Target Misses the Bullseye in Canada

Joe Cataldo writes a detail story that serves as a solid autopsy on how Target failed in the Canadian market. His story moves beyond the superficial analysis of another American company failing to understand a foreign market. Through interviews with several people associated with Target's Canadian operation, Cataldo paints a pictures of a company that did not properly allocate its resources. The money list:

  • Human - Target hired people with little retail operations experience to develop its inventory and distribution systems.
  • Informational - Target could not provide properly and accurately complete the fields in its inventory software system. Indeed, Target bought an off-the-shelf title that it had no experience with using.
  • Organizational - Target had never expanded into a new country and lacked the competence to manage issues such as different currency, distribution centers, and suppliers.
  • Physical - Target acquired locations from Zellers, a poor performing Canadian retailer, that proved to be inadequate. Customers were not willing to drive to them regardless of the brand on the front of store.
  • Relational - Target and its suppliers could not agree to a receiving date for ordered goods. As a consequence, warehouses were stuffed with inventory while shelves at retail were empty.

Given the misallocation of its resource, Target ultimately achieved inferior financial performance. It reported a $5.4 billion quarterly loss. However, in reading Cataldo's story, the loss seems bigger than what has been reported.

Possible Target employees try to enter data in its inventory system.

J. Crew's Goodwill Slashed to Zero

Little doubt can exist that Mickey Drexler performed a turnaround J. Crew. When he took over the retailer in 2003, the brand seemed headed to the retailing graveyard. In the next seven years, Drexler repositioned J. Crew toward a preppier look and refreshed the store layout. J. Crew appeared better suited to compete with Ralph Lauren's stores and brands instead of Gap. When J. Crew went private in 2011, TPG Capital and Leonard Green & Partners valued the retailer's goodwill at $1.7 billion. Four years later, that figured was reduced to zero. Shelly Banjo and Gillain Tan provide the money thought:

Its older customers -- the only ones who can afford its high price points -- have aged out of its casual collegiate wear, and its younger shoppers have moved on from the preppy style to cheaper, fast-fashion brands like H&M and Zara.

Smoke appears to emanate from J. Crew's 11 percent decrease in comparative sales, which is the fifth-straight of quarterly declines in comps. The fire rages in its cuts. Simply put, too many Americans cannot fit into J. Crew's apparel products. To reverse this decline, Drexler and Jenna Lyons should accept that more shoppers want size 18 and than 000.

A New Jack Car Lot

Mark Baruth argues for a new type of car dealer for a new type of consumer; a New Jack car lot. This car dealership would revolve around the experience. A dealership where the posted sale price means the actual sale price and staffed by sales representatives working on base plus commission. Oh, yeah. Digital. Left unsaid is why no dealer operates as a New Jack car lot. Perhaps as Saturn found, customers would resist such an effort.

Starbucks Borrows Strategic Shift from Distillers

For whisky distillers, moving a label or brand up the price point is very difficult. Instead of raising prices for a label, a distiller will launch a new label with an accompanying higher price point. Distillers have relied on such efforts with terms such as single barrel, small batch, etc.

Taking a page from distillers, Starbucks will launch a series single-origin labels this fall. These labels will be available only at retailers, and not Starbucks' outlets. As this article notes, the place decision will provide Starbucks with greater space on the retailer's shelf. Given limited shelf space, a Starbucks competitor will suffer reduced shelf space, and, ultimately, less sales revenue.

The new labels will be priced around $10.50, or $3 more than a regular bag of Starbucks coffee. Retailers should welcome the higher price points coupled with the higher margins while generating some additional foot traffic in the coffee aisle.

This label launch follows Starbucks decision to add a new store format. This outlet will sell only small batch coffees, which sound a lot like small batch whiskies. Like small batch whiskies, expect small batch coffees to command a higher price point than $2.35 for a venti. The 95% or more margin on a cup of coffee would contribute to Starbucks' US gross margin of $737 million.

Possible new Starbucks size: Brocca

Big Malls Continue to Atrophy

Starting in 2008, the argument that malls in the United States are dying gained traction. This New Yorker piece takes apart the argument by segmenting malls based on location and type. In this sense, only one type of mall in one place requires last rights.

As Malcolm Gladwell discussed in this piece, the enclosed shopping box located in a remote location accessible only by freeways happened by accident. The first American mall was conceived as part of a larger development. None of the remaining development occurred. Instead the legacy of that first mall remains a forlorn looking object plopped in the middle of a vast acreage of blacktop parking lots.

The enclosed mall with two or three anchors could be gone in 20 years.

