New Store Formats are 'Popping Up' All Over

It’s official – last month TNS’s Retail Forward Shopper Scape reported that we’re going to the mall less than we did just two years ago. Regional mall and lifestyle center traffic is down sharply since 2006. The upshot? There’s a lot of empty retail space available – between bankruptcy, cash-strapped consumers, and changing trends, malls have seen tremendous turnover in their tenants. Sharper Image, Bombay & Company, Crate and Barrel, Victoria’s Secret, Illuminations, and Footlocker moved out of our local malls in the past 6-12 months as retailers go under or seek a different type of real estate or consumer demographic. The same thing is happening across the country.

You might think that would be good news for anyone looking for a deal on retail space. Not necessarily. With mall traffic down, established retailers and newcomers are trying new store formats and site selection strategies to appeal more to consumers. Retailers from Staples to Best Buy to Wal-Mart are experimenting with new, smaller, Main Street formats.

One of my favorite new formats is Pop-Up retail. These temporary arrangements have a tendency to pop up unannounced, quickly draw in the crowds, and then disappear or morph into something else, adding an element of surprise and newness to their efforts. Charmin Ultra took over a 12,000-square-foot location and installed free luxury restrooms in Times Square during Christmas of 2006. Charmin’s pop-up Potty Palooza generated a lot of press…and goodwill for the company.

Up until now, most pop-up retail has been brought to us by consumer goods manufacturers who don’t have direct access to their customers. They are designed to generate trial and awareness. A few retailers have also embraced the format. Limited Brand is among the retail pioneers.

College campuses are a natural venue for pop-up retail because of their “Captive” audience. The WSJ reported last week that Victoria's Secret's Pink, a young women's clothing brand of Limited Brands Inc., this fall is opening its own pop-up stores at about 12 schools, up from 10 last spring. The stores open for a day, selling merchandise, handing out promotional items and collecting used clothing for charity. How much can a single location generate in a day on-campus? Last Spring, stores rang up sales of $20,000 in a single day on average.

That got me thinking about other promising pop-up venues. Will corporate campuses be next? Seems like a good bet.

Where We’re Comfortable Buying Consumer Electronics Now

Americans have a lot of consumer electronics in our homes! NPD reported at RetailVision last week that 85% of households now have Home DVD players and printers, 84% have desktop PCs, over half have MP3 players and flat-panel TVs, and just under half have a notebook PC. The data show consumer electronics have become fairly ubiquitous in today’s American homes. And as technology has become more pervasive, we have become more comfortable owning and buying it.

At the same event, the Consumer Electronics Association presented results from a recent survey about consumer buying preferences. They found that 25 % of people would be willing to buy consumer electronics products from Starbucks, 30% from Ikea, 40% from Bed, Bath and Beyond and almost 60% from Home Depot. So, what does this mean for category leader Best Buy? It means increased competition.

Last year in researching the home center market we learned that people go to Home Depot when they feel pretty confident about what they’re doing. Given the high household penetration of many consumer electronics products, it’s not surprising that most consumers would buy CE products from Home Depot.

Should Best Buy be worried? Hardly. For Home Depot to make a go of it, they’ll have to change a lot. Top priority would be to get more employees in the stores to answer people’s questions. The folks at Home Depot are friendly enough and if you can find them, they are actually helpful. Problem is, for cost reasons, employees are few and far between at most Home Depots. Even though we’re comfortable buying CE, we still have questions, or unique situations that require talking to someone.

And like a good category leader, Best Buy isn’t standing still. Earlier this month, they announced plans to open 8 Best Buy Express kiosks (CE vending machines) in September at major airports around the country.

Look for them to continue innovating the customer experience.

Innovation - It’s All About Who Benefits

Business Week ran a great story about design as the vehicle for innovation last week. Great companies have no shortage of new product and service ideas. The hard part is figuring out which ones are worth pursuing. Right now, Best Buy has two consulting firms helping it sort though and make sense of its laundry list of suggestions from inside and outside the company. Think how long that list must be!

