News

The British Are Coming! Again.

BY Murray Forseter

It has yet to open a store in the United States. Nevertheless, Tesco’s plan for a new convenience store concept in California, Nevada and Arizona has created more interest in American retail circles than almost any other foreign-company invasion in recent memory, excitement at least on a par with the first IKEA in Plymouth Meeting, Pa., Carrefour’s adventure in Philadelphia and H&M’s debut in New York City.

IKEA took almost two decades to perfect its hold on U.S. consumers. It has no rival, not just here but worldwide. Carrefour imploded in the City of Brotherly Love, a victim of timing, labor troubles, location and format indifference. It left U.S. soil, as did Auchan, another French hypermarket operator that planted its flag in Houston and Chicago. H&M, on the other hand, has exploded, opening the way for other fast-fashion stores such as Spain’s Zara and Japan’s Uniqlo.

But it is Tesco that has generated more ink than all the others combined. Tesco, after all, is the world’s fifth-largest retailer, with operations in 13 countries. Tesco has stood tall against Wal-Mart on its home turf in the United Kingdom, so much so that Wal-Mart’s Asda division has asked the government to curb Tesco’s growth because it is so dominant. How delicious, to find the world’s largest retailer—a company harangued for allegedly stomping out large and small retailers in the United States, a company beset by opponents seeking to restrain its growth—in such a public paradoxical predicament.

There’s no certainty Tesco’s brand of convenience, to be called Fresh & Easy Neighborhood Market (another not-so-subtle swipe at Wal-Mart, which runs a none-too-robust Neighborhood Market supermarket concept), will succeed. But at the recent World Retail Congress in Barcelona, Spain, Sir Terry Leahy, Tesco’s highly regarded CEO, provided his views on key trends that will go into the concept’s planning, as well as all other Tesco ventures.

To uncomplicate their stressful lives and save themselves time, consumers want simple solutions, often work done for them, such as ready-to-serve or prepared meals, said Leahy, quipping that people today should be referred to not as “human beings” but as “human doings,” as in “do it for me.”

Leahy sees an increasing concern for health, so foods will be more organic, with less sodium, less fat. “Green” consumption is another trend, with smart retailers providing tools to allow customers to make their own contributions to saving the planet.

Globalization means more choice of resale products, as well as outsourcing from an operational perspective. Tesco outsources IT functions to India.

When he started with Tesco in 1979, the company in total had but one computer, said Leahy. Today, each store has several hundred, he noted. Companies, as well as consumers, have become information elites.

In a shrinking world with infinite, instantaneous information, customers will increasingly navigate by trust. A retailer will have to localize offerings while showcasing more global brands. Any misstep could be catastrophic. The bigger a company becomes, cautioned Leahy, the more vulnerable it is to a loss of trust because mistakes cannot be localized. They are broadcast and magnified because of the Internet and the 24/7/365 availability of information.

Challenging thoughts on the eve of another British invasion.

LABOR ISSUES

To the Editor:

I found two issues with “Why Pay More,” Richard Berman’s commentary in Chain Store Age (March 2007).

Mr. Berman asks, “Why pay more?” for employees who are functionally illiterate and cannot perform basic arithmetic.

He assumes that is who we are hiring. Are we retailers really hiring this group of employees to run our cash registers, perform inventory, etc.? An intelligent retailer knows that we seek to hire employees with adequate skills to do the job…at an adequate wage.

Mr. Berman and retailers in general offer no solutions to the problem of inadequately skilled work force.

He is basically stating we want to have our cake (lowest-cost employees) and eat it, too (offer no means for this group to learn/improve skills).

Martin Vrieze, marketing manager, Harbor Freight Tools Camarillo, Calif.

DATA SECURITY

To the Editor:

The lost Ahold PC mentioned in “Data-Breach Dilemma—Retailers need a United Front,” (RTQ, January 2007) was actually the result of a third-party service provider who required access to Ahold pension Data.

As your readers look at this incident they might want to consider the challenge of securing confidential company information beyond their enterprise security control perimeter.

