September 24, 2012
Kroger Dressed for Success in Clothing Test
It doesn’t seem that long ago when professionals within the food industry were debating whether or not Walmart would be successful selling groceries. We all know how that worked out, and today retailers of all shapes and sizes use consumer packaged goods to drive more frequent shopping trips to stores while exposing customers to other items carrying higher rings and penny profits.
Now comes news that Kroger, a company best known for its grocery business, is testing apparel sales at one of its Marketplace format stores in Mansfield, OH. While the store will be the first carrying a Kroger banner to offer a broad selection of clothing, it is not the first company-owned location in the business. Kroger’s Fred Meyer format sells clothing and numerous other non-grocery categories in its stores.
"Selling food and clothing proved to be successful in Portland, Oregon. We are testing the concept to see if it will fare well here in the Midwest," Jackie Siekmann, a Kroger spokesperson, told the Mansfield News Journal. "We want the clothing, as well as a limited hardware and automotive section, to make Kroger’s a destination store for our customers."
The move to offer clothing raises the question of whether Kroger will be lose focus should it expand the test to a large number of stores.
"It’s a broad and bold experiment, and I think anything Kroger can do to capture more of the household spend across multiple categories is really critical," Thom Blishok, chief retail strategist at Booz & Co., told The Community Press & Recorder.
Clothing will occupy about 4,800 square-feet of space in the Marketplace store and will sell brands including Carhartt, Carter, Hanes, Levi-Strauss, Maidenform, Skechers and more. Kroger cut bath products, home decor items and and promotional furniture to free up space.
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Discussion Questions
What will Kroger need to do if it is to be successful with its clothing test in a Marketplace store in Ohio? Will other grocers follow Kroger’s lead and test clothing?
Poll
They’ll need to fool people into thinking Kroger is a great place to buy clothing — and I’m keeping expectations low. Remember, Fred Meyer was always (at least as long as I can remember) more like a Walmart, mixing grocery and general merchandise. That’s different from trying to turn Kroger into something else.
Just like more retailers are selling food because it’s a traffic magnet, retailers selling food will want to sell apparel because it’s a margin boon. Slower turn, but 50 points minimum.
It sounds like the company is selling basic, replenishable apparel. I think that’s a good idea.
The brands that Kroger is planning to test sound like the kind of basics that grocery shoppers might be willing to pick up. Fashion items and styles requiring a fitting room? Not so much. The obvious question, though, is whether Kroger can steal market share from Walmart.
As long as Kroger sticks to basic commodity clothing with no seasonality, Kroger should do fine. Apparel offers a higher average ticket and higher margins. It also comes with multiple sizes (that vary by store location) and a slower turn, which is new to most grocers. One tip, Kroger should hire someone with a successful apparel background and then listen to that person. Otherwise they’ll have an initial pop, the core sizes will sell out and sales will drop, although it looks like they have plenty of inventory. This category requires attention.
Clothing has always been a niche for supermarket retailers, but one that typically involves licensed high school,college, or professional teams in addition to some non-licensed seasonal wear, like jackets, sweatshirts, etc. These display racks typically did not “own” a particular place in the store as they were positioned as “in and out” merchandise, not to be replaced after they sold. In short, impulse items, not a destination department.
To evolve to a position of allocating a significant amount of space (4,800 square feet) and selling name brands, propels Kroger into the hypermarket classification. This model is quite different in the sense that Kroger is now positioning itself as destination for clothing and with that position comes the need to own and maintain a department that has popular brands with sufficient inventory and range of sizes needed to satisfy the shoppers needs, consistently.
Kroger may be able to pull this off in those Marketplace Stores that already are positioned as a hypermarket. Shoppers are already expecting to see expanded general merchandise categories and even high-ticket items. For other traditional supermarkets to follow, they would require the same level of aforementioned commitment to the category. I am not certain there are many out there in position to do so.
I am confounded and expect that soon we will see all stores carrying clothing, food, household products, health and beauty aids, etc. Walmart has all of these products. So does Target, Duane Reade, CVS… Loss leaders will be redefined, I suppose. But how retailers can sustain profitability is a matter I didn’t see addressed and wonder how challenging it will be.
I think a focus on basics is key. As a mom of two kids, “socks” and “a new pair of mittens” feature on my grocery list almost as frequently as things like butter and milk, and the reason why I’m such an avid Target superstore shopper is because I can get all four at the same place. Kroger’s purely grocery format just can’t compete with that. The big mistake in apparel in this segment is trying to go up-market and higher-fashion, which Walmart has tried several times and still does miserably at.
