January 14, 2009
NRF: The Sky Has Fallen
By Tom Ryan
In a session entitled
"The Sky Has Fallen: Now What?" held Tuesday at the NRF convention, J.C.
Penney CEO Myron "Mike" Ullman III, along with two financial experts, offered
a dismal assessment of the current environment. The primary advice: hoard
cash.
"I wouldn’t worry about
anything else for the next year," said Peter Solomon, founder and chairman
of Peter J. Solomon Co. "You are selling on a survival basis and you
have to survive… Don’t worry about investing and if you survive, you’ll
somehow figure it out a year from now."
Mark Zandi, chief economist
at Moody’s Economy.com, said that while the last recession was an income-statement
recession, this one is both an income-statement and balance-sheet recession.
The difference is that the steep losses in housing and stockholding values
have created a double-whammy, according to Mr. Zandi, and it is expected
to play a permanent "psychological" role
in the way people decide what to buy. He also noted a new trend toward
conservative buying among younger people that may persist even after
the recession is over.
"This is an end
of a long run," added Mr. Solomon, who noted that for years easy credit
allowed stores to keep expanding as consumers kept spending. Now,
he said, consumer demand and retail have "caught up with each other."
At the conclusion of
the presentation, each panelist was asked when he thought the economy might
turn and what retailers should do to ride out the period.
Mr. Ullman said he expected
2009 to be "a tough year all year" with growth likely to resume
again in 2010. Echoing other panelists, Mr. Ullman stressed the importance
of preserving cash by reducing capital expenditures and better utilization
of inventories. Said Mr. Ullman, "The extent that you can order correctly
in advance, or move your inventory through the system more expeditiously
with shorter lead times..those are things that are going to help you."
Mr. Solomon said it’s
difficult to predict a turn, noting that 2009 "is going to be
a nightmare." While leadership overall will be critical, he underscored
the importance of surviving the shakeout.
"The retailers that
go bankrupt today are going to be liquidated," said Mr. Solomon. "And
while they’re going to be liquidated for the technical reason that there’s
no financing, they’re going to be eliminated because the demand isn’t there
for retail space in America and it’s not going to be. So if you’re still
in business, you’re already in better shape."
Said Mr. Zandi, "The
next six months are going to be very painful. The next six months after
that are just going to be painful, and 2010 is going to be uncomfortable.
So in the end, 2009 will be a matter of survival, and I would use 2010
to prepare for opportunities in 2011."
Discussion
Questions: What is your view of the advice given by Mike Ullman, Mark
Zandi and Peter Solomon at NRF?
What advice do you have for retailers to navigate the next two or three
years?
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My advice is for retailers to adopt checkbook spending, like customers are–only buying what you can pay for. But two levels of investing are priority. Spending to buy the customers confidence and trust is the first. Advertising low prices and new levels of service are a waste of money. Advertising quality for price paid, being forthright and to the point about features and benefits, contributing to causes and ideas that are important to your customer, these are the things that are actions that will help the retailer survive.
I would use the time to really listen to customers. Remodel or put up new stores where the customer needs them, not where developers are offering a deal. Be seen, heard and active in the customers’ world. It is not about poor us, we are losing sales (the retailer), but we see your pain and are here to help you through this difficult time (the customer).
The retailer who is seen now as a leader in helping out the customer, will reap rewards in 2010 and beyond.
For heaven’s sake, enough with the gloom and doom already! I believe that it is irresponsible of retailers to talk in this way for all the world (of consumers) to hear and internalize. What possible good does that do? I’m talking with my clients about grabbing market share and building post-pull-out platforms that address the “new normal” (assuming that things will never be the same but not planning for eternal hell either). Time to hit the “reset” button.
I wasn’t aware that the NRF Meeting features vaudeville, but the over-the-top remarks by Mr. Solomon remind me of one of those skits where some hysterical person gets slapped in the face at some point. As for “experts”–in general, not necessarily just the ones quoted here–were they making these kind of doomsday forecasts a year ago, and if not, why should we listen to them now?
As I frequently am, I’m pretty much with David on this one: “My advice is to not listen to the news and just run your business as you see fit.”
About hoarding cash–one thought occurs to me–what if the dollar falls and inflation ensues? Would harder assets bought cheaply be “more valuable” investments than cash?
