Dropping the Floor, Raising the Roof and Recalibrating the Brand Continuum

In Carol's latest article for the International Licensing Merchandiser's Association (LIMA), Carol shares how retailers' passions for price separation and portfolio diversity are converging to create favorable conditions for national and licensed brands.

The business and retail media has been all over the sometimes baffling bifurcation in retail that has luxury brands such as Burberry and Prada thriving along with deep discounters such as Aldi and Lidl, while middle-of-the-road players like J.C. Penney struggle. In response, retailers are building bigger gulfs between “good” and “best” within their widening “good, better, best” continuums in order to capitalize on contrast and skim from both ends of the spectrum. This expansion doesn’t stop at price, however. Retailers are exercising new brand options as well. Private brands are no longer retailers’ default choice at the lower end, and the fate of national and licensed brands is no longer determined by price alone.

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Walmart Resonates Part II: All Hail Scale!

Special notice to our East Coast clients and readers! We will be in the greater New York area next week conducting retail trajectory presentations and client strategy sessions. Contact Carol Spieckerman directly to request a meeting.

Yesterday, I shared my take on Duncan Mac Naughton’s presentation as part of the Bentonville Bella Vista Chamber’s WalStreet speaker series. Today, I continue with Part II.

Read Part I

Hands off!

Dollar stores and small box masters like Aldi and Tesco’s U.S. Fresh & Easy have set a new standard in skeleton-crew efficiency and low-touch merchandising solutions. Walmart is laser-focused on in-store productivity and achieving its on-shelf goals without requiring employees to handle merch multiple times. In his speech, Mac Naughton mentioned a “one touch” goal that will lower systems costs and keep employees where they are most effective: on the selling floor or at the register. Walmart also continues to evaluate its DC locations to ensure that fewer miles are driven to get goods to its stores. Achieving these efficiencies will become even more critical as Walmart opens more of its small format Express and Neighborhood Market stores in the coming years. Both concepts promise to bring the organization into new urban and rural territory that can’t be efficiently serviced through its traditional delivery routes.

Souped-Up Scale

As I noted in a recent blog article, retailers are rethinking scale and attempting to make the most of the assets that they already have, whether virtual or land-based. True scale is no longer achieved through thousands of stores, but it isn’t achieved through millions of online impressions or mobile transactions either. It’s all of these combined. Walmart has obviously been thinking a lot about how to leverage the scale it already has, as well as how to build more in the future. Mac Naughton directly addressed this when he called Walmart’s 4,000 stores “existing assets” and when he spoke of leveraging its strengths in a multi-channel world, rather than trying to win at someone else’s game (hello, Amazon!).

Although Walmart’s Express stores have been portrayed by the media and other observers primarily as a small-format move, building site-to-store scale is a huge part of the Express story, and one that is largely overlooked. All of those small stores will not only service new customers in neighborhoods that used to only have dollar stores, but will serve as pick-up locations for the over 40,000 unique items that Walmart offers online. Walmart is augmenting its self-cannibalizing supercenter model with a new fleet of small formats that will forage new ground while facilitating online purchases.

Just since Mac Naughton’s presentation, two 1,000 square-foot, low-inventory Walmart’s have popped up in the downtown areas of Los Angeles and San Diego. The sign outside says Walmart.com for a reason; the displays inside promote holiday gifts including toys, big-screen TV’s, computer tablets and home theater products that draw from online stock. Orders placed at the stores ship free through a rebate program and instant gratification can be satisfied through store-stocked accessories like 3-D glasses, remote controls and headsets (look for more on Walmart’s CE strategy in part III).

Walmart's site-to-store capabilities have the potential to give it a killer advantage over dollar stores, which have built massive scale through store proliferation while largely ignoring online opportunities. Dollar General recently changed that with its September e-commerce launch, but the site went live with direct shipment, rather than site-to-store capabilities.

Sorting out the dizzying array of accessibility options that retailers are offering has become increasingly difficult. Site-to-store is now another of the many arrows in retailers’ product delivery quivers, and even that is no longer a one-size-fits-all proposition. Mac Naughton breaks Walmart’s offerings into three categories based on customer need states: fast, faster, and fastest.

Fast: Site-to-store or site-to-FedEx. Mac Naughton cited site-to-FedEx as a way to give underpenetrated markets access to Walmart’s EDLP prices. To me, that means that folks in big cities can shop Walmart without having a location anywhere near. Some of retailers’ biggest markets are now store-less, which answers the question “Why are they running ads here when there aren’t any stores?” (Don’t shoot the media buyer just yet).

Faster: Free home shipping, now available for 100,000 items with purchases over $45, within a three-to five-day time frame.

Fastest: Pick up today service. Shoppers can choose from 25,000 items online and have them shipped to a local store the same day. According to Mac Naughton, Walmart is working hard to increase the number of items in the pick up today family.

