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Focus on: Next-Generation Business Intelligence

BY Deena M. Amato-McCoy

Eager to make more effective business decisions, many retailers are reevaluating their business intelligence strategies. With a renewed focus on breaking down enterprise-wide silos, retailers are making a move to the next generation of BI, which includes giving line and store managers access to predictive analytics tools and multifunctional views of data.

Nine out of 10 C-level retail executives reported that their organization is collecting and managing an average of 98% more business information than two years ago, according to a recent survey conducted by Oracle, Redwood Shores, Calif. And the sources are ever-growing. For example, 43% of data stems from customer information, 33% from operations, and 30% sales and marketing, according to the survey.

However, existing BI platforms, which are often managed by retailers’ individual business divisions, cannot effectively process this information. According to Aberdeen Group, Boston, 45% of retailers need to improve the speed of access to relevant business data, and 28% are still struggling to get beyond data integration and move data accessibility into the hands of line users.

“As companies add more business channels and customer touchpoints, role-based input across the enterprise is necessary to make strategic business decisions,” said Andrea Morgan-Vandome, VP retail strategy and solution marketing, Oracle Retail. “The only way to do that is to give line and store-level managers insight into multifunctional data to understand customer and product information.”

This is becoming such a priority that 36% of retailers already provide managers access to customer behavior and consumer trends, according to Aberdeen Group. (And 22% say they need to improve data accessibility for customer-facing employees.) To ensure this concept is successful, however, retailers must break down silos between operating divisions.

“It’s become mission critical to understand what is going on across the enterprise and why it is happening,” Morgan-Vandome explained. “To make this a reality, each different line of business user needs to get a perspective of activity impacting all divisions.”

Companies also must move away from traditional BI platforms. These tools simply reported “what happened,” but today’s retailers need to integrate the functionality of predictive analytics to gain insight into what is happening and why.

Retailers are learning that historical data cannot deliver the information they need. In fact, 28% of retailers are feeling pressured to move beyond their current data reporting status into more frequent insight into relevant business data, according to Aberdeen.

“Analytics is a change from traditional BI in that retailers must understand what a market basket looks like, for example, as well as how one product can impact performance of others,” Morgan-Vandome said. “In terms of reporting, users need insight into performance and understanding its evolution. This is why analytics are important.”

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Rethinking the Middle

BY CSA STAFF

By Michael Dart, Todd Hooper and Jay Agarwal

Although it isn’t as sexy as luxury or as dramatic as discount, the space somewhere in between is heating up.

In fact, recent deal activity suggests that retailers that cater to both low- and high-income segments — those serving “the middle” — have tremendous potential.

Buyers have been paying robust multiples — between nine and 11 times EBITDA in 2011 and year-to-date 2012 — for some of the middle’s best-known brands, such as Sycamore Partners’ purchase of Talbots, Ascena’s acquisition of Charming Shoppes, Golfsmith’s sale to an investor group, and the sale of Cost Plus to Bed Bath & Beyond.

But other mid-tier retailers such as Gap, Ann Taylor and Abercrombie & Fitch are trading at attractive valuations — between four and six times EBITDA — which represent a significant discount compared with recent trends and to premium and value retailers trading between seven and 11 times EBITDA.

It’s easy to see the reason for the renewed interest. Middle retailers cater to most Americans, and are well positioned as lower- and middle-income consumers start to trade up again.

Many middle brands have considerable cachet and, with the right strategies and initiatives, significant growth potential. Middle retailers can also make smart financial sense, as they often have less fashion risk than some of their lower- and higher-end counterparts.

So how can the middle transform from blah to ah ha? We suggest three strategies:

1. Optimize for omni-channel

Many middle retailers have been sluggish to adapt to a changing retail environment. But in a private setting, they have greater freedom to make necessary changes — starting with their store fleet. Many retailers could close 25% to 30% of their worst-performing stores and open 10% to 15% new stores in better locations or under different brands.

Take American Eagle. Faced with losses of $24 million on $40 million in sales of its 77kids brand, American Eagle recently announced plans to close all 77kids stores. The retailer is also reviewing each American Eagle store’s performance and will close underperformers, while doubling outlet locations and opening more stores abroad.

