Welcome to the the Ivey HBA Retail Marketing Management blog. Retail marketing is an exciting, dynamic, important, and very visible aspect of the overall field of marketing. Throughout the year, students will be posting comments regarding contemporary retailing issues. Although this is intended to be used by Bus 4411 students, industry marketing professionals are also invited to join in if they like.

Saturday, March 21, 2009

Symposium: Great Product, Terrible Service

Have any of you ever been to Symposium? It is a restaurant on the corner of Richmond and Central and it has great food. Good food, however, is only half the battle. Every time that I have gone to Symposium it is has been a tremendously frustrating experience.

For some reason, there are always only two waiters working at a given time. Even though there are more tables than two waiters can effectively serve, the Owner of Symposium refuses to pay for additional help. I guess I understand the logic. As long as Symposium doesn’t lose any customers, why not save money by having a small staff?

Unfortunately for Symposium, if they continue to make people wait way too long for their food, customers are going to stop coming back. I am one of these customers. The first time I went to Symposium the service was horrendous. I had to wait so long for an omelette that I began to think that they ran out of eggs. However, when my meal finally arrived, it was very good. As a result, I decided to give the restaurant another chance.

Two weeks later, I returned to Symposium. Once again, there were only two waiters. However, since it was not a peak time, the restaurant was practically empty. As a result, the service was satisfactory. Since the food was great, as usual, I decided that I would come back to Symposium in the near future.

The next week, I returned to the restaurant at peak time. When I walked in, I was hoping to see some additional staff. However, once again there were only two waiters. Clearly, these waiters could not handle the volume of customers at the restaurant. Although my meal was great, the terrible service ruined the entire experience. The quality of food was simply not enough to make up for the poor service, so I decided not to go back to the restaurant.

In my opinion, Symposium is making a terrible mistake. The restaurant seems to be concerned only with its short term performance without thinking about the long term implications of its actions. By having fewer staff, Symposium is keeping its costs low and improving the restaurant’s profits. In the long term, however, Symposium is destined for failure. If the restaurant’s service remains as it is, customers will simply stop coming back. While Symposium’s costs will remain low, its revenues will begin to shrink. As a result, the restaurant’s profits will disappear.

Symposium has a tremendous opportunity to succeed. The food is great and the restaurant is in an ideal location. However, restaurants, like any retail store, cannot simply rely on their products to sell themselves. While a good product is obviously important, quality service is just as crucial. Without good service, any restaurant or retail store will find it very difficult to achieve long term success.

You can’t compare Apples to Oranges, what about Apples to Microsofts?

Personally I am a huge Apple advocate, my theory is “once you go Mac, you don’t go back” and I stand by it. Apple is known for their innovative products from both a stylish and technology perspective. They manufacture and market computers, accessories and operating systems for their devices. Microsoft on the other hand is the computer company who USED to be the “go to” computer company for consumers, they distribute operating systems, software and computer accessories, however, they do not manufacture or sell computers. [1]

An article in the New York Times [2] describes Microsoft’s plan to open up a retail store in order to compete with Apple’s perfect retail amusement park. Microsoft’s goal is to “improve the PC- buying experience”, and to assist consumers in making more informed decisions regarding their technology purchases. In my opinion Microsoft is going to have to really step up their game in order to achieve anywhere close to the same effectiveness that Apple stores have had on its branding.

The Apple store’s retail value proposition is by far driven by the experience a consumer obtains by stepping foot inside. For those of you who have never had the pleasure of experiencing it, let me give you a brief description. No matter what time of day you decide to go and browse the store, there will always be a crowd of people inside. With that being said there is NEVER an issue finding staff to help you (not to mention they are always wearing bright colours). Whether you are an Apple know-it-all or an amateur computer user, the staff are always extremely friendly and knowledgeable about all their products and services. Relationship building, service and the high quality products that they produce drive their retail operation, which is why consumers have accepted the premium price on their merchandise.

