Transcript Document

WHERE HAVE ALL THE SHOPPERS
GONE?
Fortune Magazine
September 22, 2014
WHERE HAVE ALL THE SHOPPERS GONE?
• Retailers big and Small Continue to Disappoint
Wall Street
• What’s Wrong and How Can They Fix It?
• “Things are Damn Slow” Retailers tell Robin
Lewis of the The Robin Report (retail industry
expert)
WHERE HAVE ALL THE SHOPPERS GONE?
• Kohl’s and Coach have experienced several
quarters of disappointing sales
• Wal-Mart ($279 billion in US sales) has had
seven quarters of declining store traffic
• Once strong brands like Staples and
Abercrombie and Fritch have shuttered stores
• Apple, the king of square foot sales has seen a
decline in same-store sales this year
WHERE HAVE ALL THE SHOPPERS GONE?
• Retail sales has only grown 3.7% in 2014, an
anemic rate 5 years past the depth of the Great
Recession
• “The Retail business is in a funk” according to Kip
Tindell, CEO/Founder of Container Stores
• Why the “malaise”, retail experts point to 3
reasons:
– Addiction to promotions and discounts
– Continued economic instability
– Too much store space for the current population
WHERE HAVE ALL THE SHOPPERS GONE?
• In spite of all the bad news there are some
winners in retail,
• On-line powers like Amazon continue to
siphon off market share
• Brick & Mortar stores like Dollar General and
TJ Maxx are also prospering
Reason #1
• Problem: Death by Discount
• Offering customers prices below retail to spur
their primal desire to get a bargain
• Discounting has become a trap that retailers
are in and customers expect
• Overall price “deflation” means you have to
sell more to break even
• This has been further escalated by consumers
ability to “showroom”
Reason #1
• Problem: Death by Discount
• The beneficiaries of these developments are
off-price retailers selling designer goods at
lower prices than department stores
• TJX through it’s TJ Maxx and Marshalls stores
will likely surpass Macy’s this year in revenue
• TJX has 2,000 stores today compared with
1,680 five years ago
Reason #1
• Problem: Death by Discount
• Department store chains are responding, Saks
5th Avenue had 53 stores 5 years ago, today 39
• But its “Off 5th” stores have grown from 55 to
79 in the same period
• Nordstrom long known for its high end quality
expects to have twice as many “Nordstrom
Rack” stores as it full service department
stores in 2016
Reason #1
• 15% of Regional Malls are expected to close or
convert to other uses in the next the next decade
• Since 2007 Outlet Shopping Centers have grown from
311 to 340
Reason #1
• Solution: End the Race to the Bottom
• The way out has been elusive
• Ron Johnson, JCP, 72% of products sold were sold
at 50% off or more
• His attempt at EDLP resulted in a loss of $4.3
billion in sales in 2013
• Then Macy’s and Kohl’s responded with even
more promotion but this year are reporting a
decline in sales
• Johnson’s solution may have been wrong but not
his analysis
Reason #2
• Problem: Too Much Space
• The end of the “Supercenter” who could imagine, for 3
decades a “no-fail” concept
• Wal-Mart rode the “Supercenter” to Fortune 500’s #1
company, Target and Best Buy followed
• But that may all be coming to an end, reason, too much
space. 52.4 sq.ft./capita in the US vs. 16.4 in Germany
• Given the ease of buying anything from a stapler to toilet
on line, continually growing footprints are leading to
empty parking lots
• The US Retail principle of “more and bigger” may be over
Reason #2
• Solution: Shrink to Grow
• Home Depot CEO, Frank Blake, put the brakes
on HD growth in 2008, most analysts and
employees thought he was nuts
• Instead invested capital in improving existing
stores and growing its on-line presence
• In Blake’s 7 years as CEO Home Depot has
become the U.S. number 2 retailer and stock
has doubled (he steps down November 1)
Reason #2
• Solution: Shrink to Grow
• Gap has returned to same-stores sale growth
after closing dozens of stores
• Growth in stores at the U.S. top 100 retailers
has slowed to 3%/year from more than 12%
three years ago according to Moody’s.
Reason #3
• Problem: The Non-recovery Recovery
• Lower income customers are still price sensitive,
the lower 20% of Americans saw the real income
grow only 19.5% between 1967 and 2012
• The upper 5% income grew 88%
• The way people use disposable income also
changed, smart phones can account for
$100/month in service plans, apps and music
• Many customers have less to spend on a new pair
of shoes
Reason #3
• Problem: The Non-recovery Recovery
• This economic stagnation has impacted stores
like Target that posted negative comparable
sales in 2013 and is further down in the first 2
quarters of 2014
• Not only are there too many stores, they tend
to be located at farther drives from home –
thus they are impacted by high gas prices and
cuts in food stamps
Reason #3
• Solution: Assume this is “the New Normal”
• Dollar General has experienced a boom in the
past five years growing by 2,500 stores to
11,388, and same-store sales continue to rise
• Their stores are “hyper Local” with fixed, low
prices and they are in communities as small as
20,000 people, many within walking distance
• Many retailers wasted time waiting for
customer to return
Reason #3
• Solution: Assume this is “the New Normal”
• Wal-Mart is trying to counteract the success of Dollar
General and other dollar-store chains by rolling out its
own small-format stores located in densely populated
locations.
• It plans to have 700 by February 2015 up from 400 at
the beginning of this year.
• In this era of vacillating consumer confidence, retailers
either have to win clearly on price and convenience or
wow customers with such innovative products or
unique buying experiences to get customers to open
their wallets
Reason #4
• Problem: Stunted Evolution
• One trend is clear, on-line sales will continue to grow
for the foreseeable future.
• E-commerce sales should leap 61.8% by 2018 to
$491.5 billion
• Brick and Mortar sales, a vastly larger number at
$4.43 trillion will grow a modest 12.8% to $5trillion
Reason #4
• Problem: Stunted Evolution
• Every retailer participates in on-line sales but
not all do it well.
• The digital experience is changing customer
shopping habits in other ways too.
• Customers research products on-line and then
go straight for the item without browsing.
• This reduces spontaneous purchases.
Reason #4
• Solution: Blend the Old with the New
• Malls are especially vulnerable to the ease of online shopping, 15% of items stocked in malls are
now routinely purchased on-line.
• Some mall operators have grasped this trend and
are investing their “A” malls adding new features
such as gyms and wine bars…”you cannot have a
salad and a glass of wine on line”
• To compete with on-line mall operators and
retailers have to enhance the excitement of the
shopping experience.
Reason #4
• Solution: Blend the Old with the New
• Some retailers are using the very assets that
naysayers make them irrelevant, their stores.
• Wal-Mart's on-line business is growing at a
faster rate than Amazon, they allow customers
to order things on-line and then pick them up
at one of their 3,000 stores nationwide.
• Macy’s is using its 810 stores to help fill ecommerce orders more quickly
Reason #4
• Solution: Blend the Old with the New
• Getting better at this “Omni-channel”
approach is essential for any retailer planning
to succeed with physical stores
• “People have not stopped wanting things. The
economy will eventually repair itself. But
where will the customers buy. That is the
question.” Mark Cohen, Retail Studies,
Columbia University