The death of these malls starts in the early 1980s because of these malls reliance  on mass retailers such as J.C. Penney, and Sears to fill space and attract consumers. In various regions other retailers such as Marc’s, Marshall Field, and Famous Barr occupied considerable space in these malls. Two forces conspired to kill these malls.

One, consolidation among mass retailers. The Macy’s known today reflects a decades-long consolidation of regional retailers. In early 1992, saddled with debts mostly owed to mall owners, Macy’s filed bankruptcy to reorganize the retailer’s debt. The process harmed mall owners’ financial position because Macy’s renegotiated new lease deals. The resulting consolidation also meant fewer tenets, which left considerable dead space in these malls.

Two, disappearing middle class. Consumers for J.C. Penney, Sears, and Macy’s have been dwindling for the last 30 years. All signs indicate the middle class will not return to pre-1980 levels. With fewer consumers, the mass retailers that occupy a large chunk of mall space will die. In turn, so will the enclosed mall.

A website details dead and/or decaying malls. Other malls have found new life as a traffic school, a community college, corporate headquarters, and as a church.

Malls such as outdoor malls and lifestyle malls will continue to exist. Indeed, Simon Property, one of the largest mall owners, kept those type of properties in its portfolio. However, the company jettisoned almost all of its indoor, anchor-dominated malls.

Overdressed Applies to Men's Fashion

Elizabeth Cline focuses much of her attention on women's fashion in Overdressed. Her observations and argument, though, applies to men’s fashion. Two examples from men’s fashion – Jos. A. Bank and Cole Haan – support Cline’s argument for declining quality coupled with flat to declining price points.

Jos. A. Bank runs daily promotions such as “Buy 1 suit at full price, get 2 free,” and are meant to create foot traffic to the store and/or website. Store employees receive a sheet with the deals for each day for a given month. The clothes are not that good though.

The weave of the cloth is so scant, light pours through it. Suit pants except for the top line lack a liner. The stitching on the sides is long and rushed. The store offers to cuff pants and add buttons for braces. That effort is also slipshod.

While Jos A Bank never claimed to offer the quality of a bespoke suit, it does not bother to offer a suit comparable in quality to what a man could purchase off the rack from a Macy’s or Penney in 1982. Jos. A Bank is only offering a suit in name and cut only.

Investors do not care. Over the last five years, Jos. A. Bank’s stock price climbed from $37.32 to $64.95, an increase of 74%.

As to Cole Haan, the brand has never been known for producing a quality shoe. In the early 1990s, shoes salesmen warned of buying the shoes because the quality was lacking for a shoe with a price point above $100. Twenty years later, the quality has not improved while the price point remains at the same level. To spend that much money on a pair shoes that will not last longer than a year seems pointless.

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Jerry Seinfeld rifts on Jos. A. Bank's deals

Overdressed Understates Importance of Stagnant Wages

In Overdressed, Elizabeth Cline recounted how American fashion transformed from expensive clothes that featured high quality construction to inexpensive with low quality. She provided many examples of this transformation including blazer, dress, and boots. Early in the book, she discussed how common the $40 blazer has become and how many retailers offer some form of it.

To achieve this price point, Cline noted that the blazer lacked a lining, relied on loose stitching, and included a few plastic buttons. The resulting blazer did not properly fit the owner. Indeed, as Cline concluded about her own appearance in these blazers, the wearer appeared frumpy. Cline spent the rest of the book discussing how the $40 blazer came into existence in the market, and acceptance in the closet.

Late in the book, I found two issues that resonated. One, inexpensive clothing has resulted in the end of fashion and style. The pressure to maintain sales volume eliminated the idea of two seasons (fall/winter, spring/summer) for fashion. Instead, fashion changed every three weeks or so as H&M, Forever 21, and Zara received new shipments of inventory.

Two, inexpensive clothes simply looked horrible on the wearer. Instead of hiding bad areas of the wearer’s body, these inexpensive clothes accentuated those areas because inexpensive clothes hung on the body. Cline overcame this problem by altering the inexpensive clothes with details that were included when clothes cost more money.

Cline detailed her attempts at learning to sow. Next, she employed the simple sowing techniques to alter a dress. This alteration resulted in a dress that better fits and flatters Cline’s figure.

Both of these issues resonated because it explains why Americans – women especially – wore such uninspiring and flat clothing. Fashion over the last 30 years has moved from style and sympathy for the wearer’s figure to flat and cruelty. At one point, clothes were tailored to fit. Now, clothes drape the body in a resulting drab style.

