Trying to Think About the Junction of Retail, Brands and the Internet.
The more I think about it, the less I feel I know for sure. I know the internet and brick and mortar are changing each other, that brands are becoming retailers and retailers brands, that easy information and product availability is making most products commodities at some level, that brands are really pushing product extensions, and that consumers are making long term changes in their purchasing behavior. But stirring this soup of change just makes it cloudy.
Yet we all have to be thinking about it, and I’ve had a few experiences in recent months that are at least helping with the thinking and, to my surprise, are turning out to be related. Why don’t I tell you about them and we’ll see if they turn out to be related for you too.
At the Mall
Bellevue Square is a large regional mall here in the Northwest. It’s anchored by a Nordstrom, Penney, and Macy. I’m in it occasionally and usually take the time to walk through some of the retailers firmly in our industry to see if I can learn anything. For some reason, at my last visit I determined to make a list of those retailers and see just how long it was. Here’s the list I came up with:
7 For All Mankind
Abercrombie & Fitch
Aeropostale
American Eagle
Billabong
Buckle
Element
Forever 21
Helly Hansen
Hollister
Lidz
Lucky Brand
Lululemon
Oakley
PacSun
The North Face
True Religion
Vans
Zumiez
I didn’t include Nordstrom or Sketchers. Maybe I shouldn’t include Lululemon. There are a few other fashion retailers I might have added. I know the list is shorter if I include only committed action sports brands. Yet I think that would be deluding ourselves. Every store on this list tries to get at least some of the dollars from customers of the core action sports/youth culture market. And I’m sure they all sell on line.
That’s a lot of stores for one mall. Bluntly, I’m not sure there are enough market niches to go around especially given that there’s nobody on this list whose niche isn’t determined largely by advertising and promotion.
Buckle
Buckle, headquartered in Kearney, Nebraska (don’t ask me), has about 430 stores in 43 states and had revenue of $949 million in the fiscal year ended January 29, 2011. The first time I walked into a Buckle store, it had the action sports/youth culture vibe I was familiar with from various other industry stores. But there was something different, and I literally walked around for a minute or two trying to figure out what it was.
You know how most action sports retailers have fixtures, posters, and other promotional aids representing the brands they carry? Buckle, I realized, didn’t have as much of that as most retailers. If you look at the list of brands they carry at their web site, you’ll recognize many of the brands, but those brands don’t overwhelm the merchandising of the store. They kind of get equal billing with Buckle’s owned brands, which are not named Buckle.
PacSun carried and promoted the brands we’re all familiar with. Then they added their store brands as a way to generate some more margin dollars and to offer more price conscious customers a choice. The way they handled their private label felt tactical and financial- almost like an afterthought- rather than being part of a strategy. I think that choice, along with over expansion, poor merchandising, and a weak economy, was what got PacSun in trouble.
Now, PacSun is being more thoughtful in how they handle their mix of brands. We learn in their recent filings that their mix is about 50/50 between private label and brands owned by others.
Buckle, on the other hand, has what I take to be a deliberate strategy of building its image based on all its brands combined- owned and bought from other brands. In their merchandising, there almost isn’t a distinction made between the two. Buckle is a retailer making itself into a brand (or maybe creating brands?) through this approach.
I have often thought of store label brands in terms of what percentage of revenues they could safely represent. Perhaps that was short sighted. Buckle’s premise seems to be that it’s the mix and merchandising of the brands that matters given the target customer; there’s no percentage that’s “too much” or “too little.”
I wonder if the day will ever come when we see a retailer that has created brands get enough traction with those owned brands to sell them to other retailers. Maybe internationally.
Kohl’s
I’d characterize Kohl’s as a discount department store with quite a broad array of merchandise (Here’s a link to their investor relations site, which is full of all kinds of good information). Among the brands they carry are Vans, Hawk, and Zoo York. I was struck by the good selection and attractive pricing. Interestingly, they’ve moved from 75% national brands and 25% “private and exclusive brands” in 2004 to 52% national brands and 48% “private and exclusive brands in 2010.” I guess Buckle isn’t the only store that has the idea of melding owned with national brands.
“Private” and “exclusive” brands are not the same thing, and it’s important to understand the difference. A private brand is just what you expect; created, owned and controlled by Kohl’s. An exclusive brand is not owned by Kohl’s, but is available exclusively in Kohl’s stores. The Hawk brand is such a brand for Kohl’s.
I noticed a poster in the store advertising the Hawk brand, but featuring a skater who was not Tony Hawk. Makes sense to me. That’s what you do when you’re trying to give a brand credibility and longevity beyond an individual.
Target has the same kind of deal with Shaun White. Say, I’m going to have to rush right out a nd get me some of those Shaun White window curtains at Target. There are 237 Shaun White items on Target’s web site. Well, good for him. I would have made the same deal even though at some level I hated to see it happen. But I wouldn’t have minded if they’d not done the curtains.
Kohl’s has revenues of almost $19 billion generated from over 1,100 stores plus their web site.
