terry lundgren

Retailers Future-Proof Their Fleets

“The Internet changes everything, but it doesn’t replace everything.”

Jerry Storch, Toys “R” Us chief executive

Toys “R” Us chief executive, Jerry Storch took pains to defend the relevance of brick-and-mortar retail at a media presentation last week; however, the recent refurbishments, ground-breakings, and expansion plans hitting physical retail have made the ongoing relevance of brick-and-mortar clear. As retailers put away their patch-up kits and take a stand on the future of their land-based fleets, brand marketers will gain a glimpse into the future of physical retail.

Leading with Luxe

August’s U.S. retail sales rise of .9% represents the best numbers in six months, but the modest increase would not seem to justify major vaults into high-end goods. However, making an ambitious impression early on can have its advantages since shoppers tend to get in a spending mood when the aspiration is dialed up. Just as an über-expensive bottle of wine on the bar menu drives patrons to mid-priced options rather than all the way to the bottom, retail pricing contrasts also provide context.

Macy’s massive makeover of its Herald Square flagship store in New York will feature a 19,000 square foot, multi-level “luxury hall” that will house branded shops from the likes of Louis Vuitton, Gucci, Burberry, and Longchamp. In stark contrast to its formerly safe ground-floor assortments, Macy’s can’t-be-missed luxury statement will greet customers at every major entrance. Shoppers’ unavoidable journeys through Macy’s luxury hall will make the rest of the store seem like a value.

According to Holt Renfrew’s president, Mark Derbyshire, the 175-year-old Canadian luxury retailer’s customers are currently spending 26 percent more than they did in 2010. Derbyshire obviously isn’t resting on his laurels. While high-end retailers such as Neiman Marcus are experimenting with introducing lower-cost items in order to broaden their appeal, Renfrew’s recently-announced refresh will see it almost literally doubling down on opulence. The retailer’s $300 million expansion plan centers on growing its footprint by 40% in its existing stores, and making its already-successful designer spaces even more impressive. Given Canada’s relatively small and dispersed population, Renfrew’s focus on increasing the size and productivity of existing stores makes sense. If you’ve already grabbed the big spenders, why not just sell more of the best to them?

Programmed for Prosperity

What’s old is new again. Retail-tainment is coming back on the scene, only with a major digital twist. Burberry has once again ratcheted up the wow factor in its just-opened Regent Street store which, in addition to the now-expected iPad-toting sales associates, will incorporate a number of digital entertainment elements. Burberry has even declared the store “future-proof.” Sporadic weather “moments” of digital rain showers, accompanied by the sounds of a thunderstorm, have been programmed into the environment. The store features a huge screen on which it plans to live-stream Burberry fashion shows, as well as a permanent stage that will feature one-off gigs from Burberry’s pick of the best music talent. Many retailers have started to talk about bringing online excitement to the in-store experience. Burberry is delivering and influencing others to do the same. Holt Renfrew has also mentioned incorporating “digital moments” into its Yorkdale remodel.

Site Synergy

Although Macy’s will no doubt learn a lot from the drastic departures in store design and brand choice that characterize its Herald Square makeover, the changes are primarily intended to capitalize on the luxury gap in the neighborhood and what CEO Terry Lundgren refers to as the “tourist element.” Macy’s isn’t incubating ideas for other locations, but is putting a stake in the ground by hard-wiring the location for luxury. In Lundgren’s words, “we decided we were going to do this just one time.” The store’s significance goes far beyond that of a traditional brand-brag flagship for Macy’s and the brands that are participating in the shop-in-shop re-visioning. It will create a new luxury corridor for the Herald Square neighborhood and participating brands will benefit from designer adjacencies that wouldn’t exist in a standard storefront. The shop-in-shops will actually act as hyper-local mini flagships.

The shop-in-shops currently rolling out within J.C. Penney accomplish much the same thing, though on a chain-wide basis and with more middle-of-the-road brands. Given Macy’s major move, bestowing credit to CEO Ron Johnson for creating what he called the “first specialty department store of its kind” may be splitting hairs, but clearly the model is catching on.

