WORDS OF WISDOM AND CAUTION

by Karen Alberg Grossman Dec 14, 2015

Last week I had the pleasure of attending a Retail Marketing Society luncheon on “The Rise and Fall of Retailing” featuring Walter Loeb, one of our industry’s foremost analysts with management experience at Macy’s, May and Allied stores. At age 90, Loeb is a lot sharper than most so-called experts I know and I gained many invaluable insights from his presentation. Here are a few:

Early and constant retail promotions have reduced the urgency to shop events. Black Friday and Cyber Monday were disappointing, especially since consumers are shopping 24/7 on their smartphones (now accounting for 38 percent of purchases). In-store sales are down 15 percent; cold weather items are being given away! Friends & Family events are meaningless when everyone is friend or family.

Customers who were frugal this fall are nonetheless sentimental about Christmas so the season could still turn out okay (Loeb’s prediction: sales up three percent). Millennials, however, are far less interested in material things than previous generations.

Competitor of the future: Primark, a European operation with 298 stores and only two in the States. But watch out: they’re opening seven more in 2016 and are now looking at 34th Street. Their claim to fame: assortments that are likely to cause “reverse sticker shock…”

A retailer that does it right: France’s Galleries Lafayette, a store that is in itself a lifestyle mall with numerous designer concessions. These designer brands generate traffic via aggressive advertising and increased turn (i.e. fresh merchandise on a regular basis). In Europe, concessions generate 60-75 percent of department store sales, whereas in the U.S. it’s more like 8-10 percent. This business model will surely grow.

A major problem with today’s retail situation is that management is weak and getting weaker. There are no training programs anymore and top execs are more worried about shareholder reaction than merchandising. Characteristics of a great merchant include feeling for product, the ability to encourage creativity, the ability to connect with vendors, an understanding of the consumer and administrative skills to lead. Unless a company is led by a merchant, it’s not likely to be successful in the future. Great real estate ability is meaningless without strong merchandising leadership.

Future growth at retail will come from overseas expansion (e.g. TJX bought 35 stores in Australia), opening smaller units in the States, and strengthening the online component.

None of the growing off-price divisions of department and luxury stores can hold a candle to TJX.

Department stores are wisely shuttering underproductive doors (e.g. Macy’s is closing 35-40). But they’re not closing enough of them fast enough: they should be closing 10 times as many as they are.

Department stores should be developing more exclusive brands with inherent quality, style, value , and margin potential. These should be marketed aggressively to achieve an emotional connection with the target customer.

Department stores should be adding more innovative ideas to the selling floor. The free charging station on the fifth floor of Bergdorf Goodman is a wonderful concept. JCPenney should be offering coffee bars. Nordstrom’s “design your own shoes” is an interesting idea, as is Best Buy featuring Apple and Microsoft boutiques. Customers want innovation and convenience!