Posts Tagged ‘Home Depot’

2011 Retail Analysts in Review – Part 6: Matthew Fassler, Goldman Sachs

by Quantum Retail • January 4th, 2012 • Write a comment »

Matthew Fassler, analyst at Goldman Sachs made predictions for what the 2011-year would hold for the specialty retail sector. Fassler focused his predictions on Best Buy, RadioShack, OfficeMax, Borders, Home Depot, Lowe’s and AutoZone.

A strategic growth plan lead by Best Buy

For Best Buy, Fassler essentially had a neutral rating. He trimmed his price target to $38 from $39 believing a more streamlined growth strategy would happen in 2011. He also believed warranties would help Best Buy’s profitability where past sales lacked stating that consumer electronics retailing has been “historically a low-margin business that is dependent on extended warranties for profitability.” As content business – music and movies – has continued to shrink over the years, extended warranties would prove to be even more valuable to Best Buy in 2011, according to Fassler.

Best Buy planned to open 6-to-8 large format stores in the U.S. and a total of 18 stores in the U.K., Mexico and Canada throughout 2011 and 2012. The retailer also announced its closing of namesake stores in China, shifting U.S. growth to smaller formats instead of its familiar big boxes–all part of their strategic growth plan. And as a result of restructuring, Best Buy said it would incur charges of $225 million to $245 million over fiscal year 2011, diluting earnings.

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Best Buy reported net earnings of $651 million for fiscal fourth quarter in 2011 down from $779 million for the prior-year period. Their pre-tax restructuring charges totaled $222 million consistent with what Fassler had discussed. In line with their growth strategy for 2011, Best Buy announced plans to re-brand China stores as well as exit the Turkey market in 2012.

In terms of profitability, the company continued to advance its strategy to sell more mobile phones, broadband and TV connections to customers through the evolution of its product offerings and selling model. This correlated to Fassler’s notion that Best Buy would find new ways to increase profitability due to content business slowing. The retailer saw a 20 percent growth in annual sales with 9 percent acquired from mobile phone revenue in the U.S. Moreover, Best Buy made no mention of how extended warranties fit into their 2011 strategies.

RadioShack puts focus on mobile

Significant market changes made it an appropriate time for RadioShack’s CEO Julian C. Day to retire. With that said, before Day left, he mentioned three areas that RadioShack might consider focusing on in 2011:

Mobility: The retailer would start to expand their presence in the mobility sector moving to 2-to-3 carriers nationally allowing consumers to have choice and product comparison.

Re-allocation of space in stores: The second major change Day determined RadioShack would encounter within the company’s business was to reallocate the space in their stores for mobility and some signature categories such as power.

Financial strength: Day sighted T-Mobile struggles as part of the gross margin issue RadioShack was experiencing and decided that it would probably persist. Day thought getting a better handle on their accessories would be their biggest growth margin rate opportunity to improve the financial strength of the company.

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2011 was a transitional year for RadioShack: they phased out T-Mobile and launched Verizon Wireless products and services in their company-owned stores, and they focused on offering a more compelling assortment of brands and products. As Day mentioned, their mobility platform was a key component of their growth strategy as it represented 50 percent of their revenue. The Shack recognized there was still future potential for expansion as they positioned themselves as a multi-carrier wireless retailer.

During second quarter 2011, RadioShack ended operations in their Chinese manufacturing plant and, as a result, incurred closure-related costs of $11.0 million for the first nine months of 2011. For third quarter, comparable store sales for company-operated stores and Target Mobile centers decreased 4.0 percent which was primarily due to the decline in T-Mobile postpaid wireless sales. Having ended their relationship with T-Mobile and beginning to pay attention to offering consumers more carrier options and accessory assortments, RadioShack began on the right path to success just as Day predicted.

OfficeMax slump could be permanent

Analysts were divided over whether or not the big three office supply chains – Staples, OfficeMax, and Office Depot – were in long-term danger. Fassler expected stocks to fall, but in a research note he indicated there was some promise in OfficeMax’s forecast. The rise in retail competition with the likes of Wal-Mart, Costco and Target as one-stop mass merchants has been a huge headwind for the office supply giants as well as the decline in paper usage. Although paper itself isn’t lucrative, Staples, OfficeMax and Office Depot derived about half of their revenues from those operations, which sell in bulk to other companies. Paper sales also provided sales of other products such as ink, staples and printers, and therefore, have the potential to pose a big threat for superstores long-term.

OfficeMax announced the closing of 20 stores in 2011 in addition to downsizing existing units and curtailing expansion costs as third quarter saw a 2.1 percent decrease in same-store sales contributing to a 1.8 percent decrease in comp-store sales overall. But OfficeMax wasn’t the only one feeling the pain in 2011. Office supplies was one of the biggest revenue losers in 2011. Staples only saw a slight gain in Q3 at 0.5 percent and Office Depot saw a 2 percent decrease appearing as if Fassler’s thoughts on long-term decreases were correct.

