Monday, July 14, 2008

Clouds in the Coffee

By John Gaffney, Senior Editor

A highly caffeinated look at the recent developments at Starbucks:
Cup One: Grande Finance: This layoff-store-closing and store opening cancellation had nothing to do with the economy. Now I know there have been some industry pundits and Wall Street analysts that have said the opposite. Starbucks has managed to build a very profitable business by getting people like me and you to spend $4 a day, $20 a week and $80 a month on coffee. And that might be a light month for most people. The per store revenue growth for Q2 was around five percent, according to Starbucks financials, not enough to merit closing 600 stores.

Cup Two: Double Espresso What did it have to do with? Overcaffeinated expansion plans. That’s the biggest lesson to learn from Starbucks, no more; no less. You simply cannot overpopulate any market the way Starbucks has. On Market Street in San Francisco there is literally a Starbucks across the street from a Starbucks. Didn’t that tip anybody off? I think you’ll see the drug store retail business suffer from overpopulation in a similar fashion before the end of next year. CVS has 6,300 retail locations. Walgreens has 6,252. On July 7, Moody's Investors Service floated a plan to cut credit ratings on Walgreen citing “slowing same-store sales growth, modest margin pressures and unfavorable domestic economic conditions.”

Cup Three: Underaccino: Those overcaffeniated plans were fueled by some of the very people who now criticize Starbucks as an underperforming company. Those are Wall Street analysts and I would argue that Howard Schultz needs to spend a bit less time obsessing with them. Schultz is a great retailer in my opinion. He is not an investor relations executive. I think he should have realized earlier on that there is a limit to store growth, both same store growth and in new openings. Retailing, and that’s what we’re talking about here, is not an unlimited growth game.

Cup Four: CEO Roast: Big lesson here. Nothing, not a celebrity CEO, not exclusive CDs, not Venti Half-caf-fraps-with-a double shot and whipped cream on top, will give you the kind of growth that Wall Street wants. It is a zero-sum game. Nothing will keep you from the boom-bust-return to sanity cycle that Starbucks played in.
Cup Five: Serious Mood Swings: Let’s not forget that this is a retailer that provides health care, obsesses about retail training, pays more than a passing nod to customer experience, and continually looks to innovate. Applause.

Cup Six: Post-caffeine anxiety. Outside of the Wall Street play, there’s one thing Starbucks completely missed, and I don’t know how, and that’s an online presence. I thought they could have been a great morning news, opinion and culture portal back in the day, but that day’s over. Starbucks is looking at the limits of its company and it will be a lesson for us all to watch.

Friday, June 20, 2008

Oracle Delivers Comprehensive Suite Of Retail Apps with Release 13

By Debbie Hauss, Executive Editor

The wait is over. After three years of purposeful acquisitions of best-of-breed retail applications Oracle Retail has introduced Release 13 which Duncan Angove, general manager and SVP says is “an incredibly important milestone for Oracle. With Release 13 we have delivered on our vision to transform the retail business.”

What’s unique about Release 13 is the “breadth of the solution,” notes Greg Buzek, president of IHL Services. “These were all best-of-breed applications that have been integrated. This is what we’ve been waiting for since all of those acquisitions. SAP is the only other vendor that comes close to offering the same breadth of all the components in the retail marketplace.”

Enhancements in Release 13

Oracle notes five key enhancements which comprise Release 13:

Regular price optimization designed to deliver enhanced margin, sales and customer-centric pricing

Merchant workspace which provides single sign-on, dashboard and reporting capabilities across solutions

Wholesale functionality for retailers to grow market share by selling to other businesses

Global performance capabilities such as ‘Multiple Sets of Books’ functionality and Stock Ledger VAT enhancements

Advanced security features that include enhanced user activity logging and secure implementation documentation

Metric improvements for specific retail segments

Oracle has designed different components of the system to address the needs of specific types of retailers, noted in particular: fashion, grocery, hard lines and emerging markets. “We have designed the system to meet retailers where they live, understanding that they face unique challenges based on the sectors they compete in,” says Dave Boyce, vice president of product strategy.

