Retailers Ready for Christmas
Many retailers are expecting Christmas to be a bit less cheery this year and are taking steps to make the most of the selling season by aggressively managing inventories and by placing greater emphasis on exclusive items, according to Women’s Wear Daily.
One unidentified store president told WWD, “Our approach will be disciplined in terms of where our inventory investments are. It’s a market-share game more than ever.”
While some are concerned that economic, domestic political and geo-political issues may possibly derail the holiday, most are upbeat, if less so, than in recent years.
To differentiate in the marketplace and capture share in the process, retailers serving customers from the lowest rungs on the economic ladder to those at the highest levels are turning to exclusive products.
Kmart, for example, will sell Joe Boxer flannel pajamas for $16.99 during the Christmas sales season. In an alternate retail reality, Saks Fifth Avenue will sell a pavé diamond chain from H. Stern for Diane von Furstenberg for a measly $132,000.
“We’ve really looked for innovative, neat items,” said Saks Fifth Avenue president and chief operating officer Andrew Jennings. “It’s all about being special – the key items – and not necessarily about price, whether it’s a toy watch, skull-and-crossbones stationery or a Juicy Couture dog parka.”
Retailers, whether dealing in exclusive items or not, are looking to set a different tone this year.
Karen Stuckey, senior vice president and general merchandise manager of women’s wear and jewelry at Wal-Mart, said the retailer’s holiday merchandise will be “richer and luxurious, based in plush fabrics with special luxe trims versus the glam and glitz” of last year.
“There’s more velvet, fur, passementerie, deeper sophistication in the color palette, and rich patterns or jacquards complete the look. It’s all about luxury, romantic drama and opulence, with a nod to the Ballet Rus,” she said.
Lisa Schultz, executive vice president of Sears Holdings Apparel Design, said, “At Kmart, the focus is on great items. Sears is more about the dressing. We’re focused on mixing
and matching, so you can get a great Thalia camisole with a black pant and mix it up with jeans and heels.”
Discussion Question: What factors (inventory control, in-store merchandising, advertising, etc.) will be most critical this holiday season for retailers
trying to grow both their top and bottom lines?
The most critical factor in successful retailing this holiday season will be fun. Any store that can overcome the sphincter-tightening challenges of Christmas sales expectations by injecting some humor into their sales force, advertising, operations, and product mix will create the type of fun shopping atmosphere that customers respond to best at that time of year. On the other hand, stores can allow their anxiety to roll downhill into the stores and affect customers negatively.
“This is serious business,” quoth the CEO. “Not so fast,” respondeth the esteemed shopper. “We want to enjoy(eth) ourselves while we’re maxing our credit cards.” And thus it is so. Why else would anyone purchase the crazy stuff we buy between the third Friday in November and the first week in January? Passementerie? What the heck is that? Sounds like fun! I’ll take two!!
Many of today’s comments center on control. Controlling costs, controlling inventory, controlling overhead. No retailer ever controlled their way to growth. You can only sell your way to growth. So, retailers, how about a little lagniappe (it’s New Orleansian) this season for shoppers intent on spending more than they have? How about a little fun?
In my unscientific observations, even during last year’s fairly healthy season, many retailers went very conservative on inventory, choosing to accept out-of-stocks in some cases and force the consumer to pick something else, rather than take the inventory and mark-down hits later from avoiding out-of-stocks thru lots of inventory.
We have to keep in mind that many inventory decisions have already been made, and that by nature retailers tend to be optimistic, so I suspect we won’t see significantly different inventory strategies. But, the pessimism about the consumer is occurring at the same time many retailers are developing strategies to make their supply chains more “pull” driven and thereby lowering inventories, and being more focused on SKU-specific profitability. Wal-Mart’s ReMix and Inventory DeLoad programs are the two most discussed examples.
The bottom line is that retailers appear to be getting smarter about inventory. In the short-medium term, this will probably mean lower sales but higher profitability. In the medium-long term, we’ll figure out how to get lower inventories without missing customer demand.
Good retailers will emphasize the basics of cost control. Better retailers will take advantage of the potential weakness by attacking on the merchandising side. The best retailers will, as always, stand out with unique entertainment/buying experiences. Unfortunately, each year fewer retailers fall into the best category.
As retailers play defensive ball, they focus on the cost side more than the merchandising side. Despite the examples cited by George, most merchants play it safe and close to the vest. As a result, there are few standout items to really attract interest. Even the examples cited are weak: Saks may think a $132,000 piece of jewelry will generate some buzz but it is highly unlikely to generate overall excitement and sales.
