OPINIONATED • OUTSPOKEN • UNBIASED

THE

FALL 2015

GLOBAL REPORTS FROM BRAZIL, CUBA, ITALY AND MEXICO PAGES 17,18,23,32,42 MILLENNIALS: TALKING LUXURY AND THE WORKPLACE OF THE FUTURE PAGES 8, 40 COSTCOHOLICS 75 MILLION ADDICTS AND COUNTING PAGE 3

 / 1 TOC Featured Contributors: RANDY BURT VISHWA CHANDRA NADIA SHOURABOURA Randy Burt is a Partner in the Consumer Goods Vishwa Chandra is a Partner in Dr. Nadia Shouraboura is a retail and Retail Practice at A.T. Kearney, a global A.T. Kearney's Consumer Goods and revolutionary. She holds a Ph.D. in strategy and management consulting firm. Retail Practice, where he partners Mathematics from Princeton University, He has over 16 years of experience in consumer with food, mass, drug and value has extensive retail and technology products and Food Retailing with focus on retail retailers to drive merchandising experience, and was former head of strategy, Fresh and Center Store merchandising, effectiveness and supply chain Supply Chain and Fulfillment Technolo- ecommerce, and supply chain. He also spent efficiency. He is also a leader in the gies for Amazon.com. Nadia also served five years at the Nielsen Company in a variety firm's Consumer institute, where he on Jeff Bezos's senior leadership team, of market research and data operations roles. leads primary research on the ever which was responsible for overall He is a regular speaker and author on online evolving consumer landscape and direction and operations of Amazon. grocery and other food retail topics. its implications for retailers.

CEO, EDITORIAL DIRECTOR Robin Lewis Inside this Issue COO, EDITOR Deborah Patton Costcoholics Millennials at Work CSO 28 Judith Russell 3 Robin Lewis Maxwell Montgomery ART DIRECTORS The Love of a Favorite Steffi Sauer, Deanna Stewart My View Nadia Shouraboura 30 Catherine Salfino PUBLIC RELATIONS 5 Meir Kahtan The Omnishopper Applied Theory on Brazil: ADVERTISING SALES AND 6 Ted Iacobuzio 32 Notes From the Tropics RATE INFORMATION Paco Underhill [email protected] Creative Disruption 8 in Retail Design Uberizing Anthony Robins 34 Dana Wood CONTRIBUTING COLUMNISTS Randy Burt Retail’s Learning Pipeline: From 7 Secrets of ‘Voice of the Customer’ Success in Retail Vishwa Chandra 10 Clicks to Bricks and Back Again 36 Bridget Johns Sarah Simon Mark A. Cohen Pam Danziger Home for the Holidays Fall Into The Gap Marie Driscoll 12 Warren Shoulberg 38 Robin Lewis Ted Iacobuzio Understanding Omnichannel Bridget Johns How to Talk Luxury to Millennials 14 Shoppers Through Receipt Len Lewis 40 Pam Danziger Mining Robin Lewis Andy Mantis Origins Andy Mantis 42 Marie Driscoll David Marcotte Mi Casa Es Su Casa—Maybe! David Merrefield 16 Len Lewis Grocery (Finally) Gets With It Max Montgomery 44 Randy Burt and Vishwa Chandra Gwen Morrison Postcard from Havana Deborah Patton 18 Deborah Patton Seattle: America’s Capital of Retail Anthony Robins 46 Robert Spector CEO Insights with Gerry Storch Catherine Salfino 20 Robin Lewis Cautionary Tales Warren Shoulberg 49 Mark. A. Cohen Nadia Shouraboura Expanding Globally? Sarah Simon 23 Then Consider Mexico Whole Foods’ Ham Handed Moves Robert Spector Gwen Morrison and 51 David Merrefield Paco Underhill David Marcotte Dana Wood

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2 / WWW.THEROBINREPORT.COM / FALL 2015 ROBINREPORT “COSTCOHOLICS” COSTCO’S $113.7 BILLION ADDICTS

A good friend of mine was talking about store. And this is not a one-off, let’s-see- towels—in fact, more of any product it de- Costco recently, raving on and on about what-it’s-like kind of visit. The renewal cides to offer its members—than just about how she couldn’t resist shopping there rate is a whopping 90 percent each year. any other retailer, allowing it to negotiate at least two to three times a week. She I guess that captures the power of an the lowest prices from vendors. It sets said sometimes she doesn’t even plan addict’s behavior. the standard for the lowest pricing in the on buying anything. She just loves industry; not even Amazon can beat it. wandering around in the enormous, Not only is 80 percent of Costco’s gross As a result, the Internet has disrupted two-football-field-sized warehouse, margin and 70 percent of its operating Costco less than it has other retailers. hunting for what’s new (Costco turns income derived from its Costcoholics’ over its entire inventory 12 times per membership fees, Costco collects most And since 80 percent of its gross margin year). She is also obsessed by what the of its profits 12 months in advance, not and 70 percent of its operating income big designer or luxury “surprise” of the at the eleventh hour of the fiscal year come from its membership fees, Costco week might be; stuff like Waterford like most other retailers. keeps margins razor thin, with markups Crystal, Coach handbags or Omega at 15 percent or less, compared to 25 watches, to name a few, all selling out These “druggies” bought enough stuff percent for supermarkets and 50 percent quickly for shock-and-awe low prices. during Costco’s 2015 fiscal year (ended for department stores. Costco’s prices And even though she may have shopped August 30th), to pump revenues up to are on average 30 percent below large with no intention of purchasing, she $113.7 billion (a 3 percent increase supermarket chains’. says she always finds something that over 2014). Costco is the second largest seduces her to buy. retailer in the U.S. after Walmart, with Because of the relatively low number 480 warehouses. Internationally there of SKUs that Costco carries, the Costco So as she is telling me about her are 89 Costco warehouses in Canada, model is simpler, cheaper and easier compulsive obsession, or obsessive 36 in Mexico, 27 in the UK, 23 in Japan, to execute, and it is inherently more compulsion, for this almost out-of-body 12 in Korea, 11 in Taiwan, 7 in Australia productive than that of the average experience she has every time she goes in and one in Spain. And Costco plans to retailer. It requires less time to sort, to Costco, I think I observe a slight trem- open 14 new warehouses (including two restock, reorder and deliver product. or—almost as though she’s going through relocations) before the end of calendar Costco eschews carrying multiple brands some sort of withdrawal. The next thing year 2015. of products that are similar, except of out of her mouth is, “I must plan a dinner course when it has its Kirkland Signature party for this weekend so I can get over A COMBINATION DRUG private label brand to sell. Think about it: there tomorrow and get some steaks and A major supermarket chain like Kroger’s another case of red wine.” Just to give At the core of Costco’s model is a might offer 40 different peanut butter you some context, world renowned chef philosophy that was embedded by its SKUs; Trader Joe’s has ten; and Costco’s Julia Child bought her meat from Costco, founder and CEO, Jim Sinegal, from its has two. Costco’s 4000 total SKU’s is and the retailer is the largest purveyor inception in 1993, then passed on to its narrow, but it allows them to buy huge of fine wines in the U.S. Incredibly, to current CEO, Craig Jelinek, when he took quantities and charge lower prices. me, my friend did plan a dinner party the helm in 2013. This philosophy was just as an excuse to go to Costco. Now handed down to Sinegal by his longtime A second part of the Costco drug combo that redefines the neurological addiction employer and mentor, Sol Price, who was is the treasure hunt—the discovery of I’ve been writing about for years. the pioneer of the “warehouse store” something not needed, but impulsively retail model, launching Fed Mart in the desired. Each store’s main aisle is A “COSTCOHOLIC” INDEED! 1950s and Price Club in 1976. designed in a racetrack layout, which leads customers to circle the entire floor She is just one of the over 75 million Price never allowed employees to use and view the entire mix of product offer- “mainlining” Costco members (and the word ‘discount.’ The way Price’s ings, often enticing them to buy things growing in high single digits annually), mind worked was to focus on the lowest they didn’t necessarily set out to buy. with an average annual income of possible markup rather than the deepest $100,000, paying a $55 annual member- discount. In Sol’s mind, the word discount Costco’s product categories range from ship fee (or $110 for an executive level equated with cheap. So the core ingredi- tires and diamond rings to food, clothing, membership). Three million members a ent in Costco’s addictive drug is its value electronics, cleaning supplies, home dé- day enter Costco’s stores to get their fix. proposition that stands for high-value cor items and everything else in between. products at the lowest prices. And don't forget gas and the automobile Yes, you read those numbers right. In aftermarket. More than 66 percent of its today’s over-stored and over-stuffed retail How does Costco manage to offer such sales are food. Approximately 75 percent environment, the equivalent of almost down-and-dirty prices? For starters, it of merchandise sales are in what the one-fifth of the U.S. population is paying has enormous economies of scale. Costco company calls “triggers”— bulk sales for the privilege to shop at a particular buys more apple juice, diapers, pasta, of staple products like cereal, ketchup, Continued on page 4  / 3 CONSUMER BEHAVIOR Continued from page 3

detergent and paper towels—that people instrument. Financing is made easier. Costco’s labor-friendly attitudes date back use day in, day out. Need 20 pounds Costco is expanding the number of to its origins. Another philosophy handed of sirloin steak or five pounds of whole payment methods it accepts and has down by Sol Price was that he embraced cashews? Then Costco is your place. added gift prizes for frequent purchasers. organized labor. While other big retailers Eggs come in cartons of 90. Diapers are For the moment, it only accepts American like Walmart and Amazon have imple- ten dozen to a box. You can buy Colgate Express and its own private-label card, mented sizable campaigns to actively Advanced Whitening toothpaste, but only but that will change in April, 2016 when keep unions out, Costco is okay with the in a pack of four eight-ounce tubes. it will accept Visa and MasterCard. fact that the Teamsters represent some of its employees. The other 25 percent of sales at Costco HAPPY EMPLOYEES, are in so-called treasures—opportunistic HAPPY CUSTOMERS At Price Club, Sol marked everything up a finds that Costco stocks to surprise and small flat amount because he felt retailers delight its customers. These are electron- Though the physical plant might be added only limited value to the consumer ics, appliances and other less frequent spartan, the way Costco treats its purchase equation. He also believed purchases at extremely good prices. And employees is anything but. At a time firmly in treating employees, customers then there’s the fun stuff. Brands such when many retailers are cutting staffs and vendors with respect—and in the as Andrew Marc, Calvin Klein, Adidas, and reducing employee hours to cut costs process, rewarding shareholders. When Chanel, Breitling and many more, for and avoid paying benefits, Costco is an Sinegal brought the Price Club model to incredibly low prices, compel the treasure anomaly. It sees employees as an asset to Seattle in 1983 to start Costco, then hunters to keep coming back. Behind be respected and invested in, not as a cost merging the two and going public in the curtain, these products are acquired to be minimized. Former CEO Jim Sinegal 1995, Wall Street repeatedly begged from distributors, rather than the once told Stores magazine, “We’ve always the retailer to reduce wages and health brands themselves, sold individually had the attitude that if you hire good benefits. Instead, Sinegal, in a nod to (not in bulk)—and often sell out quickly. people, provide good jobs, good career his former boss, increased benefits and opportunities and good wages, good wages every year, including during the The three million shoppers per day who things will happen in your business.” recession. The company’s attitude was visit Costco stores are some of the most Current CEO Jelinek has learned “The economy is bad, we should figure neurologically connected consumers on well, and added the consumer into the out how to give people more.” the planet. Many admit to falling prey equation. In 2013 Jelinek wrote to to “the Costco effect,” shorthand for Congress urging an increase in the To preserve the company culture, it spending more than they’d planned to federal minimum wage for the first time prefers to grow executives from within spend. One of those very connected since 2009. “We know it’s a lot more rather than hiring business school customers, Kimberly Peterson, started profitable in the long term to minimize graduates. The many MBAs working at a blog in 2006 to share news of what she employee turnover and maximize employ- the company earned their degrees while bought at Costco with her mother and ee productivity, commitment and loyalty.” working there. Said Sinegal: “Culture sister. Today, AddictedtoCostco.com has He was also quoted as saying, “It also isn’t the most important thing, it’s the two million readers and generates enough puts more money back into the economy only thing.” ad revenue that Peterson was able to quit and creates a healthier country.” her day job and run the site full time. EPILOGUE Costco pays its employees an hourly Costco has immense respect for its average that is more than two-and-a-half My Costco-addicted friend wanted to go customers, unlike its main competitor times the minimum wage, and almost on a two-week vacation. Her husband Walmart’s Sam’s Club, has lenient twice what Walmart employees make. wanted to go to Belize just to chill out. return and payment policies. So if you’re Almost 80 percent of its employees have But my friend had a panic attack and unhappy with your six-pound wheel of company-sponsored health insurance. demanded, with all kinds of threats, that Brie, you can get a full refund. Addict- With initiatives such as these, Costco they vacation in the UK—where she could edtoCostco.com’s Peterson recalls once earns incredible employee loyalty, which find a Costco when she needed a “fix.” standing in line behind a man who was in turn results in fantastic productivity. trying to return a violin a year and a With millions of Costcoholics like her, the half after buying it because his daugh- Other companies that invest in their behemoth from Bentonville had better ter didn’t want to play anymore. Costco employees’ workday happiness and be looking over its shoulder. cheerfully gave him a full refund for the loyalty are also performing well finan- cially. Among them are Nordstrom, The Container Store, Sephora, REI and Whole ROBIN LEWIS Foods Market. Doug Stephens, founder of the consulting firm Retail Prophet, told Publisher Bloomberg Businessweek: “This is the and CEO of lesson Costco teaches. You don’t have Robin Report to be Nordstrom selling $1,200 suits in order to pay people a living wage. That is what Walmart has lost sight of. A lot of Robin Lewis has over 40 years of strategic people working at Walmart go home and operating and consulting experience in the retail live below the poverty line. You expect and related consumer products industries. He has that person to come in and develop a held executive positions at DuPont, VF Corporation, rapport with customers who may be Women’s Wear Daily (WWD), and Goldman Sachs, among others, and has consulted for Kohl’s Department spending more than that person is Stores, and dozens of others. In addition to his role making in a week? You expect them as Publisher and CEO of The Robin Report, he is a to be civil and happy about that?” professor at the Graduate School of Professional Studies at The Fashion Institute of Technology.

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A series of firsthand views from industry leaders on the retail MY VIEW landscape, careers, personal insights and the future of retail.

What is your greatest source of What would people be surprised to inspiration, or where do you get know about you? your best ideas? I walked out of the Soviet Union and Making love to my husband is my lived on the streets of Hungary before source of inspiration. I always dream I could find my way to America. Also, about making shopping as exciting I love to read and write computer and passionate as sex. programs. I used to read through millions of lines of code at Amazon, What retail operation do you think and I write a lot of code at Hointer.

is innovative and sustainable? What books are you reading? Convenience through technology. The reason tech has been used in so many I’m reading about SpaceX and Tesla, ways in the online world is because by Ashlee Vance. I think when we we can easily learn about individual create a Tesla-like fitting room at customers and change the way they Macy’s, men will line up. interact with products. While harder to By Nadia Shouraboura understand customers and their prod- What’s your favorite leisure activity? CEO, Hointer uct interactions in the physical world, the retail experience is much richer—so I don’t have one. I love to work and I’m Dr. Nadia Shouraboura is a retail we have greater opportunity over time okay doing it all the time. When my revolutionary. She holds a Ph.D. in to change the overall game. Innovation, daughter wants to spend time with Mathematics from Princeton University, has though, is about constant change. It me, she comes to Hointer. extensive retail and technology experience, doesn’t sit still. So anything I call out and was former head of Supply Chain and as innovative is only sustainable if it What lessons have you learned Fulfillment Technologies for Amazon.com. soon becomes something different. Nadia also served on Jeff Bezos's senior from elsewhere in your life that leadership team, which was responsible for What is your favorite place to shop? you can apply to retail? overall direction and operations of Amazon. I did my Ph.D. in mathematics and I Macy's Herald Square on Thanksgiving learned how to apply many different put a spell over me since I was a ideas and use data to confirm which How did you get into this business? student, and I love their ongoing solution works best. We do the same makeover. Given the amazing history I was born in Soviet Russia, where at Hointer. Most things we try do not of that store and yet its ability to “retail” meant that when you see a work, but the several things that work constantly reinvent itself, I always feel line, you try to cut in and wait to grab really well for us and for Macy’s have hope for the future of physical retail whatever you can regardless of what increased sales. So we double down it is. When I crossed the border into when I shop there. on those ideas. Hungary and saw my first food store, I was in awe. At that moment I fell in Over the last five years, what What's your favorite quote love with retail and most importantly has been the biggest change with the impact it has on people’s lives. (and who said it)? in the industry? Jeff Bezos likes to say, “Step by step, Who has been your greatest The maturity of ecommerce and early ferociously”—and it sits well with me. influence/mentor? attempts by retailers to fuse physical and digital shopping. My grandfather, a Russian space What’s your favorite online site? scientist, taught me that we could put a man in space using the computing What do you think will change NASA’s website http://www.jpl.nasa. power of a T-84 calculator. When the most in the next five years? gov/ It covers space missions. I keep people ask me how expensive the thinking, if we can put a man on Mars, Hointer solution is, I always think The in-store experience and fusion we can reinvent how people shop and of high school calculators. of digital and physical. This is our make it magical. biggest opportunity, both in customer experience and supply chain.

 / 5 CONSUMER BEHAVIOR

THE OMNISHOPPER: THE ONLY PERSON WHO MATTERS FOR RETAILERS Ted Iacobuzio

Let’s not forget the only real driver of the omnichannel world. It’s the You will find no shortage of customer. It’s the customer who is considering a constant stream of new information, new products and yes, new channels. We excellent, well-researched would like to suggest that although channel strategy is important, it will never be as important as customer strategy. In that spirit, we have just completed a global profile of what that customer looks and well-intentioned advice like, how she thinks and how she shops. Meet the omnishopper. on the world of omnichannel Experience and Possession retailing. For example, MasterCard has recently completed a global study of the omnishopper and found that today’s consumer transcends channels. She is not interested in “stuff”—either she doesn’t online mobile commerce is remember what life was like pre-2008, or she does so with a shudder. She is interested in the experience of shopping and exploding. We know that. possession. While hardly oblivious to price, price is only one ingredient in what adds up to a satisfying retail experience. Quality, brand, value—and a pleasing and even entertaining Mall stores are evolving. path to purchase are what are important to her.

Omnishoppers have become accustomed to ecommerce, but they’re Online marketplaces are not devoted exclusively to it. Even if ecommerce holds concerns for 59 percent of omnishoppers, they understand what ecommerce is gaining momentum. In-store for. And that understanding is what’s behind what many regard as ecommerce’s stall-out at about 7 percent of total retail volume.

technology is continuing to Through much of this year, there has been a good deal of heat and noise in the press, and, for that matter, when retailers talk to each gain traction. other, about the supposed underperformance of ecommerce. We at MasterCard say, ”Don’t be afraid of this number: understand it.”

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First of all, not everything is so dire for ecommerce when sliced by category. THE OMNISHOPPER: Fully 48 percent of electronics and appliances were sold online in July 2015, according to MasterCard SpendingPulse, She is interested in the with 23.5 percent of apparel moving through the online channel during the same period. experience of shopping Shrinking Store Visits and possession.

But for the omnishopper, the path to purchase leads more and more to the stores on Main Street and in the mall—the venues that continue to provide her with the experience she wants. She Wants It Now

The thing is, that list of stores is dwindling. The more The last named is a critical point. More than safety, more she shops online, the more the omnishopper narrows her than security, consumers are demanding selection and choice of stores to visit. availability both online and in-store. Fully 73 percent of U.S. consumers surveyed told us their biggest frustration This was perhaps the most arresting result of market with shopping was “items not in stock.” research MasterCard conducted to find out what the omnishopper is thinking, and how retail CMOs can place Online or in-store, the omnishopper wants what she wants their next bets by anticipating her next move. when she wants it.

By startling margins, MasterCard discovered, first from a This goes to the heart of the omnishopping phenomenon (it is look at its anonymous and aggregated transaction-based nothing less). Retailers can thrive only by concentrating on the insights, and later by asking a robust sample of the U.S. omnishopper herself and the way she uses channels, devices, consumer base, the more sites omnishoppers visit online, technology and indeed her own savvy as means to an end—in whether to research, price or buy, the fewer stores on Main short, the path to purchase ending in a satisfying experience, Street they are predisposed to visit. So ecommerce has taken as much as the purchase itself in a box with a receipt. This on the role, in concert with other forces—the continuing also is the way to obtain her commitment—a commitment impact of the financial crisis on consumers’ attitudes toward based on trust to deliver merchandise swiftly, safely and in their money, and the resulting focus on experience—of a digital and physical environment that the consumer finds sharpening consumer choice. welcoming.

MasterCard transaction data indicate that between 2010 and Analysis of category spend is all very well: it would be foolish 2014, 53 percent of U.S. consumers were visiting fewer sites to know that nearly half of electronics in the U.S. move and stores, with unique merchants per active account falling through the online channel and not adjust floor planning 13.5 percent from 28.4 stores to 24.6 stores. Meanwhile, they accordingly, for example. But it’s just as important to realize are visiting more ecommerce sites, both for researching and that each category has a shifting equation of device, channel, buying. So the downward trend is driven almost exclusively by geography, research, purchase, spend and planning—and that their sharpened focus, afforded by the internet, once they’re this equation is a result of the consumer’s own understanding interacting in the physical world. of her needs in this new environment. When she finds those needs met, she will commit. Loyalty Versus Commitment

This is not to say that consumers have become more loyal. They’re not there yet, and, if retailers don’t do their work, TED IACOBUZIO they’re in danger of losing the chance to ensure something Vice President, Global Insights, better than loyalty—what MasterCard is calling commitment. MasterCard

Two years ago, the great fear stalking the corridors of retail was showrooming: the prospect of frictionless shopping on the Internet driving prices down as far as they could go, with stores serving simply as test-drive facilities. Theodore Iacobuzio is vice president in charge of Global Insights, MasterCard’s interdisciplinary thought leadership organization. He and his team use research and analysis to better understand consumer behavior Something like the opposite has happened. Ecommerce is and market dynamics—and how those insights can strengthen the business not a race to the bottom. While some goods and services (the performance of MasterCard customers around the world. Under his direction, latter, in some cases, of necessity: think of digital music) are MasterCard has published groundbreaking work on mobile commerce globally, taking share online, both by category and in bulk, the store consumer attitudes toward data privacy, small merchants and technology and most recently the Digital Evolution Index. Prior to joining MasterCard continues to attract consumers for service, for socializing in 2009, Mr. Iacobuzio led the Payments Practice at TowerGroup. Based in and, perhaps most surprising, for inventory. Purchase, N.Y., he can be reached at [email protected].

