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Recession On Wal-Mart

June 22, 2009

The world is going soft on Wal-Mart. From 2005 to 2007, two union-funded organizations—employing more than 50 activists—dedicated significant time and resources to attacking the company, especially for its abuses of workers’ rights, which included low wages, sex discrimination, and theft of overtime pay. Journalists shared the animus, and negative stories about the company appeared several times a week throughout 2005. But we’ve all eased up on the Bentonville, Ark., discount giant. Wal-Mart has been born again as a chapter of the Sierra Club, improving its reputation among elites. More importantly, during the election of 2008, union members and other liberal activists had another priority: winning the presidency. Now, anti-Wal-Mart organizing is on hiatus, as most labor groups hope to address the company’s problems through legislative means, especially health care reform and the Employee Free Choice Act. It seems fitting that in this less-feverish environment, with fewer press releases flying, more scholarly work on the company should emerge.

Bethany Moreton’s To Serve God and Wal-Mart: The Making of Christian Free Enterprise views the company as product of its region, showing that its success has depended on a bizarre reconciliation of Northwest Arkansas’s uneasy cocktail of anti-corporate populism, racial homogeneity, evangelical Christianity, and free enterprise. Nelson Lichtenstein’s The Retail Revolution: How Wal-Mart Created a Brave New World of Business situates the company in its national context, especially the rise of laissez-faire economics and the decline of organized labor. Activists and journalists criticizing Wal-Mart’s business practices—from child labor to violations of organizing rights—are often asked, Why pick on Wal-Mart when so many other businesses also engage in these unattractive behaviors? The usual answer is that as an industry leader, Wal-Mart has the power to set standards—or drag them down. But Moreton and Lichtenstein show that this is not the only reason Wal-Mart matters. The mega-retailer is significant not only as a business success story but as an ideological triumph for the right.

Bethany Moreton charts this triumph brilliantly. While liberal observers have, in recent years, wondered why people of modest means would ever embrace anti-government, pro-business politics—What’s the Matter With Kansas?, as Tom Frank demanded—Moreton shows that it’s not because they’re hoodwinked. Just like Kansas, Northwest Arkansas, ground zero for the movement against chain stores in the early 20th century, used to harbor populist hostility to big business. How, then, did this region become home to the largest and most rapaciously exploitive retailer on earth? It was not a purely top-down political achievement. Rather, women of the Sun Belt, entering the service-economy work force, coped with profound upheavals in family and work life by creating a new ideology for themselves, and Wal-Mart followed their lead. Over the course of the 20th century, these women left subsistence farming behind and reinvented rural populism into a new worldview that could embrace both evangelical religion and a devout faith in the market: Christian free enterprise. Critical to this fusion was the idea of the “servant leader,” an ideal that exalted service-sector labor into a calling despite meager compensation and poor opportunities for advancement. When female hourly Wal-Mart workers talk about their work, they tend to emphasize their relationships with customers, how good it feels to help people.

Equally astute is Moreton’s assessment of how Wal-Mart customers in the region learned to love consumerism despite cultural antipathies. As Moreton points out, Protestantism, with all its prohibitions on sensual pleasure and, indeed, on leisure itself, has had an uneasy relationship to consumer capitalism. Sam Walton needed to convince “his notably underconsuming Ozark neighbors to buy in abundance,” Moreton explains. “Ideologically, the challenge was to find a form of purchasing that did not suggest sensual self-indulgence.” While the department store—as Theodore Dreiser describes it in his 1900 novel Sister Carrie, a tale of a country girl’s fall from innocence—was viewed as a site of sinful desire and greed, Wal-Mart was the opposite. It was—and is—all about frugality, which renders shopping at Wal-Mart not just acceptable but a genuine Protestant virtue. As Moreton points out, the store’s interiors “were ostentatiously stripped-down, no-frills places entirely lacking in sensual ambience.” Even better, Wal-Mart made shopping into an expression of “family values,” where mostly women customers came—unlike wantonly selfish consumers like Sister Carrie or Carrie Bradshaw—to provide for their children.

Lichtenstein’s book is less analytically groundbreaking than Moreton’s, but The Retail Revolution is usefully comprehensive and offers the best account yet of the myriad problems that Wal-Mart employees endure, including the elaborate measures the company has taken to avoid paying workers’ compensation to employees injured on the job. Lichtenstein agrees with Moreton that, as impressive as Wal-Mart may be as a business phenomenon, some of the company’s greatest feats have been political: resisting government regulation, lobbying against labor law reform, fighting unionization in its stores, and maintaining a corporate culture of remarkable consensus (or even, as anyone knows after witnessing the Wal-Mart cheer, fervor). Unlike any other retailer, Wal-Mart has, when criticized for its low wages and anti-union extremism, made political and economic arguments in its own defense: arguing that Wal-Mart’s prices are so low that they’ve offered, in CEO Lee Scott’s words, “a lifeline for millions of middle and lower-income families who live payday to payday. In effect, [Wal-Mart] gives them a raise every time they shop with us.” Lichtenstein, to his credit, is willing to shed academic objectivity and intervene in such bogus arguments, pointing out that consumer goods now represent only 18 percent of a family’s budget, while the costs of housing, health care, and education have skyrocketed. None of these expensive things can be purchased at Wal-Mart, he notes, but they can be bought with higher wages, which Wal-Mart has always done everything in its political power—fighting EFCA, quashing efforts to raise the minimum wage—to oppose.

