Bryan Pearson's Blog, page 23

The Apple Of Its Aisles: How Best Buy Lured One Of The Biggest Brands

Best Buy has succeeded in being one of the few major retailers to sell new Apple products in its stores, and has also been carefully nurturing relationships with Microsoft and Samsung. These partnerships can teach retailers much about building vendor partnerships.

 

Best Buy may not be a one-vendor brand, but when it comes to identifying the best prospects to walk down its aisles, it sure knows how to woo. That Apple is among these partners shouldn’t be surprising, then – but it should be instructive.

From building stores-within-stores to personally meeting with the heads of its suppliers, Best Buy’s leadership has proven it could be a good provider for major brands. It is a strategy the electronics chain has fostered since at least 2013, when it began to carefully nurture relationships with Microsoft, Samsung and other key vendors, in part by building store-within-store concepts.

Best Buy has, for example, added Samsung Experience Shops to more than 1,400 of its stores, an effort that enables Samsung to interact directly with customers through dedicated in-store Samsung sales consultants.

But the benefits of these arrangements flow both ways. While Samsung and Apple, among others, gain more visibility, Best Buy offsets the competition presented by these same suppliers’ own retail stores, some of which are growing in number.

Fruits of Best Buy’s Labors

Enter Best Buy’s courtship of Apple, which has made Best Buy among a few major retailers to sell its Apple Watch as well as the forthcoming Apple TV. In terms of vendor competition, Apple is a major conquest.

Apple, along with Samsung, Hewlett-Packard, Sony and LG Electronics, accounted for about 47 percent of all merchandise Best Buy purchased in fiscal 2015, according to the retailer’s annual report. Its 20 largest suppliers accounted for almost three-quarters of the merchandise it purchased. These figures may be familiar to other retailers, which find more and more eggs are coming from fewer hens.

Not surprising, then, that Best Buy’s William Tell feat with Apple has investors optimistic about future product agreements, both with Apple and others. It also should have other retailers taking notice, for there is much to learn through Best Buy’s efforts to build healthier, more mutually profitable vendor partnerships.

Macy’s, for example, in the fall announced a plan to test Best Buy boutiques within 10 of its department store locations starting in November. The boutiques, to be staffed by Best Buy workers, will sell Samsung devices.

No Long-Term Contracts

For context, it helps to understand just how delicate some of these major supplier agreements are to Best Buy.

The retailer depends on these suppliers to provide compelling product assortments, merchandise allocation and to fund promotional programs, among other things. Yet while just five vendors supply almost half of its merchandise, Best Buy does not generally maintain long-term contracts with them. Further, it is aware that the same benefits its vendors carry into its aisles also can be used to compromise its performance, as noted in its annual report:

“To varying degrees, our vendors may be able to leverage their financial strength, customer popularity or alternative channels (including, in some instances, our vendors’ own retail locations or websites) to … our commercial disadvantage. Such changes could have a material adverse impact on our revenues and profitability.”

Treat Vendors Like Shoppers: Three Guidelines

All of which may be why Best Buy decided years ago to treat its vendors just as a retailer should treat its shoppers: as unique individuals with emerging needs and evolving preferences.

The test to accomplishing this business-to-business success is through implementing the same tactics a retailer would use to foster customer loyalty. Following are three guidelines:

Woo with relevance: Some suppliers, such as Apple, compete with their retail partners not only in size, but also in service. So when partnering with a vendor such as Apple, the retailer should consider ways to match that brand’s customer experience. Employee incentives are a popular and useful tool in striving toward this goal. However, it is essential to keep in mind that building the right customer experience means thinking beyond channel incentives and considering components that add sufficient value, such as product training.

Measure twice, cut once: We’re talking retail, so it is not surprising that merchants should consider a variety of sales metrics when reviewing supplier performance. However, I’d suggest going beyond pure dollars and cents and finding ways to understand how consumers adopt specific products and then gauging their satisfaction with these products. The test of success is not only how products sell, but also how they influence ancillary sales across complementary categories. If the customer has a positive reason to come back, then sales will follow.

Since implementing its store-within-a-store and other strategies in 2013, Best Buy has recorded a $2 billion increase in sales, to $40.3 billion in fiscal 2015 (ended Feb. 1) from $38.3 billion in fiscal 2013. More important, it has recorded a profit in fiscal 2015 of $1.2 billion, versus a loss of $441 million in fiscal 2013.

Despite these gains, the electronics business is susceptible to rough patches, as Best Buy experienced in the third quarter. But there is no question that building deeper relationships with key brands, even if they operate their own successful stores, will yield the kind of overtures that profitable retailers prefer, especially when they are holding an Apple.

This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here.

Walmart Inventory Cuts – 5 Ways to Make Room For The Best Shoppers

Walmart’s most recent attempt to reduce shelf stock has its vendors concerned, but the greater consideration should be applied to its shoppers. Walmart may be doing so, as it appears to be relying more heavily on greater amounts of reliable data. Here, a closer look at how data can help.

 

At Walmart, a craving for a peanut butter and jelly sandwich can transform a shopping trip into an odyssey.

The chain offers more than 500 kinds of jellies, jams and related fruit spreads. As for peanut butter, there’s chunky, creamy, natural, organic, twin packs, no-stir, reduced fat, whips, chocolate flavor (white or dark) – the list goes on.

Photo Credit: Walmart

It is well documented that choice does not make us happier but instead accomplishes the opposite, because it diminishes our sense of certainty. This applies to store shelves perhaps more regularly than anywhere. So, after previous failed attempts to do something about it, Walmart is once again taking a run at inventory rationalization, having removed about 15 percent of its store displays and about 2,500 items from the shelves in the past year.

The inventory trim is not an overt attempt at consumer happiness; rather, it has been characterized as an effort to make Walmart’s stores easier to navigate and appeal to higher-income shoppers. Put another way, Walmart is aiming to increase profits by cutting stock-keeping units (SKUs).

