Specialty Retail Blog

Have you ever read about pivotal moments in history where people say, “This was the best time to buy” because a market had bottomed out and was starting to rebound.

In the past few years, this advice has frequently been given regarding real estate.  But I think it also extends to retail.  And I believe that RIGHT NOW is the time to map out a growth strategy.

Many stores have closed their doors.  Others have contracted, leaving market segments or territories open for those who can capitalize on the opportunity.

A retail establishment grows  via one or more of the following methods;

1. Gaining additional market share
2. Gaining additional territories
3. Adding Product Lines

We are advising all of our accounts to review the above methods and decide on areas where they can grow their business.  Sure, things are still tough out there.  Yes, I believe Spring 2010 is going to be a challenge.  But if an outlet can get through that (which we are helping our clients do via better marketing, improved cash flow and great open-to-buy planning), then they will  be able to grow an amazing business from the seed of the present opportunity.

This economy has had us all worrying, contracting, suffering, weeping, struggling, and enslaved for far too long.  The time is ideal to do something proactive, something spectacular, something bold, and something that will carve a mark in the memory of customers and competitors.

Dan Jablons
Retail Smart Guys

Adapting will continue in subsequent Informer issues with various topics of how the recent changes in the market, economy and retail world are affecting your business. This is the second of the series by Evan Wise.

The hub of retail is moving out of the malls and into the streets. The recession has caused unemployment but the shoppers tend to be those who are employed, retired or otherwise minimally unaffected. However, even these shoppers can be more hurried and harried as the recession has caused most businesses to cut staff to the bone which puts more pressure on the rest to spend more hours, be more productive and work harder than ever before.

We value what is scarce and, because of the recession, it seems time is among our scarcest of possessions. The scarcity of time has put a greater value on convenience, availability and simplicity in shopping. A strip mall where a woman can take the dry cleaning to be done or have her nails manicured and can buy items for her wardrobe within 50 yards can be a huge convenience.

Other retailers have found ways to use their stores as bases and then move their sales influence beyond the physical location. Everything from bringing a wardrobe selection into an office to internet sales can move the boundaries to a much wider circumference and can make the shopping experience faster and more convenient. E-mail, social networking and even the phone extends your boundaries to expand your business. Now is the time to brainstorm ways you can make your store more available and easier to shop.

Adapting to a New Reality will continue in subsequent Informer issues with various topics of how the recent changes in the market, economy and retail world are affecting your business. This is the first of the series by Evan Wise.The recession has had a profound impact on your customers, your vendors, your employees and the entire business community. Your success will depend on your ability to read these changes and adapt to the new reality quickly, creatively and effectively. The first requirement is to be able to identify the new emerging trends. Over the next several issues, I will try to point out the various trends that are being impacted and propelled by the many recent changes. Prudent retailers will be able to assess how these trends have affected their business and more importantly, how they will assess their own situation and decide how to take advantage of the changes. Your comments will not only be welcome, but they will be important feedback during this time of considerable flux.

The independent retailers’ great advantage has always been that they are closer to their customers, and thus better able to understand them than the chains and big box stores. That advantage is more important now than ever. With the understanding of the sales pulse of his clientele, a successful retailer can take that knowledge to market and find merchandise that attracts his customers and keeps them coming back. Chains and big box stores count solely on megatrends to compete and cannot match the independent’s ability to surgically target the market. That precise approach is why independents command higher price points but they lose the battle of markdowns and promotions.

The recession has spawned a trend for customers to be more skeptical which means that the trust that existed in the past and was a key to independent retail success may be questioned. New trust will be more difficult to achieve. Customers are more willing to explore different shopping venues. Trust and loyalty both are more tenuous when the customer is fearful about his own future. The need to develop trust and strong relationships has always been the cornerstone of independent retail. It presents itself now as a fierce challenge but its importance has never been stronger. Trust must be the foundation for everything from marketing communication with customers, dealing with employees, creditors and local vendors.

As an independent retailer you must be more creative in providing the right price, selection, service, policies and experience for your particular niche in the market. What are you doing to demonstrate your values, the trust you place in your customers and how they see that in the shopping experience?

Black Friday is behind us and the holiday shopping season is in full swing. In many cases it will be the little things that store owners do that will make a big difference in the profitability of the season. One thing to be aware of is that shoplifting is up 6% since the recession hit.  The National Association for Shoplifting Prevention estimates retailers lose $25 million a day to shoplifting.  Make sure you measure shrinkage and the trend for how much you lose in your store to theft  are not on the rise.

Giving all employees brief but frequent reminders of what to look for can pay dividends. Some of the following points may help get you started. The rest will come from your own years of experience and the ideas of your staff when asked.

