Big Retail Can Get Local - A 5-Step Approach

While conspicuous consumption is out, people are still buying stuff, entertaining (mostly at home), and traveling (more, shorter trips closer to home). The newly cost-conscious are still in search of interesting social environments and diverse shopping, consuming and learning experiences. What’s changing is our perceptions of who provides them.

In the '90s, Starbucks tapped into a collective search for the third place - there was home and work, and then there was Starbucks. The chain grew like topsy, and now has over 11,000 stores in the U.S. alone. It’s not surprising that the CEO of Starbucks, Howard Schultz, is trying to recreate the local coffee house experience. He is tuned into the trends of our times, and has publicly lamented the "commoditization" of the retail coffee experience. What’s surprising is the clumsy approach he has taken with 15th Ave. Coffee & Tea. Launching another brand in the same category, and trying to distance it from the Starbucks mother ship follows solid brand management theory. But it misses badly on the reality front. It seems “everyone” knows that Starbucks is behind the veil, and the effort is reflecting badly on the brand that’s badly in need of a pick-me-up. See the July 28th Harvard Business article by Peter Merholz for one of many on this topic.

What’s a national brand to do to try to get local? One approach is to give local store management greater authority to support local causes. By becoming a visible and active member of the community, big brands demonstrate commitment to the issues that matter to their customers. This puts the spotlight back on employees as an important part of the brand’s personality again.

Whether it’s sponsoring a “float” in the annual Memorial Day parade, or getting store employees to walk in the parade and hand out goodies along the route, or supporting flower planting or fund raising or other community initiatives, neighborhoods afford ample opportunity for store personnel to get involved. And let’s face it, it’s the people that are hardest for another brand to copy. Peet’s people are different from Starbucks people. Not better or worse, but different. For Starbucks to get local, it’s going to be the people who work in the stores in a particular town that make it so.

Here then are 5 steps to help national brands get local:

1. Create loose guidelines for store managers to follow
2. Give them a budget to do something meaningful
3. Let them find the local causes or events they and their teams want to support
4. Show them how to measure their impact
5. Get out of the way
   

I wonder what they’d come up with. Whatever it is, it would be more relevant, Starbucks brand-enhancing and customer loyalty-building than 15th Ave. Coffee & Tea.

Is Price the only ‘P’ that Matters Now?

As consumers and retailers settle into the new frugality, IRI reported last week on the emergence of a new generation of Americans – the Downturn Generation. As shoppers, this generation is adopting practices similar to Depression-era shoppers, implemented both to weather the recession and to keep a close eye on spending long after the recession ends. This marks a dramatic change in how consumers shop and what they buy.

When people lose their jobs, they value their time differently. In today’s economy, convenience-based value propositions are losing their appeal as people are repricing their free time. In fact, IRI found that “65% of shoppers reported that price is becoming more important than convenience in their purchases."

But how do they know when a price is a good deal. In conversations with homeowners in December, it was clear that they are well-aware of the current price of items they buy regularly. Under those circumstances, consumers are generally able to evaluate an offer, and know when they are being overcharged. This may be changing.

A recent NY Times article about today’s consumer mindset the title of which says it all: “Never Mind What It Costs. Can I Get 70% Off?” The point of the story is that consumers are numb to 50% off offers, giving rise to a vicious cycle of discounting to motivate a purchase. Trouble is, this type of downward price spiral does not build loyalty. In fact, it’s the opposite of loyalty – it rewards customers for being fickle. And it requires retailers to reorient their value chain to make up for what they lose on the top line by selling more. While many have famously claimed “we’ll make it up on volume,” few have actually succeeded.

Enter Starbucks into the fray. The brand that brought us the idea - if not the reality - of the Italian café experience, has been criticized for the high price of its lattes and is under siege from McDonald’s and Dunkin’ Donuts, among others. Last weekend, the retailer began a campaign to combat extreme price pressure and the media blitz behind McDonald’s McCafe launch. The campaign warns readers to “Beware of a cheaper cup of coffee. It comes with a price.” According to Starbucks CMO Terry Davenport and reported in an article in the May 1 issue of AdAge, “The ads lay out facts that separate Starbucks from the competition, such as its practice of buying fair-trade beans and providing health care for employees who work more than 20 hours a week.”