I don’t know exactly what the next 12 – 18 months may bring, but considering different scenarios in this environment might be a productive use of time.
Superstrategist Ed Yardeni is quoted by James Pethokoukis in US News & World Report on what could go right in 2009:
(1) Lower mortgage rates fuel a refinancing boom which lifts consumer spending.
(2) Home sales increase and home prices stabilize.
(3) Easier credit conditions increase auto sales.
(4) The drop in fuel prices also boosts consumer spending; the unemployment rate peaks below 8%.
(5) Massive spending on infrastructure by the US government offsets weakness in such spending by state and local governments.
(6) The money supply grows rapidly.
(7) Stimulative monetary and fiscal policies overseas revive global economic activity and US exports.
(8) Depleted inventories and improving sales trigger a big jump in industrial production.
(9) Credit quality spreads narrow significantly and rapidly as investors seek better returns than available in Treasury securities.
(10) Stock prices rise 30%-40% in anticipation of better earnings during the second half of 2009 and in 2010.
(11) Inflation remains subdued, and productivity pops.
My approach is “might as well be optimistic.” For more reasons the economic news (including consumer spending) is not all bleak, see the current issue of Growth Strategies (ask me to send it by email), or see my soon-to-be-posted piece on http://www.newgeography.com.
I commented a bit about this on my blog today http://www.bobphibbs.wordpress.com that for the big boxes, the message at NRF: the party’s over for a variety of reasons.
For the smaller operators though, I see them being able to navigate through the inevitable retailer bankruptcies easier than the big boxes. If nothing else, the smaller guys for whatever reason bring optimism to the table. Something not in evidence this past week at the Javits.
Consumers are fearful,
Retailers are tearful.
In such a mish-mash
Stay fluid with cash.
Better days are ahead
But the market must be led.
The coming year may indeed be one in which investment in new stores should be postponed, but I wouldn’t go so far as to proscribe other forms of investment which may be highly strategic.
For decades, the sure method to build value in chain retailing has always been rapid expansion. It a no-brainer strategy, that typically results in adding lower productivity square footage over time while adding operational complexity, until the organization loses the edge that made it successful initially. Stimulating growth in existing stores is much, much more difficult.
While competitors are taking draconian steps to keep the lights on, and others are liquidating outright, chains that spend with a shopper focus may see a handsome pay off. This is a year to strengthen your customer relationship portfolio – and rack up wallet-share, not territory.
Retailers that show loyalty to their shoppers today will be well positioned to reap the rewards as the economy warms up. Those that cut services to the bone will lose relevance and miss the wave when it finally comes.
I’m not an economist or a financial wizard, so I can’t comment on what’s ahead this year or how best to maintain liquidity. What I can say with confidence is that regardless of the economic situation, the opportunities for improving results are everywhere. Capturing just a fraction of the lost sales caused by non-compliance on core service and merchandising standards, poor execution of plans, and dismal staff selling ability will more than offset the impact of the economy. The good news is that recovering these lost sales just isn’t that expensive.
So maybe these retailers who are hoarding cash can see the light from between their stacks of money and make some wise investments to improve performance in their stores.
It really doesn’t matter what the economy is like, retailing is always painful for those that do not provide a compelling shopping experience. A recession simply speeds their demise.
For about 75% of the consumers and retailers, it’s business as usual. Consumers are now learning a valuable lesson about money and credit. In the long run we will all be better off.
My advice is to not listen to the news and just run your business as you see fit. Sure the stock market fell but most people didn’t have all their retirement in stocks. So what, home values fell? It’s only problem if you have to sell your home. The next house you buy will be cheap too. Now the government is about to flood the markets with cash. No worries.
Hoard cash and:
1. Focus on serving best customers
2. Revisit and elevate service levels
3. Revisit your shopping experience
4. Collaborate and partner with kindred-spirit brands
5. Hone your brand message to fit the times
6. Integrate technology on an ROI basis only
7. Shift and moderate marketing spending.
These executives fail to comment on the one bright spot within retail–e-commerce. According to shop.org, nearly two thirds of online sites grew during the holiday season and online growth was over 10% in 2008. Down from year’s past, but up more than offline’s tepid flat growth.
