BrainTrust Query: It Takes More Than Exclusive Lines
Commentary by Ted
Hurlbut, Principal of Hurlbut & Associates
Through
a special arrangement, presented here for discussion is a summary of
a current article from the Hurlbut & Associates blog.
In a Reuters piece
that appeared on March 2, J.C. Penney CEO Myron Ullman said, “Department
stores must keep ramping up exclusive lines of clothing and accessories
if they are to win market share from rivals and thrive in the still sluggish
U.S. consumer spending environment.”
He then went on to say,
“There are too many department stores that are the same. If everything
is the same, then it’s where you get the better parking spot.”
It’s a great way of putting
it. If every store is the same, it all comes down to convenience and, by
the way, price. Which is why retailers from Penney’s to Macy’s are chasing
exclusive lines.
Mr. Ullman went on to
tell Reuters that, “more exclusives will help Penney brush back
the competition and boost the bottom line given their higher profit margins
compared with widely available brands.”
Not necessarily. It takes
more than exclusive lines.
Department stores and
every other apparel retailer have been offering customers a “sea of sameness”
for several years now. The problem hasn’t been the labels in the garments;
it’s been the garments themselves. To customers, whose eyes have glazed
over, it’s all become just stuff. When’s it going on sale? When’s the next
markdown? (It’s more likely that the best way for department stores to
protect their margins in the current environment is to manage their inventories
very tightly, and avoid markdowns as much as possible, as recent reports
suggest.)
The challenge for department
stores, and their exclusive designer lines, is how to create distinctiveness
without taking the kind of fashion risks that might alienate their broad-based,
middle-America target customer. More likely than not, at the end of the
day, the fashions will be safe, and all that’s going to be distinctive
is the hangtags.
This is important for
independent retailers to understand, especially fashion boutiques. Many
have built not just their assortments, but their positioning around lines
that they carry exclusively in their markets. Over the past year-and-a-half,
however, that has been scant protection from the forces rippling through
the retail world. Even to these customers, it’s come to look like just
more stuff.
Differentiation requires
real difference. Real difference in the world of independent retailing
begins with an entrepreneur’s vision, and the compelling execution of that
vision. For fashion boutiques, it might be the unique feel of the store,
from funky to chic, or it might be the incredibly personalized service,
or the discerning, captivating taste level of the owner or buyer. In this
moment in time, however, it’s got to be more than just the labels on the
merchandise.
Discussion
Questions: To what degree do you think exclusive labels are helping
department stores differentiate themselves? How does the push toward
exclusive labels by department stores affect independent retailers
in the fashion space and how should they respond?
I think Ted’s got it pretty much right.
The problem with department stores, along with their “sea of sameness” is it’s a jumbled up and confusing sea of sameness. I probably have said this a thousand times, but I’ll say it again. If I want to buy a black blouse, I have to go to about 20 different rounds in 20 different parts of the store. Once you’ve wandered around that much, it all really DOES look like a sea of sameness, private label or otherwise. And if I like one particular designer, why in heaven’s name wouldn’t I just go to a specialty boutique that specializes in that designer/brand?
The legacy of department stores and the way they are laid out will be their undoing if they don’t wake up and change. The “exclusive” brands-within-a-brand are making the brand managers crazy, and the constant pressure for markdown money is also hurting them badly. The layout and lack of innovation is making the customers crazy.
Department stores remain product-centric…and while products are obviously important, management would do well to think about the customer experience too.
I agree with Ted Hurlbut’s point of view about exclusive lines. One of the biggest changes in the retail landscape over the past five years has been the move from national brands carried across several competing retailers to “exclusive labels.” Sometimes these have been well-executed, with a compelling design point of view and brand positioning. Just as often, however, these brands have been created mostly as margin plays, so one retailer can avoid competing on price with another. JCPenney has been especially guilty of layering one “exclusive brand” on top of another, with very little editing, with resulting confusion, especially in the women’s apparel zone.
Apparel companies have jumped onto the “exclusive brand” bandwagon as a way to please their big national accounts, but with very little differentiation in product development. So the “sea of sameness” still exists even though the label names might be different from store to store. Retailers need to approach this challenge carefully: “Exclusive label” proliferation might benefit the store’s margins in the short run but can quickly dilute the overall brand position that management is trying to achieve.
