Analyzing emerging quick-growth concepts
In a quest to study retailers around the world, I set out to determine what retail formats and concepts are positioned for sales and profit growth in this highly competitive landscape. I wanted to see if there were any new concepts or strategies out there that would strike a chord with consumers. Finally, I wanted to analyze successful concepts to see what set them apart from others on the retail scene.
My journey turned up good, the bad and ugly concepts. Focusing on those that I believe are going to be the most successful, I've divided them into segments, the first of which deals with home. With low interest rates and 9/11 causing consumers to refocus back on the home, we've seen a number of interesting new concepts, the first of which is Design Within Reach (DWR).
The San Francisco-based, multi-channel retailer began with a Web site selling European-style home furnishings and has expanded to distribute a monthly catalog to more than 500,000 subscribers and operate 40 brick-and-mortar stores.
The retailer went public last year and has been very successful at fusing together designers and innovative products with its customer group.
DWR created community centers that house special events and idea sessions where customers can layout a room with the help of expert designers. About 20 percent of the items are exclusive to DWR, and one of the keys to the concept's success has been hiring the right people, including the CEO, Wayne Badovinus, who has headed both Eddie Bauer and William Sonoma and knows how to start up new concepts.
Another exciting concept comes out of Europe. Zara, which is notorious for low priced, high fashion, European-designed apparel has created Zara Home, is cropping up across Europe and now has about 30 stores. The concept is slated to come to the U.S. this year and bring innovative design and concepts to a home store environment at a very low price.
Williams-Sonoma came up with a breakthrough strategy to reenergize its growth with a prototype flagship store that focuses on a much larger footprint. The San Francisco flagship in Union Square has about 19,000 square feet of selling space across four levels, far larger than the typical mall-based Williams-Sonoma. A Mecca for foodies, it offers specialties such as an olive bar complete with various olive oils for tasting and features a demo kitchen on site.
The granddaddy of home improvement The Home Depot is spending more than $1 billion to renovate its stores, particularly to make them more appealing to women. In an effort to take back some of the market share that Lowe's has gained by attracting female shoppers, The Home Depot is enhancing a number of elements within the store.
For example, the shelves are beige as opposed to orange and the stores have grocery-style aisle markers to help guide people to the right parts of the store. The new design also places fresh signage and displays throughout the store to educate the consumer on the use of the product, acting as silent salespeople and reducing the need for staff on the sales floor.
Following the Customer Innovative retailers are also following the customer and going after these customer segments as they grow and emerge into significant opportunities. The regional mall, for example, has been losing share to other formats, particularly lifestyle centers and strip centers. One of the most successful examples is the Sears Grand concept. It began with five original concept stores each with more than 200,000 square feet. The model is supported with the same IT and operational structure as Sears department stores, but it allows the retailer to move outside of the mall and compete, primarily against the Wal-Mart and Target super centers. Sears Grand is testing features such as pharmacy and Citibank outlets. The stores have toy and consumer electronics departments and carry Sears' lines of apparel and tools. In addition, the concept includes a nursery and outdoor garden center as well as a grocery section where customers can pick up milk and various food items, creating a true one-stop shopping environment.
Share of Life
Retailers went through a market share battle through much of the '80s and early '90s. Recently retailers caught onto the idea of share of wallet and how to identify and quantify what the share of wallet spending is among customers, as specific as by merchandise category. Now we're seeing an even broader trend, which is share of life. And, as more consolidation happens, larger retailers are getting into more and more aspects of our life.
One example is The Home Depot.
The company says that if it can increase the average transaction size by five percent chain-wide, it equates to opening 78 new Home Depot stores. So what's easier opening a brand new store or selling just a few more widgets to the people alreadyin the store? Increasing transaction size can have a huge impact, particularly for mass merchandisers like Wal-Mart. Today Wal-Mart has about 127 million Americans passing through its doors every week. Rather than bring in more foot traffic, it needs to entice consumers to buy more while they're already there.
The future of Wal-Mart can be examined through one of its latest super center concepts in Algonquin, Illinois. It features a blockbuster new consumer electronics department with all of the latest in emerging digital technologies available, a tremendous new in-store media package to help educate the consumer on what's available, obviously intended to drive impulse buys and upgradesin the department. One of the most powerful aspects of Wal-Mart, because of its sheer size and magnitude, is its ability to team up with major vendors anywhere in the world and create custom assortments that no other retailer is able to mimic. Such a project was done with Elizabeth Arden in the design of Wal-Mart's exclusive Skin Simple line. It was launched with eight SKUs, each priced between $7 and $13 and a resident dermatologist traveled from store to store to provide samples and educational seminars, ensuring a complete and high value experience for customers.
Another emerging category is alternative experiences and providing a differential advantage in the face of tremendous competition. No industry is under attack more than the conventional supermarket industry. However, we're beginning to see some innovation. Marsh, for example, has designed a 66,000 square foot concept in which the entire store revolves around a center coffee bar, creating a community destination. The grocer has included specialty concepts including baby care, international foods and an expanded produce department that are located in perimeter sections off an internal oval racetrack and accessible by an external racetrack as well.
Another interesting concept, particularly from a technology point of view, is Jewel Osco's new test with Federal Express.
Its Ship and Get program allows customers to go into a Jewel Osco supermarket 24/7, be able to receive or ship a package, and if you have any questions, they have a live video conferencing system in the store at the display where you can talk with a Federal Express person 24 hours a day.
Innovative retailers are maintaining relevance by focusing merchandising and more effectively appealing to a particular niche of consumers. A good example is Gymboree, which has succeeded over the years with children's apparel stores. The president of the company discovered an overlooked niche in the mothers of the children that they were selling to a 38-year-old woman with a family and household income of $85,000 and up. There was nothing specifically oriented to her, particularly from a high end point of view, so the company created Janeville. The concept resembles a Hamptons' cottage and carries a unique series of outfits and products for the lifestyle of that working or non-working mother.
In order to be the next hot concept, study the growers the successful companies that are performing at double digit increases on a total level or at a comp store level.
There's a lot to be learned by even copying elements of some of the more successful companies. Segment the market as Gymboree did with the Janeville concept because there are always sub-segments that retailers can outboard from a particular department into a specialty niche concept, or can be created to appeal to an underserved segment. Constantly get out and visit stores, go to Europe, even Asia, to look at concepts that might be exportable into the North American market and, of course, vice versa. Integrate quick growth into the strategic plan and reward executives relative to growth, as opposed to just cost cutting or making other metrics.
Growth must be front and center
for the reward. Seek to be unique. Offer something different in the marketplace as opposed to a cookie cutter/me-too model. Retailers should also innovate constantly and have a portfolio of innovative concepts available that are in various stages of test and refinement. At any point in time determine that at least one of them is worth rolling out. This ensures that when the core concept becomes mature, as all concepts do, and eventually begins to enter the decline phase of the lifecycle, the company can still maintain relevance in the marketplace.
Alfred Meyers is a vice president with the consulting firm Retail Forward.