Sometimes Companies Just Say Yes

I've seen so many companies in which managers put on a false face of bravado, but secretly cower. They are afraid of making any mistake, disrupting their comfortable existence, and avoiding any effort out of the ordinary. The theory is that if you don't do the unusual, you cannot get pilloried for it.

But business is risk, and companies must shake off the dust and try something new at times just to keep from being moribund. Today, IKEA is an example. A comedian and filmmaker, Mark Malkoff, had to have his New York apartment fumigated, so he decided it would be an interesting video to literally move into an IKEA store for the week. He asked - and they said yes. So he's in the store in Paramus, NJ at the moment, having fun and creating an enormous opportunity for positive PR and viral marketing. You can see the ongoing video series here. Realistically, there was little downside for the chain, much potential benefit, but saying no is so easy. Management there didn't, to their credit.

Holiday Sales Hangover

It's official: the 2007 holiday shopping season were disappointing. But looking at some figures from a Financial Times article, let's consider the nature of disappointment. MasterCard Advisors said that retail spending climbed only 3.6 percent from Thanksgiving to Christmas, and "when the International Council of Shopping Centres warned that same-store sales or sales at stores open a year during the November-December period were below projections of a 2.5 per cent gain."

Clearly investors and businesspeople are only happy when there is a significant rise in sales year over year. But satisfaction is a relative term, and depends completely on expectations. Having rosy expectations when credit is mangled, when people are stuck with ballooning housing prices, and when fuel is up enormously over last year is simply deranged thinking. How could anyone expect the average person to be willing to go even more into debt to line the pockets of a relative few? You can't expect people to inhale and never to exhale, and so you cannot expect them to always shell out more this year than last, particularly when you want that number to exceed inflation. When asking themselves, "What could we have done better?" I think a wise answer might be, "Stop telling ourselves stories to feel better, and face reality so we can consider viable options, not fairy tales."

Thanksgiving Sales Rituals

Once again retailers pushed sales into Thanksgiving itself, and although they did get a jump on competitors, it was at sales hitting 50% off, and it was probably just shifting dollars from one day to another - robbing Peter to pay Paul. I understand that, given their frame of reference, that's all they can do. They need to get enough sales to satisfy Wall Street and keep the stock price up.

But entire industries are facing real problems. Tightening credit and lack of money is huge pressure. There have to be major changes in how they do business. They have to understand that sales can't necessarily rise every year, you can't count on more people spending more every year. Investors can't count on ever expanding sales. Perhaps it's time to understand that companies can't stand with one strategy for one set of demands. Perhaps it's time to know that constant expansion is like constant inhaling. There must be cycles of expansion and contraction. When conditions contract, perhaps what a smart company, management, board, and investors do is look to use the time to strengthen the organization, find weaknesses, reform bloated processes, and otherwise realize that there could be advantage into changing a business approach to get ready for the next expansion. But that would require a view extending beyond immediate personal gain, and that doesn't seem to be in the cards in business these days.

Christmas in October

According to the New York Times, a number of retailers are extending their holiday marketing back into early October:

Shattering records for an early start, Wal-Mart is cutting prices on toys in mid-October, but the company is not calling it a holiday sale. L. L. Bean has started advertising free shipping — but it is shying away from the H word. And Toys “R” Us is marketing a temporary store in Manhattan, but consumers have to study ads to find the name: Holiday Express.

According to the article, what has pushed them back this far is the expectation of a lackluster holiday shopping period. So much for the day after Thanksgiving. This offers more evidence that there could be a broad economic slowdown, I think, or at least for a lack of business confidence, which can become the same thing. I see why retailers are about holiday sales, as many see 60% of their business from September to December. But I don't see a logical reason why worries transform into a strategy of starting the sales earlier. When you have the sales start so early, you lose the chance of getting anyone to pay higher prices at all. The result is a self-fulfilling prophesy of lower dollar sales and lower margins.

You can't solve a problem that stands outside the realm of efforts you currently make by doing more of the same. maybe retailers need to do something completely different and find a way to deliver value that isn't offering goods for less. Why not offer a shopping service, where people can call teh store, say what they want - maybe even get gift suggestions - and have all the stuff put together for them so they can simply pick it up? That does sound suspiciously like an online shopping facility, which is fine. Just add a little bit extra service and position it as what it is - a way of getting what you need done without getting strung out. Let a number of retailers work together on a holiday season gift registry, so you don't have to guess what Aunt Mildred wants, and you don't have to go to a particular store. Have a recovery zone in stores, where consumers can sit, rest, and get a free cup of coffee and cookie or other snack.

