This was just an observation from one of our Retailer Partners at Roulston Research. Black Friday this year is getting rave reviews by all. Sales are up on both online and with brick and mortar formats. I like others, saw the big eight o’clock rush to buy the limited quantity door busters that we all know are limited for several reason, not to mention profit. Yes, I have seen the two day, three day and four day sales reports showing increase. But they remind me of comp sales reporting, that while the numbers are the numbers, there not the same for all. I remember looking at comps, then having to look at who’s they were, went and how the reported them, were the based on 12 or 13 months, had the retailer changed their hours or expanded their stores, etc. Plus let not forget that “Black Friday” online sales by many started on Wednesday night, that Cyber Monday sales started as early as Saturday am and Black Friday items were a 4-5 day event this year. My point is, while nice to see they really didn’t represent much more than a guide and reflected NO MAINTAINED MARKET SHARE DATA.

I like many, have also seen retailers, now blame poor monthly sales on Sandy. While I’m sure this effected sale’s in the New Jersey / New York areas, it can’t be blamed for poor sales thru out the US. Retailers using weather again…. “go figure”. But here are my observations, that while Black Friday sales may have been good, both in store and online, I’ll wait till the end of the quarter and see how the profits / margins come in, as well as market share before getting as excited as many.

For me, in walking retailers, the issue is the lack of NEW. There is no new exciting, got to have, toys out there, only remake of previous ones, like Furbies, Cabbage Patch Kids, Star Wars, etc. There is only one new game console (Wii U) and that’s a re-due over as well. Plus this year, I hope all are factoring in that a lot of the sales came from higher ticket items such as TV’s, iPads, and larger appliances, which sure helps get the ticket and comps up. Time will tell, but I’m betting that what retailers got on “Black Thursday, Friday, Saturday, Sunday and Cyber Monday”, will pretty much be it.

Walking the malls today and seeing 50-80% off sales everywhere, seeing the poorest item selection and in-stock at Target that I’ve seen in years (maybe Canada has taken their eye off the US business), having a retailer like TJ Maxx, who has been gaining market share, to have in my opinion the worse selection of toys, gifts and clothing in years, I would be careful to celebrate too soon. To me, retailers did a poor job of working with manufactures to come up with NEW and will let re-due dictate their sales. That with the lack new, not the weather, that customers who have money, only spent it on the give-away door busters and that will be it for this year. Leaving retailers holding the bag of coal this year. If you would have interest and following-up with the presenter please email info@roulstonresearch.com

Cyber Monday did not disappoint after consumers already spent a record $59.1 billion over the 4-day Thanksgiving weekend. According to IBM smarter commerce, online shopping was up 28.4% on Cyber Monday compared with a year ago. This increase came despite the fact many consumers had to pay sales tax for online purchases for the first time and marks the continued shift in consumer shopping behavior with a larger percentage of holidays shopping coming from online. One of the big drivers for this increase was the smart phone and tablet market each rising over 10%. Dick Seesel believes this trend is here to stay stating, “I don’t think there is an e-commerce or multi-channel retailer in business who failed to capitalize on Cyber Monday (or, in some cases, Cyber Week). So the online traffic must have been huge. Good to see this turning into real sales volume, and a sign of an improving economy — not to mention, a sign of the continued share gains for online retailing.” To read the full article please visit http://www.retailwire.com/blog-post/f86816e1-a2a2-44ea-b21d-076fe4b4a9ee/cyber-monday-sales-record-shattered.

Richard Seesel is the Manager and owner of Retailing In Focus, LLC. He was most recently a Senior Vice President and Divisional Merchandise Manager at Kohl’s Department Stores. Dick is proud to have helped Kohl’s grow from 18 stores to a national retail powerhouse, during an era of change and consolidation throughout the retail industry.

Well what Wall Street and Main Street were thinking and waiting for to happen did today, ConAgra acquisition of Ralcorp. This is truly a “win / win” for shareholders, retailers and consumers. Shareholders of Ralcorp who have fought off this acquisition for so long, and have had three quarters of disappointing results and were forced to sell off its cereal business now have gotten what they feel is a fair price. ConAgra under the great leadership of its CEO Gary Rodkin, who has been pushing hard for this acquisition for quite some time, has won as well. Quite remarkable, that with all that is going on financially today, with the fiscal cliff and such uncertainty, that you see a true CEO go after something that he feels is the right thing to do for his business, shareholders and customers.