The BW article points out the creative power that constraints inject into the innovation process, and uses Coca Cola as a case in point. For Coke’s VP of Design, the mission was to avoid cool concepts that would never see the light of day. Instead of generating ideas and then trying to find a place for them, he is leading the company to identify and address basic problems that design can solve.

For example, store coolers are a primary showcase for Coke’s products. They’re expensive and use a lot of energy, and retailers change them out only when they have to. Coke’s design team would have loved to overhaul the cooler design, and the brand team would have welcomed the simultaneous visual update across all stores.

But it was clearly smarter for them to take a modular approach, allowing stores to “retrofit” the new design onto their existing coolers at a pace that made sense for store budgets and business. At the same time, Coke designed completely new, more energy-efficient coolers to give retailers a clear economic reason to change out their old coolers. It’s a win-win-win – Coke gets coolers reflecting its new brand look in stores sooner, stores get a updated look sooner for less, and retailers interested in energy efficiency can cost-justify the new coolers.

The story got me thinking about other manufacturers who could do the same to help their channel partners and themselves through smart, constrained innovation. Mattel is one that came to mind. At Toys ‘R Us and elsewhere, parents and girls ages 2-9 are faced with the Barbie aisle’s wall of pink. It’s tough to find which part of the Barbie assortment is for a 3 year-old vs. a 7 year-old. It would be a big help to customers and store employees to have the packaging, fixtures and visual cues direct customers to the right part of the aisle.

Who's on your list?

Manufacturers Can Help Build Retail Brands

This week’s AdAge CMO Strategy article boldly announced the coming of retail branding, suggesting that retailers have been mere distribution points for their branded goods manufacturers’ wares up till now. Hogwash.

Sam Walton knew about branding. Every day low pricing, store greeters, tough vendor negotiations, early morning employee Rah Rah sessions, and the company travel policy are all examples of a clear and powerful Wal-Mart brand. Howard Schultz knows about branding, too. And like it or not, Starbucks delivers a powerful brand experience – who hasn’t met up with friends or held an entire meeting at a Starbucks while sipping overpriced but consistently prepared hot and cold drinks? Cheers, the bar where “everyone knows your name,” was a brand, too.

The balance of power in the retail value chain shifted a long time ago to the retailer. Sam Walton knew it, and so do other shrewd retailers: "He who controls the customer experience also controls the customer relationship."

Now, the customer experience occurs at multiple touchpoints, not the least of which is the use or consumption of the product. It just so happens that many (though not all) of the touchpoints leading up to and following product use are controlled by the retailer.

Part of the “news” the AdAge story covers seems to be the increasing number of retailers developing and offering the own branded assortment. But this isn’t news, at all. Gap started out selling Levi jeans. Safeway and Whole Foods have had store brands for years.

Another part of the story is about retailers recognizing the importance of customer loyalty and creating innovative loyalty programs. No news here, either. Heck, when I was a cashier at AlRose in Century City, our store layaway program served as a powerful loyalty program - credit for people who didn't have access to credit cards. That was in the ‘70s!

So, what is the real point here? Branded manufacturers have a role to play in partnering to innovate across the value chain. An example of a brand that recently did this is Coca Cola. Last week’s Business Week article attributed much of the design team’s success to their prioritizing innovations that worked within the constraints of Coca-Cola's complex partner relationships.

No doubt, manufacturers can help retailers build stronger, more differentiated brands. Doing so will help them secure their own brands, too.

The Changing Role of Stores

Contrary to conventional wisdom, the rise of e-commerce and our heightened sensitivity to junk mail have not meant catalogs’ demise. In fact, in a new study issued yesterday, The Direct Marketing Association reports that for multichannel marketers, “the paper catalog is still the largest revenue generator among all channels with an average of nearly 50 percent of sales in both 2007 and 2008, although web sales continue to grow.”

Here’s the big news the press release forgot to mention – stores now generate less than half of all multichannel retailer sales – and if catalogs’ share of sales is holding steady and the web’s share is increasing, then store sales represent a decreasing share of total sales. Wow!