It’s still unclear whether the recent political misfortunes of the right will significantly affect Wal-Mart; certainly the company’s domestic sales are holding up remarkably well in the recession. Lichtenstein thinks the Obama presidency will surely be bad news for the Wal-Mart business model. True, Obama’s labor secretary, Hilda Solis, may do a better job of enforcing of wage-and-hour laws than her predecessor did, but the larger question of whether Wal-Mart workers will be able to join a union depends at least partly on labor law reform, whose future is wildly uncertain. We may be, as Lichtenstein suggests, approaching the end of “the age of Wal-Mart,” but can we create an economic order in which the generosity and dedication of Bethany Moreton’s “servant leaders” might find a better outlet than wild cheers for abusive masters? Too soon to predict, but let’s hope so.

For further information, visit: http://www.thebigmoney.com/articles/judgments/2009/06/22/church-wal-mart

An Unfavorable June

June 22, 2009

Two things to note for June:

1. So far, coldest June in 27 years in U.S. Northeast

2. Demand down for summer items such as swimwear, sandals

Rain and cooler-than-usual weather so far in June may have dampened demand for summer items such as sandals, swimwear and beer for retailers already hard put to counter sales declines during the recession.

The effect may be most pronounced in the U.S. Northeast, where June so far has been the coldest in 27 years and is on track to become one of the wettest Junes on record, according to weather research firm Planalytics, which has tracked such data since the 1930s.

June in the Midwest so far is the coldest in six years and has been wetter than normal, but still not close to last year when it was the second wettest in 50 years.

It is the wettest in 4 years in the U.S. Southeast and U.S. Southwest and the coldest in 42 years in the Southwest, the weather tracking firm said.

The summer season typically drives demand for merchandise such as bathing suits, shorts and summer dresses on the apparel side, and pool and garden-related merchandise on the home end.

Items such as bottled water and beer — and conveniences such as air conditioning — also usually see more demand in summer.

But this time, already penny-pinching consumers may not be motivated to brave the less-than-ideal weather to shop, said Wendy Liebmann, chief executive of consulting firm WSL Strategic Retail.

“When the weather is like this, the inclination to (shop) is absolutely not there,” Liebmann said. “It feels like we are going to go straight from spring to autumn or we’ll just wait for the big sales and buy then.”

That attitude is a far cry from a year earlier, when people bought things “like crazy” said Planalytics’ chief operating officer, Scott Bernhardt.

“We knew going into June 2009 that it was not going to be favorable both from the economy and the weather,” he said. “This was going to be a tough one.”

The unseasonal weather stood out in New York City.

The city has failed to top 90 degrees Fahrenheit (32 Celsius) so far in June, which has happened only twice in the past 17 years, according to AccuWeather’s chief long-range forecaster, Joe Bastardi.

With 15 days of rain in the first 21 days of June, New York City is on track for an all-time record in days and amount, Planalytics said. June is also set to be one of the city’s coolest in 50 years, Planalytics added.


Given the cool weather, not many consumer found a need to turn on air conditioners.
According to Bastardi, there was lower demand for power to run air conditioners in much of the U.S. Northeast.

Unseasonable weather is an added headache for retailers.
For months, retailers have been trying to attract shoppers who have stuck to tight shopping lists, only buying items they need in the economic slump.

Many stores turned to big sales during the past holiday season to move excess merchandise — a tactic some have adopted again.

UBS retail analyst Roxanne Meyer has noticed more discounts and promotions at teen and apparel retailers such as American Eagle Outfitters Inc, Pacific Sunwear of California Inc Chico’s FAS Inc and Talbots Inc.

“We’re seeing more than half the store, on average, being on sale (and) average mark downs of 50 percent off,” Meyer said. “I would say they’re incrementally more promotional than they were last year.”

Beer and bottled water also face weaker demand in times of unseasonal weather.

“The weather tends to condition people’s attitudes as well,” Pirko said.

People tend to drink according to how hot it is or how much money they can spend.
One saving grace, Meyer said, was that June is typically a clearance month for clothing retailers, who mark down prices to get rid of summer items and prepare for new back-to-school merchandise

For further information, visit: http://www.guardian.co.uk/business/feedarticle/8571393

Potential Growth for Fashion Footwear

June 22, 2009

The NPD Group, Inc., a leading market research company, reports that while overall sales of fashion footwear were down in the most recent quarter, the segment fared better than apparel; and there were pockets of growth within the footwear market.

NPD found fashion footwear less challenged than apparel in terms of overall sales. For the three months ending in April 2009, overall apparel sales were down 8.6 percent while fashion footwear sales for the same time period were down 6.4 percent.

There are two categories in the footwear market that showed sales increases in spite of the particularly tough economic climate in the early part of this year. They are sport leisure, and outdoor. Both categories posted dollar volume growth in the three months ending April 2009.

“What this shows me, is that when the product is right and offers multiple reasons for wear, the purchases will come.” said Marshal Cohen, Chief Industry Analyst for The NPD Group, Inc. “Consumers are showing they want footwear and are willing to show their passion on their feet rather than on their backs.”

Bright spots were also evident in channel trends. Sporting goods stores and online retailers posted positive results despite the economy. While the off price and discount/mass merchants channels did post declines, they were not as deep as some of the other channels or the total fashion footwear market.

“Consumers are changing the way they shop, shopping less overall and shopping less expensively,” said Cohen. “But, at least in footwear, the consumer isn’t abandoning shopping altogether.”

