Posts Tagged ‘Wal-Mart’

2013 Retail Outlook — Lessons From the Best and the Worst

Note: This is the third post in a four part series focusing on the retail outlook for the 2013-year. You can access the first post on the economy here and the second post on technology here. 

The ‘Do or Die’ list

Let’s begin with the not-so-good news. RIS News recently reported in an article that with the slow economic recovery still looming, 2013 will be tough for some retailers. Four retailers, in particular, have landed themselves on the Wall Street Journal’s ‘Do or Die’ list. This doesn’t mean they are doomed, it simply means there is work to be done.

In the article, Ann Zimmerman and Dana Mattoli wrote, “These unlikely retailers are going into the New Year with extra woes: slipping sales, questionable strategies and tight finances – which is why they are the ones to watch.” Who are these retailers? RIS News and 24/7 Wall Street highlight the difficulties each of the four retailers are facing:

JCPenney: With promises of new pricing strategies and a new direction from CEO Ron Johnson, the results have confused customers and led to steep sales declines. The retailer has nowhere to go for bottom line improvement other than deep cost cuts and store closings.

Best Buy: Particularly hard hit by showrooming, Best Buy needs to find a way to overcome or embrace the phenomenon. A Harris poll quoted in the Journal article reported 25 percent of shoppers who had showroomed did so at Best Buy. The retailer recently announced plans to enforce a price matching guarantee permanently to help combat showrooming. However, the retailer is predicted to close 200 to 250 stores in the coming years.

RadioShack: The retailer made a major decision to sell more mobile phones and tablets, which resulted in increased sales; however, it also resulted in much lower margins compared to merchandise such as cameras and computers inevitably eating into profitability. Additionally, consumers believe the products it sells can be found elsewhere, usually at a cheaper price and with better customer service.

Sears: Same-store sales have declined for six years and profits have continued to decrease as well. To maintain cash flow, the retailer has been selling off pieces of its enterprise, but this can only last for so long. The good news is, Sears is the process of launching new initiatives such as same-day pick-up service and ramping up its product assortments.

Find your competitive advantage. Learn more here >>

Lessons from the top

Retail Lessons From the TopThe Hot 100 Retailers

STORES Media ran a special report on the Hot 100 Retailers and listed three of the hottest areas in retailing right now: groceries, trendy fashion, and the intersection of e-commerce and telecommunications. And those retailers who play in these areas are exactly the ones to make the list. Sprouts Farmers Market, Lowe’s Market Place, Kroger, Whole Foods, and Trader Joe’s all topped the list as well as clothing retailers Michael Kors, lululemon athletica, Under Armor and Rue21.

Who made it onto the top 10? Sprouts Farmers Market found itself in the No. 1 spot and chances are good that Sprouts will rank among the hottest retailers again in 2013 since earlier this year it merged with Sunflower Markets to expand in the natural-and-organic supermarket niche. Like Sprouts, Lowe’s Market Place, coming in at No. 8, is a family business. With the majority of its stores in Texas, it has locations in other states under several banners including Big 8, Family Center and Fiesta Foods.

As for the clothing retailers to make the top 10, all three share many similarities: All are roughly two decades old, are publicly held and have developed customer bases that border on cult followings. That said, “Each of these retailers has a differentiated, unique offer that is not subject to price/style feature comparison among shoppers who want the look offered by the brand,” says Mary Brett Whitfield, senior vice president, Kantar Research.

lululemon manifestoHighest ranked at No. 3 is Michael Kors, a Hong-Kong based company with U.S. headquarters. The retailer’s North American comparable-store sales increase was 37.2 percent in 2012 and the company forecasts comparable-store sales increase of about 35 percent for the 2013-year.

At No. 4 is lululemon. Headquarter in Vancouver, B.C. with offices in nearby Sumner, Washington; lululemon was founded by yoga-enthusiast Dennis “Chip” Wilson whose stated mission was to “elevate the world from mediocrity to greatness”. Lululemon achieved $1 billion in worldwide sales for the first time last year. For 2013, the company anticipates same-store sales gains above 20 percent.

