The state of retail

The love of the bargain is what drives them… Click for CNBC’s coverage

It’s a common fallacy to think of a time before a change in status quo as somehow being magically problem-free. A Panglossian world where all was well and nothing needed to change, and wasn’t it a shame that it had to. Similarly, we cannot blithely consign the retail industry of the past to some glorious era when everything was perfect; far from it. The industry has been under continual evolution, with no absence of controversy on the way. It was therefore a timely reminder, as well as being a fascinating article in its own right, when the New York Times provided readers recently with a potted history and a gaze into the future of Manhattan department store stalwart, Barneys. Not only is their past one in which the original proprietor sought to undercut his own suit suppliers, creating a bootlegging economy by literally ripping out their labels and replacing them with his own, but it was also one where department stores served a very different purpose to what they do today. They had less direct competition, not least unforeseen competition in the form of shops without a physical presence. Moreover, today they are run in an extremely different way, with an arguably much healthier emphasis on revenue (though some might say this comes at the expense of a feeling of luxury, in a lobby now brimming with handbags and little breathing room). The problems and opportunities for Barneys could serve as an analogy for the industry of which it is a part.

Despite brief reprieves such as Black Friday (click on headline image for CNBC’s coverage), as well as the expected post-Christmas shopping frenzy, can one of the main problems affecting retail at the moment simply be that it is undergoing an industry-wide bout of creative destruction? Zeitgeist has written about the nature of creative destruction before, and whether or not that is to blame for retail’s woes, the sector is certainly in the doldrums. In the UK, retailers are expecting a “challenging” year ahead. Recent research from Deloitte shows 194 retailers fell into administration in 2012, compared with 183 in 2011 and 165 in 2010. So, unlike the general economy, which broadly can be said to be enjoying a sclerotic recovery of sorts, the state of retail is one of continuing decline. How did this happen, and what steps can be taken to address this?

Zeitgeist would argue that bricks and mortar stores are suffering in essence due to a greater amount of competition. By which, we do not just mean more retailers, on different platforms. Whether it be from other activities (e.g. gaming, whether MMOs like World of Warcraft or simpler social gaming like Angry Birds), or other avenues of shopping (i.e. e-commerce, which Morgan Stanley recently predicted would be a $1 trillion dollar market by 2016), there is less time to shop and more ways to do it. The idea of going to shop in a mall now – once a staple of American past-time – is a much rarer thing today. It would be naive to ignore global pressures from other suppliers and brands around the world as putting a competitive strain on domestic retailers too. Critically, and mostly due to social media, there are now so many more ways and places to reach a consumer that it is difficult for the actual sell to reach the consumer’s ears. This is in part because companies have had to extend their brand activity to such peripheries that the lifestyle angle (e.g. Nike Plus) supercedes the call-to-action, i.e. the ‘BUY ME’. The above video from McKinsey nicely illustrates all the ways that CMOs have to think about winning consumers over, which now extend far beyond the store.

If we look at the in-store experience for a moment without considering externalities, there is certainly opportunity that exists for the innovative retailer. Near the end of last year, the Financial Times published a very interesting case study on polo supplier La Martina. The company’s origins are in making quality polo equipment, from mallets to helmets and everything in between, for professional players. As they expanded – a couple of years ago becoming the principle sponsor of that melange of chic and chav, the Cartier tournament at Guards Polo Club – there came a point where the company had to decide whether it was going to be a mass-fashion brand, or remain something more select and exclusive. As the article in the FT quite rightly points out, “Moving further towards the fashion mainstream risked diluting the brand and exposing it to volatile consumer tastes.” The decision was made to seek what was known as ‘quality volume’. The company has ensured the number of distributors remains low. Zeitgeist would venture to say this doesn’t stop the clothing design itself straying from its somewhat more refined roots, with large logos and status-seeking colours and insignia. Financially though, sales are “growing more than 20% a year in Europe and Latin America”, which is perhaps what counts most currently.

