The concept of “same shopper” sales, which puts the emphasis on how well a retailer grows sales to an individual customer across channels, will not only continue to gain momentum in 2011, but will carry organizational implications for retailers as they attempt to integrate sales channels, according to IDC Retail Insights, a retail information technology research and consulting firm.
Indeed, the growing importance of same shopper sales as a key metric heads the list of IDC’s recently released report, “Worldwide Retail Industry 2011 Top 10 Predictions,” which also looks at projected IT spending for the year. It’s worth noting that most of the predictions are driven by consumers and the new shopping patterns that have emerged.
“2011 begins with momentum from a good holiday season that recovery is on the way, but also with an acknowledgement that the industry has been permanently changed,” said Bob Parker, VP research, IDC Retail Insights, Framingham, Mass. “It will be imperative for retail IT organizations to cut traditional infrastructure and back-office spending by at least 20% over five years to free up funds for investing in more sophisticated customer experiences.”
Here are IDC’s top 10 predictions for 2011:
1 Retailers will integrate channels to support same-shopper momentum and to attract new customers to the brand.
2 Retailers will reorganize information technology to support both embedded and exposed technology portfolios.
IDC defines exposed technology as applications and tools that the customer interacts with directly, from e-commerce and social media to in-store kiosk and digital signage. Embedded technology, which reflects traditional investments, is not directly exposed to the customer.
3 Retailers will focus on quality, synchronizing their supply network with consumer expectations.
4 Retailers will get back to basics by investing in technologies that make complex supply networks less complicated, more productive and attentive to the customer.
5 Retailers will realize that it is one brand, one experience for the shopper regardless of the interaction point.
Consumers don’t care about sales channels, but they do care about effective and valuable interaction opportunities with their preferred retail brands, IDC noted.
6 Retailers will create omni-channel options by investing in a retail intelligence platform.
7 Retailers will fight to win the “swing shopper.”
8 Technology investments will have a “LASAR” focus. (LASAR stands for localized assortments, constrained for space, allocation and replenishment.)
9 Sustainability will become an integrated part of the retail brand.
10 Social media will extend beyond marketing into merchandising, product development and social shopping.
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Small Formats, Big Opportunities
A 3,500-sq.-ft. Walmart? Sounds hard to believe, but the world’s largest retailer broke new ground in January when it opened “Walmart on Campus” on the grounds of the University of Arkansas in Fayetteville. The store, open to students and non-students alike, reflects the sea change that has occurred at Wal-Mart Stores and throughout the industry during the past couple of years as retailers across the board show increased flexibility and a willingness to rethink formats and footprints — most often, by thinking smaller.
Indeed, while Walmart is noncommittal regarding the expansion of its just-opened campus concept, the chain has made no secret of its plans to target urban markets for growth using a scaled-down model.
Speaking to a meeting with investors last fall, Bill Simon, head of Wal-Mart’s U.S. operations, said Walmart plans to open 30 to 40 smaller-format stores (in the 30,000-sq.-ft. to 60,000-sq.-ft. range) across the country in its current fiscal year, mostly in urban markets. Smaller locations along the lines of the company’s convenience-styled stores in Latin America are another possibility. Walmart SuperCenters, around 195,000 sq. ft., will remain the company’s mainstay, but newer ones will shrink slightly to about 180,000 sq. ft., and Walmart will step up its plans to open midsize stores of about 150,000 sq. ft.
Meanwhile, the nation’s second largest discounter, Target Corp., is also incorporating smaller-format urban stores into its business strategy. The company will debut its smaller format in Seattle in 2012, with plans to expand to 10 other markets in such cities as Baltimore and San Francisco (where it will open in the city’s renovated Metreon Center in 2012) during the next few years. Target’s urban prototype will range anywhere from 60,000 sq. ft. to 100,000 sq. ft., with the San Francisco location reportedly coming in at 85,000 sq. ft. >
Target already has some 150 stores in urban areas, including a location in New York City’s East Harlem area that opened last summer. Lessons from those stores are proving useful as it explores smaller formats.
“We know our smaller formats will have edited assortments,” said Jenna Reck, a spokeswoman for Minneapolis-based Target.
Patio furniture that wouldn’t fit in urban dwellings, for example, would likely be eliminated, as would large item quantities. “Urban customers don’t need bulk parcels,” Reck said.
But it’s not just the discount giants that are opening or testing smaller stores — Ann Taylor, Kohl’s, Old Navy, Charlotte Russe, hhGregg, Gap Inc. and a host of other disparate retailers are also getting in on the act. Gap, which operates stores as large as 18,000 sq. ft., has been working to reduce its average store size to about 10,000 sq. ft. Its Old Navy brand is reportedly seeking 15,000-sq.-ft. to 18,000-sq.-ft. sites, down significantly from its past model. Even Sports Authority has a small-store concept, called S.A. Elite, which debuted last August at Cherry Creek Shopping Center in Denver.