1.       Many shoplifters work in groups of two. One person is the distraction while the other is the thief.  When something occurs, make sure you are looking around and not at the distraction.

2.       Watch for items inconspicuously hidden under clothing, in handbags, strollers, umbrellas or stuffed into pockets.

3.       Make sure that labels are on the right merchandise. Switching a label to a more expensive item is theft.

4.       Be wary of people that spend more time watching the sales staff than shopping.

5.       Keep a count of what goes into the dressing room and what comes out.

6.       People that look at items more to kill time and delay. They do not seem interested in buying.

7.       Eliminate blind spots in the store—hang a mirror or a camera.

8.       Treat restrooms with the same scrutiny you do dressing rooms.

9.       Monitor trash—putting goods in the trash and picking it up after hours is not uncommon.

10.   Alarm doors that are not supposed to be used for customer traffic.

These ten actions are a good start. Shoplifting costs both the store and your good customers’ money. Have a great holiday!

Thanks again to Neal Esserman for sharing this blog posting from Retail Design Diva called “A Recession is a Terrible Thing to Waste.”

It discusses how the current crisis has forced many companies and people to reinvent themselves positively, and in ways that they simply would not have had the courage to if their current groove had remained rosy and adequate.

Retailers are entering the fourth quarter with many significant and important questions. The way they respond to these inquiries and respond to the circumstances will dictate their success. Three of the most fundamental questions I see are:

1. What will traffic be in the store?
2. What will sales be?
3. What will margins be?

Let’s apply some logic to see if we can find some likely answers. Many people have lost their jobs (~10%) and even more are underemployed (~17%) which means they are making less money than they did a year ago. All these people will not be taking vacations or spending a lot of money on entertainment like they did before. We are talking about one out of six people; the losses cut across all income brackets from laborers up to executives.

Even with lower credit card limits, tighter credit and less home equity as financial supports, for the most part, these people will not ignore the holidays and will be shopping for gifts. The probability is that they will be looking for less expensive items and bargains this year in addition to the special gifts they buy at regular prices. The best news is there is a form of entertainment that they can still afford and that is shopping. Look for the store traffic to increase this holiday season which is good news for retailers. Keep in mind that now, more than ever before, the more entertaining you are, the more traffic will be searching you out.

Those who have less discretionary income are joined by many others in worrying about what lies ahead. On the positive side, the stock market has run up nicely to about where it was at the beginning of the year. That has released some pent up demand among the 73% of the population who are fully employed. That means there will be a demand for full price goods but also a pull for discount, off price and lower price point goods as well. Balancing the inventory mix will be tricky. No one knows when discounting will begin and how brutal it will be. That means this season your inventory planning, balance and flow is as critical as enhanced selling skills will be to determine your success. With traffic up, conversion rates could be the main dashboard components on which to focus!
Margins are the big unknown this year. It is a question mark whether the chains will pull the trigger on markdowns early again or whether they took a big enough beating themselves last year to buy more prudently and be able to hold the line on discounts. We have been working hard to find ways for clients to boost margins in the face of uncertainty and the moves are working. Certainly the Margin Buying Service is a great key for women’s boutiques to boost IMU to 70% and increase turns at the same time. The holiday suit promotion was a similar opportunity for men’s. More prudent markdown strategies are needed this year to keep up the MMU. There are opportunities out there but retailers must be aggressive to grab them.

There are a lot of other situations and circumstances that will affect retailers – from the scarcity of certain goods to a scarcity of credit available to buy them – but these three stand out as critical. The unknown factor is again extremely significant this year so be adaptable, flexible and keep listening to your market and to your affiliate. These will be the keys to your success.

Happy holidays and good luck!

Hopefully the Great Recession of 2009 is starting to see a turning point and slight optimism is emerging in the media, in the market and on the street. I am reminded about growing up with parents who were a product of the first Great Depression and how they were against taking on debt to get what they wanted. I remember my mother washing out plastic bags to reuse them and smoothing out tin foil for re-use; later I realized this was another manifestation of her years of struggle in a depression.

Hopefully we are starting to see the recession’s end or at least the bottom of the drop. I wonder what will be the lasting lessons that our society keeps from this experience. One result that is emerging is a higher rate of personal savings. Even those who have not lost their jobs or had their pay cut are saving 4% more on average than they were a year ago! For retailers, that means that families making $100,000 a year are spending $4,000 less so the fight for their business becomes that much more intense. The reasons that this change is expected to outlast the recession is the fear of losing a job, the tighter credit, the loss of collateral and asset value and the realization that the spending levels we were at cannot continue. (2005 saving rate was a negative 2.5%, meaning we were spending MORE than we were making as a nation.) Conspicuous consumption is over and we are shifting from a mentality of “I am worth it!” to “Is it worth it?”