Louis Vuitton’s ‘L’ecriture est un voyage‘ is a good example of experimental thinking and missed opportunities

In the higher world of luxury retail, Louis Vuitton is often at the forefront (not least because of its sustained and engaging digital work). While we’re focusing purely on retail environments though, it was interesting to note that the company recently set up shop (literally) on the left bank of Paris; a pop-up literary salon, to be precise. Such strokes of inspiration and innovation are not uncommon at Vuitton. They help show the brand in a new light, and, crucially, help leverage its provenance and differentiate it from its competition. Sadly, when Zeitgeist went to visit, there was a distinct feeling of disappointment that much more could have been done with the space, which, while nicely curated (see above), did little to sell the brand, particularly as literally nothing was for sale. The stand-out piece, an illustrated edition of Kerouac’s On the Road, by Ed Ruscha, Zeitgeist had seen around two years ago when it was on show at the Gagosian in London. Not every new idea works, but it is important that Louis Vuitton is always there at the forefront, trying and mostly succeeding.

So what ways are there that retailers should be innovating, perhaps beyond the store? One of the more infuriating things Zeitgeist hears constructed as a polemic is that of retail versus the smartphone. This is a very literal allusion, which NBC news were guilty of toward the end of last year. “Retail execs say they’re winning the battle versus smartphones”, the headline blared. What a more nuanced analysis of the situation would realise is that it is less a case of one versus the other, than one helping the other. The store and the phone are both trying to achieve the same things, namely, help the consumer and drive revenue for the company. Any retail strategy should avoid at all costs seeing these two as warring platforms, if only because it is mobile inevitably that will win. With much more sound thinking, eConsultancy recently published an article on the merits of providing in-store WiFi. At first this seems a risky proposition, especially if we are to follow NBC’s knee-jerk way of thinking, i.e. that mobile poses a distinct threat to a retailer’s revenue. The act of browsing in-store, then purchasing a product on a phone is known as showrooming, and, no doubt aided by the catchy name, its supposed threat has quickly made many a store manager nervous. However, as the eConsultancy article readily concedes, this trend is unavoidable, and it can either be ignored or embraced. Deloitte estimated in November that smartphones and tablets will yield almost $1bn in M-commerce revenues over the Christmas period in the UK, and influence in-store sales with a considerably larger value. That same month in the US, Bain & Co. estimated that “digital will influence more than 50% of all holiday retail sales, or about $400 billion”. Those retailers who are going to succeed are the ones who will embrace mobile, digital and their opportunities. eConsultancy offer,

“For example, they could prompt customers to visit web pages with reviews of the products they are considering in store. This could be a powerful driver of sales… WiFi in store also provides a way to capture customer details and target them with offers. In fact, many customers would be willing to receive some offers in return for the convenience of accessing a decent wi-fi network. Tesco recently introduced this in its larger stores… 74% of respondents would be happy for a retailer to send a text or email with promotions while they’re using in-store WiFi.”

These kind of features all speak more broadly to improving and simplifying the in-store experience. They also illustrate a trend in the blending between the virtual and physical retail spaces. Major retailers, not just in luxury, are leading the way in this. Walmart hopes to generate $9bn in digital sales by the end of its next fiscal year. CEO Mike Duke told Fast Company, “The way our customers shop in an increasingly interconnected world is changing”. This interconnectedness is not new, but it is accelerating, and the mainstream arrival of 4G will only help spur it on further. The company is soon to launch a food subscription service, pairing registrants with gourmet, organic, ethnic foods, spear-headed by @WalmartLabs, which is also launching a Facebook gifting service. At the same time, it must be said the company is hedging its bets, continuing with the questionable strategy of building more ‘Supercenters’, the first of which, at the time a revolutionary concept, they opened in 1988.