 / 7 MARKETINGDESIGN CREATIVE IN BY ANTHONY ROBINS DISRUPTION RETAIL DESIGN

with its focus on the activity, not the space is authentic and resonates with product. Both were contrarian and consumers, it can be disruptive because What Is a Store For? highly effective. Likewise, Celine’s it is unique from all others. While the recent advertisements, which feature technique has been used for centuries in As the digital tsunami continues to 80-year-old author Joan Didion, disrupt the theater to transport you to another upend traditional notions of retailing, and challenge traditional perceptions time or place, real or imagined, it was brick-and-mortar retail survives, and about fashion. Ralph Lauren who first brought compre- in many cases thrives, among the swirl- hensive design to life in retail at a scale ing waters of change. It is now pureplay In store design, the creation of that was a disruptive game changer. ecommerce brands that are threatened environments that are so unexpected, by more nimble omnichannel retailers. truly novel or comprehensive in the Alibaba’s recent $4.6B investment in realization of a vision that they break electronics retailer Suning and its earlier from the norm, can make consumers investment in department store operator redefine a category. One obvious Intime Retail Group are recent defensive example is the cluttered, confusing, reactions to this changing environment. noisy, poor service electronics store— But as omnichannel retailing becomes think Circuit City or Best Buy—being the dominant model, the role of the store disrupted by clean, friendly, easy to is being redefined. And with the ease navigate Apple stores. The kitchen and of buying online anytime, anywhere, bath fixture retailer Pirch is bringing one has to ask, “What is a store for?” this clean, friendly, easy-to-navigate model to a fragmented category Beyond serving as a physical place that’s been notoriously unfriendly where one can inspect merchandise to consumers. and indulge in instant gratification, a store provides the opportunity for all touchpoints of a brand to come alive Comprehensive Design and be experienced simultaneously. The consumer can see, touch and try Furniture retailer RH, formerly out the products, benefit from one-on- Restoration Hardware, is using store one service, and most of all, directly design in a compelling, bold way to experience the brand vision through support their drive to disrupt the upper the store environment offering its end of the home furnishings market. multi-sensory immersion in sight, sound, The stores are conceived, inside and scent and touch. No other channel can out, in a singular, grand, almost deliver this compelling experience. cinematographic vision. With their Consumers will increasingly demand high ceilings, grand staircases and these experiences, which will reinforce monumental exteriors, these stores brick-and-mortar retail’s position as appeal to every homeowner’s the center of the omnichannel universe. aspirational dreams. RH stores really A creative brand environment plays should be called RH Mansions. These a central role in fulfilling this stage sets don’t rely on the consumer’s expectation. But how can one stand imagination, e.g., “How would this out in a retail landscape crowded sofa look in my living room?” Rather, with so many competitors? RH serves up a complete vision, fully formed. The reality is that it can be difficult to replicate at home. But the Extreme Localism Disrupt, Always Disrupt RH perfect world is enough to get people to buy. Australian skincare brand Aesop has Creative disruption is a simple enough taken a different approach to creative concept: Existing consumer behaviors RH stores are examples of “comprehen- disruption in the design of their retail and expectations are changed through sive design” where every aspect of the environments. As an extreme example an encounter with creative ideas. In environment is strategically created of ‘localism,’ no two stores in the advertising, it is the messaging that to reflect a brand vision. It is the en- network are the same, even though causes consumers to stop and think. vironmental equivalent of a “wall of they may be in the same city. For Two great examples are the original sound,” rich, complex and all-envelop- example, the two stores in Miami are VW Bug ads, where consumers were ing. The design is intentionally creating very different from each other, each encouraged to buy a “lemon” and a place you have never been before reflecting their specific micro-environ- “think small” in an era of very large except perhaps in your dreams. If the ments. This novel approach is central cars; and Nike’s “Just do it” campaign artistic vision of this type of dream to the brand’s core identify.

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Each Aesop store is a design collabora- door and signage were upside down. It tion between the brand and an architect brought immediate and wide attention to who brings insight into the local context Worshiping Janus the Dutch design duo. and culture. Reflecting the brand ethos, the store designs are highly artistic and The diverse juxtapositions facilitated by It was disruptive even though it was only often incorporate reclaimed materials. Box Park offers a clue to all those seek- open three years. The imaginative design This strategic diversity of store design is ing disruptive creative ideas. Janus, backfired. Although very complex and unusual for a multinational retailer, and the Roman god of doorways is typically extraordinarily expensive to execute, sets Aesop apart. The artistic ethos ex- depicted as a two-faced deity looking it was too simple an idea – a one-trick tends to the website, which transforms in opposite directions—an apt symbol pony. Once you experienced it, the the traditional, prosaic store locator into for the dynamics of creativity. Einstein, novelty and its impact wore off. The a visual portfolio of aesthetic achieve- in arriving at the Theory of Relativity, “Alice in Wonderland” environment was ment of store listings, each with a design used “Janusian thinking,” conceiving also a bit disorienting and ultimately a concept statement and photograph. of two or more antithetical concepts, distraction from the product being sold. ideas or images simultaneously. This intellectual concept can actually be Five years after the upside-down used to conceive disruptive design. boutique in Milan closed, Victor & Rolf opened a grey felt-lined, classically On the surface, this is a thought pro- inspired “right-side-up” boutique in cess that an architect would naturally Paris. In contrast to the Milan store, employ during the course of any project. co-founder Viktor Horsting commented Designers are often given the opportu- to the architecture magazine Dezeen, nity to wrestle with opposing forces and "We said we would like a store that's conflict, whether it is resolving funda- invisible or a store that's hardly there mental demands of quality, quantity, cost because often we find store designs and time or the simultaneous conception very intrusive and just too much." Going of the interior and exterior of a building. against trend, the sensory-depriving More often, however, there is a tempta- design makes the merchandise the tion to avoid the complex psychic tension main event. caused by such “oppositional thinking,” and fall back to mental triage, simply by Creative disruption can be used in a Ephemeral Design reducing conflicting demands to either- variety of ways: to get the shopper’s or thinking. attention, to attract new customers, to A pop-up shop is by its nature disruptive. create buzz and get good PR coverage or The location is usually unexpected and Janusian thinking rejects either-or in to win design awards. Creative disrup- the brand presentation is usually quite favor of “all of the above.” For store tion in retail design comes in all styles different from its mother ship retail design, Janusian thinking provides the and shapes, from subtle to fantastical—it format. The temporary nature of a opportunity to create design solutions doesn’t necessarily mean extreme or ec- pop-up offers, even demands, greater with seemingly irreconcilable condi- centric creative expression. Brazen bold- creative latitude. Designers can be tions. The result can be novel, disrup- ness often passes as creativity, and has edgier, more provocative and more tive design that is original and useful. become the dominant cliché of original- playful with pop-ups. As with window ity. Ultimately, creative design disruption design, creative visual merchandising can be a powerful tool for any retailer and in-store seasonal decor, short-term Creative Disruption – who wants to make a statement, knows pop-up design can be more extreme how to integrate the brand vision seam- in creative expression and attract lessly and wants to give customers a new customers to a retail brand. A Cautionary Tale meaningful, memorable experience. Box Park is an experimental hybrid Victor & Rolf’s first store was the built with multiple connected shipping beautifully detailed “upside-down containers. Located next to a railway boutique” in Milan. It was a feat of line in the Shoreditch section of London, ingenuity to realize what appeared to ANTHONY ROBINS it’s a pop-up mall that offers visitors be an upside down neoclassical inte- Chief Brand an ever-changing lineup of fashion, rior – parquet wood floors on the ceiling, accessories and food and beverage chandeliers sprouting from the floor like Environment vendors. Events and live performances trees, fireplace and logs convincingly Officer, Architect draw in an eclectic, diverse audience. attached to the ceiling – even the front & Advisor Box Park juxtaposes local and global brands, with spaces available for rent Anthony Robins has over twenty-five years of experience for as little time as one week, Creativity in the global retail industry in executive, consulting and and the shock of the new is encouraged. advisory roles. He has lived in the US, Europe, and Asia Box Park has become a testing ground Pacific working with top-tier global brands such as Louis Vuitton, Dior, DFS, Ralph Lauren and Tiffany & Co. An for new brands, and brings together a architect with real estate, branding and business devel- diverse combination of people, brands opment expertise, he founded a company responsible and events. The concept is serving as for the design and construction of award winning and widely published luxury boutiques, shopping centers, an incubator of innovation, and hotels, offices and private residences. He has held promises to deliver some truly novel operating, strategic and creative roles, and as a board and valuable experiential retail ideas. director, advises consumer goods and private-equity companies. Anthony is Chief Brand Environment Officer of David Yurman, a luxury jewelry brand.

 / 9 CUSTOMERMARKETINGDESIGN EXPERIENCE

RETAIL'S LEARNING PIPELINE: From Clicks to Bricks and Back Again

By Bridget Johns

For the better part of 150 years, the nel—and the brands that succeed are Regardless of fulfillment models, art and science of retail has evolved optimizing their shopper experiences inventory management and slowly. In an era when brick-and- across all channels. demand generation planning mortar stores controlled a stable come to the forefront, as does LEARNING’S TWO-WAY STREET the ability to execute real-time shopping experience, there were promotional opportunities. occasional flashes of innovation, Every retailer is diversifying across channels, recognizing that each channel but mostly a slow, steady cultural  has significant inherent advantages. Letting go of legacy technologies. shift focused on price and availability. As they do so, they must acknowledge Online retailers recognize that Category killers cut down the mom the expertise already developed in each tech nology is the enabler for and pop, and mass merchants like channel, and the lessons learned that today’s new shopper and her shopping behavior and journeys. Walmart flexed muscles in ways can be so valuable. As a result, they are quick to adopt never seen before. For online merchants opening their new solutions (not systems!) that

firstphysical stores, there’s no better ease friction points and result in a RETAIL WAS RETAIL, UNTIL THE resource library than the brick-and- more customizable, personalized INTERNET. CHANGED. EVERYTHING. mortar professionals who have been and seamless shopping experience. there, done that—the good, the bad and Online merchants and their ecommerce the ugly. Likewise, new era retailers The key for many old school engines were the disruptive force who grew up in the online digital space physical retailers is to focus on heard ‘round the world. They changed have lots of lessons to share—all learned these “solutions”— and to ensure the landscape of the retail industry, through experience, and also inclusive they are shopper-centric solutions. and introduced entirely new channels, of the good, the bad and the ugly—to en- Too often physical stores are processes and methodologies. Online lighten old-school physical retailers about bogged down with antiquated retail ascended to wrest control from shoppers, their new shopping journeys, technology stacks, where obsolete physical stores. and best practices to serve and delight. systems don’t mesh well together. If a store can’t create a seamless But a funny thing happened on the FROM CLICKS TO BRICKS internal efficiency behind its own way to ecommerce’s domination of walls, it can in no way expect to retail. As the online titans were Traditional online merchants have deliver an efficient, smooth and unveiling disruptive change, something introduced some very different business seamless shopping experience to bigger and more important happened. models, and despite the often-contrast- today’s customers. Shoppers changed, undeniably and ing nature of their core businesses, forever. Today’s shoppers are now they have great applicability to Better data means better deci- fully informed, fully empowered and physical stores. sions and better performance. today, they—the shoppers—are the The click-and-mortar online ones fully in charge. Shoppers have Areas where the bricks are learning shopping experience of 2015 is conquered retail, and they’re forcing from the clicks include: completely different than the retailers to relearn their art and science. experience of 2000. Inventories. While stockouts are bad,excessive STRANGE BEDFELLOWS The reason for continuous inventories and their drain on Brick-and-mortar retailers and their improvement in the online precious working capital are every bit online brethren are seeing a change experience is the wealth of data as bad, and quite often much worse. in the very nature of their relationship acquired and analyzed, helping Online merchants have shown that with one another. Once they were retailers understand shoppers stores do not have to have stacks and adversarial rivals, sometimes even and how they navigate and engage stacks of inventory, particularly when separate,”siloed” channels with different aspects of their online with next-day and even same-day within the same retail organization. experience. Data shows what works global fulfillment readily available. and what doesn’t, and it quickly One just has to look at the success In today’s retail reality, there’s no room identifies the most meaningful of stores like Warby Parker and for intra-organization cross fighting. opportunities to capture. The fight is outside the organization, Bonobos to see that a store can against competitors—not inside, with meet and exceed a shopper’s Brick-and-mortar stores are now teammates. Today’s retail is about the expectation without carrying any learning that data acquired over ubiquitous multichannel—omnichan- inventory. time and in scale empowers better

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decision making from store design today’s best catalogues are more to merchandise assortment and lifestyle publication than traditional display, from staffing/traffic catalogue. Additionally, some niches alignment to promotional marketing, —in particular fitness apparel and more. With the shopper now companies like Nike and Under clearly in charge, retailers can no Armour—have apps and other From Clicks to Bricks and Back Again longer dictate the experience. digital tools that tend to make Instead, they have to provide the ironclad, authentic connections. experience most desired, and learning more about shoppers and Location, location, location. their behaviors is the only way The old adage of real estate to do so. remains true, and today’s overbuilt, “over stored” retail landscape offers Test, trash, and repeat. further proof of the location equa- In an era of retail where companies tion. Before the Internet, retailers are looking for solutions, there is were forced to build stores in order no one, singular solution. Since its to attract new customers to engage advent, it’s been relatively easy for with the brand and understand their ecommerce businesses to test new value propositions. The result of very different than conversion of ideas and tactics and immediately aggressive store expansion was a store elsewhere in the chain. determine if the desired results are overbuilding, and with so many Two stores not even a mile apart being achieved—there are literally online alternatives today, you see can work very differently. And, no hard, physical capital assets to physical stores and malls in C- and of course, different communities build, reconfigure or remove. D-tier markets get shuttered and demand different approaches—what mothballed every month. works in one region often doesn’t Pop-up shops are just one way translate to another. brick-and-mortar retailers are Retailers are consolidating Different shoppers and different getting involved in the learn fast locations not only around market retail markets/segments will require game, trying new concepts and size and potential, but also around not only different approaches, but models in a lite-buildout approach, the company’s ability to internally flexible approaches that can change keeping what works and quickly support them—especially criti - and adapt to changes in the market changing what doesn’t. cal in this age of experimentation, fast failures and continuous place. The C- and D-locations mentioned above offer a proof point. FROM BRICKS TO CLICKS improvement. “Clusters” of locations are also valuable, as they Traditional approaches to those Online retailers are far from the only allow a retailer to attack a market markets weren’t successful, not for teachers in today’s retail game. Brick- en masse and from all angles, shoppers or for corporate profit and-mortar retailers have decades of driving brand awareness and ability. But, there is demand there. experience connecting with customers shopper loyalty, providing the ability It just takes innovation, persistence on a most personal level, and they have to A/B test and more. And don’t and a willingness to experiment to plenty of teaching points of their own forget those mothballed locations— unlock the secret. to share, particularly with ecommerce they provide an opportunity for a While there’s a lot of talk about stores retailers jumping into physical stores different kind of branded retail of the future, today’s shoppers, through for the very first time. experience, including physical their behaviors, are essentially drafting stores with completely different Emotional connections matter. a request for proposal (RFP) for the display, inventory and staffing Connecting emotionally with preferred retailer of the future. It models—think high-tech, inter- shoppers, authentically and on a creates a two-way stream of learning active, self-serve and quick (but personal level, is the proven secret between online and off-line, and the not instant) fulfillment. to long-term shopper retention prizes are yet to be handed out.

and loyalty. The same, but different.

With a web site, it’s easy to fall into It’s more than giving her what she the trap of thinking that one size wants, when she wants it and how fits all—that there is one brand, BRIDGET JOHNS she wants it. It’s about understand- one business model and one ing her, and even empathizing Head of approach to customers. Today’s with her in her day-to-day life and Customer Success, shoppers, with their circuitous aspirations. RetailNext omnichannel shopping journeys, Stores often have an inherent can be very difficult to pin down. competitive advantage here, Leading brick-and-mortar retail- Bridget Johns is Head of Customer Success, RetailNext. as they have star sales associates She is responsible for the end-user experience with ers understand that markets and who develop and foster close RetailNext and heads the training and professional shoppers are different, and as a services divisions, where she advises on RetailNext relationships with customers. result, stores are different. It’s a adoption strategies, with particular emphasis on how However, it’s not a strategy for just a retailers can use this technology to stay relevant in an big mistake to treat every store the single channel. Many catalogues ever-complex and ever-changing environment. Join same. For example, conversion the #retail conversations on Twitter @robinreport, have made these connections, and at a brand’s flagship store will be @BridgetJohns and @RetailNext.  / 11 ROBINMARKETINGREPORT

for the HOME

By Warren Shoulberg

ATTENTION HOME FURNISHINGS RETAILERS: IT’S THE START OF THE FOURTH QUARTER: DO YOU KNOW WHERE YOUR CUSTOMERS ARE?

AS THE HOLIDAY SHOPPING CALENDAR to Christmas towels with a singing OCTOBER 21: RH—the retailer for- MOVES INTO PRIME TIME, IT SEEMS Alvin and the Chipmunks controlled merly known as Restoration Hardware ONLY APPROPRIATE TO PROVIDE A through an app. Shoppers immediately but that everybody in the business still PREVIEW OF WHAT’S IN STORE FOR head to their nearest Kohl’s, believing calls Resto—announces that it will now THE NEXT THREE MONTHS AS WE it is an ad for that store, since Target simplify its name to just R. commercials never mention the store COUNT DOWN TO THAT MOST SACRED, by name. OCTOBER 23: Bed Bath & Beyond MOST IMPORTANT EVENT IN RETAIL- takes its famous coupon to the next ING: THE DAY AFTER CHRISTMAS OCTOBER 3: Kohl’s itself begins its level, offering free 20%-Off tattoos to SALE. NOT THAT WE HAVEN’T ALREADY Christmas shopping promotional cycle all customers. Demand is strong. SEEN ENOUGH EVIDENCE OF HOLIDAY with a new slogan – its 18th in the PROMOTIONAL ACTIVITY. THERE HAVE past four years: “Put Kohl’s, Not Coal OCTOBER 25: Amazon surprises BEEN 42 KNOWN SIGHTINGS OF BLACK in Your Christmas Stocking This Year.” the retail world with a Christmas in FRIDAY SALES, RANGING FROM TARGET Millennials ask, “What’s coal?” October one-day sale, offering dust ruffles, fingertip towels, soup spoons RUNNING ONE ON A COLD WINTER OCTOBER 10: Keurig debuts its Kold and Kold machines at significant TUESDAY TO THE CHRISTMAS IN JULY single-serve cold beverage-making discounts. All but the last sell well. EVENT ORCHESTRATED BY AMAZON machine. Retailers are counting on it to THAT SUCKED THE LIFE OUT OF RETAIL be a big driver of housewares sales for OCTOBER 28: JCPenney announces SALES FOR A DAY OR THREE. the season. that Mike Ullman will return as CEO for the 18th time following a disap- The Rockettes at Radio City Music OCTOBER 11: Retailers mark down pointing start to its holiday business. Ullman immediately announces that Hall in New York have had their heels their Kold machines by 15% after sales this marks a return to the old JCPen- on for weeks already, with the first immediately sputter, reliving their ex- perience with Keurig’s single-serve Vue ney days, and later that day the retailer ads for their run breaking amidst the machine a year ago. issues 98%-Off Coupons at all stores. back-to-school season. And workers in China, India and elsewhere in the OCTOBER 13: Jet.com sends out a OCTOBER 31: Macy’s, having not run a sale in weeks, breaks its first sourcing (formerly third) world have press release announcing that it is Super Saturday event. It starts on the been making the stuff that will turn still in business and that going head- previous Thursday and runs through up under Christmas Trees since to-head against Amazon was not the the following Tuesday. Arbor Day (by the way, that’s an stupidest thing to do, ever. April holiday when individuals are NOVEMBER 2: Every retailer in Ameri- encouraged to plant trees). Against OCTOBER 15: Walmart gets into the ca announces a First Monday sale. holiday spirit with its initial Made this backdrop, let’s look at how the in America promotion, highlighting next 90 or so days will go down…with NOVEMBER 5: Kohl’s unveils another cookware, bed linens, curtains, towels down being the operative word. new slogan: “Baby, it’s Kohl’s Inside.” and room-sized rugs. Shoppers flock to Millennials ask who’s Frank Loesser? their stores in record numbers…to buy OCTOBER 1: Macy’s, hoping to get cheaper Not Made in America cook- NOVEMBER 8: Exactly one year a jump on the holiday shopping season, ware, bed linens, curtains, towels and announces its first One Day Sale. It will before the next presidential elec- room-sized rugs. tion, the new Donald Trump Home run through the fourth of October. Collection is introduced, debuting in OCTOBER 18: Sodastream, feeling the Iowa and New Hampshire. Supremely OCTOBER 2: Target breaks its first competitive pressure from Keurig’s confident of his prospects, the Donald holiday TV commercial, an upbeat, Kold machine, announces new flavors: offers discounts directly tied in to his lively, feel-good spot promoting tutti frutti, arachnophobia and New poll ratings, breaking it at 24% off. everything from pine-scented Tide England clam chowder.

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NOVEMBER 9: Trump Home now DECEMBER 1: Macy’s announces discounted at 22% off. its unprecedented first One Day Sale of December. In an equally as unprec- NOVEMBER 11: Bob’s Discount edented break with tradition, the sale By Warren Shoulberg Furniture, the heavily promotional runs only two days. Northeast furniture retailer known for its outrageous prices and sales, ups the DECEMBER 3: Trump Home discount ante, putting Bob himself on sale for cut to 6%. $399.99. DECEMBER 5: Red Bull enters cold NOVEMBER 14: In a shocker, Target beverage dispenser business with its reopens its shuttered Canadian stores, Single Gulp machine. Company says announcing it will keep them in busi- all you need is one gulp. ness for the holiday season as a test. Target president Brian Cornell hailed DECEMBER 7: R, the retailer formerly as a business genius for his decisive, known as RH that was formerly known unconventional thinking. as Restoration Hardware—but that everyone still calls Resto—announces NOVEMBER 15: Target closes its a further modernization of its name, Canadian stores. Target president Brian saying it will now remove all signage Cornell hailed as a business genius for from the exterior of its stores and his decisive, unconventional thinking. catalogs. It will also institute an unlisted 800 number. DECEMBER 22: In a last ditch attempt NOVEMBER 17: Trump Home now to drive business, Target reopens twice- discounted at 18% off. DECEMBER 9: Best Buy puts every closed Canadian operation. Target CEO TV, DVD player, mobile phone, computer, Brian Cornell admitted for observation at NOVEMBER 19: Macy’s promotional audio system and accessory on sale. Mayo Clinic near corporate headquarters calendar spins out its newest event: Shoppers notice no difference from in Minneapolis. a 12-hour sale. It begins at 8am and any other day at Best Buy. runs through midnight. DECEMBER 24: Suddenly remember- DECEMBER 10: Trump Home ing that Christmas is a retail promotional NOVEMBER 21: Overstock.com discount now stands at 2%. event, Sears and Kmart break their first gets serious about holiday. It runs TV commercials, offering anything in the an 87-piece bed in a bag set for DECEMBER 12: Bed Bath & Beyond store to anybody… for anything in their $39.99… plus a free toaster. announces that its cashiers are now pockets. Nobody notices. mind readers and customers only NOVEMBER 23: Trump Home now need to be thinking about 20%-off DECEMBER 25: Amazon announces discounted to 14%. coupons to have them honored. first-ever July in Christmas sale. Online shoppers are so friggin’ confused they NOVEMBER 25: Amazon shocks the DECEMBER 15: Macy’s breaks its respond in record numbers because it retail world with a Christmas in most audacious promotion ever: is, after all, Amazon. November sale. The only thing that’s The One-Minute Sale. It will run this truly shocking is that Jeff Bezos thinks sale consecutively for 1,440 minutes. DECEMBER 26: every day is Christmas at Amazon. THE REAL PROMOTIONS START. DECEMBER 18: With one week to NOVEMBER 26-27: Thanksgiving go before Christmas, Kohl’s unveils its and Black Friday. Stores put stuff newest advertising slogan: “We Kut Our on sale. Like, what else is new? Prices More Than Any Sane Retailer Ever Has.” Millennials run spell check. WARREN NOVEMBER 28: Trump Home SHOULBERG discount now 11%. DECEMBER 19: Macy’s sues Kohl’s for slogan infringement. Editorial Director, NOVEMBER 30: Cyber Monday. Home Furnishings Online stores put stuff on sale. DECEMBER 20: Trump Home now Business Like, what else is new? available at full retail price. Publications is editorial director for several Progressive Business Media home furnishings business publications, and is still working on his holiday shopping list.