The Online channel is the clear leader posting double digit growth numbers. “Consumers are finding the widest selection of product available online coupled with free shipping and the convenience of no parking hassles, it looks like a winning combination.” observed Cohen.

Another bright spot for the industry is children’s footwear. During the three months ending in April 2009, children’s footwear posted an 11.8 percent dollar volume sales increase. “Not only is this double digit growth an incredible accomplishment given the time, it is likely to be a very hopeful sign for our next important retail season, Back-To-School,” said Cohen.

For further information, visit: http://www.npd.com/press/releases/press_090617.html

Some Big Chains Reconstruct to Accomodate Consumers During This Recession

June 22, 2009

Shopping as we know it is on the brink of major change.

Hammered by the recession, some of the nation’s biggest retailers are seizing the moment to reinvent their business strategies. And the impact will mean both sweeping changes in the merchandise on their shelves and subtler alterations, like how many pantyhose to keep in stock.

High-end stores like Neiman Marcus, Saks and Coach will offer more midpriced merchandise. Many chains, including Wal-Mart, will carry less inventory and fewer brands. The likes of Sears and J. C. Penney will put self-service computers in stores so customers can browse collections or buy out-of-stock items. And retailers of all stripes will offer more exclusive merchandise and more attentive customer service.

One of the biggest changes consumers are likely to see is greater personalization and regionalization of merchandise.

An initiative known as “My Macy’s” requires the retailer’s merchandisers and other planners to go into stores each week to learn from the sales staff — who keep logs at the cash registers — what shoppers are requesting, snapping up or complaining about.

For instance, when strapless and bare-shouldered dresses were selling well everywhere except Salt Lake City and Pittsburgh, Macy’s employees in those stores knew the problem was that their customers wanted more modest dresses. So they passed that information on to the merchandisers. Out went the strapless dresses; in came dresses with cap sleeves. And sales went from lackluster to robust.

Under the new system it will not be unusual for a local Macy’s to stock the merchandise customers request, be it wide-width shoes or Sean John suits, and for those offerings to be different from the ones in a Macy’s store 100 miles away.

“I think what Macy’s is embarking on is perhaps the largest transformation in our company in a couple of decades,” said Terry J. Lundgren, president and chief executive.

The Macy’s change is just one example of a wide range of initiatives retailers are pursuing as they struggle to cope with an economy where sales are lower than they were just a few years ago.

At high-end stores, the era of ever-escalating prices on luxury goods appears to be over. In the future, consumers will still be able to buy chic brand names, but at a wider range of prices.

“Our customer loves our brands,” said Stephen I. Sadove, chairman and chief executive of Saks. “They don’t want to trade down to lower brands. But they want more of a range in price within the brands that they love.”

And that is what retailers intend to give them. Burton M. Tansky, president and chief executive of Neiman Marcus Group, told investors on a conference call last week that “we’re working with the designers to try and ease a portion of their collections into a new price range.”

Prices will also be lower at some “affordable luxury” chains, like Coach, which is increasing the proportion of handbags it sells for less than $300. About 50 percent of the company’s handbags will cost $200 to $300, in contrast to about 30 percent of handbags last year.

Another change is that consumers will have fewer brands from which to choose. Wal-Mart, Target, Home Depot, and PetSmart are just a few of the chains winnowing their brands. As Home Depot’s executive vice president for merchandising, Craig Menear, put it: consumers are “time-starved” and “looking for simplification in the entire shopping experience.”

That may delight minimalists, because it will be easier to find items on the shelves. But it also limits choice.

Another potential drawback for consumers is that stores may run out of stock more quickly than in the past because, as Mr. Lundgren of Macy’s explained, “retailers learned that you can’t get out of the merchandise that you ordered months before.”

“Instead,” he said, “you’re more likely to see retailers ordering fewer of each individual size and taking that risk that they’ll sell out and not capture every sale, rather than the risk of having too much inventory left over to mark down.”

Another trend is on the horizon: seasonal transitions for apparel will probably have shorter lead times. With strapped consumers buying only what they need when they need it, it has occurred to retailers that selling swimsuits to New Yorkers in early March is not necessarily a winning strategy. And so chains are beginning to work with suppliers to shorten the time between ordering and delivering merchandise.

Consumers will also see even more of the exclusive collaborations between retailers and prominent designers that are so prevalent today. That will help distinguish stores as well as avoid price wars because the same items will not be sold at multiple chains.

Yet another change will be the obliteration of any remaining divide between online and in-store shopping.

In Sears stores, “appliance research centers” with computers are enabling customers to compare local competitors’ prices. (If Sears does not offer the best price, it will match the lowest offer and hand over 10 percent of the difference.) Four J. C. Penney stores in Dallas are testing “FindMore” machines the size of arcade games, letting customers see every item J. C. Penney sells and find out if the item they want is in the store or online.

Shopping by cellphone will also become widespread.

“Everything we are developing is with a mind-set that it’s going to be running on a handset,” said J. C. Penney’s chief information officer, Thomas M. Nealon.

Despite all the new technology, consumers will be getting more attention from sales staff. During the last few years, retailers did not have to work hard to separate consumers from their dollars.

But those days are over. More middle-market chains are striving for Nordstrom-quality service to win customers. Even Home Depot has adopted its “most extensive customer service training ever,” its chairman and chief executive, Frank Blake, told investors and retailing analysts last week.

