468 Retail and Channel Management Blog

Saturday, January 31, 2015

Athletes Serving Athletes

Nike is the Greek god of victory. Who could have imagined how fitting of a name that would be five decades ago when Jeff Johnson proposed the name to Blue Ribbon Sports owners Phil Knight and Bill Bowermen. From a small corner store in Eugene, with the primary purpose of importing the best shoes for University of Oregon trackletes, to the world largest athletics footwear, apparel, and equipment retailer, Nike has found success by holding true to one driving point. Let athletes (the customer) tell you how they want there gear to preform, then make it for them.

Like I had said Nike started out as track coach Bill Bowerman's way of ensuring that his athletes had access to the products they would need to find success in competition, namely Asics; a Japanese running shoe now in direct competition with the footwear giant it helped create. The next step would be the creation of custom products to help his alma mater excel, Runners wanted a shoe that could grip the track better. This lead Bill to the creation of a product and the destruction of a waffle iron. Flip over your favourite running shoe, the pattern you see of a rubber sole with raised knobs is a direct result of a retail asking its consumers what they need, and finding a way to fill that need so well we still use it 50 years later.

The Nike commitment to having the customer drive the creation of product to even the most subtle details goes way beyond what you would expect from a retailer. When fashion houses plan a season release that take into account what people are wear, and what trends they expect to see that year. When Nike plans a new product the go to the end user and have them go through every minor detail to create exactly what they need. the most iconic image from this years NFL season is Odell Beckham Jr. making a crazy catch in the end zone.

The glove he has on in the photo is crucial to executing what he did. But why did he choose that glove? Well Nike consulted him and many other player when designing the product line for this season to ensure it was what they wanted.

This commitment to delivering the products that are the best fit for the customer doesn't just apply to the pros either. From the Partnership with the University of Oregon, where product set for release years down the road are developed based on feedback from Ducks athletes and coaches about prototypes, to the new retail experience Nike is creating for the everyday consumer.

In the last year Nike has made there retail experience a truly two-way line of communication for with consumers. we've seen highlights of this in class with pop up shops for the FUEL Band. but is goes beyond that. stores around the world are opening with fitness studios, practice nets, and test tracks, where consumers can use the products and give there feedback on how to improve it for the next generation.

As an athlete I personally find it reassuring that when i put on a shoe, or glove, or helmet, i know that every minor specification was made to help me preform, whether its in front of 10000 fans or my ten friends at a pick up game. Nike is truly about athletes serving athletes.
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Friday, January 30, 2015

Abercrombie & Fitch - the Love of my Youth

In 2009, I went to a shopping mall with four other sixteen-year-old German girls, and although there was no Abercrombie sign outside the store, but a dark blue wooden façade, there was no doubt that we had found what we were looking for.


We heard loud music and smelled a really appealing fragrance. Two handsome guys wearing only trunks and flip-flops welcomed us with a “hey – what’s up?”. Giggling, and also a little sheepish, we wanted to make our way into the store but had to decide on either turning left or right. As it was too dark inside to easily tell the difference between the two options, we turned left. Wrong choice – that was the men’s department. Even more embarrassed now, we walked back to the entrance, past the half naked guys and finally arrived in the women’s department. 

The whole store design was really pretty: dark wooden furniture, small palm trees, screens behind “windows” where you could see and hear the sea, and spotlights that highlighted parts of their collection in the in other respects quite dark environment. Aside from the nice interior design and the really good-looking staff, we were totally thrilled about their clothes. You could already tell that their products were high quality just by touching. After two hours, happy and satisfied, with one bag in each hand and an empty wallet in our purse, we went back home.

Five years later, back in Germany, I heard the good news: an Abercrombie store was about to open in a mall close to my home. Full of expectation and joy, I went there shortly after they opened. You could already smell their perfume on the other side of the mall (a little overdone), and to my great disappointment, there was a huge line in front of the store with two security guards making sure that nobody would push to the front. After having waited for 45 minutes, I could finally enter and a sales clerk welcomed me with “hey – what’s up?” in English. A little confusing and ridiculous as we were in Germany and our mother tongue is German… And what I saw inside could not make up for the time lost while standing in line either: There were way too many people, the music was too loud and when I finally made it to the shelves, I had to discover that they only had size 0 left for most of their jeans. Feeling big with my actually average size, I decided to go for the t-shirts instead, but it was so dark that I could not tell whether the color was dark blue or black and into the bargain, they only had three changing rooms for approximately 100 persons. Irrevocably disappointed and crestfallen, I went away empty-handed.