When I was running the catalog and web channels for Illuminations, I wanted the company to change its view of its channels. I recommended we use the stores to bring the brand to life, and that we rely on the direct channels to drive profitable volume. Unfortunately, my CEO was a die-hard store guy. Wally viewed the catalog as a marketing expense for driving store sales. Today, the data suggest that stores are increasingly a marketing expense as same-store sales decline while year-over-year online sales grow.

Take Gap, for instance. The San Diego Union Tribune reported last month that Gap had an 11 percent decline in same-store sales in the first quarter of this year, but a 21 percent increase in online sales. Victoria's Secret has seen the same trend. Its catalog and Internet sales were up 11 percent in the first quarter while same-store sales declined 8 percent. JC Penney, too. The retailer had an 8.7 percent increase in Internet sales in the first quarter of this year, in contrast to a 7.4 percent decrease in sales at stores open at least a year.

So, what does that mean about the retail experience? Expect more retailers to offer the option to buy online and pick up in the store to get you to go to the store in the first place. And expect more dramatic and engaging in-store experiences - like REI's climbing wall - as retailers work harder to make the trip worth your while and maybe get you to pick up an extra item, like a carabiner, while you’re there.

What Do Guys Want When They Shop?

I used to work with a smart, funny, non-athletic, straight guy – let’s call him Bob. When he was in his late 20s, Bob used to go for a weekly steam and rubdown (never called it a massage). I pictured the place being similar to where Jerry’s father and uncle Leo hung out on Seinfeld. There, Bob found camaraderie among the sweaty men of all ages who had weekly appointments on the same day he did. I imagined they talked about their jobs, their significant others, kids if they had them, the local sports teams.

That was a long time ago, and Bob has since moved away, gotten married and had kids. He was the only guy I knew who did anything like this.

When I heard that Mickey Drexler opened a J Crew Mens’ Shop in the old Liquor Store building in Tribeca this week, I thought of Bob. I wondered where guys like Bob go today for that feeling of male camaraderie.

In 2005, we did qualitative research for a leading shoe brand to understand men's ideal shoe shopping experience. Their answer: Hooters with shoes. Men told us they wanted a bar-like setting with young, attractive cocktail waitresses in short outfits, and plasma screen TVs on the walls showing sports. We laughed, and everyone found that aspect of our findings amusing.

Apparently, the findings held up, and others found them, too. In 2007, Knockouts Haircuts for Men launched. Knockouts is a full-service, boxing-themed salon known for its specially-chosen staff of attractive female hairstylists wearing trade-marked Knockouts Girls boxing uniforms. Knockouts offers a pampering experience for men including large leather chairs, individual flat screen TV’s with remote controls at each station and complimentary beer. Pretty close match to what the men told us in our shoe research.

Is that it? Is Hooters plus product the only retail experience that will engage men? Even J. Crew’s Tribeca Men’s Shop seems to be a variation on this theme. In an effort to be authentic, the display cases cleverly repurpose the liquor store’s original fixtures, and the store kept as much of the bar vibe as possible. Customers can even pour a drink while browsing.

Hooter’s – or in this case, the White Horse Tavern in New York City's West Village, which was the inspiration for the Tribeca Men's Shop store design - plus product may still be what guys want when they shop.

J. Crew Bets on Luxury-For-Less

It’s a gutsy move. While Americans are worrying about the economy, Mickey Drexler is building out J. Crew’s brand portfolio. He’s repositioning J. Crew as affordable luxury, and launching two new luxury-for-less concepts: Madewell which is aimed at women and The Tribeca Men's Shop.

Fortune Magazine’s story today on “The King of Cool” outlines how Drexler hopes to use these moves and a few others to better serve the children of the baby-boomers, who are three years away from getting into their 20s. He’s not the only one who sees an opportunity as Abercrombie & Fitch (ANF) and American Eagle Outfitters both recently launched more adult brands, too.