One interesting development has been the arrival of stores previously restricted to being online into the high street, something which Zeitgeist noted last year. This trend has continued, with eBay recently opening a pop-up store in London’s Covent Garden. These examples are little more than gimmicks though, serving only to remind consumers of the brands’ online presence. Amazon are considering a much bolder move, that of creating permanent physical retail locations, if, as CEO Jeff Bezos says, they can come up with a “truly differentiated idea”. That idea and plan would be anathema to those at Walmart, Target et al., who see Amazon as enough of a competitor as it is, especially with their recent purchase of diapers.com and zappos.com. It serves to illustrate why Walmart’s digital strategies are being taken so seriously internally and invested in so heavily. Amazon though has its own reasons for concern. Earlier in the article we referenced the influence of global pressures on retailers. Amazon is by no means immune to this. Chinese online retailer Tmall will overtake Amazon in sales to become the world’s largest internet retailer by 2016, when Tmall’s sales are projected to hit $100 billion that year, compared to $94 billion for Amazon. The linked article illustrates a divide in the purpose of retail platforms. While Amazon is easy-to-use, engaging and aesthetically pleasing, a Chinese alternative like Taobao is much more bare-bones. As the person interviewed for the article says, “It’s more about pricing – it’s much cheaper. It’s not about how great the experience is. Amazon has a much better experience I guess – but the prices are better on Taobao.”

So how can we make for a more flexible shopping experience? One which perhaps recognises the need in some users to be demanding a sumptuous retail experience, and in others the need for a quick, frugal bargain? Some permutations are beginning to be analysed, and offered. Some of these permutations are being met with caution by media and shoppers. This month, the Wall Street Journal reported that retailer Staples has developed a complex pricing strategy online. Specifically, the WSJ found, it raises prices more than 86% of the time when it finds the online shopper has a physical Staples store nearby. Similar such permutations in other areas are now eminently possible, thanks in no small part to the rise of so-called Big Data. Though the Staples price fluctuations were treated with controversy at the WSJ, they do point to a more realistic supply-and-demand infrastructure, which could really fall under the umbrella of consumer ‘fairness’, that mythical goal for which retailers strive. Furthemore, being able to access CRM data and attune communications programmes to people in specific geographical areas might enable better and more efficient targeting. Digital also allows for a far more immersive experience on the consumer side. ASOS illustrate this particularly well with their click-to-buy videos.

As the Boston Consulting Group point out in a recent report, with the understated title ‘Digital’s Disruption of Consumer Goods and Retail’,  “the first few waves of the digital revolution have upended the retail industry. The coming changes promise even more turmoil”. This turmoil also presents problems and opportunities for the marketing of retail services, which must be subject to just as much change. If we look at the print industry,  also comparatively shaken by digital disruption, it is interesting to note the way in which the very nature of it has had to change, as well as the way its benefits are communicated. It is essential that retailers not see the havoc being waged on their businesses as an opportunity to ‘stick to what they do best’ and bury their head in the sand. This is the time for them to drive innovation, yes at the risk of an unambitious quarterly statement, and embrace digital and specifically M-commerce. What makes this easy for those companies that have so far resisted the call is that there is ample evidence of retailers big and small, value-oriented to luxury-minded, who have already embraced these new ideas and platforms. Their successes and failures serve as great templates for future executions. And who knows, the state of retail might not be such a bad one to live in after all. Until the next revolution…

Right place, right time delivers Fedex viral gold

How great timing can accidently help you become part of a mini viral sensation.

With the news in the UK pretty much exclusively focussing on how the cold weather has brought most of northern Europe brought to a standstill, Zeitgeist was reassured to see that the snow and ice are playing havoc in the US too.

This CNN clip of cars balletically skidding down a hill in Spokane, Washington and into each other has found its way onto a number of popular websites.

As the out of control cars smash into each other a FedEx van appears and chooses a route that doesn’t involve climbing a hill of ice and manages to continue its journey onwards to deliver Christmas presents.

The truck is only visible for around ten seconds of the two minute clip but subtly shows that while others struggle, Fedex delivers.

This particular clip has already been viewed by over half a million people and other instances and TV broadcasts will boost that number considerably.

And all through the good luck of having a competent driver in the right place at the right time. If the Fedex marketing team haven’t already broken up for the holidays they might even think about buying the rights to the first 30 seconds of the clip and running it as an advert while the weather remains so severe.

Whatever they do, Zeitgeist hopes Fedex identify the driver and give him (or her) a nice Christmas bonus. They might also want to offer jobs to the drivers of the red and black cars who managed to keep calm and deliver a driving masterclass.

Timing it would seem, really is everything!

How to lose a customer in 78 words or less

How the message influences consumer behaviour.