Now I will describe why I feel Microsoft may have difficulty entering the retail market. My first concern is that they are not a computer manufacturer; therefore they will most likely display HP, Sony or Lenovo computers in order to show consumers their already diluted and less favorable operating system, Vista or software such as the Microsoft Office suite. This experience can be obtained at your local Best Buy. My second issue is what kind of services are they actually going to provide. Will they supply technical support? I don’t think it would make that much sense since the majority of support is in the hardware, which they don’t manufacture. Finally, not to mention how saturated the Microsoft brand is, you can obtain their products at any electronic retailer, small or big. However, Apple products are much more exclusive.

In order for Microsoft to compete with Apple, they need to ensure that their stores contain innovative technology, gadgets which have yet to be released. Their service also needs to be impeccable, they will need to provide “Microsoft Office and Vista” experts on site as well as staff that are available to meet with current Microsoft consumers in order to enrich their already boring Microsoft experience.

Microsoft is great at what they do; however they are attempting to enter a territory that has already been dominated by the BIG bitten apple. I hope Microsoft remembers who they are competing with as well as what type of economy we are currently in. With that being said this can be a great opportunity for them to jump on the super innovation bandwagon and produce some futuristic consumer products.


Thursday, March 19, 2009

Fine Restaurant Retailing…is it Becoming a Price War?

I’d like to expand on the notion of changing retail value propositions to fit changing customer trends and preferences that was argued in my previous post. However, this time the changing trends aren’t the result of new customer tastes but rather people’s response to the recessionary times and the tighter spending that usually goes with it.

Restaurant retailing is very similar to coffee retailing; there are sometimes vast differences between the product quality offered by various restaurants in which a premium price is generally paid to reflect this difference. After all, you are not only paying for the higher costs which go into making better quality food, but also for the perceived higher fulfillment in eating filet mignon instead of a fried chicken sandwich. Generally, both types of restaurants can co-exist with each other since there will almost always be a dependable, specific market for both higher-quality and expensive restaurants and lower-quality, cheaper restaurants.

But what if the average person doesn’t want to pay these high prices anymore?

Currently, with rampant layoffs, less disposable income and general job insecurity; people who may have previously wanted to treat themselves by dining at a fine restaurant in the past may be less inclined to do so now. How do restaurants which pride themselves on the experience and selection value propositions now adjust to these new economic realities?

Granted, there will always be people who are not as affected by recessions as others and will not change their dining habits. However, the same cannot be said for the average person at this point. According to a recent report, in the United States alone, roughly 33% of restaurant patrons are tightening their wallets, paying more attention to price than ever before. Another troubling trend is that up to 28% of diners are already switching to cheaper restaurants.
With the difficult recessionary times projected to last at least another several more months; fine-dining restaurants will have to act fast and temporarily change their value propositions to avoid the fate of the Rainbow Room in New York City.

Instead of taking a wait-and-see approach, many upscale restaurants are already discounting the prices for their high-quality as much as possible. Lacroix at the Rittenhouse in Philadelphia is charging only $24 for a three-course lunch, affectionately known as the “Appetite Stimulus Plan.” Similarly, Craft restaurant in New York City is offering its “Frugal Friday” menu where diners can eat anything on the menu for less than $10 on that day of the week.

I believe these to be great examples of upscale restaurants perhaps swallowing their pride in order to keep diners coming in. However difficult it may be to accept less profit per patron, these creative ideas can more than make it up through higher sales volumes. This represents a temporarily solution to a temporary problem—the recession, in which there is more emphasis on the price value proposition.

Upscale restaurants that are willing to sell their top-notch food at low prices should be recognized for doing whatever it takes to stay afloat in this very competitive industry.

Just imagine getting that filet mignon for under $20—at least for the next few months.


Banana republic, a factory outlet brand?

It is not new for clothing retailers to set up a factory outlet store to get rid of old or end-of-line inventories, while Gap Inc. said they are going to carry styles designed and produced exclusively for the outlets, in order to attract consumers who like their style yet are more focused on value. In spite of the economic downturn, Gap Inc. opened two stores in Edmonton in March 2009- Banana Republic factory store and Gap factory store.

