Recession-Proof Retailing

Marketing strategies for AMERICANCONSUMERS are cutting back. They are spending less on retailers in slow economy. junk food, T-shirts, and jeans, and on cars many couldn’t afford anyway. According Keep on inventing. to Andrew B. Hargadon, associate profes- sor at the Graduate School of Management at UC Davis, “Fifteen years of binge-buying SUVs is just one of the reasons. People are losing that discretionary income and pouring it into their gas tank. Remember that most of them are filling up their tank three times every two weeks. That’s a hundred dollars less a week to spend at the store.” Many consumers were ill-prepared for a weak economy. Now retailers are seeking ways to reestab- BERTRANDPELLEGRIN lish their value with consumers in order to

6 8 ZELL/LURIEREALESTATECENTER Table I: How consumers would spend U.S. rebate checks

What will you do with your government rebate check? April 2008 Pay down bills 42% Save it 21% Do not qualify for rebate check 14% Spend on discretionary items 12% Other 11%

Source:The NPD Group Inc./Consumers Speak Out on the US Economy keep them shopping. A few retailers have Cohen argues that far too many retail- seen sales drop by as much as 25 percent. ers are cutting back in the wrong places— The bankruptcy of the twenty-year-old less product, less service, even less invento- Sharper Image is one of many retail casu- ry. However, this knee-jerk reaction ulti- alties, and the International Council of mately short-changes the customer. So Shopping Centers is forecasting that over- what can retailers do to entice consumers all store closings could reach nearly 6,000 back into the store and part with that stim- this year alone, the highest since 2004. ulus check? From big-box retailers to cor- Consumer spending has steadily ner boutiques, the smart retailer is one declined since the beginning of the year, who is strategic with his merchandise following a weak Christmas season. In a while exploring new ways of connecting May 2008 NPD Group survey, 58 percent with consumers. of consumers said “We are in a recession,” and indicated that they plan to curb spending or carefully consider how they THEMOVINGTARGET spend. Chief industry expert Marshal Cohen of NPD Group, Inc. says, Many retailers were unprepared for the “Consumers are finally starting to react to sharp decline in consumer confidence that the price of gas and other rising costs and occurred in late 2007, opting for a bunker are shifting shopping intentions.” That is mentality rather than a strategic one. But certainly reflected in another study, which in such times, the last thing a retailer found that only 12 percent of people who should sacrifice is positioning and a loyal were asked, “What will you do with your customer base. According to STORES Top government rebate check?” indicated that 100 Retailers, the most successful retailers they would use the money for discre- consistently remain ahead of the competi- tionary items (Table I). tion, reinventing themselves well before a trend peaks. But many retailers, both large

REVIEW 6 9 and small, have cut back on their funda- consumers, perhaps because soaring gas mental outreach tools. They have slashed prices are keeping them at home rather marketing and advertising budgets, scaled than on an expensive trip. A plasma screen back or eliminated in-store services, and television helps parents rationalize keep- stopped updating their website with fresh ing the kids at home, and saving $40 on content and just-in-time messaging. an evening at the movies. “Retailers today are trying to let the mer- Satisfying consumer concerns is a chandise speak for itself… And brands too philosophy Target Stores, Inc. has should not rely on retailers to communi- embraced, but it has recently gone to cate their message—they won’t,” says extra lengths to underscore its message. Cohen. Many retailers end up chasing During the Golden Globe Awards, trends that have nothing to do with their Target launched its “Hello Goodbuy” brand value in the market. campaign to remind consumers that A recession is a time to go back to basics, Target still stands for style and value that is, getting the merchandise right, com- (Figure 1). Target spokesperson Hadley municating what the product does (with Burrows says, “We’ve heightened our the right message), and showing why the focus on our frequency-driving business consumer needs the product. This is the including pharmacy, food and commodi- formula that retailers such as Apple and the ties, and placed greater emphasis on the “everyday low price”-type stores have stuck Pay Less side of our brand promise—in with through thick and thin. our weekly circular, in-store signage, and Now, more than ever, is the time to through greater use of value-pricing on develop messages and concepts that speak end-cap displays.” Target has also begun to the customer with the theme of “pur- to experiment in about 100 stores with chases with a purpose,” focusing on bulk what it calls “Pharmacy TV:” television foods, dual-purpose items, and merchan- programming on health and wellness, as dise that satisfies the whole family. The well as new products. It is reinforcement successful merchandiser understands the of Target’s value message. But, is it work- desires of the consumer, such as: “This ing? “We’re still testing it, but our store will last a long time and never lose its managers say that customers are watch- value;” “I will be able to share this with ing it. We’ll be exploring this tool fur- my family;” or “It’s a classic item that can ther,” said a Target spokesperson. be used every day.” Home electronics— Private label items are also an emerg- always a volatile category—still manages ing market. In 2007, Target’s private-label to feel like a sensible purchase to many food items contributed to a 13.1 percent

