Going Green to Broaden Appeal

The recession has breathed new life into doing it ourselves. Whether it's home cooking, sewing, entertaining at home, or home repair, consumers of all ages are doing more of it. As home sales have dropped off a cliff, home center stores like Lowe's and Home Depot have repositioned themselves away from home improvement and toward home repair.

Our work in the category shows these two locked in a battle for share. A year ago, Home Depot looked to be on the decline but more recently has been resurgent in multiple markets. We conducted research with homeowners this Spring that showed Home Depot was distinctive in its appeal to 30-year old homeowners. Teaching homeowners to rely on the home center when they're young is a strategy for assuring customer loyalty as they grow up.

Yesterday, the Home Depot Foundation and Habitat for Humanity International announced they are expanding their Partners in Sustainable Building program into a $30 million, five-year effort to construct at least 5,000 homes to meet Energy Star guidelines, or even higher green building standards. Given millennial interest in doing good and all things green, this promotion may grow and strengthen Home Depot's hold on this prized target. As Carol Phillips pointed out in a recent blog post: "Gen. Y is on track to become the greenest and most humanitarian generation in U.S. history. If one wants to do business with them they had better be very green and very nice to their fellow mankind."

In a category where merchandise and store experience are largely the same, social conscience and social responsibility may help consumers tell brands apart. Could be good news for causes, and brands that embrace them.

Discounters Winning Our Wallets – Will Hearts & Minds Follow?

These days, consumers are more reluctant than ever to part with their hard-earned cash, and virtually every store is offering deals and discounts to entice them to spend. As USA Today reported last week, the stores with the sharpest pencils and price points are clearly winning the battle to draw in new customers. Walmart, TJX and Dollar General beat analyst expectations and are reporting decent performance while the competition misses badly. But who are they attracting, and are they building customer loyalty that will prove enduring?

The data suggest upscale consumers are shopping these discounters big time, and while they may be enjoying the savings, they’re not loving the experience. That’s the interpretation of the latest retail data from the American Customer Satisfaction Index. The just-reported 2008 rankings for Department and Discount Stores show Nordstrom and Kohl’s tied for first place in customer satisfaction (at 80). Dollar General declined more than any other Department or Discount Store (to 75). While Walmart’s score increased last year, consumers still rated it the worst of the lot. (70). Among Specialty Stores, Barnes & Noble and Costco came out on top (at 83). TJX scored third from the bottom (73), with only Circuit City (72) and Home Depot (70) scoring worse.

What’s a discounter to do? Hire more sale associates or improve training in customer service? Clean the stores more often or improve store lighting? No! They should trust what people are doing more than what they are saying. Consumers vote with their pocketbooks every day, and the discounters are winning.

There must be a way for Walmart to use its commitment to packaging and energy efficiency to help upscale consumers appreciate the store experience more. Shopping at Ross and Marshalls stores is all about the thrill of finding amazing deals on brand name merchandise. And at Dollar General, it’s all about what a buck will buy. In a classic judo move, discounters might creatively turn a no-frills store experience into a badge of shopper frugality. Aldi and Costco both do this well. What could Dollar General, TJX and Walmart do?

Most pundits are projecting that the new behaviors being formed in this economy will have staying power. So, upscale consumers may learn to hold their noses while shopping the discounters. Just maybe, a few innovative discounters will find ways to make them happy to come back again and again.

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.

Blurry Assortments – Convenient or Confusing?

I was in Bed, Bath & Beyond this weekend to pick up a new shower curtain liner for the kids’ bathroom. It had been a while since I’d been in the store. At first, everything looked familiar, but as I rounded the first corner, I had an eerie feeling that I had somehow ended up in the wrong store.

There were shelves full of…toothpaste, toothbrushes, shampoo, conditioners, hair care products. In other words, it looked like I was in the drugstore. What’s going on?

