Is Local the New Black?

In the wake of Enron and Worldcomm, I wrote an article on “Moving From Words to Deeds to Restore Public Trust“ that got picked up by Marketing Profs. It is as relevant to today’s outrages – just replace those guys with Madoff, the mess on Wall Street, and abuses of “rescue” funds by our biggest financial institutions. So, what have we learned since the last massive breach of public trust in Corporate America?

We expect greater accountability of the companies that enjoy our tax breaks, consume our resources, raise capital through our markets, and benefit in other ways by doing business in our neighborhoods. Most major companies launched social responsibility initiatives (or at least PR campaigns) before the September 2007 meltdown to demonstrate they understood this. But the bar is higher now that so many bedrock institutions have become beggars at the public trough. So, what are the implications for big companies? This time around, Corporate America may have died along with the idea that markets can be self-regulating.

If pendulum were to swing back toward decentralization, it would provide a way to for companies to get closer, and more accountable, to the customer and other constituents. Networking and technology provide the tools to enable many of the benefits and avoid at least some of the costs of taking a decentralized, locally focused approach to business. This is why I think local may be the new black.

There are real advantages to supporting local businesses – decisions are made locally and the people who work there are personally invested in the community since it’s where they live. In return, they support the schools, the local kids’ sports leagues, and more.

But what does local mean these days? Does it mean not-chain-store? Does it have to do with the type of real estate – not a mall? Is it about local ownership? Is it physical? I think it’s more a mindset… a commitment to serving the community, regardless of ownership, type of real estate, or number of locations. The challenge is to deliver that local, home-town feeling (regardless of where you’re doing business) consistently across locations.

Who’s doing this today?

• Real estate offices (including the regional chains) get it, and always have – they are all about the local economy they serve and are well-aware of the differences between neighborhoods.

• Local grocery stores – unlike Safeway and Whole Foods, Mill Valley Market and Molly Stones support most community events with cash and in-kind donations and they stock unique merchandise at customer request.

• Community banks & credit unions – their point of differentiation often is their support of the local economy or workers. Given their greater insight into the local market, they are more likely to make loans in today’s anti-lending environment than the big banks. And they’re getting no bail out money!

• Privately run enrichment programs for kids – preschools, arts & crafts programs and others like them cater to local families. There are good reasons why Steve & Kate’s Camp, West America Tae Kwon Do, and others like them are long-lived institutions in our town. They fill a need and make our lives richer.

With retail vacancies hitting small towns like ours hard, City Councils should be thinking about what types of retail they want to see move in. I’d suggest they consider the benefits of businesses with a local mindset, and go after these four types of good corporate citizens.

Retailers Getting In On The Good

In his inauguration speech, President Obama invited us to a new era of responsibility and to choose our better history. The message resonates with people of all ages and circumstances.

With the economy continuing to take a toll on people across the income spectrum, it’s an interesting time to call people to action on behalf of those less fortunate than ourselves. Yet, that’s exactly what’s happening. I’ve written before about Ebay and World of Good, Kenneth Cole and Network for Good, Gap’s (Product) RED, and TOMS Shoes. The newest entrant: Starbucks with HandsOn Network and Oprah. The program encourages consumers to pledge five hours of community service before the end of the year.

Is this the new state of retail? Activism is a great way for brands to make their values clear and accessible to employees and consumers, in hopes of acquiring and retaining customers while also doing good. And retailers have something that causes don’t – a presence in neighborhoods, access to us where we live.

For years, the same handful of brands came up whenever anyone talked about doing good. The original do-gooders, like Patagonia, Ben & Jerry’s, Body Shop – where does that leave them? Happy that cause-based retail has caught on? You bet. And upping the ante on these newcomers. Patagonia has grown its environmental advocacy from supporting the Surf Rider Foundation to full-fledged leadership across diverse initiatives to protect the environment, from “Freedom to Roam” to”Voice Your Choice,” the Conservation Alliance, campaigns to protect the Arctic National Wildlife Refuge, and more. It’s a breathtaking range of issues and initiatives to support or participate in.