Walmart is also working very closely with its newly-created @walmartlabs division to optimize its multi-channel mojo, and I predict that the ideas incubating in the lab right now will be game-changers for the entire industry. Walmart has announced its digital acquisitions, but it’s the fruit that they bear that will transform the retail trajectory. Update: Check out today's announcement from @walmartlabs

Density Intensity

Back on terra firma, although Walmart has recently shuttered its Marketside concept, it is clearly invested in pursuing not just multi-channel but also multi-format retailing (and, as mentioned before, the two are now inextricably linked). Walmart is shifting capital away from remodels and toward accelerating the growth of its store base. Mac Naughton outlined a format “hierarchy” that still places supercenters at the top of the heap, with Division 1 stores continuing to be converted into highly-profitable supercenters.

Neighborhood Market stores have produced five consecutive quarters of positive comp store growth, and Mac Naughton says that the returns on these stores are now approaching those of its supercenters.

Walmart Express is slated to be the new kid on a growing number of blocks and Mac Naughton acknowledges that the company is still tinkering with the concept, including deciding which locations will include pharmacy and/or fueling stations (two more capability advantages that Walmart enjoys over dollar stores). Walmart’s Express stores have the potential to be the real scale-builders for Walmart, and are the best weapon in its battle against dollar stores and those pesky mid-size formats in the drug tier that keep pushing into non-core categories like food and alcohol.

New store development is once again de rigueur at Walmart, but as a point in the productivity loop. Walmart is wringing cost efficiencies out of its store builds by scrutinizing every element, from fixtures, signage, and other hard pieces to store layouts. Where will savings realized from these efforts go? Where else? Into building more stores, which will drive top-line growth.

Part III will reveal some surprising twists in Walmart's pricing and branding strategies.

If you want us to ping you when Part II posts and be notified of our retail trajectory updates, simply enter your email address in the subscription box in the right column and you'll be on your way!

Want to know what these and other retail trajectories mean to your total retail strategy? Planning your 2012 sales or marketing meetings and want to kick things off with a beyond-trend presentation on what really matters in retail? Contact Carol Spieckerman directly. 

Aldi's Formula Finds New Following

Carol Spieckerman comments on how Aldi's lean brand and low cost strategy is building a loyal following.

Article by:  Christie Swanson 

Published in: Arkansas Democrat-Gazette, NWA Online

Published on:  10/09/2011

Banner Brands: Blah or Brilliant? Take Two from the Private Brand Movement Conference

Carol's second take from the Private Brand Movement conference ran on Retail Wire this week. In the article, Carol ties together insights from several presenters on the use of banner brands and puts a spotlight on the differences between European and U.S. retailers' banner brand perspectives. 

BrainTrust Query: Let Your Banner Wave?

Should retailers align their private brands with their banners or build their brands separately? Based on presentations at the Private Brand Movement conference, it depends on whom you ask. 

In his presentation, "Creating Value Together: How European Retailers and Manufacturers Collaborate to Innovate," Koen de Jong, founding director at IPLC, noted that, for most European private brands, store banners "drive the offer." He cited Carrefour as an example of a retailer whose good, better and best private brands each bear the Carrefour name. 

In a co-presentation on the following day, Maggie Hodgetts, head of design for U.K.-based Waitrose and Jonathan Ford, creative partner for Waitrose's design firm, Pearlfisher, detailed the painstaking process that led up to the creation of Waitrose's mid-tier, health-oriented banner brand: Waitrose LOVE Life. 

The launch was portrayed as an expression of Waitrose's personality, its existing values around health and its reputation for care, consideration and quality. According to Mr. Ford, the Waitrose brand values were already a "great starting point," so the overarching opportunity was to be more "explicit" about those values and, in the process, express the positive side of health and well-being. The brand essentially became Waitrose writ large. 

Stateside retailer presentations told a different story. Alex Petrov, Safeway's VP of consumer brands spoke to the need for private brand quality to "ladder up" to the banner and vice versa. Interestingly, he confessed that, in some cases, Safeway's private brands seemed to "fall behind" and out of alignment as they upgraded store environments. With Safeway's private brand portfolio, including its new launches, heavily weighted toward non-banner brands, the company obviously believes that achieving alignment doesn't have to be an exercise in literalism. In fact, Safeway's non-banner O Organics brand led the way in its retailer-to-retailer brand model just as Craftsman and DieHard did for Sears. Clearly, major brand equity can be built separately. 

In her presentation, "Branding with Southern Style," Lisa Edwards, Belk's packaging design manager, indicated that the re-working of Belk's private brand has focused on modernizing its existing non-banner legacy brands, such as Kim Rogers and Red Camel, and creating a few more, such as accessory brand, Via Neroli, and the soon-to-be-launched cosmetics brand, Parisian, rather than attaching the Belk name to these products. According to Ms. Edwards, Belk customers perceive and receive the retailer's private brands as national brands, particularly in rural areas where Belk is the only game in town. Belk has encouraged individual store teams to use their imaginations to interpret the brands in their particular store's environment, enabling a form of localization-on-a-shoestring, and driving even more passion for the brand portfolio. Belk would seem to serve as a great example of how non-banner brands can more easily take on national brand characteristics. 

More than once during the conference, Trader Joe's was cited as a rare U.S. retailer that effectively leverages banner brands to drive differentiation. Does the fact that Trader Joe's is owned by German retail icon, Aldi, take them out of the running? 

Read what the Retail Wire Brain Trust had to say.