It’s been tried before, with less-than-moneymaking results. What would make the difference this time? First and foremost: Stop thinking like a profit-generator and start thinking like its customers. And Walmart may be doing so, as it appears to be relying more heavily on greater amounts of reliable data.

Remembering 2009

Customers, of course, are not the only parties affected by SKU rationalization. The changes also are, not surprisingly, raising concerns among vendors worried about losing sales.

Yet to me the bigger issue, for all parties, is whether Walmart is approaching this task with its best customers in mind. It made the mistake of not doing so back in 2009, when it cut 15 percent of its inventory to make its stores less crowded and easier to shop. The plan backfired and sales declined for seven consecutive quarters as shoppers took their entire shopping lists elsewhere. By April 2011, Walmart added 8,500 SKUs back to its mix, an average of 11 percent of its products. The mistake: It stopped thinking like its customers.

This time around, Walmart appears to have its shopper goggles on, widening aisles up to 10 feet (so shopping carts can pass each other) and shifting restock times so popular products are less likely to run out. It also is culling items that aren’t big sellers and adding to categories that are growing, like fresh produce.

“This time you are going to see a lot more nuance on these decisions,” Robin Sherk, a retail analyst at research firm Kantar Retail, told the Wall Street Journal. Walmart also is using more and better data to decide which products should stay and which should go, she said.

Calculate What Customers Love

This data could not come at a better time, for any retailer. When the supermarket shelf is so convoluted that even the peanut butter-and-jelly aisle can cause a panic attack, it is time to reconsider the shopper’s experience.

One method for optimizing the shelf selection is actually calculating the products a retailer’s regular customers love and the unique roles these products play in purchase decisions. Data derived from deep-dive customer insights can help to minimize the sales risk when delisting items, while freeing up space from underperforming items. Methods to doing this include:

The Transferability Of Demand: A retailer should ensure its customers would have viable alternatives before delisting an item. A key component of this approach is to understand how a consumer would shift her purchasing if an item were removed; in technical parlance this is called transferability of demand.

For example, our customer analytics service has found that in the bottled water category there is a high likelihood that shoppers will happily switch between the mainstream bottled water brands and a retailer’s store brand. Additionally, if the retailer removes the 24-packs of one of these bottled water brands, shoppers will switch to the 12-pack or to one of the other 24-packs, retaining the majority of the sales from the delisted item.

However, shoppers are very brand loyal to some of the added-benefit waters or the premium waters. Removing one of these from the assortment would result in most of those sales walking out the door to a competitor that carries the brand.

Loyal Customer Analyses: It is essential to understand the importance of individual items to valuable, loyal customers. Retailers will sometimes rank all items in a category by sales and then remove the items at the bottom. Yet we frequently find that some loyal customers buy items that are near the bottom of the list because they are important to them. By removing these items, retailers run the risk of sending those shoppers to competitors, which in turn could lead to the loss of the entire lifetime purchases of that customer.

What-If And Cross-Shopping Analyses: While some products have natural and obvious affinities (beer and pretzels, milk and cereal) others are less obvious but just as effective for cross-merchandising. By examining purchase baskets, retailers can gain a better sense of the items that lead to the purchases of other products, and how often each appears in the same basket.

We once found, for instance, that shoppers who buy coconuts also are more likely to buy calling cards. Upon further analysis, we learned that shoppers who tend to purchase coconuts are migrants from warm climates.

Work With Vendors: Retailers such as Walmart also would benefit from working directly with their vendors on specifying clearly the requirements for remaining on its shelves. This would better enable its suppliers to develop strategies to optimize their products before distribution.

Clorox, for example, manages its SKU proliferation by segmenting all of its products into four categories ranging from always-available “base” products to “value-add” products that might be short-term but with heavy promotional budgets. In doing so, it is basically creating four supply chains, each of which is evaluated annually so Clorox can design long-term strategies.

Smart Allocation: Once a retailer has removed low-risk items, it can determine what to do with the available shelf space. It could expand the space allocated to the remaining items in the assortment, but would have to be careful not to lower productivity (generating the same sales but across greater shelf space). It could expand the distribution of items sold only in a limited number of stores, but should ensure these items are viable beyond certain markets. Or it could introduce new products into the assortment.

With such processes in place, a retailer can monitor its remaining shelf items to see which ones consistently sell – or sell better – and reduce the risk of SKU proliferation proliferating again. Product adjacencies factor in, as does the lack of competition. Fewer varieties of peanut butter may actually result in higher overall peanut butter sales, or lead to increased sales of other adjacent products, such as Go-Gurt and cheese sticks (all of which can be found in a child’s lunch box).

Most important, the shopper’s craving for a better shopping trip would be sated.

This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here.

REI, Sales And Cold Turkey: How Some Brands Live The Mission, And Some Miss It

REI’s daring decision to close its doors on Black Friday represents the latest effort in the broadening movement of conscientious consumerism. The hitch for such organizations is balancing their desire to live a chosen mission while also making a living. How REI, Ten Thousand Villages and others do it, and why some fail.

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Perhaps it was the way the sun set behind one of Colorado’s mountain peaks, or the sounds of Lake Washington on a morning kayaking trip, but somewhere along his professional journey Jerry Stritzke apparently had a vision, and it was this: Store’s closed.

The CEO and president of REI, the outdoor supply and sporting goods retailer, decided that the customer-owned company will close all of its 143 locations, and not process any online orders, on Black Friday. Instead of promoting sales, REI is promoting outside activities and urging its 5.5 million members and customers to share what they are doing using the hashtag #OptOutside.

“As a co-op … we define success a little differently,” Stritzke told USA Today. “It’s much broader than just money. How effectively do we get people outside?” (A second outdoors-gear retailer, Outdoor Research, hurriedly copycatted REI a day later, and others may follow.)