This “shift to thrift” is something that puts a greater burden on the strategy, planning, inventory management, expense control, payroll oversight, productivity, training and cash management. All retailers will need enhanced information and methods to manage their buying and inventory more accurately than ever before. That does not mean avoiding spending and buying, but it does mean spending and buying the right goods in the right amounts and landing them at the right time so that payment for them can be covered! Inventory planning must be accurate, timely and implemented effectively if you are to strive, survive and eventually thrive.

Other aspects of the business will require more scrutiny and positive actions as well. New strategy aimed at adapting quickly and effectively to the new environment is more critical than ever before. Many will need to cut staff and expenses while, at the same time, needing more productivity, motivation, innovation and creativity. That means that effective leadership and management are a critical aspect of the plan to strive, survive and thrive. Those stores that rely on outdated management and leadership methods will be flushed from the retail environment as the average household cuts 4% of its spending and there is less demand to go around.

The potentially great news for specialty retailers is that adaptability is in their favor. The independent specialty retailer should have the ability to quickly implement new strategies, leadership, management and control methods in order to adapt to the new situation quickly. The chains and big box stores will require a much longer time period to make adjustments and their survival will be less assured.

I am certainly not to the point where I am washing out plastic bags but I am thinking twice about what I spend and hoping to see my savings account grow. It appears I’m not alone.

We started on this ride we are on after the Great Depression and WWII. After we built up a huge debt that time we emerged to a great standard of living.  We earned enough so a man could feed and provide for his family while his  wife could tend to the home and raise the kids.  That lasted about 20 years but in the 70s, women found they needed to go to work outside the home and bring in some cash to provide for a “standard of living”. By the 80s even that was not enough so we needed to inflate the price of homes and use the equity to supplement that family income to achieve a “standard of living. “  That worked for a while but soon we needed more so the banks came to the rescue with credit card debt that was available easily to all.  Credit cards were used to build up huge deficits so the middle class could all have a standard of living. Then the crash of 2008 caused the standards to all change. The home equity vanished, the credit card issuers were retrenching and one of the two income earners in the family was likely to be unemployed.  Back to 1950.

Since 1950 we have allowed our standards to increase at a steady pace. If each of us went back to the standards of 1950 we would do fine.  That means a black and white 13 inch TV for the family instead of three 42-inch color plasma TV’s.  One car instead of two would be the norm and we would move back to the city where we would be close to the job.  The food you would eat would be fresh, not processed and liver once a week would stretch the budget too!  You could throw out the cell phone and the $50 a month bill and replace it with one land line connected to one phone ON A PARTY LINE.    We would go back to seeing clothes flapping in the breeze and you would be happy if you had a washing machine in the house.   I think you get the idea.

There are so many improvements in our standard of living today that we do not appreciate. We may be making some changes back toward 1950 and all be happier and better off for it.  In 1950 there were many retailers and many fewer chains and department stores.  There were no malls but downtowns were flourishing.  We look at malls struggling that might be signaling a reversion  toward 1950 retailing. Certainly we will not revert back 50 years but it may be worthwhile to consider this scenario as you look at your own situation and try to adapt to a changing customer base. For example, rentals of expensive items might get more popular. Although we may not be moving back to 13 inch black and white TV’s; we may be going back to one family TV instead of several scattered throughout the house.  Might not be all bad!

Typically, if demand for a thing drops price drops with it. Sales are used to clear out old inventory. Why, then, are there still so many boarded up storefronts? Megan McArdle speculates that stores are reluctant to lock in at low rates and stores which require investment are reluctant to take advantage of short term leases.

The result is that the businesses ideally positioned to take advantage of the current glut in vacant store space are those which require little capital investment in a space and don’t necessarily need to be in the space for a long period of time.

With the many changes in the economy, everyone seems to have a different prediction about about what kind of retail landscape will remain after the tremors of the recession dissipate. One view is that the future is in single branded stores run by vendors. In this scenario, small independent specialty stores cannot survive because of the following three reasons:

1. Credit will be unavailable

2. They will have little or no leverage with the big vendors

3. They will not be able to out-bid the major vendors for prime retail space

Although there has been a boom in single branded stores over the past decade, there are definite reasons to believe that the independent specialty retailer sill flourish. My belief is that the credit shortage is a short term adjustment in the credit market and soon there will be lenders waiting to cash in on the demand for credit from viable borrowers.

