Two Mighty Myths
Best Buy is the latest member of a growing group of retailers that have recently announced significant business overhauls. Clearly, retail is about to get a whole lot more interesting, as many of the majors, including J.C. Penney, Lowe’s, Kohl’s, and others make simultaneous big breaks from their pasts. Before the momentum builds any further, it’s time to debunk a couple of myths.
Multi, Not Just Mini
Retailers’ preference for small formats has gained traction, to the point where “small is the new big” is fast becoming a retail cliché – and one that begs for clarification. A bevy of big boxers, including Target, Tesco, Walmart, Best Buy, and J.C. Penney, are driving their store format portfolios in diminutive directions, but only one, Best Buy, is actually shrinking the size of its existing stores (by 20 percent in select locations). The majority of big box retailers’ store portfolios are still weighted toward, well, big boxes. Their small format forays have, by and large, been separate launches, like Walmart’s Express stores, J.C. Penney’s JCP Express concept in Chicago, Target’s City Target launch, or Best Buy Mobile, none of which have hit anywhere near the scale of their legacy footprints. For others, smaller versions of their original templates figure prominently in their go-forward strategy, but the revised versions are still far from tiny. Last week, for example, Kohl’s announced that its new store openings will be disproportionately tilted toward a version that weighs in at two-thirds of its original version. However, at 64,000 square feet, these new additions are far from “small” and at launch, they represent less than 1% of Kohl’s total fleet.
Takeaway: Consider small formats a trend, but, until wrecking balls begin banging away at a big box near you, multi-format remains the current retail reality.
Integrity and Clarity, Not Just EDLP
Who would have thought that a century-old, mid-range department store would create some of the biggest buzz in retail so far this year? J.C. Penney’s appointment of former Apple executive, Ron Johnson, to its top post was audacious enough – it’s his rip-off-the-Band-Aids renewal plan that has the retail peanut gallery weighing in right and left.
Penney’s pricing and promotions plan represents the most significant of its shifts in strategy, as it puts the kibosh on the shocking number of unique promotions it normally runs (almost 600 in 2011) in favor of a “Fair and Square” three-tiered pricing strategy. But don’t call it EDLP. Penney’s isn’t lunging to low prices, it’s meeting customers somewhere in the middle, between inflated markups on one end and rock-bottom clearance on the other. Ron Johnson summed up the situation by stating that "People are disgusted with the lack of integrity on pricing,” and he’s not the only one saying game over. This month, Stein Mart announced that it will reduce coupons by as much as 50 percent this year since, according to CEO Jay Stein, the company’s coupon strategy had gotten “out of hand.” In the wake of a highly-promotional fourth quarter, Kohl’s is working hard to make its pricing message“very, very obvious” to consumers as it moves forward, according to CEO Ken Mansell. Even the king of EDLP, Walmart, has made price consistency and integrity its dominant message as of late, while Lowe’s EVP of Merchandising, Robert J. Gfeller, has spoken of eliminating the “peaks and valleys” associated with promotions as part of its recent transformation.
Takeaway: “Value” and “low prices” are still very much in retailers’ vocabularies, but integrity and clarity are taking center stage.
This article originally ran on the International Licensing Industry Merchandisers' Association (LIMA) website.