2. Rekindle the brand’s former glory

Many mid-tier brands have considerable history but are ripe for repositioning.

Consider Foot Locker. With its stock price hovering near $10 in 2009, the retailer embarked on an ambitious turnaround campaign. Because apparel is more profitable than footwear, stores were reorganized to feature color-coordinated outfits up front, with more clothing in the back to pull shoppers through the store. The retailer has also added more than 500 associates to its stores, hoping its customer service can be a valuable asset versus e-commerce competitors. Foot Locker has also aggressively pursued deals with vendors — half of its products are exclusive.

The changes have paid off. The retailer is on track to achieve double-digit profit growth by the end of 2012 and will open 80 new locations in 2013, but will also close 74 underperformers.

3. Leverage operational efficiencies

Combining two similar middle retailers in the same portfolio and implementing a shared services platform can provide tremendous cost synergy opportunities and drive favorable post-deal economics.

For example, think of the cost-saving opportunities realized by combining some of the backend functions of Ascena and Charming Shoppes, Bed Bath & Beyond and Cost Plus or Wolverine Worldwide and Collective Brands’ Performance + Lifestyle Group.

As recent deal activity has shown, private investors may be best suited to oversee the types of changes necessary to ensure middle retailers’ sustained success. The middle clearly deserves a closer look.

Michael Dart, Todd Hooper and Jay Agarwal are retail strategists in Kurt Salmon’s Private Equity and Strategy Practice.

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Belk’s Reinvention

BY CSA STAFF

Regional retailers are typically defined by geography, but Charlotte, N.C.-based Belk is a bit different than most. Distinguished by its signature Southern hospitality, the nation’s largest privately held department store chain has a dominant presence throughout the South and a footprint as far west as Oklahoma and north through Maryland. But its reach extends even farther, as Canadians and Californians alike shop its e-commerce site.

With 301 stores in 16 states, Belk recently completed its 10th consecutive quarter of comp-store sales growth and appears on target to top $4 billion in revenues this fiscal year. In 2010, the company launched a transformation to brand itself as a fashion-forward leader of modern style and an ambassador of the modern Southern lifestyle.

John R. Belk, president and COO, talked with Chain Store Age contributing editor Connie Gentry about the company reinvention and its investments in the future.

Belk recently announced a $600 million investment over a five-year period. What are the key components?

It began with our “Modern. Southern. Style.” campaign, which launched in October 2010. Within months we changed all the Belk logos to present a consistent image to our customers. And then we began investing in our stores to make them more relevant to costumers.

With this new brand, I always get the question: “Does that mean you’ll never expand out of the South?” The answer is no. Our intention is to be the best at satisfying the Southern lifestyle, wherever our customer happens to be. The Southern lifestyle is not locked into a geographic place; it’s about being friendly, colorful and energetic.

For now, we are focused primarily on our existing stores rather than developing new stores. We are investing around $250 million over the next three years to update the stores so they are more modern and fashion-forward. We are also repositioning some stores in existing markets, and expanding and remodeling stores when there is an opportunity to create a better merchandise flow and update departments to be more consistent with the brand. Every year, we update fixture programs to better present merchandise. This year we’ve put new fixtures in the kids’ area and added fixtures to our home store that better organizes “smart” home products and luggage.

With rebranding, have you seen a shift in the demographic profile of shoppers in your stores?

Yes. The customer base in our markets is growing more diverse, and our shoppers tend to be younger with more fashion-forward tastes. We follow our credit card data (almost 50% of purchases are made with Belk’s private-label credit card), and we see that the average age of our shopper has been decreasing by about a year each year. We also conduct a customer survey every two years. The results we just got back showed there is significant growth in our customer base of people who prefer fashion that we classify as modern, as opposed to classic or traditional.

Are there shifts in sales?

We have begun to see growth in our home store, and we’ve had a lot of success in kitchen electronics and with modern soft-home assortments that are relevant to our customers’ lifestyles. Also, we are seeing a resurgence of status brands, so we are allocating more space to those categories.

Are online sales growing as well?