Next, at No. 5, is Under Armour. The retailer also produces and sells athletic apparel. Founded in 1996, the retailer didn’t open its first retail outlet until 2007.

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CEOs making big waves

Chain Store Age put out a report on retail’s big power players emphasizing retail executives that are taking their companies to great new heights. On the list was Michael Duke, CEO of Wal-Mart. Under his leadership, Wal-Mart has emerged as a frontrunner in e-commerce and digital innovations and even forged an alliance with Facebook all while investing in store expansion. The company has begun to roll out its smaller sized Wal-Mart Neighborhood Market to help it enter urban markets and compete with the dollar-store format. Duke is in his sixth year as Wal-Mart’s CEO and continues to explore new ways to grow the enormous company in today’s highly competitive, 24/7 retail marketplace.

Deemed “the tech trailblazer,” Jeff Bezos, founder and CEO of Amazon, morphed the company from an online bookseller into a $100 billion mega retailer of anything and everything, then to a tech manufacturer with Kindle. What’s so impressive is how, under Bezos’ leadership, Amazon continues to reinvent itself and entire industries. The one thing that remains the same, though: Bezos’ unwavering focus on the customer. It’s the key to the company’s success.

Next up: Howard Shultz, CEO of Starbucks. As the coffee industry faces increased competition from Dunkin Brands, McDonalds and even drug stores, Starbucks’ Schultz did what he has done throughout his career: He forged onward. Following an eight-year hiatus, Schultz returned as CEO in 2008 to successfully turnaround the faltering retailer.

Starbucks is no stranger to the front page. The company has made news lately as it pushes to expand its empire beyond coffee. In 2011, Starbucks purchased premium juice maker Evolution Fresh and in June 2012, the company acquired a small artisan bakery chain. This past November, Starbucks also purchased Teavanna Holdings. The company is expected to expand in all three formats.

Top goals for 2013

During the National Retail Federation’s BIG Show in January, retailers shared their biggest growth opportunities and business goals for 2013 with Forbes.

Whole Foods: The high-end supermarket chain’s growth reflects a nation increasingly interested in heath and wellness. Its appeal is expanding. Originally “built by boomers”, the retailer is winning over Generation X and millennials. “It’s these younger shoppers in particular that respond to the notion of “conscious capitalism,’ ” co-CEO Robb Walter said.

Goals for 2013: Incorporate the tenets of conscious capitalism – higher purpose, stakeholder orientation, conscious leadership and conscious culture – into its business practices.

Saks Fifth Avenue: As pointed out in the previous post, technology – especially omnichannel – is a major focus for many retailers in 2013. Saks Fifth Avenue is betting on the delivery of a seamless integration of bricks-and-mortar and online to bring its business to new heights this year.

Goals for 2013: The chain invested $100 million last year to “be an omnichannel retailer”. The goal is for “Saks shoppers to be able to order online and pick up merchandise at the nearest Saks store,” Steve Sadove, CEO, told Forbes.

Learn more about becoming omnichannel enabled here >>

Ethan Allen: The home goods and furniture retailer plans to capitalize on the recovering housing market this year. “People are now back to buying homes, prices are rising after the Great Recession, and we are ready,” said CEO Farooq Kathwari.

Goals for 2013: After giving its product mix a style makeover, expanding its team of interior designers and moving 60 percent of its stores to better locations, Ethan Allen will ramp up advertising to spread the message.

Another retailer banking on the housing market rebound is Home Depot. The retailer plans to hire 80,000 seasonal workers for spring, up from 70,000 last year. Analysts estimate that Home Depot will report a 10 percent rise in fiscal fourth-quarter sales, its biggest quarterly gain since 2007.

