Finally!

The news is starting to come out about how the recent “Economic Unpleasantness” has changed the consumer. Not just slightly altered, but fundamentally changed.

A recent article in Entrepreneur by Kim T. Gordon highlights a new study identifying new shopping attitudes and new buying habits.

It’s about time.

Anyone who works in retail and who pays attention (which automatically eliminates many in management) has known that the consumer has changed for over a year.

People are focused on value, they want to know how a purchase will enhance their lives, how it will create more for them rather than just give them more to have. Outside of commodities, the lowest price is being compared to performance or expectations of performance in an attempt to determine value. If all you offer is low price, then you automatically become a commodity.

So with people being smarter about how they spend, big box retailers have reacted by being dumber about how they sell.

Prices in my store have been going up and down like ping pong balls. I have one item which will fluctuate in price from 58 cents to 68 cents and then to 78 cents, and then stair step back down again…all in the same week. Prices have been changing, both going up and going down, on hundreds of items in my store on a daily basis. There’s no rational behind these price changes, just a knee jerk reaction from some knee high jerk in corporate.

How do you establish any type of value proposition with a customer if your prices are continually changing?

And don’t think customers don’t notice. They bring the changes to my attention every day.

When it comes to a home improvement purchase of any size or complexity, consumers will visit the store multiple times. Each time they come in the price has changed and it generates confusion and doubt that makes closing a sale nearly impossible.

Not that closing a sale is all that high on the big box retail “To Do” list. We have cut labor to the bone so that rather than spending time with customers developing the trust and confidence necessary to help them buy, we have given up selling to be able to provide better “Customer Service”.

“Customer Service” is all about cleaning the store, re-painting shelves, and moving product displays for the 19^th time. “Customer Service” is about checking things off of a work list rather than helping customers buy anything.

Not that there is anything in the store for them to buy. The other big box retail reaction to these new consumer attitudes is to reduce inventory in the store to keep costs (but not always prices) lower.

So in direct contradiction to what the experts in the press are saying: Another important tip is to be visible when customers are ready to buy what you offer, we have almost no significant quantity of any thing in the store.

In our business, there is something called “job lot quantities”. If you don’t have enough inventory of something for the customer to complete the entire project, then you don’t get to sell any part of the project. So if you are short a few $1.25 flooring tiles, then you loose the entire $2,000 tile flooring project. So the few dollars we save by having less $1.25 floor tiles in inventory lost us $2,000 in sales. A loss that will not show up on any report on the knee high desk of some corporate pricing coordinator.

As the article in Entrepreneur concludes: No matter your target audience, whether male or female and across almost every income level, one thing is clear--the recession has created a new normal for American consumers, and there's no turning back the clock.

I sure hope someone in corporate is reading, I actually hope they can read, because they have stopped listening to us in the store and if they don’t figure this new consumer out soon, it will be grim days for big box indeed.

Black Friday from the inside

I just survived another “Black Friday”, except at my store, it was not a one day event.

Sales started the week prior and lasted until the end of this week. Things started earlier this year due to the pressure placed on us to hit higher sales numbers in the middle of the largest economic decline since 1934.

We didn’t get any extra help trying to hit those numbers, in fact inventory was lower this year and there were far fewer employees in the store. Making more with less sounds great in the boardroom, but it looks like hell on the sales floor.

To achieve more sales, with less stuff to sell and less people selling it, management dramatically increased the number of motivational e-mails sent to employees. Nothing overcomes a severe lack of resources like a well worded, even if not properly spelled, e-mail.

Drawing on sports analogies seems to be a favorite among the managers in my store. This weekend was called the “Supper Bowl of Sales” weekend. I think they meant Super Bowl, but let’s not quibble while we motivate. In keeping with the football theme, we were supposed to drive for the goal line and execute with a fever. We needed to pay attention to the basics of blocking and tackling while trying to hit home runs in terms of customer service.

Mixed metaphors must be some sort of subliminal motivational tool.