Absolutely. In each of the last two years, online sales have grown by about 100%, and we think dramatic growth will continue going forward. To support it, we’re investing heavily in e-commerce, building better functionality, adding brands to the website and enhancing the fulfillment capability.

Our universe has grown beyond our geographic footprint. In fact, 22% of our e-commerce sales come from outside our 16-state footprint. Because of this, part of our branding campaign has embraced things that are national in scope. We sponsor the Belk Bowl, a college football bowl in Charlotte. We’ve begun to embrace more national advertising.

Do you track zip codes of customers to determine where to open stores?

We do, and we’ve begun a relationship with a third party that has a sophisticated model for identifying markets with the type of customer base we are looking for and that also analyzes the competitive situation in those markets. They’ve identified several markets across the U.S. where we could successfully open a store. Obviously we want to grow first in contiguous markets and through infill opportunities, but we’re certainly open to considering new markets. Within our 16-state footprint, most of our core business comes from seven or eight states. So we’ve got a lot of room to grow in states like Texas, Oklahoma, Louisiana, Maryland and Kentucky.

Are you looking at acquisitions?

Not now, but there could be some in our future. Again, we are really focused on growing and strengthening our existing store base.

Each Belk store is merchandised for its locale. How do you accomplish this?

Historically we had a buyer in every store, but that’s changed. Now we are investing in IT systems and tools that will give our merchants and planners better information about what is happening at the local level. We also have done a lot of process and strategy work with Kurt Salmon, and the genesis of that is a consistent process that the merchant and planning teams go through each season. Before, our merchants worked separate from our planners; now they sit together and operate as a team. We also added 41 positions, primarily in the planning world, that bring more science into the process of understanding what happens on a local level. We receive ongoing feedback from stores that tell us how we can grow the business.

Are there other strategic initiatives under way in store operations?

We have a strategic, multi-year program under the heading of Service Excellence that Deloitte has been helping us with. It started with a reorganization of all the task work that happened within a store. We weren’t doing the best job of getting merchandise out to the floor in a timely manner, so we’ve put best practices in place, and we’re doing a better job organizing merchandise for our customer.

Also, we changed the organizational structure within the stores, separated the selling teams from the support teams, and changed the compensation plan in the stores to make sure we have appropriate individual incentives in place. We added team incentives to make sure there is balance. Now we are working on the heart of the program, which is a five-step model that focuses on the behaviors and interactions the associate has with the customer. It encompasses everything from getting ready for the customer to closing the sale and then doing recovery work within the department. We expect to complete this rollout by the beginning of November.

Next year our major effort will be behind scheduling appropriately and automating task management. All of these key initiatives will continue to propel our growth.

Why does Belk maintain the unique position of being privately held but publicly reported?

People always wonder why a company would want to deal with the Securities and Exchange Commission but not have access to public equity markets. We believe this is a great place to be because it allows us to focus on the long term and invest for the long term even when we don’t necessarily get a quarterly payback. It also puts pressure on us to generate funds from operations so that we can invest significantly to change the company. Public reporting adds a lot of transparency and puts all the controls in place that any public company would follow. That’s the true DNA of our company: We want to run it as professionally as a publicly held company but invest with the long-term vision of a private, family-based business.

What is the Belk vision for the next five years?

We will continue to meet our brand message and be the retailer of choice for the Southern lifestyle, and to expand strategies around localization and personalization. We are focused on building our omni-channel presence, and we are investing significantly in technology to recognize our customer wherever she chooses to shop — by smartphone, at home, in-store.

There are plans to change our POS equipment, increase mobile applications in stores, build the capability to buy online and pick up in store, put WiFi capability in the stores, and maintain a common customer database.

In our vision, the customer is being elevated. The Internet has driven information to the customer, and we want to better satisfy what she is looking for. Developing long-range plans is exciting, scary and energizing. Change presents uncertainty, but it also presents opportunity to do an even better job of fulfilling our mission and vision.

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Apr-20-2013 06:47 am

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E.Villanueva says:
Apr-20-2013 06:47 am

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Apr-18-2013 02:16 am

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A.Hotham says:
Apr-18-2013 02:16 am

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