Ted, I couldn’t agree more. Exclusive lines have been portrayed as the ticket to department store salvation for far too long even as Target, Walmart and even dollar stores grab more exclusives through direct brand deals, licensing arrangements and good ol’ private label. We are entering a brand agnostic era and department stores need to get in touch with that. The fact is, shoppers not only don’t always know a private label when they see one, increasingly, they don’t care one way or the other.
Penney’s numbers may be on the uptick; however, every addition to their brand portfolio (and Macy’s too) leaves me completely baffled. These are brands that no doubt have a great story when displayed in a showroom at contract time but that end up looking like an undifferentiated mess on the floor, particularly post-markdown (which for Penney’s is often week one). I’m preparing a blog posting on John Paul Gaultier’s collection at Target; one that was inspired by various “muses” and that comes off wonderfully on the Target website. In store? The muses blur into messes as everything gets hung together on plastic hangers in one big, mismatched presentation. Such great inspiration…getting lost in translation.
It’s time for department stores to widen the gap between themselves and discounters and exclusive branding obviously is not the differentiation vehicle. Service, connectivity and excitement are the big opportunities. Shoppers lead fast-paced, constantly-connected, exciting lives outside of the store. I would posit that they don’t want or need the shopping environment to be an “oasis” (as the ideal state is often described) so much as a carefully edited continuation. Any takers?
My question is, yeah, you have exclusive lines, but are you offering the level of service those lines demand? Exclusivity does parallel premium service and a rack full of clothes that I can’t get anywhere else isn’t going to make me want to buy any of it when the zombie behind the cash register (or in some cases, no zombie at all) could care less if I live or die. Exclusive lines calls for premium service to be attached to that.
Doron said it all!
“Exclusive” labels in any national retailer is a very questionable strategy, bordering on an oxymoron. A national chain has millions of square feet to fill. They have to offer competitive pricing and lots of promotions. They have a single buying office and essentially homogeneous assortments nationwide. As a result, they are buying from equivalently huge suppliers who, in turn, do business with a handful of mega-importers like Li & Fung. The irony, of course, is that all these “exclusive” brands come out of a handful of design departments. The only real innovation here is in the label design. The point is that it is silly to expect true innovation from the large national chains.
The specialty chains are a bit better as they are vertical and, in a few cases, are run by some truly creative merchants like Mickey Drexler. The independents are the best place to look for innovation.
The only way, however, that there will be true innovation is when there is an environment that nurtures new designers by allowing them to make a profit on a small scale. Inevitably this means a more expensive product. Put another way, is true innovation worth 30% more? After decades of retailers relentlessly training customers to focus on price, and given the current environment, will the consumer support this innovation?
The only reasons I go to department stores today are 1) exclusive lines that I know are to my taste and pocketbook before I even enter the store, 2) cosmetics lines I can’t get anywhere else, 3) gift wrap and shipping options, and 4) service.
With a nod to Dorothy Shaver, there is still room in the marketplace for a department store that finds its consumer, and tells him/her “I have what you want, from your apparel to your home. I understand you, I share your values, and I am a part of your community. When you shop with me, you are getting a merchandise line tailored to you and your family, and you differentiate yourself just a bit from the masses, and you can be around people like yourself–both fellow shoppers and the sales personnel.”
Belk has perfected this as well as any store I know, and I’d put Lord & Taylor in second place. As far as Belk’s, my family (three generations) has not been so store-loyal in 30 years, when our local department store was at its peak. Belk “gets” us.
Ted is correct, of course, as are the majority of the comments above. Exclusive lines certainly allow for ‘differentiation’…but that differentiation has to also be ‘relevant’. Relevance means the differentiation is both important and positive to whoever the target customer is. It’s not enough to just be ‘different’, especially if that difference is negative as viewed through the eyes of the customer.
In addition, as alluded to above, one can differentiate with relevance in ways other than ‘product’, with the most notable being ‘service’ and ‘price’. Walmart has chosen the latter path. Specialty stores typically select the ‘service’ path to provide relevant differentiation.
The more relevant differentiation offered relative to competition, the greater the chance a retailer has to ‘win’ in the marketplace…the less, the greater the likelihood the retailer will eventually go down in flames.
‘Own brands’ are potentially a step in the right direction (or, they may be a step in the WRONG direction if they come to stand for ‘cheap, mushy peas’, as in many supermarkets). But ‘own brands’ are by no means enough to win in the marketplace.
