Follow-Ups

The Trend to Smaller Stores
Last week we noted Meijer’s new down-sized store format, and here’s an article about Wal-Mart and Target doing much the same thing.

Target and Wal-Mart have both told analysts they are creating smaller stores that could fit in the heart of densely packed cities where they have no presence. But analysts warn that creating a small store doesn't just mean shrinking a big one. Big box retailers need to whittle their merchandise to suit shoppers who live in smaller spaces, use public transportation and prefer eating at coffee tables to large dining sets. They also need to figure out how to make money if they cannot stock as many high-profit margin goods, like clothes, to offset brisk sales of low-margin items, like pasta sauce. "When you have a big box mentality, your orientation is toward lots of SKUs (items) across lots of categories," said Leon Nicholas, director of retail insight at Kantar Retail. "When you try to move into a small box the question then becomes do you cut SKUs or do you cut categories so far ... that you lose that one-stop-shop kind of mission?" Or, he said: "Can you be Wal-Mart in a small box?"

Online: Pricing, Conversion
There has been discussion and commentary concerning online retailers who hide their prices, apparently in response to manufacturers who don’t want to facilitate comparison shopping that would lead to eroded margins. As a consumer, I hate it when I can’t find the price – online or in-store – but as a marketer I understand the suppliers’ sensitivity.

The missing prices are part of a larger battle sweeping the world of e-commerce. Wary of the Internet’s tendency to relentlessly drive down prices, major brands and manufacturers — and now, book publishers — are striking back, deploying a variety of tactics and tools to control how their products are presented and priced online. “You are seeing firms of all types test the waters” with strategies to control online pricing, said Christopher Sprigman, associate professor of intellectual property at the University of Virginia School of Law and a former antitrust lawyer at the Justice Department. “They feel they have more freedom to do it now.” In many cases that freedom stems from a 2007 Supreme Court ruling in the case of Leegin Creative Leather Products v. PSKS. The ruling gave manufacturers considerably more leeway to dictate retail prices, once considered a violation of antitrust law, and it set a high legal hurdle for retailers to prove that this is bad for consumers. Ever since that decision, retailers say manufacturers have become increasingly aggressive with one tool in particular: forbidding retailers from advertising their products for anything less than a certain price.

I’ve mentioned before that I wonder how much longer the Leegin decision will stand before Congress overturns it.

In Australia, the two giant retailers who almost totally dominate that country are taking the opposite tack – putting more pricing online as proof of their price-cutting:

Woolworths' move to put the price of 5000 products online has been cautiously welcomed by consumer advocates, and has its major rival looking at following suit. The grocery giant yesterday took what it called "the first step in the journey" by posting the information online, but admitted it had some way to go. Its move follows criticism … of recent claims by both Woolworths and Coles that they were lowering prices, without providing hard evidence. […] Woolworths earlier said it was permanently reducing prices of 3500 products - but provided just 16 examples - while Coles said it was committed to uniform statewide pricing.

And our interesting factoid of the week: Here’s a chart of the top ten online retailers by conversion rate. Interesting that most (except Amazon) are relatively smaller niche sites – but that may explain why they convert relatively higher percentages of shoppers.

Private Label
There’s always more news in the private label arena. Wal-Mart is experimenting with private label spices, a move that must have folks at McCormick tossing and turning all night:

McCormick generates 11% of its revenue from sales to Wal-Mart, mainly by selling brand-name spices. But Wal-Mart has considered switching to private-label spices, testing the idea by replacing McCormick products with generics in some stores. True, McCormick's sales at Wal-Mart may not be wiped out altogether if such a switch gathered pace. The company also produces private-label spices that could replace some of its brand-name products on Wal-Mart's shelves. Even so, McCormick's margins could take a big hit. The company's generic spices sell for 30% to 40% less than its regular products.

Family Dollar is also looking to increase its private label share:

Kenneth Smith, Family Dollar's chief financial officer, said the company sees an opportunity to increase consumable private-label sales from current levels of 10% of sales to 15% to 20%. Storewide, Smith said Family Dollar plans to increase private brand penetration from its current 19% level to 25% penetration.

The Sports Desk: Super Bowl Advertising
As we mentioned last week, the Super Bowl came in second last year in viewers to the European soccer championship. We’ll see how it does this year against the Olympics and the World Cup, but it broke all previous records – not only for viewers, but for number of ads run, and a Doritos ad is said to be the most-watched ad ever:

A fourth-quarter Doritos commercial featuring two men attacked in a gym for stealing someone else's Doritos, was seen by an estimated 116.2 million viewers during the Super Bowl, making it the most watched television commercial of all time, according to Nielsen.