I don’t know if Abercrombie is no longer that appealing to me because they lost their uniqueness now that they opened stores all over the world, or if I am simply no longer part of their target segment – “the cool kids”. 
Anyway, I will not shop there again.




References:

Lecture notes provided by Kyle B Murray for MARK 468, Winter 2015

http://i.huffpost.com/gen/1902756/thumbs/o-ABERCROMBIE-MODELS-facebook.jpg

http://www.dailymail.co.uk/femail/article-2328513/Mock-Abercrombie--Fitch-ad-featuring-plus-size-blogger-latest-hit-retailers-beautiful-customer-policy.html 

http://www.washingtonpost.com/blogs/on-leadership/wp/2013/05/22/abercrombie-fitchs-big-bad-brand-mistake/

http://www.youtube.com/watch?v=5VRJRy9rnfE



Zara: Changing the Fashion Industry


Imagine you wanted to have one of the most successful clothing companies in the world? What if I told you that in order to do so you needed to spend no money on marketing, sell relatively cheap clothes, and offer no products made by renowned designers? As an owner of such a store, I’m sure you would be skeptical of at least some of that advice. 

Interestingly enough, Zara, one of the most successful and profitable clothing retailers, utilizes all aspects of that strategy. What makes Zara so special, and how do they succeed while using such a simple business plan?

Zara is at the forefront of the fashion industry, setting the proverbial pace in terms of trends, turn-around-time and product pricing. In a nutshell, Zara’s retail value proposition consists of offering “trendy and decently made but inexpensive products sold in beautiful, high-end-looking stores.”[1] It is no wonder experts agree that Zara has changed the fashion industry. 


“Fast-Fashion”


Founder, Amancio Ortega was a pioneer in creating “fast fashion”, a type of strategy that gives consumers what they want, when they want it.[1] Clothing trends change very quickly, and so do needs of the consumer. To meet that demand, Zara “essentially imitates the latest fashions” and offers them at a much lower price.[1] Therein lies some of the company’s success, “the customer is always determining production, not the other way around. Every piece of clothing [made] has been requested.”[1] While other companies can only guess the demand of styles and quantity of clothing needed for several months, Zara can be reactive in how they manage these components. 

As a consumer of their clothing, the brand name on the clothing doesn't really matter, but the style does. I think this is key to them being successful. To put it bluntly, they copy the clothing of other retailers. I guess as long as the style and savings are passed on the consumer no one really complains.

How fast can Zara meet demand? After consulting with their design team, and determining trends around the world, Zara is able to bring a new product from the design phase to store shelves in 2-3 weeks. Traditional retailers and designers create “products they believe are going to be trending 12-months out” and the turnaround for getting clothes on the shelf can range from 2-4 months.[2] Much of this quick turn-around-time can be attributed to the in-house design, production and distribution channels, areas for which Zara does not need to depend on third-party companies. 


Location, Location, Location

Despite their large success, Zara surprisingly spends no money on advertising. Taking after their founder who has never given an interview, Zara “hardly has a marketing department, and it doesn’t engage in flashy campaigns.”[3] Even their designers remain anonymous.  

The marketing Zara does do is all about real estate. The company “invests heavily in the beauty, historical appeal and location of its shops.”[3] For example, Zara purchase a store in New York, paying $324 million for the location, the most expensive ever sold in Manhattan. This area is heavily traveled, and is surrounded by luxury clothing retailers. Zara is not intimidated by these retailers, rather, it encourages consumers to compare. Offering a similar looking product with a lower price tag has paid off significantly in such situations. As one expert puts it, “the retail strategy for luxury brands is to try to keep as far away from the likes of Zara. Zara’s strategy is to get as close to them as possible.”[1] Both the stores in WEM and Southgate also have a very elegant and clean look, which adds to the appeal of being in the store and looking around. I find myself browsing for at least 20 minutes in every corner of the store for any new and trendy additions.

