News

Relationship Woes

BY CSA STAFF

When Amazon.com added the critically acclaimed blockbuster “The Departed” to its product-notification list several months ago, my friend Sarah was among the first to sign on. Excited, she counted down the remaining days until its online release.

However, on the day she had been waiting for, she received no e-mail fanfare—or any notification, for that matter—that her film was finally available for purchase. Frustrated, she slumped onto the couch.

Later, while she was shaking off her heartache, we discussed her quest to buy a new camera.

“Are you getting it on Amazon?” I scoffed, thinking she had forever tossed the e-tailer aside. “Um, yeah,” she admitted. “I love them.” Wait, seriously?

“They’re really great, most of the time,” she said, like a wounded girlfriend going back for more.

Ron Shevlin, VP of client solutions at Epsilon, a Dallas-based provider of multi-channel, data-driven marketing technologies and services, rationalized this notion for me.

“Just because someone has one fight with a spouse, it doesn’t mean they’ll leave,” he said. “Business-to-consumer relationships are very similar in that they take time to build engagement.”

Shevlin, a former Forrester Research analyst, said that there are two types of loyalty: economic and emotional. “If something comes along with better prices, someone who’s in it for the economic value may jump to another retailer. But not those with emotional loyalty,” he said.

For example, Shevlin explained how a bank recently helped a couple at the last minute when adopting a child in China. “The bank bent over backwards to get them the loan needed to make everything possible,” he said. “Because of that story, they—and I—will never switch banks.”

Similarly, consumers have come to rely on Amazon as a go-to site for research, reviews and product information—even if purchasing isn’t on their daily agenda. Of course, shoppers love avoiding long lines and crowded parking lots, and if an online retailer can cut out the hassle, “Loyal shoppers aren’t going to look elsewhere,” Shevlin noted.

According to a report by Epsilon, consumers who are members of at least one retail rewards program are far more likely to spend in multiple channels.

For example, loyalty-program members spent an average of 14% more on purchases compared to nonmembers this past holiday season. Additionally, almost half of nonmembers did all of their holiday shopping in stores, compared to 22% of loyalty members. Nearly two-thirds of loyalty members shopped online, and 41% ordered from a catalog or through the mail.

Keeping online shoppers satisfied is increasingly important as they continue to spend across different channels. Although customer disappointment is sometimes inevitable, what may be more important is how retailers handle it, Shevlin said. Despite JetBlue’s February flight problems, he remains a loyal customer after the company issued a sincere apology to all fliers.

So while Sarah has yet to buy “The Departed” and still hasn’t received an apology from Amazon, she’s not breaking up with them yet—they’re working through it.

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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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