In other Super Bowl news, I understand Drew Brees had a good game, too.

Upcoming Webinar Reminder
I’ll be moderating a webinar for DemandTec next Wednesday, Finding True North in Trade Analytics Adoption, and on March 10, we’ll be hosting a webinar by MEI, What Does ‘Trade Promotion Optimization’ Really Mean? Click on the links to get more information and to register.

Quickly Noted

Remembrance of Candy Bars Past
Ever had an Idaho Spud? No, not the potato, the candy bar, described as a “marshmallow center covered with dark chocolate and coconut sprinkles.” It’s one of the few remaining regional candies, along with Abba Zabba, Cherry Mash, Mary Jane, and the best known of the group, the Goo Goo Cluster. The Kraft/Cadbury merger brought to mind the demise (for the most part) of the many small candy companies that once existed in virtually every town of any size: “…in the years between the World Wars, 30,000 different brands were introduced in the United States alone.”
Wall Street Journal, 30 January 2010

Zale Turns to Vendors to Raise Cash
Zale is asking their suppliers to buy back merchandise in return for promises of future purchases. Well, at least diamonds aren’t perishable like food or seasonal like fashion apparel, but nonetheless one suspects that their suppliers may be as cash-challenged as Zale is. “The weak market for some segments of jewelry claimed a number of victims last year. Finlay Enterprises Inc filed for bankruptcy protection in August, while regional luxury retailer Fortunoff filed for Chapter 11 in February.”
Reuters, 4 February 2010

WSJ’s Metro Section: It’s the Advertising, Stupid
The Wall Street Journal is creating a ‘metro’ section carrying local New York news of general interest – the NY Times being their obvious target. One of my thoughts concerning possible outcomes of the current crisis in the newspaper business is that we might end up with national newspapers with local sections. It’s possible WSJ is experimenting with that, and that we might see Chicago and LA versions soon.
Forbes BizBlog, 29 January 2009

India’s PM Signals Further Opening of Retail Trade to Curb Price Rise
India may begin further opening of its retail sector, according to recent statements from the prime minister expressing concern about rising food prices. “He stated that greater competition was necessary in the wake of the retail prices having shot up more than the wholesale prices.” With the prospects of huge growth in India, major international retailers, including Wal-Mart and Tesco, have recently entered the market, but have been limited in what they can do by laws limiting foreign companies to protect smaller retailers.
The Hindu Business Line, 6 February 2010

Meijer's New Approach Focuses on Groceries, Niches
Meijer recently opened a new smaller (100,000 square feet) store in Niles, Illinois focused on grocery and eliminating its usual assortment of hard goods and apparel. They claim the new format is wildly successful, and they will soon open another in Orland Park (at the other end of metro Chicago) and plan to roll out more throughout their Midwest market area.
Indianapolis Star, 1 February 2010

Outlook Sports Desk: Champions League Final Tops Super Bowl in TV Survey
Numbers aren’t in for this weekend’s Super Bowl, but last year the Big Game came in second internationally to the finals of the European soccer championship, the EUFA Cup. The Super Bowl had an average audience of 106 million (90% in the US), while EUFA Cup had 109 million. A distant third was the Bahrain Grand Prix car race.
Reuters, 31 January 2010

Quickly Noted

Deep Discount on Space Shuttles
NASA is offering used Space Shuttles at a discount price of $28.8mil, marked down from $42mil. Look, if you’ve cut price by 30% and that doesn’t work, do you think maybe you should try an end-cap?
New York Times, 16 January 2010

On Second Thought, Maybe the RIAA Did Conspire to Fix Prices, Appeals Court Finds
An antitrust suit against the leading music labels and distributors was re-instated upon appeal. "The complaint alleges specific facts sufficient to plausibly suggest that the parallel conduct alleged was the result of an agreement among the defendants," said the court, specifically mentioning that “none of the defendants dramatically reduced their prices for Internet Music (as compared to CDs), despite the fact that all defendants experienced dramatic cost reductions in producing Internet Music.”
BetaNews, 13 January 2010

Mobile to Outpace Desktop Web by 2013
Gartner predicts that within three years, more people will be accessing the web from mobile devices than from desktops. “But the firm warns that many sites still are not optimized for the mobile Web, even though cell users expect to make fewer clicks on their phones than on a PC. To successfully expand into mobile, publishers will have to reformat sites for the small form-factor of handheld devices.” By 2014, Gartner says that three billion adults will be able to make transactions via internet or mobile technology.
Online Media Daily, 14 January 2010