Of course, luxury chains have always featured a high level of attentiveness. But the chains say that in this economy, customers have heightened expectations. Saks, for one, has invested tens of millions of dollars in the last year on software that provides its sales staff easy access to information about client purchases and preferences, so that a returning customer might be greeted by a sales representative who recalls the shopper’s suit size and penchant for Christian Louboutin heels.

Economists and analysts forecast that it will take up to 10 years to return to 2007 levels of consumer spending — which makes now a good time for retailers to re-imagine the future. Paul A. Laudicina, chairman and managing officer of A. T. Kearney, the management consulting firm, noted that major consumer innovations like Neoprene and Teflon came out of the Depression.

Mr. Lundgren pointed out that if consumers were still throwing money around, stores might not want to alter strategies that were still working.

But with today’s recession, he said, “now is the time to aggressively rock the boat.”

For further information, visit: http://www.nytimes.com/2009/06/20/business/20retail.html

Reason For Traveling To The US: Shopping

June 17, 2009

The Grand Canyon, Statue of Liberty and Lincoln Memorial are enticing, but a majority of international tourists have shopping in mind when they visit the U.S. — even in the recession.

A newly released survey on the behavior of visitors in the last 12 months found that 53 percent said shopping was either a key reason for their trip or a factor in choosing their destination cities.

The findings are based on responses from about 1,800 travelers polled in January by Alexandria, Va.-based Mandala Research & Consulting on behalf of Taubman Centers and Shop America Alliance, an organization representing 200 U.S. shopping destinations, with the support of the U.S. Department of Commerce, Office of Travel & Tourism Industries.

The snapshot of the global consumer suggests that they are driven by value, particularly the favorable currency exchange rate. Sixty-four percent of those surveyed said good value was their top shopping priority, followed by 56 percent who cited a wide selection of brands. Other key motivators were: Helpful and friendly sales associates, 41 percent, availability of luxury brands, 35 percent, and special discounts for travelers, 26 percent.

The three most-sought-after labels were Nike, Levi’s and Gap.

“The popularity of international travelers coming here specifically to shop really puts things into perspective, because it indicates a great marketing opportunity for retailers and brands,” said Laura Mandala, managing director of Mandala Research. “If they enhance their own marketing strategies, they could actually grow their customer base by learning how to target these international shoppers more effectively.”

International shopping travelers contribute an estimated $38.6 billion to the U.S. economy annually, according to the U.S. Department of Commerce and Office of Travel & Tourism Industries.

The five countries that send the most tourists to the U.S. are Canada, Mexico, the U.K., Japan and Germany. Each respondent to the survey had visited the U.S. in the previous 12 months and spent a minimum of $250 on shopping for gifts and souvenirs. The study catalogued total spending, including apparel, footwear, accessories and electronics as well as gifts and souvenirs, with each person spending at an average of $1,063.

Average spending for tourists from the top five countries was: Canada, $757; Mexico, $1,310; the U.K., $968; Japan, $1,200, and Germany, $1,085.

The study found 50 percent of respondents who have visited in the last 12 months are likely to return in the next year.

“What stood out to us, despite current economic conditions, is nearly 20 percent of these travelers surveyed had already booked a trip to the U.S. again in 2009,” Mandala said.

Forty-four percent of the respondents said they would be very likely to attend a shopping festival — annual citywide celebrations highlighting culture and shopping. Another 29 percent stated they would be somewhat likely to attend, with their choice of destination influenced by a festival.

“This speaks volumes to the New York City shopping initiative, which was announced last month,” Mandala said, referring to “Fashion’s Night Out,” a major retail push set for the start of New York Fashion Week. Stores in 12 major cities worldwide will band together to stage special events in an effort to get consumers back in the stores.

The study noted, “International shopping festivals are currently very successful tourism and retail drivers in more than 10 countries including Dubai, China, Japan, Thailand, India and Singapore. For further information, visit: http://www.wwd.com/retail-news/world-view-shopping-top-lure-for-us-visitors-2172099?gnewsid=8e835d258c4b13c4678f683531e41d8f

Economic Crisis Calls For A Retail-Makeover

June 17, 2009

Fashion and retail executives are adding new ingredients like extensive customer data and streamlined websites to their marketing mix to get consumers to buy in the recession.

Yet the tried and true remain in the recipe, with an emphasis on quality and strategies such as holding back supply, said executives at the Reuters Global Luxury and Retail Summits this week.

“We are able to invest any amount to be able to produce something that is outstanding, that is our strategy,” Hermes Chief Executive Patrick Thomas said, adding that the key to the crisis was to remain focused on the long term.

“My financial strategy is making sure my grandchildren are proud of me,” he said.

Swiss watchmaker Hublot said its secret was to under-supply distributors.

“Never deliver what people need,” said its chief executive, Jean-Claude Biver. “Only give them half. You have to keep them hungry.”

Yet in a shift from the old model of luxury goods makers being dominated by their creative genius founders, some are warming up to the moves used by their lower-tier peers, said Milton Pedraza, chief executive of the Luxury Institute, a research organization that studies the luxury industry.

“This severe downturn really has been a catalyst for opening luxury executives’ minds from the Victorian age now into the 21st century,” Pedraza said. “What we’re seeing is … using the collective wisdom of your team, using the collective wisdom of your customers to drive and to help the creative genius.”

