Making Shopping Fun Again
By HeeSun Kim and Young Rok Park
Imagine a place where department stores are destinations for retail and social activity, where the mere mention of the term “department store” still conjures fond memories of day-long family outings in the city. Fifty years ago, this could have been any major city in the United States, but the current epicenter of the design revolution in large-format retail, culture and fashion is on the opposite side of the planet, specifically in Seoul, South Korea.
The Myeongdong district in Seoul covers barely one square kilometer of land, but its burgeoning influence on other parts of the world is impossible to ignore. Once just a hub for typically Western culture and commerce, the area has surpassed its cousins in Tokyo and Beijing due, in part, to a new focus on all things Asian. Galleries showcase Asian artists. Restaurants feature gourmet Asian fare. Department stores — once focused almost solely on Western brands — now showcase the work of Asia’s most exciting fashion designers. Seoul is now the shopping mecca for the Asia Pacific region.
South Korean retailers are going back to basics to make shopping fun again, just as it was in its American heyday. Here’s how retailers in Myeongdong are recreating a memorable retail experience.
From a design standpoint, Seoul’s new retail spaces offer something special right up front. Architectural and design features are immediately more unique and memorable. Restrooms are more spacious, escalators nicer and public areas larger. Each of these design upgrades lets shoppers know immediately that their needs are the primary considerations.
Major department store brands, such as Lotte and Hyundai, have invested significant resources into creating stores designed to offer entertaining shopping experiences. It isn’t unusual for department stores in Seoul to offer customers access to amenities such as a garden or restaurant on the roof, childcare, on-site thrill rides, cooking or language classes. These activities aren’t just add-ons; the original blueprints called for these public lifestyle areas to be integrated into the space from the beginning.
The South Korean department store sales model is different from the one with which Western consumers are familiar. In the United States, department stores sell from warehoused inventory. Within Korean department stores, approximately 70% to 80% of retail floor space is rented to suppliers that sell their own branded merchandise. The suppliers are responsible for staffing, merchandising and sales, enabling stores to focus their attention on creating something special from a brand and design perspective. This new model enables stores to really think about their own brand identities and capitalize on the key traits differentiating their stores from those of their competitors.
This works from the customer experience and design perspectives, just as the concept did when it first emerged throughout the United States. But the new approach is, perhaps, more successful financially. A typical department store in Seoul generates approximately half a billion U.S. dollars in sales each year, and attracts and sustains consumer traffic that is exponentially higher than the level generated by its American peers. Shoppers remember and return to these easy-to-navigate and fun stores, which creates a tangible economic benefit to retail and entertainment areas near the stores.
The Lesson of South Korea: What’s next? Seoul is rapidly supplanting cities such as Tokyo and Beijing as a capitol of Asian retail in large part because Korean merchants are comfortable with being Korean, which translates to a unique vision that is ultimately communicated by a store’s look and feel. Another key consideration is the way Korean retailers are eschewing luxury for luxury’s sake. While the new retail spaces are certainly luxurious, it is the customer that takes center stage in the design process. These elements establish the recent developments in Seoul as a new movement rather than a refresh of an old one with potential benefit to other retailers and customers alike who adopt these trends from their Korean counterparts.
HeeSun Kim and Young Rok Park are VPs and managing creative directors of FRCH Design Worldwide, Cincinnati. Park was the lead designer of Liverpool, Interlomas, Mexico, which took the top spot in Chain Store Age’s annual Retail Store of the Year design competition.
Keeping Family Dollar Stores on Fast Track
After 30 years in the drug store sector, Michael Bloom left CVS Caremark in September 2011 to become president and COO of Family Dollar Stores. The extreme-value chain has adopted an aggressive growth strategy in recent years, and plans to open 450 to 500 stores in 2012.
Family Dollar is equally committed to improving existing locations. Under its ambitious store-reinvention program, an estimated 1,000 locations are scheduled to be renovated, relocated or expanded this year.
