News

Privacy and Security—Who Cares?

BY Steve Rowen

Alot has been written about the TJX Cos. Inc.’s data breach since it was first announced back in January. Its infamy has only grown as more details have emerged, making Framingham, Mass.-based TJX’s misfortune the most talked about story of its kind to date. And with the Federal Trade Commission announcing its investigative launch in March, there is no question we’ll be learning more soon.

However, as pundits and observers blast away at the retailer for “gross negligence,” “less-than-forthcoming honesty” and my personal favorite, “indifference due to lack of ensuing fiduciary loss,” (we’ll see about that when the FTC is done) I have to wonder what the incident has meant to the customer? And what customers are we talking about? Is there a generational gap dividing shoppers’ reactions?

It may shock many to learn what generations Y and Z think of privacy and security. As parents, you’ve likely heard that you legally cannot access information in your child’s Facebook account—not even in the face of an impending threat from a cyberpredator. This fear has been heightened by many adults’ belief that teens don’t care about privacy and/or have enough experience to realize the harm of turning private content into public domain.

But this is simply no longer true, and the youth culture’s once-cavalier attitude has been consistently changing as it learns that employers, law enforcement and college admissions offices routinely review young people’s online content. As more education arises—particularly in the number of colleges and universities utilizing social networks to scan applicants—many have begun to exercise far more caution in what they post to sites such as Myspace.com.

As it relates to retail, today I happened to notice that several of the interns we have here at RSAG were returning from their lunch break with shopping bags from Marshalls. I simply had to ask how they paid. Though the answer of “credit card” didn’t surprise me, the rationale certainly did.

It turns out one of these young ladies was just reissued a brand-new replacement card from her providing bank—though she reached out to no one—due to the TJX breach. Her mother was reissued one as well.

She informed me that she uses her new card, just as she did the old one—simply out of necessity. However, unlike her mother, she frequently checks her balance online, inspecting her purchase history weekly for any suspicious activity.

By way of comparison, Mom now uses the new card only at “trusted” retailers. Yet, during a vacation last week in Florida, Mom’s card was rejected at a very well-known big-box retailer. When Mom called her card company to determine why, she was told that transactions at all Florida locations of this chain were being proactively denied, due to issues of data theft.

Interesting? I thought so, particularly since this is a retailer that has yet to make any headlines pertaining to data-security issues.

In the end, what struck me most was the dichotomy of mother and daughter’s reaction: Each was attempting to exercise “safer” behavior having been affected firsthand by the TJX breach.

And though the older generation may think of itself as more privacy-sensitive and security-minded, note that the “careful” party was only protected by an outside source. These “reckless” youths are educated, cognizant, and proactively taking steps to protect themselves.

Perhaps the younger generation is more privacy- and security-savvy than previously believed. And they do love to shop.

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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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