As an example of playing it safe, look at the struggling toy category. There haven’t been any hit toys for many years. Part of the problem is that the toy manufacturers are playing things safe and retailers are being cautious by not taking chances on possible hits from small manufacturers. Everybody hopes to stay alive for another year, but nothing big happens.
We probably will find retailers running out of merchandise in early December as they try to tightly control inventories. Customers will find the stores looking rumpled and not very interesting and while retail sales won’t fall through the floor, the overall result will leave everyone feeling quite disatisfied.
Private label and other exclusives don’t mean much when they’re very similar to competitive offerings. Innovation is in the eye of the beholder. If the innovation is subtle, the margin impact will be subtle. Kmart’s and Saks’ examples certainly don’t rank high on the innovation scale. Better-managed retailers use long-range weather forecasts (Planalytics, for example) to help guide sales, inventory, and markdown plans. If cold weather comes after Christmas, for example, it might not pay to mark down winter outerwear before December 25th. And Christmas is a Monday this year, so when will the debate start on the impact of “full weekend” shopping?
This year as always, inventory management, merchandising and advertising will be important. However, in addition to that, delivering perceived value and differentiation through exclusive merchandise and private labels will be important. And this season, discipline, patience and selling gift cards will determine who’s successful on January 21, 2007.
Holiday profitability is a function of gross margin management. Three factors generally influence gross margin actions. Volume of sales, rate of sales, and competitive behavior. Unrealistic expectations concerning volume and rate of sale are, in my experience, the primary contributor to unmanaged price cutting. Right now, most retailers appear to have realistic expectations, at least publicly about Holiday. Further, I do not think, with the possible exception of Wal-Mart, that anyone will attempt a price-fueled market share ploy. Wal-Mart, with pressure on domestic comp’s, may be more aggressive than the overall economic outlook might indicate.
However, the opportunity in a season like this one, is for a competitor to act countercyclical, having planned for and built the gross margin resources to execute such a strategy. Here’s the situation: inventories are relatively under control, no major player is facing huge Wall Street pressure, and comp store metrics are tolerable. Suppose one player built inventories a little bit higher, established a little bit more gross margin buffer, and planned and executed a price-driven market share play this holiday. Given tight inventory controls, it would be difficult for the competition to respond without washing out the volume of gross margin in the lower margin rates.
Exclusives do not create gross margin insurance during any season. Most exclusives are truly differentiating or destination influencing products. They are, sadly, often simply variations on a theme, rather than truly unique and innovative. There are many reasons for this, but that’s not the focus of this question.
Gross margin management, as opposed to reactivity, is generally the strongest component of Holiday profitability.
The key for the smart retailers will be promoting their service, pricing and service. Oh yeah, did I mention customer service? Great retailing begins and ends with customer service. Until retailers recognize this, they will consistently be underperforming vis-a-vis their potential. Consumers have a low toleration level for poor service in the retail environment. This is why the Internet is booming. Price comparisons are a click away and service is determined by the user. When on-ground retailers start recognizing this, they will grasp the importance of customer service in retail.
The best bet this holiday season is to have great items in the categories your store is known for, that your core customers will love. Products should be well-priced and skewed more toward the practical and stylish as opposed to frivolous.
The annual discussion about which retailers will be the holiday season winners and which will be the losers always seems to be about which will have the most unusual merchandise, the tightest control over their inventory and will be the most aggressive marketers. Retailers that do all of these things well will enjoy some success. The retailers that do all of these things well while focusing their attention on building strong customer relationships will be the biggest winners of all. Retailers that insult the intelligence of their customers with hyped prices one week and so-called discounts the next will struggle. Retailers that claim to have great customer service only to make customers wait in long lines; make it difficult to get a refund; fail to have enough merchandise for advertised specials and generally take their customers for granted will be the losers.
The holidays represent a great opportunity for retailers to build and cement long-term customer relationships. Far too many retailers only look at this important time of the year as an opportunity to generate enough sales to sustain their business for another year. Retailing is a twelve month business and those retailers that leverage their customer relationships every month enjoy the benefits even more during the holidays.
Shopping for the holidays has never been one of my favorite activities, and part of the reason is trying to find that one special gift within a mass hysteria of “me too” items. I think focusing on special, new and different and “can only find here” will be a reason in the decision process for customers to choose where they shop.