News

Unilever and Sam’s Club team up for dads

BY CSA STAFF

Unilever is trying to grow sales of men’s skin care products by targeting fathers with innovative workshops at Sam’s Club.

Dove Men+Care and Family First's national nonprofit fatherhood program, All Pro Dad, will present All Pro Dad in-Club interactive workshops at 60 Sam's Clubs in the Top 30 markets across the country on Jan. 17.

These workshops will showcase special ways for fathers and kids to connect with "Kid Time Coupons" and "10 Ways to Be an All Pro Dad Trading Cards." A complete list of participating Sam's Club locations can we viewed online at www.allprodad.com/dove.

Darrin Gray, director of partnerships at Family First and All Pro Dad, said: "Dads are so awesome! That's why we are thrilled to partner with Dove Men+Care and Sam's Club. Together, we will celebrate dads for being champions to their kids."

All Pro Dad, a national nonprofit, has successfully served millions of fathers for more than 17 years by providing special resources for fathers and positioning fatherhood as a top national priority.

Sam's Club operates 645 warehouses all over the world.

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FINANCE

Wet Seal files Chapter 11

BY Dan Berthiaume

Foothill Ranch, Calif. – In a move that was somewhat expected, The Wet Seal Inc. has filed for Chapter 11 bankruptcy. The move comes a week after the struggling teen retailer said it was closing 338 of its stores, leaving it with approximately 173 stores nationwide.

“After careful consideration, the Board of Directors unanimously concluded that filing for Chapter 11 was the appropriate course of action for the Company,” said CEO Ed Thomas.

Wet Seal plans to continue operations with a $20 million loan facility that is part of a debtor in possession financing arrangement it has reached with B. Riley Financial Inc. The company also has $31 million in cash on hand.

Wet Seal has asked the court for authority to make wage and salary payments, continue employee benefits, and honor gift cards and returns on purchases prior to the bankruptcy filing. The retailer said it intends to rebuild its business based on its existing stores and Internet business.

The Wet Seal announced it would close 338 stores, or about 66% of its total portfolio, on Jan. 7, resulting in the termination of some 3,695 full- and part-time employees. The retailer said the decision to close the stores was based on its overall financial condition and an inability to negotiate meaningful concessions from its landlords.

Similar to many other teen apparel retailers, Wet Seal has been hurt by a combination of slowing mall traffic and increased competition from such fast-fashion players as Forever 21 and H&M, and online upstarts. The company lost more than $150 million during the past two years.

In December, the retailer warned that it could file for bankruptcy protection if it was unsuccessful in addressing short-term liquidity needs. The retailer had previously engaged Houlihan Lokey and FTI Consulting to help it explore financing alternatives.

In the past month, fellow specialty apparel retailers Deb Shops, Delia’s and Body Central have also filed for bankruptcy.

“After careful consideration, the board of directors unanimously concluded that filing for Chapter 11 was the appropriate course of action for the company,” said Ed Thomas, CEO of Wet Seal. “Overall, we continue to believe in The Wet Seal and remain committed to executing on the strategic steps that we already started. We are thrilled to be working with B. Riley and other constituencies toward the successful and prompt emergence of the Company from Chapter 11.”

The Wet Seal bankruptcy case is in the U.S. Bankruptcy court District of Delaware; case no: 15-10082.

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Analysis: Target’s Canadian Lessons

BY CSA STAFF

In reviewing Target’s troubled expansion into Canada, Kantar Retail breaks down the misfires into a finance-operations model:

BRAND

Canadians are not Americans: Target did not fundamentally believe Canadians had significantly distinctive needs and expectations, as both the retailer and shoppers may have taken Canadians’ desire for stores that were just like those in the U.S. too much at face-value. Canadians have different value-for-money expectations, and the competitive retailer set makes their choices very distinct from those in the U.S.

Expect More than what?: The U.S. is a more unequal society than Canada, with social dynamics that encourage an “aspirational” edge for retail. Target thrived off this dynamic as positioning itself as a place where shoppers can “Expect More” than at retailers like Walmart. In contrast, Canadians have fewer income-based retailer distinctions because there are just fewer national retailers to choose from—many of which are home grown and intimately familiar with their shoppers’ wants and needs (Loblaw, Shoppers Drug Mart, Sobey’s, Canadian Tire).

Winning marketing does not win sales: Advertisements, in-person marketing campaigns, and special events wowed Canadians and revved expectations much higher than what Target was able to provide.

Competitors were on notice: Because of the nature of its real estate deal with Hudson’s Bay, everyone knew that Target was coming in two years prior to a single Target banner store opening. While this was unavoidable, Target did not consider their ramp ups as seriously as it should have, as they tightened their assortments, value propositions, and loyalty programs.

FINANCE

Unrealistic expectations: Prior to launch, Target announced that sales rates would exceed that of its U.S. stores. With that goal in mind, Target Canada profitability would have needed to exceed Walmart Canada’s.

Traffic incentives weren’t as strong: Target was not able to get traction from its frequency driving initiatives. Its grocery assortment was not as attractive as other retailers, hurting its ability to gain replenishment trips (with out of stocks also exacerbating the situation). REDcard sales penetration never exceeded 5%, indicating Canadians’ unwillingness to invest the time to sign up for the program for the 5% discount.

Who’s Paying Less?: Target was expecting margins to be higher in Canada, not lower, as the retailer decided that retail prices were to be marked to market. Unfortunately, due to unclear expectations, Canadian guests were led to believe they were to be offered U.S. pricing. Not only did this outrage guests, but Target’s efforts to “sharpen” pricing pushed the retailer to earn less through reduced margins as the company scrambled to make amends—without a pronounced effect on shoppers.

OPERATIONS

Faster is not better: While Target gave its competitors a two year notice, it decided to hit the market with an incredibly fast roll out of 124 new stores. The Canadian market entry was the company’s largest store expansion in its 50+ year history. Given the huge costs, it was startling that Target planned out long term inventory, staffing, and operating decisions depending solely on U.S. models, because they didn’t have data from actual Canadian sales.

IT infrastructure was untested: Target tried to start with a fresh infrastructure, but like the Target.com re-launch a few years before, the size of the project was too unwieldy for such a large roll out. The system was overwhelmed and error prone, requiring Target to hand count each store’s inventory in late summer.

Inventory and logistics were swamped: Too much of some things, and too little of others was one of the first problems that developed. However, it was months before Target was able to get its operations under control to consistently improve its in-stock positions in the stores. Clearance items glutted the stores, causing Q4 2013 to end on a stunning 4.4% gross margin.

“As Target finally closes out its Canadian chapter, it is clear that its new management is laser focused on revitalizing its U.S. operations,” noted Amy Koo, senior analyst at Kantar Retail. “As the Canadian operational strains and costs subside, some of the margin pressures will diminish for both its suppliers and buyers."

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