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Retail Trends

Consumer Confidence to Corporate Culture: The State of Retailing in 2011

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Record crowds packed education sessions and a record number of exhibitors filled the EXPO floor last month as the retail industry celebrated the 100th anniversary of NRF and its annual convention & EXPO.

Back-to-back Super Sessions on January 10 focused on the health of the global and domestic economies and the increasing necessity of connecting with the ever-changing consumer base.
During “Retail’s Road to Recovery,” Mark Greene, CEO of Fair Isaac Corporation (FICO), observed that sales of premium brands outperformed mass-market brands during the holidays. “There are still problems in the labor market” and consumers remain worried, he said.

Matt Rubel, chairman, CEO and president of Collective Brands, echoed Greene’s assessment. “There are really two economies,” he said. “The upper middle class on up, they’re doing very well. In the mass market, we have 15 percent unemployment, not nine. We need to do something.”

Ian Cheshire, group chief executive of Kingfisher, one of the largest chains of home centers in the U.K., said “we’re seeing winners and losers in an overall flat European market. There are vibrant countries — the U.K., Russia, Turkey — that are on a growth pattern,” as well as “flat and fragile” nations struggling with structural deficits.

“A recession,” Cheshire said, “forces you to create your own growth instead of relying for it on overall expansion. We want to keep that orientation, even if we get a rebound.”

In “Consumer 2020: What Lies Ahead for the Retail Industry,” Ira Kalish, global director of Deloitte Research, said it isn’t just individual consumers who have tightened their belts: Countries that formerly borrowed to finance excessive consumer spending are now driven to save more, import less and export to countries like China and Brazil. At the same time, China, Brazil and other nations in similar stages of economic development will need to shift to increased consumer spending as a way of “unwinding the imbalance.”

Changing demographics will have an increasing impact on consumer behavior as “the number of workers will rise more slowly than the number of people we’re taking care of,” Kalish said, and older people tend to spend less on services and goods. Retailers, therefore, may need to focus more on immigrant populations domestically and “hot markets” – Africa, India, the Middle East – “where the demographics are good.”

“If you want to continue to grow as you did in the past,” he said, the domestic market “may not be the place to do it. Overseas will be the way to go for many retailers.”

Cathy Green Burns, president of the Food Lion Family of Banners, focused on the need for “deep personalization” and the ability to use data to drive actionable insights; Food Lion, for example, offers coupons relevant to individual consumers through loyalty card scans. “Retailers who really understand their customers are going to be set up for 2020,” she said.

Peter Sachse, chief marketing officer of Macy’s and chairman and CEO of, agreed. His organization has leveraged technology to send 30,000 versions of a highly personalized direct mail piece and recently held promotions that occurred only in social media.

“There’s no question that the consumer wants a two-way dialogue,” Sachse said. “For years, we spit stuff out to them. They want to spit it back… [and] we’ve got to have that conversation.”
Sachse made particular mention of the millennial generation, believing that the need for Wi-Fi in stores — even if it gives a consumer the chance to price shop and/or buy elsewhere — is a fait accompli.

“I’m not sure what 10 years will bring, but I think in the short term the entire world will become mobile,” he said. “And we, as retailers, need to get our heads around that.”

Great business leaders must possess entrepreneurial skills, Bobbie Lenga, managing director and global consumer sector leader for Russell Reynolds Associates, said during the convention’s closing Super Session, “The Future is BIG, the Future is NOW!” Lenga commended HSN CEO Mindy Grossman for addressing the culture of her company upon becoming its eighth CEO in 10 years, because, she said, “culture eats strategy for lunch.”

Ben Fischman, CEO of Rue La La, said “‘culture’ is really just a stand-in for ‘people.’ You have to have people who are aligned with what the company is and how it operates.

“When you interview somebody, the specific skill part of it takes about 10 minutes — really, you could do it as a multiple-choice [test],” he said. “The rest of it is about getting a feel for that person and finding out — especially in terms of pace — if they’re going to be comfortable with the company and vice versa.”