What’s next? More ways to get connected and involved. Documentary filmmaker Ken Burns created a program for outdoor retailers to promote the outdoors and outdoor activity to their customers in conjunction with a 6-part TV series about our national parks, which PBS will air in September. The program encourages retailers to co-host special outdoor events, sponsor park of the month nights, host a park lecture series, promote local outdoor or nature clubs, sponsor photo and essay contests, or host family camp-outs.

Burns told the Salt Lake Tribune last week that such efforts are especially appropriate in difficult economic times. "It's paradoxical but in the toughest times of the Great Depression, the national parks thrived as never before," he said. "We fell back on resources we didn't know we needed."

Burns, PBS, and the outdoor industry are betting the national parks will thrive again. And Starbucks? They’re just hoping to help us focus on something bigger ourselves. Already, over 1 million hours have been pledged to all kinds of causes – just since the inauguration on Tuesday! I’m in. What about you? Sign up to get involved.

With this one, we all win!

Teen Awareness of the Recession

When I was in high school and college, I was blissfully ignorant of the economy for the most part. We had recessions, to be sure, and my parents sold the family home in the Palisades when the taxes got too high (in California’s pre-Prop 13 days). But they rarely talked about money or money matters in front of us kids.

As USA Today reported earlier this year, today’s teens are more tuned in. My own kids are not only aware of the current recession, they want to understand it…to a point. And they accept it, even when it comes to this year’s Winter Formal.

My daughter is a junior, and this weekend we went shopping for an outfit for next month’s Winter Formal. As at Christmas, I was amazed by the crowds. We were in the Westfield Mall in San Francisco, and the stores and restaurants were packed with buyers.

There were deals to be had. We started out at Bloomingdale’s and after trying on a dozen or so dresses, found one by French Connection she loved but was a size too small, and had them hold 3 others while we went to look elsewhere. She was concerned that someone else would show up in the BCBG dress she put on hold. A group of 15 girls all agreed to post pictures of their dresses on Facebook to prevent duplicates (GREAT IDEA!), but the whole school is not part of the plan, so she couldn’t be sure. BCBG seems to be the favorite of high school juniors and seniors, and apparently two girls wore the same BCBG dress last year. The horror!

So, we worked our way through the mall. The favorite dress on hold at Bloomies was on sale at the BCBG boutique for 30% off – and the store was filled with girls from our high school. So, despite the discount, which put the dress closer to the price I had in mind, the dress was off the list. The whole brand was out. We ended up finding a totally unique dress in a London boutique called Reiss – no way would anyone else have that dress. It was marked down 75%, which put the dress comfortably in our price range.

So, we bought it, and a great looking pair of sandals to go with. Later, at home she went online and found her size in one of the dresses she’d tried on at Bloomingdale’s that was a size too small at LolaBoutique.com. What to do? Like lots of people, we are cutting back and watching our spending.

She came up with the plan – return the sandals since she realized she already had shoes to go with either dress. Return the dress to Reiss. And since the dress online was still slightly over the price I had in mind, have her pay the difference. Oh, and let her run around and handle the returns herself.

So, the winners here? French Connection over BCBG, boutiques over department stores, Facebook, and parents who let their kids feel a little fiscal responsibility.

Still Spending to Protect the Investment in our Homes

Last year, we talked with thousands of homeowners about a wide range of topics including food and eating at home vs. away from home, shoes and clothing, and home improvement and home maintenance. Our research through Q4 highlighted showed that: DIY is booming, pretense and conspicuous consumption are out, coupons are back, and at least in some categories, people believe they’re spending smarter, not spending less.

I thought it would be interesting, and possibly instructive, to share what we heard about these themes in each category, so I wrote a 3-part story. Part 1 was about food. Part 2 was about clothing. This last installment is on shelter.