Another appealing feature of the Zara brand is its unique clothing. Stores in each part of the world design different trends and clothing. Additionally, the clothes are produced in small quantities and don’t last on the shelves for more than a couple of weeks. When buying clothing from Gucci or Prada, “you knew the chances were good that clothes would still be there [later], with Zara…You buy it now or never.” [1] Considering that their prices are so low, most of the time you buy it. This strategy encourages consumers to always check their stores, and also means the shopper gets an item that may be unique. 

Personally, more than half my wardrobe is from Zara. The main reasons I buy my clothing there is the price of the products and stylish clothing. Although I know that the clothing quality is not as high as in other stores, the price of the clothes more than makes up for that.

Whereas Zara was working hard to keep up with luxury brands, it seems as though they are now the ones trying to keep up with Zara. 

Zara has really changed the fashion industry. 


References

1. http://www.nytimes.com/2012/11/11/magazine/how-zara-grew-into-the-worlds-largest-fashion-retailer.html?pagewanted=all&_r=1&

2. http://www.businessinsider.com/zaras-genius-business-model-and-retail-2013-11

3. http://adage.com/article/cmo-strategy/zara-grew-a-multi-billion-dollar-brand-sans-ads/243730/

4. http://www.forbes.com/sites/walterloeb/2013/10/14/zaras-secret-to-success-the-new-science-of-retailing-a-must-read/

McDonalds: I’m loving the new experience!

We all have a soft-spot for McDonald's as they have been in our lives in some shape or form.  Known for their recognizable golden arches and burgers, they are now changing the way we look at the fast-food industry.  Originally an industry with connotations of being cheap and fast, the retail experience was built around quick service and price point.  However times have changed and evolving customer demands saw McDonald's reassess their value proposition.[1]

Whatever your reasons are to go to (or not to go to) McDonald's, the new experience they are delivering keeps me going back for more.  Having recently taken a couple late-night strolls into a McDonald's with some friends on the west side of Edmonton, I could not help but notice that the environment is really comfortable to be in for a long time.  People come in sit down and enjoy their time without the pressure of being told to leave; it’s a place where anyone can go.  But what have they changed?  The answer is quite obvious as McDonald's has drastically improved their environment and to a lesser extent their engagement through accessible technologies. [1]

In the early 2010s, McDonald's allocated about “$2.4 billion to redo at least 400 domestic outposts, refurbish 1,600 restaurants abroad, and build another 1,000.”[2] It demonstrated them taking initiative to transition from that fast-food experience that we all know of to a more dine-in experience similar to the feel given by Starbucks and I believe it’s working.  They have really put a lot of thought into the store layout, design, lighting and materials used.  The store layout and design is clean, modern and somewhat elegant for what a consumer typically perceives of McDonald's.   The design as shown by the pictures below has McDonald's taking a page out of IKEA’s books for style points.  


The layout is still essentially the same but ample sight lines to see across the whole restaurant and almost spaceship like shapes design aide in bringing in an open concept feel.  Also clean, smooth surfaces with flat yet bold colours really give McDonald's a face-lift.  Light fixtures also vary in form (ie hanging spot lights) but overall the lighting is brighter within the store. The seats are comfortable with either faux wood, plastic, or cushioned chairs that really give that comfort of a lounge.

In regards to consumer engagement, McDonald's are coupling their comfortable feel with the enhancement of technologies such as adding TVs and WiFi to most of their locations.  Having those technologies allow consumers to feel at home as they can take the basics gadgets with them and be ‘mobile’.  Knowing that they can stop at any McDonald's, and still be productive or plugged-in are value-adds that others do not offer and is something consumers would not typically perceive of the fast-food giant. Competing with experiences like those of Starbucks and other coffee shops[3], they are really creating this feel of comfort and I’m loving it. So is it really fast-food anymore? 