Mr. Rodkin has been for many years thinning the ConAgra “stable” of dead and poor performing brands, while at the same time looking for ones that could bring value to ConAgra, and Ralcorp does all of that. Mr. Rodkin needs to be congratulated for having the vision to see what this acquisition does for ConAgra from both a Branded and Store Brand position, and for recognizing the growth trends and power of store brands. Buying one of the best Store Brand manufactures out there, says a lot about not only the wisdom and vision of Mr. Rodkin, but to the growth and acceptance of Store Brands by the consumers. There are many synergies that will come from this acquisition, from procurement to sales that ConAgra can reap from this buy. Retailers and consumers as well should see the saving too, as with this acquisition ConAgra has opened up its Center Store presents into many categories it was not in, as well as getting into several that will put some pressure on other CPG companies.

ConAgra, with this move, goes from being number 9 to the top 3 food manufacturing companies in the US, and the largest Store Brand manufacture all at once. What I have not heard yet, is what is happing to the great leadership team at Ralcorp, as this team must be credited as well for pulling together not only great talent, but great brands as well.

 

Bob Anderson is President of Store Brand Consulting, which advises packaged goods companies on buying, merchandising, retail and manufacturing strategies. During his time at Wal-Mart he was the Vice President of Dry Grocery which included dairy, frozen, dry, DSD, snacks, beverages and liquor. He was asked to start up Wal-Mart’s store brand private label division, Great Value, and to oversee the Sam’s Choice program as well. Bob was responsible for the sourcing, procurement, label design and testing for both labels while at Wal-Mart. His team was credited with building Great Value into the leading store brand program in the United States. In addition, his team was honored with the Retailer of the Year award twice for their work.

As Penney’s is now in the heart of what is sure to be another disappointing quarter, here are the major steps I recommend to stem the bleeding and give the transformation the time and the momentum it so desperately needs:

  1. Shun contempt for your core customer. We get that Penney’s needs a younger, more affluent and more fashionable customer. Without new customers–and deeper relationships with infrequent ones–they can’t get there from here. But it takes profound, sustained change to fundamentally shift consumer behavior. And remember that growth in the moderate multi-line retail segment is basically flat. That means JCP’s growth must come through stealing share from some pretty tough competitors. Going cold turkey on the traditional pricing and promotional strategy– and ignoring the historical base in both product and marketing–is the single biggest cause of their current problems. Yes, there was way too much promotional intensity. Yes, some of the customer base was fundamentally unprofitable. But there is still a profitable base that can be retained. Product and marketing emphasis must reflect this reality.
  2. Blend intuition with analytics and testing. There is clearly an art and science to retail, but Ron Johnson went too far by trusting his gut and assuming what worked at Apple is appropriate for JCP. That’s been a billion $ (and growing) mistake. And the notion that none of the new strategies could have been tested is simply nonsense. Enough with the Hail Mary’s. More consumer research, more data analytics and more testing is essential.
  3. Build a customer data & insight asset. Re-inventing the JCP brand, rolling-out differentiated product and delivering a more compelling customer experience are incredibly important. But the ultimate competitive advantage is having more actionable consumer insight than the competition. Collecting more customer emails is a great start. But investing behind the Rewards program, the direct to consumer business and a customer insight team–things that were downsized or largely ignored in the first year of the transformation–must be come a critical focus.
  4. Treat different customers differently. The Penney’s transformation got horribly off track because there was zero appreciation for customer segmentation. Any basic segmentation and valuation analysis would have revealed how risky the new pricing strategy was. An actionable customer segmentation (by needs, attitudes, behaviors and value) is the key to guiding merchandising strategies, marketing plans and customer experience enhancements that can fight and win in a crowded market. An actionable customer segmentation is essential to guiding investment prioritization. An actionable customer segmentation highlights the key customer segments to acquire, retain and grow and supports customer-based metrics. It’s fine to talk about shop profitability, but how about sharing key customer segment profitability, growth, retention and Net Promoter Scores?
  5. Aggressively leverage the Rewards program. In retrospect it would have been far better to aggressively prune promotions and then roll-out everyday pricing in a more phased manner. But the Genie is out of the bottle. Re-introducing large-scale promotions undermines the direction of the long-term strategy. Moreover, the fundamental problem with too much reliance on un-targeted promotions is perpetuating a race to the bottom and poor ROI. Free haircuts may drive a lot of traffic, but some of those customers would have bought haircuts anyway, and many who take you up on the offer have zero potential to become profitable regular customers. Done appropriately, it’s far better to leverage customer insight to target promotions to drive desired customer activity. The Rewards program is the best place to start. Marketing dollars needed to be distorted to this area. The program needs to be better highlighted on the website. Do this. Now.
  6. Re-introduce promotions surgically. While the Rewards program is an important immediate term lever, not everyone will want to join, and the program is not yet big enough to make as much impact as is needed in 2013. The transformation merchandising strategy is wisely focused on more exclusive and differentiating product. Unfortunately that investment won’t pay off until at least 2014. The retail equation is simple: revenues are a function of traffic, conversion rate and average transaction value. In the coming months, while the broader strategic imperatives get rolled out and tweaked, tactics must be intensely focused on driving traffic and conversion. Now is the time to borrow from Target rather than Apple. Selectively featuring key traffic driving items at eye-catching prices–particularly on national brands carried at competitive promotional retailers–can re-ignite sales from the more price sensitive customers Penney’s so desperately needs. The Black Friday promotion is a step in the right direction. Future advertising must better balance branding and a more compelling call to action. “Sale”–used boldly yet judiciously–is not a dirty word.
  7. Make sure the invitation isn’t better than the party. I was at Sears when we rolled out the “Softer Side of Sears” campaign. It garnered a lot of attention, won many awards and drove a ton of incremental traffic. But the payoff in the store simply wasn’t there and, once disappointed, many consumers that tried us never came back. Penney’s dismal conversion rates and declining average transaction value suggests this is a real issue right now. Pull back a bit on the beautiful 20-something hipster types in the advertising and show more of the customers you have today. Aspirational is fine. Alienation is death.
  8. Upgrade the overall experience. The new shops look great. And the technology that is being rolled out is cool. But the customer experiences it all against a sea of racks, mostly scruffy fixturing, poor lighting and a lot of 90′s vintage interiors. It will be impossible to move the dial within 3 years without pushing the envelope, but a more targeted store by store investment strategy–delaying some shops in some stores, while getting high profit leverage stores “all the way to bright”–is a better use of cash and will better inform future investments.
  9. Re-launch “catalogs.” One of the dumbest things Penney’s did was completely exit the catalog business. It’s one of the key reasons their e-commerce business has tanked. Many of the best multi-channel retailers understand that the traditional mail order business is dead. But they also know that print catalogs done better–i.e employed as mass customized direct response vehicles–are important drivers of both the web and brick and mortar channels. This was a key strategy for us when I was at Neiman Marcus and it remains so. Williams-Sonoma and many others successfully employ sophisticated direct marketing strategies to build their brands and target key consumer segments. Penney’s needs to begin diverting marketing dollars from one size fits all television, circular and direct mail pieces to treat different customers differently and create a better omni-channel experience.
  10. Remember: cash is king. On the last quarterly earnings call Penney’s management was pretty sanguine about their cash position. It is true that they–like just about every retailer on the planet–will build their cash position in this quarter. And they do have a substantial credit line to draw upon. But it is also true that they are investing mightily in re-inventing the store experience and their brand. However, it’s abundantly clear that so far their marketing investments aren’t yielding the desired results. I’d also be willing to bet they will discover they need to spend more per store than currently planned. And let’s not forget that unless Penney’s starts running strong double-digit comparable stores sales increases soon, they will fall far behind their needed trajectory and the transformation risks becoming a house of cards. Moreover, dramatically increased sales require a big investment in inventory. The only thing we know right now is that a lot of investment is needed and that the near-term outlook for cash from operations is pretty scary. By early next year Penney’s needs to spell out how this all will come together.

Obviously this is far from an exhaustive list. And obviously Penney’s management has access to data and consumer research that an outsider does not.

Some wonder why I have such passion for the Penney’s turnaround. Some have suggested that I’m angry that Ron Johnson has not engaged me as a consultant, despite my experience, my location (Dallas) and the fact that we were business school classmates. Others think I want to call attention to my having predicted the disastrous results.

Could be. But having lived through the decline and near decimation of another iconic retail brand (Sears), I’d like to think it’s because I know in both my heart and my head that it could be so much better.

Of course if I’m wrong, I’m just deluding myself–and it would hardly be the first time. But if Penney’s management gets it wrong, it costs tens of thousands of jobs and destroys billions of dollars in value. And THAT would be a shame.

