Context: There is doubt and head scratching around the Mastercard 3.5% lift with so many brands flat or decomping. We have yet to hear WMT Holiday '19 number.
Re: the economy: The high tide is not floating all boats. US minimum wage remains at $7.50. For those retailers with a high share of store portfolio in exurb/rural areas, decomping will be the trend.
Read the local paper coverage from the markets in which Macy's announced store closures. "Wrong merchandise" and "too highly priced" are the common comments.
A new book on the topic joins a full bookshelf: "Tightrope".
We have a problem. Retail sales are a canary in the coal mine.
I'm so happy J.C. Penney is testing. Cue the unicorns and rainbows!
What a load of rubbish. What else could they do and retain any shareholders?
How about a cold hard understanding that the middle class of the U.S. is fading. The archaic department store model (Field set his up in 1914) is the problem. American consumerism no longer bears any resemblance to the past. Whether it be 1914 or 1950 in a GI Bill-fueled post war suburban expansion.
Malls and mall anchors are going away for a reason, and the changed consumer situation is it. Stores will remain and thrive, just not those that are irrelevant.
Stores are too large. There are too many of them. The out of date regal merchant model remains and is compelled to fill them and that is the financial sea anchor that will take them to the briny red depths.
As we know, "retail ain't for sissies!"
for those in the bubble, it's outdoor clothing.
for those outside the bubble, it's clothing for many purposes.
J.C. Penney's target lives outdoors, they don't go outdoors.
J.C. Penney must be relevant to the dwindling middle class and that lifestyle requires a closet that does double and triple duty.
Go to a wake or wedding, a graduation or a community gathering, or church or a PTO meeting or a kids soccer game. Those are the occasions and the budget must be able to provide a wardrobe for each of them.
If it's St John's Bay -- aka faux L.L.Bean/Eddie Bauer gear -- it won't work. Instead think Carhartt. Think fuller, generous cut, heavier piece goods, beefier construction. Clothing that is comfortable and will hold up and last with repeated washings.
Feels like back to the future for me. Back when Anne Osberg ran Disney Consumer Products and Target was all in on theatrical releases bringing frequent fresh energy to the store. Warner Bros were also a big player. Target backed off that strategy and the stores suffered. Disney becomes an ingredient brand and adds value to their core -- moms.
Let's watch how Walmart and Michael Francis respond....
What about an already maxed out consumer? Stagnant wages with an increase of the cost of living. Those living with this challenge will continue to seek more affordable options.
This will exacerbate the decline of the less relevant options.
It isn't about J.C. Penney. It's about the American consumer aka shopper. The seismic shifts in rural communities and demise of the manufacturing ecosystem/union jobs has dramatically shrunk the population of middle income consumers.
J.C. Penney is no longer relevant to the number of people that might support 850 250,000 square foot stores choc-a-bloc with mediocre goods, without any humans for customer care.
Current leadership will do what they know, and that is no longer what is needed. Therefore as currently constituted, J.C. Penney is a goner. And they are not alone.
It beats a gym.
What retailer isn't anguishing over the downturn in traffic? No one -- all are freaking. Therefore, this is brilliant. Any lost traffic is somewhat replaced by these folks moving in their stores. And, as Kohl's rationalizes its assortment and selling space requirements, this is a great use of the freed space, whatever Amazon's lease obligations are.
Now, can Kohl's convert the traffic? Is the Kohl's selling model relevant to that traffic? Therein lies the rub. Or as we like to say, "retail ain't for sissies!"
I had such high hopes for Ms. Ahrendts. At the time she was hired, a video of Burberry and digital was trending and she was pitch perfect.
Apple is not Burberry. Despite the trappings of luxury, Apple makes its money selling phones. And those require service, having sold many millions of phones resulted in a torrent of folks into stores not set up for the masses. As a result, store phone sales suffered and so did Apple retail.
Johnson got Apple from A to B. Ahrendts didn't get it from B to C. Just like Johnson at JCP, Ahrendts at Apple wasn't a good fit. Maybe they are both geniuses, but retail reality closed in.
As we like to say, "retail ain't for sissies."
Sears, Gap and Payless all failed because their selling model was not regularly adjusted to meet the demands of a changing shopper. What we are watching is the accumulation of irrelevance around the selling model: product, price, service, place and communications. Across the range of engagement, Payless did not provide a reason to shop.
Retailers are compensated based upon performance versus a year ago. Everyone in the organization gets paid based upon last year. No one is incented to do anything meaningfully different. The organizational inertia carries it to failure. Look at the list of failed retailers in the past two years. They kept trying to beat last year by doing what they did the prior year.
Investors make money based upon last year. So there isn't change. How to return shareholder value with an out of date business model?
Whether you buy Johnson's performance at J.C. Penney, he did see a future and knew J.C. Penney wasn't going to make it. He made drastic changes that now Soltau is considering. Cutting appliances was easy, there was no "legacy" in it. But made to measure window treatments? That's what knee-capped Johnson. Internally, they resisted.
Mall anchors are doomed. Reducing the store count to one-tenth is a start. But what investor will tolerate that topline loss? Business leaders know what to do. Shopko was in a perfect place, but the selling model was woefully inappropriate for the changes in rural economies. Sun Capital couldn't tolerate a new selling model, it was better for shareholders to shut it down.
J.C. Penney's challenge is that it is no longer relevant to enough people. Its legacy is no longer relevant Like Sears, its legacy is what is killing it. The shopper for the legacy no longer exists. J.C. Penney can not clone onto a promise that's out of date and out of touch.
J.C. Penney must start with a deep understanding of with whom it wants to do business. How do they live? How do they outfit their life? Then create a selling model that will surprise and delight them.
We know it is not 200,000 square feet in a regional mall. We know its not a sea of racks with goods assorted based upon history.
Folks in the early stages of home and family formation live a very different life and their solutions to life problems are different from what J.C. Penney knows. Ms. Soltau must understand that and set a new course.
From the Vogue Business article, "The iPhone generated 62% of its $266 billion in sales last year. 'In retail, the phone is not our largest category,' says Ahrendts. 'We are actually number one in the company for Mac.'" Seems to me the cost to operate these stores is distorted to revenue. Sounds like the store phone business is underdeveloped.
The cost of flagship stores can be amortized across the portfolio, but when there are so many flagship stores, the model isn't relevant to retail revenue even if its blended. Yeah, a channel thing, who gets credit for the sale?
Is the HR person now in charge because of pending major restructuring?
I had such high hopes for Ahrendts. Like Johnson at J.C. Penney. Or time will tell for Gass. We love futurists and radicals, their visions are so exciting. And in the morning a key goes in a door and it's open for business. Will mass retail reality match the digital dream?
Retail ain't for sissies!
Stores that underperformed for the 9 weeks of Holiday, did so because they sell the wrong merchandise at the wrong price in the wrong location. These stores face the same challenges that rendered Sears irrelevant. Too much internal pressure to beat last year, forcing merchants and operators to drive the business looking in the rear view mirror. Each year they are less relevant as success gets further and further away.
Macy's/JCP are similar. Stores too big, locations less relevant. Remember, Macy's is made up of a bunch of failed local chains. They will both run out of money.
Kohl's is different and to me, surprising. Was hoping Gass could leverage her Starbucks secret sauce in some new and relevant way. Alas, the shopper thought differently. And with all that Amazon induced traffic clutching 30% off coupons.
With topline this soft, the earnings reports will be ugly. As we like to say, "Retail ain't for sissies!"