  1. Murray, Kyle B. (2013). The Retail Value Proposition: Crafting Unique Experiences at Compelling Prices. Toronto, Ontario; Rotman University of Toronto Press.
  2. http://www.fastcompany.com/1686594/making-over-mcdonalds
  3. http://newsfeed.time.com/2011/05/09/with-new-design-mcdonalds-aims-to-be-the-new-starbucks/
  4. http://freshome.com/2010/09/23/mcdonalds-redesign-a-new-era-for-fast-food-restaurants/

Price vs Quality: Is expensive clothing worth the price?

We have all meet people claiming high priced clothing is nothing but luxury brands exploiting their position to charge absurd markup, and the difference in quality between a $10 Walmart shirt and a $120 Hugo Boss shirt is barely noticeable. Now, at first glance it seems unlikely that a shirt costing 1200% more can deliver twelve times the performance, but in reality none of us regular shoppers can possibly know the truth lazily strolling through a mall on a sunday afternoon. 

"Good Morning America", a popular TV show aired on the ABC News network, did a study comparing shirts and footwear from opposite ends of the price spectrum, looking to find out whether they each perform to their price. With controlled testing, ABC News put the items through tests including washing, wearing, walking and running. The low priced shirts shrunk and became fuzzy, while the shoes tore and wore much quicker. Unsurprisingly, the higher priced items performed much better then their cheap equivalent, but according to the researchers, the $160 Nike shoe did not perform 10 times better then its $16 Target equivalent. The study concluded that based on the price alone, the cheaper clothing was better value, but we aren't all emotionless robots looking for the most mathematically correct decisions with our shopping; we want to feel and look good! Studies such as the one done on "Good Morning America" cannot account for the value of personal appeal and satisfaction, which are difficult to put a dollar value on. Some people simply prefer to spend the extra money in order to present themselves as the best version they can come up with, regardless of whether the decision is "logical".  



Looking at the other side of the coin, there is clearly a lot of thought put into the strategy of pricing clothing as high as allowed by the market. A study performed by Carl Obermiller at the University of Washington proved that consumers will use price as an indicator of quality, meaning when something is priced higher we subconsciously assume it is better. This is one of the main reasons luxury brands chose their pricing strategies as they do, they simply want to be seen as the superior brand. According to the daily mail UK, Burberry is one fashion house that admitted it would increase prices to attract new, wealthier customers after more 'exclusive' products. Price elasticity of demand, an economic concept measuring how sensitive a consumer is to change in price, is perhaps another reason allowing the high markups. The target market for high-quality companies is undeniably the richest segment of the population, which will often be very inelastic to price changes; if an item is a very insignificant portion of your income, you will not change your purchase decision based on a 20-30% price difference. This can be viewed as exploitation, but as everyone in the business world does, in the long run every company cares most about making money, and these are simply decisions yielding higher income.  


To conclude, while Mark Zuckerberg and Oprah don't have these concerns, most of us regular shoppers will often be faced with the decision of whether to buy a higher quality item, or save some money and be more efficient with our spending. When put to this test we must ask ourselves whether the loss in dollars is made up for by the non-monetary value added to our lives, or as we all do, just buy whatever looks better and live off water for a while.


References:


http://abcnews.go.com/GMA/Consumer/story?id=2535164&page=1

http://www.dailymail.co.uk/femail/article-2384963/The-REAL-reason-designer-clothes-expensive-How-luxury-brands-raise-prices-increase-appeal.html

http://www.acrwebsite.org/search/view-conference-proceedings.aspx?Id=6830

http://www.luxurystuff.org/wp-content/uploads/2014/08/luxury-brand.jpg

https://s-media-cache-ak0.pinimg.com/236x/49/85/fd/4985fdbe7a60ecbae7d87f11f494e3f3.jpg

Holt Renfrew Closes Three Stores: Set to Battle American Competitors

The Canadian luxury-retailer, Holt Renfrew, has taken the plunge to terminate operations in their Ottawa, Quebec City, and Winnipeg locations. With the future emergence of major American competitors, including the likes of up to seven Saks Fifth Avenue locations and ten Nordstrom's stores, Holt Renfrew is preparing for battle by allocating its focus on its large flagship locations in five Canadian cities in the form of a $300 million expansion. The retailer chose to close the aforementioned locations primarily on the basis that they were smaller stores, and in order to successfully compete in a soon to be more saturated market, focusing on stores with more square footage is the most desirable, strategic option.