In addition to heaping piles of steaming motivation, we were fed some key statistics to help us visualize our success. This year’s goal was compared with last year’s results and more than a few exclamation points were used to urge us towards hitting our increased sales benchmark; in an economy where we are trending down 25%.

Do the folks at the top really think that if they click their heels together three times and dream of improved profits that the numbers they need to hit will magically appear? Where is the thought and the analysis that generates this type of unrealism?

And I am not alone, almost 30 million people worked behind the counters and in the aisles selling this weekend. Because of the pressure to hit sales numbers in a recession, those workers were asked to serve more customers, with less help and less inventory than ever before.

So how does a multi-billion dollar retailer plan to hit higher sales goals during the worst economic period in the last half century?

By doing exactly the same things they have done for the past 30 years and hoping for a different outcome.

Not only did they go into this crucial sales period with the same strategy, they actually tried to sell the same products, at the same prices, as they did last year. In fact we pulled down items that had been in the racks since last Black Friday to sell this Black Friday.

Only in big box retail could anyone get away with selling the same old products, at the same old prices, in the sale old way… but with less people and less inventory… and get senior executives, shareholders and board members to agree that maybe, just maybe, something good will happen. In a real business, this type of linear group think would get you laughed out the door. But the goal of managers in big box is not to do anything exceptional, but to do what others before them have done so you will have a plausible excuse for failure.

With so much money riding on this annual event, and the same 30 year old approach, you would think that we in the business would be better organized.

We’re not.

Inventory for the big event comes into the store starting in September. It is placed anywhere in the store where it will fit in the racks high above the selling floor. It will be taken down, and put back up no less than 7 times as various members of store management contradict each other regarding the proper placement of the product on the floor and the correct date that the product should be offered for sale to the public.

By the time the shoppers arrive, the displays have been moved so many times that they look like they have been dragged from China rather than brought by cargo ship.

Each product display comes with specific instructions about where in the store it should be placed and exactly how it should be presented to the customer. The problem is that no two managers in the store can agree on what the specific instructions say or what they mean. So round and round the product goes. In the end, it winds up being a better business decision to chuck the whole pile into the dumpster and save the labor costs.

The night before Thanksgiving we spent hours getting product properly priced and moving it yet again. This all because a manager that had been out sick when the other managers put in their two cents worth needed to feel like she was helping. She was also upset that she didn’t get a chance to send us a motivational e-mail.

The store opened on Black Friday at 6:00 am and not a soul came shopping until noon.

This was my third Black Friday at the same big box home improvement store. Sales in my store and across the district were down for the day. Our store, which is the strongest in the district, saw the weekend matching results from last year while the rest of the district never came close. Friday was slower, but Saturday, Sunday and surprisingly Monday picked up, saving sales for the weekend.

But that’s just sales.

Margin was in the tank. I know shoppers cherry pick the deals, but this year they were relentless. Nothing that wasn’t a significant discount from the “normal” price moved. There were no tie-in sales, no increase in impulse sales and no biting on seasonal in and out items.

In my 25 years at retail, I have never seen the shopper reacting so intelligently to the “deals” we offered. They knew exactly what they wanted to buy and they bought those items and only those items. I had customers calling in a week before asking what our inventory was and checking prices, they did their homework and stayed disciplined.

Traffic up, sales flat and margin below break even; tough way to make your quarterly numbers for Wall Street.

Management’s reaction?

Continue to cut labor costs by not hiring seasonal help and scheduling less hours for full timers. Ironically, the only thing that may have helped the margin was the lack of inventory on many items. You don’t lose money on stuff you don’t sell.

So imagine the morale of the staff as they faced the busiest weekend of the year with less people, while being forced to deal with angry customers who are looking for items that we don’t have. Not only did the weekend hurt the bottom line, we built up a ton of bad blood with customers.

This event was followed, almost by rote, with more motivational e-mails thanking employees for going above and beyond. No reward beyond digital pats on the back, no increase in the hours you are allowed to work and certainly no increase in pay for doing more with less.