Are people today more sensitive to the need for worker benefits like health insurance? Do mass market consumers value the fact that Starbucks provides coverage to part time workers? Do they make the connection between the price they pay and the company’s ability to afford coverage? Two years ago, the answers would have been “no.” Starbucks is making us connect the dots between our values and our willingness to pay. It may give us a chance to see whether this recession has changed these perceptions. Kudos to Starbucks for trying.

We Are Where We Prefer to Eat

McDonald’s was an important part of our lives when our kids were young. We have the entire Disney collection of toys served with Happy Meals – in fact, the toy was the whole reason my kids ate lunch some days.

But it’s been years since we’ve gone to McDonald’s. Whether we’re on a roadtrip or closer to home, we shifted our allegiance years ago. I do see (and use) Starbucks as the Third Place, after home and work. So, a recent PEW Research Center report on their Social & Demographic Trends survey results caught my eye. They asked people whether they would prefer to live in a place with more Starbucks or more McDonald’s. While some of the differences are intuitive, some surprised me.

For example, I pretty much knew or suspected that the preference for McDonald’s goes up as income and level of education go down. And I was not surprised to see that Starbucks lovers are more likely to live in the West and to say they’re liberal.

What I did find surprising was that:

• In total, people would strongly prefer to have more McDonald’s around them than Starbucks
• Blacks and Whites have a clear preference for McDonald’s while Hispanics are nearly evenly split between the two brands
• 18-29 year olds strongly prefer Starbucks while all other age groups prefer McDonald’s
• Men strongly prefer McDonald’s and women are split evenly between the two

Besides suggesting that I have an outdated image of the McDonald’s customer, what else do PEW’s findings mean? Here are a few specific thoughts:

1. Hispanics: Starbucks has an opportunity to capitalize on its apparent strength with Hispanics. Are they doing anything about that? McDonald’s is surely trying to win them over.
2. Millennials: Taco Bell and Burger King may resonate more with millennials than McDonald’s. As a result, McDonalds’ weakness with 18-29 year olds may be because this group voted against them rather than actually voting for Starbucks.
3. Men: Starbucks has some shoring up to do with men. Do they know what men find lacking in the Starbucks experience? Does McDonald’s know why men prefer them to Starbucks by a 16-point margin?

More generally, it’s possible these results say more about which company’s stores people think would make a good neighbor than about where people would rather eat. While being a good neighbor doesn’t immediately generate revenue, it does build good will. And that can translate into revenue or a higher stock price over time.

Viewed in this way, the results say there is greater regard for what McDonald’s contributes to the communities it serves. Mickey D’s has been around longer, is known for its employee training, spreads the wealth through franchising opportunities, and has been more visible in the community through, for example, Ronald McDonald House. Taken together, these factors may explain why overall people would rather have more Golden Arches than Third Places in the neighborhood.

Why “Buy Local” Should Replace “Buy American”

In the ‘80s, I knew a lot of people who insisted on only buying American-made cars. Nowadays, though, it’s tricky to figure out what qualifies as “Made in America.” Honda, Toyota, and Nissan all have US-based plants. Nike, Patagonia, Gap and Wal-mart, are just a few of the brands that have most of their merchandise made offshore. We import food from all over the world, and sell most of it in US-owned stores staffed with US employees.

With jobs being slashed in industry after industry, people are increasingly aware of the connection between what they buy and where that money goes. The House-passed fiscal stimulus bill makes it clear that protectionism is on the rise - not out of patriotism, but out of economic self-interest.

Can consumers hoping to support their domestic economy buy Nike, Wal-mart, Toyota or the others and stay true to their conscience? Should we consider the “domestic content” of what we consume, and assume the higher the better? How would consumers figure it out? It’s time to let go old notions of protectionism and adopt a “Buy Local” mindset.

Just what does “Local” mean? Local stores can be part of a chain. They can sell merchandise from elsewhere (including other countries). And they can hire or be owned by people from elsewhere, too. What makes stores local is that they’re nearby - they’re in the neighborhood.

My Top 5 reasons for supporting local businesses are that they:

1. Provide jobs for the people who live nearby
   
   
2. Contribute to the tax base of their communities, which makes better schools, roads, police, fire, sewage and other services available to residents
   
   
3. Also contribute to a vibrant sense of community by supporting local charities and events
   
   
4. Can best fulfill local preferences and needs because they know us better through interacting with us day in-day out
   
   
5. Demonstrate that people we all know work hard and give back
   

It’s not realistic to think we can buy everything we need in our neighborhoods – stores in most residential neighborhoods simply don’t offer the selection or the pricing. And change is an incremental process, anyway. It starts by buying more locally than we have historically, making the 10+ mile trip to the mall a little less often and spending a little less at those stores when we do go.

