Rethinking Retail - Experts Speak Out 2003

CIT recently sponsored a Fashion Institute of Technology (FIT) symposium entitled "Rethinking Retail: What it Means To You." Panelists included: Vanessa Castagna, president and chief operating officer, J.C. Penney stores, catalog and internet Lew Frankfort, chairman and chief executive, Coach Jack Mitchell, president of Mitchell's Sara Bamber, advertising agency group account planning director, TBWA/Chiat/Day George Jones, president and chief executive, Saks Inc Margaret Cannella, managing director, J.P. Morgan Securities Emanuel Weintraub, president and founder, Weintraub & Associates

Following are highlights from the forum, which was held in New York City.

"We can't just be one-day sales," said Vanessa Castagna, president and chief operating officer at J.C. Penney stores, catalog and internet. Creating another reason to shop department stores besides bargain hunting would go a long way in solving the industry's problems, she said.

"It's got to be compelling value," said Castagna. "It's not just about fifty-off and not just about a coupon, but about: Is this merchandise what I need? Is it right for my family? Is it right for me? Does it make me feel good? Look better? Smell better? Why do I need this product to improve my life or my family's life? That's what it's all about."

Finding the right merchandise, however, had been a challenge for Penney's under its formerly de-centralized organization. "Where we got off track was that the merchandise wasn't very compelling in today's marketplace," said Castagna. It begins and ends with the merchandise."

Under its newly centralized management system, new product flows to stores weekly instead of quarterly as it previously did. That flexibility allows Penney to better catch trends such as paraffin wax and bath tub bubblers. Achieving a dominant position in certain categories can also be a key traffic driver. Housewares, for example, were re-introduced because they appealed to young, married couples.

"Even beyond just apparel, we have to have dominant classifications inside our stores. I don't think we're going to get there with five-pocket jeans," she said.

Inside the stores, assortments have been edited to make the stores easier to shop and trends easier to see. "We're really focussing on massive impactful presentations and maximizing real estate in our stores," Castagna said.

A paradox is that that many competitors get higher marks for service despite having fewer associates on the selling floor, and Penney's is reassessing needs for personalized attention in many departments. "Many customers just want to know that there's always going to be somebody smiling at them and checking them out quickly," said Castagna.

Overall, Castanga said department stores have to improve on all the facets of running the store.

"It's not any one individual piece," said Castagna. "One-day sales won't do it. Just adding a fashion won't do it. Adding a new brand won't do it. It's about the relevance of all those things and about thinking about the customer today. We are committed to our customers and to exceeding their expectations. We are making progress but we have a way to go."

As Tastes Change, So Must Brands

Lew Frankfort, chairman and chief executive at Coach, the accessories firm, said all business models "must be open to change" to adapt to the consumer's shifting tastes.

"We view our strategies as iteratives," said Frankfort. "Every day, when we are contemplating our business for tomorrow or four years out, we ask ourselves not only how will the consumer respond, but how will the consumer change during that period so that we can be in a position to service her."

Frankfurt detailed the extensive changes Coach made to adapt to the changing retail climate. For example, Coach began selling through factory outlet stores to reach price-conscious shoppers.

"We've learned that one out of three consumers who purchase in our factory stores will only buy at our factory stores," said Frankfort. "She's a consumer who wants to buy branded products, but has been trained and conditioned to buy brands on sale. We give her a good opportunity to buy last seasons' styles in factory stores at a discount."

Reacting to seismic shifts at retail, Coach has adapted most parts of its business. Seeing discounters destined to gain market share from department stores, Coach in the early eighties launched a catalog and opened specialty retail stores. Capitalizing on the appeal of lifestyle brands, Coach expanded into categories such as outerwear, footwear, watches and home. To infuse freshness into its offerings and reinforce its stature as a fashion house, Coach has instituted monthly flows of new products. "As part of the retail experience, all of us must provide additional reasons to revisit by offering newness," said Frankfurt. "Whether we call it fashion innovation, fresh product or contemporary merchandise, it's newness. It's clearly what drives retail sales."

Nonetheless, some things shouldn't change, and Frankfort said one constant is having a compelling proposition, or a product and image that stands out in the eyes of consumers. This is essential to building a loyal customer base.

"We tell our sales associates we don't sell product, we build relationships," Frankfort said.

Know Your Customers and Give Them a Hug

"Don't forget to hug your customer," is the mantra of Jack Mitchell, president at Mitchell's, a family-owned luxury apparel retailer based in Westport, Connecticut. While many stores claim to focus on customers, Mitchell believes most don't go far enough.

"It's all about relationships, one customer at a time, and building those relationships so the customers come back," said Mitchell. "It's all about welcoming those customers into your home. It requires passion. You have to believe that the customers are kings and queens. We call it hugging."

At Mitchell's, every employee - including those in marketing and finance - spends time working the selling floor in order to get in tune with the customer.

In-store and charity events tighten bonds with shoppers. Personal notes are customary, said Mitchell, who claims to have penned 10,000 himself last year. Indeed, Mitchell said retailers should be just as meticulous in ranking customers as they are classifying inventory by SKUs.

"Does everyone in this room know their top 100 customers? Their top 500 customers? Their top 1,000 customers? I can assure you that we do," Mitchell said.

Moreover, the hugging concept extends to employees and all business partners.

"You have to hug your associates. You have to hug your vendors. They're partners. The bankers are partners. You have to hug your bankers and they have to hug you. We need each other in these tough times."

Be A Lighthouse

Sara Bamber, group account planning director at TBWA/Chiat/Day, said many of today's most successful brands behave like lighthouses.