Barnes & Noble fares well over Borders bankruptcy

As Borders listed a debt of $1.29 billion and assets of $1.28 billion at the end of 2010, they were left to file for bankruptcy. By the time the retailer embraced new strategies and tactics such as e-commerce, the competition had already established a firm lead. Rival and leading bookseller Barnes & Noble stood to be the biggest winner in the light of the filing in 2011. Before such, Fassler upgraded Barnes & Noble to ‘neutral’ from ‘sell’ ahead of the filing.

Barnes & Noble reported record sales of $7 billion for fiscal 2011. Digital growth fueled 78 percent in fourth quarter at BN.com and increases were also driven by sales of the company’s NOOK. Strong sales for the retailer were speculated to have developed out of new business from people who used to shop at Borders.

Home Depot to improve, Lowe’s to transition

Two similar home renovation retailers have been found going in different directions. After years of evolution, Home Depot was poised for new levels of profitability while Lowe’s began to undergo a transition. Because of this, Fassler upgraded Home Depot to ‘buy’ and downgraded Lowe’s to ‘neutral’. He forecasted improvement in same-store sales over the first few quarters in 2011 in reference to a focus on home repair, remodeling and maintenance and less emphasis on appliances for Home Depot. As for Lowe’s, the company’s management has undergone substantial shuffling causing Fassler to note their biggest challenge: introducing new and innovative ideas, that there had been too much redundancy in years past.

Fassler’s prediction for Home Depot was spot on. Home Depot experienced growth in 2011 ending the third quarter of the year with net earnings of $934 million compared with net earnings of $834 million in the same period of fiscal 2010. Home Depot accredited their success to the strength in their core categories and their exceptional customer service. Like Fassler mentioned, the retailer spent prior years on transforming their merchandising efforts and introduced new initiatives to benefit the customer. 2011 was the year it all came together for Home Depot.

In regards to Lowe’s, Fassler made some very accurate projections on their current transitional stage. Lowe’s managerial moves put them in some difficult corners; however, they were necessary for the retailer in order to see new growth. Along with leadership changes, Lowe’s also experienced changes in the number of stores they operated. Store closings and discontinued projects led to reduced pre-tax earning for the third quarter, and forced Lowe’s to create strategies focused on advancement and becoming a “home improvement company” as opposed to a “home improvement retailer”. The 2011-year positioned Lowe’s with strong potential as the company continued to transform realizing that they needed to go beyond the confines of a brick and mortar store, providing customer support whenever and wherever a consumer chose.

Learn more innovative strategies for your hardlines business here»

AutoZone takes the driver’s seat

Chairman of the Board, CEO and President, William Rhodes, spoke highly of AutoZone’s success in 2010 experiencing growth in domestic and Mexico businesses as well as in both commercial and retail sectors. Servicing the customer and providing the degree of trustworthy advice continued to be a key differentiator in the marketplace, Rhodes stated. Fassler went on to say that their incentive comp would remain close to current levels in 2011.

In 2011, AutoZone, for the first time, exceeded $8 billion in sales increasing 10 percent versus 2010. The company still believed providing great service was their number one focus and the main contribution to their growth. The retailer put an emphasis on growing the commercial business, leveraging the Internet, and investing in technology in 2011 as other sources of development. Rhodes admitted that 2011’s numbers weren’t easy to reach, but hard work and dedication put them in the driver’s seat.

The specialty retail sector has had an especially difficult 2011-year. Shoppers continued to cut back on unnecessary purchases, products that were once lucrative came to a standstill, and some retailers were found caught in the midst of an identity crisis. Whether it was Lowe’s and Home Depot or AutoZone and Best Buy, specialty retailers had one thing in common: trying to keep up with consumers’ always-changing wants and needs. But that was just the beginning. Retailers then had to determine how and when shoppers were going to make purchases.

Stay ahead of the game with Quantum Retail. Check out our free white papers and reports for more insight on innovative strategies and retail trends. Read more about Q, our profit-driven merchandising platform.

Read Fassler’s full prediction here»

Please note that the information provided above is sourced from public releases and reports and does not include any undisclosed information from or about the retailers named.

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2011 Retail Analyst Predictions, Part 6: Matthew Fassler, Goldman Sachs

by Quantum Retail • March 23rd, 2011 • 1 Comment »

Matthew Fassler, Goldman Sachs analyst, discusses retail outlook in the specialty sectors.

Best Buy announces strategic growth strategy

According to a Feb. 22 Alacra Pulse article, Fassler had a neutral rating of Best Buy and trimmed his price target to $38 from $39, but said the company announced a series of changes to store opening plans, as well as other minor restructuring moves, that he believes will result in a more streamlined growth strategy and in cost saving.

Fassler also notes that warranties may be helping Best Buy’s profitability where past sales are lacking, saying that Best Buy has not disclosed how much extended warranties contribute to its profits. Consumer electronics retailing is “historically a low-margin business that is dependent on extended warranties for profitability,” he said. “Perhaps extended warranties have become even more valuable to Best Buy recently, as its content businesses — like movies and music — have shrunk.”