It first seems rational in the short run to offer more values to depressed consumers, so that they could keeping buying from their preferred brands while paying less, however it creates more confusion for consumers in the long run than it already has. As the RVP distinction between Banana Republic and Gap is not quite clear, consumers generally see the only difference in price, with their outlet stores coming into existence with an exclusive designs at a low price range, consumers would be further confused about what they are getting. Is it a cheaper version of Banana Republic? Is it of worse quality? Is the design less trendy? If it is as good and cheaper, why should they buy from a regular retail store?

For typical factory outlet shoppers who look for value, they could be exciting to see a factory outlet store like this, as they come to the store expecting to find something last season and cheap, instead they find the clothes new and cheap, instantly they would feel that it’s a good deal and have more incentive to buy. While this experience could set a reference price for consumers, especially those who shop at both outlet stores and regular stores. These people later on visit a regular gap store and find clothes more expensive than they expect, when the price level remains the same as before! As a result, these people probably find the deals unfair and switch to outlet stores permenently. By doing this, Gap Inc. risks a lot converting part of their regular shoppers to outlet shoppers, and damaging the brand image for their shoppers overall. What's Banana republic, a trendy retail brand? A trendy Outlet brand? Who knows?


Tuesday, March 17, 2009

Investment in customer experience key to survival

(Using the downturn as an opportunity)

I chose this article because it gives an interesting perspective of how to deal with the downturn in economy. Like many other businesses in recent months also Home Depot is facing the negative effects of a recessionary economy . But rather than being cautious and only focusing on day to day cost cuttings as many others chose to do , Home Depot also sees a certain opportunity.
While its customers are spending less, Home Depot has been spending more on serving them.
It is currently investing in new training programmes for store staff and hired more than 3000 licensed plumbers and electricians to provide not only employees but mainly customers with greater expert advice. It also channelled $250m into funding more staff working hours at its 1,950-plus US stores. Furthermore the spending on store maintenance and staff incentive programs can also be seen as having a positive effect on better customer experience.
So the point is that although there are some major reductions going on as underperforming stores and business divisions are getting closed(for example 48 stores focusing on high end home improvement were closed) and jobs are getting cut( 2000 jobs but not in customer facing positions), all this isn’t directly based at the expense of the customer . Whereas a lot of other business raise their prices, shorten its assortments or are simply anxious to offer greater privileges in service, HP has ventured a different approach.
(Overall the cuts resulted in about $153 m but were welcome by analysts.)
I think its efforts to use the downturn to focus their attention and resources on things that really matter , namely the customer, will probably not only enhance its financial figures in the short term but also strengthen HD’s position on the market in general.
As the article says HD has been losing ground to Lowe’s as regards customer satisfaction but is already starting to gain market share again.
Of course it was dangerous to restructure their RVP given the circumstances but at the same time they are heading for something which is more and more important in general and not only in the home improvement industry. It’s the customer experience which I guess is becoming very important these days as so many competitors are sparing no effort to adapt prices or products.
Why did IKEA became so successful? Of course not only because of cheaper furniture but for a whole new experience for the customer. Eating lunch in a hall selling furniture wouldn’t be the nicest thing to do one would initially suggest but still it worked out perfectly.
Of course you can’t compare both companies as they pursue a different notion of experience but what I simply want to say is that it seems HD is on the right track as future is concerned as it can easier diversify through something essential these days.


Article about Neiman Marcus and merchandise selection

I thought I would post this article since I know many people in this class are interested in fashion retail (especially high end). It's an interesting read, and maybe someone can even use it as their blog post. Anyways, here it is! Enjoy!

Not to be graded


Neiman Marcus trying to 'rebalance' merchandise lines

12:00 AM CDT on Thursday, March 12, 2009
By MARIA HALKIAS / The Dallas Morning News

Neiman Marcus Inc. CEO Burt Tansky insists that he's not ditching luxury or full-price selling but is trying to "rebalance" store mix to include more moderate prices.