REI’s bold choice is the latest, and perhaps the most consumption-resistant, effort in the broadening movement of conscientious consumerism, through which organizations exist for purposes higher than making a buck. Stonyfield Organic, Newman’s Own, Hampton Creek and Ten Thousand Villages are other good examples. The effort has in fact gained enough traction to support the launch of a magazine, Conscious Company (whose cover this month features Hampton Creek).

The wrinkle, of course, is these organizations have to make some money to survive, so a balance is required between living the mission and making a living. Some, such as REI, Stonyfield and others, have found ways to do it well, largely by never wavering from their mission – even if it costs them profits.

Threatening the overall movement’s success, however, are those organizations that pledge to live a mission but really just cycle through them to enhance profits – think of brands that align themselves with “awareness months” and other charitable events as a way to goose up sales.

Only 16% Believe

Consumers want to believe cause-related companies are doing good, and will pay to support them, but they are not easily convinced.

Nearly 90 percent of consumers are likely to switch brands to one associated with a cause, according to the 2013 Cone Communications Social Impact Study, which benchmarked data over 20 years. Yet only 16 percent of consumers believe companies have made a significant positive change on social or environmental issues, according to the study.

REI is putting its mission where its mouth is – not only is it closing all its stores, it is giving its 12,000 employees a paid day off (a small number will be on call). REI is aware of the financial risk of this decision. Stritzke acknowledged that Black Friday is one of REI’s 10 best shopping days of the year, which could translate to millions of dollars on Nov. 27. In 2014, nearly 87 million people shopped on Black Friday, the National Retail Federation reports.

How Some Do It – Be Honest, Don’t Cheat

Sacrificing profit for purpose is one noise-proof way of proving mission commitment. Here are how some other brands do so, and how some do not.

Hampton Creek: The maker of Just Mayo and other foods was founded in 2011 with the goal of producing healthier, more environmentally friendly foods that relied on plant proteins rather than eggs. It lives its mission by constantly asking itself one question, CEO Josh Tetrick told Conscious Company: “What would it look like if we just started over?” The company quantifies whether potential products are better for water, reducing carbon emissions and land use, as well as cholesterol, before moving forward. It also is careful to hire mission-focused employees and researches the background of potential investors for philosophical compatibility (the privately held company counts 13 billionaire investors to date).

Ten Thousand Villages: Created almost 70 years ago as an outlet through which artisans in developing nations could earn incomes, this fair-trade chain now supports disadvantaged people in 38 countries. It does this by building long-term buying relationships where skilled artisans lack opportunities and then selling their handmade products in North America. These sales help pay for food, education, health care and housing. To further support its cause, Ten Thousand Villages is a founding member of the World Fair Trade Organization.

Stonyfield Organic: This New England company, dedicated to preserving the family farm, did not intend to be a business. Rather, its co-founders started making yogurt simply as a way to support their nonprofit organic farming school. Soon the yogurt was in demand, and served to prove that a company could make delicious food without harming the environment. Thirty years later, Stonyfield has introduced the first yogurt cups made by plants, it knows the carbon footprint of all of its products as it makes them, and it still trains organic farmers as part of its original mission to preserve the family farm.

These companies succeed as mission brands because they began as a purpose that grew to nourish the business. It starts at home. Some companies, however, adopt conscientious causes that serve as marketing ploys, which people can see through. Consumers complain, for example, that more and more merchants align themselves with Breast Cancer Awareness month simply to boost their October sales.

Companies with disingenuous missions are fairly easy to spot. Their statements tend to be long and packed with buzzwords (game-changer; innovators) and they are not readily backed up with results and relevant examples, such as closing shop on Black Friday in favor of promoting fresh air.

Winning customers, regardless of the organization’s mission, requires getting people to like the brand as they would a person. Because make no mistake, people choose their friends wisely, and that applies to brands as well.

This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here.

Hair-Raising Loyalty Missteps: What Supermarkets Can Learn From Kroger, Amazon

Mismatched data, unrealistic promises and tricky rules – many retailers make these kinds of common mistakes in their loyalty program strategies. In honor of Halloween, here is a list of spooky loyalty missteps that could scare away customers any time of year.

 

Worse things can happen than getting a box of raisins on Halloween. Consider the fate of those who distribute them.

If you are a retailer, giving irrelevant or unwanted offers could be much worse than providing none at all, because those customers will be less likely to come back to your door. And unlike trick-or-treaters, customers pay for the opportunity.

Mismatched data, masked promises and labyrinth rules – many retailers make these kinds of common mistakes in their loyalty program strategies, and it could cost them not just shoppers, but families of shoppers. And that means money. A low- to moderate-spending family of four earmarks $700 to $1,000 a month on groceries, according to the USDA’s Center for Nutrition Policy and Promotion.

That’s a lot of raisins. Factor in the lifetime value of a customer, and we’re getting into some chilling numbers.

Haunting figure: 6 in 10 loyalty programs abandoned

What is especially vexing about common loyalty mistakes is they are occurring at the same time many program operators are losing the battle to retain customers. While memberships advanced by 26 percent from 2012 to 2014, to 3.3 billion, 58 percent of those programs are inactive, according to the 2015 COLLOQUY Loyalty Census. This is not a new trend; the rate of inactivity has been climbing over the years – in 2012, it was 56 percent and in 2010, 54 percent.

Why? Perhaps marketers can derive meaning from these 2015 survey results, also by COLLOQUY: The top two reasons consumers give for continuing to participate in loyalty programs are that the programs are easy to understand (81 percent) and that they offer rewards that are relevant (75 percent).

That’s a pretty straightforward message, yet many loyalty programs still offer boring rewards that are hard to earn. Why settle for raisins when the store down the street is giving away full-size candy bars in return for someone’s repeat business?

In honor of Halloween, here is a list of the spookiest loyalty program missteps that could scare away customers any time of year.