The company plans to open 6 to 8 large-format stores in the U.S. and a total of 18 stores in the United Kingdom, Mexico and Canada in fiscal 2012. The International market continues to bring noteworthy prospects for the company along with financial growth for the stakeholders,” said the Alacra Pulse article.

Best Buy also announced it is closing its namesake stores in China and shifting new U.S. store growth to smaller formats instead of its familiar big boxes, said the Wall Street Journal. Best Buy said it would focus on growing in China under another retail format called Five Star that has proven more successful; it disclosed plans to open 40 to 50 additional Five Star stores in 2012.

As a result of the restructuring moves, Best Buy said it would incur charges of $225 million to $245 million over its next two fiscal years, diluting earnings. But it maintained that the moves would eventually result in an annual pre-tax savings of $60 million to $70 million by 2013, according to the Journal.

In today’s cutthroat retail environment, retailers are facing tough issues, not losing sight of the domestic front while expanding globally, restructuring their initiatives to a local focus, aligning with customer needs, and more. Technology Evaluation Center’s P.J. Jakovljevic discusses what retailers can do to stay competitive with Quantum Retail’s Chief Customer Officer, Chris Allan, here »

Radio Shack to put strategic focus on mobile

On a February 22 earnings call, Julian C. Day, Chairman and CEO of Radio Shack, stated that with his plans to retire, there are also significant changes in the market that make it an appropriate time for a leadership transition.

The first area he mentions is mobility, the area of Radio Shack’s business most subject to technological and strategic change. Day stated that they have been able to expand their presence in the mobility sector, moving from two to three carriers nationally, and re-fixturing stores to allow customers to have choice and product comparison. The company’s mobile sales were up 33% in 2010 on top of 25% in 2009.

Other major developments in the mobility area, has been a partnership with Target, in which they operate the postpaid wireless business on their behalf. “We look forward to growing with Target and we believe that partnering with additional high caliber retailers to enable them to get access to the high growth mobility sector, while improving our overall channel economics, makes sound strategic sense,” said Day.

The second major change in the company’s business has been the ongoing reallocation of space in stores for mobility and some signature categories such as power. Day explains that it made sense for them to allocate resources to this category and illustrates just how important the traditional merchant art of picking the right product for the channel can be even in declining segments.

The third and last major change for Radio Shack is the financial strength of the Company. From mid-2006 through mid-2010; Radio Shack built their cash position from less than $200 million to over $900 million.

Fassler noted that it sounds like T-Mobile struggles are part of their gross margin issue, and that it will probably persist. “But putting that aside, how should we think about the gross margin trajectory here?”

“You’re absolutely right, Matt, with the T-Mobile issue, and until we work through all the details on that, it will remain a part of the issue.” Day continued. “I think, our biggest gross margin rate opportunity continues to be, as we get better at driving some of these end products in personal electronics, and in modern home. We need to do a better job on our accessories.”

For the year, Radio Shack reported that gross profit increased $48 million to $2.01 billion, a margin rate of 45%, down 90 basis points on a year-over-year basis. In the quarter, gross profit was most negatively impacted by the disappointing performance in their T-Mobile business.

Mobility is expanding immensely. Along with increasing focus on sales of mobile devices, retailers need to have a plan for mobile commerce in their own business. Check out our Guide to Creating a Plan for Mobile Commerce, E-Commerce, and Social Media »

Office Max and office supply giants could be in a permanent slump

Threats are looming over the office supply giants, leaving analysts divided over whether or not the big three chains — Staples, OfficeMax, and Office Depot, are in a short-term slump or a permanent one.
Fassler expects the stock to fall in the wake of the tough new guidance, said CNN. However, in a research note, Fassler indicates that there is some promise in OfficeMax’s forecast. “Guidance to relatively resilient profitability in the face of lower sales, despite a levered model, does still speak to the profit opportunity at [OfficeMax],” Fassler wrote. Fassler remained neutral on the stock.

In a February note titled “Signs of Paradigm Shift,” Fassler announced that he was cutting the firm’s exposure to office supply stocks due to “secular headwinds to cyclical recovery.”

One of those headwinds is the rise in retail competition — one-stop mass merchants like Wal-Mart, Costco, and Target. Amazon is also an adversary — many of the products sold in the office retailers’ brick and mortar outlets are available online, which enables customers to comparison shop.

The other secular shift isn’t competitive, but behavioral: Paper usage is in decline, said CNN. This affects the contract, or delivery side of the superstores’ business. Staples, OfficeMax, and Office Depot derive about half of their revenues from those operations, which sell in bulk to other companies.

Paper itself isn’t hugely lucrative, but it does drive sales of other products — ink, staples, printers, etc. Consequently, its shrinking usage could pose a big problem for the superstores. In a survey of office supply purchasers at large companies, Goldman Sachs found that nearly half of the respondents expected their paper consumption to drop. Reasons range from environmental concerns to double-sided printing to the advent of mobile technology.

