Tone Deaf Bankers

Like most people, I am furious about the stories pouring out of the bailed-out banks themselves reporting how they have (ab)used the funds they received from taxpayers via the federal government. At the same time, I’m mystified at how clueless they seem. How can all those smart people be acting in such dumb ways?

If you read my post about the Customer Empathy Gap you know I’m not a huge fan of Wells Fargo Bank. I know their reputation for being well-run, but I don’t like the way they do it: I end up feeling they nickel and dime me on every interaction. That said, alone among bail-out recipients in any industry, Fortune magazine reported recently that Wells Fargo has actually paid the US Treasury $371 million “on the preferred shares the bank issued to the government in last fall's banking industry rescue.” The company also reported that it has been lending money aggressively even as the economy sputters.

Before we cheer Wells Fargo as the paragon of responsiblity in this mess, CNNMoney reported last week that this type of reporting is actually required by Paulson’s version of TARP. So, why did Wells beat BofA or Citi to the punch? And why, in the next breath, did Wells announce its upcoming employee or customer "thank you" party, or whatever it was in Las Vegas. Are bank leaders completely tone deaf?

A recent Boston Consulting Group survey shows that consumers want - even welcome - communications from their banks these days. Financial services companies of all stripes would be smart to talk to their customers about what and how they’re doing, reassure customers of their own financial viability as many households worry about theirs, and remind customers that their loyalty is valued.

Meanwhile, their own (mis)behavior is forcing banks into the brave new world of transparency – reporting on the amount of new and refinanced mortgages extended since receiving TARP funds, explaining and perhaps justifying to the public their decisions about expenses for corporate jets, customer retreats, sports and other forms of sponsorships, and more.

Over the past six months, the whole banking category’s stock performance has declined, but a quick comparison chart on Yahoo Finance shows that Wells Fargo's stock has dropped far less than Citigroup's or Bank of America's. As we come out of this recession, I’m guessing we’ll see an increase in the correlation between regard for brand and stock price.

Big banks better get busy repairing the damage they've inflicted on themselves. And with the cranky mood consumers are in, they'd better not spend much money doing it!

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.

Reinventing the Mall Experience

Up until recently, there has been a logic to the pattern of retail bankruptcies. In February of this year, Sharper Image, Lillian Vernon, Fortunoff – sellers of stuff we don't need - declared bankruptcy. The second wave included Linens ‘N Things, Bennigan’s, Steak & Ale and Mervyn's - sellers of stuff we could easily get at places we like better. All three entered bankruptcy in July. That same month, Fortune reported the third straight quarter of contraction for retail, according to Northern Trust economist Paul Kasriel. So retail technically was in recession.

With the entire economy now having joined retail in the dumpster, all retailers are vulnerable. The recently announced liquidation of Mervyn’s is just one more proof point that "Value" has become tablestakes and survivors will be the retailers that get the greatest productivity out of their assets – people, product, brand, and store.

As CNNMoney.com senior writer Parija B. Kavilanz, reported on October 16, “with thousands of stores closing in the economic downturn, the increase in empty space at the nation's shopping malls is leaving a hole in the hearts of once-vibrant communities.” And in some malls, store occupancy rates are reportedly falling below 75%, according to RCS Retail Real Estate Advisors.

For mall operators, it's time to find creative uses for all that space and ways to drive mall visits. Back in March, Kavilanz reported that CBL & Associates Properties, which owns about 80 malls nationwide, gave "a directive to its leasing folks to go out and pursue non-traditional retail uses both for its enclosed and open-air malls.”

According to the International Council of Shopping Centers (ICSC), spending on entertainment and self-improvement services tend to be fairly recession-proof. So, we are now seeing malls embrace those categories. They are experimenting with new movie theater concepts including some featuring oversized "love seats for two," wine and cheese bars, and medspas for a quick afternoon Botox fix. The number of mall-based medspas alone has jumped to about 2,500 from just 450 in 2004!

And, in what now looks like great foresight, Westfield Mall leased 145,000 square feet on the fifth and sixth floors in its San Francisco Centre to San Francisco State University to use for its downtown campus. This brings visitors to the mall during non-peak hours, and reviews on Yelp suggest the concept is a winner.

One thing is clear: The mall experience can't be just about shirts, slacks and shoes anymore.

The good news? Maybe our malls will become less cookie-cutter like and have more variety and more local appeal. There’s a chance that local tastes and preferences will be reflected in the new tenants and uses that malls attract. Anything that gets away from the homogeneous mall experience of the last 10 years would be an improvement!

“Value” Has Become Table Stakes

I was in NY in April on business and was stunned by the economic pessimism that pervaded every meeting. From retailers to private equity folks to investment bankers, the talk was of a retail recession and the economy being in free-fall. I was so concerned I called our financial advisor to have a serious talk about how our IRAs were allocated to withstand the impending stock-market swings. And since peaking in early May, the Dow has lost nearly 20% of its value.

As the shocks to our economic system continue and consumers feel the pressure increasing, retailers have turned bearish. According to a new study released earlier this week by BDO Seidman and reported by Retailer Daily, nearly half of all retail CFOs believe we will not see a meaningful improvement in the economy until July 2009. Nearly two-thirds of the Top 100 largest U.S. retailers reported decreased comp store sales in the first half of 2008 vs. the first half of 2007, and over half of their CFOs expect revenues this year to be below last year's.

In today’s economic climate, delivering “Value” is no longer an option. It is a requirement. Some brands staked out “Value” as their promise and point of differentiation from the get-go. Wal-Mart’s Every Day Low Pricing guarantee was a dramatic break from the pricing strategy of most of its competitors who marked goods up only to mark them down. Food 4 Less, The 99 Cent Store, and Ross Dress For Less were all launched as “Value” brands.

High-end brands are playing catch up, and talking “Value.” The NY Times recently reported that Whole Foods is offering deeper discounts, adding lower-priced store brands and emphasizing value in its advertising. It's even inviting customers to budget-focused store tours.

Expect the shouting about “Value” to continue. Meanwhile, differentiation increasingly hinges on other brand dimensions. Product intimacy, design and assortment, site selection, store design and format, and customer service all offer short and longer-term ways of standing out with customers. In the background, smart retailers like Urban Outfitter and J. Crew will keep working as described in earlier blogposts to deliver on these differentiating aspects of the customer experience to be ready for better days ahead.

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.

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.