Gobblin’ the data: At the root of most loyalty disconnects is a lack of customer understanding. I’d bet the majority of supermarkets, even all retailers, offer some kind of membership incentive program, yet only a small percentage know how to use the data they collect to better interpret and benefit their customers. Those that do are the industry leaders. The Kroger Co., for example, in September promoted its chief information officer to also serve as an executive vice president to a new analytics subsidiary – a bid to better understand customer purchase data and be more competitive. Make no mistake, that data can yield information that illustrates the shopper’s values, personal preferences, life stage and even sports preferences.

Scaring up new memberships: Almost half of marketers (47 percent) invest the same in membership acquisition as member retention, according to a 2014 Econsultancy survey. Yet existing customers are 50 percent more likely to try new products, and they spend 31 percent more, than new customers, Invesp Consulting reports. A retailer should honestly assess whether it is creating meaningful relationships with the members it has before deciding to invest in acquiring more. Otherwise, it is just trading in old tricks for new. Further, long-term retention translates to reduced costs. I suggest investing 75 percent of the loyalty budget on retention.

Making zombie promises: Before embarking on a loyalty strategy, a retailer should carefully consider the implicit promises and ensure that it has the capacity and the commitment to deliver on these expectations. The British grocery chain Waitrose made headlines after promising its myWaitrose loyalty members free coffee or tea. Turns out many of the thousands (maybe millions) of members who cashed in were not buying anything, just taking up seats in its cafés. This annoyed paying customers, who complained. When Waitrose changed its policy and required members to buy something in return for a free beverage, loyalty members complained. The lesson: Customers agree to share personal information with the expectation of getting something of equal value in return – the trick is balancing how that value is delivered so that the brand recognizes better customers while also keeping new or emerging customers interested.

Bewildering rules: Small type is to a loyalty program what a spider’s web is to a dark stairwell – unwelcome and loaded with the “ick” factor. When creating its rewards initiative, a retailer should stick to one straightforward earnings structure with easy-to-understand benefits. The guidelines to earning those benefits and rewards should be easy enough for a child to understand, and they should be personalized to synch with what inspires and motivates the target customer. If the retailer can set short goals, all the better – that will help to maintain enthusiasm. Amazon Prime operates on a simple formula: The shopper pays for membership, gets free two-day shipping (including food through PrimePantry) and unlimited access to streaming video, including exclusive programming. A kid could understand that.

And even a kid could figure out that the neighbor who gives away pennies, apples and raisins on Halloween is the neighbor to skip. Even if that neighbor gives away enough to fill a shopping cart, what good is it if no one wants it?

This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here.

From Feast to Fashion: What Urban Outfitters’ Dining Foray Could Mean, in 3 Courses

Urban Outfitters is partnering with star-quality chefs to open stylish restaurants in its stores, an example of the “experience retail” trend. In reality, experience retail has existed for years. The desired experience, however, has changed, and while ushering in dining could draw new customers, it also introduces a few considerations.

 

At Urban Outfitters, the latest testing ground is the kitchen, and it could get heated.

The funky-trendy specialty chain, in one of the latest manifestations of the “experience retail” movement, is partnering with acclaimed chefs to operate chic restaurants within some of its locations. Such efforts, which combine retail with lifestyle, are designed to compete with online retailers. They also underscore retail’s need to continuously move in pace with customers and explore new concepts – even when they are not that new.

In reality, experience retail has existed since merchants began piping in music and offering fragrance samples. In the category of dining, for instance, Urban Outfitters and other specialty chains have been noodling around for a few years, taking a page from the history books of department stores. Similarly, department stores, many of which had pulled back on the idea of pairing dining rooms with designer labels, are now revisiting it: Saks Fifth Avenue recently announced a partnership with French hotelier Jean-Louis Costes, for example, and Nordstrom has consistently made dining part of its retail experience.

However, Urban Outfitters is a smaller store with a more targeted audience. In testing the kitchen, specialty retailers may feel that lunch and leggings go together like satin and suede, but adding big-name culinary to the sales floor means opening the doors to other affairs, ranging from brand positioning to product promotions.

Three courses to consider

There should be no debate that brick-and-mortar retailers need to continuously test new ways to stay fresh and relevant to shoppers.

Online retail sales, which began upsetting the traditional shopping cart in the 2000 holiday shopping season, are expected to increase this November and December by 6 percent to 8 percent, to as much as $105 billion, according to the National Retail Federation. Clearly, some of those sales will go to retailers that operate physical and digital stores, but online-only merchants ranging from Etsy to Amazon threaten to take a larger chunk.

Until a digital device can serve tapas or tacos, traditional retailers can find an edge in the kitchen – if they are prepared for the culinary outcomes. Following are three courses of action a specialty merchant may want to consider when expanding into dining.

Appeteasers: Urban Outfitters expects its restaurant partners to operate autonomously from the store – it does not involve itself with menu items and the like. The brand messages, however, could waft from the dining room to the sales floor and back. The staffs of each company should be trained to understand the brand promise and offerings of the other, because people will ask. The teams should anticipate questions about restaurant specials, store hours and store promotions. In fact, they should be prompted to tease out information on these transaction-enhancing topics and be encouraged to collaborate. Working together, they can lift revenue and boost morale.

Combo meals: If a retailer partners with a well-known chef, it is reasonable to expect the merchandising question to surface. The chef may already offer a private-label line, in which case its availability in-store should be discussed in advance. If not, the retail alignment may cause the restaurateur to consider launching products to sell at the store. All of this should be anticipated and addressed, perhaps as stages in the partnership. For example, if the retailer achieves a targeted increase in sales that can be attributed to the restaurant, the two parties can then discuss launching a line of dishware, spices or cocktail mixers exclusive to the store.