"It sits on a rock, it has a solid base, and it sends out a very clear signal in every direction that ships can see from a long way away. So rather than try to chase ships down, chase customers and talk to them, you as a brand stand very strongly and single-mindedly send out a clear message to them."

Bamber discussed the shift by many retailers from the hard-sell techniques of the past to the soft-sell methods today that emphasize establishing "values" in a brand. Instead of pushing product utility and pricing bargains, retailers are creating a positive image of their brands, and are motivating and entertaining consumers.

Tapping this brand-centric focus, a retailer can build customer loyalty, command higher pricing premiums, and minimize the impact from today's extremely price-sensitive retail climate.

"It really does give you that all-important, sustainable competitive advantage," said Bamber.

Still, hard-sell techniques haven't gone away. "Soft sell for brand advertising is about making consumers more receptive to your harder-sell sales message."

Dominate Categories and Differentiate Your Products

"How do you run a fashion business when you're turning inventories one time a season?" Asked George Jones, president and chief executive of Saks Inc. That's just one of the riddles Jones is trying to solve as he takes on the turnaround of Saks' department store group, which includes Carson Pirie Scott, McRae's, Parisian, Proffitt's and Younkers.

A major cause of poor turnover, according to Jones, is a lack of product innovation. An over-dependence on key brands is causing most selling floors to look the same, and he blames the arrangements between vendors and retailers for markdown allowances and pre-arranged margins.

"We buy merchandise not through the eyes of our customers, but through the safety net that we've got from a particular vendor."

Jones insisted the major brands are still vital to department stores' mix. "It's one of the things that we have that really drives people into our stores." But he said Saks is reexamining vendor partnerships with a goal of gaining differentiated product.

Toward that end, Saks is working with major resources on gaining exclusive, unique products, and is looking for new resources to find "something that could differentiate us in the front end from the guys down the hall." Greater efforts are being made to edit collections and intensify key items. "There's no business I've ever been in where key items can't make or break you," he said.

Saks also plans to establish dominance in certain categories.

"We really have to take a leadership position in certain categories so we stand for something," said Jones. "So when someone gets in their car and goes to the mall, they're going to park at our end rather than the other end because they're thinking of us at the top of their mind for some classifications of merchandise."

Jones ruefully admitted that promotions will always play a role in luring customers to stores, but Saks plans greater key-item promotions and a keener focus on its best customers.

Creating a smoother working relationship with suppliers will be essential, and in that vein Jones said vendor compliance programs will also be reassessed.

"It's become a profit center for department stores and that's really not right," said Jones. "Vendor partnerships are a key to our future and there are a lot of different ways we can look at that model."

This Recession May Seem Bad But We've Seen Worse

How will retailers fare in this recession? On a historic basis, not so bad, according to Margaret Cannella, managing director at J.P. Morgan Securities. Compared to past recessions, retail sales have been holding up, and should continue to do so. Consumer spending during the 1973-1975 recession and, to a lesser extent, the recessions in 1980 and 1981-1982, was restrained not only by the decline in gross domestic product (GDP), but also by higher crude oil prices. Compared to the last recession in 1991, which was minor by historical standards, recent monthly sales figures from department stores shows that consumer spending has been more resilient this time.

One concern is pricing pressures as deflation is gripping most major categories in department stores, except cosmetics. Although discounters should outperform, full-price retailers will have difficulty moving merchandise without sharp markdowns. "Weak income and rising unemployment are making shoppers more price sensitive than ever," said Cannella.

The good news is that retailers in are better shape than in past recessions. "Greater economies of scale have given most retailers wider margins than during past recessions. Liquidity is better and interest burdens are lower than in past recessions as well," said Canella. However, although the recession should be over by early 2002, she doesn't expect the strength retailers experienced in the late nineties to resume.

"Pricing pressures will persist, so nominal sales gains will be harder to come by," said Canella. "Revenue weakness may bring more consolidation in 2002. Well-managed companies with strong cost controls should be able to prosper, even in this slow-growth environment. Poorly managed companies with higher cost bases are likely to fall by the wayside. In the process, the strong players will get stronger and the weak will be consolidated."

Make it Fast, Clean and Simple

Veteran Seventh Avenue consultant Emanuel Weintraub believes apparel stores should start behaving like the retailers that customers visit more frequently: gas stations and supermarkets. The self-service model of gas stations should solve a pervasive customer-service complaint: slow checkouts. "Many of you now drive up, fill up the tank yourself, pay with your credit card automatically, and drive off. There is no human intervention. It's fast, clean and it's simple," he said. "Retailers should be thinking how to make the consumer's life simple."

Bar-codes and other technological advances can lead to unmanned checkout counters, Weintraub contends.

For merchandising tips, stores should look at the way supermarkets create shopping excitement through high-end cheese and deli departments. Highlighting small and unknown design firms should have a similar impact. "Imagine that in key departments you have a continued presentation of those young new designers who can provide the edge, the spark and the spice that every retailer needs," he said.

Moreover, he believes that like food vendors in supermarkets, apparel suppliers will be essentially renting floor space in the future.

"Vendors will pay for space the same way as the soft drinks and tuna fish brands pay for space," said Weintraub. "It's being done now in certain ways and will grow as a way of doing business. Store offerings will be a presentation of destination mega-brands and an increased number of store brands."

Weintraub said observing the successes in other formats might be key to reviving what has been flat apparel sales over the last several years. First and foremost, the fashion industry needs to focus on attracting greater talent.

"These are the people who can grow from lower levels of management into middle management and then to the top. These are the people with creativity, vision and drive." He cautioned: "Developing a team by attracting the best and the brightest is nonetheless a daunting task."

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