In an interview with Chain Store Age contributing editor Connie Gentry, Bloom’s passion for his new company was clearly evident.
“I don’t remember the last time I’ve felt this energized,” he said. “And it’s exciting because I see the same enthusiasm throughout our company.”
What attracted you to Family Dollar?
The business I’ve lived in is small-box retailing, and there are many similarities between Family Dollar and CVS: Both have over 7,000 stores and are dominant in their sectors. The value-driven, discount retail model has emerged as a very real channel — it is retail in its purest form and it intrigues me. I watched Howard [Levine, the CEO of Family Dollar] evolve this business model and assemble a world-class leadership team. The opportunity felt right and, after being here for 16 weeks, I can tell you it is right.
What do you bring to Family Dollar?
I bring a style of leadership and coaching that enables me to build world-class teams. If you look at my track record, I’ve assembled great teams that empower people to be accountable for their actions. Second, I’ve acquired a vast knowledge of small-box retailing. My learnings and the relationships I’ve built with supplier partners over the last 30 years can certainly be applied to Family Dollar. I’m extremely excited about the possibility of building stronger relationships with supplier partners, possibly bringing some of them into this retail channel, and evolving the relationship with Family Dollar customers.
As that customer relationship evolves, do you anticipate having a Family Dollar loyalty card?
It would be crazy to be a retailer and not try to understand loyalty programs. You just have to be sure a loyalty program is meaningful and adds value for the customer. If it does those things, then it is absolutely the most efficient spend a retailer can make, and it could be a terrific addition to Family Dollar.
What opportunities and challenges do you hope to embrace in your first year?
First on my list will be driving the culture I spoke about earlier and continuing to build a world-class team. Secondly, we will focus on making this a sales-driven, top-line organization. That means profitable sales, not just sales at any cost. There is no reason Family Dollar should not lead the industry across all business metrics and continue to grow comp sales and margin per square foot.
Finally, we must continue to find ways to remain relevant to our customer and drive trips to the store. Clearly there are opportunities to improve the assortment in over-the-counter HBA, expanding our offering in private brands across the store and certainly in food.
To achieve those top-line goals, will you be adding more private-label product or leveraging your relationships to bring new suppliers to Family Dollar?
Yes and yes. The No. 1 selling brand in our stores is the portfolio of Family Dollar brands — our customers tell us they love the quality and the value. As we expand HBA and food categories, by default, our private-label selection will grow as well. There will also be a significant increase in our global sourcing.
Will expansion focus on particular markets, such as augmenting the chain’s recent entrance into California?
California is going to be a terrific market for us. Consumers have welcomed us, and the nine stores we opened there are exceeding expectations. There’s a lot of runway potential in that state. In fact, the growth opportunities in California are just as important as filling in the gaps in states where we have stores.
What about international expansion?
I think all companies consider international markets, but there is a lot of runway for Family Dollar to cover in the U.S. before we think of international expansion.
Is your store prototype evolving?
Yes, in fact we’ve tweaked the latest version since I joined the company. Our stores are small boxes, roughly 7,000 sq. ft., and one of the challenges is to creatively expand the merchandise areas that are growing without taking space from discretionary categories. We have reallocated space to grow the HBA and food sections, because our customer has voted with her wallet that she wants more of these items, and we’ve become more creative in merchandising and display. For instance, the apparel racks support denser product now, and we continue to enhance adjacencies throughout our stores.
What are the main elements of the renovation program?
Improving the ‘shop-ability’ of our stores and giving our customer a compelling store experience are the key drivers behind the renovation program. We’ve improved the adjacencies, the overall layout of the store and the checkout experience. We continue to look at how we can better tailor the assortment, merchandise the store to encourage cross-shopping. And we have improved the in-store signage to better communicate to our customers within the store.
Given your background, are there any thoughts of bringing pharmacy service to Family Dollar?
That’s the question I’m asked most often, and the possibility does intrigue me. Our customers take prescription medicines, and they have to get them filled somewhere. What intrigues me is contemplating how we might take care of that need for our customers, possibly without adding pharmacy in our stores.