So this is just one guy’s opinion. Take what you like and leave the rest. To read Steve’s full posting please visit http://stevenpdennis.wordpress.com/.

 

Steven Dennis is President and Founder of SageBerry Consulting, a boutique consulting firm specializing in growth and marketing strategy for retail, luxury, and fashion brands. Prior to SageBerry, Mr. Dennis was Senior Vice President of Strategy and Marketing for The Neiman Marcus Group where he was responsible for strategic business development and corporate marketing (customer insight, enterprise marketing programs, and loyalty program strategy), and led the company’s partnership to operate its credit card business. Prior to joining Neiman’s, he was with Sears in a number of senior leadership roles including, Acting Chief Strategy Officer and Leader of the Lands’ End Integration Team. Mr. Dennis’s expertise spans all major retail and e-commerce product categories and formats.

 

There is the old joke about the scientists and the frog. You know the one, it starts off with measuring the frog’s jump with 4 legs (4’), they cut off one leg (3’), another leg (2’), another leg (1’), then cut off the final leg and conclude the frog has gone deaf. This joke was made real when I looked at the US election results read the formal analysis that Obama had largely won because of an amazingly competent use of data analytics that allowed him to make better use of his resources to generate revenue and get out folks that voted for him, then watched the official conclusion that he won because folks wanted “free stuff”. I know a lot of democrats, not a one voted for “free stuff”. This came to mind when I reviewed EMC’s brilliant use of big data analytics which currently is both assuring uptime and their customer loyalty scores and will shortly better target their sales force. Yet not one competitor who sells data analytics has connected these dots even though they have to know EMC’s customers are screaming for a similar capability. Joe Tucci is an amazing CEO and the guy who runs this program, Jim Bampos, has become the poster child for doing data analytics right. To read the full article please visit http://www.cio.com/article/721738/EMC_Shows_the_Power_of_Big_Data_Analytics.

Rob Enderle is President and Principal Analyst of the Enderle Group, a forward looking emerging technology advisory firm. He specializes in providing rapid perspectives and suggested tactics and strategies to a large number of clients dealing with rapidly changing global events. Rob will be participating in our Big Data Roundtable on December 5th in San Francisco from 10:30 – Noon Pacific and if you are interested in attending or dialing-in to the event please email info@roulstonresearch.com.

Two weeks ago the JC Penney story went from bad to sad.

The bad part is well-known by now: financial results dramatically below expectations, thousands of JCP employees laid off, a precipitous drop in the stock price and a debt downgrade amidst mounting liquidity concerns.

The truly sad part, however, is the apparent lack of acceptance of reality being demonstrated by senior management.

Two decades ago Steve Jobs became famously known for what fellow Apple executive Bud Tribble coined the “reality distortion field (‘RDF’).  As Wikipedia puts it: The RDF was Jobs’ “ability to convince himself and others to believe almost anything with a mix of charm, charisma, bravado, hyperbole, marketing appeasement and persistence. RDF was said to distort an audience’s sense of proportion and scales of difficulties and made them believe that the task at hand was possible.”

During his first year as Penney’s CEO (or as he might put it CEO of JC Penney and CEO of JCP), Ron Johnson has frequently alluded to his experience at Apple as being the inspiration for his transformation strategy. While the relevance of those analogies to JCP’s situation seems pretty tenuous (more on this in my next post), it’s beginning to look like the legacy of the RDF is being carried on.

Though it may not seem like it at times, I get no personal pleasure in doing the “I told you so” victory dance or taking pot shots at seemingly easy targets or sitting in snarky judgment. Nobody wants to be that guy.

So to be fair, the Penney’s team HAS taken on an incredibly daunting challenge. They have rightly said that the company needs a transformation, not an evolution. They have begun to put in place a number of exciting and promising initiatives. And as they remind us, this is a multi-year journey and it’s still early.

But the reality is that things are MUCH worse than they thought and most of what they sold the analyst community earlier this year-and in subsequent earnings calls–is simply not proving out.

In some 12 Step recovery programs they talk about a model of change. The first phase is Awareness. Followed by Acceptance and then, ultimately: Action.

I’m not suggesting that Penney’s leadership team is a bunch of addicts (though one analyst recently opined that she thought they were addicted to BS).