Certainly there is channel shift occurring, but consumers are voting with their wallets. And while online and offline work best together, the fact remains that e-commerce businesses provide a better return on investment in the current economic climate than capital spent on new or existing real estate. The upfront capital costs may be more than opening a single store, but that investment pays back considerably more than a single store–instead, it returns the equivalent of 5, 10, or 20 stores. It also scales more easily and is more easily adaptable to meet consumers changing tastes. Margins are generally better, inventory costs are generally better, economics are generally better.
Want to know which retailer is growing the fastest? Amazon. By 2012, if it only grows at a 13% CAGR (half as slow as current growth mind you), the company will be as large as Sears Holdings (Sears + Kmart). Retail CEOs and CFOs need to get their head out of the proverbial brick and mortar sand, change their point of reference, and wake up to today’s market realities.
I wouldn’t disagree with Mr. Solomon that in this environment cash is king. Nor would I necessarily disagree with his advice to his audience, many of whom are staring at business models that have led them onto the slippery slope of competing strictly on price over a basket of commoditized products.
Consider, however, the December sales results of Buckle, Aeropostale and Hot Tropic. They generated comp-store increases of 13.5%, 12.0% and 4.3%, respectively. Each are narrowly focused on a carefully defined fashion apparel niche, competing not on price, but by appealing to the distinct lifestyle and aspirations of their customers.
Yes, cash is king, but the sky hasn’t fallen. For smaller, nimble, entrepreneurial retailers, this is a rich moment, full of opportunities, for fresh thinking and innovation. Customers haven’t stopped spending; they’re just spending less, and are more discriminating about what they are spending their money on. Clearly, across much of their basket value is critical, but for creative entrepreneurs there is a real opportunity to captivate customers with stores, products and experiences far removed from the world of me-too stores.
Above all: try a little salesmanship. Or salespersonship. Make sure your people exploit every opportunity to move the merchandise that’s on the floor.
Now, I don’t mean have six people descend on every person who’s browsing in the television department.
But if someone asks for help, or wants to know about a specific product category, floor personnel should actually help them! Not point to a pile of poorly-organized stuff on a table and get back to their friend on the cell phone. But walk them over to the display and ask questions about what kinds of features they’re looking for, or where/how the customer will be using the item. Ask how much they’re looking to spend. Upsell and cross-sell. Suggest accessories or go-togethers. Don’t be overbearing, but offer suggestions.
And if your people don’t know how to do this stuff, train them. If you don’t have budget for a formal program, have store managers put together a Lunch ‘n Learn–you or they can probably string together free videos from YouTube, or write a curriculum that comes from the School of Hard Knocks.
But ‘hoard cash’ doesn’t mean stop thinking of new ways to do things. As long as you have people with brains, keyboards and mice–and the software you paid for last year hasn’t been mysteriously erased from all the machines this year–store-level people have a way to produce training, promotional pieces, sales letters, emails and more…all of which can be helping move the merchandise out of the building and into the hands of customers at some price point.
If one approach doesn’t work, they can try another, and we can all help. What does NOT work is standing around the selling floor, telling each other that nobody has any money, and there’s no point trying to get customers to come through the door. Fact is, even a 10% unemployment rate would mean an awful lot of people still have some level of discretionary income they could be spending in all of our establishments. (And, if our store-level personnel don’t feel like doing what it takes to sell to the folks who come in with money, there are plenty of people who’d be happy to come in and give it a try…. )
Now, as long as we’ve discussed the cost of salesmanship and sales training, let’s look at the true cost of a great customer experience. If the cleaning service is too expensive to have in more often, how much do mops and Windex cost, as a supplement? How much does it cost to answer the phone on the third ring? If a customer has a question an employee can’t answer, how much does it cost to have that employee escort the customer to an expert’s desk and repeat the question? In short, how much does it cost to make every customer feel like the most important person who’s walked into the store that day?
As always,
Right Merchandise
Right Price
Right
Right Place
Right Service
Right Message.
We all know the story and the answer.
The much anticipated comet has come and taken the dinosaurs.
Retail ain’t for sissies….
I agree. The time is coming soon that if you have cash you will be able to make some outstanding investments. For a retailer, that could mean buying real estate, leasing, self development or buying another retailer. We are going to see some smaller retailers, who have cash, make some big gains due to their position.