We are all in this together

When you add it all up, leadership, innovation and perseverance are the strategies that stand the test of time. Retailers should share and evolve from each other’s hits and misses in turn providing direction for the entire industry. Regardless of store count, retail vertical, etc., we can all learn from one another.

Look for the next post in this series on social media. Oh the possibilities!

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2011 Retail Analyst Predictions, Part 5: Charles Grom, JPMorgan Chase

Charles Grom, JPMorgan Chase analyst, discusses how increasing gas and commodities are affecting retail.

Increasing gas prices to cause pullback in consumer spending

Same store sales rose 4.2% in February, according to the International Council of Shopping Centers (ICSC). Consumer confidence recently hit a three-year high and the Bureau of Economic Analysis reported that spending on goods last quarter surpassed 2008 levels, stated CNN Money.

But retail analysts have begun to sound warnings about the danger that high gas prices pose for the sector. In the same report that announced the rise in February sales, the ICSC added that the rising cost of crude was “the big worry” facing consumers and the economy.

“All told, with gasoline prices expected to be up almost 6% in 2011, there is likely to be some pullback in retail sales and consumer spending as a result,” wrote J.P Morgan’s Charles Grom in a recent note.

It’s easy to see why rising gas prices have alarmed investors. When people pay more for fuel, they’re less likely to drive to stores. Once they’re there, they have less money to spend, said CNN. Every $1 increase in the price of a gallon of gas lowers consumer spending by $100 billion, stated the CNN article. If gas prices were to stay at $3.47 through the rest of 2011, resulting in a yearlong average of $3.41 — a $0.67 increase from 2010 — consumer spending would decline by $67 billion.

Meanwhile, the companies that were worst off when gas prices were high were value-oriented chains — Family Dollar, Dollar Tree, and 99 Cents Only. Because those companies’ customers tend to be less well off, they spend a larger proportion of their overall budget on gas. As a result, when gas costs go up, their purchasing power goes down.

CNN explained that however, if gas prices stay high for long enough, even if their usual customers spend less, more consumers will move to shopping at value chains for that time.

Grom thinks Wal-Mart’s U.S. same-store sales deterioration could be a lasting trend

In an interview with CNBC’s Fast Money, Grom discusses why he chose to downgrade his target on Wal-Mart from $59 to $54.

3 Reasons Wal-Mart is struggling:
1. Same store sales deterioration in the US
2. Heightened competition from the niche grocers and dollar stores
3. Lack of free cash flow due to international expansions.

How can Wal-Mart turn itself around?
If you look back over the past couple of years, Wal-Mart has gone from guardrail to guardrail trying to fix its traffic issues, stated Grom. A few years back they tried to go upscale and be like Target, last year they went aggressive on price, and over the balance of the second half of last year they tried to unwind some of those mistakes. “What we’ve been able to tell from some of the Nielsen data and store checks we’ve done is that their traffic simply remains elusive,” said Grom.

JPMorgan Chase is concerned for Wal-Mart’s U.S. performance in 2011. “We’ve become increasingly concerned that the company’s recent same-store-sales deterioration in the U.S. could be a secular problem that could last multiple years — not just a few quarters,” Grom wrote in a research note. Despite good outlook for international expansion, Wal-Mart’s U.S. base is suffering. Since nearly 80% of Wal-Mart’s business comes from the U.S., they will seriously need to focus some of their spending on traffic-driving initiatives. “We’ve been big advocates of trying to fix the mothership before trying to expand internationally,” Grom told CNBC. “They need to figure out how to compete more effectively against the dollar stores, against the niche grocers, and against some of their traditional supermarket peers like a Kroger.”