Saks Inc has embraced this approach, and Pedraza said it is paying off by allowing the luxury department store operator to suggest a light blue shirt to a customer it knows just bought a navy blue suit, for example.

Saks Chief Executive Steve Sadove said the company is speaking to customers and found out they are looking for a wider array of price points and better customer service.

“We have actually interviewed over 3,000 of them in terms of their mindset right now and how they are feeling … and I think we have learned quite a lot that has implications for both the ’09 holiday season and beyond,” Sadove said.

Saks is working harder to share that data with vendors and to localize its marketing, he said.


Aside from continuing to invest in its Nine West loyalty program, Jones Apparel Group Inc is broadening its array of casual shoes and enhancing its website.

Milton Pedraza said many high-end brands were now making their websites more streamlined and easy to navigate.

“They’re foregoing all the flash they used to put in front of their websites because it was like a 6-foot brick wall on the left lane of the Autobahn,” Pedraza said. “It took a while for the creative people to get that consumers want to get in and get out.”

Italian jewelry designer Roberto Coin launched a Capri Plus collection, offering pieces with identical designs but varying materials and price tags ranging from $2,500 to $50,000.

“We are saying, ‘put all five different price points (in the window) now … and let (customers) decide which price they feel comfortable with,” Coin said.

Liz Claiborne Inc is offering more lower-priced items at its Juicy Couture, Lucky Brand and Kate Spade brands and in some cases adding more basic designs to attract value-conscious consumers.

Yet for some, it is old-fashioned creativity that is guiding them through the retail storm.

“Over the last year or so I have just been feeling very inspired and creative,” said Jonathan Adler, who designs home decor pieces that are sold at Barneys New York and Neiman Marcus in addition to his own boutiques.

“Complacency is sort of the enemy of growth and a lot of businesses have grown complacent. So I think that this economic climate is a great climate to breed creativity.” For further information, visit: http://www.reuters.com/article/GlobalRetail09/idUSTRE55B5L020090612?pageNumber=1

Going Green Can Give Retail An Opportunity

June 17, 2009

The remodeling of a store is an ideal opportunity to capture the benefits of environmental sustainability in energy efficiency and recycling. A green remodeling program has incremental costs, but can deliver significant benefits in long-term profitability and consumer loyalty.

The timing to make this shift could not be better with a significant portion of federal stimulus money earmarked for building efficiency improvement, providing tax incentives to companies making green investments. State and local incentives are also available and range from a reduced state income tax bill to reduced property tax, sales tax rebates and even priority permitting. Permitting issues and on-site project re-engineering may be minimized as building efficiency standards such as Leadership in Energy and Environmental Design (LEED) are incorporated into local building codes.

A trend which has not been slowed by the current economic situation is shopper affinity with environmentally responsible retailers. A recent study by Deloitte and the Grocery Manufacturers Association (GMA) showed that retailers’ environmental reputation increased customer loyalty. The survey also revealed that consumers made a conscious decision to shop at retailers who were viewed as environmentally responsible. Based on these results, implementing a green remodeling program coupled with green branding efforts can help demonstrate real and measurable commitment to the environment.

The design strategies and building components that would be affected by a shift to green are often included in the typical remodeling schedule. These areas include lighting systems, waste disposal, refrigeration, and elements of the heating and cooling system and building envelope such as doors, temperature sensors and thermostats, or ductwork and ventilation systems. Incorporating greening into changes in these systems is made relatively simple by including sustainability as required criteria in product selection and design.

More core structural building components, such as windows, the roof or air handlers are often not part of the traditional remodel. However, these can be cost-effectively included since the costs of engineering, project management, general contracting, and, most importantly, the lost revenue during the remodel, are already factored into the traditional remodel budget. Research has shown that incremental costs for using green options in HVAC and lighting are typically less than 10 percent higher than the cost of a regular remodel.

One example of an easy-to-execute change in the remodel process is the store’s lighting system. Existing cornice and display lighting are often modified, which provides an opportunity to evaluate new, higher efficiency fixtures that offer equivalent or better color resolution and luminosity with lower energy consumption. Even if the existing fixtures are to remain, re-lamping at the time of the remodel with higher efficiency bulbs will still yield operational savings. Federal lighting efficiency tax incentives are available as part of the Energy Policy Act 2005 legislation extended through 2013.

Although upfront costs may not be onerous, even without incentives or rebates, they still pose implementation hurdles, particularly in the current economic climate. The federal government, in both ongoing programs and those associated with the stimulus package, is taking a leadership role to help offset these costs and help retailers justify and make energy efficient choices through a variety of programs. State and local governments along with certain utility companies also have programs using federal and other monies. Tax incentives, rebates, and other funding mechanisms vary by location, but by including a step in the remodel decision process to evaluate available incentives and factor their cost reduction opportunities into the payback analysis, the initial costs of the green remodel might be more than justified.

The flip side to incentive programs is the increasing trend of including energy efficiency and recycling standards in local building codes. The most well-known is LEED, developed by the U.S. Green Buildings Council which includes prerequisites for recycling and base-level energy efficiency. Since remodeling schedules are intentionally very tight—so as to reduce the impact on store operations—any delays caused by permitting issues and subsequent re-design can be costly from both lost revenues and contractor idling costs.