There is no doubt that “cash is king” at the moment, and retailers with unmanageable amounts of debt are unlikely to survive in the current environment. One of the key retailers to watch in 2009 is Macy’s, with a lot of debt in need of refinancing: Is Macy’s “too big to fail,” or will it require a second stint in Chapter 11 in order to reorganize?
There are companies with healthier balance sheets in a better position to grow, even if they have slowed their expansion rates in order to preserve capital and cut costs. But it’s important to add some perspective to Mr. Ullmann’s caution: 2009 could be an opportunity for well-capitalized stores to pick up future sites at bargain prices. It’s not totally appropriate to “hide in a cave” until 2011 when you can start laying the groundwork for expanded market share.
I can’t say I agree with the negative assessment for 2009. The retailers survival really depends on the retailer. We seem to have forgotten that we are an industry that is in constant change and the chains that don’t survive are the ones that are resistant to change. Hording cash and going into a turtle shell for the next 6 to 12 months is not the way to survive this economic phase that we are in. Now is the time to get the brand out there and really show customers what you are made of.
My concern lies in the selling floor. If you isolate enough customers, it won’t really matter how good the economy is. We are back to a buyer’s market and retailers must adapt to that consumer psychology. Making serious strides towards the customer is probably the best and cheapest way to maintain sales and build loyalty which we all know brings in greater baskets and more transactions. I say forget the hiding in the bunker mentality and embrace the merchant mentality instead.
This is a time for correction. This time, like no other, is full of opportunities. The weak will not survive and the strong will have a heyday. Acquisitions and partnerships will develop at a fast-paced rate.
My advise is to retool, re-engineer, maximize utilization of your current assets, manage inventory and analyze effectively to achieve better turns, better merchandising, etc. Turn your business inside out and use this lull as a time to get ready for the upturn.
It’s extremely encouraging to read the mostly-positive, optimistic comments today that contrast with and contradict Ullman’s dire predictions. I’m of the same opinion, that 2009 will be a year of opportunity and satisfying customers for smart retailers. But it’s more than just my opinion. The businesses I advise have remained steady or increased, and the many, many customer emails they receive weekly communicate optimism and hope. They’ve always treated customers right, and now, during tough times, it seems to be paying off.
Simply saying hoard cash is not the answer. Each retailer is different. For some, paying down debt should be the strategy for survival. For others, there may never be the opportunity again to grab a great site or buy a competitor. Expansion is unlikely to be a good idea, unless one is paying cash. Infrastructure investment can likely be slowed down, unless it is impacting the consumer experience. Yes, cash is king, but there reaches a point where too much cash is bad management.
If you believe that the sky has fallen–it has.
It seems some must think money disappears completely in recessions. I’m glad to be among those HERE who know better.
There are always people who have discretionary money. Their priorities may be consciously set or subconsciously nebulous.
There are always problems to solve. Marketing (among other things) is helping people 1 – find solutions they want/need; 2 – set priorities; 3 – determine what they’ll invest in & when; 4 – find what’s compatible with & relevant in their lives.
Retailers should help consumers realize what they want/need, why they want/need it & when. I think this is what Gene Hoffman means by “the market must be led.”
Have a specific goal for marketing messages. Your messages should be more than just institutional or only products & prices. Your goals should be to do than build & maintain general awareness. You should make specific, compelling offers especially if what you offer isn’t familiar.
Big discounters thrive by offering things people are familiar with. Prices, pictures & place (store location or web site URL) can be enough to get some sales when consumers know enough about products.
Too many small retailers think they can copy a discounter’s method. When they fail, they blame somebody/something else.
Using direct response marketing may be easier for small retailers who can afford to focus on smaller niches. Just because big retailers tend not to use direct response marketing doesn’t mean it doesn’t work. Years ago, Drew Kaplan (www.dak.com/) said he wouldn’t accept common products consumers were already familiar with. His idea is to examine products together & teach consumers about products.
His methods are a good starting point for small retailers. They don’t necessarily need as much copy as Drew uses; it depends on the products & the niches.
If a product is so ordinary & popular that anybody can sell it, big retailers will jump on it.
Unless small retailers are in a secluded area, they should mostly (possibly exclusively) offer what big retailers don’t want. Small stores can stock some common products, but their marketing messages should be used to offer what big retailers don’t offer.