Sweet rewards: Most retailers, and increasingly more restaurants, offer loyalty programs. If both parties in a retail-restaurant partnership do so, then they should smooth out how these programs will work together. This is essential because consumers will likely expect crossover benefits and will be confused if none is offered. The program collaboration can be as straightforward as allowing customers to both earn and redeem points with either merchants, but it will take some backend data alignment. Some merchants are wary of sharing data, but my experience has been both parties benefit when they can see what their customers do outside their stores.

I’ll add one additional course of action, and that is to avoid the roast. Retailers looking to partner with celebrity chefs should keep in mind they are public figures subject to public scrutiny. If the chef suffers a public relations crisis, it will likely splash onto the sales floor. A good crisis management team will prime itself to manage such challenges.

Urban Outfitters and its parent company, URBN, plan to continue their restaurant venture. URBN in fact runs its own in-house restaurant concepts and is planning a major project outside Philadelphia that will feature two restaurants, a specialty foods market, a hotel, spa, fitness studio and a clothing store.

A culinary partnership may not be the recipe of success for all retailers, but Urban Outfitters’ efforts to advance the retail experience are necessary to stand apart.

This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here.

Seeking Youth, Macy’s Flagship Gets A $400 Million Face-Lift. But What Of Loyalty?

Youth comes but once, but if you are a retailer, it comes continuously. As Macy’s Inc. continues its three-year strategy to appeal to teen shoppers, a flagship effort presents further opportunities for its rewards initiatives. 

 

It may not be trading in its core customer for a younger model, but even Macy’s Inc. has been allowing its eye to stray toward youth – as long as the money is there.

In its latest effort to woo young shoppers, the department store chain has invested $400 million in a dedicated space at its flagship Herald Square location in New York, designed expressly to appeal to 13- to 22-year-olds. As described in Bloomberg’s Business of Fashion, the basement space – called One Below – includes everything a young consumer might want, including a blow-out bar (for the hair), 3-D printed accessories and smartphone charging stations. Even Macy’s loyalty initiatives, including its Star Rewards program and My Wallet app, are promoted there.

Photo credit: Macy’s

“It’s essentially its own 53,000-square-foot store filled with technology, apparel, accessories, cosmetics, food, and a constant electro soundtrack of house music,” the story states.

You can say One Below represents the advanced stages of Macy’s overtures toward youth. The retailer in 2012 announced a three-year plan to unroll several enhancements to its assortment and shopping experience for two consumer groups – those ages 13 to 22 and those ages 19 to 30. The shopping area for that younger group, called mystylelab, has surfaced below the surface as One Below.

And for good reason. Nearly 27 million teens live in the United States, accounting for almost $260 billion in spending, according to the Statistic Brain Research Institute. And on what do they spend? According to the Research Institute, 75 percent of teens surveyed said they’d prefer one new pair of shoes over 50 mp3 downloads; 63 percent said they’d take a new pair of jeans over concert tickets.

Indeed, more than half of teen spending is geared toward clothing, food and accessories, according to Statista. All of these items can be found at One Below.

Not your mother’s teenager

Purchasing, however, has a price. For all their spending, teens are fairly value-driven, having been schooled and shaped by the hard lessons of the Great Recession. Macy’s, which has established itself as both exclusive (through its many private labels) and affordable (through its many sales events), may find efforts such as Below One to be the trusty attractions to expose teens to these qualities.

The retailer will have to fight the tendency among teens, however, to trade in its brand promise for another, as technology has trained teens to believe that something even better is inevitable – and close. Macy’s loyalty initiatives may be just the strategy to do that.

Those younger than 18 cannot apply for a Macy’s credit card, which provides access to its Star Rewards program. However, shoppers as young as 13 can create personal profiles with Macy’s to get special offers via text or email and to use My Wallet, a mobile feature that manages offers, tracks deals and organizes wish lists.

Those who are old enough to apply for a credit card can enroll in Macy’s Star Rewards and gain access to its Star Pass direct mail promotions, special birthday offers and surprise savings at the register. Additionally, young adults can apply for the Plenti program by American Express, of which Macy’s is a participant, to earn points with one merchant and redeem them elsewhere.

The odds of Macy’s capturing this group are increasingly in its favor. Nearly two-thirds – 63% – of consumers ages 18 to 34 said they have joined a loyalty program within the past year, according to a recent survey of 2,000 loyalty-program members, conducted by COLLOQUY.

One-quarter of this age group said they joined a program because it offered access to member-only events (compared with 16 percent of total respondents). Nearly 40 percent said they joined for access to member-only sales, products and services. More than half, 56 percent, chose the word “economical” to best describe their experiences as members; 34 percent described the experience as “fun.”

The rewards of youth

If it succeeds in enrolling consumers early, either through a credit card or its My Wallet, Macy’s has one more opportunity to gain their long-term affection by appealing in ways that are important to them. The key has been in identifying the qualities that make this market segment so different from others.

For example, as part of its three-year plan to engage younger consumers, Macy’s has developed customer lifestyle profiles to help its staff better understand this diverse customer segment. It has been refining and localizing assortments – it introduced or expanded 20 brands in 2013 – and has been adding more functionality to its digital offerings. Also, Macy’s has been investing in ways to improve the in-store experience, by making products easier to find.

Macy’s decided three years ago to learn what this maturing market seeks, and these lessons are continuously being applied to new efforts, such as One Below. I expect they also are woven into Macy’s rewards initiatives, and that the retailer uses regularly updated analytics to derive personalized communications. How else would it know this group’s behaviors and preferences, whether they are for 3-D printed bracelets or house music?

Teens understand their value as consumers, and they expect that value to be recognized. The younger the target consumer, the more important it is for any organization, including Macy’s, to be direct, clear and genuine in its brand promise.

That promise applies to the shoe selection, the service and the rewards offering. Macy’s long-term approach is enabling it to grow its knowledge alongside its young market. This is necessary, because that market, like many retail innovations, can be fleeting.

This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here.

Nailing Loyalty: 62% of Retailers Boosting Loyalty Budgets, But Do They Have the Right Tools?