Boyce describes metric improvements that retailers in each segment can expect to achieve with Release 13:

• Fashion – Five to 15 percent improvements in gross margin with improved pricing effectiveness; and five to 10 percent improvements in gross margin by using forecasting and optimization technology to make smarter buying and allocating decisions

• Grocery – Up to 10 percent reduction in inventory with precision analytics; and a two percent margin improvement through price, promotions and lifecycle management.

• Hard lines – As much as a 2.5 percent margin improvement with space and merchandise optimization; and bottom line improvements through improved trade fund management

• Emerging markets – Ability to manage multiple format and geographies; and speed to market by leveraging mature implementation tools

IHL’s Buzek agrees that these types of metrics are achievable, albeit dependent on a number of factors. “So much of this is dependent on the installation, the timing, the economy and the retailer’s own internal culture,” Buzek notes. “Additionally to get these benefits they likely need to install all of the components or multiple components.” But, he adds: “It’s not that I doubt Oracle’s claims. The estimates may even be low for what is possible. For the retailer who is willing to embrace the architecture and whose merchants are willing to learn and trust the system, the ROI is certainly achievable, particularly because of existing inefficiencies” that may be in place.

Significant uplift in sales possible

Buzek goes as far as predicting significant improvements in same store sales for certain retailers. “Those retailers who embrace the tools and improve their execution will benefit the most, improving same store sales by as much as 7.1 percent.” In addition, he says that the fashion and hard lines industries are most likely to see the best results because they are suffering the most inefficiencies to date.

Tuesday, May 13, 2008

Will the Tax Rebates Jumpstart Retail for 2008? Consumers Predicted to spend $42 billion

By Debbie Hauss, Executive Editor

An “unexpected windfall” for many, the 2008 tax rebates may motivate consumers to spend more as disposable income, possibly on big-ticket purchases. That’s one perspective from Frank Badillo, senior economist for Retail Forward. In a Retail Forward survey, 19 percent of respondents said they plan to use their tax rebate for a “special purchase” (source: TNS Retail Forward ShopperScape™, February 2008).

Industry organizations, including RetailForward and the National Retail Federation, have predicted that consumers will actually go to retail stores and spend as much as $42 billion of the close to $106 billion rebate money, and this will boost the economy for 2008.

But the 2008 boost may be less than hoped for. Representing approximately 40 percent of the total rebate money, the $42 billion is less than households spent on the 2001 tax rebate, which amounted to approximately 67 percent, according to Badillo. Also, “For many households the economic environment might dictate that the rebate be spent in a way similar to this year’s tax refund – to make ends meet or pay off a debt burden,” he says.

“The retailers I think will see a nice bump will be grocers who are offering the 10 percent increase, or $30, $60 or $120 additional to the value of the checks,” notes Greg Buzek, president of IHL Services. “Since many also have gas stations that offer discounts based on volume at their stores, this extra inducement amounts to either lower grocery bills or lower fuel costs, the two areas where most consumers are getting hit hard today.”

Consumers surveyed around the country by numerous newspapers deliver mixed responses. Some say they plan to use the money to pay down long-term debt or just pay for basics like groceries and gasoline, which both are quickly rising in cost. Other consumers say they may use the money for ‘wants’ rather than ‘needs’, such as a new computer, TV or vacation.

Tempting Consumers to Make Special Purchases
Big-box retailers, specialty retailers and department stores are hoping more consumers will choose the latter and are offering incentives such as free rebate check cashing and additional percent savings. Following are some of the promotions being offered:

· Sears is giving consumers an additional 10% when they exchange their rebate check for a store gift card for Sears, Kmart or Lands’ End.

· RadioShack is offering a 10 percent discount on purchases of $50 or more when the rebate check is used for payment.

· Sony attempted to pre-empt other retailers by offering a $400 discount on televisions during six weeks beginning in March, before the rebate checks went out, and the company reported an increase in traffic in what is normally a slow season.