In December, we talked to 50 homeowners in the Midwest about their home care habits and purchases in 2008. They told us they're still investing in their homes, and are focusing on expenses that add to their home's value. As a result, it was not surprising to us that home furnishings got slammed last year. Seems that people don't see furniture or decor as increasing the value of their homes. Stores like Pier 1, Restoration Hardware, and Pottery Barn, and others focused on the decor side of homes were all losers in 2008. Pier 1's Q4 comps were down 18%...and their quarter ended before December!

Although they weren't spending it on home furnishings, most homeowners felt their spending on home improvement and home maintenance since June had not changed. While they are definitely deferring some projects, they are also doing more themselves. That means more novice DIY’ers are doing projects around the house, which translates to greater demand for advice and reassurance. These are two things Home Depot is not known for.

This trend may explain the greater losses at Home Depot vs. Lowe’s. At Home Depot, 2008 profits dropped 38 percent compared to a 15 percent decline Lowe's through the first three quarters of 2008. It may also explain why independents and co-ops like Ace Hardware, where helpful advice is their point of difference, saw much smaller declines than the big box stores.

Homeowners also said they’re comparison shopping and relying on coupons more than ever. Home improvement and home maintenance stores that don’t do coupons or that neglect the web do so at their peril.

The skills and habits consumers develop during these hard times may last a lifetime. So, as this recession enters Year 2, it looks like retailers that get the DIY market in their category will make out better than the rest – while the recession is still with us, and after it has passed.

Buying Clothes is Out - Making them is In

Guess I got the three elements of Maslow’s hierarchy out of order. Instead of shelter, this installation is about clothing – food, then clothing, and shelter is last, I’m told. So, Part 1 was about food. This is Part 2 – and I’m talking clothing.

This holiday was one of the toughest ever. Apparel retailing is awash in red ink. The biggest losers overall were high-end stores – Saks and Neiman Marcus saw the biggest declines, but sales slumped at all department stores - and Womens' Wear Daily reported this week that "an epidemic of closings and downsizing has hit high-profile specialty boutiques." Most clothing retailers are down. Even Wal-Mart, who did well in other categories, saw declines in apparel.

Although parents reported they planned to cut spending on themselves before they would cut spending on their kids this holiday, teen brands got hammered in Q4. This may be the clearest indication of the power of teen demand – in good times, they have allowances and part time jobs that put cash in their pockets. In the second half, jobs were harder to come by, gas was more expensive, and allowances may have tightened along with family budgets. Not coincidentally, Abercrombie, PacSun, American Eagle were all big losers this holiday.

Thanks to Project Runway, interest in sewing is booming. The owner of Cutting Line Designs pattern company told the Minneapolis-St. Paul Star Tribune in March last year “"Without a doubt, 'Project Runway' has been a shot in the arm. The audience watches the contestants sewing, and suddenly everyone wants to sew."

The sewing business represents over half of Jo-Ann Stores’ sales and while the rest of the market swooned in Q3, Jo-Ann’s sewing-related sales grew over 1% on a same-store-sales basis. As with home improvement, the influx of newbies into the market means increased interest in sewing classes, too. On CBS.com in October, Liz Keptner reported that “that sewing class that lots of us suffered through in high school is now the latest trend in hand-made crafts.“

I haven't seen anyone link the DIY clothing trend to the drop in apparel store sales directly. But it could further fuel the move away from pretention and conspicuous consumption.

Four Themes That Cross Categories

Since last Fall, the economic news has been uniformly grim. People losing their homes, deferring maintenance, unable to afford heat. Food banks and soup kitchens overflowing with “customers.” Donors to thrift stores in years past now shopping at them. As a November story on mightbargainhunter.com points out so clearly, “we may think that we need a lot of things. The stuff we really need — after breathing — are food (and clean water) in our stomachs, clothes on our backs, and a roof over our heads.”