Borders bankruptcy filing puts Barnes & Noble in a good position

As part of the Chapter 11 process, Borders  will close 30% of its 642 stores, or about 200 that it identifies as underperforming. The bookseller operated twice that many at its peak in 2003, stated Wall Street Journal’s Market Watch.

The Ann Arbor, Mich. based company listed debt of $1.29 billion and assets of $1.28 billion at the end of 2010 in its bankruptcy filing.

Borders, according to the filing, owes tens of millions of dollars to various publishers, including $41 million to Penguin Putnam, $37 million to Hachette Book Group, and $34 million to Simon & Schuster.

Market Watch noted that by the time Borders embraced e-commerce in recent years, the competition had already established a firm lead. Rival and leading bookseller Barnes & Noble Inc. stands to be a big winner in light of the filing, according to the article.

Fassler upgraded Barnes & Noble to neutral from sell ahead of the filing.

Barnes & Noble shares moved fractionally higher to finish at $18.77, but have still lost more than 11% in the past year.

Home Depot sees continued improvement as Lowe’s moves into transition state

The Home Depot Inc. and Lowe’s Companies Inc. are two similar home renovation retailers that are going in different directions, stated the National Post. While the team at Home Depot has gelled after several years of evolution and is poised for new levels of profitability, Lowe’s is undergoing a transition with many senior executives retiring in recent months.

Fassler, has upgraded Home Depot to “buy” while upping the price target to US$42 from US$37, while downgrading Lowe’s to “neutral” maintaining a US$28 price target.

For Home Depot, Fassler forecasts continued improvement in same-store sales over the next two quarters, thanks to a new focus on home repair, remodeling and maintenance categories and less emphasis on appliances, which faces tough sales comparisons over last year.

As for Lowe’s, the company’s management has undergone substantial shuffling in the past few months, stated the Post.

After Lowe’s most recent analyst meeting, Fassler noted its biggest challenge is introducing truly new and innovative ideas. “There had been too much “redundancy” in the company’s strategy over a number of years,” he said.

What are your strategic goals? Surprisingly many retailers do not have strategic goals for their products. Learn how to build yours and you will dramatically increase your profit. Check out our guide to Creating Product Strategies »

AutoZone’s customer service is their key differentiator

In a March 1 earnings call, William Rhodes, Chairman of the Board, CEO and President, stated that AutoZone is very pleased to announce another very strong quarter of performance, both financially and operationally. “Our earnings per share for the second quarter increased by 35.8%, our best performance since the fourth quarter of fiscal 2003, and our domestic same-store sales increased 7.1%,” he continued. “This marks the ninth consecutive quarter of EPS growth in excess of 20% and the 18th consecutive quarter of double-digit EPS growth.”

Regarding their second quarter results, their Total Auto Parts segment, made up of both Domestic and Mexico businesses, delivered a 10.3% sales increase. Their other businesses, including E-Commerce, were up 11.2%. “There is no question that our industry is experiencing strong growth in both Retail and Commercial sectors, and our competitors have also reported solid growth trends,” stated Rhodes. “However, based on sales data provided to us through NPD, our share of both the Retail and Commercial businesses gained share for the quarter, and according to the detail, we gained share each month of the quarter, November, December, and January.”

Servicing the customer and providing the degree of trustworthy advice continues to be a key point of differentiation in the marketplace, according to Rhodes.

In response to Fassler, William Giles, CFO, EVP of IT, Finance, and Store Development, and Treasurer, agreed that if there were a scenario where their sales growth were to be a bit slower and all the other factors went their way, the incentive comp would remain close to current levels.

How can retailers continue to service their customers better? One way is with a focus on localizing their shopping experience. Download our free guide on The Art of Localizing Inventory »

SOURCES: CNN, Wall Street Journal Market Watch, Alacra Pulse, The National Pulse, Seeking Alpha

Download a PDF of the full series HERE»

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2011 Retail Analyst Predictions, part 1: Deborah Weinswig, Citigroup

by Quantum Retail • February 15th, 2011 • 2 Comments »

One of the top retail industry analysts, Deborah Weinswig, of Citigroup, reports that retailers are back on offense with respect to retail technology. “During the recession, retailers invested in IT to protect margins and lower costs. In 2011, we expect retailers to utilize technology to drive sales (across multiple channels), improve buying and allocation decisions (incl. increased localization), enhance margins with next gen. optimization tools, and leverage stronger toplines with workforce management.”

Citigroup predicts to see CVS, Home Depot, JC Penney, and Macy’s as the retailers that are most likely to use technology as a disruptive force to drive earnings in 2011.

Weinswig identifies several key themes that Citigroup believes will shape retailers’ technology investment decisions in 2011. Two of those themes are: Optimization technologies, and multichannel fulfillment.

Optimization Technologies on Steroids

“Retailers have been investing in price, markdown, and size optimization systems since the early 2000′s and have realized significant topline and margin benefits as a result of these investments,” says Weinswig. “Retailers are now looking at the next generation of these technologies to build on their existing capabilities.”