Banking on Consumers’ Need to Be Frugal
Supermarkets and discount retailers are betting that consumers will spend more of their rebate money on necessities and are offering incentives to garner a bigger share of the rebate spend:

· Wal-mart is cashing rebate checks for free and waiving the purchase fee on its Wal-mart MoneyCard, a prepaid debit card, if consumers use at least a portion of their rebate check to load the card.

· Supervalu is inviting customers to exchange their tax rebate funds for store gift cards in $300 increments, and is adding $30 to the pot for shoppers at its Albertsons, Jewel-Osco, Shop ‘n Save and other grocery stores.

· Kroger is adding 10 percent to shoppers’ total rebate exchange, up to $120.

· Home Depot is encouraging consumers to spend wisely, by purchasing energy-efficient products. The home improvement retailer is offering promotions on light bulbs and energy-saving appliances.

Still other retailers don’t believe the rebate checks will have much direct impact on their business and are focusing in other areas. Target and Best Buy both say they will not make a direct pitch for rebate money, as reported in the Minneapolis Star-Tribune. A Macy’s spokesperson reported to Reuters that she expects most of the rebate funds to be spent on necessities such as food and gasoline.

With the average price of regular grade gasoline hitting $3.60 for the week of April 24, 2008, according to the Energy Information Administration, it may come as no surprise that consumers may try to hold on tighter to their money this year.

Friday, March 7, 2008

Early Easter May Impact Spring Sales Kickoff For Some Retailers

By Amanda Ferrante, Assistant Editor
Although St. Patrick’s Day and Easter aren’t blockbuster holidays for driving retail sales, retail insiders are keeping a watchful eye on the impact of this year’s calendar shift where for the first time in 88 years the two holidays fall just six days apart.

With most retailers managing to meet or beat their modest sales forecasts in February, analysts are concerned that this year’s early Easter might throw off consumer spending patterns. “The shift is more on Easter, not so much St. Patrick’s Day,” says George Whalin of Retail Management Consultants. “Retailers prefer Easter to be in the first week of April to give that nice kickoff to spring, but with it coming this early, we still have a lot of bad weather ahead.”

While St. Patrick’s Day is still a significant revenue driver for bars and
restaurants, analysts point out that the holiday’s impact on sales is minimal, and Easter has also been waning as a sales driver. “In the USA, Easter has become a less important holiday sales event every year for many years now,” says Mark Lilien, Consultant with Retail Technology Group.

Beyond the tighter timeline on the two holidays, analysts point out that weather could have a bigger impact on sales for the month of March. “Fewer and fewer customers are buying Easter specific outfits anymore and if they do this early Easter is a disaster, says Jim Dion, president of Chicago-based consultancy Dionco Inc. “It will be too cold for spring clothing in many northern markets. These are two very small sales blips for most retailers.”


Other analysts suggest that the calendar shift actually help comp store sales for the month of March and may get consumer spring fever kicked into gear earlier. “On the positive side, this will bring consumers to spend more this quarter, adding some kick to the sluggish first quarter,” says Susan Rider of Rider and Associates, a consulting firm. Rider advises retailers to start promoting spring earlier. “It has been a cold, dull winter, and many are ready for spring. So getting into the spirit will also come with dollars.”

There’s speculation that one holiday or the other will be overlooked, but Kathy Grannis, Media Relations Manager for the National Retail Federation, says there’s possibility to promote both at once. “Holidays that fall close to one another basically mean that retailers have to create extra shelf space in their stores, which can definitely be done.”

This year, consumers intend to spend approximately $35.04 on St. Patrick’s Day, barely up from $34.89 in 2007, according to the National Retail Federation’s 2008 St. Patrick’s Day Consumer Intentions and Actions survey, conducted by BIGresearch.
“Many consumers have opted out of St. Patrick’s Day this year and opted in for Easter, which is why we see a small dip in spending and participation,” says Grannis.