I won't expect to see any of this from now to the end of December. Businesspeople seem wed to continuing things they way as they have always gone, or to treat sales as a zero sum game, where the benefits go to either you or the customer. And zero is exactly what happens.

Learning from Retail Profit Growth

Kohl's, JC Penney, and Nordstrom all saw their first quarter profits jump, respectively 25, 13, and 19 percent. The first two attribute the jump to private label goods, while the last said that its customers seek designer goods.

But even the private label work is being designed by names - Vera Wang and Polo Ralph Lauren, for example. Maybe consumers are getting tired of paying for junk. That's not to say designer labels are necessarily better, but at least there is that buyer association. And it's the design name that seems to be important. Yet by doing more private label work in particular, the companies cut out layers of expense, which is why the profit jumps were so far ahead of revenue lift. Penney's revenue was up only 3 percent, while Kohl's was up 12.5 percent and Nordstrum's same store sales rose 9.5 percent. At the same time, Federated missed analyst expectations and there are warning sounds coming from Arkansas as Wal-Mart says it, too, could fall short of Wall Street targets. Clearly the two should be looking at what their competitors are doing right.

Retail Price Optimization

Thanks to a Slashdot.org reader I saw this AP article about retail price optimization and a related one with some examples. The one misleading impression you could get from the article is that such pricing optimization software works primarily for retailers. Not so. Pricing, whether b-to-c or b-to-b, is generally an area little understood and poorly controlled by companies. Many of the same techniques work for manufacturers - and, I'd guess, even for service providers. The real advance here is getting away from guessing what pricing strategies might work and using analytical methods to create candidates to test. Notice that test is different from submit to. Many people assume that technology cannot be wrong, and so figure that if the suggestion comes from one of these admittedly complex systems, it must be right. Not so. However, using the recommendations as something to try and then to judge the results would seem a smart approach.

For Music Labels, Distribution Is the New Worry

There's an interesting article in the Wall Street Journal of April 27, 2007 about the problems that music labels face from the big box stores. According to the reporting:

big-box chains are now responsible in the U.S. for at least 65% of music sales (including online and physical recordings), according to estimates by distribution executives, up from 20% a decade ago.

Having that much potential distribution and sales tied up with a limited set of customers is a scary concept for any company for a few reasons that I learned in my time in business and in writing about business. One is that with so much ability to exert pressure, you can bet that prices to the retailers will eventually be coming down. Another, you now have narrower demographic segments dictating what will be commercially acceptable music.

Third, big producers need small producers to create new niches and open fresh areas for production, and that gets much tougher when the large stores are going to be less likely to pick up the work of small labels because it becomes too much trouble to maintain a vendor that supplies a small amount of what the retailer sells.

The kiss of death is, as the story mentions, is that the stores will find the category unprofitable compared to other areas:

That's partly because, with CD sales falling steeply, the discs aren't as hot as other products the stores sell. Also in the wake of the Don Imus controversy, the debate over the lyrical content of rap, rock and pop has flared up again. Oprah Winfrey recently has focused on rap lyrics on her talk show.

Best Buy has apparently reduced the space devoted to CDs, and Wal-Mart has given a quiet heads-up to the big music distribution industry that it will cut back space for music by as much as 20%.

What's a record label to do? Learn a lesson about non-traditional distribution. Some book publishers have been smart, putting their books for years into places where their natural customers might appear but that aren't the usual independent and chain stores. Most publishers don't get it, which is why so many are having problems. You have to meet the consumer where the consumer wants to be. So look at what Starbucks has done and start moving in that direction. Popular music labels could experiment with selling CDs through various fashion outlets, specialty interest stores, and other places where they could receive impulse buys - if music isn't a life style purchase, I don't know what would be. Put it in in the Gap, in Williams-Sonoma, at news stands, in gas stations, in craft stores. It doesn't matter where so long as the people who go to those places are the sort who buy the music. When things get tough, it's time to start thinking outside of the big box.