Exclusive brands are an evolution on private label. Where Macy’s was successful in establishing some of their private label as “brands,” most private label lines of apparel have not reached a similar acceptance or share of mind.
Exclusive brands work to the extent that description applies and is valued. Having a derivative of Liz Claiborne, when there are four other “exclusive brand” derivatives of Liz in other stores, does little to differentiate. However, being the sole location that has moderate, department store inspired fashion by an aspiration designer…that may indeed serve to differentiate.
Also built into the equation is the coherence, reach, and frequency of the advertising and promotion the retailer is willing to do in support of that brand. Simply putting the merchandise in-store, even with appropriate signing and display upgrades, does not suffice to create a brand experience. In all too many circumstances, the exclusive brand “price” (royalty) being paid is considered sufficient and results in no significant marketing spend in support of the brand. While this may not be necessary when an exclusive brand is active in the consumer consciousness and continues to remain active through its own advertising or exposure, it IS necessary when a brand is on the downslope or no longer promoting itself.
And all too often, the exclusive branding does NOT come when a brand is active and vibrant in the consumer consciousness. This is why celebrity lines have appealed to retailers. If the celebrity is current, still in the prime of their celebrity career, then there is every reason to believe that their “brand” will remain current with consumers for some time.
While I will agree with all the posted comments, exclusive brands (private or control label) is growing in department and mass retailers because it’s all about the margins and protecting job security of the CEOs. Obviously another example of American business thinking in terms of short-term planning. Remember the Japanese auto invasion of the early 70s when the big 3 auto makers kept their heads in the sand?
The COO of Wal-Mart in his recent presentation to investors stated that his review is also based on margins and same-store sales.
One only has to think back to A&P, the dominant national food retailer in the 50s-’60s, that concentrated heavily on their PL brands (Ann Paige, etc) and lost significant market share and had to stave off bankruptcy.
Innovation, not duplication is the key to long-term success. Think Apple.
Differentiation requires real difference.
Service is mission critical. It’s great that I can go to J.C. Penney for exclusive lines. However, once there, the customer service is non-existent.
By and large, Nordstrom and Von Maur–to name several–try to provide the customer with a well-groomed, experienced salesperson to assist the customer with their wardrobe selections. This added value has been a differentiation for Nordstrom and Von Maur. In today’s 2.0 world technology can offer new solutions to retail’s changing needs. So can better and more exclusive lines. However, to create raving fans, retailers need to look at history; building business by hiring the right people, training them effectively, and inspecting what they expect is mission critical, especially in our current economic climate.
Case in point; yesterday I had a 4 o’clock event. I arrived very early, the mall was across from the event, and I walked into Macy’s in the western burbs of Chicago. I was very well dressed; as I walked into the men’s department two associates, one leaning and one standing, looked at me and went back to leaning and standing. Did they engage? No. Did they suggest an item or sale? No. Did they try to turn the browser into a buyer? NO.
So having exclusive lines is a minimum expectation, having your sales associates trained and expected to serve the customer is imperative to thrive and survive. Say I would have bought a $30.00 Michael Kors dress shirt and tie at $25.00 for a $55.00 total. Take the example of turning that browser into a $55.00 sale at 840 locations; that equals $46,200.00 in added sales for that transaction alone; that’s huge!
Retailers walk in more business by accident than by creating sales on purpose. Will exclusive lines add to retailer’s differentiation? Yes, expecting consistent service from your associates is the missing link for most retailers. Those that focus on great product and great service with a great environment will get raving fans.
I think there is merit in almost all of these comments, but yet the elephant in the room is not really addressed: if the same exact piece of clothing is available in multiple stores say, in a given mall (as well as online), is there really anyone who thinks (especially in this environment) that service, ambiance, etc, are really going to trump price, with a little bit of “convenience” thrown in?
So, you are selling a commodity good, which almost by definition means low margins and profits. And, by the way, showing my bias, this means supply chain efficiency becomes the key bottom-line differentiator.
There is also the factor of what brands seem to be able to control retail discounting more, whether that is by contract or otherwise (e.g., Polo). That then limits inter-retailer price competition, so the other factors have more of play.
I would just point to the brilliant job appliance manufacturers have done for years, where they somehow manage to largely avoid having the exact same models in competing chains. Similar, but not identical.
