BrainTrust Query: Misleading Indicators
Through a special arrangement, presented here for discussion is a summary of a current article from the newmarketbuilders blog. The article first appeared on the Licensing Industry Merchandisers’ Association (LIMA) blog.
Marketing spends and store openings were long seen as indicators of retailer and marketer health; the more they went up, the better everything was going. Now, many of the majors claim that they can cut and convert current resources without compromising their ambitious growth plans.
Revolving Doors
Retailers such as Macy’s and Abercrombie & Fitch are trading low-margin U.S. locations for better stateside digs and more lucrative overseas options. Abercrombie & Fitch shuttered 71 of its U.S. stores last year, and another 180 are on the chopping block between now and 2015. According to the company, the remaining U.S. stores are hitting margins that are in line with those of their international flagships. As drastic as the U.S. reductions may seem, A&F’s total store count decline could be negligible, thanks to its aggressive international expansion plans.
Macy’s closure of several namesake and Bloomingdale’s locations in January was another shift-to-lift strategy, as new and replacement store openings were announced simultaneously with the closures. According to Macy’s CEO Terry Lundgren, the company is committed to managing a portfolio of stores that focuses on their "best and most productive locations."
Marketing Mods
Bob McDonald, chairman and CEO of Procter & Gamble, told analysts last month that the company will cut costs by $10 billion over the next five years, with $1 billion of this coming from external marketing spending. P&G believes that it will actually enhance its one-to-one reach by shifting dollars to lower-cost digital marketing channels.
Ivan Wicksteed, newly-minted CMO of Cole Haan, is taking a scorched-earth approach to one of fashion’s marketing mainstays, print advertising. In Mr. Wicksteed’s words, he "pretty much killed the entire print budget" in his first week, redirecting it toward content development, social media and digital marketing. Mr. Wicksteed summed up the shift by saying, "It’s not a significant increase from last year; it’s just a different use."
In Walmart’s fourth quarter earnings call on February 21st, CEO Bill Simon claimed that Walmart reached more consumers through more channels during the holiday, while lowering overall advertising expenses for the year by 10 percent. Walmart’s alliances with Facebook, its steady stream of tech acquisitions and the digital magic that it’s been cooking up at @walmartlabs certainly point to digital as a driver of the decrease.
In retail, cutbacks have traditionally signaled the beginning of austerity programs. Now, retailers and other marketers are finding a new world of ways to snip and shift without sacrificing their long-term brand vision.
Discussion Questions
Discussion Questions: Should retailers be more proactive about evaluating and adjusting their store portfolios based on productivity? Are retailers and brand marketers taking too many risks by shifting marketing expenditures away from traditional media?
This is the simplest response and makes perfect sense. 50 years ago, when retailers followed the baby boomers to the suburbs for the very same reason, they built and located stores where they could do more sales at a bigger profit. That is by no means a static process. Now, and maybe too late for some retailers, look at store locations, demographics, and of course the channel in which they interact with their consumers. This should be an ongoing process.
Retailers should use a combination of individual store productivity analytics, but also be cognizant of the real cost of losing customers to competitors on the basis of location and convenience. CPG Brands are taking a small risk in shifting from traditional media, however, I believe that they are taking a greater risk by sticking with traditional media. So much has changed in how the media landscape looks today vs. even just 5 years ago, and making the right decisions for promotion, marketing, and advertising are far more dynamic than ever before.
If you want to make a statement, do something drastic. You are putting your instincts and perhaps your ego ahead of all else when you slash your traditional media in favor of alternatives that are not “proven.” Certainly your loyal brand “fans” will miss you if you’re not in the fashion and lifestyle publications, but if social and digital are a solid match to your brand’s target audience, then move the impressions while keeping a close watch on brand awareness through regular quantitative measurement.
Those store brands who are closing stores are making the move out of sound business practice. Efforts to boost under performing stores typically precede the closings, though as demographics change around certain locations and mall operators struggle to maintain their property’s appeal, real estate and operations should and will evaluate the viability of some locations.
Print media is still effective for some stores, but I see a change every year in how more stores are going to digital advertising. All of us are trying to find the magic bullet to bring more shoppers into our stores, as this economy is not getting any better.
I say try a combo of all types, and see what works.
The US is severely over-stored and adjustments to store portfolios based on productivity are long overdue. Retailers do need to also adjust their marketing programs to reflect the growing importance of social media, mobile and other digital channels, but not at the expense of traditional media outlets. The world is changing, but we are not at the point where everyone is part of the digital revolution yet (though it seems that way).
I am reminded of the adage, “Think global, but act local.” It seems that these marketers are doing just that. The examination of a portfolio is not simply to see each store or medium equal in capacity. Each component offers unique opportunities and should be evaluated in that light. Substituting stores and advertising vehicles with others that enhance the overall business of the company makes good sense and demonstrates the incremental value of a thorough cost benefit analysis.