Gilt Group founder and CEO Kevin Ryan has “the same cubicle as everybody else, and we shift people’s workspaces around every couple of months. We don’t want people to get too attached to position, or to the way things are. You need to be constantly ready to change.”

Collectively, the panel insisted that while the industry needs strategic thinkers who can adapt and embrace emerging technologies, it will always need good merchants, too. “We talk about customer-centricity as though it was something new, but really, the customer has always been king,” Fischman said. “The merchant prince is the person who can make the king happy.”

Retailers, Manufacturers Collaborate on Strategy
There has long been a struggle for power between manufacturers and retailers. In the early part of the last century, iconic brands like Coca-Cola and Tide gave manufacturers the upper hand before discounting and the rise of house brands and sophisticated supply chain management shifted the balance of power toward retailers.

During this process, the relationship between retailers and their customers also changed. Retailers knew, in the aggregate, what their customers were buying, but they tended not to know why they were buying it or what they might buy next.

Now, said Rob Culin, senior vice president of consumer products for DemandTec, retailer-manufacturer collaboration is the preferred model. “The most advantageous strategy for both parties,” he said, “is détente. Growth has slowed, which affects all of us. The question is, how do we collaborate to make it better?”

Two years ago, Target Corp. made a major investment in technology. Now “we know a lot about our guests,” said vice president of merchandising process and support Shelley Hyytinen. “We know our average guest is a 42-year-old woman with children who has an annual household income of $60,000.”

Target also knows that its average guests constitute only 7 percent of the people who actually shop at Target. DemandTec is helping to identify “the others” and what influences their shopping behavior; Target is developing a plan to execute against that information.

Doug Knudsen is president of retail sales for ConAgra. One of his company’s main product lines is microwaveable meals, “and in talking to our customers, one complaint that came up was that they had to go all over the store to find a selection of them.”

To address this, ConAgra met with retailers and suggested the creation of a centralized microwaveable meals section, pulling together products from ConAgra and other manufacturers. “This is a lot different from the old, ‘How can I get more space for my brand?’ conversation,” Knudsen said. “And it resulted in an 11 percent overall lift in sales.”

Is Augmented Reality the Next Frontier?
Gordon Graylish, vice president and general manager of enterprise solution sales for Intel Corp., said four shopping behaviors — browsing, engagement, investigation and accomplishment – are so entrenched that you would have been as likely to see them in a prehistoric Arab souk as in any mall today.

Still, he is convinced that retailing is “at an inflection point,” about to experience order-of-magnitude increases in the number of mobile devices in use and decreases in their cost.
“The old view of the store was that it was about space plus product,” he said. “The new view of the store is that it is about experience.”

The MIT Media Lab is developing ways to simplify the information-gathering process. One is a wristband that would read the RFID chip on a product and automatically send information to your phone; another involves a ring and smart shelves: When you point the ring at a product, it prompts the shelf to display product information.

It all sounds like pretty edgy stuff — but not to the Media Lab’s Pattie Maes, who characterized such solutions as “baby steps.” She referenced a technology exhibited at the Intel booth. Called the LuminAR (AR stands for augmented reality), the device screws into a standard lamp base and incorporates a camera, projector, Wi-Fi interface and an Intel Atom chip and can interact with customers in all sorts of ways. You can register with it when you come into the store by showing it your phone. It will download information about you from the phone and direct your attention to the products on your wish list. If you want to speak to a product expert, it will contact one and project him on the surface below or on a nearby wall.

Diversity of Private Label Success
What keys the success of private labels is “differentiation in the marketplace … [and] filling niches that national brands don’t fill,” said Fritz Winans, president and CEO of special retail and global sourcing for Hudson’s Bay Company, whose portfolio includes not only The Bay and Lord & Taylor department stores but also Zellers discount stores, the big box Home Outfitters and Fields variety stores.