These principles are necessary no matter how good or bad the economy is.
My points fit Ted Hurlbut’s point about not competing on prices for commodities. Retailers should study & apply what Clayton M. Christensen & others at Harvard have been writing about disruption. These principles apply to retailers’ business models & the products & services they should offer.
James Tenser’s point about loyalty is in line with what I’ve been writing for years. Customers are & should be loyal to themselves. Expecting people to be loyal to businesses is foolish. Businesses should help people be loyal to themselves by offering benefits & solutions (in the forms of products & services). These should be offered in ways consumers can quickly understand.
David Livingston’s point about compelling experiences is vital. But it shouldn’t be limited to in-store experiences. Help people understand how they can improve their experiences in various areas of their lives by using products.
Mary Baum’s & Chris Ramey’s posts are good, short courses on how to make a store relevant to a niche.
I LIKE JCP and I think Mr. Ullman is a GREAT Merchant and a great retailer. I am glad he is there for JCP
I agree with the comment above–right merchandise, right price, right message. The message may have to be tailored or tweaked to the present situation and slightly altered for a time but what needs to be done must be done for survival. I think things in 2009 for retail are going to get much worse before a slow upswing finally comes about–next year.
Again, I am glad that Mr. Ullman is there for JCP–his team also!
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My advice is for retailers to adopt checkbook spending, like customers are–only buying what you can pay for. But two levels of investing are priority. Spending to buy the customers confidence and trust is the first. Advertising low prices and new levels of service are a waste of money. Advertising quality for price paid, being forthright and to the point about features and benefits, contributing to causes and ideas that are important to your customer, these are the things that are actions that will help the retailer survive.
I would use the time to really listen to customers. Remodel or put up new stores where the customer needs them, not where developers are offering a deal. Be seen, heard and active in the customers’ world. It is not about poor us, we are losing sales (the retailer), but we see your pain and are here to help you through this difficult time (the customer).
The retailer who is seen now as a leader in helping out the customer, will reap rewards in 2010 and beyond.
For heaven’s sake, enough with the gloom and doom already! I believe that it is irresponsible of retailers to talk in this way for all the world (of consumers) to hear and internalize. What possible good does that do? I’m talking with my clients about grabbing market share and building post-pull-out platforms that address the “new normal” (assuming that things will never be the same but not planning for eternal hell either). Time to hit the “reset” button.
I wasn’t aware that the NRF Meeting features vaudeville, but the over-the-top remarks by Mr. Solomon remind me of one of those skits where some hysterical person gets slapped in the face at some point. As for “experts”–in general, not necessarily just the ones quoted here–were they making these kind of doomsday forecasts a year ago, and if not, why should we listen to them now?
As I frequently am, I’m pretty much with David on this one: “My advice is to not listen to the news and just run your business as you see fit.”
About hoarding cash–one thought occurs to me–what if the dollar falls and inflation ensues? Would harder assets bought cheaply be “more valuable” investments than cash?
I don’t know exactly what the next 12 – 18 months may bring, but considering different scenarios in this environment might be a productive use of time.
Superstrategist Ed Yardeni is quoted by James Pethokoukis in US News & World Report on what could go right in 2009:
(1) Lower mortgage rates fuel a refinancing boom which lifts consumer spending.
(2) Home sales increase and home prices stabilize.
(3) Easier credit conditions increase auto sales.
(4) The drop in fuel prices also boosts consumer spending; the unemployment rate peaks below 8%.
(5) Massive spending on infrastructure by the US government offsets weakness in such spending by state and local governments.
(6) The money supply grows rapidly.
(7) Stimulative monetary and fiscal policies overseas revive global economic activity and US exports.
(8) Depleted inventories and improving sales trigger a big jump in industrial production.
(9) Credit quality spreads narrow significantly and rapidly as investors seek better returns than available in Treasury securities.
(10) Stock prices rise 30%-40% in anticipation of better earnings during the second half of 2009 and in 2010.
(11) Inflation remains subdued, and productivity pops.
My approach is “might as well be optimistic.” For more reasons the economic news (including consumer spending) is not all bleak, see the current issue of Growth Strategies (ask me to send it by email), or see my soon-to-be-posted piece on http://www.newgeography.com.