The second assumes that the big branded vendors are the only future of retail. My view of reality is that the major brands may be the past of retail. Branding is expensive and requires a significant marketing effort. That expense must be added to the cost of the products. One lasting remnant of the recession, once it is finally over, will be a switch to value on the part of the marketplace. That value orientation combined with the speed of knock offs and the high value offerings of many smaller vendors will challenge the dominance of the big branded vendors. That is not to say there won’t be some vendors that will survive in retail but there will be just as many that don’t. Manufacturing apparel is less expensive than retail. Retail requires a major investment into a very different world of real estate, sales forecasts,strategy, leadership, management, training and cash flow planning.

Third, if the big vendors bid up the cost of prime retail rents, they will have to add those costs to their merchandise. Again, value would dictate that higher prices and lower value will not be a winning combination. If it were, you would be seeing a flood of vendor leases flooding the retail market rather than a flood of empty boarded up stores in many malls and location. The following are merely two scenarios that specialty retail may follow to not only survive, but thrive. No one knows exactly which paths the world will follow but these scenarios make sense with the changes we are witnessing. The biggest challenge that specialty retailers have to wrestle with is a lack of any unified leadership. The biggest threat to their survival is their reluctance to view themselves as one group with common challenges, goals and obstacles that will best be overcome together rather than fighting one another. Independent specialty retailers will survive and prosper by working together to challenge the vendor stores, department stores, internet and other retail competition. The new scenario for the future will emerge over time but the following two are not only possible, but waiting to happen.

Scenario One

Unemployment in the U.S. has reached 9.5% and is climbing. Among US born blacks and Hispanics unemployment is 24.7% and 16.2% respectively. Unemployment among immigrants is about 11%. This high unemployment begs for an answer and specialty retailers may be one solution. Cottage industries have grown up in many spots around the world. People with skills in knitting, sewing and even clothing design work at home to produce goods that are then sold on the market. These people tended to be stay at home moms, older workers etc. With all this pent up potential to work, retailers can revive the “specialty” label that was lost. When the mom and pop store began to carry the labels that the department stores carried and the brands that could be purchased everywhere, they no longer were specialty stores but rather, competitors in luxury commodities. If the mom and pop store can no longer compete with the major branded vendor then he needs to find another strategy that cuts into the market share the branded vendors have. The future of retail is not with the major branded vendors! The future of retail may be in creating a new, unique and effective private label offering based on putting this pent up labor pool to work producing luxury items that are below the radar. Customers will be attracted to value, specialty goods and a private label that is more than slapping your label on over priced commodity items. The challenge is to supply a reliable market for value rather than just provide a high priced commodity This scenario gives the specialty retailer the ability to go vertical just as the big branded vendors are going vertical!

Scenario Two

The retailer’s expertise is in buying and selling. A vendor’s expertise is in design and manufacturing. If vendors are looking to get into retail, they are entering a strange new world that they truly do not understand. The investments in infrastructure and the management of a retail staff are very different. The tight balance of costs, management of a market, and selling effectively are all different skills that are not intuitive. When you look at the expertise of both the vendor and the retailer respectively, there is a marriage waiting to happen. Split the supply chain in a different place so the mom and pop retailer may benefit by utilizing his unique skills and expertise while the vendor can accomplish his mission much more effectively.

Long ago the grocery industry figured out that the store is the best place to sell the goods and the manufacturer is the best one to provide the goods. Each vendor “owns” a certain amount of shelf space and has representatives that come in periodically and restock shelves, arrange displays and monitor their space. The grocer waits on the customers and handles the daily stocking and sales. It is time for the retail community to look at this same scenario.

Vendors, rather than opening their own store, must evaluate the opportunity to “purchase” shelf space in the existing retail store. The inventory would be owned by the vendor until it is sold and the vendor would be responsible for keeping the right amount of goods in the store in order to be profitable. No longer would there be an open to buy in many classifications on the part of the retailer but the vendor would now be responsible for his open-to-supply! The beauty of this is there is less investment and risk on the part of the vendor AND there is no credit required for the retailer to stock the shelves. Marketing could be a joint effort that provides synergy. The vendor can market his goods and drive business to the store. The store can market to drive traffic to the store too.. The vendor would have reps that, instead of selling at trade shows, travel to the stores in each town or area to teach the local staff, monitor the inventory and give input back to the vendor or planners to hone the Open to Supply budgets as well as develop the assortment plans with the local retailer input.

Both of these scenarios are feasible. There are many other scenarios that are feasible as well. None of them is without bumps in the road and and challenges that will require coordinated leadership to develop and effective management to implement. There are many other potential ways for specialty retailers to emerge from this recession stronger and more viable for the new market and I welcome others to add their scenarios to this blog. As long as the big branded vendors assume the future will be like the past and they just need to continue their direction, we will be heading into the age of specialty retail! Our goal and mission is to stay abreast of the various options and opportunities and work with clients, industry groups and retailers to assure the future of specialty retail.