fair and square pricing

Move Along; Nothing to See Here

It might have been on your mind recently as you’ve gone about your retail store visits. After all, for all of the talk of retail transformation (guilty as charged), most retailers’ store environments pretty much look the same way they did months ago. So far, the only physical evidence of J.C. Penney’s promised metamorphosis under Ron Johnson’s leadership, for example, is a new logo, subtle changes to pricing signage (“best” means “don’t think it will get any cheaper than this”) and some colored squares hanging near the entrance to evoke Penney’s new “fair and square” pricing scheme. For Target, the Shops at Target concept included the addition of new brands, but anyone expecting environment-altering shop-in-shops will be disappointed.

Mass, home improvement, drug, dollar…pick a tier, any tier, and the changes you’ll see are likely to be incremental rather than monumental. Is retail really moving at a dizzying pace or are we watching grass grow? While many of the biggest innovations occurring in retail could be missed if you blinked, and some are entirely beyond observable, this doesn’t make them any less transformational.

Walmart has just launched its second character-based augmented reality app, this time to promote the Sony Pictures release of The Amazing Spider-Man, which hits theaters on July 3rd. The Spider-Man app already one-ups the Avengers version launched just last month, by incorporating sound effects and moving characters who engage in combat. The special effects are triggered by displays and products located throughout Walmart stores, and include a bundled comic book and “sneak peak” combo pack that features film and video game snippets and cross-promotions for Spider-Man-themed products. Recently, the price transparency-enabling combination of mobile apps and retail has brought on fear and trembling for retailers and brands, but sunnier possibilities for driving in-store brand engagement are emerging, without the disruption of shoppers’ surroundings.

Retailers are executing a new wave of back-office efficiency initiatives that promise to make suppliers’ businesses more profitable in the process. Macy’s is the latest retailer to get serious about tying its stores more closely to its e-commerce operations. By the end of this year, 300 Macy’s stores are slated to have in-store e-commerce fulfillment capabilities, and its “search and send” service will enable store associates to look for out-of-stock items throughout the Macy’s system and have them shipped to a customer’s home. The movement toward pooled inventory promises to remove the “channel” barriers that had retailers and suppliers taking a margin hit on perfectly good merchandise that was simply in the wrong place at the wrong time.

After years of taking a bare-bones approach to in-store training and brand support, retailers such as Macy’s, Family Dollar and others have been investing in corporate sales associate training once again, and opening their doors to brand-initiated solutions as well. In my interview with Sony President and COO Phil Molyneux last week, he shared how Sony has deployed its new shop-front retail training and engagement push both in its corporate stores and in wholesale accounts. According to Molyneux, the program was developed through deep collaboration with Sony’s retail partners over a couple of years, and its retail customers have been quite receptive throughout the process.

What you see isn’t always what you get in retail these days – and that can be great news.

This article originally ran on the International Licensing Industry Merchandiser's Association (LIMA) website.

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.