 / 13 ANALYTICS

UNDERSTANDING OMNICHANNEL SHOPPERS THROUGH RECEIPT MINING By Andy Mantis

Those days are gone forever… or not. altered the very nature of how brands Back in the day—and reach consumers. In today’s retail world, we tend to think we mean the mythical, of the consumer as the one with the Heavily centered in consumer packaged halcyon days of power. Certainly there’s some truth to goods (CPG) (P&G, Kraft’s), fresh food that. The digital world is an endless trail (Good Eggs, Graze, Farmigo, etc.) small-town America— of price comparison engines, customer travel-related loyalty programs reviews, and social media sites for voic- (Starwood Hotels, FuelRewards, etc.) shopkeepers were among ing dissatisfaction. But the real power— and apparel and accessories (Warby the ability to derive sales and loyalty Parker, Everlane, Bonobos, et al.), the the core, central figures from knowledge—has remained with direct-to-consumer (DTC) innovators retailers with the rise of the Web. The have inspired fear and envy from both in a community. Their digital-only shopkeepers of recent histo- competitors and traditional retailers. prestige came from ry, armed with recommendation engines, email lists, dynamic pricing and the like, Those emotions seem to be clouding their well-recognized have become the modern version of the the judgement of many a player in the apron-clad, all-knowing man behind the shopping world. But The NPD Group, knowledge of the truths counter of the general store of old. which has business relationships with retailers, manufacturers and millions surrounding any given But this too shall pass. of consumers, has an unusually clear family. The shopkeeper line of sight. And things have grown even Disrupting the disruptors clearer since the debut of our Checkout knew who was short Today, an entirely new group is making Tracking service, through which we mine moves to assume the role of the omni- data from the receipts (both online and of cash, who ran late scient shopkeeper. Manufacturers have from brick-and-mortar stores) of millions recognized the power of knowing their of consumers. And what we’re seeing on their “layaway” customers and selling to them directly. looks more like opportunity than danger, plans, who scrimped The direct-to-consumer movement has for both retailers and manufacturers and who squandered. A successful shopkeeper did two things. First, he held his tongue. No one would trust a man who spread family secrets across town. If you were low on money and it was time to feed the baby, you wanted to deal with someone who would sell you things on the cuff, and not tell a soul. Second, he marketed to his custom- ers based upon this secret knowledge. He knew when payday came, and when the crops failed. He knew when the kids were growing out of their clothes, and when Dad had drunk up the money in the cookie jar. He timed his offerings and personalized his approach, showing the inexpensive cloth to the struggling poor, displaying swaths of middling quality to the middle class, and offering the beauti- ful and pricey fabrics only to the truly wealthy or the pretentious hopefuls.

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who can put emotion aside and embrace • The apparel brand learned something the data. To see what we see, and to else valuable—and it’s not particularly understand what it means for your good news for traditional retailers. business, we need to tell you a bit Even though the DTC brand’s custom- about how Checkout Tracking works. ers were shopping at big box retailers, they were doing so at a much lower Save your receipts rate than the rest of the population, We collect Checkout Tracking data in and actually indexed quite low at big partnership with our technology partner, box retailers and department stores Slice Intelligence. It’s based on the compared to non-customers. Rather, millions of receipts sent to us by consum- its customers indexed higher than the ers. Those receipts yield detailed, item- general population with five rival DTC level data about individual consumers manufacturers. across stores, across all retail segments, covering both online and brick-and- • Another direct-to-consumer apparel mortar, and over time. brand with both real-world and online operations wanted to know where else its customers shopped for children’s apparel. With the help of Checkout • A very high percentage of manufactur- Tracking data, the brand learned that ers who operate ecommerce sites say Checkout Tracking can tell its customers only did 9 percent of their they do so primarily to collect data retailers if their most loyal children’s apparel shopping with the about customers. Such sites aren’t brand itself. They mostly shopped for aimed at replacing traditional customers are cheating kids apparel at discount department channels. For such manufacturers, on them by shopping at stores, with more than half of wallet selling through retailers is expected to dedicated to four of the larger be the primary revenue source for the competitors once they brick-and-mortar players. foreseeable future. leave the store. • Similarly to the men’s brand above, the It would seem that established manu- children’s apparel brand learned that facturers – those companies that make its customers over-indexed at rival the brands that fill the shelves of retail DTC brands apparel compared to non- operations across the country – aren’t so Just think about that for a second: trans- customers. And despite a substantial much interested in changing their busi- action-level detail across all retailers, share of wallet devoted to two of the ness as they are in improving it. They’re across all channels and all time, at the larger Big Box retailers, customers not so much interested in eliminating individual buyer level. That, of course, is actually under-indexed at these stores the middleman as they are in getting the Holy Grail of DTC. And now it’s avail- compared to the rest of the population. closer to consumers. This suggests that able even to manufacturers and retailers the future of DTC will consist of retailers who haven’t collected it themselves. Getting to know you and manufacturers forming partnerships Checkout Tracking can tell retailers if What The NPD Group has learned tied to understanding the consumers of their most loyal customers are cheating from the manufacturers who work specific brands. That’s going to require on them by shopping at competitors with Checkout Tracking data has proven a level of intelligence sharing that’s well once they leave the store. It can tell illuminating … and points to a future beyond what retailers and manufactur- manufacturers what else customers for DTC that is far less doom-and-gloom ers have at their disposal today—but the buy when they picked up their products for traditional retailers than the advantages of such cooperation seem in-store rather than on the manufactur- conventional wisdom would suggest. overwhelming. er’s ecommerce site, and even what they Among the most interesting things likely had for lunch on the drive home. we’ve seen: With the exception of a handful of truly More importantly, it can illuminate innovative companies in areas ripe for how often buyers of DTC brands buy • Many manufacturers are driven by disruption (we’re looking at you, Warby rival DTC brands, and how often they a need to understand the consumer, Parker), DTC is unlikely to become some- shop at other retail establishments. not necessarily to sell to them directly thing that only manufacturers or only without a middleman. retailers do well. These partnerships will For example: step in as the new, all-knowing shop- keepers of the future. A direct-to-consumer apparel brand that • Many companies express a commit- sells from both a branded website and ment to creating and enacting a DTC its own retail outlets wanted to know strategy, either through retailers or where else its customers shopped for on their own, but have only a limited ANDREW MANTIS men’s pants. With the help of Checkout sense of what that would entail. Tracking data, the brand learned that its Group Head customers did less than one third (28%) • The more sophisticated manufacturers Information of their pants shopping with the brand have recognized a need for persona Services itself. Where else did customers buy analysis, segmentation and the like. pants? They devoted 21% of share Previous efforts in these areas, done on a high level using demographic of wallet to three Big Box retailers and Andrew Mantis is Group Head Information 4% to a rival DTC brand! information, are now seen as having been inadequate and conducted Services, Merchantsat MasterCard Advisors. Hecan be reached at Andrew_Mantis@ too infrequently. mastercard.com.  / 15 INTERNATIONALROBINREPORT Mi Casa Es Su Casa – Maybe! By Len Lewis

“What I wouldn't give for twenty more years! Here we are, protected, free to make our profits without Kefauver, the goddamn Justice Department and the F.B.I. ninety miles away, in partnership with a friendly government. Ninety miles! It's nothing!”

— Hyman Roth, The Godfather Part II

How right he was! Well, at least designer shops in the Spanish Colonial real progress won’t happen in Cuba partly right! architecture of Old Havana and maybe until the spending power of the island’s a JCPenney or Walmart in a suburban 11.3 million residents increases and For all you devotees of the film—and you mall? (See related article, “Postcard convoluted barriers to trade are know who you are—this character was from Havana,” page 18.) dismantled. This could be a Herculean based on the real life gangster Meyer task for a do-nothing Congress, which, Lansky, who, along with a Who’s-Who of by the way, is the only body that can lift ★ An Emerging, Emerging Market sanctions completely. organized crime, made millions investing in hotels, casinos and other businesses in As the Stars and Stripes were being Although some feel that Communism’s Cuba during the 1940s and 1950s. raised over the newly minted U.S. shelf life is getting close to its expiration embassy in Havana in August—the date, the country has always had a It was Vegas before there was a Vegas! first step to ending the 56-year, And far more stylish. history of political instability—not an emotion-fueled U.S. embargo—industry attractive prospect for retailers who watchers started licking their collective might consider multimillion-dollar ★ Enter “the Beard” chops over the prospect of normalized investments (including gratuities to relations with the island nation. Or, as government officials for greasing the As any student of history or the cinema they see it, commercial opportunities wheels of economic progress). knows, this came to an abrupt end on in an emerging fourth-world market. January 8, 1959 when Fidel Castro and On top of that, we have the inflammatory his “barbudos,” bearded revolutionaries, And why not? We have a long history rhetoric of the Cuban diaspora in the U.S. rolled into Havana, sending the business- of making friends with former enemies. and the few narrow-minded politicians friendly Cuban president Fulgencio That’s why you can book a luxury cruise who side with them (hey, it’s an election Batista running for greener and safer along the Mekong River Delta without year and Florida is a swing state!). By pastures, and turning elegant venues worrying about snipers. the way, if you value your eardrums and like the Hotel Nacional and the Tropicana “cojones” don’t ever get into a political into government-occupied chicken coops. For Cuba, the road back may be argument with a Cuban exile. They are Literally. paved with good intentions, but it will an extremely passionate group. be a bumpy ride. Getting a handle on It was an ignominious end to what the Cuban economy is tricky since the had once been a hotbed of trade and a government dominates every aspect of ★ Fueling Growth playground for Americans, who swarmed it. Therefore, opening trade, tourism and capitalism is not simply accomplished by to the island’s beaches, hotels, shops Interestingly, the country’s future may be and casinos. a flourish of the Executive pen. fueled, in part, by Cuban exiles that have As the International Council of prospered in the U.S. and may be induced Could it become that again? Condos on to return with the right financial, the pristine beaches of Playa Paraiso, new Shopping Centers (ICSC) recently stated,

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political and social incentives. In fact, it’s been suggested that the same energy and vitality that transformed Miami As socialist policies from a decaying city into the center of Latin American economics could work dissipate, tourism will likely for Cuba. be the first business to Labor costs would be relatively low but be rebuilt. In fact, online under current laws foreign investors would have to hire people through a rental company Airbnb has state-run employment agency, which is already figured out how one reason for low worker productivity. Not exactly what today’s retailers are to enable people from looking for. outside the U.S. to rent On the other hand, the island has a private homes in Cuba. fairly high literacy rate, a functioning Photo by Bruce Byers health care infrastructure that is used by a majority of Cubans and a small but growing entrepreneurial class of small to the fishing industry. Shortages businesses or “micro enterprises,” made developed when exports and imports I’m sure the Cubans would welcome a possible by government liberalization of took a nosedive. The same thing may be Walmart Supercenter. It’s an unlikely private industry and $2 billion annually happening now with Venezuelan oil. scenario at this point. But is it so far in remittances to the island from Cubans fetched to consider Cuba for a version of overseas. The latter could quadruple if The good news for business is that its Neighborhood Market or another small additional restrictions on money transfers imports and exports are continuing store format like Aldi, Lidl or Save-A- are lifted and lead to significant income to recover thanks to projects like the Lot—or even Target, if they’ve learned and spending power. Brazilian-backed $1 billion modernization anything from their Canada debacle. But of the Mariel Harbor deepwater port as this will require a complete overhaul of Cuba already imports about 30 percent a free trade zone. the Cuban monetary and governmental of its food from the U.S., thanks to subsidy system. years of political pressure from the U.S. Meanwhile, a number of Canadian, agribusiness industry—and this number European and Chinese firms have already Cuba is not going to be a destination for is expected to rise with increased staked claims on the island through joint Neiman Marcus or Bloomingdales any liberalization of government policies. ventures. And the last thing an American time soon. But observers say that a Sears, company wants is to fight an established Walmart or JCPenney is not out of the monopoly. As such, getting in first—or question. Nor is it out of the question that ★ Jockeying for Position being among the first—may offset a opening the country to private indus- somewhat risky investment. try could lead to a U.S.-infused apparel Basically, Cuba should be viewed manufacturing industry only 90 miles with cautious optimism. This is what ★ Retail prospects away—China West. Clearly, the recent companies like Kellogg and Hormel are refurbishment of Mariel Harbor could doing as they reportedly jockey for facilitate imports and exports. How attractive a retail opportunity does position in order to stay ahead of the all this present? It depends on your time growth curve in an untested but The next few years will be crucial to frame. Tomorrow, next week, next month potentially lucrative market. Cuba’s economic and social development; or even next year—no! Everyone knows even Raul Castro’s designated successor, that Cuba is a long-term play. But the Moreover, Cuba wants foreign Miguel Diaz-Canel, has stated that the situation—economically and politically— investment in order to sustain its growth. country has yet to deal with the should be closely monitored, and that’s It wasn’t Communism that caused most big issues. exactly what the agricultural, automotive, of Cuba’s economic woes—it was the energy, shipping and airline industries collapse of Russian oil subsidies in the To again quote one of moviedom’s most are doing. early 1990s that sent agricultural nefarious characters—“What I wouldn’t production plummeting and laid waste give for another 20 years!” But… it may As socialist policies dissipate, tourism will not take quite that long. likely be the first business to be rebuilt. In fact, online rental company Airbnb has already figured out how to enable people from outside the U.S. to rent private homes in Cuba. This has provided an infusion of capital into the economy, LEN LEWIS and boosts the average wage, which is Editorial Director running a little over $200 per month for of Lewis the average government employee. Communications

This might seem too meager to support retail initiatives. But consider what happened to the standard of living Len Lewis is editorial director of Lewis Communications, Inc., a New York-based editorial in China as business developed and a planning,research and consulting firm. He can middle class with money evolved. I’ll give be reached at [email protected] or via his you a hint—W-M! website www.lenlewiscommunications.com.  / 17 INTERNATIONAL

Postcard from Havana:

By Deborah Patton Far Away, So Close Photos by Bruce Byers

I was in Havana on August 14th, the day the American flag was reinstated in front of the American Embassy, still in lock-down. John Kerry must have sensed, as I did, the continuing gamesmanship with the Cuban government. The Stars and Stripes stood forlornly on a standard sized pole, overshadowed by the field of gargantuan flag poles Fidel Castro defiantly built facing the embassy with dozens of Cuban flags the size of small fishing boats. But it’s a start.

The Cubans seem to be thrilled about tourists and Cubans working in the the possibility of a return to normalized High Finance tourism trade. From an economic relations with the U.S., having had the perspective, the peso is keeping them Let’s get the elephant in the room out in American coast in their sightlines for down at the farm. Fruit and vegetables the open. The average Cuban receives over five decades of imposed isolation. are sold off food carts from local farms. $20 a month from the state. And there But they have no idea how their lives Canned goods are scarce in the sad and are over 11 million average Cubans. are going to change. And it won't be understocked food stores, which is a anytime soon. U.S. companies are generous description. If you aren't living Every Cuban citizen is also given a ration already meeting and planning to bring on food coupons, you pay much higher book each month that entitles him or our commercial culture exports to this prices in the very few food centers outside her to government-subsidized staples: island caught between its colonial past central Havana. one pound of chicken, 5 eggs, rice and and a future not yet realized. But that beans, and cooking oil. No subsidies for won’t be anytime soon, either. Meanwhile, The level of poverty in Havana is vegetables, and no one is allowed to the Chinese are busy ramping up, already palpable. Yet it provides paler-faced buy any fish unless they have a doctor’s building a hotel near the Museum of tourists an opportune setting to snap order for dietary reasons. These the Revolution. But anyone who thinks endless photographs of the picturesque provisions have to be paid for in pesos, Cuba is a golden opportunity might urban ruins. There is an ambitious and those pesos come from the $20 want to recalibrate. program funded by the government monthly stipend. Just to make life more to restore the extraordinary colonial complicated, Cuba has a dual currency. buildings in Old Havana to their former Pesos for the average Cuban, CUCs glory. But that noble effort isn't doing (Cuban convertible peso) for the

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much for the majority of the population brand-new leather goods store and one that’s been living in temporary housing stylish shoe store (both on charming Calle for the past 20 years. Nor for the people Oficios). All of these shops are Italian. living just on the outskirts of Havana, in The only reason they can be in business completely undeveloped, fourth world is to appeal to the tourists they hope will conditions. arrive sometime soon on oversized cruise ships. The residents of Havana could Can-Do Culture never afford $177 ballet flats or $100 leather bags. There are no jewelry What is impressive is the Cuban spirit stores. No lingerie boutiques. The one of resilience. We know about the music; local retail apparel store in Plaza San also Cuba is a rich haven for contempo- Francisco offers perfume, and cheaply rary art. All those 1950s Chevys have made clothes in the $20 to $50 range. been rebuilt, and rebuilt again. With a Even that exceeds the monthly income. resource-constrained economy, stainless steel scrap is repurposed into formerly On the carnival weekend while I was chrome bumpers and trim. Those cars there, groups of families, dates, friends continue to be a highlight for every visitor. and teenagers strolled down the Malecon. It is as though they have been in stasis for Women in vivid leggings and form fitting 60 years. There is a very small wave of tops, most with lace or net inserts, looked independently owned restaurants, though like a flock of brilliantly colored tropical most are still government owned. Cuba birds. The men were in jeans and bright will be the ideal place for micro-financ- logo-emblazoned athletic jerseys and ing: the resourceful Cubans are ripe for T-shirts. There is a lot of glitter, sparkle building their own businesses. and gold on the clothes, a signature of Caribbean clothing culture. The population is aging, and by 2030 about 30 percent of Cubans will be over So where are the Cubans getting these 60. Resignation may etch the faces of the brightly colored clothes? There is the older population, but the next generation Galerías Paseo shopping center near of Cubans is restless and ambitious. the Tropicana selling upscale labels, but The government pays for everyone’s that’s beyond the reach of most Cubans. education and healthcare, and subsidizes basic living expenses including housing, When you fly to Cuba you get a pretty electricity, and water. But for the good idea where the apparel is coming Millennials, who do workarounds to from. Suitcases and boxes the sizes of connect with the outside world via the refrigerators arrive on the carousels, Web, graduating from college with a stuffed with merchandise. Resourceful degree in economics provides little entrepreneurs also offer catalogue hope for a job future. There is no MBA sales for stylish women, manufacturing program, but a two-year stint in the the clothes in Mexico and delivering military is compulsory once they gradu- them personally. ate. Many of them choose not to complete university to avoid the military duty. It’s a So back to that $20 monthly income. tough proposition to have a great degree, Any way you cut it, there’s not a lot left and nowhere to use it. over for clothes, accessories, shoes – let alone Pizza Hut or McDonald’s snacks. One 27-year-old graduate I met teamed The purists resist the commercial up with his college friend to start a res- colonization of Cuba with fast-food taurant that has the most sophisticated brands and other mass-market icons food I found in Havana. His degree? of American culture. But to the Cubans, Mechanical engineering. Now he is a this is a sign of success. bartender constructing complex cocktails and engineering architectural garnishes Personally, I think the Cubans are in adorning the glasses. He is proud of his for some major reality checks when creations, and he co-owns the business. credit cards, wireless internet and foreign DEBORAH PATTON The Millennials are less interested in goods eventually flood their system. supporting the traditional constructs Entrepreneurship will flourish, but Innovator, of Cuban society; they just want to consumers are still going to need the Strategic make money. cash to buy things. Cuba will likely Marketing & become another Caribbean tourist Communications Retail on the Rocks mecca, but without the infrastructure to sustain it. They have so far to go to catch Deborah Patton is an innovator in strategic So, retail. The prospects are slightly up. My prediction? Online retail sales of marketing and communications, including marketing bleak, in light of that $20 monthly apparel will leapfrog over brick-and- planning, advertising, brand positioning, event stipend. In Old Havana, there is mortar for Cuban consumers. Amazon production, creative services and communications. In addition to serving as COO of the of The Robin Benetton and the absurdly overpriced and other online retailers are going to Report, she is Founder and Executive Director of Ap- Paul and Shark, a Ralph Lauren wannabe have an absolute field day five years plied Brilliance, LLC, a thought leadership advisory with branded yachting logos plastered from now, when the Cuban gates are consortium that explores and presents emerging on everything (both in Plaza Vieja); a truly open for business. trends and cultural paradigm shifts.