Retailers will need to overcome challenges to realize the benefits of a successful green remodeling program. The first is the myriad of opportunity areas and associated technologies available. Selecting the “best” focus areas, design strategies, and vendors to pursue the benefits can be overwhelming. This is further exacerbated by the tax and incentive landscape mentioned earlier, which not only changes by geography, but is also in a constant state of flux as incentive programs expire and new ones are created. There are also internal hurdles including the difficult decision to increase capital expenditures for future reductions in operational costs. Since this often affects two different departments within a retail organization, accommodations need to be made using senior decision makers. Finally, the benefits of a green store can be nullified if store personnel are not on board with the changes. Appropriate store design, job descriptions, and training may all be needed to ensure the investment does not become a nuisance to staff and eventually abandoned.

Despite the challenges inherent in adopting a green remodel program, there are benefits that retailers stand to gain by embracing trends in the marketplace and regulatory environment. Green remodeling warrants serious consideration by any retailer looking to manage real estate operations and impact profits.

Scott Bearse is a Director with Deloitte Consulting LLP, in Deloitte’s Retail practice and leads the organization’s sustainability efforts in the retail industry. He is a specialist in retail operations and understanding the impact of the retail operating model on the customer experience. Scott also leads the team that developed Deloitte’s “Green Remodel” service. Scott has 23 years of experience working with Deloitte’s largest retail clients to help them in their efforts to improve performance and operations as well as develop sustainable retail strategies.

Jenny Bravo is a Director with Deloitte Tax LLP, and the tax leader for Deloitte’s Enterprise Sustainability group. She helps clients in their efforts to navigate available federal, state and local credits and incentives to fund and advance sustainability initiatives in the areas including energy efficiency and alternative energy. Jenny has 15 years of tax experience working with some of Deloitte’s largest corporate clients.

For further information, visit: http://www.retailingtoday.com/editorial.aspx?id=107275

Consumers Are Not The Only Ones Cutting Back

June 16, 2009

Consumers aren’t the only ones cutting back.

Retailers are reining in their spending — with most broadline players slashing millions from their budgets as they try to counter withering sales. Although some, such as Wal-Mart Stores Inc., continue to pump money into their businesses to grab market share, the majority are drastically slimming down within their business models.

And if consumer spending doesn’t bounce back, retailers will have to start making more drastic and ultimately transformational changes that could reshape the industry, said experts.

Sears Holdings Corp., Macy’s Inc., Dillard’s Inc., J.C. Penney Co., Saks Inc., Nordstrom Inc., and Target Corp. cut a collective $668 million in selling, general and administrative expenses in the first quarter, pushing their SG&A expense down 6.3 percent from a year earlier. That means fewer dollars supporting brands and driving foot traffic, the axing of information technology projects and cramped cross-country plane rides for executives who can’t afford to be seen in first or business class as they lay off workers.

“From travel to supplies to benefits to marketing to information technology, we’re leaving no stone unturned,” said Stephen I. Sadove, chairman and chief executive officer of Saks, which reduced first-quarter expenses by $44 million, more than it planned to cut for the whole year. “How we have always done it is irrelevant. We’re approaching every area of the business asking how should we do it going forward.”

Saks rival Neiman Marcus last week revealed plans to reduce expenses by $125 million a year. “Our team has done an excellent job of decreasing their spend,” said Burt Tansky, president and chief executive officer of Neiman Marcus. “We are undergoing a comprehensive process that we believe has been thoughtful and significant.”

About 60 percent of planned expense reductions already have been realized. Neiman’s cut $38 million from selling, general and administrative expenses in the most recent quarter versus its 2008 counterpart.

Sears, which has 3,900 doors under its namesake and Kmart brands and has been criticized in the last few years for not investing enough in its stores, is the industry’s most aggressive cost cutter. The firm surprised Wall Street with first-quarter earnings after it reduced advertising spending by $107 million and payroll and benefit expenses by $84 million.

Cuts are even being made in the off-price channel, despite the competitive advantage that comes from having a value orientation during the downturn. Earlier this year Stein Mart Inc. laid off 178 assistant managers, while the rest of its managerial staff took a 5 percent pay cut and store associates’ hours were cut by 17 percent. Like other retailers, the company stopped paying shareholders a dividend, eliminated its stock buyback plan and halted contributions to employees’ 401(k) retirement plans.

All of this feeds into a vicious economic cycle, where the slowdown in consumer spending prompts businesses to cut workers, increasing the ranks of the unemployed and further weakening spending. Department stores alone eliminated a total of 10,800 jobs in February, March and April, according to government statistics that adjust for seasonal variations in workforce. Last month, the department store channel actually added 4,500 positions, although specialty stores cut 3,300 jobs.

But to every cost-cutting trend, there are exceptions.

Wal-Mart and, to a lesser extent, Kohl’s Corp., actually spent more in the first quarter, investing in their businesses in hopes of grabbing market share while most of the competition is biding its time and many are slimming down their store portfolios.

Wal-Mart upped its operating, selling, general and administrative expenses by $386 million in the first quarter. That spending increase is almost exactly what Macy’s and Sears, the two biggest cost cutters, stripped away.

“This is still Wal-Mart’s game,” said Dean Hillier, consultant and a partner at A.T. Kearney. “They are definitely taking advantage of the circumstances. The market is certainly heading their way and it seems to be sticking somewhat. The others are in a tougher spot and therefore are having to do what they need to do to eke out their profitability.”

Retailers have tried to hide their newfound austerity from consumers by working on inventory controls and cutting corporate staff while attempting to maintain the shopping experience. But chains are now tiptoeing up to cost cuts and other changes that could change the character of the industry. Both Neiman’s and Saks, for instance, said their customers want to spend less while not switching to other brands, and the retailers are trying to accommodate them by urging brands to develop lower entry-level price points.

