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.

Poll Results: Project Impact

Last week we discussed Walmart’s "Project Impact" and speculation that Walmart might have their sights set on driving a few of their competitors out of business (or at least inflicting some serious wounds). So we asked, “Which national retailer is most in danger from Walmart’s Project Impact?”

And you responded in record numbers. A majority of 56% said that Kmart is in the biggest trouble. But good percentages picked just about all the possibilities:

• 56%: Kmart
• 14%:Toys R Us
• 7%: Michaels
• 7%: Rite-Aid
• 16%: Other

It looks like I should have included Target on the list, because Target got enough write-in votes under “other” to just about tie Michaels and Rite-Aid. Other write-ins went to Best Buy, Sears, none of the above, and all of the above.

Poll Results: Walmart vs. Target

Last week, we discussed how Walmart has widened their lead over Target during the recession, as consumers tightened their belts. With signs of recovery, we wondered how things will go in the near future and asked, “Whose sales will grow more over the next twelve months – Walmart or Target?”

We hit your hot button apparently – this question got far more responses than any we’ve ever asked before. And our readers are divided, but with a definite pro-Walmart bias. The results were:

• 59%: Walmart
• 47%: Target

I was a little surprised, to be honest (I cast my vote for Target). But the consensus seems to be that, even as things improve, more consumers will opt for "cheap" than "chic."

What’s Next in the Walmart/Target Battle?

Walmart, everyone agrees, has had a very good recession. Their chief competitor in the discount sector, Target, has fared better than many retailers, but has definitely not kept pace with the leader.

In all, total sales at Wal-Mart rose 2.7% last quarter from a year ago, to $104.3 billion, when one ignores the impact of currency fluctuations, which hurt Wal-Mart's large overseas operations. At Target, sales fell 2.7%, to $14.6 billion in the second quarter.

Apparently a lot of people felt that Target’s celebrated “cheap chic," which had served it so well in good times, might have too much emphasis on “chic” and not enough on “cheap” and therefore opted for Walmart’s single-minded focus on low prices.

But what about the next round? If we are finally starting to see a recovery, how will the two giants fare over the next six months to a year?

The answer, I think, lies in the answer to another question that has been widely debated – has the recession created a "new normal?" Is there a new mindset which will cause consumers to continue to scrimp even as the economy recovers?

My guess, as I’ve stated here before, is no. While this has been a strong recession, deeper than folks even in their forties have felt in their adult lives, it has not been a re-run of the Great Depression, which shaped consumers’ outlooks for decades. It has been more like the nasty recession of the early eighties, which people shook off relatively quickly. While we may not return to conspicuous consumption for a while, I think most folk’s basic buying patterns will return to near-normal in 2010. This article cites something that doesn't impress me at all as proof of big changes in consumer behavior:

… consumers moved by the end of 2008 to save more than 4 percent of their disposable income, the highest rate since January 2004. Clearly, things have changed for American consumers and for CPG companies.

An interesting data point, but savings rates weren’t at record levels in 2004, so a rate that isn’t even that high doesn’t seem to signal a huge shift in behavior or thinking.

But I’ve been known to be wrong.

The outcome of this question about overall consumer behavior and attitudes, though, will probably determine which of the discounters wins the recovery. If most of the public continues to hold on tight to their paychecks, then Walmart will have the edge. If people decide they can perhaps afford a bit of chic along with the cheap, then Target will be the winner.