Would you think about partnering with a drug store retailer, or providing a mail-order pharmacy service?
Any of those could be interesting options. Our core demographic is often a single mother with a low fixed income, and a lot of our customers don’t have healthcare coverage. The exciting thing is that healthcare reform will give our customers coverage.
What has been the most exciting aspect about joining Family Dollar?
The quality of the team, in that the people here are creative and innovative. And there is also the company’s rich history, proven success and earnings — look where Howard and the team have taken this company. (Family Dollar ended the first quarter of its 2012 fiscal year with overall sales up 7.6%, net income up 8.1% and comp sales up 4.1%.) What’s exciting for me is where we can go in the next chapter: The channel is ripe for us and the runway for growth is long! Can you hear the passion in my voice?
Absolutely, and speaking of personal passions, how do you spend your leisure time?
I play just as hard as I work, and I love spending time with my wife. She is my biggest fan, biggest critic, and No. 1 business partner outside of Howard. I’m a huge sports fan and love to ride bikes — that’s bicycles, not motorcycles. Last August, I rode the 200-mile Pan-Mass Challenge and raised $33,000 for cancer research. I plan to do it again this year.
Connie Robbins Gentry is a contributing editor for Chain Store Age.
Sizing up Brand Value
How much is a brand worth? If the brand in question happens to be Walmart, the answer is an eye-popping $139 billion, according to Interbrand Design Forum’s ranking of the top 50 U.S. retail brands by brand value. The study calculates the financial net worth of retail brands based on three metrics: the brand’s financial performance, the role the brand plays in driving consumer selection, and the ability of the brand to secure the delivery of expected future earnings.
Compared with last year, there weren’t all that many shifts in the top 10 ranking. Although Walmart slipped a bit in value from last year, it kept its No. 1 position by such a huge margin that no other retailer is even in the realm of striking distance. The brand value of Target, once again No. 2 on the list, is put at $23 billion. The Home Depot retained the third spot, followed by CVS/pharmacy and Best Buy. Walgreens, Coach, Sam’s Club, Amazon.com and eBay round out the top 10. Only one newcomer cracked the top 10: eBay, which replaced Dell (no longer eligible as it has shifted its focus to its enterprise business).
But if the brands on the list have exhibited staying power, there is a reason for it.
“One of the most compelling lessons from the list is that the best brands didn’t stand idly by, waiting for further signs of recovery,” commented Bruce Dybvad, CEO, Interbrand Design Forum, Dayton, Ohio. “They contributed to it by anticipating their customer’s desire to return, not to shopping as usual, but to something better. For the most part, these companies have invested in better store experiences and put more capabilities into the hands of their shoppers.”
The U.S. rankings are part of the annual “Best Retail Brands 2012” report, by global brand consultancy Interbrand (parent company of Interbrand Design Forum). The full report also ranks the most valuable retail brands from Asia Pacific (Woolworths), the United Kingdom (Tesco), France (Carrefour), Germany (Aldi) and Spain (Zara). All are holdovers from last year.
Reading the report, I was struck by a few things. One is that despite all the lip service retailers are playing to the integrated omni-channel environment, they still have a long way to go before mastering it. According to the study, the state of cross-channel commerce remains poor, plagued by information silos, organization issues and non-interoperable programs that frustrate customers. For individual retailers, such as Walmart and Target, online revenue accounts for less than 2%.
The Brands Report also makes a strong case for the still-crucial role that physical stores have in brand success. It’s a timely observation — at presstime, online giants Google and Amazon were both reportedly planning to open their first freestanding stores.
“The store does what technology cannot — allows us the full usage of our senses,” stated Jez Frampton, global CEO, Interbrand. “Brick-and-mortar is where every dimension of the brand comes alive for us to see, feel, smell, touch, taste and hear.”
The Retail Brands Report makes for a great retail read. Each of the brands gets its own succinct summary. For more information, go to interbranddesignforum.com.