If Kroger can launch a proprietary health and beauty brand (Mirra), integrating branded apparel into the mix isn’t much of a stretch. The core is no more as retailers opportunistically jump into new categories right and left. The difference is that these days, they are leveraging new formats to test these forays instead of taking taking chain-wide risks. If it doesn’t work, Kroger can retract and pretend it never happened.
I won’t comment on Kroger specifically, but know that a blend of apparel skills and rich customer data can create a potent combination. The mix of experience, art and science is a good fit (pun intended) in this space to ensure the right merchandize and approach for driving customer loyalty.
Some grocery retailers in other markets have succeeded on this journey already. In the US most of the movement has been from general merchandize into grocery … and with some success. I personally don’t see too many grocers in the US with the position to be able move into clothing like this.
Why would a company take the risk of going outside of its core business by adding new brands and categories to its assortment? Three words: Above Average Growth.
The grocery industry typically grows sales in close parallel to levels of food inflation. They have razor thin margins, high turn categories, unique relationships with suppliers and CPG companies and scale their profit (or losses) by blowing through high volumes. Footwear and apparel is a very different story with obvious margin improvements, but lower inventory turns and a distinctly different buying and supply chain behavior.
Kroger executives are smart folks and have a lot of experience with Fred Meyer; they also are aware of the hypermarkets in Europe and elsewhere. Already they’re focused on basic lines and solid brands. They’ll figure it out, add some apparel expertise to their executive suite, and eventually redefine a consumer’s grocery shopping trip. It’ll be all about the execution and how well they adapt to results in the market. No risk, no gain.
You know, it worked for Loblaw so, I can see why they’d want to test it. But, IMO, Kroger should stick to groceries and do a better job of that, especially on the fresh side. I’m not opposed to testing anything, but in this case, I’d think about what happens if the test works. Loblaws built Joe Fresh within their big stores; can Kroger do that and do it well? Doesn’t look like it to me.
Adding clothing will take a very careful assessment for success. As Lee Peterson wrote, Loblaws has done very well with Joe Fresh in Canada, now moving it into selected US stores. There was a lot of work to develop an exclusive line for Loblaws by Joe Mimram, co-founder of Club Monaco. Early concepts to expand range started with an expanded home furnishing sections, higher quality and style linens, etc. with a design edge.
Joe Fresh clothing concepts were explored across Loblaws banners and regions, before the broader scale introductions. As well, Loblaws has a solid supply chain to provide new items for all stores on a very frequent basis. Other approaches suggested by panelists, to focus on commodity/children essentially may also make sense for Kroger on a national basis.
These Marketplace Stores have been successful for Kroger. The area in that back corner with furniture always felt “dead” to me. This may be a better way to drive more activity back there.
Fred Meyer is an excellent hypermarket format; it doesn’t get the credit it deserves due to being such a low store count in markets often ignored by the analyst community. I believe these “Marketplace” Stores are the bridge to Kroger expanding the Fred Meyer format nationwide. They are no doubt gaining merchandising insight through the current scaled back efforts.
Traffic and trust are keys to success; Kroger has both.
Finding additional products that their customers are already buying makes sense. It requires a re-definition of how they define their stores, a cultural shift and lots of training. Customers tend to be more elastic than employees.
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They’ll need to fool people into thinking Kroger is a great place to buy clothing — and I’m keeping expectations low. Remember, Fred Meyer was always (at least as long as I can remember) more like a Walmart, mixing grocery and general merchandise. That’s different from trying to turn Kroger into something else.
Just like more retailers are selling food because it’s a traffic magnet, retailers selling food will want to sell apparel because it’s a margin boon. Slower turn, but 50 points minimum.
It sounds like the company is selling basic, replenishable apparel. I think that’s a good idea.
The brands that Kroger is planning to test sound like the kind of basics that grocery shoppers might be willing to pick up. Fashion items and styles requiring a fitting room? Not so much. The obvious question, though, is whether Kroger can steal market share from Walmart.
As long as Kroger sticks to basic commodity clothing with no seasonality, Kroger should do fine. Apparel offers a higher average ticket and higher margins. It also comes with multiple sizes (that vary by store location) and a slower turn, which is new to most grocers. One tip, Kroger should hire someone with a successful apparel background and then listen to that person. Otherwise they’ll have an initial pop, the core sizes will sell out and sales will drop, although it looks like they have plenty of inventory. This category requires attention.
Clothing has always been a niche for supermarket retailers, but one that typically involves licensed high school,college, or professional teams in addition to some non-licensed seasonal wear, like jackets, sweatshirts, etc. These display racks typically did not “own” a particular place in the store as they were positioned as “in and out” merchandise, not to be replaced after they sold. In short, impulse items, not a destination department.