I commented a bit about this on my blog today http://www.bobphibbs.wordpress.com that for the big boxes, the message at NRF: the party’s over for a variety of reasons.
For the smaller operators though, I see them being able to navigate through the inevitable retailer bankruptcies easier than the big boxes. If nothing else, the smaller guys for whatever reason bring optimism to the table. Something not in evidence this past week at the Javits.
Consumers are fearful,
Retailers are tearful.
In such a mish-mash
Stay fluid with cash.
Better days are ahead
But the market must be led.
The coming year may indeed be one in which investment in new stores should be postponed, but I wouldn’t go so far as to proscribe other forms of investment which may be highly strategic.
For decades, the sure method to build value in chain retailing has always been rapid expansion. It a no-brainer strategy, that typically results in adding lower productivity square footage over time while adding operational complexity, until the organization loses the edge that made it successful initially. Stimulating growth in existing stores is much, much more difficult.
While competitors are taking draconian steps to keep the lights on, and others are liquidating outright, chains that spend with a shopper focus may see a handsome pay off. This is a year to strengthen your customer relationship portfolio – and rack up wallet-share, not territory.
Retailers that show loyalty to their shoppers today will be well positioned to reap the rewards as the economy warms up. Those that cut services to the bone will lose relevance and miss the wave when it finally comes.
I’m not an economist or a financial wizard, so I can’t comment on what’s ahead this year or how best to maintain liquidity. What I can say with confidence is that regardless of the economic situation, the opportunities for improving results are everywhere. Capturing just a fraction of the lost sales caused by non-compliance on core service and merchandising standards, poor execution of plans, and dismal staff selling ability will more than offset the impact of the economy. The good news is that recovering these lost sales just isn’t that expensive.
So maybe these retailers who are hoarding cash can see the light from between their stacks of money and make some wise investments to improve performance in their stores.
It really doesn’t matter what the economy is like, retailing is always painful for those that do not provide a compelling shopping experience. A recession simply speeds their demise.
For about 75% of the consumers and retailers, it’s business as usual. Consumers are now learning a valuable lesson about money and credit. In the long run we will all be better off.
My advice is to not listen to the news and just run your business as you see fit. Sure the stock market fell but most people didn’t have all their retirement in stocks. So what, home values fell? It’s only problem if you have to sell your home. The next house you buy will be cheap too. Now the government is about to flood the markets with cash. No worries.
Hoard cash and:
1. Focus on serving best customers
2. Revisit and elevate service levels
3. Revisit your shopping experience
4. Collaborate and partner with kindred-spirit brands
5. Hone your brand message to fit the times
6. Integrate technology on an ROI basis only
7. Shift and moderate marketing spending.
These executives fail to comment on the one bright spot within retail–e-commerce. According to shop.org, nearly two thirds of online sites grew during the holiday season and online growth was over 10% in 2008. Down from year’s past, but up more than offline’s tepid flat growth.
Certainly there is channel shift occurring, but consumers are voting with their wallets. And while online and offline work best together, the fact remains that e-commerce businesses provide a better return on investment in the current economic climate than capital spent on new or existing real estate. The upfront capital costs may be more than opening a single store, but that investment pays back considerably more than a single store–instead, it returns the equivalent of 5, 10, or 20 stores. It also scales more easily and is more easily adaptable to meet consumers changing tastes. Margins are generally better, inventory costs are generally better, economics are generally better.
Want to know which retailer is growing the fastest? Amazon. By 2012, if it only grows at a 13% CAGR (half as slow as current growth mind you), the company will be as large as Sears Holdings (Sears + Kmart). Retail CEOs and CFOs need to get their head out of the proverbial brick and mortar sand, change their point of reference, and wake up to today’s market realities.
I wouldn’t disagree with Mr. Solomon that in this environment cash is king. Nor would I necessarily disagree with his advice to his audience, many of whom are staring at business models that have led them onto the slippery slope of competing strictly on price over a basket of commoditized products.
Consider, however, the December sales results of Buckle, Aeropostale and Hot Tropic. They generated comp-store increases of 13.5%, 12.0% and 4.3%, respectively. Each are narrowly focused on a carefully defined fashion apparel niche, competing not on price, but by appealing to the distinct lifestyle and aspirations of their customers.