Citigroup believes that retailers are eager to implement the next generation of optimization systems given the strong track record of optimization technology on their profit and loss.

Linda Whitaker, Chief Scientist at Quantum Retail, agrees with the importance of ridding the retail process of markdowns, but recognizes that a retailer’s markdown strategy needs to be an integral part of the entire life cycle of the product and not just a Band-Aid response. “It is no good just covering up the real problem without addressing the root causes of inefficiencies in assortment planning and inventory execution,” she states. Proactively determining the role of the product within the overall assortment and having the power to determine at an individual store level the inventory allocation process necessary to meet that role are key components to minimizing markdowns.

A new holistic approach to retailing integrates merchandising and fulfillment processes while managing and reporting on inventory from the store-level up, in real-time. It provides merchandising plans, goals and strategies that directly drive product fulfillment. This allows the fulfillment process to be driven by a bottom-up view of item behavior, fused with plans, goals and strategies. Real-time performance analysis enables a rapid response if a product or location is failing to achieve its goals or has the ability to exceed them.

This concept derives trends from relatively short and recent learning to make accurate predictions of future behavior and drive decisions that maximize inventory productivity. It is unlike traditional ’number-crunching‘ approaches that rely on interpreting trends and forecasts based on huge pools of historical data. As a result this method of analysis has the flexibility to respond in real time and at a much finer level of detail SKU/store level than would conventionally be possible.

Read more on Quantum’s approach to markdown optimization here»

Multi-Channel Fulfillment

“Retailers are investing to streamline their in-store and online merchandise assortments and inventory platforms in order to create a more seamless experience for the customer,” says Weinswig. Citigroup defines multi-channel fulfillment capabilities as the ability to fulfill online orders with inventory from the store, and meet customer demand in-store with online inventory, and they look for retailers with integrated online and store inventory platforms.

Citigroup states that multi-channel customers are very valuable to retailers as they spend 2-4 times more than customers that only shop in-store.

Some examples of stores using multi-channel fulfillment are Macy’s “Search and Send” technology, which allows associates to search the company’s online inventory for the desired product via the in-store POS system and have it shipped to the customer’s home, Walmart, with their “Pick Up Today” technology, which gives it the ability to fulfill online demand with inventory from the store, as well as their new relationship with Fedex that allows customers located in metro areas like Los Angeles, Boston, and New York to have their online orders shipped to select Fedex locations for free, and Marks & Spencer with their “collection in store” offer for online purchases.

Quantum Retail recently released Q v.10.05 to support multi-channel and multi-supply chain fulfillment.

  • Multi channel/supply chain support gives flexibility in order planning and distribution for retailers with complex supply networks and methods, such as vendor to national distribution center (DC), vendor to regional DC, national DC to regional DC, etc. to move stock as quickly and efficiently as possible, reducing the risk of missing a sale due to unplanned circumstances. Q now supports direct to store orders and allows users to view order quantities by location in order to get the right quantity to every local store as soon as it is needed.
  • eCommerce integration enables retailers to easily manage and integrate eCommerce inventory, warehouse or vendor availability and distribution alongside physical store locations. This permits retailers to maintain availability, so that high demand products do not go out of stock either in-store or online.

For more information on Q v.10.05 visit»

For more information on:
Q Allocation & Replenishment visit»
Q Assortment & Range Planning visit»

Look out for next weeks’ post with insight from Marie Driscoll, Group Head of the Consumer Discretionary Retail analysts at S&P Equity Research.

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SOURCE CITED: Citi Investment Research & Analysis

Download a PDF of the full series HERE»

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Customer Centricity: Adapting to the new consumer

by Mike Hrabe • April 6th, 2010 • Write a comment »

2010 Retail Outlook Review Series – Part 3

This series will outline retail trends, innovation and best practices for retailers in 2010. To view part 2 click here. Look for Part 4 next week. Please engage! What are your thoughts and strategies for the new retail market?

It’s a whole new ballgame for retail

“It is going to be mano a mano, not based on square footage and capital. It’s based on execution, differentiation, knowing your target customer … and fighting for every one of them.”

- Glenn Murphy, Chief Executive, Gap

The recession has brutally changed retailing. It has exposed and eliminated retailers that took consumer spend and loyalty for granted and rewarded others who have a defined strategy to maintain and grow marketshare. Retailers are competing in an era in which consumers have more information, more choices and more channels than ever before. The pace of change is increasing exponentially. Keeping up will require new and modern answers to the complex questions of our time.

What we see now are two kinds of retailers:

1. Retailers that survived the recession

2. Retailers that are thriving because of the recession

Retailers that have survived – are realizing that in order to regain lost ground, lost sales and lost customer loyalty – they need to quickly transform their processes, their strategies, their pricing and their marketing.