 / 19 CEO PROFILE

Q&A with Gerry Storch, CEO Hudson’s Bay Company

By Robin Lewis

Robin Lewis: I told Richard [Baker, GS: I went to Harvard three times, card business, eventually becoming Governor and Executive Chairman, for college, law school and business Vice Chairman. I ran supply chain Hudson’s Bay Company] a while back school. I always figured I would and the department store businesses that he is a real estate guy, albeit a be a lawyer. I had 30 offers from reported to me. I left in 2005 and went brilliant one, who’s leading a retailing Manhattan law firms, and an offer to Toys ‘R Us as Chairman and CEO. operation, and in my opinion, he from McKinsey, because I had the I was at TRU for seven years, and needed retailers running the business. MBA, and I thought that business we grew that Internet business He certainly followed my advice by sounded a little more fun and exciting dramatically into the most complete hiring you. What about this position than law, and I figured I would learn omnichannel paradigm of any busi- appealed to you? a lot. A friend of mine I worked with ness. We were the first to ship from at McKinsey recruited me to Dayton store. If the Internet at TRU were a stand-alone business, it would be Gerry Storch: What appealed to Hudson. The lifestyle at McKinsey valued at $10 billion. We bought FAO me most about this position was the was grueling, and I wanted to spend Schwartz, and started a joint venture people. It starts with Richard. He is an more time raising my family. I thought in China with Li & Fung. amazing guy and has a vision that he the pace at retailing would be more executes. He is a good person of high like semi-retirement. Boy, was I ever integrity and I appreciate that. I could wrong! We renamed Dayton-Hudson RL: How did you and Richard start have stayed independent, I was very Target Corporation, and I started the working together? happy, but I thought as I was working internet business there in the late 1990s, taking it from zero to the with him as an advisor, that I like this GS: I left TRU in 2013 and then first million dollars. guy, and as I worked with the team, I started my own firm, Storch Advisors, realized I really liked the other people and one of my clients was Richard. here too. There’s a huge opportu- RL: So you were an Internet pioneer? I remember flying around with him, nity here to help Richard pull this all and he said “I’m going to buy Saks together. He’s a very intuitive, high GS: At Target I was viewed as the Fifth Avenue,” and he asked me to quality retailer, not just a real estate wild-eyed crazy Internet guy. I talked work on the Off Fifth off-price busi- guy. I’ve been doing retail for decades my then-boss into buying the rights to ness. We repositioned it from be- and saw how we could be synergistic, Target.com for $10,000 even though ing a pure outlet business to a true bigger than sum of the parts. he thought it was a waste of money off-pricer. We started opening stores for a name. For the first five years or in locations in Costa Mesa and other RL: Tell our readers a bit about your more, we were bigger than Walmart. locations where you would find a TJ background. com. At Target I started the grocery Maxx, instead of just being in outlet business, the financial services red malls. TJX in fact was one of my early

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clients at McKinsey. They were at RL: Do you think at some point you differently. Then by its nature, Saks 300 stores, and thought they’d grow will take all the retail brands and is more of a full-price business—you to 500 stores and that would be it make them the same, like Macy’s did? don’t discount Chanel—whereas Lord because there wouldn’t be enough & Taylor is a bit more promotional. In off-price or overstock product avail- Canada with Hudson’s Bay you have GS: I don’t see that as a possibility, to able. But look at them now! Off-price a much broader line, with the home be honest. Without commenting on has much more potential than outlet. goods, and you serve customers from whether what Macy’s did was right It’s the fastest growing part of the the high end to the low end, much or not, there are a lot of people in business, and we’re very excited more like a Macy’s. Kaufhof is very Chicago who will never forgive them about Saks Off Fifth. similar to Hudson’s Bay. But we can for getting rid of the Marshall Field invest in the stores to contemporize banner. There’s a lot of equity in them. We can add more capacity and RL: What are your biggest challenges? our brands and in our banners, and elevate in the shoe, handbag and although our businesses are similar, beauty business. These businesses they’re not identical. With Saks we GS: Clearly, one of the biggest chal- are being managed the way depart- have a true elevated luxury brand. lenges is to rapidly expand our internet ment stores managed them in the At Lord & Taylor, although it’s an and all-channel capabilities. I use that U.S. ten years ago. Their manage- upscale brand more elevated than term instead of omnichannel because ment agrees there is opportunity Macy’s it’s not at the level of Saks it’s everything, not just internet and there, and they’re excited about it. physical stores. There are three critical Fifth Avenue. So they’re positioned nexus points in the all-channel para- digm. The first is where the customer is when he places the order, the second is where the product is and the third is where the customer receives the prod- uct. Where the customer is could be at home, at work, on a mobile phone, or it could be in the store. And the customer could receive it in any of those places. Product could be anywhere—in a distribution center, at the vendor, in the store, or not manufactured yet. And when you draw the possibilities there are over a hundred different options. Order online, order in store, ship to store, pickup in store, ship to home… We do some of this at Hudson’s Bay, but not as much as other retailers are doing. So it’s a huge priority for us, because it’s the future of the modern American department store.

RL: Isn’t it unusual to have a single CEO leading all these businesses in four different countries? I mean, it’s difficult enough to be CEO of one brand.

GS: We have very strong banner presidents. I view myself as the coach. Liz Rodbell has been at Lord & Tay- lor for 30 years. She’s a very skilled merchant and president. Then we have Mark Metrick at Saks, who’s been there for 15 years. Then we have Jonathan Greller at Saks Off Fifth. He’s newer but he’s a tiger, very aggressive. The management team at Kaufhof in Germany is solid, or we wouldn’t have bought the business. We have quarterly business review meetings, less formal Continued on page 22 monthly conversations.

 / 21 CEO PROFILE

Continued from page 21 RL: Why are stores still important?

GS: They’re more important than they ever were. Of the 100 all-channel possibilities, 70 of them are in physical stores. Anyone who says consumers don’t like to shop in stores hasn’t done their research. Shopping is the number one form of entertainment in the country. It’s more important than ever to have attractive physical environments and great customer experiences.

RL: What’s the next challenge for retail?

GS: I think using Big Data to personalize and actuate CRM is the next frontier. Some internet retailers do a good job, but they only have the internet data. We have the in-store too, which is a great advantage. RL: How do you bring those banners RL: Many upscale retail brands are together culturally? realizing that in order to survive they RL: Are you concerned at all that over have to appeal to Millennials. How are time the off-price will devalue the GS: The executive leadership team met you doing that? mother brand? and discussed this for a long time. We are a company that was built on ac- GS: We’re always focused on the GS: I think it’s the reverse. I think quisition, so we talked about what our customer, and it’s clear that Millennials it’s a great way to get customers core values are, and what the winning are becoming a bigger part of the introduced to the Saks brand who ways are—how to execute those val- customer base, so we have to address thought it was unapproachable before. ues. We have big heritage. We operate that. We segment our business, and It’s a great way to get new customers, the oldest department store in the U.S., think of that group as one of the clear maybe people in earlier life stages into in Lord &Taylor. Hudson’s Bay is the targets for growth. The design lab at the brand, so that they’ll migrate to oldest corporation in North America, Lord & Taylor is serving that customer, the mother brand later on. Nordstrom since 1670. We need to treat people and it’s also exclusive product. It’s feels the same way about Rack. with trust, respect and integrity. We different from what’s available at hire retail executives with those values other companies. RL: What is your vision for HBC? and who are willing to take risks. We make sure our leaders embrace that. RL: One thing I noticed in the Toronto GS: We want to build a We want to have an adventuresome stores was what I considered a lack spirit – maybe that’s the Canadian heri- multigenerational retailer that of technology considering what’s will have meaning for the next two tage. I’m a big believer in the heritage. available and what others are doing. You can see it in some of the things generations. We frequently want we’ve done, the real estate structures to involve our kids in our meetings Richard has built. We do it differently. GS: It’s important to keep in mind that because we want to run a business The money makes a round trip, so there’s a lot of technology out there, al- that will appeal to them. We have we’re not leveraging the business— most an unlimited supply, but it doesn’t a lot of restaurants, and we think we’re deleveraging it. Any money we make sense unless consumers will ac- food is a very important part of the get goes right back into the business. tually use it. We’re not looking for the experience. It helps with the in-store We’re putting $250 million into the nerd’s dream, we’re looking for what circulation, and we want to take that Saks Fifth Avenue building. I didn’t will help regular shoppers. Customers to a better place. As big as we’ve come here to do anything but build a today want to interact with their smart become, we’ve only just started. We great retail business. You say Richard phones, so we have mobile apps and think that within the next few years is a real estate person, but he under- beacons and other things you might there will be another acquisition. First stands you can’t let the retail business not see because customers have to opt leg, running great retail banners; sec- go, you have to keep investing in it. into them. We use RFID for stock keep- ond is mergers and acquisitions; third ing. The real genius is in knowing how is taking care of the real estate. to distinguish between the meaningful technologies and the fluff. 22 / WWW.THEROBINREPORT.COM / FALL 2015 INTERNATIONAL

By Gwen Morrison & David Marcotte Expanding Globally? THEN CONSIDER MEXICO

This is a challenging time for retailers substantial migration across borders. to invest in global expansion. About ten And clearly there is the influence of years ago the industry experienced a each culture on the other, with Latino Q&A with Miguel Flores, Gold Rush of sorts, heeding calls to “Go traditions becoming well known in the West” (or “Head East,” depending on U.S., and U.S. holidays, brands and American Eagle Outfitters your perspective) to China and India. entertainment quite familiar within Some launched seriously misguided Mexico. All of this makes setting up shop Mexico, who gives further formats, like those of Tesco and in Mexico far easier for a U.S. retailer insight into how a Carrefour, that didn’t properly serve than moving to most other countries. local consumer preferences or failed U.S.-centric brand can to come to terms with political realities. Why the Time May Be succeed in Mexico. (Since then, many adjustments have been made. Retailers who had the fortitude to Right for Mexico stick it out stayed and eventually grew Many positive developments and indica- RR: How did you decide to launch to understand and manage to the local tors make Mexico worth considering as in Mexico? shoppers’ environment and needs. an expansion site. First and foremost, More recently, the call was to move there is a growing middle class. Miguel: Many retailers don’t pick into Brazil, Russia and South Africa, Mexico as they consider expansion Until recently, there were two economic the balance of the so-called “BRICS” early on. They go to Asia or they tiers in the country, the very wealthy and countries. No longer labeled “emerging go to Europe. At American Eagle the very poor, providing little promise for markets,” BRICS offered opportunities Outfitters, we fielded a global study U.S.-style retail, which serves busy, two- for fast growth from both new money that told us Mexico was an obvious income households, The poor wouldn’t and the promise of government choice. We also knew that Mexicans have been able to afford to shop there investments in infrastructure. love our brand and were already and the rich, with their big houses and transacting heavily in tourist desti- However, recent political and economic staffs of domestic help, didn’t need it. nations and border stores. Culturally developments, including unstable However, the rapid expansion of middle- it's embedded in the lives of Mexi- currency and concerns about corruption, and high-quality manufacturing in the cans to go to the U.S. to shop for bet- have caused retailers to rethink where last decade has created a growing and ter value, better service, and better and when to expand across borders. educated middle class comprising almost quality. So they are familiar with U.S. Many have postponed moves into half the country. Mexico now looks quite retail brands and we knew that AEO what otherwise might be promising different than it did in its bipolar past. as a brand fit right in with Mexico’s expansion markets. Much of Africa fits Mexican shoppers want to shop, and teen and young adult aspirations. this description of potential shaded by they want good retail experiences. “Real Clothes for Real People” really high risk. With the possible exception of strikes a chord with them. India, so far none of these regions look Suburban Sprawl very promising in the next few years. RR: What hurdles did you see? Enter Mexico, where we’ve recently This larger middle class is driving an taken a deep look into what we believe overall shift of the population to the Miguel: The challenge for us was to are tremendous opportunities for U.S. suburbs, along with a move to dual overcome the unfortunate percep- businesses. There is a longstanding incomes in most cases. Not only do they though complex set of relationships want to shop in nicer stores, they want to between the two countries, intensified by do so after work and on weekends, which Continued on page 25 the mechanics of free trade (NAFTA) and is at odds with the traditional informal Continued on page 24  / 23 INTERNATIONAL

Continued from page 23 Mexican shoppers drive past them to shop at Macy’s, Nordstrom Rack and the major lifestyle malls. Challenges Remain

This is not to say that Mexico is an automatic route to success. While we’re not exactly saying “Mexico is the new China," there are several challenges to doing business in Mexico. Corruption in Mexico has come more into the glare of the public eye than in the past. However, though still a reality, it is not necessarily on the increase. Key services, such as water and the building of infrastructure, continue to be distorted by ‘unseen hands’—but the government has become far more active (and success- ful) in reducing the impact of bribes and racketeering in some other areas. The police and public security organizations continue to improve, the oil industry has been made partially public, and even retailers. Sound familiar? This is exactly Since the burgeoning middle class does the Teachers Union has been challenged. where the U.S. was four decades ago, not have household help, there are more Social Media has played a large part at the start of its big phase of retail home furnishings and kitchen stores. in driving public opinion to force sales growth. The department stores and malls are these changes and is providing a creating destination food courts for Though malls are on a general decline backdrop of “social shaming” that has these time-pressed and experience in the U.S. as they age and lose out to had some effect. oriented shoppers. online retailers, in Mexico about 50 malls Infrastructure is improving more quickly, per year, averaging a million square feet The Wealthy Want to starting with the modernization of ports each, are being added. Since the new on the Pacific and the Gulf, along with suburbs lack the infrastructure for large Shop, Too the land ports on the U.S.-Mexico border. shopping areas, and the older cities have Rail freight and intermodal containers real physical constraints to being able Not to be outdone, the very wealthy are have improved greatly in the last ten to support these requirements, the new flocking to their own new malls in cities tears, resulting in a huge increase in malls are being built on commuter routes like Cancun, Xalapa, Polanco (within air freight and commercial travel, between suburbs and cities, to give Mexico City), Santa Fe and Monterrey. particularly at the smaller airports. access to both. Carlos Slim, the most successful And although the highway system has businessman in Mexico, is committed to The Palacio de Hierro and Liverpool enjoyed the biggest improvement, it creating more of these mega malls and department store chains have been has not kept pace with the increase integrated shopping experiences such as remodeling and expanding their existing in passenger cars and trucking. Home those on the north side of Polanco, where malls, and plan on adding five new delivery remains challenged, with the he has rebuilt the entire area around the ones each year between them. The last 1000 meters from the transportation old rail yards into multiple malls, with supermarket chains Chedraui and network to the home still a problem. entertainment centers that include a Comercial Mexicana have similar plans. world-class art museum and aquarium. Violence from the drug cartels is very Crate & Barrel, Saks Fifth Avenue and real, but has lessened greatly in most Gap are now in Carlos Slim’s Plaza areas also. It can flare up quickly, Carso development. however, so it needs to be monitored Mexican shoppers are accordingly. Organized crime is still a Viva American Brands concern for business and for individuals tuned in to American in most parts of the country, and retailers brands. Hundreds of Mexican shoppers are tuned in to have become remarkably quick to shift shopper groups each month American brands. Hundreds of shopper to a far more nuanced and effective groups each month take organized bus security network to offset this challenge. take organized bus trips trips from Mexico to Southern Arizona eCommerce Still In Relative Infancy to stock up on merchandise that is Although the middle class shopper in from Mexico to Southern unavailable at home or that is perceived Mexico is highly engaged with online ac- Arizona to stock up on as better priced stateside. But overall tivities, including social media tools such these trips are less about pricing and as Facebook and Twitter, Mexico’s ecom- merchandise that is more about experience. The malls, shop- merce sector has barely gotten started. unavailable at home or ping centers and retailers that receive the The Latin American pureplay online bulk of these visitors provide a superior retailers of Linio.com and MercadoLibra. that is perceived as better shopping environment. It is telling that com do reasonably well, but they also ex- the older shopping plazas on the south perience limitations in fulfillment due to priced stateside. side of Tucson and in the border town of the evolving infrastructure and perceived Nogales have lost much of the Mexican dangers of home delivery. trade on which they were built, as

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Amazon has announced it will be launching Q&A with Miguel Flores a Mexico site, and is aligning with the large distributor and retailer FEMSA—which Continued from page 23 not only owns 13,000 OXXO convenience stores and close to the 1,000 drug stores, but is also the largest distributor to the small retail store in the market. Being able tion that you might not get the same RR: Can you to deliver to every neighborhood of any quality of service in Mexico as in the describe your size in the country on a daily basis will be U.S., and that the pricing is unfavor- launch? Did you have crucial to establishing a stable eCommerce able. Shoppers were skeptical that a spokesperson from Mexico? business in Mexico, as will the ability to our pricing would be fair. We provide credit to Mexican consumers. So the maintain the same price with Miguel: The fact that we don’t use opportunities in Mexico are primarily in the currency exchange from one celebrities worked well for our brick-and-mortar sector, at least for now. country to the other. launch. We opened 18 stores in 12 cities throughout Mexico. Again, Any U.S. retail brand considering expansion The second issue was that many “Real Clothes for Real People” allows into Mexico must first ask itself a few key brands that have a certain positioning us to showcase great lifestyle and fun questions: How does the brand translate in their home market come to Mexico people in everyday life. The trick into the Mexican culture? How does the pretending to be something they are was to create buzz in social media retail and brand experience offered serve not. For consumers who know the before we were ready to launch unmet shopper needs? Are the broader brand, they always end up saying an ecommerce site. infrastructure issues something the retailer "You know, it's not the way I expected is willing to deal with? it to be here." So we needed to deliver We did this by taking a pop-up The growth in Mexico’s middle class, the same standard of experience experience to universities and malls increasing demands on consumers’ time, within the store and online. around the country. We invited people and expanding payment options offer a to try on the jeans and share their RR: How do you evaluate if particular sweet spot of opportunity for many love of the great fit with their friends. campaigns originated in the U.S. will retailers today, and should not be ignored. We gave them coupons to redeem at play well in Mexico? a physical store. Don’t let the challenges of Mexico scare you. The ultimate reward might be more than Miguel: It’s always a fine line. We We started with 817,000 people that worth the risk. are a U.S.-based brand, and we want were already following us on a cor- to have the same campaigns, but porate Facebook page before opening occasionally they don’t translate. For in Mexico. In only two years, we've example, for holiday last year, the been able to grow that base to over 2 U.S. windows featured down jackets million people. And then we opened with the line "Get Down." That would our Twitter organically and already GWEN MORRISON not play well, so we substituted a very we are at almost 100K people. CEO of WPP’s typical Mexican phrase that means The Store "We're Warming Up." So we keep the Gwen: Any advice you would like brand’s DNA and the essence of the to share? promotional message while making it relevant for the local consumer. Miguel: First, we invested the time required to really understand the Gwen Morrison’s career has been devoted to RR: Tell us more about how the AEO brand in the context of the Mexican building brands in the retail space. She is CEO of brand fits within the competitive set market and our core shopper. We WPP’s The Store, responsible for extending WPP’s in Mexico. did not rush, in and this was key. leadership in retail innovation and supporting Second, we capitalized on our global resources for WPP group companies across Miguel: The denim market is a 1.7 the Americas and Australasia. She has contributed brand’s strengths relative to the to Harvard Business Review, Brand Week, and billion (USD) market in Mexico. lifestyle our consumer in Mexico Journal of Brand Strategy. Based in Chicago, she We thought that was very attractive. aspires to. Third, we showed respect is a guest lecturer at Northwestern University, We knew the market was being for the community. We started a University of Chicago, and University of Arizona’s dominated by traditional players, Terry J. Lundgren Center for Retailing.. campaign to fund public spaces brands launched over 20 years ago, where our consumers go to meet but that a lot of new brands were and have fun. also coming, like GAP, Aeropostale, Hollister and Abercrombie. But So we heard them, we asked DAVID MARCOTTE consumers told us, “I don't like to them, we looked at them, and we Senior Vice be told what to wear, I have my own followed them. We decided on how to President for style but I still need some inspira- approach our customers. We engaged Retail Insights, tion.” They also said they liked our them, we got them to go to the stores, Kantar Retail everyday fashion and unique styl- and now the big challenge is to keep ing. So we loved that positioning. It it going, to continually exceed our gave us an amazing opportunity, and metrics for traffic and conversion. David Marcotte is Kantar Retail’s Senior Vice we looked at this and we said this is President for Retail Insights in the Americas. He has nearly 20 years working in the Latin American exactly where we want to be. We saw region, and for 20 years was a retailer in the United that we could capitalize on our brand States and Canada, including at A&P, SuperValu, strengths and connect with Mexican and Big Y Foods. He is seen as an expert on all consumers’ personal sense of style. the dynamics of Latin American retail infrastructure and government, along with consumer studies.