The challenge is entirely different at Guitar Center, where “it’s all about margin, not branding,” said vice president of product development Steve Kitay. “We sell rock ‘n roll — we’re the shop of the pros,” and customers come in to buy the Gibson and Fender guitars their heroes play. Guitar Center’s private label goods are priced similarly to national brands and are not readily identified as house brands.

One point of agreement was on innovation’s importance to the success of private labels. Kitay noted that many Guitar Center associates are musicians who provide a constant stream of feedback and suggestions. Innovation “can come from a lot of different places,” Winans said. “If you are not innovating, you’ll become blasé.”

Marketing to the Mobile Shopper
A recent Nielsen study indicates that, by the next holiday shopping season, half the U.S population will have smartphones. And the increasingly important role these devices play is changing the way their owners shop — and want to shop, said Bill Rosen, president and chief creative officer of Arc Worldwide, the marketing services arm of ad agency Leo Burnett.

Arunabh Das Sharma, senior director of Whirlpool Corporation’s Ad Center, said retailers “simply cannot resist this trend toward mobile shopping. We must allow mobile shoppers to enter the ‘path to purchase’ at any point.”

Retailers also need to understand the sometimes counter-intuitive effects mobile shopping is having on shoppers’ approach to some categories. Volkswagen made automobile marketing history last year when it launched the 2010 GTI on the iPhone. The “Race to Win” virtual test drive, which gave users the chance to win an actual car, became the No. 1 downloaded app in 36 countries, and gave Volkswagen an 80 percent jump in leads and a similar jump in test drives. Perhaps more significantly, it was executed for about 3 percent of the cost of a traditional auto campaign — and without a single dollar in paid media.

Mobile shopping also is causing “decisions in what we have traditionally thought of as very unpremeditated categories — where to have a cup of coffee, for example — to become more considered,” Das Sharma said. Starbucks, for example, reports that there has been an uptick in people trying new drinks now that nutritional information is available through its mobile app.

Another key insight from a fall study of mobile shoppers is that they “are not all alike,” Rosen said. Heavy users — approximately 10 percent of mobile shoppers — tend to be relatively young, male and affluent. Though this group is almost entirely responsible for the growth in mobile shopping up to this point, future increases will come almost entirely from light users who have similar approaches to shopping as heavy users but don’t do much of it via mobile because there are obstacles in their path.

Meaningful Change Takes Struggle, Understanding
Effecting fundamental change in the workplace requires an understanding of the conscious, deliberate and rational side of the brain as well as the contradictory emotional, unconscious and automatic side, said Dan Heath, co-author of the book Switch: How to Change Things When Change is Hard.

“This kind of schizophrenia, this conflicting point of view, is what makes change so difficult,” he said. Not only that, but the fight isn’t fair; one of the systems is “dramatically more powerful than the other.”

Heath showed an illustration of a man riding an elephant to make his point; the man on top represents the rational part of the brain, the part that needs direction. “The rider is convinced that he’s the one in charge,” he said. “But … if these two have a disagreement, who would you put your money on? … The emotional side may be more powerful, but it needs motivation — even in the workplace.”

Heath provided the example of a man who had developed reports showing how centralizing purchasing operations could save the large manufacturing company for which he worked $1 billion over 10 years. Upper management paid him no mind, however, until with an intern’s help, he collected more than 400 gloves from the organization’s various factories, marked them with the price paid and dumped them onto the conference room table. In a matter of months the man received approval for his plan.

Change comes more easily when we focus on altering the path rather than people and give ourselves permission to fail. “We’ve got to be comfortable with the struggle,” he said, alluding to a child’s first attempts to walk. “If that little child had fallen right on his face … is there any parent who would say, ‘Well, I guess he’s not cut out for walking — hope he can play the piano’? Great accomplishment requires struggle.”

Using Technology to Evolve With the Consumer
Common traits of dynamic businesses are a relentless focus on maximizing the productivity of its people and maintaining agile and flexible business processes, said Kirill Tatarinov, corporate vice president of Microsoft Business Solutions. Yet another is its relationship to its ecosystem: Retailers connect to the world through various sales channels and social media, and those connections represent opportunity.