This past year, we’ve talked to hundreds of consumers on behalf of clients. We’ve talked about food and eating at home vs. away from home. We’ve talked about shoes and clothing. And we’ve talked about home improvement and home maintenance. In these conversations, we heard several common themes:

• DIY is booming
  
  
• Pretense and conspicuous consumption are out
  
  
• Coupons are back
  
  
• At least in some categories, people believe they’re spending smarter, not necessarily spending less

So, I thought it would be interesting, and possibly instructive, to share what we heard. In this 3-part series, I'll start with the Food category, then Shelter, and in last installment, will talk about Clothing. Compare notes with your own experience, and let us know where we got it wrong…or right!

The problems at Whole Foods and other upscale grocery retailers started long before Q4. Food prices surged in the first half, and organic produce took a hit. Consumers shifted to private label and shopping the club stores for food and groceries in a big way early in the year. Big winners in the category were ALDI whose no frills, private label offering fits the current environment well, and the various 99-cent and dollar stores, for their low prices.

Coupon use is also factoring into food purchases. As market researcher ICOM found, “Households of two adults and two children who use coupons wisely can save 25% on their grocery bill annually, without cutting purchases.” And online coupons were the runaway hit of the year. Consumers of all ages told us they used them, and said would be more inclined to use them if they were electronic. The availability of electronic coupons would most influence the shopping behavior of 18-34 year olds, 77% of whom said they are much more likely or somewhat more likely to use coupons if given access to this paperless technology.

The other thing about food is that more people are eating at home. According to a story on NPR’s Sunday Weekend Edition, cooking skills may have atrophied during the eat-out/take-out days, so we’re seeing increased interest in cooking classes. Cook book sales are also surging. Whether thanks to the Food Network, the recession, both or something else, cookbooks were a bright spot in publishers' lineup.

In this recession, all four themes are at work in the food category.

Next up: Shelter.

Doing Good...(too) Quietly

This Christmas, I scored surprise shopping success at Kenneth Cole, where everything in the store was at least 36% off. After buying gifts for others as well as myself, I learned of a new Do-Good opportunity that the retail community was promoting. This one is brought to consumers by Network for Good. Kenneth Cole suggested that consumers should “make your presents felt” (pun intended). Already a supporter of Gap’s (Product) RED and of eBay’s WorldofGood.com, I was surprised that I had not heard of this promotion.

Founded by AOL, Cisco and Yahoo in 2001, Network for Good today is a complete how-to site teaching non-profits how to thrive in a Web 2.0 world. The site offers articles and tools for developing marketing campaigns, training volunteers and employees, creating and managing donor databases, and more. The articles are well written and relevant. The founder and CEO, Bill Strathmann, was featured by Fast Company this year as one of 45 Social Entrepreneurs Who Are Changing The World.

My purchase entitled me to a $10 contribution by Kenneth Cole to the charity of my choice from the over 1 million charities supported by Network for Good. All I had to do was go online and use the individual access code on the hand out. What’s more, I was also eligible to win up to $10,000 for the charity of my choice if I filled out the 3-line entry form (name, address, email address) while in the store and gave it back to the sales associate. No purchase was necessary for entry into this contest. Turns out, I was also able to enter online.

I saw no in-store collateral promoting this great promotion. In fact, the store associates didn’t mention it until they placed the collateral in my shopping bag. It’s possible this understated approach is right on-brand for KC – I don’t really shop there regularly and don’t pretend to know what the brand stands for. Nonetheless, this was an opportunity to associate the Kenneth Cole brand with the worthy causes supported by Network for Good, and with the nobility of giving to charity.

So, while a great idea with lots of potential, seems to me that Kenneth Cole did not commit fully to the initiative, and did not benefit as much as they could have.

Growth Strategy Conventional Wisdom Revisited

With stock prices depressed and start ups anxious to raise cash, we may see an uptick in M&A activity and joint ventures in 2009. That may be wishful thinking (I know a few start ups that certainly hope to find a strategic partner aka buyer), but if consumer confidence can stabilize, it may not be unrealistic. What, then, to expect from companies' efforts to buy growth?