Bloomingdale’s is also slimming down. Its newest store, in the renovated Santa Monica Place, in Santa Monica, Calif., occupies some 80,000 sq. ft. of selling space and features carefully edited assortments. Some slower moving categories, such as children’s clothes, were dropped entirely. One thing that wasn’t sacrificed was Bloomingdale’s signature style: The store has an eclectic feel and cool vibe. It also boasts a number of space-saving innovations, including a mobile rack on the second floor ceiling that moves mannequins and clothes across the space.
A telling indication of the downsizing move is the fact that Nike has no plans to open more Niketowns. Instead, it will open “brand experience” stores along the lines of its new prototype at Santa Monica Place at Third Street Promenade, in Santa Monica, Calif.
The two-level, 20,000-sq.-ft. Nike emphasizes customization services and boasts a flexible format that can be easily reconfigured. Even the cashwrap is mobile, and is wired so that it can be moved to other locations.
Flexible formats and downsized stores aren’t exactly new — chains from The Limited to The Home Depot have cut back on store size over the years to accommodate nontraditional locations or reduce operating costs. But a combination of demographic, economic and technological opportunities is propelling these trends forward with a newfound urgency.
“Smart retailers are finding ways to shrink their footprints — without compromising core offerings — to leverage a myriad of real estate opportunities that will only accommodate smaller formats,” said Spence Mehl, senior VP with New York City-based real estate advisory firm RCS Real Estate Advisors. > “We are seeing not only a host of urban real estate opportunities, which are very attractive for growing retailers, but also spaces outside core urban areas at historically low base rents. Those retailers that can control their inventories and shrink their footprints will likely prosper in the years to come.”
Demographically, smaller stores serve opposite ends of the retail spectrum — aging baby boomers who feel overwhelmed by superstores, and younger consumers more accustomed to shopping online. Both groups are showing a preference for the more targeted shopping experience that a smaller store often provides.
“You’re seeing it now, and you will continue to see it,” said Leon Nicholas, director of retail insights of consultancy Kantar Retail, Columbus, Ohio. “This trend toward smaller stores is about making things more convenient.”
Sustainability also is playing a role, said Lew Kornberg, a managing director of Jones Lang LaSalle’s Corporate Retail Solutions division, Chicago, which manages real estate solutions for retailers.
“There’s a movement to reuse buildings that might otherwise have been torn down,” he said.
Expansion opportunities in dense urban markets are perhaps the biggest driver to smaller stores. For many chains, particularly big-box ones, urban areas represent the last frontier for major domestic growth. Such areas, which remain largely untapped by the national players, could potentially yield hundreds of millions of dollars in sales going forward. (Walmart, for example, has no stores in New York City and only two in Los Angeles. Only 47 of its 4,300 U.S. stores are in big cities.)
Retailers’ willingness to adapt their footprints to urban neighborhoods where space is at a premium has not gone unnoticed. This past summer, Walmart overcame strong and long-standing union and political opposition in Chicago, and was given the approval to build new stores. The discounter’s plan to build stores of different sizes was credited with helping to win over the opposition.
But there is more to the downsizing move than demographics and marketplace realities. The fact is some stores simply got too big, said Paul Freddo, senior executive VP leasing and development of Developers Diversified Realty, Beachwood, Ohio.
“Old Navy is an example of a retailer that can be just as successful with an 18,000-sq.-ft. store as they can at 25,000 sq. ft.,” Freddo said.
The financial crisis of the last two years also factors into shrinking store size. For some retailers, opening and operating smaller stores are a way to cut costs. Also, with new development at a virtual standstill, some chains looking to expand were forced to consider new prototypes to fit into buildings vacated by defunct chains such as Circuit City, Steve & Barry’s and Mervyn’s. When Kohl’s acquired a number of Mervyn’s locations, it had to deal with a smaller footprint, a prototype it now is continuing, according to Freddo.
“A smaller size also allows a retailer to reach smaller markets with less density, and to be closer to its existing store base,” he explained.
And even where space might exist, noted Kantar’s Nicholas, consumers are saving time and money by shopping online and via smart phones. Online holiday 2010 sales rose 13% to $30.8 billion, according to Reston, Va.-based comScore Inc.
“The digitalization of retail goes with the shrinking of retail,” Nicholas said. “With so much being sold online, the stores don’t need as much merchandise.” >
Jones Lang LaSalle’s Kornberg cited an example of a shopper who, while standing in a Macy’s store, bought shoes from Zappos.com using a smart phone.
But that’s not the only way technology is affecting retail. Ironically, what is expanding are distribution centers, which must hold the merchandise that is being purchased online or delivered to the smaller stores. As these warehouses become more sophisticated, they can ship to stores more promptly, reducing the need for large backroom areas.
“This allows [retailers] to be leaner and meaner,” Kornberg added.
Beyond size: WSL Strategic Retail CEO Wendy Liebmann sees two fundamental issues for retailers with regard to the physical store: What is included in the mix, and what is eliminated.
“Walmart’s first neighborhood market just did a little of everything, and that didn’t work,” she said.
One point on which many industry experts agree is that going forward, even big-box chains must adapt to the needs and demands of individual locations if they want to be successful.
“We’ve already had the luxury of size and scale,” Liebmann explained. “This is a moment in time when people want local. That doesn’t mean that stores will go away. But they can’t survive with the same format in every location. It has to be customized.”