Holt Renfrew's Ottawa location measures at 36,000 sq. ft., while the Quebec City and Winnipeg locations measure at 33,000 sq. ft. and 2,990 sq. ft., respectively. These stores have experienced less than optimal revenue generation partly due to the fact that with a lack of size, they are unable to carry desirable luxury brands that can be purchased in their larger locations such as Toronto, Vancouver, Calgary, etc. 

This big move from Holt Renfrew is most likely to help solidify its position in the Canadian market. The $300 million expansion sets to increase square footage in its already large stores from 800,000 sq. ft. to 1.2 million sq. ft. in total. The largest expansion will be seen in Montreal in 2017 when the 84,000 sq. ft. Holt Renfrew store will merge with Ogilvy's in a massive 220,000 sq. ft. location. By providing consumers with larger locations, Holt Renfrew will hopefully see higher traffic and an increase in revenue generation based on providing an enhanced shopping experience with an unparalleled luxury brand selection in Canada.


It's no surprise that Holt Renfrew had to do something to attract new customers and to keep their existing customers. The retailer’s multi-million dollar expansion is not exclusively focusing on bringing in more luxury brands to increase their selection but is aiming to enhance the shopping experience in terms of environment as well. By the end of 2017, its Vancouver and Calgary locations will be home to a next-level "apartment style" luxury shopping area. I mean, why not, right? People love to be pampered. With that being said, this luxurious retail living-room concept is genius. First of all, it is something that you as a consumer do not get to experience on a regular basis. Something different. People love different...as long as it is comfortable. Well, we are talking about Holt Renfrew, so I'm sure that will not be an issue. This unique shopping dynamic will surely not be inexpensive to implement on Holt Renfrew's part, but the benefits that it will yield should far outweigh the costs, in my opinion, and most likely in theirs too. By providing such an environment, Holt Renfrew can expect to see its conversion rate, average transaction, and units per transaction increase; furthermore, this point of differentiation will trigger word of mouth marketing as well, so Holt Renfrew could expect an increase in traffic as a result of the "apartment style" experience beyond the increase in square footage. 

On another note, Holt Renfrew is further exploring the e-commerce realm of retail. By revamping its website, the luxury retailer aims to hold onto its market share with a tight grip. The world of online shopping is a constantly growing industry, and with e-commerce of luxury brands becoming increasingly popular in the United States, Holt Renfrew as a company feels that it is in their best interest to hop on that train as well. Good call. Saks Fifth Avenue is already relatively established in the e-commerce department; in order for Holt Renfrew to maintain its success in the luxury retail market in Canada, it must establish itself as a front-runner in both physical retail stores and e-commerce. Holt Renfrew seems to be on track as the president, Mark Derbyshire, states that the website for Canada will be "one of the most innovative sites I can imagine."

Holt Renfrew is aiming to have the expansion renovations completed by the end of 2017. 

Sources:

How Modcloth Helped Me Get Over My Fear of Online Shopping

I am not an early adopter of technology. I still take all my notes by hand, I refuse to buy e-books, and my Dad started texting on his cell phone before I did. I am not an ideal e-commerce customer, especially when it comes to something as tactile as clothing. How will I know if something fits without trying it on? How will I know the quality of the material? What if it looks blue in the picture but is actually turquoise in reality?

These were some of the reasons that I did not online shop prior to three years ago. Today, I love online shopping; I don’t have to adhere to store hours, I can buy unique items that I can’t find in-store, and I love going to pick up mail at the post office.