Almost half of U.S. retailers have identified structured loyalty programs as a priority in 2015, and 62 percent are increasing their loyalty budgets. True, loyalty is a remarkable tool for engagement, but if it is not crafted and installed with meticulous planning, it can become a money pit.

 

Retailers are investing more money in loyalty program strategies, but are they buying hammers when they need nails?

A survey of 500 U.S. retailers reveals that 46 percent identify structured loyalty programs as a priority in 2015, making it their second-highest concern after customer engagement (with 74 percent), according to a recent report by Boston Retail Partners. Not surprising, then, that 62 percent of those retailers said they are increasing their budgets to enhance loyalty initiatives in 2015.

“Loyalty programs are one of retailer’s best tools to ‘know the customer, reach the customer, and deliver this experience,’ ” the report states.

True, but in order for that tool to be operated properly, it has to be crafted and installed with meticulous planning and collaboration, company wide. A hammer may drive a nail, but retailers first need to establish they have the right nails for the job. This means at the early planning stages that everyone on the management team agrees with the blueprint, or risk getting stuck with a money pit.

We all know the practical benefits of a good foundation. When it applies to loyalty, these benefits extend from practical to profitable. Our research shows that when retailers can collect insights from their loyalty-based data to refine pricing, promotions, assortment and marketing to customer preferences, we consistently see a 1 percent to 4 percent increase in sales and a 4 percent to 7 percent increase in profits. For a $2 billion retailer, this can equate to $80 million in additional annual sales and $30 million in added profits.

Retailers are evidently recognizing this value. According to other findings in Boston Retail Partner’s benchmark survey, 100 percent of the retailers surveyed said they plan to use analytics to better understand shopping behaviors within the next two years.

Avoiding breakdowns

So how to get the right tools into the right hands? The first step is identifying the common areas where communication breakdowns among organizational managers are most likely to occur and upend a strategy. Some of these areas can be disarmingly basic, but if overlooked and not retooled, can doom a loyalty initiative before it starts. Following are some of the more common mind fields:

Squaring away the goal: Yes, the general objective of a loyalty program is to increase sales and profits through better customer understanding (analytics), but what are the benchmarks and opportunities? Do sales among a specific demographic show enough upside potential that the program should be geared to appeal more to that group, for example? Or is the program seen as a way to gain greater brand recognition?

When drawing up these goals, managers should be sensitive to the competing agendas of different organizational leaders; they may be conditioned to protect their departmental goals first.

Knowing who you’re building for: One of the great benefits of technology is it is enabling retailers to more accurately understand their customers more immediately. The online lingerie and swimwear merchant Adore Me, for example, tested its marketing images and found that when it switched to brunette models from blonde models, sales rose 340 percent, according to a story in COLLOQUY. Plus-sized models also resulted in increased website traffic. The takeaway is that we need to test, test and test our preconceptions.

If the data exists, retailers should analyze it for behavioral patterns that reveal the most promising or upwardly spending market segments, as well as the most consistent and predictable. By overlaying these sets of data, retailers may be able to detect demographic similarities from which they can extract a cleaner customer profile.

Choosing the yardstick: The loyalty program’s performance criteria should be established well in advance and it should support the program’s reason for existence. Internal testing can be useful for proving out the criteria. Before Walgreens introduced its Steps with Balance Rewards program, for example, it made the strategic choice to launch it among its employees first, to both familiarize them with the program as well as to foster support and test the outcome. The drugstore chain also established a governance structure to ensure collaboration among key stakeholders.

Photo credit: Walgreens

Among the metrics to consider: the breakage rate, the average time to the next spending activity and, among my personal favorites, the lifetime value of a customer. Simply put, that would be the expected sales generated by individual customers multiplied by the average number of years they are projected to shop with the company.

Designing a finish: Once all the critical back-end work is finalized, it is time design how it will work. This process can get hairy, since personal preferences tend to come into play. For this reason, it is good practice to have regularly updated statements or missions that make clear the company’s brand promise and best customer, and then stick to that.

When Kohl’s re-launched its Yes2You Rewards program, for example, it recognized how important value was and is to its shoppers. So the retailer kicked up the earn rate to 5 percent, higher than a lot of national credit cards at the time. It also made the program currency neutral, meaning members could pay however they want, including with cash. Kohl’s has the benefit of operating its own charge platform, so it was able to tap into a rich database of shopper behavior as it tested variations of the program. The result: It gained 10 million enrollments in the pilot phase.

Lastly, if the organizational leaders find they simply cannot follow the same guidebook to building their loyalty program, then they should bring in an outsider. An objective third party won’t be mired in the internal politics of an organization and therefore won’t be afraid to ask hard questions.

Yes, it may add to the overall loyalty investment, but there’s no point in rebuilding or expanding a program if the organization intends to cut corners.

This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here.

Gilt by Appointment: How Virtual-to-Reality Retail is Doubling Sales Through Experience

When luxury flash-sale site Gilt opened its shopping studio, Gilt by Appointment, it was essentially taking a virtual-to-reality tour to learn what inspired its members. Then the surprises came, and its members’ unexpected behaviors are now inspiring Gilt’s digital showroom. 

 

The “aha” moment arrived with an evening bag.

Many evening bags, in fact. So many that Gilt could no longer keep them in stock. The online retailer, known for parlaying the concept of flash sales into a shopping pastime, has had a few newsflashes of its own since recently opening Gilt by Appointment, an in-person shopping studio in New York that is exclusive to Gilt members.

Photo credit: Gilt Groupe

Among the key lessons: Gilt shoppers act unpredictably when in the physical studio compared with Gilt’s virtual site. Unexpected brands, styles or products – such as evening bags – can change a person’s shopping mission in a flash when these items are there to be touched.

“This is why we came up with the idea of the studio, for inspiration,” said Clay Cowan, chief marketing officer at Gilt. “That is what our core business was at launch, and we’re making sure we are focused on it now.”