Retailers that are thriving – were able to cope with the changes in their customer’s shopping habits and adapt quickly. These retailers had a strategic model in place that allowed them to respond to consumer behavior – but they need to take new steps to maintain what is sure to be a short lived advantage.

Customer-centric

The customer has always been at the center of retail, but the concern for the individual customer has faded out. It’s not logical anymore as a retailer to look at what consumers were doing in the past. It’s all about now. What are your customers doing today? What are they buying? What are they not buying? How much are they buying? How often are they buying? Are they buying it at the same place? These trends have changed.

Retailers can generalize no more. Today is all about the individual. And if you don’t have what they need when they come in your store or search your website, chances are they won’t be back. And that’s not all, they want to see something new, something fresh, something green, and they want it for less and they want it now.


The market is asking new questions

Today’s new market is asking retailers some very difficult questions – questions that their existing processes and tools do not have the answer to.

  • How do you regain brand loyalty?
  • How are you doing more with less?
  • How will you protect your market share?
  • How will you align your business strategies with today’s customer?
  • How quickly can you react to the pace of change?
  • How do you plan to fulfill the local demands of your stores?
  • How do you plan to meet the needs of new channels?
  • How will you meet the challenge of internationalization?
  • How do you manage 1,000 stores like they are your only one?
  • And mostly, Where’s your sense of urgency?

Consumer mindsets have done a 180

Because the recession caused many loyal customers to seek out lower prices and better value, many brands may have lost long-time customers. Shoppers have become more intelligent about what they are buying and they are buying less of it. Frugality in a recession changes long-term habits, not just short term ones. Customers now know that they can survive off of less, they know where they can cut corners, and they have now learned exactly where to go to find the best deal.

How much has consumer behavior changed?

Retail Forward ShopperScape reports that seventy-two percent of all shoppers recently indicated that their shopping behavior has changed significantly or somewhat as a result of the economic environment, and only 7% have made no changes at all (Figure 1).

The New Consumer Behavior Paradigm: Permanent or Fleeting?

Will your shoppers return? If they have deserted you during the recession, you need to lure them back. However, you may need to change your branding to the tune of the new shopper.

The WPP Group discusses a new report that identifies a shift in shopping behavior and the need for retailers and suppliers to adapt to more conscious, practical consumerism.

New shopping behavior data and demographic trends indicate that an enduring shift has taken place as a result of the recent economic downturn. Retailers and suppliers will need to adapt to consumers’ new shopping behaviors to succeed in today’s evolved marketplace and during the post-recession recovery, according to a new report from PricewaterhouseCoopers LLP (PwC) and Retail Forward, a Kantar Retail company, entitled The New Consumer Behavior Paradigm: Permanent or Fleeting?

As outlined in the report, shoppers will be more deliberate and purposeful in their spending, as conspicuous consumption will give way to more conscious or practical consumerism. Rampant deal-seeking will be replaced by more purchase selectivity and the use of shopping techniques and tools discovered during the recession. Additionally, the affluent segment of Generation X and the young Generation Y will lead spending in the recovery.

The report states that companies need to recognize that there will not be a wholesale return to a pre-recession shopping mode and will need to adapt to changed shopping behaviors and patterns to win in today’s marketplace.

Where do we go from here?

Portrait of the New Consumer: Smart and Scared

Mike Duff, from BNET Retail reported the following from The AlixPartners Consumer Sentiment Index study, which queried about 7,700 U.S. consumers on what they buy and where they buy it. Consumers were asked about 63 factors in five major attributes – Access, Experience, Price, Product and Service – that influence their purchasing decisions at 135 retailers.

1. A new shopper emerges. Consumers have become sharper and better educated about the products they buy and where those are available. Previously, consumers ranked time as their most precious commodity, but now they are willing to drive the extra mile to get a product at a better price.

2. Shoppers search for “good enough.” Just a few years ago, shoppers wanted to purchase the best product in a category. Now they are more likely to accept good-enough products. Consumers won’t rebound quickly from trading down because many have been satisfied with their bargains.

3. Consumers continue their flight to value. In every retail sector, and at every price tier, value is far more important than brand loyalty in purchase behavior. A decade ago, service ranked before price in consumer purchasing decisions. Today, service is the least important attribute in every one of the 16 categories in the study. The danger retailers face is that, if they bungle the price/product balance, their customers may look for a better value elsewhere and never come back.

4. Winners and losers pop up in every retail category. Bargain prices aren’t a guarantee of success and a luxury orientation need not be the kiss of death. Luxury retailers can succeed but they must strike a balance by offering a unique experience – including product, atmosphere, and service – that can offset higher prices in the consumer value judgment.

5. Consumers are pickier: Just 15 of the 135 stores in the study met or exceeded customer expectations. According to AlixPartners, the shares of those 15 stores rose twice as fast as the Dow.

Read the full report HERE.