Earlier this year, we did research with homeowners to find out where they go to buy products across a whole bunch of home improvement, repair and care categories – from plumbing supplies to paint to live plants to home cleaning supplies. We found that Lowe’s appeals most across more categories than hardware stores or Home Depot and saw that these types of stores do well in several categories of “consumables”. Like Bed Bath & Beyond, they use these faster turning and impulse categories to get people in the store more often, and also use these items to increase the average ticket.

Clearly, BBB and stores like it are looking for ways to be useful for more occasions than the rare times we are shopping for linens or furnishings for bedrooms, bathrooms or kitchens. BBB's move into home cleaning products was probably an attempt at increasing shopper frequency. Based on this last visit, I’d guess the move flopped since that department is now shoved in a corner and dramatically smaller than it used to be.

So, we have BBB, Lowe’s, Home Depot and Ace Hardware stores (and probably others!) offering and adding consumables typically found at drug and grocery stores. Meanwhile drugstores like Walgreens and CVS continue to offer and add small appliances and other small durable goods often found at home stores. Best Buy just started selling iPhones and Wal-Mart is rumored to start later this month. Wal-mart already offers a broader assortment than any of the stores I’ve mentioned. More category killers are running into the Wal-mart juggernaut.

All this got me thinking about how retailers should approach extending into new product categories and about who has done it well.

To extend into new product categories effectively, a retailer has to address unmet or under-met needs of current customers with products and services they can credibly offer to meet those needs. Amazon and Zappos come to mind as interesting examples. Both started out selling a single category of merchandise – Amazon started with books and Zappos started out selling shoes. What they really sold was a great customer experience. This platform has allowed both online retailers to move into new categories. Amazon now rivals Wal-mart for assortment breadth. And Zappos has moved into clothing, handbags and accessories.

For the offline world, I have to think harder. Stay tuned for my POV. Which store-based retailer do you think has extended into new product categories well?

Brand Value in a Down Economy

The economy is on everyone’s mind – where it is now, where it’s going, and how it’s affecting individuals, businesses and countries.

The folks at YouGovPoliMetrix recently fielded a survey – the BrandIndex survey – to research the effect the economy is having on consumer perceptions of brand value. The data were collected between Sept 1 and Oct 27, and Ad Week reported on the results in its Nov 4 issue.

The survey found that the five brands with the highest perceived value right now are: Craftsman, History Channel, Discovery Channel, Google and Rubbermaid. Brands with the worst perceived value today are: MTV, Hummer, Red Bull, AIG and Abercrombie & Fitch. Additionally, the survey found that over the past two months, brand value perception scores have increased for Microsoft, Starbucks, Verizon Wireless, Folgers, and Bath and Body Works, while they decreased for AIG, Wachovia, Washington Mutual, Foot Locker and Merrill Lynch.

Here are my takeaways from a review of the brands consumers perceive as the best and worst in terms of brand value right now:

1. Conspicuous consumption is out; self improvement and DIY are in
   
   
2. Value doesn’t mean cheap, but the price better be justified
   
   
3. Management's track record matters
   
   
4. Familiar, tried and true brands are reassuring in these uncertain times
   
   
5. Consumers are paying attention to advertising
   

The survey also measured brand value perceptions by category. Home improvement stores is one of the categories hardest hit by the housing meltdown, so it’s particularly interesting to see how consumer perceptions of brand value have been affected there. The YouGoPollMetrix survey found that Brookstone and 99 Cents Only currently have the worst perceived brand value in the category and Home Depot and Lowe’s have the best.

Our own category research at Brand Amplitude over the past year has shown consistently that consumers perceived Lowe’s as better than Home Depot on every dimension we asked about. From selection to knowledgeable advice and friendliness of service to speed at check out to the number of sales people on the selling floor to store layout to price to value, Lowe’s beats Home Depot, hand’s down.