 / 25 STRATEGY

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 / 27 MILLENNIALS MILLENNIALS AT WORK The future of the Millennial workspace has finally hit its apex: from bringing our home to the office and the new extremes of socializing in the workplace to Holacracy (a new, flat framework for management), we Millennials are defining our new work style. Each of these emerging trends is emblematic of the pure sense of freedom and chaos Millennials need in order to succeed in the workplace. By Maxwell Montgomery

In looking at how Millennials interact email (rarely), snapchat, apps, hangout, tion weave into each other in a hurry. with each other at work, five key trends iChat—trust me, we are noisy online, With dating, you need events—and this emerge that support a potential societal and not just with our friends, but with is where clubs come in. From running shift in the way companies can be built our colleagues as well. clubs and pizza clubs to astronomy clubs and managed in the future. We can look and crafts clubs, specialized interests at these trends to help us understand are becoming beacons of socialization how to create a workplace that meets DESIGNING A WORKPLACE for Millennials to cluster around and find the needs of Millennials; they also solace. Our workplaces are increasingly provide a roadmap to access your THAT LOOKS LIKE HOME going to become the hub of all our most own future workplace. While working from home is no new important activities. phenomenon, workplaces that mirror the comforts of home are starting to OPEN OFFICES emerge, making the Millennial employee SLACK = DEATH OF EMAIL If you have to build a new office, you will more comfortable. Contract furniture A new crop of communication tools hear the most influential designers and companies like Haworth and Vitra is trying to re-center one of the pesky cultural anthropologists preaching about have recently introduced workplace problems facing many organizations: an open workplace. Where cubicles once lines that bring home to the office— death by email. Slack is one such dominated the landscape, a new school residential fabrics and textiles, innovation that is making waves in the of thought believes that walls destroy makeshift IKEA-esque first apartment way companies communicate, applying collaboration and creativity. But ripping furniture that takes the idea of furni- a level of transparency that is reorder- down the walls isn’t the main reason ture hacking from home to work. As the ing how information is prioritized and Millennials are sitting around a work/life balance continues to blur for processed. Slack creates chat groups Valhalla-like shared table. The open us, Millennials will want to interact with or channels that individual people space naturally leads to the leveling their workplace in a way that doesn’t or teams can join. Slack can plug in of power in a workplace. By putting resemble the traditional office. Offices directly to your company’s web products’ Millennials at a workbench on the same will offer living rooms. Private nooks. application program interfaces (APIs), footing as their co-workers, and in many Our co-workers are often our social pull important key performance indica- cases their boss, Millennials are drawn partners. Don’t be surprised if you see a tors (KPIs) happening in real time, and to the flame of equality and power distri- couple cannoodling on the weekend in dump that information directly into the bution that an open workspace brings. a Scandinavian inspired living room… hands of the business teams who need at work. it. In other words, it integrates with As to productivity, it can be nearly all your business’s software platforms impossible to work with all the noise and aggregates important notifications and chatter in an open space. When you A NEW SOCIALIZATION: (Twitter, online search) and business bring down the walls, you increase the information into feeds. pressure to talk to your neighbors—not DATING AND CLUBS AT WORK always a good thing, because it can be Ecommerce is a prime example of how Which leads me to another major shift. a time-consuming distraction. Slack works. Using Slack, different retail As Millennials take more and more of divisions can get instant notifications home with them into the office, it isn’t This is why headphones have become centered around sales and other key surprising to see more social organiza- the new office doors. You will often see moments. These notifications become tions crop up in the workplace. Dating whole groups of worker bees silently the center of the online conversation, in the office is nothing new; but having plugging away. But don't be deceived. supplemented with key files and action your co-workers comprising your main The chatter is hidden in the new com- items communicated transparently on a dating pool is. If you’re going to live in munication tools that we Millennials use team level, helping deal with the chaos your office, you’re going to date in it, to help keep a company on track. We’re and unpredictability of the online retail and the traditional barriers between talking all the time—you just can't hear business. It also taps into the Millennial social courtesy and professional obliga- us. Chat, text, messaging, traditional need to know everything that is going

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on. Employees are encouraged to join tenets of agile software development, channels that interest them, and let Holacracy is ingrained in avoiding the WHAT DOES ALL THIS MEAN? workers spy on other business teams’ worst mistake your company can comings and going, hopefully keeping make: committing resources to the Holacracy appeals to Millennials who everyone informed and on the same wrong thing. want frequent change in their roles page. Private groups and direct mes- within a company. This is because we sages let co-worker clicks replace the By creating an arena of debate, skillful know the career path to the top is a proverbial water cooler with interest employees can group around projects long one—because older people aren’t groups they have in common. Slack is as equals, proposing ideas until a leaving, or if we’re entrepreneurs, our the first step to a future where, maybe, consensus has been reached. It also bosses are the same age we are. We no emails are sent at all. prides itself on bringing employees want to continue to grow and be chal- that are closest to the issue, the ground lenged. If we’re trapped in the same troops, into a position of being able to position for more than two years with HOLACRACY– THE influence policy and strategy. While this no path forward, we’re going to leave. sounds like it could be a little chaotic We want mentors, personal/professional PERSONIFICATION OF THE to organize everyone’s activities and growth and a clear path leading to coordinate time management, a new career advancement. IDEAL MILLENNIAL WORKPLACE crop of software products enables Holacracy—another integral disruption The physical workplace environment is Holacracy is a new management of the communication stack typical of also in a shifting sands type of transition. framework aimed at disrupting the an- traditional office environments. Since we have to spend so much time cient operational model of managerial at the office, we want to be comfortable command-and-control hierarchy. Already practiced by retail titan Zappos there (so you can keep us there even In fact, philosophically it does away and media publishing website Medium, longer). Our social lives and professional with managers as a whole. Instead Holacracy is the apex in emerging lives are intertwined. The taboo of dating Holacracy focuses on self-organization, workplace models for Millennials. at the office is off the table. We view our grouping people based on skill sets and We’re a demographic group that often workplace as our community. So, if you then clustering these groups around wants to be calling the shots, but is also want happier and even more productive core functions and projects that the ready to be ultimately accountable; Millennial employees, sit down at the company needs to get done. This is the Holacracy fulfills our desire to be table with us. Trust that we are com- Millennial dream: as long as you have important and impactful on both municating all the time (albeit it silently). skills and knowledge, you can argue project and company levels. Invest in advanced software communica- and fight for the way you think things tions programs to facilitate our style, and should be done. And if you get bored To be fair, outside my Millennial optimism, Holacracy isn’t getting such provide us with a homelike workplace. of your cluster, you can belong to We will give much more than we take. more than one, and multitask among a great rap – especially at Zappo’s. The the groups. amount of pressure and shift in their culture required to make this model Holacracy was created in 2007 by a home run is so taxing. It's really no Brian Robertson, a 35-year-old former surprise that lot of people at Zappo's MAXWELL programmer because he was quoted are ready for the experiment to be MONTGOMERY that he had a sense that there had over. The entire Holacracy genesis is Design Observer to be a better way to work together. really steeped in start-up culture. The Holacracy is a comprehensive practice opportunity, or opportunism—depending for structuring, governing and running on your vantage point—is to be able to an organization. It replaces today's top- groom a cheap, young labor force from Maxwell Montgomery is a born and raised New Yorker down, command-and-control paradigm the ground up with a different model. with a love for architecture and design. He is a loyal with a new way of achieving control by This is the only prayer that Holacracy subscriber to Uber and is slowly collecting a bespoke distributing power. Borrowing from the could work at scale. wardrobe, online and off.

 / 29 CONSUMER BEHAVIOR

THE

OF A FAVORITE

A comfortable pair of jeans What makes any piece of clothing a only allows consumers to shop the looks “favorite?” Earlier this year, Cotton found in the new commercials, but that makes you feel confident. Incorporated decided to see what also allows them to browse collections these reasons were in its new of cotton-rich clothing from a range A shirt filled with sentiment advertising campaign “Cotton. It’s of designers at various price points. SM Your Favorite For A Reason. ” The The shops and collections are updated and inspiration. A trench that campaign, which focuses on cotton’s monthly, focusing on certain trends travels everywhere you do. style and substance, shied away from (Made in America), seasons (Summer the celeb-centric TV commercials that Scarves), events (Memorial Day Get- had reintroduced a new generation away), and even “Favorites through the to the “The touch, the feel…” jingle. Ages,” which shows modern takes on Rather, it uses real people in real life vintage finds. The subjects featured in situations discussing their favorite the new commercials also each have items of clothing in the television com- their own curated collection on the mercials and online videos. Consumers website, showcasing designs inspired are meant to connect to the subjects in by their individual favorite pieces. the commercials, relating to their feel- ings and experiences. To go along with Cotton Incorporated also wanted the the commercials, Cotton also decided to website to become more of a destina- execute a more omnichannel approach tion – a place where consumers would to getting the word out, incorporating continue to visit, returning to read a a much broader digital program to new blog post or find inspiration for a target a whole new audience. new outfit. The “Shop Cotton” section not only features women’s fashion, but #ShopCotton also items for men, kids and the home— According to Cotton Incorporated’s categories that had not been touched Lifestyle Monitor™ survey, 41 on in previous campaigns. About 8 in percent of consumers say they go online 10 consumers say cotton is their fiber to browse because they “just like to of choice for their own clothing (81 per- browse for clothes online,” followed cent), their kids’ clothing (86 percent), by 29 percent who have a need to and their home products, such as sheets purchase new clothes, those who (81 percent) and towels (90 percent). research before purchasing in-store (27 percent), and those who received Recently, Cotton Incorporated launched an email from a brand or retailer a new digital series, “Favorites Re- about a new style or sale (25 percent). mixed,” which enlists Hearst editors to Another 14 percent of consumers dispense style advice for their favorite browse for clothing online after cotton pieces. The videos can be found hearing a commercial, and 9 percent on Hearst digital properties, but also head online after they see or read live on TheFabricOfOurLives.com with something on social media. their own shopping sections.

The search for cotton clothing In covering many trends and categories, became easier with the 2014 redesign the cotton shops on the site are de- of Cotton Incorporated’s consumer-fac- signed to show consumers how seam- ing website, TheFabricOfOurLives.com. lessly cotton can fit into their daily lives. This was an important step in reaching these online consumers when the new #CheckForCotton campaign launched, providing plenty of “I move a lot, so I need something cotton inspiration all in one place. The breathable.” “This is perfect because addition of the Shop Cotton section not it feels natural.” “I’ve noticed that the

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more cotton that is in the jeans, the longer they’ll last.”

The campaign not only wanted to show how stylish cotton can be, but also wanted to convey its many ben- efits. Cotton Incorporated knows that consumers want pieces that are cotton, according to Lifestyle MonitorTM data – 69 percent of consumers say their favorite piece of clothing is at least 60 percent cotton. However, this doesn’t mean they are necessarily checking the label for fiber content when purchasing new items. Many man-made fibers are now looking and feeling like cotton due to new technological advances, but this doesn’t mean that they will perform the same way. The majority of consumers Rue La La. It includes four “cotton ing cotton styling tips and inspiration. (52 percent) are dissatisfied with fiber takeovers” on RueLaLa.com, showcas- The takeovers incorporate curated substitutes for cotton, as well as with ing cotton boutiques for women, men, selections of “Molly Approved” cotton the performance of the clothing— children and home as well as highlight- especially over time. The only way fashion and home items. ing digital videos from the campaign to combat this is for consumers to and sharing facts about and benefits check to the label to see if the item is Looking for A New Favorite of cotton. The initiative is supported cotton-rich before purchasing it. through social media, dedicated emails Almost 3 in 10 consumers (29 percent)

to Rue La La’s Member base, and cot- say jeans are their favorite piece of The benefits of cotton are woven into ton-specific packaging that highlights apparel, followed by tees (15 percent), the commercials and videos as the certain benefits. The packaging for the active bottoms (9 percent), and casual subjects all discuss why exactly a takeovers also uses the Seal of Cotton, pants (8 percent), according to the particular piece is the favorite. which is recognized by more than 8 Cotton Incorporated Lifestyle The reasons range from durability TM in 10 consumers. Monitor survey. When asked why and comfort to breathability and it was their favorite, almost 8 in 10 versatility. The commercials also issue When the partnership was first (78 percent) cited comfort as the a call to action, telling consumers to announced, Robin Domeniconi, Rue La reason, followed by fit (62 percent), “Check the Label” and asking them to La’s Chief Marketing Officer, noted in making them look or feel good (46 find out more on TheFabricOfOurLives. the press release that “…whenever we percent), and softness (45 percent). com. These benefits are explained in think of cotton, we think of our favor- detail on the site, giving consumers an ite worn-in tees or a pair of perfectly Cotton Incorporated’s new campaign opportunity to learn about why cotton fitting jeans—all things that inspire was inspired by these findings and should be their fiber of choice. confidence. Every day at Rue La La, we others like them. The company

encourage our Members to be confident conducted extensive consumer Speaking about the benefits of cotton in their personal style and be inspired research to see what consumers is another way that the campaign is by the new stores every day… Cotton really wanted, and more often than catering to the Millennial consumer. is such a classic and versatile fabric, not the results connected back to More so than Gen X and Boomer and we're excited to share the reasons consumers wanting what cotton consumers, Millennials (57 percent why we love it and the different ways in can offer. The campaign allows compared to 35 and 42 percent, which cotton can be incorporated into consumers a chance to appreciate respectively) say they would be our Members’ wardrobes and homes.” their cotton favorites even more, giving more loyal to brands and retailers them an opportunity to understand the who educate them on the products, A 12-piece bespoke collection was benefits of the items already in their according to the to Lifestyle MonitorTM also designed exclusively for the closet and giving them a chance to survey. They crave authenticity and partnership, featuring custom jeans, find and discover new favorites. have a quest for knowledge—they’re dresses, scarves and even jewelry looking to consume this information. from designers Nanette Lepore, Visit TheFabricOfOurLives.com to Hudson Jeans and Tamika Rivera. learn more. Rue La La Cotton Incorporated’s partnership In May of 2015, with Rue La La has been a wonderful online shopping way to show consumers just how easily destination Rue cotton can fit into their daily lives, and CATHERINE La La announced the experience encourages them to SCHETTING a partnership find new cotton favorites from with Cotton designers they know and love. SALFINO Incorporated in Fashion Retail In July, it was announced that order to support Reporter the “Cotton. It’s model-actress Molly Sims would be Your Favorite the spokesperson for the remaining SM takeovers until November 2015, Catherine Schetting Salfino covers fashion and For A Reason. ” retail. Her work has appeared in the menswear campaign. The partnership with helping to tell the Cotton Incorporated publications Daily News Record, Women’s Wear Cotton is the first of its kind for and Rue La La story, as well as offer- Daily, Saks POV, and the Sourcing Journal.  / 31 GROCERYINTERNATIONAL & FOOD

APPLIED THEORY ON Brazil NOTES FROM THE TROPICS By Marie Driscoll By Paco Underhill

Art, theater, and retail have all been are constituent parts of the design of players that have managed to keep intertwined in American culture experience puzzle. Get it right and their windows and visual merchandis- going back nearly two centuries, you have magic; miss the mark and ing exciting. Kate does it with humor, to Godey’s Lady Book in 1830. As you fail. The late 20th and early the Spaniards with an ongoing dark 21st Centuries are littered with tension. That all three of these recently as the 1950s, Andy Warhol, good and bad examples of retail players are fashion driven is no irony. Jasper Johns, Robert Rauschenberg design experience. Three early It is hard to sell the same stuff year and Sari Dienes, all postmodern winners that actually turned out to in, year out. Good lighthouse brands artists, paid their bills by doing be losers were the Warner Brothers, manage to keep the same reliable commercial retail design work. Disney and Nickelodeon stores. ethos, but move quickly with the times. Not a well-known fact: Andy, Jasper and Bob did store windows; These three companies decided to WHAT VEGAS TEACHES US Sari did fixture design. open retail stores with very healthy licensing deals. Disney’s goes back Theater merged with retail design Going back to the first retail design to the 1930s, when Disney-themed is intrinsic to success. For example, firms of the ‘50s, many of them merchandise populated many chan- theatrical design equity is embodied started as set design businesses. nels of retail. Disneyana, as cultural in the architecture of the mall. Even today, restaurant and retail historians have dubbed it, included The Grove in LA, Solentuna outside design superstars like David Rockwell toys, jewelry, watches, tabletops— of Stockholm, and K-11 in Shanghai earned their chops on Broadway even furniture. all use design to create an exciting and migrated to retail as a way of sense of place. They become destina- generating steadier income. All three brands decided to “make tions. We typically have choices love” directly with their customers in about where we spend our money, PIONEERS IN THEATER physical stores. All three were clear so places that please us usually unquestioned winners the first year trump miserable stores where we Theater and stores share a sense of they opened. All three were theatrical have unhappy experiences. impermanence. The stage set, the and charming. The first, second and store window, the focal point, even third visits were special… but some- Theme parks, media companies, the pop-up, are all designed to be where after the fifth visit, the charm casinos, zoos and aquariums, even ephemeral. Whether they are opulent started to fade. airports are learning and trying to or minimal, their visual appeal is adapt theatrical retail experiences to seminal to their ultimate purpose— The Oxford shirt with Tweety Bird their own needs. The highest volume to transport and charm the viewer. on the pocket and the plastic Little retail locations in the world using the The power of store design and visual Mermaid cups and bowls did not age old dollars-per-square-foot mea- merchandising, as well as stage sets, is well, particularly because they were sure are not to be found in standard the transitory: the visual proposition is presented year after year in the same shopping malls or high-end shopping not designed to last forever. And when context, with no changes or updates districts, but rather are located inside done well, that’s what keeps people to the design. The store didn’t evolve theme parks, resorts and casinos. coming back for more: they continue to either, so there was no new magic to Surprised? be delighted and surprised by the new. draw customers back. Travel and shopping are deeply The mix of physical design, On the other hand, Zara, Mango intertwined in the 21st century. merchandise and the operating culture and Kate Spade are all examples Paris, London and Miami all thrive

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as shopping vacation destinations. was happy to talk to you about thread band plays in the center court and a Visitors arrive with empty suitcases counts in sheets. But like everything lineup of female samba line dancers looking to fill them up. Another else in retail, it had to stay fresh. shuffle to the beat. At the edges of the example is the all-inclusive resort, The Apartment lasted about a year crowd, a young woman, adorned in where the economic proposition is and then closed. a wedding dress and mask, has her to ensure that all the money spent picture taken with visitors over and is spent on the premises. An early I recently saw another great over again, in one tourist’s selfie example of this idea was the example of theatrical retail design, after another. We talked with her, development attached to Las Vegas which provoked this column. And and not surprisingly, she works for ON casinos. The Venetian and Caesar’s gets me back to the tropics refer- the property. Forum built malls so that the spouses enced in the title. Fifty miles north of of gamers never had to leave the Salvador, the regional capital of Bahia That beach village may be bogus, property. And these sure weren’t in equatorial Brazil, a spate of resort but it’s onto something, because for Brazil the typical hotel gift shops: they complexes has opened over the past each new wave of visitors it is new created a fantasyland worthy of the 20 years. High-end beach spas, condo and delightful. How long will that imagination of each casino’s designer. complexes and small and not-so-small feeling last? Until it gets predictable budget hotels cater to a global leisure and tired. Those of us who labor in There are lessons to be learned in traveler. White beaches, good diving the global retail trenches recognize Vegas. Retail impresarios come to and abundant aquatic wildlife are all that in the end we are dream weavers Vegas, look and process, then go stage set in the relative safety of a or even sorcerers. We must use our home and reinvent. planned development, isolated from creativity and intuition to pull in the the poverty and crime that all too right cultural references to create new GLOBAL THEATRICAL DESIGN often characterize Brazilian cities. experiences—all the time.

Often where we spend our money is TROPICAL THEATER Is this the starting point for our virtual less a statement about what we are reality retail future? Will we visit actually buying and more about the Praia do Forte, a large multi-hotel shopping malls through Oculus Rift, broader theatrical experience. Selfridg- development, has opened a experiencing hyper realty shopping es, in London, stages surprise fashion reconstruction of a beach village through attractive avatars that we shows on its escalators on Saturday as the epicenter of the property’s create in our best image? afternoons. On a weekday when the leisure shopping. I see it as a children are safely in school, it might be tropical variation on the town center Retail is an industry reflective of a wandering drag show, made all the concept that has sprung up across social change. Where we go, it will more memorable by its setting and the North America. Cobblestone streets, follow. What remains constant is the security of the context. Go to an HEB in open-air restaurants and lots of little need to feed our imaginations, be Texas on a Saturday morning and you shops make this project charming entertained, inspired and seduced into might find a petting zoo in the parking and attractive. Overhanging palm spending our money in meaningful lot or a clown performing on the floor. trees, dense flowering bushes ways. Theatrical retail design provides (natural sunshade management), the magic and encouragement to be More than a decade ago, a store and yes, ambient live music, provided part of a commercial community that opened in SoHo called The Apartment. by half a dozen ad hoc musicians delivers more than the sale. It sold home furnishings and some where someone taps on some clothing. On Saturday afternoons, drums or strums a guitar. The the bedding department featured a stores sell trinkets, handmade PACO UNDERHILL chesty actress in a skimpy nightgown jewelry at modest price points and lounging on one of the beds. She a few beach fashions. The net effect CEO and is something like a movie set from Founder a 1940s-era tropical musical. I was of Envirosell half expecting Ginger Rogers to sashay past in a sarong. Unlike a real tropical seaside village, there Paco Underhill is the CEO and Founder of Envirosell, a behavioral research and consulting are no stray dogs, no open sewers firm with 10 offices globally. Paco and Envirosell’s and no pungent drying fish. It is lovely. work has been featured in The New York Times, 20/20, National Public Radio, Smithsonian Magazine, Wall Street Journal, and other major Given the choice to climb on a bus news media. Paco is also the author of What and ride to a postmodern shopping Women Want, which examines how women are affecting the future of commercial spaces; Call mall or wander a through an ersatz of the Mall, a walking tour of the American seaside shopping village, which would shopping mall; and Why We Buy, the bestselling you prefer? book about retail in history. In addition, Paco’s columns appear in retail: design (formerly DDI Magazine) as well as numerous trade A nearby resort offers an upscale publications. Paco is an expert on consumer version of the same thing; only a local trends, and is often tapped as an expert on purchase decision issues around the world.

 / 33 BEAUTY

UBERIZING: By bringing hair, makeup and nail pros right to your door, on-demand apps are claiming an ever-bigger chunk of the beauty budget

By Dana Wood

Pass the oxygen A few little guys step out Consider Stylez the 3D version of onto the stage ripping a picture out of Vogue or GQ, and bringing it to a salon or barber- mask—StyleSeat is shop, hoping for the best. Plus, there’s Before we take a deeper gander at sucking all the air a social media feature: Users can post StyleSeat—aka King Kong among a before and after shots for their friends out of the room. sea of Fay Wrays—let’s investigate two and followers to ooh and aah over. up-and-comers: Stylez, an app launched This past July, when the San Francisco- in 2014, and StyleBookings, a website It’s a very smart idea; no wonder based startup announced that its Series that made its debut this year. B fundraising had yielded a cool $25 Hair Construction beat out 200 other applicants for a chance to present million—on top of the $15 million in VC Born in Miami, Stylez is a Stylez to Mark Cuban and billionaire money already sitting in its kitty (some consumer-facing product by the very hair guru John Paul DeJoria at the even courtesy of Uber co-founder Travis inside-baseball, industry-driven Hair first BeautyPitch at CosmoProf Las Kalanick)—jaws dropped throughout Construction Co. Through the creation Vegas this summer. “The crowd of beauty land. of mega training materials (look-books, 1,700 interrupted us with applause videos, step-by-step “recipes,” product twice during our presentation, which Why have the money gods smiled on recommendations), three-year-old Hair was very heartwarming,” recalls Hair StyleSeat and not one of the umpteen Construction does the heavy lifting for Construction co-founder Cory Hoffart. other service-bookings apps? And tens of thousands of salons around the “And we were approached by dozens why a service-bookings app instead world. Its team of 40 coiffeurs from 10 of companies after the event with of a good old-fashioned, scrappy little countries gathers in one locale twice requests to work together. It was a indie brand? a year to knock out these training tools, game changer.” and then they take that act on the Launched in 2011 at TechCrunch’s road—to Moscow, to Caracas, to Colo- annual Disrupt NY newbies powwow, rado Springs. Everywhere, basically. For some, it’s about the niche, StyleSeat was a first mover in this not the numbers now-crowded field. As such, it paved But stylists and don’t need to hike to the way for a slew of similar services, a Hair Construction seminar to learn On the far more niche end of the including Glamsquad, Vênsette and how to execute each season’s trendy spectrum—but equally distinctive—is many others in the “style” camp, i.e., looks. For a monthly fee, they can join StyleBookings, the brainchild of su- Stylisted, Stylez and StyleBookings. the digital platform, get access to the perstar hairdresser George Kyriakos. materials, and have a mini bookings Three years ago, after conceiving the While some service bookings website built for them, personalized idea of bringing top editorial talent to entities merely facilitate salon and with their portfolio and contact info. the doorsteps of chic New York women, spa appointments, connecting the Kyriakos rekindled an old friendship dots between potential clients and Hair Construction’s Stylez app, which with makeup whiz and entrepreneur providers, the newer wave brings the is free, adds an incredibly consumer- Vincent Longo. provider right to the client’s door at friendly twist to all that stylist intel: a moment’s notice. And though a users can choose from among 400 Shazzam: Instant startup synergy. handful are website-only, mobile celebrity looks (300 for women, 100 “Vincent and I go way back,” says apps are where it’s at. After all, these for men), find a salon, and then get the Kyriakos. “We used to shoot for Vogue companies skew young, and those exact style they’re after because the and Elle and Bazaar together. And not young ones are on the move. participating hairdresser or barber only is he a brilliant makeup artist, can download the corresponding video he’s a brilliant businessperson, too. tutorial, shot from all angles. He knows so much about branding.”