A greener shift in U.S. consumerism

Yes, a recession causes consumers to spend less and reevaluate their spending, but at the same time the recession occurred, a green revolution occurred as well. Looking at the big picture, what we’re really talking about is a giant shift in U.S. consumerism akin to a second coming of the Consumer Revolution! What has occurred over the last year and a half is recession mentality spending, coupled with an onslaught of environmental concerns. So not only are shoppers looking for a better price, they’re also looking for greener, cleaner, sustainable, ethical, efficient, lower impact products.

Greentailing is officially ‘in’

Kathy Grannis, NRF spokesperson discusses the bigger picture of what is now being dubbed “greentailing.”

Everywhere you turn there’s another sustainable project in the works or an eco-friendly fashion line being launched. Greentailing is officially “in” and we are all realizing that you can be green and more profitable at the same time.  One of our clients is reducing waste on their perishable products while making sure their customer sevice levels remain high…surely you can’t be more green and profitable than that, can you??

In addition to reducing their greenhouse gas emissions, reducing energy levels in their stores or eliminating plastic bag usage, many retailers are finding other creative, sustainable projects to undertake.

Gap has partnered with Cotton Inc. in a new, exciting campaign, “Recycle Your Blues”, which encourages shoppers to bring in their old Gap denim in exchange for 30 percent off their next denim purchase at Gap, GapKids or babyGap. The two-week program began March 5 and ended the 14th. Talk about a great reason to shop!

Fast-fashion retailer H&M recently launched its first fully-sustainable clothing line, The Garden Collection. The 80-piece collection hit stores March 25 in a special section of the store and will also include a special shopping bag with a Garden Collection logo.

Target’s new eco-friendly skincare line, One, hit stores nationwide March 1 and offers 28 different product options including lip balms, body butters, solid shampoo bars and bath fizzers. One products come in recyclable, plastic-free packaging.

A few other retailers worth mentioning who are making huge strides in energy reduction and other sustainable efforts:

Kohl’s was recently named 2010 Energy Star Partner of the Year for its commitment to energy management and reductions in greenhouse gas emissions.

With a goal of cutting energy use by 20 percent by 2015, The Home Depot is well on its way having already reduced energy levels 16 percent since 2004. The energy the company has saved so far could power 203,000 homes for one year!

Office Depot is seeking Leadership in Energy and Environmental Design for Commercial Interiors certification for all of its new locations starting in June. Office Depot anticipates 14 new stores will eventually qualify as LEED-certified by the US Green Building Council.

These forward-thinking retailers, and many others throughout the world, continue to find unique ways to do their part to save the earth for future generations of shoppers.

Read the full article HERE

Retailers need to recognize the needs of their customers and give them products that meet these new expectations – and remember, these expectations will continue to change quickly and without notice.  Those poised to recognize and react to this extreme volitility will have the advantage.

Customer-centricity + greentailing = Localization

The current state of the economy has driven the desire to understand the needs of the market at a lower level of granularity. It has caused a need to create local assortments and inventory fulfillment that reacts to local needs. Most retailers’ existing processes and systems were developed to meet the needs of the average, not the individual. In order to increase demand in today’s markets, the next step for retailers is to take on the challenge of localization.

Localization also comes from localizing distribution and utilizing vendors that produce products in a short vicinity of each store. This type of localization is most easily applied to fresh foods and markets – where customers prefer to support their local farmers and local brands.

Best practice now consists of removing the simplifications from the inventory planning process and instead focusing on real-time local demand and the individual product-location-consumer relationship. Retailers need to create an agile inventory plan that is highly reactive to local demand fluctuations, allowing the retailer to be flexible and respond to how their customers are behaving now. This allows the customer to have product availability when and where they want it.

A leveled playing field

In a Financial Times article, Glenn Murphy, chief executive of Gap, discusses the new ‘roll up your sleeves’ challenges facing retail today.

“There will be some Kohl’s [department] stores that will open, and there will be a few more Forever 21s [fashion stores] … but by our crystal ball and the work we’ve done on the next five years its pretty much a level playing field.

“It is going to be mano a mano, not based on square footage and capital. It’s based on execution, differentiation, knowing your target customer … and fighting for every one of them.”

Mr Murphy, who previously headed Shoppers Drug Mart, Canada’s biggest drugstore chain, delivered a frank assessment of the shortcomings he identified when he arrived, including an “almost criminal” weakness in ensuring return on invested capital, and lack of cost awareness.

“It had been a culture that didn’t necessarily embrace really rolling-up-of-sleeves work that needs to get done inside a really great company,” he said.

You need new answers

It takes the proper mix of science, retail intelligence and merchandising art in order to ensure that every store in a supply chain carries the right inventory, while maintaining a high service level and market share. There is a new market and and a new consumer.  If they are to continue to survive and eventually thrive retailers will need to respond to the demands of the consumer in all channels at all times and ALWAYS with the right answer.  It will be a lot of fun watching the retail market evolve over the next few years…without question this rabbit hole goes a lot deeper than we can even imagine!