JAKE STEVENS/DMNAs Ray Vlk, 80, waited for a bus under the covereiman Marcus awning to stay dry in downtown Dallas on Wednesday, the luxury retailer was experiencing a rainy day of its own in reporting its earnings results." width="175" height="113">
As Ray Vlk, 80, waited for a bus under the cover of the Neiman Marcus awning to stay dry in downtown Dallas on Wednesday, the luxury retailer was experiencing a rainy day of its own in reporting its earnings results.

The best and most expensive brands demanded by wealthy customers will remain, he said Wednesday. But aspirational shoppers will find more in their price range.

Based on modern-day accounting records for the almost 102-year-old company, Neiman Marcus posted its first holiday-season loss. Tansky called the economic conditions "unique and unprecedented."

Neiman Marcus is asking some of its best vendors and designers to come up with goods that are below luxury and above bridge lines, but he declined to name any. Many small vendors will be cut from the mix.

Some of the new merchandise may be in stores by fall, but mostly in November and December and spring 2010, Tansky said during a conference call to report fiscal second-quarter earnings.

Stores will also keep basic inventory for more than one season in categories that don't have a strong fashion focus, from men's black socks to basic navy suits, said chief financial officer Jim Skinner.

Some merchandise in beauty and jewelry will also be carried forward, reducing future purchases, he said. The company is still trying to get inventories in line with demand and is canceling orders, returning merchandise and splitting the cost of markdowns with vendors.

Spring merchandise in stores now was purchased eight months ago, Tansky said. "The economy was shaky then, but expectations weren't anything like what it became."

Asked if he thought the customer was holding back until merchandise is discounted, he said, "I don't know if she's waiting or not." Sales trends remain weak, but the company has no plans to accelerate its "First Call and Last Call" sales this spring, he said.

In January and February, Neiman Marcus cut 825 jobs, a 15 percent reduction from a year ago. Some cuts are from consolidating jobs in multiple-store markets. Instead of a visual display manager at each store, now there's one per market.

The Dallas-based company reported its first loss in a holiday quarter, reflecting deep discounts offered during the Christmas season as customers drastically cut spending.

It reported a net loss of $509.3 million in the quarter ended Jan. 31, compared with net income of $44.3 million a year ago. Excluding noncash impairment charges of $560.1 million, the adjusted operating loss was $32.6 million.

The reduction in asset values reflects projections for reduced cash flow, revenue and profitability.

Total revenue fell 21 percent to $1.08 billion from $1.37 billion a year ago. Same-store sales fell 22.8 percent in the quarter.

Higher consumer delinquencies from credit card customers required Neiman Marcus to pay HSBC maximum contractual obligations. (Neiman Marcus sold its credit card business to HSBC in 2005.) The retailer paid HSBC $3.1 million during the just-completed quarter and $5.3 million so far in fiscal 2009.

Source: http://www.dallasnews.com/sharedcontent/dws/bus/industries/retail/stories/DN-neimanmarcus_12bus.ART0.State.Edition1.4a948c1.html

Monday, March 16, 2009

Are the UK’s largest retailers entering an “eco-war”?

Retailers in the UK are adopting more sustainable practices. In October 2008 Asda (the UK subsidiary Walmart) opened the UK’s first “eco superstore” in Bootle, Liverpool. The store is 50% more energy efficient than typical Asda stores.[1] Tesco, the UK’s largest retailer, responded earlier this year by opening its first “eco store” in Cheetham Hill, Manchester and has committed to halving CO2 emissions from stores by 2020, relative to 2006, by converting 2,115 of its stores into “eco-stores”[2].

Tesco’s eco store Cheetham Hill, Manchester

From October to the end of 2008, Asda’s eco superstore provided it with a competitive advantage, however Tesco closed this gap when opened its first eco store to protect its position as the biggest UK retailer. By not only matching, but improving on Asda’s efforts, Tesco may be provoking an eco-war. If both retailers constantly adopt progressively, more ecological policies, neither retailer will gain an advantage.