But Drexler is counting on his finely-tuned sense of what we want now. Monolithic brands are out – authenticity is in with upscale consumers. So, in addition to opening Tribeca Men's Store in the site of the long-closed Liquor Store bar in NYC and repositioning J. Crew, both stores will feature a few iconic product brands that add to their credibility and appeal. J. Crew will offer men's shirts in fabrics made by Thomas Mason, the textile manufacturer that many Jermyn Street haberdashers use. And the Tribeca Men's Shop assortment will include vintage Timex watches.

Drexler is one merchant who appreciates the power of branding. His choice of how to grow the J. Crew brand and business now is a classic contrarian move. I, for one, would never bet against him.

Meet Your New Product Designer - It's Your Customer

The first wave of web impact has been based on the efficiency of online markets. Online auctions sell used (as well as new) stuff, E-commerce saves time, and Match-making sites actually have produced loads of happily married couples. The next wave of transformation? Some are betting on product and service innovation through crowdsourcing. Jeff Howe coined the term in a 2006 article in Wired magazine. It's essentially the application of open-source principles to fields beyond software.

Wednesday's Morning Edition on National Public Radio featured a story about this trend, and showcased RYZ Wear athletic shoes. In consumer E-commerce crowdsourcing, companies like RYZ Wear, Threadless.com and JPG Magazine rely on customers to design their products – like tennis shoes, T-shirts and photography magazines - and vote on which ones are keepers and which are not. The ”crowd” takes on responsibility for product design and development and market research, allowing for dramatically lower R&D, inventory and marketing expenses.

Crowdsourcing is at work in longer lead-time products like PCs, too. In February 2007, Dell launched IdeaStorm, essentially a Web 2.0 suggestion box. Customers told the company what features and functions they wanted to see on future laptops. This month, Dell rolled out nine new laptops, all of which incorporated design elements proposed, promoted and debated by the IdeaStorm community.

The service version of crowdsourcing is newer and less proven. Case in point - Elements Restaurant, which will open in Washington, D.C. in 2009. Nearly 400 members of the Elements community have helped develop the concept, the look, the logo and even the name. A July 26th Washington Post story quotes Linda Welch, 49, the Washington businesswoman who launched and is funding the Elements project, as saying "most businesses are started because you have a great idea, and you take it out to the public to see if customers like it. This is the opposite. We're finding out what people want and doing it." Elements will be the first "crowdsourced" restaurant, conceived and developed by an open community of experts and interested parties who earn a piece of the profits in exchange for their contributions to launching the business according to an a la carte menu - pun intended. An interesting model, to be sure.

Howe has a book coming out next week on the topic. It’s called Crowdsourcing: Why the Power of the Crowd is Driving the Future of Business. No doubt, he will have more examples of innovation by the crowd. It will take time to determine how this wave of web-induced transformation will fare.

The strategist in me is skeptical; the customer side of me is hopeful. Kudos to those on the forefront of figuring it out.

Can The Body Shop Retake the Moral High Ground?

Long before it was fashionable, The Body Shop was one of a handful of environmentally and socially responsible retailers. Along with Patagonia, Benetton and Ben & Jerry’s, they led the dialog on sustainable development and do-good consumerism.

Fast-forward about 30 years – the company’s highly fragranced stores are now owned by L’Oreal and in need of finding a meaningful point of differentiation. In Saturday’s issue of The Globe and Mail, Marsha Strauss reports “ Body Shop wants to climb back on its soap box and stand out from the crowd.”

So, what are they doing? Going back to their roots and reminding the world of their green cred. Problem is, the world has caught up with, or surpassed The Body Shop on sustainability. In pursuit of growth, The Body Shop took their credentials for granted and failed to invest in leading the conversation.

Now that sustainability and green are increasingly mainstream among retailers, how does a one-time leader reassert itself and its relevance to a new generation of eco-conscientious consumers? It’s going to take more than new slogans on posters in stores, which is what the retailer apparently is planning this fall. Based on Strauss' description, I doubt Body Shop can pull it off.