“If Saks were to go to a lower price-point item on the same brand, would that reduce the brand impact for Saks as a company?” wondered Hillier. “Retailers are pushed into a position now, quite frankly, where they have to take risks with their business. They’ve got to start placing strategic bets. This is a new reality that retailers are dealing with.”

The next cost-saving step for retailers would entail bigger, deeper cuts and strategic moves, such as the shuttering of whole divisions, he said. That’s already occurred for a number of specialty stores, and last month Abercrombie & Fitch Co. indicated it might join them, saying it was undertaking a strategic review of its fledgling Ruehl unit.

A survey by Credit Suisse showed cash capital spending at 80 retailers fell 14.4 percent last year, the first decline since 2002. Spending by specialty apparel retailers dropped 24.2 percent to $3.71 billion and is slated to fall another 34.8 percent this year. Mall anchors cut expenditures by 22.4 percent to $4.26 billion in 2008 and plan to slash another 37.4 percent this year.

Despite the decline in spending, apparel specialty stores are expected to increase their gross selling space by 1.9 percent this year to 784.2 million square feet, while mall anchors add 1.2 percent for 506 million square feet — even as analysts at Credit Suisse say both sectors already have too much selling space.

“Capacity is not coming out of the soft-lines space fast enough,” Credit Suisse said of the apparel specialty stores. “We believe many retailers in this group are now faced with structural issues, primarily that they have too many stores, and would expect a decrease in square footage in 2010 as retailers come to this realization.”

Chains wanting to save money need not look at just their own operations. They can also take new approaches with their suppliers.

The savings so far, as large as they’ve been, are just the tip of the iceberg, said David McTague, executive vice president of partnered brands at Liz Claiborne Inc.

“They haven’t even started yet; it should be in the billions of dollars,” McTague said at the company’s annual meeting.

Together, he said, retailers and vendors can move product more efficiently from factory to selling floor and better manage inventories.

The financial stress of the moment could help set new directions on both sides of the supply/retail divide.

“Hopefully it means that they’re open to a much more collaborative relationship,” McTague said. “It’s a zero-sum game. All of us are trying to move profit dollars. It’s forcing everyone to be a lot more creative.”

For now, though, major changes appear to be mostly in the future. The more immediate question is whether retailers are cutting wisely. And there’s plenty of room for error.

“Some retailers have cut too far because they’ve cut from the top down,” said Antony Karabus, ceo of Karabus Management, noting a 10 or 15 percent across-the-board cut will trim some areas too much and others not enough.

Spending varies across the industry, meaning each company will have to cut in its own way.

According to the Karabus SG&A Retail Benchmark study, which looked at spending across 68 chains for the fiscal year ended January 2008, merchandising expenses range from 0.8 percent to more than 3 percent of sales. Supply chain costs range anywhere from 1.2 percent to 3.5 percent of sales.

As retailers lay off workers, many are concentrating their regional field staffs; for instance, giving district managers more stores to oversee or eliminating a layer of management altogether, said Karabus.

For department stores the danger is an increasingly national stance when customers want local flavor and attention — which is what Macy’s Inc. is trying to prevent with its My Macy’s program.

“When you cut expenses as a department store, you’ve still got to make sure that you’re staying relevant to your local consumer,” Karabus said. “What you’re seeing with a number of chains is that they’re cutting significantly to become more national.”

For further information, visit: http://www.wwd.com/business-news/stores-cost-cutting-may-transform-retail-2167503#/article/business-news/stores-cost-cutting-may-transform-retail-2167503?page=2

Chapter 11 Saving Companies

June 15, 2009

The numbers from U.S. retail industry in the first two weeks of June tell many different stories depending on the bearish or bullish theory that you’re currently trying to support. New store opening figures have outnumbered store closing additions so far, but just as one publicly traded retailer finds 75 million ways to stay in business, rumors swirled around another major apparel brand that is expected to file Chapter 11 papers any day now. When you add them all together, the retail industry numbers so far this month don’t exactly total up to equal “recovery.”

Talbots feels pretty certain that most of its problems have been solved now that it has finally sold its J. Jill brand for $75 million. Golden Gate Capital is the purchaser of 204 J. Jill stores, which reportedly, they will continue to operate. Talbots has actively been trying to unload the J. Jill chain since November, 2008. Talbots’ leaders seem openly and publicly relieved to get those specialty stores off the balance sheet.

To get back on firm financial footing, Talbots will add the remaining 75 J. Jill locations that nobody wants, along with 16 underperforming Talbots operations to the 2009 retail store closings tally. Company leaders expressed confidence that these dramatic moves, coupled with a 20% reduction in its corporate staff, will allow it to focus on bringing Talbots back to profitability. If that means that they are now giving their focus to stocking their stores with relevant clothing that women actually want to wear, then they will definitely be traveling down recovery road.

Golden Gate Capital, by the way, has gobbled up a diverse collection of retail companies in the past five years. It is now the money and the management behind Express, Spiegel, Newport News, and Herbalife, among others. Since many of these companies were in trouble at the time of acquisition, one has to wonder what the Golden Gate leaders know that the original retail leaders couldn’t figure out. Whatever they know, it seems to work equally well for apparel stores, direct mail catalogs, nutritional supplement MLMs and high-tech businesses alike.

