Mid-Season Report Card For The Holiday Season Shows Missed Opportunities

Written by Debbie Hauss

The 2008 holiday season has been stressful at best for both consumers and retailers. Most of us would like to call 2008 an anomaly, but is that a safe assumption? We will only know for sure next year, but in the meantime, retailers, consumers and industry analysts are reviewing what they have learned this year in hopes that it will help for next year. “I think this year is a singularity,” says Paula Rosenblum from RSR Research. “We are living in a shell-shocked society at the moment, and I can’t imagine this will continue.” Consumers did flock to the stores on Black Friday 2008, but mostly to deep discounters and at those stores they were looking for unusually large markdowns. Retailers know that consumers, particularly this year, won’t blink an eye at a 20%, 25% or even 50% discounts in many cases. Those out shopping are looking for 70% off and higher – and in many cases the retailers responded…but at what cost? The Deep Discount Debate Many retailers have felt the pressure to offer consumers the deepest discounts this year, even if it is historically out of character for their companies. “It is the year of the deal,” says Brad Wolansky, vice president of global e-commerce for The Orvis Company. “Even merchants who traditionally aren’t promotional (such as Orvis) must pay to play this year. Serving up the ‘same old stuff’ doesn’t work, particularly on the web where customers can see the difference.” But industry experts have mixed opinions on the subject: “Deep discounts don’t boost your brand, they just destroy your margin,” says Nikki Baird from RSR Research. Greg Buzek, president of IHL Services, has a different take: “Retailers that are not willing to heavily discount during this season are going to see dramatic drops in same store sales. Abercrombie discounted less than others and saw their overall sales for November drop 28%. Those that discounted might not have increased sales, but they were able to weather the storm a bit better.” “To further exacerbate the problem, it has also been challenging for retailers to compete against the prices of competitors who have filed for bankruptcy and have already publicly announced their store closures,” adds Janet Sherlock, research director at AMR Research. “While top-level revenue figures were adequate during the 2008 Thanksgiving weekend, profit contribution was likely poor for many retailers. Unfortunately, we then train the consumer to expect excessively low prices. Next year, there will likely be fewer retailers.” Is Cyber Monday Effective? RSR’s Rosenblum says a resounding “No!” She contends that if the industry jumped off the Cyber Monday bandwagon retailers would gain more total gross margin dollars. “Cyber Monday is a creation of the industry (or let’s say, industry trade groups), not the customer. The core assumption is that people shop while they are at work because they have bigger and better computers, and that’s just wrong, or at least dated. If retailers stopped running those silly promotions on that day…they would be primed to provide a better customer experience.” Nevertheless, Cyber Monday exists and will likely continue to exist. To make it a successful event, retailers must first ensure that their web sites will work effectively throughout the entire Thanksgiving weekend, then they should focus on effective cross-channel retailing as an everyday practice. “Retailers have totally underestimated the amount of online traffic on Black Friday,” says Buzek. “Sears’ site went down and Walmart attempted a major change the week of Black Friday. That’s just asking for trouble.” That said, Buzek suggests that retailers bring Black Friday and Cyber Monday together for consumers to offer a better customer experience through effective cross-channel retailing. “The best thing would be to allow consumers to gain Black Friday pricing or Cyber Monday pricing in both channels. Particularly for Cyber Monday, the offers that are online should also be available in the stores.” But Baird sees challenges with trying to coordinate across channels during this hyper busy weekend. “There is little cross-channel opportunity because the challenge of managing high-demand items prevents you from making online or in-store promises.” Make Loyalty Members Feel Special Whether or not deep discounting is helping retailers this year or any year for that matter, retailers still must focus on garnering sales from their best customers not only during the holidays but all year long and from one year to the next. “Retailers really do very little to make their loyalty shoppers feel special,” notes Baird. “How about a special gold member lounge complete with foot massage and hot chocolate? Or loyalty members only from 4-6am and 9-10pm?” Buzek agrees. “I think most retailers are missing the boat on focusing on low margin sales only to drive traffic for (Black Friday) rather than building a longer term relationship that allows for outreach and ‘special days’ throughout the year. Retailers like Borders and Best Buy get it with their programs. I’m not sure of too many others that are taking advantage.” Other Innovative Alternatives to Deep Discounting Discounting on Black Friday, Cyber Monday or any other day of the year is just not an option for some retailers. Abercrombie chose to forgo discounts to maintain its brand image. Cloudveil, an outdoor apparel wholesaler and retailer, has responded similarly. “We can’t discount on our site or at our store because our products are sold through many other wholesalers and they would not appreciate being undersold by us,” says Jeff Wogoman, director of marketing at Cloudveil. Instead, Wogoman is looking at more innovative ways to sell Cloudveil products. “We are looking at developing more video content for our website and we are trying to crack the social media nut a bit more.” Wogoman cites Nike as one retailer that has “hit the ball out of the park” with social media. “Giving a forum to runners to download information and share with others – it was genius that they pulled it off.” Is There a Utopian Thanksgiving Weekend for Retailers? It’s called Black Friday because it’s the weekend when most retailers traditionally move into the “Black” and it is likely to continue beyond 2008 and 2009. But the Internet, social media and mobile retailing are forcing retailers to be more reactive on the spot. “You need to evolve daily and serve the promotions and products and prices that customers are looking for,” says Orvis’ Wolansky. AMR’s Sherlock offers up a few tips for retailers going into 2009. “Next year there will likely be fewer retailers and the retailers that remain should have learned to: 1. Buy as lean as possible 2. Keep supply chain cycles as short as possible in order to react quickly to market conditions 3. Drive value to consumers through programs, services, and experiential shopping, not just price 4. Wean customers from the constant state of deep discounting and continual promotion Those tips plus a healthy economic recovery could bode well for retailers in 2009 and beyond.