3 Lifestyle Trends & 3 Companies Leading the Way

To stay up on trends in retailing and branding, my daily reading includes general business pubs, advertising industry and branding newsletters, retail industry pubs, tech industry blogs and newsletters, reports from consumer researchers, and more. Now that global warming and resource limitations are acknowledged as real, and with gas prices sky high, the environment and sustainability are mainstream topics for discussion everywhere. These 3 caught my eye this week.

Trend #1: Pre-cycling - With increasing consumer interest in sustainable living, those engaged in precycling aim to avoid products that create more superfluous stuff. This could mean everything from buying bulk in order to avoid excess packaging. Many stores now sell reusable grocery bags, and Costco has become even stingier with boxes at checkout. But the news in precycling is the disappearance of disposable water bottles from homes and events. Kids' sports teams all insist that players bring their own Nalgene bottles. Office workers bring them, too. The company has quietly been producing reusable containers of all kinds and wittily urges consumers to “drink responsibly.” Nalgene gets my vote for poster child of pre-recycling.

Trend #2: Biodynamics – Before there were organic products, there were Biodynamic ones – made from plants that are 100% pure and free of chemicals and pesticides and that are harvested at very specific "peak" periods during the growth cycle. A biodynamics pioneer, Jurlique harvests the plants and flowers that go into its products from its certified organic and biodynamic farms in South Australia. They sell skin, body, hair and baby care products in their own stores and through selected retailers around the world. In company's vision statement, written long before this type of thinking was cool, Jurlique asserts that “beauty is defined by sustainable connections – to oneself, to the community, and to the earth.“ Nice.

Trend #3: Learning & Living – Anyone can collect objects – if they have the money. But it takes time to learn a new skill. Last year, in the U.S. one in five people took a class in-person for fun or to learn something new. And one of the most popular categories is gardening. Is it related to our growing awareness of global warming? Could be. Terrain at Styer's is a new retail concept from Urban Outfitters that combines green lifestyle merchandise with gardening lectures, classes for do-it-yourselfers, and landscaping services for those who want someone to do it for them. The company is launching the concept with 7 domestic locations. While the full assortment may not survive as the concept scales, it is a bold attempt to assemble all of the elements of a green lifestyle.

Does Green Mean It's Safe?

Today's Brandweek features a story about Safeway bringing organic food to the masses. The Q&A with Safeway top marketer, James White, discusses the retailer's latest moves in organic and green products, and tries to clarify the difference its O and Eating Right brands.

It seems to me that the article misses the main point: As a society, we have lost faith in our institutions to keep us safe. From the FTC to the FDA to OSHA to EPA, the regulators are asleep at the wheel. People are looking for someone to fill the void and reassure us that the products we buy and the food we eat are not going to hurt us. Frankly, this is a big part of Whole Foods' historical appeal.

But Whole Foods is embattled on multiple fronts right now: from the acquisition of Wild Oats to the latest e.coli-related recall to becoming more value-oriented. As a result, the "seal of approval" aspect of its brand is in the background.

Safeway has a huge opportunity to become the new seal of approval signaling what's safe to buy, use and eat. Maybe that was the thinking behind the company's name in the first place! Can it afford to invest in both O and Eating Right to deliver the message? Should there be an umbrella brand that carries the overall message, and to which both O and Eating Right are linked? That can all be figured out.

The key is for Safeway to be honest in its claims, speak to consumers in plain English, and put the seal of approval brand(s) only on products that really are good for us and not just less bad versions of what's already available. Are they up to the task?

Flip Flops at the Grocery Store

Wnbc.com reported today on a company that wants to “be able to tell its customers the stories behind the products, of how they came to be and how sustainable they are.” Another story about Whole Foods? Nope - try Wal-Mart!

Whole Foods is busy trying to overcome its “Whole Paycheck” image. People used to use the nickname after shopping at Whole Foods, as if it were a badge of their own economic status. Now that whole paychecks are going to pay for the mortgage and gas, and with food prices sky high, people are shopping at Whole Foods less often and spending less when they do shop there. Whole Foods’ response? Introduce more lower-priced, store-branded merchandise and do more in-store promotions.