Some may call it virtual-to-reality retail, or bricks and avatars – the use of physical settings to test selections and enhance how a brand interacts with customers in its original, digital environment. Like a fashionable avatar, Gilt is taking its brand concept on an exploratory tour from the virtual world to the real world, and then carrying its discoveries back to its digital home.

And they are valuable discoveries. The average order size at Gilt by Appointment is more than twice the average order size at Gilt.com, Cowan said.

From conference room to clothing boutique

Like many good ideas, Gilt by Appointment is the result of consumer research. The retailer asked members what they most wanted from it, and learned they really liked its ability to make recommendations from across the more than 6,000 brands with which it works.

“They trust us,” Cowan said. “(Saying) ‘I wish you could do my own house, or my own closet, or be with me in the room.’ We heard that over and over.”

Gilt opted to be with its members in the room. Last spring it took over a conference room, converted it into a style studio and invited members over. The pilot was engineered not only to see how members would respond to familiar brands in a physical environment, but also to learn from their reactions to brands they would not normally try.

“Everybody who came in loved it,” Cowan said. “We had people who would spend in one hour a meaningful portion of what they would spend in a year – just voting with their wallets.”

Gilt counted that vote and elected to scale the concept out. It opened a space within its offices in midtown Manhattan and invited members to book one-hour appointments. The appointments, made a week in advance, require reservation fees that vary depending on the size of the party and are deducted from any purchases. Members can come alone, with a friend or turn it into a party of up to six (flowers, champagne and candy can be arranged).

Once there, members are treated to an hour of personalized shopping assistance with items that are on the site now, had been on the site in the past or will be on the site soon. (Larger group appointments get two hours.)

Another “aha” moment

These visits, while personal, are not curated. Gilt had individualized its assortments during the spring virtual-to-reality experiment and found that people shifted focus once they got into the room. Some members would instantly veer off track at the sight of a selection of ball gowns, or they would be attracted to another member’s collection. Many purchased items that differed from what they originally sought.

Based on these reactions, Gilt opted not to curate the new studio selections by client and is instead working with its stylists and merchants to determine what would be of greatest interest. Selections may revolve around refreshing fall wardrobes, or what a member might need for a holiday party.

Since launching Gilt by Appointment, the retailer is noting several unexpected behaviors in addition to the fact that tangible products open members’ minds to new cuts, colors and brands. Perhaps the most important lesson among them: The studio sales are accretive to – not cannibalizing – the online store, Cowan said.

All of these lessons are being applied to Gilt’s online model and may lead to more loyalty-based initiatives.

“At the core we are a flash site, and we will continue to be one,” he said. “(The studio) is a way to introduce new categories, new experiences. It is a way to reward some of our best customers, to give them previews and to get us to think of loyalty mechanisms.”

For now, Gilt by Appointment is looking at how its in-store members behave over time, how the experiences influence their behaviors and how often they return to the physical and virtual locations. Gilt by Appointment is not the retailer’s only off-site venture – Gilt also hosts twice-annual warehouse sales in major cities.

Based on the studio’s early results, however, Cowan hints at a lot of potential, particularly for Gilt’s merchant partners.

“We don’t get a chance to holistically hear from the customer as much,” he said. “But imagine having the merchant in the room while they are reacting to the fall assortment. You have a chance to see who they are.”

This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here.

 

Staying Sexy Between the Holidays: How Tesco, Glade and Birchbox Lift Sales Off-Season

We may be at the cusp of a holiday onslaught, but retailers should be preparing now for what some consider one of the bleakest sales periods of the the year: January to March.

That 90-day expanse can be to retail sales what the tundra is to trees. Void of major holidays or events, too soon for spring purchases and too late for winter (full-price, anyway), these weeks lack what retailers have relied on for generations: built-in seasonality and its complement of promotions and hot products that pull shoppers into stores and malls and onto websites.

Sure, there are occasional holidays – Valentine’s Day, namely – joined by more and more non-traditional observations that pop onto the calendar to trigger store trips (Jewel Day, National Pie Day, Spouses Day). Some retailers may test these obscure holidays as promotional opportunities between major seasonal events, but when each week includes a special day, those events begin to lose their sparkle.

No, during this three-month period, encased in frost and punctuated by snowstorms, consumers need a little extra to lure them outside. Something disarmingly aspirational. But how else can retailers generate buzz? What practice is the apple pie to retail’s otherwise vanilla feel?

Following are several examples of how merchants are adding flavor, and sexiness, to retail between the seasons.

Shops on wheels: Call them rolling promos. Showrooms in trucks or trailers can enable brands to travel to cities where no physical store exists to promote themselves between holidays. This way, the brand’s website is top-of-mind during peak seasons. More convenient and less expensive than traditional stores, these rolling showrooms also can gather data insights that help a brand determine market potential much the way that catalogs do. Olive + Estelle, in Chattanooga, Tenn., is a great example of a retail showroom that can curate its exposure. It rolls into charity events and festivals and can be a fashionable feature at home parties. These kinds of unexpected appearances give a brand staying power.

Glade Pop-up Boutique in NYC

Being “pop” of mind: If shops on wheels stimulate long-term brand recollection, consider pop-up stores as another top-of-mind tool. Like shops on wheels, pop-up stores can easily enter major markets and alert shoppers to a little-known brand, or introduce them to the new look of an old brand. The Glade Boutique, which operated in New York during the 2014 holiday season, transformed a take-for-granted product into a state of five emotions, each with its own scent and mood to match. In the peony- and cherry-scented Flirty room, for instance, visitors donned designer gowns and posed in fashion shoots. Chances are these memories lifted some visitor spirits, and opened wallets, in the cold months that followed.