Many retailers have deepened their connection to the local communities they serve lately. While some people don’t view chain stores as part of the local retail scene, I disagree. Here are a few examples that illustrate why:

• Macy’s – is rolling out its successful MyMacys program across the chain to return merchandise decision making to local stores

• Origins - has tailored some products for specific geographies, like its High Elevation Hydration Cream sold in the Denver-area stores.

• Starbucks – their support and call to action for customers to volunteer in their communities is a great example of getting local

I’m going to try the “Buy Local” argument the next time I’m with people who spout off about protectionism and buying American. Wish me luck!

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!

Going for "Good"

Good is in. And big brands want to be associated with goodness. In just the last week, ebay launched WorldofGood.com, Weight Watchers launched Lose for Good, and now Starbucks is launching Good Sheet.

What’s going on? Why the sudden focus on good. We’ve talked before about do-good consumerism. My colleague, Carol Phillips, who knows millennials calls them a generation that seeks to make a difference. These promotions are aimed at fulfilling that aspiration.

I’ve already written about World of Good. Lose for Good is aimed at turning Weight Watchers' customers weight loss into weight gains for those in need. For each pound lost at Weight Watchers during the 6-week promotion, the company is donating a pound of food to Share Our Strength, which works to make sure no child in America grows up hungry, and Action Against Hunger, which provides immediate and long-term solutions for hunger to people around the world.

Good Sheet is a brand new, free newspaper to be distributed at Starbucks that the company hopes will start conversations among its visitors – while they’re in the store or after they leave. The promotion launches just in time for the November election and features an article a week about a different election topic.

The NY Times reported today that Good Sheet will present the facts without taking sides in the discussion. Starbucks is seen as fairly liberal. So, rather than produce the newspaper itself, the company turned to Good Magazine, a 2 year old West Hollywood publisher. The separation may be important in ensuring customers that the voice of Good Sheet is truly independent.

Different topics may resonate more in different communities, or Starbucks locations. For example, customers in stores in retirement communities may have lively conversations about health care or shoring up Social Security while those in communities with young families may spark to issues like public education.

Good Sheet seems poised to build on Starbucks’ position as the third place, the one in addition to home and work. In this third place, just maybe we’ll have an opportunity to learn about the issues and have a good conversation over a cup of coffee. Seems like a good move.

Does Big have to be the Opposite of Special?

In pursuit of profitable growth, brands expand their distribution and extend their offering but risk losing what makes them special. Starbucks immediately comes to mind as the poster child for this dilemma. Macy’s, too. Do economies of scale necessarily mean diseconomies of soul?

Part of what makes a brand special is uniqueness – offering a distinctive product assortment or customer experience or both. Another ingredient is not being widely known – so that customers feel “in the know” – or widely available, so that customers make an effort to participate in the brand.

The Wall Street Journal interviewed Urban Outfitters’ CEO, Glen Senk last month. He talked about his vision for the company, and how he’s ensuring its relevance by avoiding cookie-cutter stores and keeping concepts small and close to their target audiences. The company is designing its brands to stay special by not saturating the market. For example, no brand will have more than 250 stores.

This made me wonder whether brands that have passed the saturation point - like Starbucks - can ever become special again, and if so how. I think it has to do with going micro/massively local and tailoring the "mass" brand to appeal to one neighborhood at a time. Then came an NY Times story about Origins – one of the skincare brands owned by Estee Lauder – trying to do just that.

In time for its official opening on Sept. 16, the store is rolling out an exclusive Made for Denver line, which was designed with the high altitude and dry climate in mind. The current pilot store is testing several ways of expressing its soul – from uniquely tailoring its own products like High Elevation Hydration Cream to offering merchandise by with local providers like English Retreads, a company in nearby Boulder, CO that makes and sells handbags made from recycled tires.

“If we could bring to the new store the principles and core of what Origins is about, what would that look like?” asked Ken Stone, the vice president for retail stores. The idea behind this Denver outpost is to re-envision the retail experience.

"Can big brands afford to do this?" you ask. My question is: "Can they afford not to?"