There are myriad factors in a retailer’s success or lack thereof, but selling primarily what everyone else does in a fashion business seems unlikely to be a big driver of success–unless your supply chain can get it to the shelf at a lower cost than the other guy’s.
I pretty much agree with what everyone here has said (so how can I differentiate myself?) As has been noted, at the end of the day, each type of business has pretty much the same core offerings: sandwich shops all offer pretty much the same sandwiches, men’s departments offer pretty much the same types of suits and ties and shirts, etc; and yet, despite this, SOME businesses manage to stand out: Chick-fil-A is noted for being closed on Sundays, Nordstrom and Von Maur are noted for service, Barney’s is known for being “fun”… but then we come to that threatened species known as the (mid-market) department store: what are they known for at the moment? It is (being in) a middle ground that seems to be the worst possible place–less service and selection than a specialist, but higher prices than a discounter. But it wasn’t always so; if you are my age, you can remember when the retail world was summarized by a mall that was a collection of small shops and three anchors: Sears (or Wards), Penney’s, and some local store (now sadly but invariably remembered with “It’s Macy’s now”); each had its place in the firmament: Sears was “value,” Penneys was for people who had more fashion sense than Sears offered, and the local store had that “je ne sais quoi” quality that told you what town you were in and why you were glad to be there. That order seems to have been lost–perhaps forever–and I agree that signing on the latest nine-days-wonder to an “exclusive” line isn’t going to bring it back.
I totally relate with Paula Rosenblum; if I have to shop for a black blouse I do not want to go twenty different rounds in 20 different parts of the store. I think it’s about time that department stores really revisited their perception of how customers shop and how they really do….
Yes, it is sea of sameness out there and retailers need to really help customers to make their decisions easy. They need to study the consumer decision process in the store. Does the customer look at the brand first or does the customer come in to buy for an occasion and perhaps redesign the layout based on it? The problem with the exclusive brands as is rightly pointed out, is that a couple of months after their introduction it all looks the same. Hence, if a retailer needs to really differentiate, merchandisers–while merchandising a category/style–have to look it as a whole and try to avoid duplicates, even if they are in different brands.
When retailers use their own in-house brand (like Macy’s I.N.C.) there could be an opportunity for increased margins, provided there aren’t excessive markdowns.
However, some retailers pay an extra 7% in licensing/royalty fees for an exclusive outside brand or celebrity line.
In either case, retailers usually can’t get guaranteed margins for their exclusive brands the way they can for the national brands. (The retailer “owns” the exclusive goods vs. the goods “being on wheels” in the case of national brands.)
So the pros and cons of exclusive lines must be carefully weighed. The content, quality and sell-throughs of the assortment are almost more important than the exclusive label itself.
Wow, the comments are all terrific and I agree with everyone.
I see several big problems that face retailers today — and this especially applies to the middle of the market. If you are a discounter, then just having an assortment at low price is enough and that is what is expected. But at a higher level more is expected and more should be provided.
A big problem is the staff — many of them seem to be punching a time clock and have ZERO care if they do anything other than hold up the wall for the time they are present. I do not know how you fight the complete disinterest of people you are paying to be present. This is partly on the companies too. I do not expect someone on the sales floor at Target or at Marshalls to help me nor would I ask their advise but at Macy’s, Penny’s and higher up the food chain. Associates should be interested and also educated about their product. This is NOT a hard thing but it DOES require a little work, organization, and logistics. And perhaps the bad word – commission — is not the 9-letter word it has been made out to be. Maybe the increase in sales and subsequent trust by the consumer of the particular store would be worth the costs, and the “interest” of the associates in increasing their potential earnings would create a better environment for all.
Secondly – let’s face the fact that the reason the department store is dying is because they have forgotten who they are. The old saying, “the show’s the thing” could not apply MORE. John Wanamaker and most of the old time merchants who built thriving successful companies all understood this. “But Bill,” you say, “they did NOT face all the competition and the price stresses that today’s stores do!” Give me a break.
Any major city in any year had unbelievable competition and, in all this, these merchants large and small were successful. The most successful stores which survived, all the way to our recent time, were skilled at price point and selection and knowing how to throw the show. Immediately in my mind is Marshall Field, to its last days it remained a broad scale retailer that KNEW how to merchandise, assort, and create excitement and somehow KNEW how to find – groom – and keep sales associates that were beyond expectation!