In each chapter, Cline introduced a different component to explain why Americans suffer from inexpensive clothes. Yet, she ignored one component to the point of distraction. Since the early 1980s, American wages have stagnated. When discussing prices of clothes sold in the 1960s, 1970s, and 1980s, the book included the price of the item then and in today’s dollars.

Given the cost of modest items sold through Sears, J.C. Penney, and other middle class retailers, Americans today could not afford those items. The middle class can only shop at places like H&M, Forever 21, and Zara because the middle class can only afford those prices. In turn, those retailers reduce the quality to cut the cost of merchandise sold to maintain gross profit. Sears, Penney, and Macy's continue to struggle because their traditional American consumer – the middle class – disappeared over the last 30 years.

Had Cline addressed stagnant wages, her book takes a very different tone and thesis. Instead of looking at Asian manufacturers, mergers in fashion retailer, and the destructiveness of fast fashion, Cline would have spent most of her book discussing and reviewing public policy decisions and political parties’ actions that caused the stagnation of American wages. That book would probably make for greater impact than Overdressed did.

Owner of this top will be lucky to get five washes before it falls apart.

Ikea Stakes Out St. Louis Neighborhood for New Store

When creating a new store, Ikea looks for acres and acres for inexpensive land. Such efforts explain its decision to locate in the far western Chicagoland suburbs, the Sharonville suburb of Cincinnati, and across from the Newark (NJ) airport. The Swedish retailer deviated from its location analysis when it decided to locate in the more urban Cortex bioscience district in St. Louis. Four factors influenced Ikea's decision.

  1. Highway visibility. The store will abut the heavily traveled I-64 / US-40.
  2. A MetroLink station. A new station will be built less than a mile from the announced location.
  3. Target market access. Downtown St. Louis is witnessing  a gentrification boom. Along with nearby residences, Ikea will draw from St. Louis University as well as Washington University. Additionally, interstates intersect near the announced location, which expand the trade radius.
  4. TIF availability. Ikea's property tax remains frozen with half of the city sales tax paying for infrastructure improvements and changes.

The amount of retail economic activity created by the Ikea remains to be seen. The area has gentrified for several years as the areas to the west and south enjoyed their economic revival.

Fashion Retailers' Reliance on Design, Production

Three articles focus on sources of competitive advantages for fashion retailers. For one set of retailers, management's renewed attention on design could allow for a competitive advantage in the marketplace. For another set of retailers, the production schedule provide a competitive advantage in the marketplace.

  • Ikea is launching a set of products designed to fit younger Americans move to smaller spaces.
  • Gap's new CEO is adding black jeans and other new designs to restore the brand's financial luster.
  • Korean, and Mexican immigrants create a Los Angeles garment district that allows the fast fashion industry to exist.

Barritt's Returns to Retailers' Shelves in Ohio

Barritt's Ginger Beer has returned to store shelves as the Bermuda-based company has resumed exporting to Ohio. The company based its decision on customers who asked for the beverage. In this sense, John Barritt & Son appears to be engaged in market orientation. Market orientation is defined as the generation, dissemination, and responsiveness to market intelligence.

The company maintains a separate website for its unique product. There, customers can click a contact page, which allows consumers many ways to interact with the company. Surely, the company analyzes its traffic data to determine the geography of the site's visitors, how customers accessed the site, and where they went they hit the site. In this fashion, web analytics reflects a firm's market orientation competence.

After receiving the email from Barritts, I called the distributor, Vintage Wines, to ask about the decision. The distributor (Vintage) and the supplier (Barritt's) agreed to a trial order. If retailers such as Weiland's Market can achieve and maintain sales and inventory turnover numbers, then Barritts Ginger Beer remains on the shelf. Vintage would not reveal the needed metrics, but offered that they were using an introductory price to spur interest.

By working with its relational partner, Vintage Wines, John Barritt & Son uses its market orientation competence to achieve superior financial performance by:

  1. Generation - Company should be using web analytics to develop consumer profile;
  2. Dissemination - Company internally and externally shares its market intelligence;
  3. Responsiveness - Company develops marketing program that includes distribution into Ohio markets.

Unlike the more familiar ginger ale, ginger beer starts very sweet and finished very sour thanks to the mixture of sugar cane and ginger root. The flavors are more robust with spice of the ginger given a starring role. Something in the Bermuda soil and water gives Barritt's a more distinct taste compared to market offerings from Sioux City and Regatta.

As summer draws to a close and before the autumn term courses become overwhelming, lay back in a hammock or chair and enjoy a cold bottle of Barritt's Ginger Beer.

A cool refreshing drink