I got over my fear of online shopping when a friend introduced me to Modcloth – an online-only retailer that carries hundreds of independent designers. What made me change my mind about e-commerce and buy something from a retailer I’d never heard of selling brands that I had never heard from? Consumers “value the easy access to detailed product information, especially product reviews that are generated by their peers” (Murray, 69) and in my experience, no one does this better than Modcloth. Unlike other retailers’ e-commerce sites where customer reviews are treated as an after-thought or worse, non-existent, Modcloth’s customer reviews are on the same page as the product and are very detailed. Rather than a simple star rating and comments, Modcloth reviewers rate the product on fit, length and quality, and indicate what size they purchased. Most reviewers also provide a detailed comment and their personal measurements. Some include a picture of them wearing the item. That way it’s easy for buyers to scroll through the comments and read about how the item fit on someone with a similar body type to them. The site also suggests other items and accessories that pair well with the piece you are viewing. 

Additionally, Modcloth offers 24/7 customer service with representatives you a chat with online, as well as their “ModStylists” who can offer styling tips, or help you pick an outfit for a special event. Modcloth not only has better customer service than any other clothing site I’ve visited, but they have better customer service than some brick-and-mortar stores I’ve visited.

One of the fears many retailers have with internet is losing control of the conversation. On a couple occasions I have almost purchased something on Modcloth  only to read a bad review and change my mind. I’m sure I am not the only customer they have lost a short-term purchase with due to their honest customer reviews. However, because I trust the Modcloth community, I have become a long-term customer, purchasing countless items over the last few years and never returning an item.

Other retailers looking to increase their e-commerce presence should follow Modcloth’s lead and aim for superior customer service and community engagement. When done right – both retailers and consumers win.


References:

Murray, K. B. (2013). The Retail Value Proposition. Toronto, Canada: University of Toronto Press.

London Drugs: Differentiation or Downfall?


A successful retail store should be easy to define. From low cost supercentres to specialized boutiques, each retailer’s format should clearly indicate what they offer to consumers.  What about London Drugs? This western Canadian company offers a product mix that is more difficult to categorize. Are they successfully differentiated from competitors or struggling to define themselves to consumers?


The unique product offerings of a London Drugs store are evident without even entering the building. The front signage displays the brand’s name in bold lettering along with the following subheadings: photolab, computers, electronics, and cosmetics. If it wasn’t for the mention of drugs in the company’s name, these descriptions would offer no indication that the store even has a pharmacy. These subheadings do serve as an attempt to summarize a retailer where you can fill a prescription, test mascara, get passport photos taken, start a cell contract, repair your laptop, and pick up a new microwave.  So is London Drugs considered a drug store? What about a department or general store? My assessment is that they meet certain traits of all these categorizes and fit somewhere in between.  I will examine how this positioning will pose difficulties for London Drugs, but also how they have used their unique format to their advantage.

A significant challenge for London Drugs in today’s retail environment is the increasing competition from a wide variety of companies. They must compete with the prices and selection of supercentres such as Walmart and Superstore. At the same time, London Drugs has to compete with the pharmacy service and specialization of Shoppers Drug Mart and the Katz Group. This “stuck in the middle” dilemma extends to their other product offerings. They compete with specialized camera and computer retailers in addition to big box stores such as Best Buy and Future Shop. This is without even considering the threat of online retailers such as Amazon.

Increased competition suggests the eventual demise of London Drugs. Yet this uniquely Canadian company has survived so far. As a private company they are able to focus on meeting their customers’ needs without the influence of shareholder demands. They have a well-defined target demographic of middle aged and senior customers. Their target consumer values high quality customer service and prefers to try products in person instead of buying online. They also target general plan and unplanned shoppers who enjoy taking their time while shopping. London Drugs’ reputation as a trustworthy Canadian company has created customer loyalty, specifically in their founding province of British Columbia [1]. Their emphasis on long-term customers is one of the reasons why they continue to compete with bigger retail companies.

My concern is that London Drugs will not be able to capture the next generation of lifetime consumers. Their stores are not engaging for young, tech savvy consumers. While they now offer online shopping, their in store experience is not sufficient to prevent young consumers from going where it is cheaper, easier, or more appealing. 

References:
[1] http://www.bcbusiness.ca/retail/inside-london-drugs-bcs-most-loved-brand


https://c2.staticflickr.com/4/3291/3040907859_499b4b9fec.jpg
http://www.mayabelize.ca/wp-content/uploads/2014/10/Save-Money-When-Buying-Online.jpg 
http://www.londondrugs.com/