I’ve written before about Home Depot’s challenges. Though the company scores well for consistency across customer touchpoints, our research shows that its messaging misses the mark. They don’t deliver on their “You can do it, we can help” tagline. And as outlined above, they fall short on multiple aspects of the customer experience compared to Lowe's.

The housing slump has hurt home improvement centers hard, and both Home Depot and Lowe’s have scaled back expansion plans in light of the soft economy. Given Lowe’s huge perceptual advantage, it makes sense that the company is not confining itself to a value message right now. Instead, Lowe’s just announced that it plans to tout its in-store shopping experience to drive consumers to its stores this holiday season. Smart move!

CMOs & Marketing Accountability - A Look at Home Depot

"Home Depot delivers on its brand promise," announced Liz Miller, Vice President at the CMO Council, yesterday upon releasing the results of a Council survey to gauge the consistency of 25 brands across six touchpoints. In today's Brandweek article Miller goes on to say: “The Home Depot may have struggled with its earnings this year, but don't blame its marketing.” Why the heck not?

These CMOs are clearly ignoring what customers are telling us with their feet and their wallets as Home Depot's comp store sales are down more than their competitors' so far this year. There are shortcomings in the Home Depot customer experience and there is a gap between Home Depot’s messaging and reality. Consistently delivering messaging across touchpoints should not be rewarded if it’s consistently the WRONG messaging. And how do we judge whether it’s right or wrong? By measuring how much that messaging contributes to getting the right people (customers and employees) in the store and to making the cash register ring.

In our research with home improvement customers earlier this year, we found that Home Depot’s positioning is not credible. Their slogan “You Can Do It, We Can Help” resonates conceptually, but Home Depot does not deliver. Customers go to Home Depot for two reasons only: Selection and Price. The size of its stores makes it hard to find employees, and that contradicts the notion of “help.” The sky-high racking of inventory out of reach flies in the face of self service and suggests that maybe customers really can’t do it themselves.

In fact, the company seems to recognize the disconnect, even if the CMO Council doesn’t. Earlier this week, HD announced a move that could eventually change its format from cavernous warehouses to shoppable stores. The Atlanta Home Journal reported Sunday that HD is investing over $300 million in regional distribution centers and systems to take inventory out of the stores and lower working capital requirements across the business.

While clearly being undertaken for cost savings (they anticipate freeing up $1.5 billion in working capital), the implications for store design and the customer experience are significant. Meanwhile, the CMO Council might want to reconsider what it means for a brand to deliver on its promise.

Scrambled Merchandising

You've seen it all around you - now there's a term for it. Scrambled Merchandising refers to a practice by wholesalers and retailers that carry an increasingly wider assortment of merchandise. It occurs when a retailer adds goods and services that are unrelated to each other and to the firm's original business.

It used to be that you went to a drug store for drugs, hardware store for hardware, a pet store for pet food and a grocery store for groceries. Now you can buy groceries at the drug store, find pet food at the hardware store and get anything you want at Wal-Mart or Target, not to mention Zappos or Amazon.

The Consumer Electronics Association presented at RetailVision results from a recent consumer survey about buying preferences: 25% would be willing to buy consumer electronics products from Starbucks, 30% from Ikea, 40% from Bed, Bath & Beyond and almost 60% from Home Depot. What does this mean for category leader Best Buy? For Radio Shack? For Circuit City? How can any retailer facing inroads from non- traditional competition protect its turf and retain its customers?

The answer lies in understanding how people make decisions about where to shop. Our research says there are generally two main considerations: the likelihood that the store will satisfy the requirements (i.e., Selection) and the availability of knowledgeable help (i.e., Expertise). Price, location, and loyalty are usually secondary. 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 because Home Depot has the best selection. Conversely, when help is needed, consumers will trade off a little selection to make sure they can talk to a real person who knows what they are talking about. In category after category, we have seen this same basic tradeoff.

So, should Best Buy be worried about Home Depot moving into electronics? 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. As long Best Buy keeps innovating the customer experience, they should be able to defend against scrambled merchandising.