Yesterday afternoon, while busy hunting insights, one half of Zeitgeist received an email from a popular gambling website. The reason they got in touch is that I hadn’t used my account for a year despite still having funds in it. Clearly a dormant customer doesn’t make them money so the idea of using the anniversary of my last bet as a excuse to engage with me makes sense. For a bookmaker, an active customer is almost always a source of guaranteed revenue. With the right message they could tempt me into a couple of bets and get some of that money into their own accounts.

However, instead of framing the situation as a great opportunity to enjoy some Christmas betting or offering me a free bet or bonus for using some of my funds before the end of the year the email made me feel like an inconvenience.

I’ll hide their identity, but the brief message was as follows

Dear Zeitgeist

We’ve noticed that it’s been a while since you’ve been active on xxx, so we thought we should remind you that you still have money in your account.

You should be aware that xxx administers an Inactive Account Fee on accounts that have been inactive for 13 months. As you have been inactive for at least 12 months, you’ll need to engage in activity on your account by the end of this month to avoid incurring the fee.

The tone is negative and looks like it was sent by a bank or utility company rather than an innovative gaming site. Instead of encouraging me to make a bet or offering me an incentive to start re-using the site, the message gave me the options of leaving the money there and incurring charges or withdrawing it all. The former makes no sense to me, the latter little sense to them.

Inevitably, with the expense of Christmas very much front of mind, I opted to withdraw the money and close my account. A welcome cash injection for me, but a lost customer that they’ll have to work hard to recover for them.

If only they had realised that the power of a poorly constructed email, as a call to action, was greater than millions of pounds worth of advertising.

Does anyone have any other examples of brands pushing customers away instead of encouraging them to come back?

Merc-antile Hitchhiking

“I woke up as the sun was reddening… I was far away from home, haunted and tired with travel…”

– Jack Kerouac, On the Road

Taking a page from the Beats, brandchannel reported earlier this week on one man’s attempt to hitchhike through Europe relying solely on the good nature of those behind the wheels of Mercedes-Benz vehicles. Found on tramp-a-benz.com, it’s a lovely idea that apparently the brand didn’t instigate and isn’t sponsoring, but has mentioned it on its Facebook page, with almost 3,000 “likes”. (What they are doing is courting Twitter users to race some of their cars in order to win a C-class). It’s a great story that most brands would be extremely envious of; unadulterated, unsolicited brand advocacy and evangalism. The wonderful NotCot site also pointed Zeitgeist to the brand’s Yuletide message, which seems to be exclusively online:

Letters make sweet music together

Sex sells. This much is accepted, but as stated by Jef I. Richards, ‘only if you are selling sex’.

With the weather reminding us that Christmas is coming up, brands are fighting to be considered as great presents. For some, this means appealing not to the consumer but to the shopper.

One brand that has identified the link between musical notes and bra sizes is lingerie emporium La Senza who have launched a Cup Size Choir. The premise is quite simple. Each model represents a note relating to her cup size.

To start with, the girls sing a Christmas carol. After that the visitor can play them and make their own tunes. Users can record their compositions and share them with friends as well as endorse the site via Facebook and  Twitter. You can even win a years worth of lingerie!

With men in the market for gifts for their partners the site should help La Senza reach an audience that maybe wouldn’t be regular shoppers.

The ingredients of interactivity and women in skimpy outfits won’t do any harm to the sites attempts to go viral. The idea is simple, relevant to the brand and not crucially not gratuitous or overly demeaning to women.

That might be enough to breakthrough the noise of all the other brands attempting to get your Christmas coins.

Let us know if you manage to make any cool tunes.

Visiting Google HQ

On Monday morning, fully half the Zeitgeist team awoke from its slumber, left its abode and walked the 15-minute walk to Mecca. While not a dedicated fanboy, the integral part this company has played in the evolution of the Internet over the past decade, (Zeitgeist first remembers using their search engine in 1999), is undeniable. The morning would be spent in the hallowed halls of Google HQ. Mobile advertising for the Android platform would be the focus.