Maybe some members of the U.S. retail industry will start looking for some fresh leadership faces on the pages of Golden Gate’s website. Perhaps the current cadre of retail CEOs has been recycled between the major retail organizations quite enough.

Closings of a different kind are being utilized by some retailers who are still struggling to survive.

Neiman Marcus announced that it will be closing its doors an hour earlier at some of its stores this summer. This is another way the luxury chain is paring back on expenses without compromising the quality of its high class experience. Will it be enough, though? Since same store sales have been off by more than 20% for the past six months, maybe the store hours should be shortened by 20% as well.

Perhaps the Neiman Marcus team could take Sundays off and meet the Chick-Fil-A team for Sunday brunch. There would be no strategic retail value to these meetings, but the Neiman employees might find benefit in a break from the current pressures of luxury retailing, and hanging out with people who have plenty of experience with taking a day of rest every week.

The new Neiman store hours really are not that radical. Other major retailers like Macy’s and Kroger have cut hours at some of their stores this year. Dick’s Sporting Goods has trimmed 30 minutes off both ends of its operating schedule, and the Best Buy team members get an extra hour to party on Fridays and Saturdays because those stores are turning off the lights earlier too. Entire malls are cutting back on hours in order to cut back on expenses.

When was it exactly that Americans found a need to shop for 12 hours a day, seven days a week anyway? Adjusted store hours may be one more way that the retail recession demonstrates to the U.S. retail industry that less can be more.

The topic of closings wouldn’t be complete without mentioning a Houston restaurant named Saute’. Nearly 500 of its fans were notified about the restaurant’s demise through an official announcement made on Twitter. Reportedly, another Houston-area restaurant, Sireneuse Euro Bistro, had blazed that tweet trail in April, announcing its own shutdown via Twitter as well.

Both of these restaurants certainly gave a meaty answer to the foundational Twitter question, “What are you doing?” This may make a good case for retailers with Twitter accounts to learn how to creatively leverage this social media outlet before it’s too late. Finding successful Twitter strategies now might help keep some retail operations off the store closing list later. They’ll never know if they never tweet.

The biggest Chapter 11 story last week was found in the rumors swirling around Eddie Bauer, with many experts and media sources predicting that a filing from the company is imminent. The Chapter 11 filing may never happen, though, if the Wall Street Journal is correct in its speculation that the company or part of its assets might be sold. One of the possible purchasers identified is Gordon Brothers Group, the same company that liquidated both Sharper Image and Linens ‘n Things. That doesn’t really bode well for the future of Eddie Bauer as an ongoing member of the U.S. retail industry. Considering the Gordon Brothers option, claiming a spot on the retail Chapter 11 roster doesn’t seem like such a bad fate for Eddie.

The retail CEO quotable quote of the week belonged to Home Depot’s Frank Blake. When speaking on an investor teleconference about the home improvement company’s performance so far this year he said, “Getting to ‘less bad’ is not the same as getting to recovery.”

Well said, Mr. Blake! That pretty much sums up the state of affairs for most of the U.S. retail industry so far in June. For further information, visit: http://retailindustry.about.com/od/retailindustryweeklynews/a/retailweeklynewsjune1-132009.htm

Wall Street Dragged Lower

June 15, 2009

U.S. stocks fell broadly on Monday as regional manufacturing data dented optimism about the economy’s health and resource shares fell alongside commodity prices.

Economists had expected to see slight improvement in the New York Fed’s “Empire State” index, but the survey showed the factory sector shrank at a more severe rate in June than the previous month. After a series of signs the economy may be stabilizing, investors are looking for more definitive signals of its improving health.

“The New York manufacturing index hinted that the improvement in economic data may be slowing down after the rapid recovery we’ve seen over the past one to three months,” said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.

The stronger U.S. dollar helped pull the price of oil below $70 a barrel from a near eight-month high. The decline hit energy companies’ shares, including Chevron , down 3 percent at $70.50. The S&P energy index slid 3.3 percent.

The S&P 500 eased off gains of about 40 percent from March’s 12-year low, but was still up about 36 percent from that trough.

The Dow Jones industrial average fell 210.25 points, or 2.39 percent, to 8,589.01. The Standard & Poor’s 500 Index slid 25.74 points, or 2.72 percent, to 920.47. The Nasdaq Composite Index gave up 53.23 points, or 2.86 percent, at 1,805.57.

While the recent run-up in commodity prices had helped stocks extend their rally, there has also been concern that a surge in oil and other commodities could hamper any budding economic recovery. Higher energy costs are a drag on consumer spending and corporate profits.

Also dampening sentiment, Goldman Sachs cut its rating on Wal-Mart Stores Inc to “neutral” from “buy,” saying it did not see a lot of positive catalysts to drive shares higher in the near-term as expense pressures and tougher sales comparisons persist.

The Dow component fell 2.9 percent to $48.42, and was among the top drags on the index. The S&P’s retail index fell 2.3 percent.

Technology shares, which have been among the biggest gainers in the three-month market rally, also fell heavily as investors took profits. The PHLX semiconductor index fell 2.2 percent. Shares of tech bellwethers, such as Qualcomm Inc , down 4.4 percent at $44.04, led the Nasdaq lower.

For further information, visit: http://www.publicbroadcasting.net/wned/news.newsmain/article/0/0/1518117/Business/Economy.concerns..commodities.drag.Wall.St.lower