Several case studies and lots of data show that organic growth produces more lasting business benefits than growth through partnerships or acquisition. As Will Ander, a retail consultant for Chicago-based McMillan/Doolittle LLP, puts it: “You’ve got to ask: Does putting two brands that are struggling together make a better product in the end?” However, two recent examples suggest that the conventional wisdom is not always smart.

Carly Fiorina was a controversial CEO and led HP into a controversial acquisition of Compaq. At the time, industry pundits thought the plan to leverage Compaq’s position in personal computers was fatally flawed. A bitter proxy battle ensured, the deal went through and Fiorina got the boot. I am not a Fiorina defender. However, fast forward 6 years – HP has surpassed Dell as the worldwide PC market leader. And today, the printer business is stagnant and it is HP’s PC business that is the growth engine of the company.

More recently, a Christmas 2008 example started two years ago when Macy’s saw an opportunity in the toy category. They wanted to avoid becoming an also-ran behind Wal-Mart and needed margin insulation that a unique assortment would provide. Rather than go it alone, Macy’s conducted a pilot with FAO Schwarz (www.fao.com) in late 2007. FAO Schwarz had had its own problems and motivations, having emerged from bankruptcy in 2004.

The pilot proved a success and in May 2008, the two companies announced an agreement to build out full-size FAO Schwarz shops of between 1,000 and 3,500 square feet in approximately 75 Macy's locations across the country and smaller FAO Schwarz departments of between 200 and 300 square feet in another 200 stores in time for the holidays.

The stores were built out and proved successful enough that late last month Mike Duff of BNET reported the companies announced plans to add about 400 more, mostly smaller FAO Schwarz shops for a total of about 675 over the next 18 months.

The moral of the story: Organic growth is not the only path to lasting business benefits. Smart brand pairings can produce compelling results that have staying power.

New Tools Needed to Gauge Store Busy-ness?

Thanks to a December surge in my own business, I got a late start on holiday shopping this year. But when I finally got going, I was amazed at the crowds. I was expecting to find deals galore and empty stores. Not so on both fronts!

The weekend before Christmas, The San Francisco Centre was mobbed. Forever 21 was as crowded as usual, if not moreso. Gap, Macy’s, Bloomingdale’s, Restoration Hardware, even Kenneth Cole were similarly jammed with shoppers…and buyers. There were sales, to be sure. At Kenneth Cole, everything in the store was at least 36% off, which enticed us to buy when we otherwise would have only looked longingly. Resto had a huge table of stocking stuffers marked down 30%. (Though when I got home to wrap them, I found price tags covering up lower prices – so they pulled a classic mark-it-up only to mark-it-down move!)

My own experience doesn’t jive with Stephanie Rosenbloom’s Dec. 25 story in the NYTimes reporting a 24% drop in holiday store traffic. Everywhere we went, there were crowds with shopping bags to prove they had purchased. Even the grocery stores were packed. The aisles at our local Safeway were jammed with shopping carts loaded to the gills on the 23rd. In Whole Foods on the 24th, the tension was palpable. We realized we had not made enough desserts for Christmas Eve dinner, and went in to pick up a few more treats. It was no treat inside.

At Christmas Eve dinner, I discovered to my surprise that credit card issuers may not understand that people retreat to cash in a recession. An in-law who works for a major card issuer reported that her firm was interpreting the fact that it was missing its transaction volume forecast as proof that the economy was still in decline. Though no doubt, the decline continues, I offered up a few explanations for why her company's transaction volume could be down. First, people are using more coupons and doing more comparison shopping, so they are getting better deals (which translates into lower average order size). More importantly, more people are shifting to paying in cash. These explain why they could be missing plan but sales could be more robust than they appear. The shift to cash has been well documented – I even blogged about it in October!

Could the same thing be happening with store traffic counts? Are the people and tools for capturing store traffic somehow missing vital pieces of the market? As with the Florida vote in 2004, where the down ballot candidates all got more votes than the presidential ticket, is there a massive undercount going on – albeit unintentional?