iPhone Apps Represent New Window Of Opportunity For Retail Marketers

By John Gaffney

After all the same store sales plunges, consumer spending pullbacks, profit nosedives and pricing collapses, one of the few the most positive image of 2008 can be found in a swirling picture of snow set against an iPhone screen and a big red bullseye. With Target, Amazon, and The Gap leading the way, the past two weeks has definitely put mobile applications on the retail agenda to stay.

“It’s a very similar market to ten years ago when retailers started flocking to online advertising,” says Chris Negron, sales executive for online music service Pandora. “Now everyone wants to be mobile. I would say 50 percent of our online clients are looking to develop a mobile application and a good number of those are retailers.”

The importance of this initial flurry is twofold. First, it has taken mobile phone applications and advertising from the planning stage to reality in a short period of time. Second, it has established the platform as a legitimate touch point for retail consumers. Pandora has been officially listed by Apple as one of the top ten applications (out of 10,000) in the iTunes app store. It was one of the first applications developed for the device, and its service carries mobile on-screen ads.

Negron is not at liberty to discuss the retailers initially involved in his service, but he says there are major companies other than Target, Gap and Amazon. He has seen the retail interest level developing into the more substantial breakouts from the three retailers who bowed proprietary applications over the past two weeks. Here’s what the three are aiming at with their applications:
• Target: Developed by San Francisco-based AKQA, the Target app makes use of the “accelerometer.” Shake the iPhone and the gravity and vibration cause the screen to change. While other accelerometer applications are used to simulate beer chugging,in Target’s case it is a snow globe that settles around a product and then the logo. “Good mobile phone applications are good branding applications,” says Kevin Barenblat, CEO of Context Optional, which has developed iPhone applications for several brands. “That’s what Target does.”

• Amazon: Barenblat says Amazon’s entry defines the utility that must be associated with the brand magic for mobile apps. Amazon’s application offers access to other retailers, such as Target and Macy's, but its features, which include "one-click" shopping, are focused on Amazon. It also includes Amazon Remembers, an experimental feature that uses the iPhone's camera to help create visual lists of products you want. Take a photo, and the iPhone app uploads the image to Amazon.com; the service then tries to match products in the same category.