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Alongside their roster of 30 carefully polite or impolite we want to be about vetted hairstylists and makeup artists it,” says Leibmann. “One percent, in New York, Kyriakos and Longo two percent.” expect to add Los Angeles to the StyleBookings mix shortly. But they’re At between six and 10 percent, moving slowly and carefully, eschewing growth in traditional online sales is outside financial backing—for now—so more robust, but still far from stellar. they can call their own shots while Leibmann says she isn’t remotely beefing up their track record. surprised that bookings services have caught on. “When you look at the “I’ve been approached by two hedge tradeoffs people are making—and we funds in the last year,” notes Kyriakos. call it ‘the good life vs. stuff’—they’re “I know this sounds crazy, but I didn’t looking for, and willing to spend more actually want VC money. We have on, things that are experiential rather certain milestones we want to hit first, than just another lipstick, or frock, or they have going on, people will step and we’re also in the process of devel- something else. That’s where the $75 back and say: ‘I don’t have time to do oping our app. With angel financing, for the at-home blowout is coming from. [hair, makeup, nails] myself, so I’m will- they own you lock, stock and barrel, It’s not additive to the budget; it’s ‘I’ll ing to pay for it.” and they make every decision.” do that vs. that.’” Getting off the sidelines, and Let’s hope that when Kyriakos and More ominous, says Leibmann, is that Longo are ready to cede a little control consumers got used to buying fewer ac- into the mix in exchange for investor dough, there’s tual goods during the economic down- still some to go around. Especially turn, and they’ve yet to bounce back. Rather than huddling in a with the kind of returns StyleSeat corner, wringing their hands and must be offering its angels. The “One of the data points that jumped watching the bookings services and company reportedly has 320,000 out at me from our 2014 ‘How America on-demand apps eat their lunch, beauty service providers in its network, Shops’ mega-trends study is that four companies should dive right in to the spanning thousands of U.S. cities. It out of 10 participants said to us: ‘I had sector, says Leibmann. After all, most has booked 30 million appointments in to cut back during the Recession and of the biggies—L’Oréal, Estée Lauder four years, to the tune of $1 billion. realized that I don’t need all that stuff,’ Companies, Coty—now have booming she says. “So that isn’t a majority, but professional divisions, and vast net- No matter how you slice it, $1 billion it’s still a big number. And it’s the same works in the salon distribution channel. is a lot of money. But it’s actually only for Millennials as in all the sliver of the revenue StyleSeat expects other demos.” And hair is only part of the to eventually generate. In 2011, at equation. Why not build a MAC fleet of launch, company founder Melody Still another factor aiding and abetting on-demand makeup artists? An Essie McCloskey estimated the total bookings the bookings services, particularly team of mobile manicurists? Everything market at $40 billion. the Uber-esque, on-demand apps: time these beauty behemoths need to fight deprivation. “People are incredibly the bookings revolution is sitting right The carving of the American overwhelmed and busy,” says Leib- in their front yards. “They’ve got the door opened already with a lot of their beauty budget mann. “Whether it’s juggling several jobs in this ‘gig’ economy, or it’s the brands,” says Leibmann. “They have

house, the kids, and everything else the ability to bring those brands to the Those numbers have to make beauty shopper. It’s a huge opportunity. And manufacturers and retailers nervous. they’re smart. They’ll figure it out.” After all, for every dollar spent on a salon or spa appointment, or hair and makeup done in the privacy of one’s home or office, that’s a dollar that won’t be finding its way to the coffers of an DANA WOOD Estée Lauder or a Saks Fifth Avenue. Beauty Journalist “The question is: What are all these bookings services doing to the pie?” asks Wendy Leibmann, CEO and Chief Shopper, WSL Strategic Retail. “The pie isn’t getting any bigger, and it’s being A beauty journalist for 20+ years, Dana Wood has sliced into lots of little slivers.” served as beauty director for BRIDES, Cookie and W magazines, has written for numerous national publications, and is an author and a blogger. She Right now, the retail pie-slice is nothing also spent several years in the Luxury Products to write home about. “Growth has been Division of L’Oréal, as AVP Strategic Development. She recently relocated to Florida, and is embracing incremental, it’s been slow—however high-speed, expressway driving.

 / 35 ROBINSTRATEGYREPORT

SECRETS OF ‘VOICE OF THE CUSTOMER’ SUCCESS IN RETAIL

By Sarah Simon

Over the past few years, Why, then, is every retailer not running entitled “The Total Economic Impact™ a slick and successful VoC program? Of Confirmit™ for Retail Organizations” Voice of the Customer (VoC) The answer is simple. It’s very easy to found that businesses implementing programs have become an get VoC wrong. Programs created within a Voice of the Customer program with the vacuum of a single department, or Confirmit stood to achieve a return on established path for retailers that lack sufficient budget, might deliver investment of up to 365% over a three- insight but not the financial clout to year period. to deliver enhanced customer take action. experiences, engage em- First, it’s vital to identify the right model ployees and drive business for your business and follow it. Ensure FINANCIAL that you can define, design and imple- change. A June 2014 report ment your program with clear goals in SUMMARY by Forrester Research, “What mind, and then analyze and act on the SHOWING THREE-YEAR insight you gather. But what else? What RISK-ADJUSTED RESULTS Drives Profitable Customer are the secrets to succeeding at each of those stages? As retailers, we need to Experiences?”, notes that even know the secrets that will unlock our ROI: the best retailers are missing program’s potential and secure its 365% future success. out on revenue opportuni- Build Executive Support TOTAL BENEFITS: ties by failing to deliver the Without support from the top of your $17,198,763 right customer experience company, your program is destined to remain a niche project. Executive buy- – effectively closing the door TOTAL COSTS: in means that stakeholders take the $3,695,205 on $572 million in sales for a program more seriously, that targets must be met, and most critically, that large retailer! budget is assigned. So how do you get NET PRESENT your executives to support you? VALUE: Start by identifying an ROI model $13,503,558 that works for you, and show them the numbers so you can clearly demonstrate the return that your program can deliver. Then, link your By boosting Lifetime Customer Value program directly to your key business and Average Order Value, you can really priorities and demonstrate how impact the bottom line! your program can deliver success. It is clear that ROI is not only achiev- Strategize and Plan able though cost reduction and revenue With executive support in place, you increases, but can be very significant can now set a clear strategy that links for retailers that invest in their solutions your VoC program with key business effectively. An August 2015 Forrester priorities, such as those highlighted in study commissioned by Confirmit the ROI model above. The trick here is

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maintaining a balance between Communicate ambition, given what you’ve As with any cross-functional program, demonstrated to your senior team, and communication is critical if you want losing focus by trying to do too much people to engage with your vision and CASE STUDY: at once. Ensure that you have a clear goals. In theory, this should be easy. LEADING U.S. RETAILER strategy, but think carefully about the phasing of your program so you can After all, finding out how customers take one step at a time and make sure feel about their interactions with your One of the United States’ largest retail you’ve got each step right. Take time to business should be at the core of brands has nearly 700 stores and is tweak when you need to, before moving SUCCESS IN RETAIL what you do. the leading provider of content, digital on to the next stage. media and education products. The

Get Organized The trick is to communicate what retailer placed little focus on soliciting you’re hearing from customers in actionable data from customers, and With senior support and a clear plan a way that enables you to celebrate needed to better understand and of action, the next step is about organi- your successes. Internal social net- improve the customer service experience. zation. A VoC program can’t be run by working makes a huge difference, as a single person, regardless of the level does identifying the people responsible The retailer implemented a Voice of of executive buy in. You need to build for delivering great experiences and a core team, supported by a steering singing their praises. For retailers with the Customer program that employed committee with enough accountability stores scattered across a wide area, it’s a variety of dynamic email surveys. to drive the process forward. This is one useful to have a local representative of These included a number of variables of the hallmarks of successful VoC pro- the program to share news, as well as that allowed survey questions to evolve grams, but one that is often overlooked. ensuring that your reports are live and and morph by crafting new and unique You also need to ensure that all of the tailored to each region or store. questions based on the previous answer. key functions within your organization are aligned with your program. The Add the Voice of the Employee core team cannot do this alone – even DRIVING ACTION Employees, particularly those on with an exceptional executive spon-   the front lines—such as in-store or in 800,000 surveys per year, with sor and steering group. VoC programs 14 percent response rate your customer service call center—are touch every part of the business, and an incredibly rich resource when it  6.8 percent increase in customer you need to make sure that each de- comes to understanding the customer satisfaction partment is represented appropriately. experience. Not only will they tell you  Targeted improvements to agent

Lose the Silos things that you might not hear from training customers themselves, but they’ll also  Standardizing the customer Now it’s time to start driving some have insight into which processes cause experience through third-party sellers, real business change. This is where lots repeated issues, and be able to offer no matter the location of programs fail. But it’s also the point suggestions as to how to make   at which you can start delivering real Hard data drives development of improvements. Listen to them. outsourced relationships value—not only to your business, but to your customers as well—so it’s a They’re also a captive audience hurdle you need to overcome. But with a vested interest in helping the how? A tool at this stage is the company succeed. Front line staff customer journey map. This is some- are the first to come under fire when thing you can run as an exercise with customers are unhappy, though in many a cross-functional group, asking the cases the issue isn’t their fault. So if SARAH SIMON team to start by mapping the customer they can help you pinpoint simple ways Director, Voice journey – reminding them that it’s about to improve the situation, not only will of the Customer, more than your stores and website! customers be happier, but you’ll have Confirmit Once they have identified the broad made employees’ lives easier too. journey and touchpoints, they can then give their opinion on which touchpoints Act Fast and Innovate constitute a Moment of Truth. Then When you’re getting it right, and you’ve Sarah is a career insights professional with 18 years of experience in the feedback industry. Specialties move on to how successful the customer got some early results—shout them from experience is at each touchpoint. This include VoC architecture, service mapping, customer the rooftops! This is often easy at the journey mapping, developing linkages to business sounds very simple, but as an activity, beginning of the program, as there are performance, reduction of customer defection, results it can be a real eye opener for internal analysis and communication, with expert survey de- often some relatively simple things that sign skills. Currently, she serves as a director, Voice stakeholders. It gets them thinking can be done that will make a real impact of the Customer consulting at Confirmit, where she about the way the business operates on the customer experience. That’s why uses in-depth needs analysis to architect new feed- from the customers’ perspective. back initiatives from scratch, and runs diagnostics on you need to identify what you’re looking existing programs to optimize structure and function to achieve right at the beginning and be to yield business insight. clear about your definition of success.

 / 37 RETAIL INSIGHTS FALL INTO THE GAP A Sweet Memory, But The Gap Has Fallen ROBIN LEWIS

Glenn Murphy exits. Art Peck takes Millennials, who were then, and still many of them, like A&F, American Eagle over. It matters not who the players are, redefining cool. Gap is not in their Outfitters, Aeropostale and Zumiez, are because there has been a revolving lexicon. No matter how much capital were hitting their stride right in Gap’s door full of them for the past 15 years, and time is invested in attempting to sweet spot. all declaring how they would return return the brand to its cool status and Even so, following Old Navy’s Gap to its once dominant position as the energetic growth trajectory, at best it repositioning in 1994, the Gap troika cool apparel brand for America’s youth. will simply limp along, lucky to eke out a of brands was leading the specialty All of them failed to do so, and there is living. I predict it will eventually die, not store pack through the latter half of the no reason to believe Art Peck will unlike this last dying decade for Sears. 1990s. In 1997, Old Navy hit a have any better luck. Actually, even At worst, Gap as a brand could crash billion dollars in sales and Gap Inc. luck would not be enough to reverse and burn. grew from $6.5 billion up to $9 billion the ultimate fate of this storied brand. Over the last decade since the Gap’s in 1998. Plus they were opening And this is not just a response to Gap collapse and Drexler’s departure, it has stores at the rate of one per day. brand’s miserable 2015 second quarter been the occasional slog up and then results, which represent a steady The Gap had become the cool brand of slog along as a best-case scenario. It continuance of its negative performance all brands for consumers of all ages. And would seem that the new CEO, Art Peck, for more than a decade. suddenly, it wasn’t. might be at a tipping point that finally I predict that not even a lot of luck will marks the end of the line for the Gap. Somewhere in the blur of skyrocketing reverse its descent to the bottom. I say The Wall Street-correct voice of its new growth, opening 731 new stores in 2000 this because the brand was driven into leader mouths the usual bromides of and hitting sales of $13.6 billion, Mickey ubiquity (the anti-cool for young cost cutting, closing underperforming Drexler and his Gap brands lost their consumers, and therefore, the beginning stores, eliminating jobs, hiring more cool. The rapid growth and store open- of its end) in the late ‘90s and first two capable merchants/designers, repo- ings made the brand ubiquitous, and, years of the Millennium under the watch sitioning the brand, developing a fast as I mentioned, ubiquity is antiquity, the of then CEO Millard “Mickey” Drexler. fashion process, and lately even mimick- anti-cool to the Gap’s core consumers— With a Gap on every corner, so to speak, ing Old Navy, blah, blah…and ho-hum. the young. As a result, Gap began to lose cool turned to cold and its descent Such rhetoric might kick the can down their customers in droves. began. Ironically, Drexler would leave the road and buy a few more quarters of the helm of the brand that he guided slogging, but bringing the brand back to It all started to fall apart at the dawning through two decades of meteoric growth cool, it will not. of the new Millennium. The Gap expe- from $480 million in revenues upon his rienced its first two years of declining arrival in 1983 as president to almost sales, and Drexler began to close stores $14 billion in 2000, an amazing 2,400 Competition, Ubiquity, Momentum and cut costs as he struggled to right the percent increase, when he left. Indeed, Complexity and the Consumer brand and reconnect with consumers. his success earned him the moniker of He departed in 2002 as the brands and Like silent Pac-Men, competition grew the business began their steep descent. “prince of all merchant princes.” up all around the Gap and began to Unable to right the ship when it started chomp away at all three of its brands to sink, Drexler retired in 2002. Comp during the 1990s. Gap Inc. and the From the “Magic Kingdom” to store sales dropped 5 percent in 2000, entire apparel specialty retail sector Canadian Drug Stores their first decline since 1989, and then realized explosive growth during that a whopping 13 percent in 2001, with period, primarily taking huge chunks For the next 12 years, Gap would be the overall Gap brand down 12 percent. of market share from department stores; run by two CEO’s with retail experi- ence, but virtually no experience in a And the point I want to make crystal the specialty brands were also compet- Gap-type apparel model. Five of these clear is that once a hot, cool brand turns ing fiercely among themselves. In fact, years were under CEO Paul Pressler, an cold and boring in a world of an exces- the rate of growth for dollars spent on alumni of the Disney store chain, and sive overabundance of equally compel- teen apparel grew at an incredible 14 the next seven were under CEO Glenn ling brands, it’s finished. And nailing percent per year from the late 1990s Murphy, previously CEO of Shoppers the Gap coffin were the up-and-coming through to the Great Recession. And Drug Mart in Canada.

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Helloooooo!! Both left brain guys, at the turn of the century did, in fact, used to stand for among America’s operations, supply chain, numbers, re- leave the brand altogether, and product youth has been co-opted by fast fashion search, etc.—all skills necessary to run alone will not bring them back. brands like H&M, Forever 21, Zara, a widget factory. Apparently it was the The brief and failed efforts of two Uniqlo and others. These young con- Board’s determination that the great renowned designers, Patrick Robinson sumers want more new, more often, right brain creativity of the “prince in 2007 and Rebekka Bay in 2012, whenever they want it. Fast fashion of all merchant princes,” Mr. Drex- should have confirmed the point that compels greater visitation rates due ler, had the wrong set of skills to turn design and product positioning alone to more frequent and faster new line around the still very large and complex will not turn a brand around. The cycles, and most importantly, these business. The brand flailed around in young customers who left the brand brands also offer greater value. search of a re-energized DNA. were followed by their younger broth- Physical retail estate will shrink for ers and sisters, many of whom simply So by 2005, under Pressler, the brand both stores and malls as ecommerce bypassed Gap for H&M, Zara, Forever fell into a more accelerated decline, accelerates, challenging Gap’s mall 21, and Uniqlo. These young custom- and the its relevance, positioning, locations. Physical stores must create ers have an “uncool” mental picture of image, consumer base and business great experiences to compel young the Gap, including its stores, products, continued to unravel. At the time, Wall consumers to take the time to come advertising and imaging, plus its ubiq- Street bestowed upon Pressler the to and shop through the stores; the uity. They hear or see the word Gap nickname “dead man walking.” Gap in-store experience is lackluster and the indelible visual that comes to at best. Smartphones are providing a Between June 2004 and December mind is yesterday, not today—not cool. wide range of more entertaining and 2006 (eight months before Pressler enjoyable experiences that impel Mil- would be replaced), comparative store lennials to spend time and dollars on sales declined in every month but than shopping for apparel. three. Pressler stepped down in 2007. The Gap had become Does it surprise anyone that Gap Inc.’s Will Mr. Peck and his team address publicly stated qualifications for its the cool brand of all these realities in ways to success- next CEO at the time read: “…with fully merge his hope with these real deep retailing and merchandising ex- brands for consumers world issues? Can they bring the Gap perience, ideally in apparel, and who brand back to a level cool enough to be understands the creative process”? of all ages. And embedded into the zeitgeist of today’s youth? Or are we looking at another Given the Gap’s next pick for CEO, the suddenly, it wasn’t. iconic brand in its death throes? Spoil- search firm apparently did not read er alert: that’s the opinion I opened this those qualifications, or Gap’s board article with. and owners decided to override them with their own qualifications. It’s All Up to Art Peck Now At best, Mr. Peck and team will slog through this third déjà vu period, hav- Enter Glenn Murphy from Shoppers Gap Inc. went on to gain some minimal ing accomplished nothing more than Drug Mart in Canada. Hello? Am I growth from $14.5 billion in 2011 to his predecessors, Paul Pressler and missing something? Yes, drug stores $15.6 in 2012. But it was largely driven Glenn Murphy, by just keeping the are retailers and yes, they do carry by Old Navy, as was the meager growth brand alive. According to his comments merchandise, though not trendy ap- in 2013, (roughly 3 percent to about during Gap’s recent analyst meeting, parel. And I’m not convinced of what $16.1 billion). In 2014, Gap Global his turnaround idea is to follow the creative process thinking there is in had minus 5 percent comp store sales, highly successful Old Navy playbook. drug stores — maybe in the signage and for first half of 2015, comp store Sorry, Art, but the Old Navy playbook or advertising? Furthermore, there sales are down 6 percent; Old Navy with the Gap brand name on it will not is no industry that even comes close Global had a 5 percent increase with work. Get it? It’s a brand issue, not a to being as intensely competitive, fast first half of 2015 up 3 percent, while product issue. Anyway, the question moving and deathly cyclical as ap- Banana Republic’s Global same store then would be: Will the Gap Inc. board, parel retailing in the United States. To sales were flat in 2014, and they are at its owners and Wall Street allow yet a say nothing of my favorite mantra – negative 4 percent for the first half of fourth attempt at a turnaround? “share wars” in an over-stored world. 2015. As stated earlier, all of this now Like the once iconic and enormous I scratched my head then. And of leads to another déjà vu crisis moment. Sears brand, Gap will continue its de- course, seven years hence, the Gap CEO Art Peck’s bromides about cost scent with a whimper and sink slowly brand still does not have a compass. cutting, closing stores and the fact that his team is all over the issues and chal- like Sears. Or in a worse case, it may lenges indicate yet, once again, that finalize the collapse that started at the Designer Déjà Vu there is hope for a turnaround. turn of the century with a quick and loud bang. Amazingly, even after a decade of -1 Hope and reality sometimes serendipi- percent (yes, that’s a minus), topline tously merge. But before this happens growth and less than 10 percent bot- at the Gap, Mr. Peck is going to have to tom line growth, Mr. Murphy (and his address a laundry list of realities that ROBIN LEWIS predecessors) never figured out that inform and shape his business: the Gap brand’s real problem was not Publisher just product. It was the brand name The brand is cold and is descending, and CEO of itself and all that it stood for, both real particularly among Millennials, who Robin Report and as perceived by its consumers. And are the next primary consumer seg- those consumers that left the brand ment for apparel. Everything the brand  / 39 MILLENNIALS

HOW TO TALK

TOuxury MILLENNIALS By Pam Danziger he next generation poised tion. These smart, accomplished young psychology of the next-generation Lto become the core target mar- people on the road to affluence know luxury customer, which is by nature ket for luxury brands is bringing that just about anybody can make a democratic, not elitist. a whole new outlook on style and lot of money, if that is what one aims value into the luxury marketplace. for. But not everyone can achieve what There are four thematic narratives that As Millennials mature in their careers he or she has set as a goal, so personal resonate with the zeitgeist of today’s and grow in affluence, luxury brands status watches are not icons that next luxury generation. need to connect with this generation in symbolize success. This next-gen compelling ways that meet its unique female introduces herself as Dr. set of expectations and needs. One thing rather than Ms. Performance Millennials don’t want is their parents’ or grandparents’ traditional luxury In a recent talk at the Hackers on the Luxury can’t existLuxury only as a product brands. They want their own. Runway conference in Paris, an event concept any more—it has to deliver designed to foster collaboration be- an experience that is meaningful to In an anecdotal example, a Millennial- tween digital and luxury organized by Millennials. It has to perform. Perfor- generation associate lawyer told us that TheFamily, marketer extraordinaire mance Luxury is exemplified by brands the grey-haired partners at his firm Seth Godin asked, “Is digital the end like Canada Goose—a name that has wear their Rolexes and other luxury of luxury brands?” I think instead been around since 1957 and historical- brand watches to signify their wealth the question should be, “Is the digital ly has associated with lumberjacks and and status. But his status symbol watch generation, i.e. the Millennials, the end polar adventurers. In a surprising mar- isn’t some expensive Rolex, but rather of luxury brands?” The key challenge keting move, Canada Goose shed its his Ironman Triathlon watch. He for luxury brands is not about how they functional image on the cover of Sports explained, “It says ‘I am this kind of connect with this generation—through Illustrated, where supermodel Kate man, a triathlete. I need this watch.” Internet marketing tactics, etc.—but Upton appeared wearing little more The status statement this young lawyer how these brands create new and com- than a $595 Chilliwack Bomber jacket wants to make is not about how much pelling reasons why they’re meaningful on a ship in Antarctic waters. Canada money he has, but who he is and what and important to this digitally-empow- Goose has well earned its reputation as he has accomplished. Another young ered generation. a provider of outerwear to battle the woman said her status symbol isn’t worst that a North American winter the car she drives, the handbag she Getting to the “why” of the luxury brand can throw at you. But it’s become a hot carries, or the designer clothing she is the foundation on which the future of brand in demand through clever mar- wears, but the initials after her name the luxury market will be built. Tailor- keting—not least of which is becoming —in her case, Ph.D. ing the brand message to the unique a sustaining sponsor of the Sundance psychology of younger consumers is Festival in Park City, Utah, where a For this next generation of luxury what’s needed, not just creative pro- Canada Goose coat is both functional consumers, making money, getting gramming or digital marketing tricks. and stylish. Some fashion pundits sug- promoted or becoming a partner is It is all about catching the Millenni- gest that the sudden popularity of the all well and good, but the traditional als along the road to affluence. Today, Canada Goose brand, enhanced by a rewards of their accomplishments are luxury brands telling stories of exclusiv- reported $250 million cash infusion not the only prizes they are after. Rath- ity, status, indulgence and over-the-top from Bain Capital, will ramp up the er, it’s the non-material accomplishment extravagance repel Millennials more tide on the brand. But the brand has of achieving a personal goal and digging than they attract them. New narratives become popular not because celebri- deep to succeed at something truly are required that maintain the eleva- ties wear it, but because it does its job remarkable, such as completing an tion of the brand above the masses, really well: it keeps you warm in Ironman triathlon or doctoral disserta- yet connect with the unique consumer