Tesco Loses Place in Global Top Three of Retailers
Tesco has been, for the past several years, third in the global retail standings behind Wal-Mart and Carrefour. But (as the chart above notes), Germany’s Metro has pulled ahead of them.
The Times (UK), 11 January 2010

Follow-Ups

Regulatory/Law: UK to Have Supermarket Ombudsman
Last week, we mentioned that the Conservative Party in the UK had promised to appoint an ombudsman to oversee disputes between supermarkets and suppliers. Almost immediately, the governing Labour Party pre-empted the promise by doing so:

The U.K. Competition Commission recommended the establishment of a body with the ability to penalize grocers in August after an inquiry found they were passing on “excessive risks” and “unexpected costs” to suppliers. The opposition Conservative Party, which leads in opinion polls, has also recommended the appointment of a supermarket ombudsman citing so-called “retrospective discounting,” where retailers reduce the price of products at a later date when they fail to sell.

Online Marketing: P&G Opening eStore
Procter & Gamble is creating an ‘eStore’ to sell its products online. They say they are doing so to research consumer buying habits and will share data with its traditional retailers, but the new outlet may also be an effort to overcome lost shelf space as many of their retailers cut assortments.

Media: Magazines Lose 25% of Advertising
The bleeding has not eased at all in the media space – the latest report is on magazines, who lost 25% of their ad pages in 2009:

Between 2008 and 2009, magazines lost, on average, one-quarter of their ad pages — the worst drop in the decade of data that the bureau, which measures virtually all major American magazines, had readily available. It is significantly worse than even 2001, when pages declined by 17.2 percent from the previous year. And magazines ran only about 170,000 ad pages last year, versus about 238,000 in 2001.

SKU Rationalization: Supervalu Cutting Assortments
We mentioned a month or so ago about Supervalu’s plans to reduce assortments. The Wall Street Journal provided an update, summarized in the opening paragraph:

Supervalu Inc. said it will be reducing the number of items it offers per store—in some cases by as much as 25%—in a move intended to more prominently feature store-branded items and extract lower prices from vendors.

Is Wal-Mart in 'Stealth' Mode Internationally?

The Guardian (UK) reports that Wal-Mart has “embraced something of a ‘stealth’ approach to growth” as it expands outside the US, though the evidence seems to consist primarily of the use of different names: “Maxibodega in Costa Rica, Todo Dia in Brazil, Despensa Familiar in Honduras and the awkward-sounding Best Price Modern Wholesale in India.”

This is part of a Guardian series on “Companies to Shape the Decade.” This graph demonstrates why Wal-Mart was chosen:

Overheated rhetoric aside, the article does a great job of looking at issues related to Wal-Mart’s policies and exploring how Wal-Mart is leveraging its strengths globally, while learning from past experience to avoid trying a cookie-cutter approach to international consumers:

During earlier decades, the firm's approach to expansion was simple. It built US-style out-of-town discounting superstores around the world and expected shoppers to flock there for bargains. But this didn't always work. Travel patterns, family roles and shopping habits vary. Ventures into Germany and South Korea came to a sticky end with expensive exits in 2006. Under the new approach, the "front end" of Wal-Mart's stores can look like enlarged family-run convenience stores. The contents, to some extent, are locally focused. Chinese stores offer live crustaceans, while South American outlets are heavy on spicy beans. But the "back end" is a duplicate of the US model. "From the customer point of view, it might appear to be a certain brand," says Slape. "But everything that is 'back of house' – systems, processes, buying – we can leverage a lot of that globally."

And of course it is generally accepted that it is Wal-Mart’s systems and processes that have propelled it to the top of the global retailing heap, so customizing the front end to national tastes while employing proven back room techniques, seems more like common sense than stealth.

One in 10 UK Retailers Shut up Shop in 2009

A survey of retailing in the UK shows that over 25,000 stores closed in the first nine months of the year. Some of the worst-hit sectors included department stores (21.6% closed), womenswear/kidswear (17.9%), menswear (12.4%), and footwear (14.9%). Food and drug, on the other hand, had closures in the single digits.

Carrefour to Pull out of Russia

Carrefour is shutting down its operations in Russia. Nothing unusual – retailers periodically pull out of some markets. What’s weird is that they only entered the country four months ago. The company said they were pulling out because of an “absence of sufficient organic growth prospects and acquisition opportunities.” Does that mean that they didn’t know about those problems four months ago?