Virtual, physical sales converge: Even in the dead of winter, people have got to commute. And while crummy weather or early darkness may discourage consumers from hitting the store on the way home, there is nothing preventing the stores from hitting them. Superstore chain Tesco did just that with its Homeplus virtual store, which launched in South Korean subway stations a few years ago. Commuters simply browsed the virtual store in the subway, scanned the codes of products they wanted, and the products were instantly added to their virtual cart and shipped to their homes. In its first year, from November 2010 to January 2011, Tesco’s online sales rose 130 percent, while membership rose as much as 76 percent. In September, the Munich Airport began testing a similar concept, called “emmasbox,” which sells meals and ingredients near the baggage claim.

Reinvent, reinvent, reinvent: OK, while this concept may not be season-sensitive, it’s such a dead-on approach to sexy I’d be remiss to ignore it. The New York shop Story is like a brick-and-mortar Madonna, reinventing itself every six or so weeks to keep consumers guessing what it will be next. When one phase is complete, the merchant removes every bit of interior – and predictability – and revives the brand as something completely different. It has served as a physical home for e-commerce sites like Birchbox, as well as a venue for one-of-a-kind jewelry inspired by fashion icon Iris Apfel.

The beauty with Story, and several of these other examples, is they are designed to remain fresh. Each includes an element of surprise and delight, which is one of the selling points of major holidays and seasons. Instead of relying on the calendar for their seasonal events, they make their own, each unique to the brand.

This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here.

From Flash Sales to Dollar Stores: Surprising Ways the Recovering Economy Could Hurt, Change Retail

You can tell the recovering U.S. economy has far-reaching implications when it begins influencing the opening and closing hours of shops in Paris. And for some retailers, this could pose fresh challenges to their sitting business models.

Several retail concepts, and even geographically distinct merchants, are learning that the regained economy does not quite fit their frameworks. Turns out that several otherwise positive benefits of strong spending, such as smaller inventories, bigger crowds and a willingness to spend more for service, may be signaling retailers to reconsider their strategic designs and possibly their outlets.

This is not necessarily bad for consumers or the retail industry, since the survival of the fitting room also ensures higher profits and, ideally, more memorable customer experiences. However, when consumer confidence results in changes to consumer behavior, it in turn shapes retailer behavior, and so on. If recessionary shoppers expected fast checkouts, anytime accessibility and three-day shipping, just imagine what good-economy shoppers demand. Some retailers are finding out.

Following are a few examples of how the recovering economy could be affecting different retail models:

Gilt-y pleasures

Luxury flash-sale merchant Gilt on Sept. 8 opened “Gilt by Appointment,” a spot where pop-up store meets personal fashion consultant. While the effort may appear to be an extension of Gilt’s get-it-now-or-lose-it-forever model, the effort may also be in response to the recovering economy and greater consumer demand for the kinds of products it sells. With popular brand inventories picked through, it may be difficult for flash-sale merchants to locate, stock and then deliver the items their customers want and now expect to receive – in a flash. As it was put in RetailDive: “Membership at Amazon means free two-day shipping and other perks, while at most flash-sales … it basically means you can access the site, whose wares may not be available in a few hours.” I believe the point here is that when membership translates to access, then the retailer better have sufficient product available – otherwise, it risks losing the interest of the customer.

Big-box stores

Now that consumers have a little extra cash jingling around in their pockets, they are investing in better experiences, and that extends to the types of stores they shop. More consumers are opting for the diversion and uniqueness of boutiques and small businesses, according to Sarah Quinlan, senior vice president of market insights at MasterCard. In a Q&A with PYMNTS.com, she said total U.S retail sales, excluding gas, rose 5.1 percent in July compared with the same month a year ago. Sales among small businesses with $50 million or less in annual sales, however, rose 7.4 percent. A slight dig further supports this. Apparel sales rose 1.1 percent from July 2014 to July 2015, while among small businesses, sales rose more than 3 percent, she said.

The French

Beginning this month, the French government is bowing to global economic pressure and allowing some department stores and other retailers to open on Sundays and extend hours on some evenings. In the United States, we might say, “So what?” but in France some are shouting, “Mon Dieu!” Sundays have traditionally been a day to spend with family and relax, not to spend on clothes. But President François Hollande said 12 tourist zones could stay open. Parisians can thank tourists, and the stronger U.S. dollar. In 2014, foreign visitors to Paris spent $1,385 per city resident on hotels, restaurants, luxury goods and other items, according to the New York Post. “Will Paris rival New York, the city that never sleeps, with its stores open seven days and 24 hours?” the city’s tabloid, Le Parisien, asked. The answer may depend on the strength of the euro.

Dollar stores

Here is an example of one unexpected retail segment that is turning the strengthening economy to its advantage, thanks to the growth of the natural foods market. The USDA in 2013 reported that demand for organic products had rebounded quickly following the recession – up 11 percent from 2011 to 2012 (the most recent figure available). This improvement in spending apparently encouraged grocers to expand their natural selections, possibly as a way to stand apart from rivals.

This, however, has affected the suppliers of many processed foods. Now, as more grocery chains shift their focus to healthier but pricier fresh foods, the makers of processed foods are seeking new outlets, and dollar stores have caught their eyes. There is still a buying public for these “middle-of-the-store” goods, after all, and dollar stores often sell them at lower prices than do traditional grocers and mass merchants. And they get the sales. Dollar stores now represent an $80 billion business with tens of thousands of locations, according to the consulting firm Kantar Retail in a recent story on National Public Radio’s Marketplace. General Mills, a leader in processed foods including cereal, saw 8 percent growth in the dollar and drugstore channels in 2014.

Each of these examples reveals how resilient the retail industry can be when the players are willing to be versatile, responsive and a little open to risk. The retailers that succeed are those that understand their fundamental models will be subject to change as movements like economic health bring new challenges to the table. When players are willing to be flexible, while still playing to their original model, they will have a far higher likelihood of weathering the storm, even if it comes strangely as a result of economic recovery.

This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here.