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extraordinarily cold weather. As long Collectible Value as Canada Goose continues to perform for the customer—which the com- Tapping into anLuxury individual’s collecting UltimatelyLuxury the most compelling luxury pany guarantees—it may hold onto its instincts is the ultimate way to build narrative for the Millennial generation luxury luster. brand loyalty. Lots of brands have is value. These younger consumers are, exploited collecting, but few have been as a rule, intent on maximizing their able to sustain it over decades as the return on investment when it comes to Create-Your-Own tastes of new generations of consum- the products and services they will buy. ers have evolved. That’s why the Vera They diligently research their purchases, While Baby Boomers wereLuxury once known Bradley brand of colorful, provincial tapping into social networks to find the as the Me Generation, Millennials have print handbags, fashion accessories and right combination of quality, service taken self-reflection to a whole new luggage is worth noting. The company and price. They aren’t afraid to pay a level. They are a generation raised has been able to ride the fashion waves premium if they find the right match. on self-expression about everything, from its original “Grandma’s” carryall This is why I see a bright future for be- including making their own skin into for quilting and knitting projects to a spoke footwear in this generation. Unlike a canvas for personal expression and fashionable Millennial’s cross-body bag Boomers, who wore $10 Keds or $25 creativity. The emotional need for for today. The Vera Bradley brand has Chucks, their children grew up in $100 self-expression in home furnishings done so by continuously reinventing its Air Jordans. Their sneaker wardrobes, that adapt to all different room sizes product line around the distinct stages specially crafted for each and every and life stages is what the Lovesac of a woman’s life, from schoolgirl totes, kind of sport and athletic endeavor, was Sactionals furniture concept provides. backpacks and dorm accessories—in- a major capital investment. They are Lovesac is a brand better known for its cluding linens, day planners and lap a perfect fit for bespoke shoe brands iconic beanbag chair. Today, Lovesac desks—to diaper bags for young moth- that offer handcrafted shoes—brands offers a uniquely customizable take on ers, sports sacks for athletes and gym like Berluti and Tod’s, both of which are conventional upholstered furniture. rats, luggage for the world traveler, expanding into the U.S. market. They Its Sactionals are described as a cross and handbags and computer totes for are also customers of disruptive brands between “upholstery and Legos™.” the mobile professional. Vera Brad- like handmadebrogues.com, which offer Sactionals consist of two basic uphol- ley’s homespun luxury stands in sharp made-to-measure shoes at around $200 stered pieces that can be combined in contrast to the elitist luxury of Louis to $300 a pair. This is affordable luxury any configuration imaginable—no tools Vuitton or Gucci. Quite reasonably compared to the $675+ required to step necessary. With a starting price over priced, most of these cloth bags offer into a pair of custom-made Tod’s Gom- $2,000 for a basic loveseat configura- the avid collector nearly unlimited op- mino Club driving shoes, or the $1990+ tion, Sactionals are pretty pricey for portunity to amass a collection worth for Berluti Oxfords. many young couples starting out, but many thousands of dollars. The luxury the add-on flexibility that allows the angle? Each bag tells a story for the For Millennials, luxury is a state of furniture to grow and change as the collector: when she bought it and what mind, not a price point or a brand logo. couple’s needs change is the ultimate experiences she has enjoyed while The luxury stories crafted for Millenni- in luxury. Sactional furniture expresses carrying that bag. Vera Bradley is also als must go well beyond stated status, an upscale performance vibe that a social brand, being so distinctive privilege and exclusivity—all values delivers a personal experience in both and recognizable that anyone carrying linked to the 1 percent who are not design and function. VB is no stranger, just “a friend you their role models. They want luxury haven’t met yet.” Many people wrongly that speaks to their unique values, think that collecting isn’t for the Mil- such as luxury that is inclusive, yet in- lennial generation, but they are wrong. dividualized; luxury that is self-expres- Their take on collecting is focused on sive but not self-absorbed or narcis- collecting experiences and feelings that sistic; and luxury that delivers unique make memories, not on amassing a and meaningful experiences. bunch of things to display on a shelf. Self-expressive brands like Pandora and Alex and Ani have tapped into this PAMELA N. desire, as well. DANZIGER Consumer Insights Consultant

Pamela N. Danziger is an internationally recognized expert specializing in consumer insights for market- ers targeting the affluent consumer. She is president of Unity Marketing, a marketing consulting firm she founded in 1992. Pam received the Global Luxury Award for top luxury industry achievers presented at the Global Luxury Forum in 2007 by Harper’s Bazaar. Luxury Daily named Pam to its list of “Women to Watch in 2013.”

 / 41 LUXURY

According to Istat-National Institute of Statistics, in 2011 there were 130 Made in Italy industrial districts; 32 special- ized in textiles and clothing; 24 in personal goods; and 17 in leather and footwear. Of the remaining districts, 38 are manufacturing sectors, 15 in food and 4 in jewelry. The others specialize in chemicals, metals and paper. Smaller firms in these districts measure success in terms of pride in their heritage and a focus on creativity and quality; growth is not the exclusive mantra. Many of the firms are family owned, providing a positive, stable environment, poten- ORIGINS tially negative family dynamics aside. These family owned firms are under- By Marie Driscoll capitalized and encountering transition problems, which makes them targets for huge French luxury conglomerates Made In Italy Italian DNA seeking new growth opportunities and new brands. “All I know is, when I see a ‘Made in Let’s face it, Italians live and breathe Italy’ label, I want to buy it!” This is a different level of culture and taste. typical of comments I hear from the Since the time of the Roman Empire, Full Disclosure sophisticated fashion set I run with the people who live in what we now call in NYC. Italy’s creativity, artistry, and Italy have been immersed in a design Increasingly, Italy’s premium fashion passion speak to us viscerally on every heritage spanning architecture and houses are foreign owned. Chinese level, from design and fabric to style and sculpture, road design and painting, factories, their Asian workers and construction. ‘Made in Italy’ can even fashion and consumer products. upscale Chinese consumers are now evoke visions of classical Rome, with its Romans are spoiled, living in the intertwined with the destiny of the intelligent aesthetic, as well as la dolce shadow of the Coliseum and the Italian-made. The Exane BNP Paribas/ vita – a way of life epitomized in Italian presence of Botticelli’s frescoes and ContactLab March 2015 report, “The cinema of the 1950s and the '60s. Caravaggio’s paintings in their churches ‘Made in’ Controversy,” points out that and Michelangelo’s sculptures at the 41 percent of individual leather goods In the summer of 2014, London’s famed Vatican. Attention to design is reflected operators in the Florence leather Victoria and Albert Museum hosted in all they do, from the shape of pasta district are Chinese, up from 35 percent a comprehensive design exhibit, The to the industrial design of an espresso in 2011 and 28 percent in 2002; and Glamour of Italian Fashion – 1945 to machine or an Olivetti typewriter, to, 74 percent of the individual enterprises 2014, which has since moved on to tour naturally, an extraordinary bag or in the Florence leather district are internationally. The exhibit documents pair of seductive shoes. Chinese, up from 69 percent in 2011. a postwar Italy, eager to return to its past splendor, and the confluence of Exane BNP Paribas researched 30 economic interests pushing for develop- Traditional Constructs brands—ranging from Tiffany, Bulgari, ment of a national textile and clothing Cartier, Bottega Veneta and Valentino industry. These circumstances were A brief look at Italy’s manufacturing to Ralph Lauren, Coach, Hugo Boss and amplified by an expanding film industry structure reveals that many skill Tory Burch,—surveying the manufactur- that influenced fashion, and ultimately sets pass down vertically through gen- ing disclosures on their websites. Having the development of ready-to-wear. erations, combined with a horizontal a Made in Italy provenance denotes division of work that depends on strong quality craftsmanship for both Italian Valentino’s Creative Director Pierpaolo links to the local area (including local and non-Italian goods. Whether a luxury Piccioli aptly summed up why Ital- banks) and a strong reference to family brand discloses production location ian fashion has such enduring appeal, ties. This familial system creates varies: 75 percent of high-end luxury commenting, “Couture is part of our “a relationship of trust and cooperation brands and 80 percent of mega brands memory. It is part of our memory of that was first and foremost personal disclose. Interestingly, Chanel doesn’t, being Italians, because couture is linked rather than exclusively commercial,” nor does Dolce & Gabbana. Prada to craftsmanship, to the execution, to says Emanuela Scarpellini, Professor discloses “Made in Prada.” Aspirational the schools of art of the 15th century. of Modern History at the University of brands generally do not disclose, as It is a typical Italian tradition that we Milan and visiting scholar at Stanford disclosure of production in a third world want to perpetuate and hand down, as University and Cambridge University. country would not add to desirability. we strongly believe that the memory of This approach contrasts with the large, couture is the key to face the challenges impersonal structure of firms. The According to Boston Consulting Group, of ‘Made in Italy’s’ future.” localized model provides the flexibility 87 percent of consumers from emerg- and adaptability that supports manu- ing markets care about product origin, facturing multiple design aesthetics and versus 71 percent of consumers in international brands. developed markets. ‘Made In’ matters

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by region. For instance, around 70 maintain supply/demand equilibrium percent of Chinese consumers want as smaller brands expand to meet their watches to be Swiss; 62 percent growing demand. Financial and want their perfumes and cosmetics to be nonstrategic acquirers are more French; 57 percent want their cars to be mercenary, and investment returns German; and 50 percent want their bags and shorter-term objectives often and shoes to be either Italian or French. supersede brand building. For example, Proctor & Gamble recently sold its 43 beauty brands to Coty, Inc. Money Matters (including Gucci and Dolce & Gabbana) after years of underperformance by The Italian design legacy pays off. the P&G beauty portfolio. In December 2013, Italian luxury outerwear brand Moncler went public Google provided a boost to the Made in what was Europe’s best IPO of the in Italy brand in 2014 when year. In a prime example of demand it teamed with the Italian outpacing supply, the IPO was oversub- Agriculture Ministry, Union scribed 31 times availability, of Chambers of Commerce, and on its first day of trading Ca’Foscari University and the appreciated 47 percent from Symbola Foundation to launch the offering price, for a $3.5 a platform bringing Made in billion market capitalization Italy to the Web (www.google. on its first day as a public “All I know is, when I com/culturalinstitute/project/ company. This capitaliza- made-in-italy). Young tion represented 4.7 times see a ‘Made in Italy’ Millennials and Generation Moncler’s 2013 sales and Zers were introduced to 27.7 times its net income; on centuries of heritage and a PE (price to earnings) basis, label, I want to buy it!” artistic treasures as well Moncler’s IPO closed more than as new practitioners that 50 percent higher than the give Made in Italy its robust prevailing S&P multiple Before meaning. Country of origin will Moncler, Brunello Cucinelli continue to matter to the growing popu- S.p.A. (maker of $3,195 cashmere lation of aspirational luxury shoppers cardigans) and Salvatore Ferragamo from developing markets, and Made in S.p.A. enjoyed strong demand for their Italy products will be a core holding for IPOs, and were oversubscribed 17 times investors and luxury customers. While and 3.6 times, respectively. the majority of retailers and brands are fighting in a race to the bottom where According to Thomson Reuters, first no one wins, the Italians have had a quarter 2015 M&A activity in Italy different approach for centuries. Let's approached the value of M&A transac- interest, or 5.48 times 2012 sales, hope they stick to their DNA. If they tions in all of 2014, as recent economic followed by Pomellato, at 2.89 time do, the power of Made in Italy will be reforms have driven increased invest- sales. This compares with an S&P around for another millennium. ments. At $20.6 billion, first quarter price-to-sales ratio of 1.45, and is transactions rose 260 percent year over evidence of the premium afforded to year—compared with $27.6 billion in luxury Italian brands. 2014. Momentum is heating up in 2015, as the Italian government appears to be So what does this all mean? Given MARIE DRISCOLL emerging from a three-year recession, economic reforms and the bench Equity Analyst and recent reform of the labor markets strength of talent in Italy coupled with and moves to cut business taxes are millions of consumers with an unrelent- making Italian businesses more ing desire for Italian made fashion and appealing globally. leather goods, we should continue to see M&A transactions with ownership of In its report on “2015 Global Powers of Marie Driscoll is a highly experienced equity analyst Italian brands going into international focusing on apparel brands, apparel retailers, Luxury Brands,” Deloitte listed the top hands. The French luxury houses are and luxury goods stocks. She has served in key acquisitions in the luxury and premium analytical and business development roles in leading good brand stewards, offering strategic, goods sectors in 2013. Of the top 12, financial research firms. Access to industry leaders, marketing and distribution know-how financial acumen, and analytic insight support her four of the acquired businesses are Ital- as well as a solid financial underpinning actionable investment advice. Marie was recognized ian: Loro Piana S.p.A., Pomellato S.p.A., to their newly acquired luxury brands, three times in The Wall Street Journal’s “Best on Marcolin S.p.A. and Gianmaria Buccel- the Street” analyst survey, capturing the first place while supporting creativity and nurtur- lati srl. The first two were acquired by ranking for stock selection in the Clothing & Ac- ing growth. The portfolio approach, as cessories industry in 2009. Marie started Driscoll French luxury houses, LVMH and Ker- the French luxury houses practice it, Advisors late in 2011, providing consulting services ing, respectively, and the remaining two to academia, industry, and non-profits. Previously allows the larger mega brands within were private equity transactions. Loro (2003-2011) she was with Standard & Poor’s equity the portfolio to restrain growth in research department as Director of Consumer Piana fetched the highest purchase order to preserve brand value and Discretionary Retail. price—$2.8 billion for an 80 percent  / 43 GROCERY + FOOD GROCERY (FINALLY) GETS WITH IT By Randy Burt HOW TO SATISFY CONSUMERS’ GROWING HUNGER FOR ONLINE GROCERY & Vishwa Chandra

With the grocery industry’s razor-thin of the family adding items margins and slow growth, online sales are to the cart. not only an incredible opportunity, they Shoppers are still using also represent revolutionary change in a, websites as mobile grows. traditional industry. Online shoppers are With the grocery industry’s razor-thin increasingly using websites margins and slow growth, online sales are and apps to shop for groceries not only an incredible opportunity, they online, with some pickup also represent revolutionary change in in social media activity. a traditionally, well, traditional industry. However, among older shoppers, non-website And when it comes to the online grocery options for online shopping market, consumers are hungry for (such as social media) are engaging, personalized and easy online far less popular. grocery shopping experiences. Some old barriers remain. they still avoid online grocery because of a This year, American consumers’ appetite Even as online grocery perception that costs are higher. 58 percent for online grocery is finally becoming becomes more widespread, some of the say that prices that better compete with insatiable. According to a 2015 A.T. market’s long standing hurdles remain. those in stores and free or low-cost delivery Kearney study of 1300 consumers, the Nearly two-thirds of respondents say they would drive online buying (see figure 4). number of primary grocery shoppers who would buy more groceries online if they bought groceries online increased from could guarantee the quality and freshness Plus, respondents say they want savings— 6.8 percent in 2014 to 34 percent in 2015. of products. As a result, the most popular coupons (71 percent of respondents), price comparison between stores and other sites By 2019, an estimated 8 to 11 percent online categories are non-perishables: personal care, beauty, packaged foods (67 percent) and loyalty programs (65 of grocery sales will occur online (see percent—see figure 5). figure 1). What’s more, shoppers making and baby food (see figure 3). the switch to online come largely from That said, even as buyers continue to At the same time, they want convenience particularly attractive segments—urban express concern about the freshness and speed. Nearly two-thirds of respondents dwellers, Millennials, and those earning of perishables, they haven’t stopped say they would shop online more frequently more than $75,000 per year—and their buying them online. Andrew Nodes, Busi- if checkout was easier and they could online grocery spending across categories ness Development Lead for the East Coast quickly reorder items. is going up. at Instacart says, “…customer perception Mobile apps can enhance the store So it’s no surprise that online grocery sales versus customer action are different things. experience. Consumers say apps that are growing five to six times faster than Customers believe they shouldn't be buying enable price comparisons, the ability to conventional channels, with growth of 15 to perishables online due to freshness, but search for and locate items in stores and 18 percent expected over the next decade. they actually do. Perishables are among scan for faster checkouts could increase Grocers who make the right moves right our top performing categories.” in-store convenience and positively impact now will be well positioned to capture a Shoppers want value, but they will pay the shopping experience. big share of this growth and delight for convenience. Many consumers say consumers across channels. Who’s Buying? Over the past year, online grocery shopping rates have increased across all sectors, but here’s a look at some of the biggest areas of growth. All age and demographic groups are embracing online grocery. It’s not shock- ing that 25- to 34-year-olds are the most likely to buy groceries online (37 percent), but penetration increased by more than five times in some surprising categories. For example, 25 percent of shoppers 65 and older say they bought groceries online in the past year (see figure 2). Urban dwellers (41 percent) and people earning more than $75,000 (22 percent) also are buying more groceries online. The nature of the online shopping journey is driving a more diversified consumer base. Whereas mostly women shop for their families in the store, the online shopping experience often includes other members

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in a given month. Taking a Bite Out of the France also has a Online Opportunity successful history with click-and-collect, with As consumers continue to adapt to technol- over 3,100 outlets. ogy in their lives and become more urban, online grocery is becoming easier and more On this side of the appealing—for consumers and retailers. pond, many retailers By Randy Burt Here’s how retailers can make the most are taking smaller first & Vishwa Chandra of this pivotal transition. bites, with Harris- Teeter up and running • Segmentation. As in other channels and at scale ( around 170 categories, leading retailers will start by locations), Peapod identifying high-population, high-density putting up dedicated markets, and targeting customer seg- click-and-collect ments within these markets that represent locations and many the best opportunities. Thanks to online traditional grocers segmentation, retailers can target specific and mass merchants shoppers, such as new parents (with an rolling out click-and- integrated total baby offering across collect service. food and non-food) or back-to-school shoppers (including clothing, school • Shopper engage- supplies and food). ment. Engaging today’s omnichannel consumer Personalizing offerings with recipe is about much more suggestions, shopping lists, customized than just using multiple pricing, recommendations based on traditional media such purchasing history and online sampling for as TV, direct marketing new products can help lure buyers to make and coupons to reach the switch. Treating delivery as a unique shoppers—it’s about channel lets retailers provide a degree of creating a personal personalization and flexibility that’s un- experience for every available via their traditional channels. shopper, regardless of where or when they • Value proposition. Converting consumers’ shop or what device interest in online grocery shopping into they’re using. increased sales depends on how quickly

retailers can make features such as Retailers can interact same-day delivery and click-and-collect with omnichannel shoppers through Ultimately, winning online grocers will a reality, and whether they can offer personalized offers, pricing and balance traditional and online capabilities, customers the same values and prices promotional strategies tied to shopping segment and penetrate the most attractive as they do in stores. preferences and past purchases. They market opportunities and deliver a seam-

can offer shoppers variety—by category less consumer proposition that meaningfully Third-party providers like Instacart and and across digital touch points—and engages with shoppers. Google Shopping Express (and soon, most use individualized promotional offerings likely, Uber) are emerging to help solve Given the state of today’s hyper-competitive and merchandising strategies to the “last mile” issue, providing same-day grocery market, it’s no longer a question increase engagement. or scheduled deliveries at minimal cost of whether to enter online food sales, but

to retailers. rather how to build online capabilities that Some foreign retailers are already can capture customers’ trust, loyalty and innovating in this area. Take online pure As they dig into click-and-collect, U.S. wallet across channels. play Singaporean grocer Redmart, which retailers can look to the success of many sends customers reminder emails when European grocers. Take Tesco, which has it’s time to restock their favorite items; fulfilled more than 170 million click-and- or Germany’s REAL hypermarkets, which collect orders in the UK—where 25 percent gives consumers access to customized of consumers say they buy groceries online RANDY BURT in-store coupons via its app; or Tesco’s Partner, Chicago website that prepopulates shoppers’ baskets based Randy Burt is a Partner in the Consumer Goods and Retail Practice at A.T. Kearney, a global on in-store and online strategy and management consulting firm. He has purchase history. over 16 years of experience in consumer products As ecommerce becomes and Food Retailing with focus on retail strategy, Fresh and Center Store merchandising, ecommerce, the single largest source of and supply chain. He also spent five years at growth in North American food the Nielsen Company in a variety of market retail, capturing increasingly research and data operations roles. He is a tech-savvy consumers depends regular speaker and author on online grocery on meeting the logistical and other food retail topics. challenges of online food sales coupled with understanding customer needs and desires. VISHWA CHANDRA While pure play online retailers Partner, Chicago have an edge with their business flexibility and speed to market, Vishwa Chandra is a Partner in A.T. Kearney's Consumer Goods and Retail Practice, where he traditional food retailers can partners with food, mass, drug and value retailers take advantage of their biggest to drive merchandising effectiveness and supply asset—the store—as they build chain efficiency. He is also a leader in the firm's out their digital capabilities Consumer Institute where he leads primary research and enhance their online on the ever evolving consumer landscape and the supply chain. implications for retailers.

 / 45 RETAIL INSIGHTS

By Robert Spector Seattle America’s Capital of Retail What do Nordstrom, Starbucks, Amazon, Costco, and Recreational Equipment, Inc. (REI) have in common?