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

Misleading Indicators

Marketing spends, store openings and headcounts were long seen as indicators of retailer and marketer health; the more they went up, the better everything was going. Now, they’ve become the next phase targets for driving less-is-more efficiency and agility, as many of the majors claim that they can cut and convert current resources without compromising their ambitious growth plans.

Revolving Doors

Retailers such as Macy’s-owned Bloomingdale’s and Abercrombie and Fitch are trading low-margin U.S. locations for better stateside digs and more lucrative overseas options, rather than layering onto their existing retail footprints. Abercrombie and Fitch shuttered 71 of its U.S. stores last year, and announced that another 180 are on the chopping block between now and 2015. As drastic as thereductions may seem, A&F’s total store count will decline less that 5%, thanks to its aggressive international expansion plans. Productivity in the remaining stores makes the picture even brighter – according to the company, the U.S. stores left standing are hitting margins that are in line with those of their international flagships.

Macy’s closure of several Macy’s and Bloomingdale’s locations in January was another shift-to-lift strategy, as new and replacement store openings were announced simultaneously with the closures. According to Macy’s CEO Terry Lundgren, the company is committed to managing a portfolio of stores that focuses on their “best and most productive locations.”

Marketing Mods

Bob McDonald, Chairman and CEO of brand marketing behemoth Proctor & Gamble, told analysts last week that the company will cut costs by $10 billion over the next five years, with $1 billion of this coming from external marketing spending. Engaging in what might seem like reckless behavior for a company steeped in brand marketing, P&G believes that it will actually enhance its one-to-one reach by shifting dollars to lower-cost digital marketing channels. Further efficiencies will be realized as it includes more of its brands in each marketing program, rather than relying on single-brand strategies. The company’s global “Thank you, Mom” 2012 Summer Olympics push, which features Pampers, Tide, Gillette, Pantene and other marquee P&G brands, is just such a program, and delivered more than 2.5 billion media impressions in the first month alone.

Ivan Wicksteed, newly-minted CMO of Cole Haan, has a vision for the 84-year-old brand that includes taking a scorched-earth approach to one of fashion’s marketing mainstays, print advertising. In Wicksteed’s words, he “pretty much killed the entire print budget” in his first week, redirecting it toward content development, social media and digital marketing. Wicksteed summed up the net result of this severe shift by saying that “It’s not a significant increase from last year; it’s just a different use.”

Walmart appears to be applying its productivity loop to more than just products. In the company’s fourth quarter earnings call on February 21st, CEO Bill Simon claimed to have reached more consumers through more channels during the holiday, while at the same time lowering the company’s overall advertising expenses for the year by 10%. Although digital wasn’t called out specifically, Walmart’s alliances with Facebook, its steady stream of tech acquisitions and the digital magic that it’s been cooking up at @walmartlabs certainly point to digital as a driver of the decrease.

Heads Will Roll

Marketing maneuvers aren’t the only element driving Proctor & Gamble’s efficiency efforts. P&G plans to reduce its staff by more than 5,700 in non-manufacturing areas, including marketing, by eliminating what it refers to as “redundant roles,” while at the same time accelerating hires in high-growth countries such as China.

J.C. Penney disclosed that it has set an $800 million capital budget to fund the first year of its radical retail reinvention under CEO Ron Johnson, but expects to buffer the outlay by realizing $900 million in annual savings by 2013. Personnel cuts and reduced store labor costs figure prominently in the plan, with $300 million coming from store labor and headquarters cuts. Mr. Johnson doesn’t seem to think that reduced head counts and great customer service are mutually exclusive, however. According to Johnson, technology such as RFID will enable store associates to spend more time with customers rather than monitoring shrinkage. Personally, I see fewer bodies being dedicated to promotional housekeeping as Penney’s greatly simplified pricing scheme takes shape.

In retail, cutbacks have traditionally signaled the beginning of austerity programs. Now, retailers and other marketers are finding a new world of ways to snip and shift without sacrificing their long-term brand vision.

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