Yes, cash is king, but the sky hasn’t fallen. For smaller, nimble, entrepreneurial retailers, this is a rich moment, full of opportunities, for fresh thinking and innovation. Customers haven’t stopped spending; they’re just spending less, and are more discriminating about what they are spending their money on. Clearly, across much of their basket value is critical, but for creative entrepreneurs there is a real opportunity to captivate customers with stores, products and experiences far removed from the world of me-too stores.
Above all: try a little salesmanship. Or salespersonship. Make sure your people exploit every opportunity to move the merchandise that’s on the floor.
Now, I don’t mean have six people descend on every person who’s browsing in the television department.
But if someone asks for help, or wants to know about a specific product category, floor personnel should actually help them! Not point to a pile of poorly-organized stuff on a table and get back to their friend on the cell phone. But walk them over to the display and ask questions about what kinds of features they’re looking for, or where/how the customer will be using the item. Ask how much they’re looking to spend. Upsell and cross-sell. Suggest accessories or go-togethers. Don’t be overbearing, but offer suggestions.
And if your people don’t know how to do this stuff, train them. If you don’t have budget for a formal program, have store managers put together a Lunch ‘n Learn–you or they can probably string together free videos from YouTube, or write a curriculum that comes from the School of Hard Knocks.
But ‘hoard cash’ doesn’t mean stop thinking of new ways to do things. As long as you have people with brains, keyboards and mice–and the software you paid for last year hasn’t been mysteriously erased from all the machines this year–store-level people have a way to produce training, promotional pieces, sales letters, emails and more…all of which can be helping move the merchandise out of the building and into the hands of customers at some price point.
If one approach doesn’t work, they can try another, and we can all help. What does NOT work is standing around the selling floor, telling each other that nobody has any money, and there’s no point trying to get customers to come through the door. Fact is, even a 10% unemployment rate would mean an awful lot of people still have some level of discretionary income they could be spending in all of our establishments. (And, if our store-level personnel don’t feel like doing what it takes to sell to the folks who come in with money, there are plenty of people who’d be happy to come in and give it a try…. )
Now, as long as we’ve discussed the cost of salesmanship and sales training, let’s look at the true cost of a great customer experience. If the cleaning service is too expensive to have in more often, how much do mops and Windex cost, as a supplement? How much does it cost to answer the phone on the third ring? If a customer has a question an employee can’t answer, how much does it cost to have that employee escort the customer to an expert’s desk and repeat the question? In short, how much does it cost to make every customer feel like the most important person who’s walked into the store that day?
As always,
Right Merchandise
Right Price
Right
Right Place
Right Service
Right Message.
We all know the story and the answer.
The much anticipated comet has come and taken the dinosaurs.
Retail ain’t for sissies….
I agree. The time is coming soon that if you have cash you will be able to make some outstanding investments. For a retailer, that could mean buying real estate, leasing, self development or buying another retailer. We are going to see some smaller retailers, who have cash, make some big gains due to their position.
There is no doubt that “cash is king” at the moment, and retailers with unmanageable amounts of debt are unlikely to survive in the current environment. One of the key retailers to watch in 2009 is Macy’s, with a lot of debt in need of refinancing: Is Macy’s “too big to fail,” or will it require a second stint in Chapter 11 in order to reorganize?
There are companies with healthier balance sheets in a better position to grow, even if they have slowed their expansion rates in order to preserve capital and cut costs. But it’s important to add some perspective to Mr. Ullmann’s caution: 2009 could be an opportunity for well-capitalized stores to pick up future sites at bargain prices. It’s not totally appropriate to “hide in a cave” until 2011 when you can start laying the groundwork for expanded market share.
I can’t say I agree with the negative assessment for 2009. The retailers survival really depends on the retailer. We seem to have forgotten that we are an industry that is in constant change and the chains that don’t survive are the ones that are resistant to change. Hording cash and going into a turtle shell for the next 6 to 12 months is not the way to survive this economic phase that we are in. Now is the time to get the brand out there and really show customers what you are made of.
My concern lies in the selling floor. If you isolate enough customers, it won’t really matter how good the economy is. We are back to a buyer’s market and retailers must adapt to that consumer psychology. Making serious strides towards the customer is probably the best and cheapest way to maintain sales and build loyalty which we all know brings in greater baskets and more transactions. I say forget the hiding in the bunker mentality and embrace the merchant mentality instead.