They are all world-class retailers based “Customers come to Costco because they in Seattle. can get the most popular versions of high-quality goods at a decent price.” And don’t forget 103-year-old Ben Bridge Jeweler (a division of Berkshire Hathaway, with 75 stores in 11 states), 95-year-old A tradition of Eddie Bauer, and ecommerce sites Blue Nile and Zulily (just acquired by QVC for customer service $2.6 billion). According to the most recent Seattle retail is built around taking care American Customer Satisfaction Index, of the customer. In Seattle’s historically Nordstrom was tops in the Department and egalitarian culture, providing outstanding Discount category; Amazon was the leader service is a noble calling. “We were raised in the Internet category, and Costco was kneeling in front of the customer—literally the pacesetter in the Specialty category. and figuratively,” says chairman emeritus Bruce Nordstrom, who began working for local investors), F&N went out of business Among Fortune Magazine’s “World’s Most in 1992, leaving an 850,000-square-foot Admired Companies,” Amazon was fourth, the company when it sold only shoes (and who still describes himself as an “old shoe hole in downtown Seattle. Six years later, Starbucks fifth, Nordstrom fourteenth, Nordstrom’s moved its flagship store into and Costco sixteenth. Again, each led its dog.”) “You’re down on your hands and knees, waiting on customers, which I find the renovated Frederick’s building. It was particular retail category. No other region as much an emotional decision as it was a had such a retail presence. an appropriate position for our level of service.” Nordstrom, of course, is interna- business decision. “I was raised doing my back-to-school shopping with my mother So, what’s in the Puget Sound water? tionally famous for its customer service, but I believe the Seattle tradition started at Frederick’s,” Bruce Nordstrom told me. Very simply, it’s an approach to retail that with Frederick & Nelson, the grand dame “So that building has a very important offers customers a unique customer-centric of department stores, which opened for place in our hearts.” experience (whether online or in-store) business in 1891—11 years before Bruce’s The best customer service story I ever and a value proposition that is not strictly grandfather John W. opened his little shoe heard came from F&N: In the late 1940s, about price. On the surface, all of these store in downtown Seattle. F&N, which a customer named Katheryn Kavanaugh companies are markedly different from was sold to Marshall Field & Co. in 1929, took her first trip in 20 years to her birth- one another. “When you come to Costco, created Frango Chocolates almost a place in Ireland. She shot several rolls of you don’t expect a Nordstrom experience. century ago. film of her family in County Cork. When When you come to Starbucks, you don’t she returned to Seattle, she brought the expect a Costco experience,” said Jeff After going through a series of owner- film to F&N to be processed. (This was the Brotman, founder and chairman of Costco. ship changes (BATUS Retail Group, then

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Seattle customers also expect a money- back-no-questions-asked return policy.

When I interviewed Eddie Bauer himself in 1982, he told me that he was most proud of his guarantee that “Every item we sell will give you complete satisfaction or you may return it for a full refund.” Eddie knew that some people would abuse this guarantee, but he felt that it was worth it to burnish the company’s reputation. And he was right.

Everett, Elmer and Lloyd Nordstrom era when department stores had lots of established their generous return departments—including photography.) policy in the 1930s, when they were Somewhere along the line, the film was running a two-store shoe operation. lost. A tearful, distraught Mrs. Kavanaugh The brothers (who were admittedly called William Street, president of Fred- mediocre salespeople themselves) dreaded erick’s, with her tale of woe. Street asked having to deal with obviously outrageous her to send him a list and description of or unreasonable returns. “We decided the photographs she had taken. Then he to let the clerks make the adjustments, Seattle so they would be the fair-haired boys,” cabled the list to the Marshall Field buying office in London. The London office hired recalled Elmer in a privately published a UK-based photographer from Fairchild memoir. “We told them, ‘If the customer News Service to retrace Mrs. Kavanaugh’s is not pleased, she can come to us and route and duplicate the pictures she had we’ll give her what she wants anyway.’” taken of her relatives. After the developed pictures arrived safely in Seattle, F&N or- ganized a special public ceremony, where Seattle companies Bill Street presented photographs to an influence each other appreciative Mrs. Kavanaugh. Now that’s customer service, Seattle style. When I asked Jeff Brotman why Seattle has so many world-class retailers, he said, “Nordstrom has set a very high bar. No-questions-asked If you’re a retailer here you have to give return policies great customer service. If you’re doing anything less, you’re not doing it right. As a New York transplant who’s been That became part of the Seattle cultural in Seattle for almost four decades, I’ve landscape, and then we rolled it out at witnessed and written about a level of Costco. It’s not just cultural; it’s really REI as a cooperative also profits from expectation about customer service and good business.” member fees. For a one-time fee of $20, politeness in Seattle that you will not find REI’s two million members receive a 10 anywhere else. Customers expect retailers Jeff Bezos, who arrived in Seattle from percent rebate at the end of the year. to be nice, knowledgeable, and helpful. New York in 1994, has often said that he They want you to be friendly, but not too wanted to make Amazon.com “the most customer-centric” company in history. He Witnessing the rise of Amazon.com friendly. This is an approach that I call firsthand in the mid-to-late 1990s, the “superficial intimacy.” As a salesperson, took notice of how Nordstrom was doing business. Even before he launched the traditional brick-and-mortar Seattle I may know a lot about you: name, retailers were quick to understand the occupation, style, tastes, previous website in July 1995, he made customer service his top priority because he knew power (and threat) of the internet. Unlike purchases, fluctuations in weight, etc. many other retailers in other parts of the Nevertheless, we aren’t friends. We that positive word-of-mouth buzz would have a greater impact on consumer country that took an arms-length ap- don’t go bowling together. We’re affable proach to ecommerce, Seattle companies commercial acquaintances. That’s a perception than any kind of paid advertis- ing. (Anyway, in 1995, he couldn’t afford embraced this new channel. In 1996, REI, winning approach to effective which at that time sold its outdoor-focused customer service. to spend money on advertising.) “It was seeing how successful word-of-mouth was products through stores and mail order in that first year that really led us on this catalogues, assembled a team of people path of being obsessively, compulsively, from every department—marketing, anal-retentively focused on customer merchandising, information services, Seattle customers service,” said Bezos. Bezos also noticed adventure travel, retail, real estate, that Costco, with its narrow margins, accounting and public affairs—to promote also expect a made a lot of money on its annual buy-in to the new channel and figure membership fees—$55 for Business out the best approach to developing it. money-back-no- Membership, $110 for Executive At a time when most brick-and-mortar questions-asked Membership. Costco’s approach was companies (Walmart and Barnes & Noble, part of Amazon’s inspiration for creating among others) outsourced their websites, return policy. Amazon Prime (initially $79, now $99) REI developed everything in-house. for free two-day delivery.

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Seattle: America’s Capital of Retail Continued from page 47

In my 2002 book Anytime, Anywhere: REI all believe that the employee experi- Nordstrom has embraced social media How the Best Bricks-and-Clicks ence determines the customer experience. and has made key purchases to diversify, Businesses Deliver Seamless Service Therefore, they don’t want “clerks”; they including Trunk Club and Haute Look. to Their Customers, I quote Matt Hyde, want happy, empowered employees (with The company recently introduced the vice president of merchandising and product knowledge) who want to help the TextStyle, a shopping-via-text message logistics who oversaw the building of REI. customer feel welcome and in the mood service that allows customers to purchase com, as saying that the internet “must be to make a purchase. Seattle companies merchandise recommended by their a core competency, just like service. You generally prefer growing their own salesperson or personal stylist through managers and executives. They are in the text messaging. Next opt-in leverages business of grooming people to succeed TextStyle by enabling a customer to within their culture. use her smartphone to secure one-on-one service with a Nordstrom salesperson. Starbucks’s • At Costco, everyone starts in the Like2Buy allows customers to buy warehouse, and, if he or she so chooses, merchandise displayed on the baristas are treated an employee might one day manage Nordstrom Instagram page. a store. as “partners.” Starbucks is experimenting with various • Nordstrom encourages its employees food selections and formats, and has made They are well to act as if their name is on the door, and a concerted effort to enhance its digital empowers them to own the customer offerings. (A footnote: Adam Brotman, trained, and are experience. chief digital officer for Starbucks, is the nephew of Jeff Brotman.) given a pay • Starbucks’s baristas are treated as “part- package ners.” They are well trained, and are In the end, it all comes down to the given a pay package that includes com- customer making a purchase. A few that includes pensation, stock, benefits and savings. Christmases ago, I was in the downtown Nordstrom flagship store, where I ran into compensation, • REI employees live the brand. They all Bruce Nordstrom, who said to me with participate in outdoor activities and they a grin: “Don’t just stand there. Buy stock, benefits use and know the benefits of the products something.” they sell. and savings. A bias toward ROBERT SPECTOR continuous Author, don’t outsource service. Online stores are International not a project; they are a business.” From adaptation and Speaker & the beginning, REI.com was treated “as innovation Consultant a profit center, rather than a marketing expense, which was highly unusual at that Every one of these companies is con- time.” Today, almost twenty years later, stantly asking itself what’s next. Amazon, Robert Spector is author of the business classic The REI is one of the top omnichannel retailers of course, is always reinventing itself and Nordstrom Way and the all-new The Nordstrom in the United States. The internet accounts Way to Customer Service Excellence: The Hand- moving into new areas. Although Amazon book for Becoming the Nordstrom of Your Industry. for almost 25 percent of REI’s $2.2 is not a warm-and-fuzzy Seattle company, An international speaker and consultant, he helps billion sales; the rest is generated at the it is certainly the leader in adaptation and clients create their own customized superior cus- cooperative’s 140 stores in 33 states. innovation. Describing what Amazon is has tomer experience. His other books include Amazon. com: Get Big Fast and The Mom & Pop Store: True always been a moving target. Stories From the Heart of America. Nordstrom’s website is one of the company’s roaring engines. A good number of people who work for Nordstrom.com once worked a few blocks away at Amazon.com. Strong leadership and empowering corporate culture

Brotman, The Nordstrom brothers, Jeff Bezos, and Howard Schultz need no introduction to the retail industry or even the general public. They are acknowledged as strong, visionary leaders. Although REI CEO Jerry Stritzke is not a household name, he did build his career at Victoria’s Secret and Coach. Stritzke succeeded Sally Jewel, who is the current Secretary of the Interior. Nordstrom, Starbucks, Costco and

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By Mark A. Cohen CAUTIONARY TALES WHY DO RETAIL COMPANY IS THIS ACCIDENTAL? I don’t think so. The simple truth is that many retail CEOs BOARDS OF DIRECTORS don’t want knowledgeable, inquisitive and potentially critical individuals in their midst. After all, isn’t it far easier to interact with a group that may very well have APPOINT DYSFUNCTIONAL no clue as to what it is witnessing and being told?

Consider first, though, how board members themselves are CEOS— THEN FAIL TO selected. Candidates are proffered by retained executive search firms, existing board members and sitting CEOs RECOGNIZE THEIR ERROR based upon pedigree, reputation, personal relationships or relationships based upon mutual board memberships in other companies. Without a mandate to fill board seats BEFORE IT’S TOO LATE? with members possessed of retail expertise, few if any are even considered, let alone seated. As a result, retail boards are often collections of individually impressive but All publicly held companies have a board of directors collectively inadequate overseers. whose principal role is to act as a fiduciary on behalf of shareholders. These directors are responsible for Sadly, the final selection of a retail chief executive is almost always left to this outside group in the first place. oversight of the short-, mid- and long-term health With no one in the room with any retail experience, how and performance of their companies. Sensitivity can any board truly make a successful and informed to an enterprise’s behavior with regard to its other decision with regard to the company’s seniormost constituencies—notably customers, team members leadership needs? Yes, there is a widely held view and business partners—are also part of their by some that a successful leader in one industry can brief. Boards of directors are typically made up of effortlessly cross over into another. This may work in accomplished individuals chosen for their integrity, some businesses. It certainly has not worked well in the insight and capacity to provide counsel to the chief retail industry. The litany of failed so-called business athletes is endless. All too often qualified and highly executive officer. Most individuals are former chief or experienced insiders are brushed aside in favor of senior executives. Post Sarbanes Oxley, the 2002 "Public outsiders who, in many cases, have no credible retail Company Accounting Reform and Investor Protection qualifications to offer whatsoever. This, of course, in and Act," financial acumen is mission critical for all boards, of itself represents an abject failure on the part of a sitting especially members who chair or make up a compa- or newly deposed CEO and his or her board to properly ny’s audit committee. It’s most curious, however, that prepare actionable succession plans in the first place. many boards, and almost all retail company’s boards, are devoid of any outside board members with any If a board then has no meaningful knowledge of the actual inner workings of the industry that its company industry-specific expertise. It’s as if, in the case of is engaged in, how can it be expected to understand a job retail companies, boards are specifically prohibited requirements document, and how can it apply that list of from having any outside members with any retail skills and experience to the candidates with whom it is experience whatsoever. presented? Is there something about the retail business

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Continued from page 49 that is uniquely different from other industries? Yes, there his actions over time would be? They might have been is. The ongoing creation of successful assortment, pricing shocked, had they understood the cliff he was driving and positioning strategies, execution pathways and the toward. Most experienced executives in the retail industry care and feeding of large and necessarily diverse popula- saw it coming long before they did. tions of associates—all dealing in the infinitely challenging consumer space—is most definitely unique and different. Did anyone on Target’s board recognize that the store The skills needed to succeed in retailing are specialized, was losing its forward momentum over a period of several and the elements of effective experience, judgment and years? Did anyone have the insight to challenge CEO Gregg common sense needed for success are without parallel. Steinhafel’s completely flawed strategy to enter Canada? A retailer in the room would have readily asked meaningful questions about pricing strategies and logistics capabilities UNINTENDED CONSEQUENCES long before the company’s Canadian launch. A retailer in the room would also likely have rejected a strategy to take The outcome of a questionable selection process is on a massive 125-store launch all at one time. sometimes the catastrophic appointment of CEOs who, at the end of the day, do tremendous harm to the business How could the Avon board have failed to understand the they have been tapped to lead. ramifications of its CEO Andrea Jung’s constant rounds of restructures, none of which ever resulted in any discern- Admittedly, a process of selection can never be foolproof, ible improvement in the company’s performance… and regardless of who is in on it. Outside appointments—like then, to allow the bribery scandal to remain unresolved Paul Pressler, who failed at the Gap having come from for years on end, at a cost to the company of hundreds of Disney, or Robert Nardelli, who failed at Home Depot after millions of dollars? What were they thinking? A retailer in a successful career at GE, or Charles Conaway, who joined the room would never have tolerated any of this. Kmart from CVS and then train-wrecked it—represent de- cisions on the part of boards that weren’t able to properly When all is said and done, whether a CEO reveals him or connect the dots between their company’s needs and their herself to be incompetent immediately or downstream in candidates’ capabilities. Then there is the recklessness that their term, the real failure of retail boards without actual was exhibited by the board at JCPenney in appointing knowledge of the retail business in general, and their retail Ron Johnson from Apple. Despite his apparent credibility business in particular, is unconscionable. Just as Sarbanes for the work he did in concert with Steve Jobs at Apple, Oxley explicitly requires financial certification as an Johnson had never served as a CEO, had never presided underlying requirement of a board’s corporate governance, over a massive turnaround and had no meaningful shouldn’t industry expertise by way of board representa- apparel and accessory experience. His tragic 13 months tion be required in retail, as well? at the helm of JCPenney will, we hope, never be replicated. Retail businesses have always succeeded through the dedicated leadership of a few, acting in concert with, and through, the hard work of many—many, devoted, dedicated team members. Unfortunately, businesses can also be THE OUTCOME OF A QUESTIONABLE SELECTION destroyed as a result of the actions of an incompetent CEO PROCESS IS SOMETIMES THE CATASTROPHIC working without meaningful supervision and oversight of a knowledgeable, experienced board of directors. As an APPOINTMENT OF CEOS WHO, AT THE END OF associate of a retail company without retail experience represented at the board level, you should remain alert to THE DAY, DO TREMENDOUS HARM TO THE the behavior and performance of your CEO. A supplier to a company operating without adequate oversight should be BUSINESS THEY HAVE BEEN TAPPED TO LEAD. equally careful, as should every lender or investor in that company’s stock.

We all know the danger of flying aboard a plane with only Mistakes aren’t limited to outside hires. Insiders, inappro- a single unsupervised pilot in the cockpit. priately selected, can become ‘retail serial killers’ as well. The Sears Roebuck board made a fatal error in selecting Alan Lacy. The Avon board did the same in its selection of Andrea Jung, as did the Target board in elevating Gregg MARK A. COHEN Steinhafel. My underlying complaint, however, is not so Former much with the vagaries and risks of selection, but with the failure of these and other boards to recognize and deal Chairman/CEO with the crises they wrought. Unfortunately, without an of Sears Canada experienced industry executive in the room, they remain clueless as to the degree of damage their company has sustained until it is too late. Mark A. Cohen has over 35 years’ experience in the retail business, with more than 20 in president/chairman, chief executive officer level positions. Sometimes dysfunctional CEOs anointed by earnest but Most recently he was Chairman/CEO of Sears Canada Inc., Chief Market- ing Officer and President of Softlines at Sears Roebuck & Co., Chairman/ ill-prepared boards fail after periods of extraordinary CEO of Bradlees Inc., and Chairman/CEO of Lazarus Department Stores. success. I’m sure the board at Abercrombie and Fitch was He has also held positions with Abraham & Strauss, The Gap, Lord & completely smitten by Mike Jeffries’s performance. After Taylor, Mervyns, and Goldsmith’s Department Stores. He is currently all, he personally created the brand’s unique and success- Director of Retail Studies at Columbia University’s Graduate School of Business, where he teaches courses in Retailing Leadership. He also is an ful brand equity and business model. But then, did anyone independent consultant to retailers, as well as marketing, manufacturing on that board have any idea what the ramifications of and technology partners serving the retail industry.

50 / WWW.THEROBINREPORT.COM / FALL 2015 GROCERY + FOOD WHOLE FOODS’ HAM HANDED MOVES By David Merrefield

In another pricing challenge, Even as the offer applies to packaged In an unusual turn of natural and organic product has goods, it’s a strange one because events, the sands are 3gone almost entirely mainstream it doesn’t include product that is and is widely available at many mis-charged in customers’ favor. shifting under Whole supermarkets for far less. As I That means Whole Foods stores will predicted earlier in The Robin tend to be full of underpriced product. Foods Markets—and Report, Whole Foods is relinquishing the product exclusivity it has long As for Whole Foods core product offer now it’s in trouble. used to convince consumers to shop —natural and organic—it seems clear its stores and pay its prices. Whole that it is losing its footing. Many other In short order, Whole Foods, the Foods has since acknowledged that supermarkets sell more product in that quintessential upmarket food retailer, it was slow to recognize changing category than Whole Foods does. Costco has gone from being a Wall Street competitive dynamics. is now the nation’s largest purveyor of darling to a Wall Street pariah. In organic product. Kroger’s private label rough terms, Whole Foods’ equity line of organic product is doing quite value has dropped by nearly half since Curious Reactions well. And so it goes with nearly every winter. Even more disturbing, its comps other major food retailer. in the first quarter were a meager Some of Whole Foods’ reactions to 1.3 percent, or less than half of what these challenges have been strangely Of course, the fact that many players they generally are. The last weeks of ham handed. Whole Foods has had now offer natural and organic product the second quarter saw comps at a longstanding problem with short at lower prices hammers home the idea 0.4 percent. This indicates very serious weights—In 2012, the company paid that Whole Foods is overpriced. But sales slippage and suggests comps a $800,000 fine in California because there’s more: One bizarre price-related are headed for negative territory. of short weights. It has paid fines in episode in California made Whole Foods other jurisdictions too. an Instagram laughingstock. Whole What’s Going On Here? Foods offered “asparagus water,” which In New York, inspectors said Whole Foods’ pricing errors were the most consisted of a bottle of water containing Whole Foods is now facing three major serious they had ever encountered. three asparagus stalks. It was priced challenges, two of which have to do In response, John Mackey, co-CEO, at $5.99. Whole Foods withdrew that with price and one of which concerns said Whole Foods was a “victim” of absurd product. When customers its core product offer. overzealous enforcement because all laugh at you, it’s not good news. food stores have pricing inaccuracies The newest challenge to and they often fall in customers’ The High-Price Solution? Whole Foods is one of its own favor. He also pointed out that making. In New York City, the 1 Whole Foods has a high percentage So what is Whole Foods doing about Department of Consumer Affairs found of random-weight items wrapped that high-price image? In a move that a “systematic” problem with short and weighed in store, which are looks very much like capitulation, weights, meaning consumers were more prone to error. Whole Foods intends to open some- paying more for product than they thing of an off-price store called “365 should. News stories about that From the consumer point of view, this by Whole Foods.” The idea behind the situation spread far and wide, and is cold comfort. Pricing integrity is one “365” store is to offer its existing line are what account for most of the of the most important tasks retailers of lower-priced product along with near-term drop in comps. have. It simply must be done right. a few other products in a smaller-than-usual space. The longer-term drop in comps Nonetheless, Whole Foods offered to has to do with the persistent give customers product for free if That move has more than a few strange consumer perception that Whole 2 they noticed they were overcharged. aspects to it, starting with the name. Foods product simply costs too much, For packaged food, that’s a step in the The name might make a lot of sense even if it’s high quality, natural and right direction. For random-weight to company insiders since “365” is the organic. This remains the case even product, it’s an empty offer. How name of its private label. Maybe some though Whole Foods has made some many consumers have scales accurate consumers know that, too. real progress in lowering many price enough to measure product weight points, a fact that remains invisible and tare weight to determine what to many consumers. the price should be? Continued on page 52

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But to many other consumers, it will far upscale in terms of product and Supermarket seem meaningless and unrelated to the price, it too will enter the danger zone. operator Haggen iconic Whole Foods brand. Up to now, Aldi has been able to keep is now closing its core low-price discipline and image. more than It’s also unusual because it’s nearly two dozen of without precedent to name a store The Better Way the stores it after an existing private brand. just acquired Typically, private brands are intended Whole Foods’ “365” project brings to because it to further the aims of the core banner. mind the dilemma posed by other outlet couldn’t find Possibly Whole Foods was inspired by stores. At what point do the lower prices the right price Canadian Superstore Loblaw’s “Joe available in an alternate venue start to to offer its consumers. Fresh” stores. Joe Fresh is Loblaw’s erode the equity of the main store? private label affordable-fashion apparel This is true across other retail channels, line. The “Joe Fresh” stores gave Loblaw We’ll see what happens as Whole as apparel retailers such as Abercrom- the means to expand the label into new Foods starts to roll out its first five bie & Fitch have discovered when they territory. In contrast, 365 product is “365” stores next year. Maybe the store lost their core niche and value image. available in all Whole Foods stores, so will a big winner, but it seems more why invite customers to go elsewhere in likely that Whole Foods would have There are many avenues to success, the same market to get it? All planned done better to stick to its core strategy. but sticking to one core strategy and “365” stores will be in existing markets. Considering the cost and energy that doing it well is very often the better will be expended on the new store, way to success, regardless of the Finally, Let’s face it: The “365” concept Whole Foods could have instead retail channel. is no more than a knockoff of Trader made more price investments and Joe’s. Unfortunately for Whole Foods, undertaken a stepped-up marketing Trader Joe’s has quite a running start campaign intended to convince and has captured the high-quality, consumers that its prices really are DAVID low price territory. more reasonable than they might think. MERREFIELD However, when it comes to targeting DRM Initiatives, To be sure, changing a retailer’s Inc. the Trader Joe’s customer, Whole Foods image is slow work, but sometimes isn’t alone. Hard discounter Aldi intends it can be ultimately unsuccessful, as to introduce a range of organic and many retailers have already found out. David Merrefield is principal of DRM Initiatives, specialty products that are positioned Supermarket operator Food Lion has against Trader Joe’s. Aldi’s “Simply Inc., a retailer consulting group. He is the former been working for quite a while to vice president and editor of trade publication Nature” is already its fastest growing recapture its low-price image, and Supermarket News. He is based in New York City. brand. Incidentally, if Aldi creeps too there’s still work to be done.

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