• Gap: Barenblat also urges retailers to make sure their mobile apps are viral. The Gap fills this requirement. Its first mobile app features music videos with Christmas carols being sung by popular artists. The videos can be sent to friends via email. Another allows users to mix and match clothing on male or female models, and then tap to buy the items.

The most important “to do” for retailers planning mobile app development is long-term planning. Negron counsels retailers that are either planning ad campaigns on apps like Pandora or developing proprietary solutions to think beyond the initial buzz. The iPhone for example, started with just 300 apps in June. By the fourth quarter of next year it could easily have 20,000 different applications ranging from the novelties like beer chugging to serious retail e-commerce channels.

“Think through the series of apps as you would a media plan,” he says. “They are changeable and they will all need to have their own promotion plan to achieve scale. Different applications will fit different times of the year.”

Most analysts believe e-commerce applications will be the rule rather than the exception for cross-channel retailing by spring. “Think beyond the first iteration,” Barenblat says. “And don’t settle for cool factor alone. Think in terms of ROI.”

Warning Signs Within Black Friday, Cyber Monday Spikes, As Retailers Go “All-In” Early With Holiday Deals

At first glance the results from the recent Black Friday and Cyber Monday sales gave the retail community some hope that consumers might be willing to open up their wallets again. Shoppers upped spending on Black Friday by 7.2% over last year, with the NRF’s 2008 Black Friday Weekend survey conducted by Big Research, estimating total Black Friday spending at $41 billion. Online sales for Cyber Monday also jumped 15% from a year ago, according to data from comScore, Inc.

However, a closer look at how those increases were achieved raises some caution flags. Sales spikes from the key Black Friday and Cyber Monday deals may have been more of a mirage that distorted the real slump still going on in retail. The November sales results reported this week continued to show a sharp downturn for almost every company not based in Bentonville. Target’s November sales dropped 10% and off-price leader TJX declined 12%. The November MasterCard Spending Pulse predicted a decline of more than 20% across several categories.

What is even more troubling than the continued sales slump is the potential long-term impact that the desperate deep discounting and “promote-at-all costs” approach retailers have taken to try and paddle some new life into the holiday season. The huge traffic spikes merchants have come to count on Black Friday and Cyber Monday could easily be watered down in coming years as retailers offered head starts and extensions on the holidays this year. Some examples:

• Borders got a head start on Black Friday with an email campaign on Tuesday, Nov. 25, extending its Rewards members a Pre-Black Friday Savings Pass for the Wednesday prior to Black Friday, extending 50% off certain books and Buy 1 Get 1 offers as part of a special in-store promotion.
• On the Sunday prior to Cyber Monday, Circuit City sent out an email with the headline, “Our Cyber Monday Sale starts now--we couldn't wait until tomorrow!” On the flipside of starting early, Circuit City also dragged Black Friday for out for an “encore event,” with an email campaign hitting on the Thursday after Black Friday titled, “Back by popular demand: Black Friday deals, better than ever!”

Even more troubling were the promotion strategies seemingly borrowed from the automotive industry, such as “No Interest Financing until 2012,” and extending Employee Pricing to any customer that gets the Sunday newspaper. It has become much more common for retailers to extend Friends & Family discounts through their employee networks, but The Sports Authority took that to another level this holiday season with an advertisement that offered a one day Employee Pricing sale.

Given the meltdown of the economy and the related impact it has had on consumer spending it is understandable that retailers need to be extremely aggressive during the remaining weeks of the holiday season. However, it is also important that promotions be based on real value of special buys and/or hot merchandise, rather than desperation. As the auto industry is demonstrating in its testimony in Washington this week, once you have played all your cards with the consumer, there is no rebate offer or discount promotion you can offer to trump up demand. Ultimately, what happens is consumer trust is lost and shoppers become trained that a better deal is always coming next week.