The key for retailers and real estate companies will be to plan flexible spaces from the beginning of construction.
“It’s always easier to plan on the front end than to retrofit on the back end,” Jones Lang LaSalle’s Kornberg advised.
Despite a successful holiday season, most retailers remain cautious about expansion. And with no substantive new development taking place in the foreseeable future, retailers looking to grow will have to adapt to existing supply, whatever its size.
“We’re living in an interesting time for landlords and retailers,” added Developers Diversified’s Freddo, who said that changes are fostering greater cooperation between the frequent.
“The recession was a wake-up call for both,” he said.
Sweet Smell of Success
Mike Katz, 62, has an edge sharpened not by decades in retail, but by an accounting background that has given him unique insight into the economics of business. The chief of Perfumania Holdings Inc., which operates 350 value-priced fragrance stores in the United States and 20 in Puerto Rico, is a certified public accountant — and, self-admittedly, a relative novice to retail.
Katz’s executive tenure with the company spans 20 years, but the bulk of that time was spent leading its wholesale business. His appointment in 2004 to president and CEO of the retail subsidiary, which consists of the Perfumania stores, perfumania.com and a consignment program called Scents of Worth, allowed Katz to turn his attention to solidifying the company’s retail presence and, in doing so, to apply his accounting experience to steering Perfumania toward a successful expansion platform.
Senior editor Katherine Field talked with Katz about status and growth strategies for the chain, as well as discussed plans for a new prototype rollout and Perfumania’s success in the outlet space.
How has Perfumania weathered the recession?
We’ve weathered it pretty well. Over the last year and a half, the focus has been on adequate liquidity to both run the stores and meet the financial needs of the company. In 2009 and early 2010, we were more aggressive on pricing to ensure liquidity was there and, in doing so, we probably sacrificed some on earnings. But we felt that liquidity was more important than earnings during the downturn.
What is your expansion strategy for 2011 and beyond?
We have the infrastructure in place to expand as economic recovery occurs, but we are not actively chasing growth until that happens. In 2009 we opened 57 stores, and in 2010 we opened nine. This year, the plan is to open 10 to 15 stores. Part of the challenge is what is involved in the evolution of a new store. You might have a new store in an area that is starting to grow, but you have to wait for that growth. In terms of our footprint, we think we can ultimately have 600 doors, but we don’t want to do that until we see stronger growth in the economy.
Being a public company, we have to be trained on shareholder value and expectations. We think there are modest growth opportunities in Canada, and that would be a new market for us as we haven’t pulled the trigger there yet. There are probably three or four Canadian cities that we would target for new stores. Here in the U.S., we would target the West, the Southwest and the Southeast as those have been strong markets for us, and we think there are more opportunities there. The opportunities in the Midwest haven’t been as great over the last 12 to 24 months.
Describe your typical mall site in terms of position, square footage and adjacencies.
In a regional mall, our ideal size is 1,500 sq. ft., of which 1,200 would be selling space. In outlet centers, our profile calls for 2,000 sq. ft., of which 1,700 is selling space. We like to be next to a high-traffic retailer, and it doesn’t necessarily have to be a complementary concept to ours. If every one of our stores could be next to an Apple store, we would be happy!
About 80% of our current stores are in regional malls, outlet malls or strip centers, and we do a few lifestyle center stores, although those haven’t been as successful. We have some urban street stores that have been successful, but the difficulty is achieving the proper rent-to-volume formula. Urban stores are good, but the economics are challenging.
How are you approaching your real estate strategy?
We work with RCS Real Estate Advisors, out of New York City, which serves as our real estate arm. (More on Perfumania’s and RCS’s real estate partnership was featured in the January issue.)
As you roll out more stores, will there be any alterations to your present store design/concept?
We are currently working on a new prototype that is slated for a calendar year 2012 introduction. We are moving toward a more contemporary look, and one that creates a more interactive environment between our salespeople and our customers, and introduces more in-store technology. We will roll out the new prototype in our regional mall locations first, as that is the most appropriate venue for the new look and new services.
How is your mall store differentiated from your outlet store, other than location and product pricing?
We will likely maintain the same store design in the outlet stores, at least for the time being. However, over time we may tweak the design of our outlet stores as well, but it won’t be an immediate change.
What do you think has made the Perfumania model successful?
First, because of the size of our aggregate business, we have enormous inventory clout. We can support the stores with product and be more aggressively priced. But the most important attribute we have is our people. We are a service store, not a self-service store. We invest a lot of money in training so that our associates know about fragrances, so that they know what our customers want and need and can properly serve our customers. Our business is a people business.
How would you describe your leadership style?
To pick a word, participative. The responsibility of senior management in any company is to create the environment and provide the tools for people to be successful. At Perfumania, we don’t micro-manage. We jointly define goals and, hopefully, our people will get the positive end result.
Has your accounting background impacted how you lead/operate?
Because of my accounting background, I understand the economics of business pretty well. Businesses have a myriad of entities to interact with, from vendors to shareholders to landlords, customers and associates. Understanding the economics of each of those interactive parts is very helpful when steering a business.
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