7 0 ZELL/LURIEREALESTATECENTER Figure 1: A direct mailer fromTarget’s “Hello Goodbuy” campaign

Courtesy Catalyst Studios

sales increase. Walgreens has begun sell- LEARNINGFROMLOSERS ing “premium” products that blur the dis- tinction between national and house “There but for the grace of God go I” is brands. Of course, it is always easier for what many retailers are thinking these big-box retailers to negotiate value pric- days, as former heavy-hitters bite the dust. ing with their key vendors, but how does In the 1990s, themed shopping—retailing a small, locally owned boutique succeed masquerading as an amusement park— without compromising selection? The was popular. The Disney Store (Figure 2) answer lies in closer tracking of customer was a classic example. But in an age of purchases. Many smaller merchants have sharper and more highly calibrated meth- been successful in negotiating smaller ods of retailing, the shopping-as-entertain- orders with their top vendors, or split ment paradigm has lost its meaning. The orders with another retailer. The result is Disney Stores lost their relevance when less stock, but a greater chance of it being they saturated the market and the “fun sold at full price. experience” lost its luster. The recent clo-

REVIEW 7 1 Figure 2: Disney Store, San Francisco

sure of 98 Disney Stores (in the United neighboring brands reinforce the audi- States) was due not simply to an econom- ence profile? ic downturn but also to an over-saturation The Sharper Image, on the other of the market and lack of synergy with hand, lost its appeal not only because of neighboring tenants. its debacle with an air purifier (resulting In an economic downturn, being next in a class-action lawsuit and a large inven- door to a Tiffany’s or Saks Fifth Avenue tory of unsold products), but also because may no longer be an advantage. Retailing of an over saturation of the market. The synergy, whether in a boom or a bust, is Sharper Image brand ceased to be rele- critical to sustaining a brand’s integrity vant in a world where new technology during hard times. Recession-proofing a moved so fast that by the time it was dis- retail center requires the right tenant played in a store it was already being dis- mix. And while every brand wants to be counted at Best Buy or in an online store. a flagship, an economic downturn The Sharper Image merchandise became demonstrates that the important ques- outdated—even kitsch—with a random tions are: Is the brand still relevant? Do mix of goofy gadgets.