Bill Fields, a former CEO of Walmart, is chairman of China Horizons, a joint venture between his company (APEC China Asset Management) and the China Post Office. Among other things, China Horizon has been tasked with building retail consumption in rural China. This, Fields noted candidly, is a political necessity; for the sake of stability, the Chinese government has to find some way to bridge the enormous affluence gap between the urban Chinese population and the 700 million living in rural areas.

To do what it has been charged with doing, Fields and his associates need to understand as much as possible about the populations they are dealing with. And that requires the systems Tatarinov referenced.

“We talk about Generation X and Generation Y,” Fields said. “Let me tell you what there really is. There’s a Generation A. It’s global, it’s wired, it understands technology, it’s multicultural, it expects more and it doesn’t buy into any of the traditional ways that we try to do things. They get their information differently, and they understand the market differently.”

Fields said Sam Walton once threatened to fire him for bringing a computer into a store. “Sam said to me, ‘That computer can tell you what you sold, but it can’t tell you what you could have sold,’” he recalled.

The difference today “is that technology can not only tell you what you can sell, it can tell you how to sell it and how to keep it sold. That is a big, big change, and we all need to embrace it. We need to embrace technology that that will allow us to sell around the world and be successful with any culture, any age, at any time.”

Robert Klaben, vice president of marketing for Morris Home Furnishings, detailed the furniture, mattress and home theater retailer’s ability to create urgency and drive traffic through a combination of print and TV ads, direct mail and store signage.

Last year the company focused on value. The plan to get them in the door — which resulted in substantial increases over the previous year — included offers like a “50 percent off plus we’ll pay your sales tax” event on New Year’s Day; a “closed to mark down everything sale” after which the 15 stores reopened with handwritten reductions over crossed-out prices; and “45 percent plus 10 percent off” sales.

Leading up to Black Friday, not wanting to offer just “another discount,” the store tried a different tactic: “This time we offered five years of financing with no interest, no deposit, no minimum purchase,” he said. “And it resulted in our strongest week before Thanksgiving ever.”

The company also pays a great deal of attention to preferred shoppers, offering private preview events that help them believe they are always getting the best value. Preferred customers might also receive better finance offers than the general public.

“The way we look at it, customers are only in the home furnishings marketplace for a very short period of time,” Klaben said. “Once they make a purchase, they’re typically not looking at home furnishings again for a couple of years.”

Ohio-based Logan AC & Heat Services faced a similar reality — customers in the marketplace once every generation or so — by boosting its presence in social media.

“People might buy from us every 20 years,” said marketing director Amanda Kinsella. “That’s why referrals are so important.” Those who refer and those who buy are given money as an incentive. Logan has a target demographic of women 55 and older with a household income of $80,000 or more, and there are more than 41,000 of them on Facebook in the Dayton area alone, Kinsella said.

Logan has been known to use Twitter, as well, sending out tweets at the end of 2010 regarding the end of tax credits. The company also pairs social media with other more traditional methods of reaching its customer by, for example, having TV and print ads lead customers online, where they can print out coupons.

Many ‘Shades of Green’
Paco Underhill, founder and CEO of global research and consulting firm Envirosell, opened his presentation with a sobering assessment. “Many of us woke up in 2011 with cars that were too big, houses that were too big, bellies that were too big and debt that was too big,” he said. “In North America, we have been showing the world a great example of how not to consume.”

Underhill offered examples of truly sustainable practices elsewhere to spark the audience’s imagination. There was a self-serve gas station on an Indonesian island, for example, where consumers could pick up gasoline one liter at a time in recyclable bottles, leaving money in return. There was also a shipping container that turned into an elegant self-contained pop-up store, as well as an Italian store with internal fixtures made entirely of cardboard.

