European attendees. Stay tuned tomorrow for the start of a series of postings:

• What the franchise opportunities on display are revealing about changes in Japanese economy, shopping, and retailing
• New architectural materials and the integration of technology and design
• Mobile retail: how QR-codes and near-field are changing the shopping experience

The Battle of the Basket: Part Two... "The Retailer's Arsenal"

During the long "cold war" between retailers and CPG brands, the balance of power has constantly shifted back and forth as each side tries new strategies and tactics in pursuit of the loyalty of the shopper.

In the last segment, we described some of the skirmishes between retailers and CPG; in this piece, we explore some of the weapons in the retailer's arsenal:

• The retailer controls the data. Gone are the days when IRI aggregated POS data and sold analysis back to both CPG and retailers. While a few retailers (Walmart first among them) use their sales data to shift responsibility for category management back to their suppliers, most retailers are keeping sales data close to their chest, choosing market basket analysis and optimization over collaborative category management. This gives them a first mover advantage and a faster response time to shifting consumer demand.
• Private label means lower price. Increasingly, despite maintaining equivalent quality (in some cases, higher "quality" alternatives appealing to specific buyers), retailers are dropping prices on private label. While both CPG and private label prices rose steadily until recently, in Q3 2009, CPG prices stagnated with a 0.3% rise... while private label prices plunged 5.3%. Retailers are trimming the fat off recently plumped margins, and in truth... they can cut even further.
• Premier shelf real estate for private label brands. As we mentioned in the first segment of this series, more and more categories are seeing national brands relegated to second tier positions with the retailers own private label brands positioned at eye level... and increasingly on end caps.
• Smaller stores, smaller assortments. As grocers experiment with smaller stores, not only are they reducing assortments across the board, they're also increasing the share of private label on the shelves that remain. Kroger currently 27% of its sales in private label, giving the retailer a lot of room to maneuver.
• Dominant positions in staples. Fashion offers an intriguing example of private label power: the same shoppers who turn up their noses at a $90 jacket from the Gap in favor of spending $200 on a Burberry coat have no qualms about buying blouses, skirts and denim at Old Navy. 
• Private label can be more fun. Take Trader Joe's... who spends next to nothing on advertising its overwhelmingly private-label assortment, eschews discounts in favor of simply calling attention to new products each month in their "Fearless Flyer" circular. With a revenue of $7.9 billion in 2009, it is a fraction of the size of rivals like Safeway ($44.1 billion) and Kroger ($76 billion), it has an incredibly passionate fan base. Trader Joe's can boast 156,478 fans on its Facebook page, while Safeway at five times the size has only 62,673, and Kroger - almost ten times larger - a mere 11,673. And private label pioneer Wegmans (who launched their own product lines in 1979) has a comparable fan base with 71,628 fans for its $4.8 billion in revenue. Wegmans has also used social media in innovative ways with a naming contest for its cocoa cereal product and passionate fan tweeting about their "W'O's" cookies.
• Retail brands can penetrate every product category. While shoppers might squirm slightly at the thought of Pampers yogurt or Chef Boyardee toilet paper, retail brand families can easily span virtually every product category in the store. Safeway, for example, has private label brands of diapers & baby products, gourmet food, pet care, dairy products, meat, deli products, paperware, and ready-made meals... not to mention one of the most successful organic brands, retailer OR national. This means greater mindshare as shoppers move through the store.

Of course, the United States is one of the latest fronts in the battle between retailer and CPG. Europe, and in particular, the UK has been a familiar battleground for years as mega-grocers like Tesco, Sainsbury and ASDA have been driving private label aggressively even before the current recession drove private label popularity in the US to record levels. Tesco (who currently accounts for more than half its sales through private label) has historically offered four different levels of private label in each category: Tesco's Discount, Tesco's Value, Tesco's Premium and Tesco's Finest. And in launching their foray into the United States via the "Fresh & Easy" banner, Tesco continued this strategy, offering a huge proportion of private label products and raising the quality bar by elminating artificial colors and flavors and transfats in its private label products.

So, has the balance of power shifted permanently to retailers? Can CPG regain the competitive edge and the market share they've sacrificed for higher margins? The next segment of this series will take a closer look at the secret weapons in the CPG arsenal and how they're shifting the battlefield to their advantage, so  stay tuned for more from the front lines of the battle of the basket.

Lululemon Athletica: global brand + local presence = loyal shoppers

While some might not consider it "breaking retail news" we thought it was worth a shout-out to a retailer who is doing an amazing job of engendering loyalty among its shoppers (and increasing basket size) simply by embodying the values of their brand.

This past weekend my children put on a shoe drive for Haiti at Lululemon Athletica's store in Portland, Oregon. They wanted to actually DO something to help the victims of the earthquake, and - since they didn't have any money of their own - ended up organizing the kids in my son's Cub Scout pack to collect up shoes to help the Soles4Souls program, a nonprofit that collects new and gently worn shoes in the US and distributes them to needy people around the world. With the kids organized and the charity selected, the only thing left was to determine a date and a place to do it.

That's where Lululemon Athletica came to the rescue. I regularly go on a long run Saturdays with a wonderful group of people, and many of those runs are hosted by Lululemon. They provide a place to meet, a bathroom, snacks, water, and a lovely 15% discount off everything in the store for the day. That generosity alone has kept me loyal to their brand, but their support for the shoe drive truly embodied the "global brand, local presence" values of the retailer: without requiring special approval or a lot of rigamarole, the store manager and staff invited us to host the shoe drive in their store. While many retailers support community events like this, Lululemon truly went above and beyond by setting up a table for my kids, Tweeting about the drive and even creating an event for it on Facebook! The exposure was the perfect complement to our own actions, and as a result of Lululemon's help, my kids collected over 150 pair of shoes in just a matter of hours!

I could just simply thank Lululemon Athletica here for really going above and beyond for a couple of kids, but in the bigger picture this retailer shows clearly how to create and keep brand loyalty:

• Don't just sell product, embrace your shopper's passion and lifestyle: Lululemon sells great product, but they also help support the activities where I use their product, and that embrace makes them first on the list when I choose to open my running-related wallet.
• Be a great global brand, AND be a part of the local community: Lululemon doesn't relegate community support to a tiny bulletin board in the back of the store, it's the first thing you see when you walk in. And their support of events like my son's and my running group make them a part of the local fabric in ways that few retailers can match.

In a 2009 NRF blog post, Lululemon CEO Christine Day shared her thoughts on what differentiates the retailer from its competition. Our experience with the store manager last Saturday was a perfect embodiment of these ideals. I didn't have to fill out a form or go through "community relations"... They simply wanted to help, so they just made it happen.

One of the hot buzzwords at NRF this year was "social media," and the irony is that for all the talk, very few retailers understand what it means to be truly SOCIAL. Just as Facebook is more than a one way channel for promotions of products and coupons (note: if that's how your brand uses it... it's called a "Web site," not social media), shoppers need to feel that they are a part of something other than a fabricated marketing campaign... they need to be invited to participate in the brand. And this is part of what Lululemon has done that is so fresh and exciting: shoppers not only feel a part of a stylish global brand community, they also feel at home there. It's truly a global brand with a local presence.

150 pairs of shoes collected by my children only makes a small dent in a massive crisis in Haiti, but if more retailers embrace the spirit of Lululemon Athletica, shoppers will not only be able to make a difference in the lives of those less fortunate around the world, they'll also be able to enjoy supporting a great brand while they do it.