Monday, January 28, 2008

7 Things To Do When Business is Tough to Get!

By Jim Dion, Founder & President, Dionco Inc.

Retailers are struggling yet again with the grim outlook of the economy for the months ahead. While some argue that if and when a recession is coming, it’s not going to stay for long (6 months at most), or affect consumers’ confidence in a dramatic way, others are voicing far worse predictions. I stand in the middle- looking at what’s happening without worrying too much about it, and rather than sitting back waiting for it to pass, I look for opportunities.

When business is tough, retailers have a unique opportunity to stand out and make a difference for themselves and their consumer. After all, many studies have shown that in times of tight money, consumers don’t necessarily spend less. However, they spend their money more cautiously and wisely- or with companies that deliver an extraordinary shopping experience.

I deliver many keynote speeches on consumer and retail trends around the world, and one of the underling principles for all current and future trends is that in economies of abundance, it is all about shopping for experience and excitement. I also teach that while you may not be able to own a category like “Best Bookstore In Town” (not unless you are Barnes & Noble or Borders), you can own an experience that will excite your customers like “Best Personalized Service in a Bookstore.” Our economy, while possibly heading to a downturn, is still an economy of abundance, and it’s these times when we feel uncertain about the future, that there’s a desperate need for excitement and experience. Consumers need it and you need it!

So, the question you need to ask yourself is “How can I excite my customer and deliver an extraordinary experience?”
Here are 7 things:

1. Create Traffic-Stopping Stores
Humans are visual. If they like what they see, they buy. It’s not just the product that they need to like. It’s the ambience, the lights, the POP signage, and the packaging. Look at your windows- what have you placed in them that would stop a customer and invite them in?

2. Create a Sensory Experience for the Customer
Thuy T. Tranthi of London-based men’s shirts retailer Thomas Pink, once said, "I want to make sure that the customer has a wonderful feeling of being transported to a different place when they enter one of our stores.” This occurs when we enter a store and are surrounded by light, color, texture, and sound. Interactive retail environments deliver an incredible experience, too. Think of the Apple stores, where products are used as a visual tool and customers are encouraged to “play.” In-store demonstrations also contribute to an exciting experience for the customer.

3. Photograph Your Store
Photos allow you to freeze things in time and to look at them more closely. When you examine the photos, what is it that you have done well? What does not look right? Are those props that you used for your Valentine’s Day windows too prominent making products less visible? Are those price tags too worn out giving the look of “playing” store? It’s amazing how looking at things in 2-dimension enables you to notice things that you wouldn’t see just standing in your store.

4. Provide Professional Service:
Approach and educate the customer on your products’ benefits. Thank them and invite them back. Think about how product demonstrations have evolved since the advent of the Web! Customers conduct extensive research on the web and they come to the store more informed than the store associates. Are your sales associates ready for this challenge? Also, do your sales associates know how to sell solutions to the customer’s needs instead of just products? If a customer wants an espresso coffee machine, do your sales associates know what else to recommend to make sure that the customer has everything they need to make the perfect espresso (espresso cups, Italian coffee beans, milk steamer cup, sugar bowl, etc.)?

5. Play “Give Me 5”:
Do this with your staff at every opportunity. Ask them to choose five products that would go with each item in your store for a total solution. Have them practice this everyday until they do it automatically. Make sure they do it with every customer.

6. Develop Special “Bundle” Packs:
Especially for Holidays and gift periods, putting packages together that contain related items, wrapping them, displaying them and pricing them attractively (“in packages”) is the best strategy to sell more and get a better, more exciting solution for the customer. I call it “suggestion selling for dummies!” Make sure to do this not only at holiday time, but all the time.