Over the next decade, he said, the world of retail will change more than it has in the last century, and surviving retailers will place themselves ahead of the curve in terms of innovation. “There’s a reason why many stores have that little plaque that says something like, ‘Open since 1927,’” he said. “Retail is about birth, life and death.”

The next cycle of birth, then, could involve packaging. “Isn’t it possible to walk into a drugstore, then scan and read the information rather than having to print it on labels or packaging?” he asked. “As we as a nation have been trying to engineer costs out of the supply chain, one of the next steps is to look at all of that paper and cardboard and say, ‘Isn’t there a better way?’”
Retailers have a responsibility, he said, to get ahead of their customers — especially if part of what they want to “sustain” is their own organization.

“There are very few examples of retail organizations that sustain past the second, third, fourth generation,” he said. But in order to have something to pass on to sons, daughters and grandchildren, he said, creativity and innovation are going to have to play a part.

Data is Safe — Until It’s Not
The sobering reality of data security, says Robert McMillon, director of solutions development at RSA, is that hackers and thieves often “have more motivation to see that security is bypassed than the security people do to protect it.”

Peter Engert, finance manager of Rooms to Go, discussed his company’s experiences with encryption and said it is migrating toward tokenization, whereby credit card numbers are swapped for non-valuable, randomly assigned “token” numbers.

Whether the tokens are assigned per card or per transaction depends on the service; merchants who perform card-based analytics to identify customer behaviors may favor the latter. Those tokens can then allow merchants to do chargebacks, returns and voids, as well as initiate new transactions without using the real account numbers. And if those token numbers are stolen, they can’t be printed on plastic and reused elsewhere.

“As a retailer, all you have is that token,” Engert said. “The data is somewhere else. You’re letting someone else worry about where the real numbers are. We look at it as an insurance policy … We don’t want to be in the business of storing data.”

Data storage has migrated from mainframe to “multi-tenant environments, sharing services with others,” even as retailers maintain a mainframe mindset, said Adrian Lane, analyst and chief technology officer for Securosis. As a result, “You’re perfectly safe until it’s not.”

In a session on cloud computing, Darrell Sandefur, technology architect for The Kroger Co., provided general background that he hoped would inspire passion in the area — especially the idea of doing the “simple and cheap” things that could prevent some two-thirds of the security breaches typically associated with Software-as-a-Service. These include:
• Black box testing, which involves executing the application against the server environment where it will run;

• White box testing, “which gets down to source lines of code”;

• Implementing various tools and utilities that scan servers for open ports or protocols that incur vulnerabilities;

• Google alerts that allow organizations to see anything that’s been posted about the company since hackers can be boastful about what they find;

• Employing “ethical hackers” to ferret out security vulnerabilities.

As senior vice president of consumer insights for Best Buy, one of Bill Hoffman’s tasks is collecting, distilling and rendering useful the information that resides in the heads of the retailer’s 155,000 employees.

Specifically, he has developed and continues to refine a program through which Best Buy asks its sales associates — known as “blue shirts” — for insights into the thinking of its customers. They are, after all, the ones who actually talk to the customers and observe the way they interact with the products.

This approach to collective intelligence “served us well during the economic crisis, when those predictions turned out to be more accurate than most economists in forecasting inflection points in the crisis,” Hoffman said.

As Hoffman enumerated the details of Best Buy’s program, it became clear that while the idea behind collective intelligence may be simple, executing it is not.

Some of the barriers are cultural: In many organizations, the people who run things have little appetite for the opinions of their underlings — and the underlings know it, so they keep their real opinions to themselves. And even in organizations where there is a great deal of mutual respect and a shared sense of mission, the logistics can be daunting.

Best Buy’s solution is called VOCE — voices of consumers through employees. Blue shirts voluntarily answer a few questions at the end of their shifts. Hoffman’s team filters the responses — 2,000 per month — and massages them into reports for store, regional and/or corporate management.

“Eventually,” he said, “we’ll have to come up with a real ROI on this. But there’s no question in my mind that it’s working. I think this is a step change in our ability to get close to the customer.”