Yes, some elements of Penney’s new strategy clearly need time to prove themselves out. But a lot of change remains necessary on key strategic elements to stem the hemorrhaging and get the transformation back on track.

But no major behavioral change is possible unless there is a rejection of denial and a rigorous commitment to reality.

Moreover, without a big “mea culpa” and a lot more straight talk, they risk losing the trust of vendors and investors.

If that happens, it’s game over.

While it’s fair to acknowledge that many elements of the transformation are yet to be rolled out, it’s more than fair to say that much of what has been implemented thus far has fallen well short of expectations. More importantly, without a dramatic change in momentum, the strategy is in big trouble.

To earn back trust–as well as to take needed action–Penney’s management must go the humility route: acknowledging their mistakes and speaking from now on in clear, plain-spoken English about what’s working, what’s not and what’s next.

Here are the 8 most critical things they need to come clean on ASAP.

1. Relentless comparisons to Apple are irrelevant.

2. Department stores are NOT retail’s biggest opportunity.

3. We are trying to change our customer base much too fast.

4. “Sale” is not a bad word and a promotion is a promotion.

5. Shops aren’t new, and ours ain’t that different.

6. “We want to be America’s favorite store”? That’s just hyperbole.

7. E-commerce is a disaster.

8. A lot of the data we’re feeding you is misleading.

With this critical holiday quarter sure to be another big disappointment, we can only hope to hear much more about plans to right the ship. I will be using this list to see if Penney’s can make the move from Awareness to Acceptance to Action. To read the full posting to learn Steve’s thoughts on the 8 steps he outlined above please visit http://stevenpdennis.wordpress.com/.

Steven Dennis is President and Founder of SageBerry Consulting, a boutique consulting firm specializing in growth and marketing strategy for retail, luxury, and fashion brands. Prior to SageBerry, Mr. Dennis was Senior Vice President of Strategy and Marketing for The Neiman Marcus Group where he was responsible for strategic business development and corporate marketing (customer insight, enterprise marketing programs, and loyalty program strategy), and led the company’s partnership to operate its credit card business. Prior to joining Neiman’s, he was with Sears in a number of senior leadership roles including, Acting Chief Strategy Officer and Leader of the Lands’ End Integration Team. Mr. Dennis’s expertise spans all major retail and e-commerce product categories and formats.

Roulston Research recently held a Cloud Roundtable with John Dillon, CEO of Engine Yard and Former CEO of Salesforce.com, and Michael Liebow, founder and CEO of Fortuit and Former VP of Business Development at IBM.  They discussed how the cloud computing industry is developing and the trends that are occurring within it.  The Roundtable started by discussing the broad picture of cloud computing and how various companies such as Amazon, HP, and IBM are positioning themselves compared with other players in the space like Rackspace and Salesforce.com.

The mechanism by which companies create and consume compute resources is changing.  This has led Amazon and other vendors to provide cloud computing resources at a cost lower than most companies can do it themselves.  Larger companies may be less likely to use cloud computing on demand because they tend to be more risk-averse.  They have not yet come up with a business model to completely leverage computing resources from third party vendors such as Amazon, Rackspace, or Salesforce.com.  Instead, they have opted to use a hybrid model in which they get some computing resources from third party vendors but also have on-premise cloud computing resources.  On the other hand, smaller companies are more likely to adopt a model to leverage infrastructure service providers.  This allows for efficient use of their capital to focus on the product or service and maximize infrastructure capabilities of companies such as Amazon.

Next, the discussion progressed into the operational aspects.  Companies such as Oracle, Amazon, and VMware operate using a closed source operating system.  Others such as Rackspace and Zendesk have gone completely open source by moving toward SaaS.  They are essentially packaging open source resources and then selling it as software.  The revenue is generated from backing this software and making it so companies would rather purchase it than create the software themselves.  John and Michael then went into more detail on how companies are positioned with these types of closed vs. open source operating systems.  They also note that the openstack is not ready for production and the Citrix product and EMware cloud foundry have no commercial viability.  On the other hand, the cloudstack is much further along.  John then discusses how companies such as Engine Yard and Salesforce.com provide PaaS.  They provide the platform for applications in the case that an IT department is not competent enough to create the software and then run it.  However, the underlying theme of this roundtable is that cloud computing will eventually become a commodity business that resembles a utility.  If you are interested in listening to a podcast of the event or engaging Michael or John in a 1 on 1 discussion please email info@roulstonresearch.com