After munching on a croissant, downing an Earl Grey and meandering past the ice cream delivery bicycle, Zeitgeist was talked at by Ian Carrington, Amanda Rosenberg, Reto Meier, Scott Seaborn from that indefatigable ad agency Ogilvy and from IconMobile; Steve Griffiths.

Given the high volume of iPhones-to-people ratio in the room, it was not best to start off the morning with a non-so-subtle jibe at the aforementioned device. However this was indeed how the morning started; these jibes became the sine qua non of the whole event. Given the current regulatory scrutiny Google’s search empire faces regarding Net Neutrality, any hubris around ‘open source’ might have also have been best kept checked, yet there it was. Those who persevered in their listening heard that 2010 was indeed the year of the mobile. For some it may have seemed like they had been stuck in an echo chamber; every year since at least 2005 has been deemed ‘the year of the mobile’, occasionally with the suffix “but this time it really is!”. Zeitgeist would not care to argue with the statement though, as finally consumer desire and the corporate technology to suit that desire seem to be approaching an optimum. Last Christmas, there was a sale on eBay through a mobile device every two seconds. We were told that “Everything Google do, we have a mobile version of”. Despite this poor syntax, this was an impressive statement; something simple and logical, but surely something that only a very small number of companies could lay claim to.

Google’s director of mobile advertising said that the company’s mantra when developing new products was now “mobile first”, again, an impressive affirmation when you really think about it. Currently there are fifty times as many searches performed on smartphones vs merely WAP-enabled handsets. So the iPhone, Android platform and its myrmidons are clearly providing a better user experience for consumers, that they in turn are utilising – though it will be interesting to see whether the soon-to-be-introduced data tariffs will have any impact on this. This may not be the year of the mobile, but it certainly is the year when futureproofing becomes a sound investment: In 2013, smartphone sales are predicted to overtake PC sales, which will coincide with mobile internet use overtaking desktop computer use. It’s quite plausible by then that such distinctions between types of computers will be even fuzzier than now, (iPhone, iPad, netbook, laptop, desktop) if not moot.

Google is currently in the throes of redesigning its Android application store, currently with 60,000 apps and growing (compared to Apple’s 250,000+). Apps are an interesting phenomenon. With Apple’s initial inception, they are now quite the hot item, the thing your client’s clamour after without knowing exactly why. Yet what service do they provide? According to the meeting yesterday, 95% of Apple’s apps are not used after twenty days. For Windows’ part, half of the ‘Marketplace for Mobile’ apps are made by Microsoft, suggesting they have some way to go before accruing a wide, collaborative audience. The utility of an app, it was suggested to the audience yesterday, could be one of two things; engagement or purchase. Your app is there to either enhance the brand (like Chanel or Dior) or to encourage purchase (Argos). Time, lack thereof and frequency are also a large contributing factor to an app’s use. Simply put, it would not be worth someone’s while to download the Expedia app to their phone in order to book a single flight. It would, however, be of use to a regular traveller.

The audience was later shown a graph showing mobile and desktop search queries throughout an average day, with troughs and peaks mirrored between the two systems. Google stated they were not sure whether mobile search had a cannabilisation effect on desktop search, and that they “don’t care”.

We were then treated to a presentation by Amanda who delved into the world of Android-capable handsets. This included voice search – asking the phone directly “What are the best restaurants for breakfast near Union Square in San Francisco?” led to a satisfying list of responses – and voice text; unfortunately punctuation is something that remains almost impossible to do by voice, currently. There was also an example of Google Goggles, which, as well as being able to identify a building from a picture taken by a user, can also scan hard copy text, translate it and then pronounce it for you. All of which, except for the semantics of context, was most impressive.

Scott Seaborn then stepped up to the plate, going through some interesting case studies of mobile advertising. Two in particular caught Zeitgeist’s eye. The first was the Seer app that IBM updated for this year’s Championships at Wimbledon. This interesting video from the somnambulistic “Click” show on the BBC details the amazing thing that OgilvyOne’s app can achieve. Also quite fun was the new Coke Zero iPhone app called The Cleaner, soon to be released.