But what, if anything, do Tesco and Asda stand to gain from this? Their customers’ experience may slightly improve, stores lit naturally, rather than with fluorescent lights may be more pleasant and some individuals may feel good about supporting a more environmentally friendly store. Overall the retailers’ NVPs will change, if at all, insignificantly. The new eco-stores are not an additional retail format but an adaptation of current formats; therefore it seems the new stores will not attract a new segment of customers.

Energy efficient stores should have lower running costs, however as ecologically friendly materials are not yet widely used in UK construction, the stores had high initial outlay costs, Asda’s Bootle store cost £27million.[3]

The extent of these retailers’ environmentally friendliness must not be overstated. Although it is truly commendable that these stores have used sustainable energy and construction resources, it would be expected that the transportation and distribution of the goods sold would have a higher energy consumption (and therefore more detrimental effects on the environment) than the stores themselves. Barring this in mind, perhaps the retailers should consider “greening” their distribution systems and stocking more local produce before they go as far as to label these outlets “eco-stores”.

The Co-Operative Group, another major player in the UK retail industry has sourced 99% of all its energy from renewable sources since 2007, farms 70,000 acres of English farmland and has twice been recognised as the most ethical and the greenest brand in the UK. [4] This makes Tesco’s and Asda’s efforts seem comparatively poor and merely PR stunts.

If an eco-war breaks out, it will be interesting to see if the UK’s other large supermarket chains commence join and if such a battle to result in the retailers matching the standards of Co-Operative Group. My guess is that it will be dependent on their degree of commitment to the environment, Tesco and Asda certainly have the bargaining power relative to manufacturers in the UK, will they leverage this to make the entire distribution chain adopt more ecologically friendly practises? Also if predicted cost savings are not realised will this retailers to retreat?


Sunday, March 15, 2009

Economic Downturn? Fashion Designers Don’t Think So.

Utter extravagance is the best two words to describe Milan Fashion Week. This weeklong event is the forum where fashion houses display their collections for the upcoming season. It attracts the highest-end designers, A-List celebrities and only the top supermodels grace the runways. The global economic crisis did not appear apparent although some fashion houses did scale back the size of their shows, and some after-party and celebrity swag treatments appeared less excessive.

Many fashion styles mimicked those popular during the recession of the early 1980’s. Coincidence or not, it appears as if tough economic conditions cause both genders to dress in a certain style, like the sharp-shouldered blazers reminiscent of the 1980’s by the trailblazer Versace. Designers expressed interest in cutting retail prices to maintain their consumer base, although how they actually carry this out is yet to be seen. It is clear from the spectator’s reactions that the luxury good market is far from over. Designers are adapting their styles, creating more subdued structures and adopting a “Civilization to Comfort,” look to adhere to requests to be low-key. Italian leader Prada produced her line based on “how creativity may be influenced by the recession.”

Giorgio Armani opened his new flagship store in New York City on February 17th, 2009 amidst the economic crisis. The 43,000 square-foot store designed by the famous architect Fuksas, to be “a huge, fluid space- all shiny black floors, matte black ceilings, and crisp white walls and display cases.” When asked why Armani debuted his costly and stunning store during this economic downturn he replied “I believe in New York, and I think this is just a phase,” although he wisely chose to forgo the lavish fashion show and dinner party originally planned. “I still don’t have an idea of how much the store did cost because my main goal was to create a beautiful store.” This shows that either Armani’s attitude has not been affected by the recession, or he has deep pockets, and willing to take a market risk, even if his clothing sales are down.

The RVP of the high-end fashion industry is selection and experience. High prices are charged based on the selection of designer’s exclusive styles, fabrics and detailing. As profiled in the Armani store, the shopping experience is integral to the shopper; therefore design concept, brand and inclusively sleek venues are crafted to create a unique and exciting atmosphere.

I believe that even though many designers have been adjusting plans for a more scaled-down fashion week to showcase their scaled-downed designs, frugality is the new catchphrase. More cost cuts and less “show” must be done to adapt to this recession. The global financial meltdown originating on Wall Street has caused a rapid decline from state to state, and now country to country. The time is now to trim the costs.