One of the ways that retailers can become more competitive is by having the right products in each location. It doesn’t make sense for you or your customers to generalize your stores. The first place to start with localizing your stores is allocation. If you always have what your customers need when they walk in the door, your customer traffic is bound to increase. Learn more by downloading our 10-Step Guide to More Profitable Allocation »

Costco Wholesale is hesitant to pass on cost increases to members

In a March 3rd earnings call with Costco, Grom noted that their fresh foods margins have been down. Richard A. Galanti, Executive Vice President and CFO, agrees with Grom’s assumption that it is because they haven’t been willing to pass on the price increases to customers. Looking ahead, if price increases continue to rise, Galanti states that they typically will wait several weeks or a few months before raising prices by $0.30 or $0.50 for example, to get back to their regular margin. “That’s not a competitive issue other than we want to protect the prices for the members who are buying these items,” stated Galanti. “We feel that overall margins have been quite good. We really don’t see any major competitive issues in our fresh foods.”

Grom also noted that Costco said gas pricing had hurt them in the second quarter. Galanti explained that gas is still a profitable business, but a very low margin business. “A business as I mentioned before requires some (stomach lining) occasionally but, nonetheless, we are getting good frequency,” stated Galanti. “But certainly when prices spike for a week or two here you see some relatively flat numbers, whether it’s plus a little bit of profit or minus a little bit of loss, it’s not a real big issue.”

For more insight on how to be innovative with your grocery business, check out our Grocery Innovation Report »

Target expects substantial growth with entrance into Canadian market

In a February 24th earnings call, Target stated that they expect to invest about $2.5 billion, plus or minus $200 million, in capital in the U.S. Retail segment in 2011, up modestly from the $2.1 billion they invested in 2010. This increase is driven in part by a larger remodel program and in part by modestly higher investment in future new stores as well. In their Credit Card segment, they expect receivables will continue to decline, although the pace of decline should begin to moderate as the year progresses.

With their movement into the Canadian market, they expect those stores to help the company exceed $100 billion in sales in the next 6 to 7 years, increasing earnings per share by 10-12% annually in the next few years, and even stronger after that.

Grom stated that in the fourth quarter, Target’s gross profit margins were down about 40 basis points, and it sounds like that’s mostly from their PFresh grocery and 5% Rewards credit card initiatives. In response to a question Grom asked about whether or not that is a good proxy for 2011 when looking at Target’s gross profit line, Douglas Scovanner, Chief Financial Officer, Chief Accounting Officer and Executive Vice President, clarified that the combination of the impact of PFresh and the 5% Rewards program adds up to more than the gross margin rate decline. So net all other factors, they are slightly positive, and therefore, as an outlook, particularly as these strategies build to more importance in 2011, the combination of the two will be larger, not smaller than 40 basis points.

When it comes to consumer outlook, Target explained that, following a pullback in the second and third quarters, consumer optimism is once again increasing and close to where it was in the first quarter of 2010. Even so, guests are telling us that they are still risk-averse. They’re concerned about losing their jobs and focused on controlling household budgets, leading to increased coupon use and a focus on promotions. For everyday purchases, guests often choose the good items rather than the better or best items within categories. In turn, they use those everyday savings as justification to occasionally splurge on the best items in categories most important to them. This has created softness on better items in some categories, making it more important than ever for us to help our guests understand features, quality, and value at every price point.

Quantum Retail’s CEO, Vicki Raport, recently spoke at the Target Analytics Forum on the future of business intelligence. Watch the video here»

Macy’s sees 2011 as another positive year

In a February 22nd earnings call, Macy’s stated that their 2010 4.6% annual comp store increase was their best performance in at least 15 years and it compared favorably to their key competitors. At this time last year, they expected comp store sales growth of 1% to 2% for 2010 and they obviously far exceeded that. “That delta is important and enabled us to produce higher-than-expected earnings and cash flow,” said Karen Hoguet, Chief Financial Officer and Executive Vice President.

Looking at 2011, Grom noted that on the gross profit margin line, it sounds like Macy’s expects their first quarter to be down. Hoguet confirmed that it could be down by more than the fourth quarter was, primarily due to non-merchandising margin issues, but she does think it will come back as they go through the year. She also expects a 3% comparable store sales increase for 2011 and does not see a huge deviation from quarter-to-quarter.