We strongly agree with the need to protect confidential and sensitive information, including the information of our customers and employees.

At Ahold we currently have many initiatives to continually assess and improve our capabilities.

John Kirkwood, CISSP, CISM, global information security officer, Ahold Global Braintree, Mass.

Letters to the Editor should be addressed to: Letters to the Editor, Chain Store Age, 425 Park Ave., New York, N.Y., 10022, or e-mailed to: [email protected].

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Weekly Retail Fix

BY CSA STAFF

THE NEWS: SAM’S REALIGNS STORE-LEVEL MANAGEMENT

BENTONVILLE, ARK. Sam’s Club is changing the management structure in its stores. In the realignment, approximately 250 positions will be eliminated, Wal-Mart Stores announced last week. The company said it’s replacing five lower level management positions at each Sam’s Club location with three new higher level and higher paying assistant manager positions.

“This is not a cost cutting effort. We expect a slight increase in payroll upon completion of this change,” said Sharon Orlopp, senior vp of Sam’s people division.

THE FIX: Differentiation would better help Sam’s

Since Sam’s decided that its refocus on the business customer was too narrow, it has sought to find ways to make its clubs more attractive to primary shoppers, i.e., women. And that’s a pretty tough row to hoe, as Costco has done a pretty good job at satisfying the club customer in general and BJ’s has been going after female shoppers for several years now, with some success.

Having fewer managers with more direct responsibility could create a tighter knit club-level management and shorten lines of responsibility and accountability. Yet, without differentiating the offering, execution isn’t going to overcome all of Sam’s challenges.

That being said, a store-level management realignment might be overlooked at other retailers, but, this being Wal-Mart, everyone has to make a big deal about it. But that’s the price you pay as the big guy on the block.

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Weekly Retail Fix

BY CSA STAFF

THE NEWS: TOYS ‘R’ US EARNINGS GAIN 40.1%

WAYNE, N.J. Toys “R” Us today posted net earnings of $199 million for its critical fourth quarter, which meant it turned a profit for the fiscal year ended Feb. 3. But special charges and gains had an impact on its numbers.

Sales for the previous fiscal annum were $142 million, the difference translating into a net earnings increase of 40.1% year over year. For the last fiscal year, Toys “R” Us posted net earnings of $85 million versus a net loss of $384 million for the previous period.

Operating earnings in the fiscal 2006 fourth quarter gained 53.1% to $571 million versus $373 million for the fourth quarter of fiscal 2005. For the last fiscal year, operating earnings were $649 million versus an operating loss of $142 million for the previous period.

THE FIX: Improved shopper experience ups comps

Of course, any observer has to take into consideration special financial circumstances. Fiscal 2006 operating earnings were positively impacted by $96 million from gains on property sales, slightly offset by restructuring and other charges. In fiscal 2005, operating earnings were negatively impacted by $410 million in costs relating to the merger of the company, as well as $58 million of costs and charges relating to contract settlement fees, restructuring and other charges.

Still, sales were trending up at last year’s end. Net sales gained 15.8% to $5.7 billion. In the full fiscal year, net sales advanced to $13 billion, up 15.2%.

Comparable-store sales for the Toys “R” Us’ U.S. division gained 0.6% in fiscal 2006, and that represents the division’s first comps increase in six years. Comps at Babies “R” Us were up 4.8% and those at Toys “R” Us international were up 2.6% for the fiscal year.

Jerry Storch, chairman and ceo of Toys “R” Us, said the company is “pleased with the strides we made in fiscal 2006 to improve at all levels of the organization and reposition the company for profitable growth over the long term.”

He said the company’s new management team has been focusing on executing a strategy that would turn the retailer into a global toy and baby products authority.

“This translated into higher overall sales, positive comparable-store sales, improved gross margins and strong operating earnings growth for the 2006 fiscal year,” Storch asserted. “The key to our strategy has been improving the customer shopping experience in our stores. We are accomplishing this by delivering a more compelling merchandise selection, better service and a cleaner and more comfortable shopping environment.”

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