SUPPLY CHAIN

Calling All Retailers

BY Connie Robbins Gentry

Like most mothers and daughters, my 15-year-old daughter and I share many similarities: We love Starbucks’ lattes, exercising together and watching “House.” We also have our differences, none more pronounced than the ways in which we use our cell phones.

For me, it’s a phone, pure and simple. Retrieving voice-mail is the extent of my “expanded” applications, although I am experimenting, unsuccessfully thus far, with using the phone as an alarm clock.

For her, it’s a social lifeline and, among many of her peers, a status symbol or fashion accessory. Fortunately, she’s content with talking and text messaging.

My Gen Y daughter and her friends are also huge plastic patrons—gift cards are always more popular than cash. However, when I asked how she would react to using her cell phone as a wallet—essentially paying for purchases in store or online through her mobile device—she expressed skepticism about whether it would “really work.”

For once, I may be a baby step ahead of my techno-savvy teen. Within the next 12 to 18 months, I predict my daughter will not only accept the concept, she and her Gen Y peers will embrace mobile commerce and make it the next great retailing channel.

In a recent report, “U.S. Mobile Commerce 2007: Low Reception,” Cambridge, Mass.-based Forrester Research acknowledged that, although adoption in U.S. markets is lower than in Asia and Europe, mobile commerce is coming. Forrester offered a simplistic definition of the concept, summarizing it as “using the mobile network and devices to initiate or effect a purchase transaction.”

According to the Forrester report, the idea of using cell phones as wallets is particularly appealing to Gen Y consumers (young teens to age 26), but also a practice that Gen Xers (ages 27-39) and younger baby boomers (ages 40-50) would likely embrace.

Unsurprisingly, the first application to gain prevalent adoption will likely be using mobile devices for product searches and price comparisons, but closely following will be purchasing items directly via the mobile device and completing the transaction by paying over the mobile device. Not unlike the way the Internet rapidly progressed from a communications tool into the world’s largest shopping center, it will outperform the expectations of even the most optimistic bricks-and-mortar retailers who adopted multichannel sales strategies.

The Forrester report concluded that, although cell phones equipped with near-field communications (NFC) or RFID technology can be used for payments in a manner similar to the use of a contactless credit card, the lack of cooperation among mobile operators, manufacturers and financial institutions is a huge barrier to the adoption of mobile commerce.

Similarly, Forrester’s survey of consumers indicated most are not willing to pay higher service charges to have a mobile-payment feature and retailers, already battling interchange fees from credit-card companies, are not likely to absorb the cost unless consumers perceive it to be a value-add competitive option.

Contact [email protected] for more information or to obtain a copy of the report.

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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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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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