7 2 ZELL/LURIEREALESTATECENTER CONNECTINGONLINE lacks: easy price comparison, conven- ience, and concise product information. It is no secret that the network television In the online world, shoppers not audience is getting older, in fact, it may only can compare prices and product rat- even be disappearing. The average ings, but can also discuss the benefits of household has made a slow and steady a product in chat rooms and with move away from network television, to friends. Such real-time user testimonials cable and the Internet, where they find influence buying decisions and create an not only entertainment and community, online community around special inter- but also a way to shop that does not ests. But many retailers continue to see require them to step into a store. “Most their online brand identity as merely a young people in their twenties are get- virtual storefront, rather than as an ting all their content on the Internet,” opportunity to connect with their cus- says Andrew Hargadon, the author tomers. Chat rooms, fan sites, and fash- of How Breakthroughs Happen: The ion blogs are just a few of the online for- Surprising Truth About How Companies mats through which retailers can develop Innovate. “They’re finding more of their a client base and obtain customized needs satisfied online. It’s become a information. According to Hargadon, place where they can not only exchange “Retailers should really embrace the ideas, but make decisions about what online world and try to create their own to buy.” online community. Consumers are The number of U.S. online shoppers becoming more accustomed to a fair will double to 132 million in the next amount of meaning associated with a five years, and men are emerging as one product, and Internet communities give of the most active target groups. producers and retailers real user experi- According to the NPD Group, men’s ence and feedback. It’s also where they purchase of online apparel rose 4.4 per- can provide a deeper meaning behind the cent, or $57.2 billion, from last year— product than they might be able to in a compared to only a 1.1 percent increase store. In the end it’s a more meaningful among women. Neiman Marcus is tak- connection with the consumer.” ing notice with a revamped website pres- Last year, MySpace launched the ence geared toward a male consumer. MySpace Fashion Channel, an online From sneakers to stereos, shopping “sub-community” that allows users to online is not only convenient; it in many connect with brands, designers, and ways offers what the store experience fashion world celebrities (Figure 3).

REVIEW 7 3 Figure 3: MySpace Fashion Channel

Designed like an online magazine, the NEWFORMATS site contains first-person stories by fashion groupies. “If you’re an apparel or Even successful companies need to discov- fashion marketer, MySpace Fashion will er new ways to frame their offer and give you a focus group to test your prod- expand their audience. The San Francisco uct and receive feedback from your core office of the architecture and design firm user,” says Todd Dufour, director of Gensler was hired to develop a new retail strategic partnerships at MySpace. In approach for outdoor sports supplier REI, turn, designers get a direct communica- Inc. REI’s 42,000-square-foot flagship tions line to the consumer that can keep store in Boulder, Colorado had become a them on the pulse of what customers are crowded assortment of clothing, equip- thinking. The site makes heavy use of ment, and supplies that made it difficult streaming video from fashion shows and for shoppers to find their way around, and parties, which means there is almost no gave the impression that the store was an downtime in keeping consumers on the outlet rather than a specialty store. The cutting edge of new collections. revamped Boulder store serves as a labora-

7 4 ZELL/LURIEREALESTATECENTER tory to evaluate new retail concepts for the prototype stores was to envision what REI company, including a “hearth” compo- stores would look and function like in the nent that has evolved into a central com- future, with a special focus on the envi- munity space. Where before store displays ronment and the community.” felt random and disorganized, now there The redesigned REI store (Figure 4) is a clear “story.” Thanks to an enhanced appeals to a new demographic without signage system, customers are able to actu- alienating the core customer base—a key ally learn about products while they shop. goal for the project. The 2,000-square-foot The store was also designed to achieve community space acts as a place for shop- LEED Silver status in order to enhance pers to learn more about the outdoors and REI’s brand connection with the environ- opportunities to protect natural resources. ment. The goal for the design team was to It is also a venue for events, presentations, create a retail experience equal to the and demonstrations by REI and its many brand’s premium products and services. community partners. “The community “We’ve had a long history of building center has been a big success with many green,” says Dean Iwata, REI’s director of non-profit partners and local organizations store development. “The objective of our utilizing the space, in addition to an expanded program of REI clinics, presen- Figure 4: REI store, Boulder tations, and other events,” says Iwata. Partnering with local groups enables the store to educate and entertain the customer, while further solidifying the brand’s role as an “expert” in its field. Educational communications and in-store messaging offer an even broader opportunity to inform customers about the diverse product spectrum, the store’s customized sus- tainable features, and REI’s service offer- ings and benefits—all while building affin- ity and loyalty. Pop-up stores are temporary shops that create a sense of urgency and performance, and allow a retailer to try new merchandis- ing strategies. The success of pop-up retailing is that it is more casual and approach-