Get back in the game

Are you ready this year to know exactly what your customers are asking for at every location and in every channel? Are you ready to have the ability to react the instant their wants change? If you are looking for a solution that can drive momentum for your business this year, check out the solutions offered by Quantum Retail. Our customers see valuable results in 8 to 12 weeks, and our implementation approach gives your team access to the system from the beginning, so you can manage changes to your processes, promotions, products and performance with ease. Create profitability in every tier of planning, forecasting, distribution, allocation and replenishment. Quantum Retail continues to help all of its clients drive positive business value more rapidly than anything seen in retail.

For more information on Quantum Retail solutions, visit: http://quantumretail.com/solutions

Get resources on how to adapt to the challenges of today’s retail market HERE »

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2010: Retail Innovation – Kohl’s, Nordstrom, Home Depot lead innovation

by Dave Landreth • March 9th, 2010 • Write a comment »

2010 Retail Outlook Review Series – Part 1

This series will outline retail trends, innovation and best practices for retailers in 2010. Look for Part 2 next week.

As 2010 gets underway, retailers are prepared for sales to trickle back. 2009 forced retailers to make some necessary changes. The general pattern for the year was slashing inventories, getting back to the basics and battling for the lowest prices. The following are results and projections from the National Retail Federation for 2009 and 2010.

2009 – a hard hit for retail

2009 was an extremely difficult year for retailers. Industry retail sales (excluding autos, gasoline and restaurants) declined by 3.3% in the first quarter, 3.4% in the second and 3.8% in the third quarter compared to the previous year. Fourth quarter sales rose a slight 0.3%. Despite overall sales slump, lower inventories enhanced retailers’ profit margins. The National Retail Federation forecast that holiday sales (November and December combined) would be down 1.0%, but instead, preliminary results showed a gain of 1.1%.

2010 – projected sales to increase by 2.5%

In 2010, the retail environment will remain difficult, but the improved economy and easy comparisons will result in positive sales gains. NRF forecasts that retail sales will increase by 2.5% vs. the 2.5% decline in 2009.

Interestingly, some retailers were able to thrive in 2009 and take advantage of a very difficult time in retail by having the ability to proactively understand in real time what was happening to their business. These thought leading retailers adjusted their business strategies to meet the local needs of their shoppers and better leverage their inventory investments.

This year, these same retailers have the best possible understanding of what to expect during the spring and fall shopping surges and are formulating their plans to leverage this knowledge to grow their business. It’s about bending to the customer and giving them what they want at prices they are willing to pay.

Technology helps retailers adjust to the “New Normal”

While retail has stabilized somewhat, all indications predict that customer buying habits have forever shifted. Consumers are still clipping coupons and getting into the habit of buying products, fashions, and food that has the most value and is long-lasting. With these new consumer patterns, forecasts of past shopper behavior are no longer relevant. In a recent interview with Barron’s, Deborah Weinswig, Citigroup Investment Research’s retailing analyst said “retailer’s must adjust to the New Normal, conspicuous consumption is definitely out.” Weinswig, who focuses on major retailers such as Wal-Mart Stores, Home Depot and Target, states that “technology stories are key,” when she considers investing in retailers.

“Retailers who are investing in optimizing their environment to localize their decisions about the customer are the only real winners,” states Weinswig. One of these retailers Deborah is enamored with is Kohl’s. She states that they have “completely pulled away from the pack.” She continues, “Kohl’s has done such a great job in terms of delivering value to the customer at the right price that Target has lost share to them on apparel and home goods.” Kohl’s remains progressive and has continued to grow through the recession, while most retailers saw a negative trend in their comps.

Why is technology so important?

Weinswig states, it is “because retailers have been so late to the game. That’s the underlying story at Saks. They have invested a lot in technology. So has J.C. Penney, which has spent a lot of time on cycle-time reduction. And there’s Home Depot, which is upgrading its technology. That’s the common thread in terms of the retailers we have Buys on. Consistent with this theme, Nordstrom did a major technology implementation in 2004 and now they have some of the best inventory turns in my coverage universe.”

One area where retailers have really seen results through the recession is by utilizing intelligent inventory planning and management technology that can help retailers decrease excess inventory to align demand with store need. To do that, retailers need to look for solutions that can give them real-time visibility to their chain, their product performance and customer buying habits at each store.

When they have this kind of visibility and can utilize this intelligence in their merchandise planning, forecasting, ordering, allocation and replenishment processes, they can manage each store effectively, rather than aggregating and averaging their data. When you combine automation that turns store data into profitability monitoring and strategic merchandise management, this creates instant ROI for retailers.

Get back in the game

Are you ready this year to know exactly what your customers are asking for at every location and to have the ability to react as their wants change? If you are looking for a solution that can drive momentum for your business this year, check out the solutions offered by Quantum Retail. Our customers see valuable results in 8 to 12 weeks, and our implementation approach gives your team access to the system from the beginning, so you can manage changes to your processes with ease. Quantum Retail continues to help all of its clients drive positive business value more rapidly than anything seen in retail.

For more information, visit: http://quantumretail.com/solutions

Download this blog as a PDF

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