7. Mine Your Customer Database:
I am always amazed at how many companies I have shopped with over the years, no matter how much I’ve spent with them (and sometimes it’s a lot), who do not encourage me to stop by to check out their new line of products, or to attend a demonstration. Segment your customers by keeping track of their purchases, wishes, needs, dreams, and other information. Review your list of best customers weekly and send them postcards, letters, or e-mails with information on items that they might need, new arrivals, events in your store, events in the community that might interest them, national events, promotions, and/or VIP previews. Remind them that you are there for them and give them a reason to come and visit you.

For more insights on these and other topics, visit Dionco Inc.

Jim Dion is an internationally known consultant, keynote speaker, trainer, and author of the best-sellers "Retail Selling Ain’t Brain Surgery," "It’s Twice As Hard," "Start and Run a Retail Business," and "The Complete Idiot’s Guide to Starting and Running a Retail Store."
Jim consults, trains and speaks on consumer trends, retail technology, selling and service, retail merchandising and operations, marketing and leadership.
A writer for hundreds of national and international trade magazines and a regular contributor at, Jim is consistently ranked at the top for his insights and practical advice. He has also appeared on NBC, Fox News, First Business and CNN Turkey.

Thursday, January 10, 2008

Unsolicited Strategy Suggestions For Starbucks’ CEO

I’ve been following the news about Starbucks founder Howard Schultz taking back the reins as CEO of Starbucks, and the under whelming plan of attack the company has laid out has left me scratching my head a bit.

Tuesday’s edition of The Wall Street Journal quoted Schultz saying he would slow the pace of new store openings in the U.S. (the company had planned to open 1,600 stores) and close some struggling locations, and instead accelerate expansion overseas. Beyond those changes, the only strategic shift mentioned was to improve customer experience at U.S. stores. With their share price down almost 48% from a year ago, I would have expected a more aggressive plan to fuel the growth engine.

I’m all for focusing on the customer experience, but I don’t think that area is where Starbucks needs the help. In my opinion, their stores are still the gold standard, and most of their current customers are extremely loyal. I would suggest the focus for Starbucks ought to be on attracting new people into the tent by taking a harder look at their marketing and menu items.

Now I’m sure Schultz has a lot of people sitting around the table in Seattle figuring out how to right the ship, but based on what I’ve seen so far, I think they are missing some obvious opportunities. Here are my unsolicited suggestions for Starbucks on kick-starting sales and share price:

Ramp Up the Outreach: Much of Starbucks’ meteoric rise was driven purely through word of mouth. Their customers were so passionate, they actively told friends about their experience and once someone sampled the product, they were hooked on the taste and the experience. Now with over 10,000 locations and McDonald’s making a push to grab a larger share of the coffee aficionados, Starbucks will have to work harder to draw new people into the tent. Given the targeted, creative messaging the retailer does in-store, I’d love to see the retailer be more aggressive with email marketing, social media, and other marketing platforms.

Expand The Menu: In the interest of full disclosure, I am not a coffee drinker, but I have still spent a fair amount of time in various Starbucks locations consuming their other offerings. I am a big fan of their breakfast sandwiches, but find their menu around lunch and other day-parts to be a little limited. I think this is a shot for Starbucks to turn the tables on McDonald’s and really ramp up its menu of food offerings and other non-coffee beverages.

In particular, I’ve always thought there was a missed opportunity for Starbucks to become a destination for desserts –think Cheesecake Factory without the long lines. In his letter to customers on the corporate website, Schultz did promise new beverages and products, so it will be interesting to see what they have planned. I would suggest they look closely at Dunkin Donuts, which has consistently done a great job of adding new flavors and then building up excitement around them with promotions and marketing campaigns.

Take Advantage of the Traffic: Starbucks had done a great job of branching into ancillary businesses, with music being the most obvious example. But considering the captive audience they have of devoted customers who spent considerable amounts of hours in their stores, there should be a way to cash in further on that traffic, maybe by branching beyond CDs into books, magazines, etc.

Every retail concept has a saturation point and with a Starbucks on every other block in major metro areas, Starbucks may be running out of room for growth. But considering the revolutionary job they have done in creating a great customer experience and building an extremely loyal customer base, I’m not betting on that just yet.