Reaching Everybody, Everywhere, All the Time with Everything
I noted after SIA that everybody who was selling hard goods was making apparel, and apparel makers were making hard goods. I recently commented on Quiksilver’s foray into board shorts for NBA teams and suggested that just because a market extension was possible didn’t mean it was a good idea. Referring to the trends in online shopping, I’ve suggested that consumers no longer feel compelled to have a product they want the same day, so one perceived barrier to internet shopping is falling. About 2008 I started to point out that it was going to be tough to get sales increases, and it was years before that I suggested that perhaps a focus on gross margin dollars was appropriate since that was what you paid your bills with. Even earlier than that, I noted that where to sell or not sell your product was something brand managers focused on every day.
It’s just interesting how all this is coming together, at least in my mind. In a weak (though slowly improving) economy with cautious consumers and an environment most companies describe as “highly promotional,” many companies are trying to reach new consumers through product extensions that may or may not widen distribution. And it’s funny, because I see this as the hardest kind of economy to do that in. Almost by definition, you’re moving into a space where other brands are stronger than you are.
This trend is driven partly by a need to find sales growth somewhere, especially for public companies. It’s facilitated by technology and the internet, improved logistics and information systems, and a sense, I think, that the distribution cat is already out of the bag so what the hell.
Just to be clear, product extensions and distribution expansion aren’t by definition bad. Nike can sell some product at Costco without crippling their brand. Think about what Sanuk did. I expect to see Nixon do some interesting stuff once Billabong’s deal to sell half of Nixon closes and I think they will succeed because of how Nixon is already positioned with their customers.
These Days, What is “Positioning?”
If you ask me what “we” should do about this, I’d say, “nothing.” It is, as usual, up to individual companies and brands. The first question in the everybody, everything, everywhere all the time chaos is, “Has positioning changed and is it still meaningful.”
I’ve thought about that a bunch, which is why this article was actually started before Christmas but is just being finished. I hope it’s being finished. I’ll know in a couple of paragraphs.
The tools you use to build your market position have changed in ways we all know. But the concept is still valid and maybe more valid than ever. You build and defend your market position by doing what you do well and communicating that to your customers.
When I wrote about companies in snowboarding pushing into apparel from hard goods and hard goods from apparel, I suggested that companies that didn’t do that might find themselves with an advantage. I want to expand on that a little.
Maybe effective market positioning is now at least partly a matter of doing less. That is, let other companies pursue dubious product extensions. To exaggerate a bit to make the point, let them try to sell everything to everybody everywhere all the time. I wasn’t even born the first time somebody said, “If you think everybody is your customer, nobody is your customer.”
That doesn’t mean never do a product extension. But, more than ever, come at it from a solid foundation of knowing who your customer is and why they buy from you. Never go after a new market because, “We need more sales!” And don’t over simplify the analysis by going, “Well, we’re in business X, and all our competitors in business X make product Y, so we should make product Y too.” That ain’t analysis.
If you take the time to really understand how customers perceive you and why they buy your products, you won’t ever be tempted by the wrong growth opportunity, and you’ll immediately recognize the good ones when they come along.
I guess that at the junction of retail, brands, and the internet what we find is a slightly different way to think about old, still valid concepts.
Jeff, I attribute you with one of my foundational thoughts: I like valuing profits over growth, limited distro and keeping the brand relevant to the core athletes (and their first tier followers).
With distro in mind, seems there’s more discipline to be executed around market segmentation. Maybe line extensions make more sense in one channel than across all options? I hope consumer research is moving past simply collecting demographics and measurable stats and is being used to identify points of consumer differentiation that can be tied to a brand’s DNA and keep them unique.
Thanks as always for thought provoking articles.
A strong brand can handle multi points of distribution.
A strong brand has to be managed so many think they can be everything to every buddy.
A strong brand should know their target market inside and out.
A strong brand knows what line extensions will work most of the time.
A strong brand will take market share in a down economy.
A strong brand Apple
A strong brand Vans
A strong brand Nike
on and on and on
Just to name a few. Thanks Jeff for the insights into retail.
Hi Jay,
I don’t suppose you’ll be surprised to learn I agree with you. The only thing I’d add is that becoming and staying a strong brand takes a lot of work and focus and knowing when to say “no.”
Thanks for the comment,
J.
Jeff-
Great article. I think you make a clear point that in this recession, a large number of brands have been desperate to expand their sales. Brands may have mistakenly expanded their product offering as the easiest way to maintain or grow the sales number. But extra sku’s does not solve the long term problem.
The long term problem is that there is a limit to selling more to the same (smaller?) customer base. The long term solution is to bring new customers into the niche. These may be new participants, followers, or wannabes. But promoting the sport is the long term way to grow the brand, despite the fact that it may help your competitors to some extent.
Hi Rob,
I largely agree with you. In the shorter term I think part of the answer for an individual company anyway is to accept less sales growth but try and make it up on on the gross profit line.
Thanks,
J.