Grom stated that when they met in the past, she had spoken to year three of the My Macy’s program as an inflection year. Hoguet responded that she thinks the progress will continue. She stated that when looking at the top districts or the top regions for 2010, it’s many of the My Macy’s pilot districts and particularly the Upper Midwest, Chicago, Minneapolis and Detroit, one of their best performing regions on a comp percent versus the prior year. In fact, they had an increase over a two-year basis, which was not true for the company in total.

When it comes to commodity price increases, Hoguet said that it is a challenge Macy’s is taking very seriously. “As a better-fashion retailer, we are less reliant on opening-price-point basics and have the ability to add quality features and fashion details that command a higher price point,” she continued. “Average unit retails in these categories will increase, but into a lane in which we have successfully played prior to the recent recession.”

She asserted that a significant portion of Macy’s businesses are in categories that are not impacted by the escalation in raw material prices. Hoguet said Macy’s has established a pricing team to provide more analysis on pricing decisions. The retailer is also monitoring consumer reaction to price increases on spring merchandise. In addition, it is editing peripheral assortments to improve costs and working to maintain its value position relative to competitors when passing along price increases.

One way retailers can adapt to rising commodity costs is by editing their assortments and having the right amount of stock levels. Check out our Guide to Creating a SKU Rationalization strategy that works»

Look out for next weeks’ post with insight from Matthew Fassler, of Goldman Sachs.

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SOURCES: CNN, Business Insider, CNBC, MSN, Seeking Alpha

Download a PDF of the full series HERE»

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

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»

Grocery Innovation Series: How to target products based on consumer buying behavior


Precision assortment equals more profit

This series will be published Thursday’s and will review trends, tips and technology to optimize grocery planning. To sign up for series updates – CLICK HERE»

If you precisely target the amount of choices you offer per product, reduce overstocks and markdowns, and ensure that your assortment meets and does not exceed the needs of each of your stores, you will ultimately reduce wastage and increase sales.

“Retailers find they sell a lot more of nearly everything by reducing the number of brands on offer; but figuring out what should stay and what should go can be a tricky business.”

In an intriguing study on the impact of reducing product choices, Wal-Mart found that in many cases less is more. Marina Strauss, Retailing Reporter for The Globe and Mail tells the story of one such product Wal-Mart targeted:

Several months ago Wal-Mart Canada Corp. decided to overhaul one of the staples of its grocery business – the peanut butter aisle.

It dropped two of its five lines of peanut butter to free up scarce shelf space for cinnamon spreads. But the decision didn’t cost the retailer a single jar in sales. With fewer selections to browse, customers wound up purchasing more than before.

“Folks can get overwhelmed with too much variety,” said Duncan Mac Naughton, chief merchandising officer at Wal-Mart in Mississauga. “With too many choices, they actually don’t buy.”

Many retailers are now reducing the amount of choice on their shelves in order to simplify their offerings. The recession has changed consumer behaviors and encouraged retailers to focus on top sellers and private labels.

Strauss reports that by focusing product lines, retailers can trim costs, reduce consumer confusion, and ultimately boost sales. Reducing the number of products can help companies increase sales by as much as 40% while cutting costs by between 10 and 35%, according to a 2007 study by consultant Bain & Co.

Rationalizing an assortment is difficult. Retailers need to have a keen sense of product performance in order to pick the right products. According to this Globe and Mail report, “Evidence suggests that reducing the number of products on the shelf can improve the overall shopping experience. The average shopper takes just 2.5 seconds looking for an item and notices only half the products on a shelf,” according to research by Procter & Gamble Co., the consumer products giant.