REVIEW 7 5 Figure 5: Nivea pop-up store, Milan

able, and the limited-time idea signals “get ucts. Vintage bicycles painted an electric it while you can.” At this spring’s Salone Di blue were chained to posts on streets lead- Mobile in Milan, there were two interesting ing up to the shop—a signage concept pop-up stores that received plenty of atten- that doubled as installation art. At the tion. Charles & Marie, a distributor special- entrance to the store, a tall, handsome izing in one-offs and limited editions of model dressed as a security guard stood home accessories and gift items, set up shop sentry next to a giant digital clock that for only five days in an empty thrift shop in ticked off the minutes before the store the heart of Milan’s warehouse district. The would fold up and disappear. tiny pop-up store was always packed. Apple’s flagship stores have a similar Meanwhile, across town, corporate energy, with a sense of excitement, fresh- beauty brand Nivea installed a portable ness, and education that has made it the pop-up store shaped like a doughnut benchmark for most retailers today (Figure (Figure 5), offering skin consultations, 6). “Their quest is to create the ultimate hair stylists, and a range of beauty prod- shopping experience,” says NPD’s Marshal

7 6 ZELL/LURIEREALESTATECENTER Cohen. “It’s a place for you to shop, learn Outlets International Center in Orlando, how to use the product, learn what you Florida. This outlet gave Saks a chance to can buy to enhance your product… and experiment with marketing strategies it most important, a place to come to feel might not pursue in its regular stores— comfortable, to bond with the brand… from gifts with purchase, to lucky draws. No pressure to purchase, just a wholesome Such outlets are new distribution chan- learning and entertaining environment.” nels, and opportunities to tap different, Apple stores convey an aspirational more aspirational customers. Outlets are message—one in which the brand appears also an opportunity to control excess to enhance an individual’s lifestyle and sta- inventory without sacrificing brand identi- tus. Even in tough economic times, the ty in a conventional store environment. brand never loses its appeal. This message With an outlet, brands control the pricing, can also be applied to outlet stores, dis- hire the employees, and determine the count stores, and value-priced retailers. build-out of the store. It is an orchestrated Some retailers are taking a page from the brand experiment that is executed with pop-up concept and creating temporary care, lest it tarnish the parent brand. outlets, although with less atmosphere According to Women’s Wear Daily, than the Milan examples. Earlier this year, retailers like Kate Spade, Lucky Brand Saks Fifth Avenue launched a 24,400- Jeans, Puma, and Juicy Couture have all square-foot Off 5th outlet in the Prime jumped on the outlet train. Retail property

Figure 6: Apple Store, NewYork

REVIEW 7 7 Figure 7: Woodbury Common Premium Outlets, Central Valley, NewYork

managers see outlets as an opportunity to CONCLUSION fill holes left by mid-level brands. Indeed, the outlet mall is having something of a A successful business doesn’t rest on its lau- revival. Woodbury Common Premium rels. Instead, it refreshes itself in order to Outlets in Central Valley, New York, for stay compelling and relevant, tapping into example, has 220 outlet stores and an evolving audience, with evolving needs. 840,000 square feet, with a virtual laun- What makes a business shine is that it is dry list of top brands, from Bottega strategic in its operations, and uses com- Veneta to Valentino. Other brands at petitive intelligence in informing how it Woodbury, like Helmut Lang and Judith faces a challenge. A successful retail strate- Ripka, are literally taking the pop-up gy is not much different, although the approach, with mini-outlet shops that are power of a brand can take that strategy one open for only a few months at a time. step further. Success is less about imple- Indeed, luxury brands are taking a cau- menting a revolutionary retail strategy and tious approach to outlets, but with careful more about revolutionary execution. The positioning and execution, many are find- key to a successful brand is its ability to ing that it pays off. remain relevant and meaningful to the

7 8 ZELL/LURIEREALESTATECENTER consumer—and add value to the shopping experience. The brands that extend their relationship into the online world are like- wise discovering new ways to connect with the customer. Until the U.S. economy rebounds— and even thereafter—many retailers will be forced to close their doors. To remain successful in a recession, a business needs to be inventive and flexible, and must work collaboratively in finding creative solu- tions. A recessionary retail strategy requires reinforcing the value of the brand experience on every level, while exploring new and innovative ways of articulating it.

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