Meanwhile, Wal-Mart is moving to a more aspirational messaging platform. For years, Wal-Mart has focused on fuel savings, less waste, more efficient packaging and reduced electricity, all in pursuit of cost savings. Turns out that all that resource efficiency is also very green. The article points out that the company is now striving to extend its success with resource efficiency to the products on its shelves. The good folks in Bentonville know that the cost savings across the value chain from greater resource efficiency are substantial. In today’s tough economic environment, the master of EDLP is embracing green-ness as goodness.

However, finding the great deals is what people brag about now. Whole Foods may intentionally or unwittingly be reintroducing Hi-Low pricing and convincing consumers that there are still bargains to be had. What's old is new again, in green cred and in retail strategy!

Five Things We Want in a Brand Now and Who Delivers

We have high hopes for brands. In fact, brands are all about hope. We want them to show concern for less fortunate people, provide us great service, give us good advice, care about the planet, and help us take care of ourselves. In looking at the brandscape recently, I found a few surprises. Here's a summary, and a few comments on each one.

The brands that deliver now:

1. Social Conscience:
   Benetton uses its ads to make a case for ending hunger, fighting AIDs, and more. The images are usually bold and often shocking. It's attention-getting stuff. TOM’s Shoes takes a different approach by building social responsibility into its business model, not just its marketing. They give away a pair of shoes to a child in Latin America or Africa for every pair they sell. Customers can get in on the Shoe-Drop events, too.
   
   
2. Great Service:
   You’ve heard the urban legend about Nordstrom taking back defective tires, which they've never carried. They’ve been the poster child for customer service. Zappos.com strives to be the online service leader, and through their policies, training, and depth of inventory, they are doing just that. They carry all the major brands, shipping is free, shipping upgrades are used to surprise and delight customers and returns are accepted, no questions asked.
   
   
3. Good Advice:
   In the old days, financial advisors did all the talking. Remember EF Hutton's "When EF Hutton talks, people listen"? But the slogan belied a one-size-fits-all approach to advice. In a perfect Web 2.0 take on what good advice is, Schwab acknowledges that people today want someone to listen them, and give advice that's relevant to their situation. Schwab's tagline, "Talk to Chuck" says it all.
   
   
4. Green Cred:
   From its support of the Surf Rider Foundation to effectively creating the market for organic cotton to working with their suppliers to produce recycled raw materials, Patagonia was the first brand with Green Cred. And by using Patagonia's products some of that cred rubbed off onto customers. Now, Nalgene is the way to make a statement about your Green Cred. Their polycarbonate and HDPE bottles are the way we'll keep bottled water companies from draining our springs and avoid all those water bottles ending up in our landfills.
   
   
5. Good For Your Body:
   Thanks to fruit smoothies, Jamba Juice became known as a provider of healthy snacks. Here’s a surprise: Taco Bell’s Fresco Menu is lighter fare than most items on the Jamba Juice regular menu, and its “Why Pay More?” campaign makes it good for your wallet, too.
   

Wanted: Retail Differentiation

In a July 30 story, Fortune reported that “adjusted for inflation, retail sales dropped 2.6% from a year ago in the second quarter, marking their third straight quarter of contraction.” Sounds like retail is technically in a recession. The article went on to list the growing number of retailers seeking Chapter 11.

There is a logical pattern to the order of retailer bankruptcies during this downturn. The first to go sold stuff we don’t really need. Examples here are Sharper Image, Lillian Vernon, Fortunoff. All went into bankruptcy in February this year.

Round 2 has affected retailers who sell stuff we can get other places we like better. Examples include Linens ‘N Things, Bennigan’s, Steak & Ale and Mervyn’s. These stores just entered bankruptcy last month.

In these uncertain times, the only sure thing is being a place your customers want to shop. Retail differentiation matters now more than ever.