Retailers and brands should definitely be more aggressive about not only evaluating their store portfolios, but actively shift their marketing dollars to address the reality of the digitally empowered shopper! The status quo will simply fail! Given the seismic shift of the retail and brand landscape and the control being taken by the shopper, it is imperative to review and question every retailing ‘status quo’. There cannot be any sacred cows. The highest risk now is doing nothing. Retailers and brands must design and activate cross-channel solutions in order to meet the expectations of the new connected shopper and consumer.
Print media is not going to survive as a strong option either today or tomorrow. Print media’s outlook is to overcharge the reader who will look for other means of getting the information they want. Twitter and Facebook are proving successful options as is newer technology on smarter phones. I cancelled my print paper home delivery recently. They decided to increase my annual cost from $50 some dollars to over $150.00. I might not be the brightest bulb in the room, but I am certainly not the dimmest either.
We are talking about two instances of mix modeling here. The type of decision process involved is fast becoming fundamental to the retail consumer products industry:
Since chain retailers are partly judged based on their productivity per square foot, it is correct to jettison the lowest-performing spaces and redeploy the assets into activities that bring greater benefits. Lease obligations, real estate asset value, competitive actions and population shifts bring other dimensions to bear. Here the goal is to optimize the mix of stores for best return.
If the overriding goal is maximum top-line sales, keep the older, slower stores open. If efficient use of capital (GMROII) rules, store closures may be well justified. There may be other desired outcomes.
Marketing mix modeling is still a bit exotic, but it is fast becoming a routine activity among brand manufacturers. It has always been difficult to decide among dissimilar actions: Should we invest more on superstar account teams, on mass media advertising, on consumer promotions, on price? Which will deliver most on the goals we seek — market share, sales volume, net profits, brand awareness? Which of our brands, accounts, or regions will deliver a greater return on invested capital? Throw new media into the mix, and the calculus becomes even more mind-bending.
A portfolio perspective, enabled in part by mix modeling, shows us that chain retailers must be prepared to continuously churn store holdings for maximum advantage. It also shows us that marketers must continuously experiment with emerging media in the ongoing search for improved messaging relevance and productivity. The risk lies not in abandoning quaint notions about mass media, but in failing to embrace new possibilities.
More proactive than … what … exactly? Branching, pruning, trimming and a host of other horticultural adjustments have always been something successful retailers have done (the ones that didn’t failed, so we don’t remember them). What’s eye-catching, of course, is the numbers — often hundreds of stores at a time — but that’s merely a reflection of how big many of the chains have become. That a company can close, say, 150 stores and it’s only 3% of its portfolio is similar to stock market watchers who still think a 30 point swing is momentous.
Much is made of new media but who is really measuring its impact? If you really want to find out what is effective, then coupon 5 diverse items via all of your media venues and see which ones return the most. Now find a way to determine which if any impact your brand image and how. It’s possible that a Facebook placement will do nothing to move brand image, but a Vogue placement will give you a positive boost.
New media is getting much play but delivery isn’t being measured against consumer behavior. What you are trying to do with media is to drive purchase decisions and build brands. If a medium delivers some chatter, but fails to deliver sales, is it a bad investment?
Quite simply put, ‘Retailers need to be where their customers are’. Whether that be a store or a marketing campaign. This means that they must use all that data that they now have at their finger tips and meet their customers where and how they live.
Retailers must try different media as print media is stale and not as effective or targeted as other forms.
Adjusting store portfolios is an ongoing process; like pruning a fig tree, you need to cut back to get new growth sometimes.
I think what this reflects is a shift away from evaluating financial health on the basis of revenue growth and store growth toward evaluating on the basis of profitability. Sales and openings were always seen as leading indicators of profitability, but in an environment of sluggish growth (and rampant discounting) and too many and too big stores, the focus needs to be on the bottom line, not just the top line.
You must take the “gut feeling’ out of store site criteria. There are enough store performance measurements out there today that clearly illustrate ROI and GMROI for locations.
paper media are still everywhere in the marketplace. Regardless how tech-savvy the consumer is, I still find the vast majority look at the weekly circulars. Yes, redemption is painfully low, however, it doesn’t take much to make the investment worthwhile. There are good reasons to migrate some of the ad spend to other vehicles, like digital to test the waters.
The variety and precision of performance metrics are more and better than ever before. Many retailers are becoming highly sophisticated in the measurements they make inside their stores. Not just traffic and conversion, but also performance by employee, shopping queue metrics, and correlation of sales to any number of other factors that can be measured. By looking at these measurable indicators, retailers can do a much better job of managing and optimizing stores.
This is an extremely healthy trend. While companies are still too fixated on short-term results due to investor quarterly expectations, it is great to see more and more retailers and marketers focusing on strategies that allow for long term health vs. purely market share and short term results.
It is now more risky not to reallocate marketing funds to “non-traditional” media than to simply redesign old media efforts. And more risky not to close locations with negative cash flow and operating profit. And more risky not to think of the globe as a retailer’s market rather than just the country they started in.
The tipping point has already been reached. Get on with adopting the paradigms of today and tomorrow, while respecting the historic culture and DNA of the brand.