Optimizing sizes and rationalizing products:

In order for retailers to target the right range of products on their shelf, they need an acute awareness of product behavior. There are dozens of product behaviors unique to every store. As well, product behaviors can be unique to customer segments. In order to analyze these behaviors, retailers should look at the performance of package size, brand, value, locality, and flavor as well as things like price points, life cycle, overstocks, under-stocks, amount of markdown, etc. What do these metrics tell you about your assortment of products? How do those metrics change across your stores? How do these products support your customer segmentation and brand strategies? Which stores have similar product behavior? What attributes do those products have in common? How often are you discounting those products?

One of the best ways to analyze these behaviors is to look at the profitability of each product at every location. Do not cut your assortment across your chain, but look at the unique selling patterns at each store to determine what products will sell to their unique customer base. This is a complex exercise, but one that needs to be done on a continuous basis. Your customer’s buying patterns will change – and it is necessary to acknowledge they have already drastically changed.

Consumers Adopting New Behavior to Save on Food

So what are the consumer behaviors that are affecting your sales? The Food Marketing Institute reported the following changes in grocery shopping trends:

Shoppers are economizing when it comes to food purchases. There are three stages of consumer behavior that have changed:

  1. Stage One: Shoppers save money on eating out by switching from fine dining to fast food. They also seek supermarket meal solutions and prepared foods in place of restaurant fare.
  2. Stage Two: Consumers change their saving measures in the store by buying more private brands, using coupons, buying basic ingredients, focusing on full meal deals, and shopping with a plan.
  3. Stage Three: Shoppers switch store formats and choose venues with focused or limited assortments, including superstores, warehouse clubs, and private label food services.

A majority of consumers (69%) surveyed in the study say they are eating out less. An additional 50% said they are eating out at less expensive places. All point to a significant shift in the expectations that consumers have for service and assortment from their food and grocery retailers.

The survey also showed that when deciding how to save money on their grocery bill, consumers are making plans before heading to the supermarket resulting in fewer impulse purchases. In fact, 53% say they make a shopping list, 40% search newspaper or advertising inserts, and 35% responded that they look for coupons in the mail, newspapers, and magazines.

Private Label Brands Should Become a Priority in Product Assortment Targeting Efforts

The FMI found that the effort to save money continues once shoppers are in the store. The report stated that the popularity of private brands has significantly grown, with 97% of shoppers saying they plan to purchase the same amount of private brands or more over the next year.

The following chart from the FMI report, shows consumer responses on private labels:

The shift of focus to private label brands is a logical choice for retailers. The following diagram from the FMI shows how consumers rank their product choices. Today, price is the most important factor in their buying decision followed by quality. When private labels succeed, it shows that customers are more interested in the product than the brand itself. This has caused retailers to stretch the reach of their private label brands, leveraging the appearance and placement of store-brand products.

FMI reports that some retailers are conducting in-store comparison tests to measure shoppers’ preference for store brands versus national brand alternatives. Words associated with private products in the minds of consumers include “quality,” “value,” “cheaper,” and “inexpensive.”

“Shoppers view private brands as a value-added offering in tough economic times.” – FMI

Technology to assist in product rationalization and give insight into product performance

In the complex task of SKU rationalization, planners and buyers need the assistance of smart technology that can give visibility to the performance of every product at every store. This kind of technology can quickly pay for itself as it optimizes your offering, reduces inventory, and increases sales.

What to look for in assortment planning and SKU rationalization technology:

  1. A system that continuously monitors business strategies, customer strategies, profitability, service levels, and stock levels
  2. Technology that utilizes the data it takes in to recommend the most profitable assortment for each store, across time
  3. The ability to optimize SKU rationalization by recommending like-product attributes for new products
  4. The ability to take in real-time data and automatically recommend inventory need based on local consumer behavior and store performance

When retailers optimize their product range based on local store demand, stock outs, and customer behavior, they will quickly become more profitable and able to compete in today’s retail market.

Get back in the game

Are you ready 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 customer engagement approach gives your team access to the solution from early on, so you can manage changes to your processes with ease. Quantum Retail continues to help all of its clients rapidly drive measurable and significant business value through our proven merchandising optimization solutions.

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

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

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.

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