Steve from WPP’s Iconmobile brought up some similarly interesting case studies. The first of which was for T-Mobile as it attempted to encourage paperless billing with a great mobile initiative that involved “green” perks. The other highlight was that of a North Face campaign in China, which won a Silver Lion at Cannes. An interesting co-incidence of brand and region, as most Chinese people are currently gravitating to an urban life, and do not traditionally treat hiking or mountain-climbing as a past-time.

We then heard more about the Android platform. 160k devices that support Android are activated daily now. One of the nicer features that Zeitgeist saw was the enablement of cross-app usage. A user could be browsing through nearby restaurants on one app. Upon finding the one they want and clicking on a button in the app to book a table, the user would then be taken straight to the OpenTable app, which would immediately display the available times and tables for the restaurant you were just looking at on a separate application. While convenient and a nice move, this does present a potential hindrance for advertisers if users begin to navigate through the web merely by going from proprietary app to app rather than using a browser where they would be exposed to more advertising.

Conversely, the expandable ads that will begin to appear on Android platforms while surfing looked great, especially for things like films (the example we saw was for Adam Sandler’s Funny People). Lastly, we saw the new ‘Navigation’ app, which is currently only available in the US. Its map system allowed for alerts to the user for nearby amenities on their chosen route, e.g. cinemas, restaurants, etc. Interestingly, it also allowed for sponsored layers, meaning advertisers could put specific flags down on the map for particular promotions, to encourage people to take advantage of en route to their final destination.

As for Google’s final destination? Well, we’ll save that for a future article.

Curb Your Luxury

From the January, 2010 Zeitgeist…

In these stringent times even Zeitgeist have had to cut corners. We have, for example, begun opting for sevruga caviar over beluga. Luxury brands know that their consumers, a large portion of whom were buying on credit, are in danger of not returning to their stores any time soon. So what have these brands been doing over the holiday period to entice people?

On the Friday before Christmas, Zeitgeist received emails from Hermès, Veuve Cliquot, Emilio Pucci and Yves Saint Laurent. Perrier Jouet, Zegna, Tod’s and Selfridges all followed suit over the ensuing days. Only Selfridges’ email was about a sale. Other emails simply promoted the new season or reminded the reader that there was still time to place an order before Christmas. Some have begun to tie their products in to the lifestyle of their prospective customers, such as Veuve with its The Season campaign. It might be thought that these emails missed a trick by not offering some kind of promotion to those people whom the brand deigned to have on their list, to reward their loyalty in the midst of a recession. No such luck, however. For most of these brands, any such indulgence would not impact the bottom line so much as it would impact the image of the brand. Keeping a semblance of dignity while reminding the shopper of their presence goes a long way. For example, Hermès holds discreet sales for loyal customers at the Dorchester Hotel rather than in-store. Moreover, Louis Vuitton never has sales. Surplus products are destroyed.

However, the recession has in some cases led to some fashionista legerdemain. On a trip to Chloé two weeks before Christmas, Zeitgeist was identified as a returning customer and offered a discreet 40% discount on any purchase.

On Christmas Eve, Zeitgeist found Harrod’s had quietly begun its sale, with 50% off a huge array of items. A significant move as Harrod’s is a stalwart for not starting sales until after Christmas. What has brought about these relatively drastic measures? Though some brands are undoubtedly suffering, the recession has more exacerbated already pressing problems, rather than being the problem itself. Some brands, such as Hermès and Louis Vuitton are doing well. Vuitton contributes some 70% of group LVMH’s profit. In truth, the principle reason for such significant discounting is due to customers expecting and demanding them.

Away from the boutiques themselves, both Gucci and Hermès are currently playing on their equestrian roots. Gucci have decided to take advantage of the rather lucrative industry that has built up surrounding used products, recently starting a venture with Christie’s. Vuitton recently began a new campaign, from Ogilvy and Mather in Paris, which shows the artisans at work. The brand is trying to tread the fine line between its brilliant, bling ready-to-wear collection designed by Marc Jacobs, and the immense heritage it has in the luggage it has been painstakingly making since 1854.

During the recession then, most brands have been sticking to their guns (or the fashionable equivalent), waiting for credit to flow once more, so the cycle can start all over again. Chanel’s new surfboards should get things going again.