May 13, 2009

Post-Crisis Retail Taking Shape

The dominant mindset among branded product makers and retailers struggling to survive in today's tough economic environment is not only clear and homogeneous across companies, it's logic is rarely challenged by the media and Wall Street pundits:  cut costs, lower prices, improve "value" to the consumer.

But it may be that the current economic crisis is only giving short-term cover to painfully outdated management thinking just as the old efficiency-obsessed leadership models are taking their last breaths.

Don't get me wrong, efficiency is a [very!] good thing. I like efficient routes-to-market business models. But efficient at what? If the only end game for efficiency is lower prices than competitors, where does the treadmill stop? Efficiency must serve a higher master - effectiveness. And the only correct arbiter of effectiveness in consumer markets? Of course it's the end consumer, and their view of whether their total package of retail experience elements are being met. It's simply insulting to consumers to suggest that they - as a large, single issue group - care only about lowest price. For example, where do salmonella and melamine fears fit in to that equation? Where does 'healthy' fit in to that equation? Trusted? Reliable?

The good news is that signs of more forward-looking retail strategy are already emerging. Zara has always been a favorite of mine (fast fashion AND reasonable prices), and they're growing share and profitability over rivals Gap and H&M who are clearly stuck in the past. The Wall Street Journal reported on another great example - regional apparel retailer Buckle.

The Journal article explains the fresh appeal of the Buckle retail model: "Buckle's appeal seems to be fit, selection and service, not some quirky fashion trend, like Crocs footwear. The merchandise isn't cheap (the company says it sells "medium to better priced" apparel) but still represents value to customers. They end up buying more than they planned on". 

Listen to the voice of the customer for evidence:

"[The salespeople] are always really attentive and friendly and they always end up bringing you so many other cute jeans and shirts to try on ...and then you end up buying more than you planned on."

"I [like] the type of clothing they have, which is different from other places like AE, Hollister, A&F... I feel the clothes they sell are definitely worth the price".

But what about results? Is this model working?

 Here's what the Journal had to say about that important question: "The formula seems to be working. Last week Buckle reported an 18% increase in same-store sales for April, its 21st consecutive month of double-digit gains. And this during the worst recession since the Depression. Buckle is gaining market share (Abercrombie same-store sales were down 22% and American Eagle's were down 5% in April) and is planning to expand into the competitive but potentially lucrative Northeast market".

It's still early. Wall Street and media pundits, along with some old school business leaders, will continue to pile on the low cost-low price path to riches. Old generals are always fighting the last war. But no worries, free markets will eventually self-correct.

Remember CompUSA and Circuit City?

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