To evolve to a position of allocating a significant amount of space (4,800 square feet) and selling name brands, propels Kroger into the hypermarket classification. This model is quite different in the sense that Kroger is now positioning itself as destination for clothing and with that position comes the need to own and maintain a department that has popular brands with sufficient inventory and range of sizes needed to satisfy the shoppers needs, consistently.
Kroger may be able to pull this off in those Marketplace Stores that already are positioned as a hypermarket. Shoppers are already expecting to see expanded general merchandise categories and even high-ticket items. For other traditional supermarkets to follow, they would require the same level of aforementioned commitment to the category. I am not certain there are many out there in position to do so.
I am confounded and expect that soon we will see all stores carrying clothing, food, household products, health and beauty aids, etc. Walmart has all of these products. So does Target, Duane Reade, CVS… Loss leaders will be redefined, I suppose. But how retailers can sustain profitability is a matter I didn’t see addressed and wonder how challenging it will be.
I think a focus on basics is key. As a mom of two kids, “socks” and “a new pair of mittens” feature on my grocery list almost as frequently as things like butter and milk, and the reason why I’m such an avid Target superstore shopper is because I can get all four at the same place. Kroger’s purely grocery format just can’t compete with that. The big mistake in apparel in this segment is trying to go up-market and higher-fashion, which Walmart has tried several times and still does miserably at.
If Kroger can launch a proprietary health and beauty brand (Mirra), integrating branded apparel into the mix isn’t much of a stretch. The core is no more as retailers opportunistically jump into new categories right and left. The difference is that these days, they are leveraging new formats to test these forays instead of taking taking chain-wide risks. If it doesn’t work, Kroger can retract and pretend it never happened.
I won’t comment on Kroger specifically, but know that a blend of apparel skills and rich customer data can create a potent combination. The mix of experience, art and science is a good fit (pun intended) in this space to ensure the right merchandize and approach for driving customer loyalty.
Some grocery retailers in other markets have succeeded on this journey already. In the US most of the movement has been from general merchandize into grocery … and with some success. I personally don’t see too many grocers in the US with the position to be able move into clothing like this.
Why would a company take the risk of going outside of its core business by adding new brands and categories to its assortment? Three words: Above Average Growth.
The grocery industry typically grows sales in close parallel to levels of food inflation. They have razor thin margins, high turn categories, unique relationships with suppliers and CPG companies and scale their profit (or losses) by blowing through high volumes. Footwear and apparel is a very different story with obvious margin improvements, but lower inventory turns and a distinctly different buying and supply chain behavior.
Kroger executives are smart folks and have a lot of experience with Fred Meyer; they also are aware of the hypermarkets in Europe and elsewhere. Already they’re focused on basic lines and solid brands. They’ll figure it out, add some apparel expertise to their executive suite, and eventually redefine a consumer’s grocery shopping trip. It’ll be all about the execution and how well they adapt to results in the market. No risk, no gain.
You know, it worked for Loblaw so, I can see why they’d want to test it. But, IMO, Kroger should stick to groceries and do a better job of that, especially on the fresh side. I’m not opposed to testing anything, but in this case, I’d think about what happens if the test works. Loblaws built Joe Fresh within their big stores; can Kroger do that and do it well? Doesn’t look like it to me.
Adding clothing will take a very careful assessment for success. As Lee Peterson wrote, Loblaws has done very well with Joe Fresh in Canada, now moving it into selected US stores. There was a lot of work to develop an exclusive line for Loblaws by Joe Mimram, co-founder of Club Monaco. Early concepts to expand range started with an expanded home furnishing sections, higher quality and style linens, etc. with a design edge.
Joe Fresh clothing concepts were explored across Loblaws banners and regions, before the broader scale introductions. As well, Loblaws has a solid supply chain to provide new items for all stores on a very frequent basis. Other approaches suggested by panelists, to focus on commodity/children essentially may also make sense for Kroger on a national basis.
These Marketplace Stores have been successful for Kroger. The area in that back corner with furniture always felt “dead” to me. This may be a better way to drive more activity back there.
Fred Meyer is an excellent hypermarket format; it doesn’t get the credit it deserves due to being such a low store count in markets often ignored by the analyst community. I believe these “Marketplace” Stores are the bridge to Kroger expanding the Fred Meyer format nationwide. They are no doubt gaining merchandising insight through the current scaled back efforts.
Traffic and trust are keys to success; Kroger has both.
Finding additional products that their customers are already buying makes sense. It requires a re-definition of how they define their stores, a cultural shift and lots of training. Customers tend to be more elastic than employees.