This is a time for correction. This time, like no other, is full of opportunities. The weak will not survive and the strong will have a heyday. Acquisitions and partnerships will develop at a fast-paced rate.
My advise is to retool, re-engineer, maximize utilization of your current assets, manage inventory and analyze effectively to achieve better turns, better merchandising, etc. Turn your business inside out and use this lull as a time to get ready for the upturn.
It’s extremely encouraging to read the mostly-positive, optimistic comments today that contrast with and contradict Ullman’s dire predictions. I’m of the same opinion, that 2009 will be a year of opportunity and satisfying customers for smart retailers. But it’s more than just my opinion. The businesses I advise have remained steady or increased, and the many, many customer emails they receive weekly communicate optimism and hope. They’ve always treated customers right, and now, during tough times, it seems to be paying off.
Simply saying hoard cash is not the answer. Each retailer is different. For some, paying down debt should be the strategy for survival. For others, there may never be the opportunity again to grab a great site or buy a competitor. Expansion is unlikely to be a good idea, unless one is paying cash. Infrastructure investment can likely be slowed down, unless it is impacting the consumer experience. Yes, cash is king, but there reaches a point where too much cash is bad management.
If you believe that the sky has fallen–it has.
It seems some must think money disappears completely in recessions. I’m glad to be among those HERE who know better.
There are always people who have discretionary money. Their priorities may be consciously set or subconsciously nebulous.
There are always problems to solve. Marketing (among other things) is helping people 1 – find solutions they want/need; 2 – set priorities; 3 – determine what they’ll invest in & when; 4 – find what’s compatible with & relevant in their lives.
Retailers should help consumers realize what they want/need, why they want/need it & when. I think this is what Gene Hoffman means by “the market must be led.”
Have a specific goal for marketing messages. Your messages should be more than just institutional or only products & prices. Your goals should be to do than build & maintain general awareness. You should make specific, compelling offers especially if what you offer isn’t familiar.
Big discounters thrive by offering things people are familiar with. Prices, pictures & place (store location or web site URL) can be enough to get some sales when consumers know enough about products.
Too many small retailers think they can copy a discounter’s method. When they fail, they blame somebody/something else.
Using direct response marketing may be easier for small retailers who can afford to focus on smaller niches. Just because big retailers tend not to use direct response marketing doesn’t mean it doesn’t work. Years ago, Drew Kaplan (www.dak.com/) said he wouldn’t accept common products consumers were already familiar with. His idea is to examine products together & teach consumers about products.
His methods are a good starting point for small retailers. They don’t necessarily need as much copy as Drew uses; it depends on the products & the niches.
If a product is so ordinary & popular that anybody can sell it, big retailers will jump on it.
Unless small retailers are in a secluded area, they should mostly (possibly exclusively) offer what big retailers don’t want. Small stores can stock some common products, but their marketing messages should be used to offer what big retailers don’t offer.
These principles are necessary no matter how good or bad the economy is.
My points fit Ted Hurlbut’s point about not competing on prices for commodities. Retailers should study & apply what Clayton M. Christensen & others at Harvard have been writing about disruption. These principles apply to retailers’ business models & the products & services they should offer.
James Tenser’s point about loyalty is in line with what I’ve been writing for years. Customers are & should be loyal to themselves. Expecting people to be loyal to businesses is foolish. Businesses should help people be loyal to themselves by offering benefits & solutions (in the forms of products & services). These should be offered in ways consumers can quickly understand.
David Livingston’s point about compelling experiences is vital. But it shouldn’t be limited to in-store experiences. Help people understand how they can improve their experiences in various areas of their lives by using products.
Mary Baum’s & Chris Ramey’s posts are good, short courses on how to make a store relevant to a niche.
I LIKE JCP and I think Mr. Ullman is a GREAT Merchant and a great retailer. I am glad he is there for JCP
I agree with the comment above–right merchandise, right price, right message. The message may have to be tailored or tweaked to the present situation and slightly altered for a time but what needs to be done must be done for survival. I think things in 2009 for retail are going to get much worse before a slow upswing finally comes about–next year.
Again, I am glad that Mr. Ullman is there for JCP–his team also!