Next come the motivational e-mails reminding us that we have less than 30 days to go in the calendar year and that our unused vacation days expire by the end of said year. The “motivation” here is the fact that we can’t actually do anything about unused vacation days now, because the company requires 30 days notice of vacation requests. Keeping all that vacation pay in the company till is a great idea, unless you are the employee who looses his paid vacation.

So thanks for all your extra work during the big “Supper Bowl” of sales and don’t forget that we are taking away those pesky vacation days you didn’t use.

Talk about adding insult to injury!

More Big Box Blues

I know my ranting about the pending demise of the big box retail format sounds crazy, but the facts are getting harder and harder to ignore.

The National Retail Federation just released the preliminary results of a survey where 8,500 respondents where asked about the customer service provided by retailers.

The retailer with the best service? Amazon. In fact, 7 of the top ten retailers don’t even have stores.

Details, such as they are, are here:

http://www.thestreet.com/story/10627227/1/amazon-kohls-top-for-customer-service.html?cm_ven=GOOGLEFI

None of the top ten are big box stores and I don’t yet know where they fall on the list, the full results won’t be released until January.

So just how important is customer service?

The top two retailers on the list, Amazon and Kohls, both posted great third quarter results in what may be the worst retail environment of the modern era. Amazon had a 69% increase in profits while sales rose 28%. Kohls posted a 20% increase third quarter profits and a 2.4% increase in same store sales.

Meanwhile, back in the big box, Lowe’s saw a 30% decrease in profits, Home depot was down 8.9%, Target held on with an 18% gain and Wal-Mart answered back by pledging to cut prices, yet gain, on 60 hot selling items for the holidays.

Holidays which, by the way, have started even earlier than ever. Black Friday sales started this week, a week before Black Friday, in Wal-Mart and Sears. Other big boxers are expected to follow suit.

What will the effect of this increase in price cutting have on future earnings? We’ll have to wait and see, but it just can’t be good.

KKR takes Dollar General public and I feel validated!

Just once I’d like to be right and rich!

Late last month I highlighted the growth of the “Super Discounters” and noted that one of the largest, Dollar General, had been taken private by KKR.

Well, this Friday Dollar General is slated to go public again and the buzz behind the offering is strong. The details are in this WSJ article titled: Dollar General Dresses Up for Its Debut, Deal is one of the year’s signature IPOs

http://online.wsj.com/article/SB125772559135637369.html?mod=WSJ_hps_sections_markets

Naturally, I agree with the WSJ’s assessment when they agree with me.

I think they got it right when they talk about the company’s upside potential. But I had to laugh when an analyst stated in the article that he thinks consumers who traded down to the Super Discounters will return to shopping at Wal-Mart once the economy begins improving. His rational was "we contend that when consumers have more money in their pockets, they are less likely to shop in those channels (meaning stores like Dollar General) because the experience isn't as pleasant as in more moderate and higher-priced channels”.

Really??

The shopping experience is pleasant at Wal-Mart?

I’ve shopped Dollar General and I can tell you personally that it beats the stuffing out of shopping at a Big Box.

The store is easy to navigate, not dirty or run down, and it has everything you usually need for cheap. While not a day at the beach, the experience of shopping in a Dollar General was way better than at Wal-Mart if for no other reason than it saved me a half hour of wandering. I got what I needed and got out, with no one in line in front of me.

If you believe in the wisdom of “following the money”, then you have to take note that KKR is going public with Dollar General. Combined with the other factors affecting consumer behavior during this recession, the growth of this model of retail is a big reason why I think the days are numbered for your typical big box outlet.

The guys at KKR guys are very rich, because they are most often right.

Now, where’s my payday?

The Death Of Retail ?

Retail, as we understand it today, is undergoing a remarkable and fundamental change. Most in the industry don’t yet realize how dramatically different the retail environment will be in just a few short years.

Most are still talking about the current economic uncertainty as the cause for the changes in the industry. What they fail to realize is that the current state of retail is more than a simple temporary slowdown. It’s a fundamental shift being driven by several trends in the way America shops that are coming together to provide the “perfect storm” for the death of retail as we know it today.

Strong words I know.

Every time the American Consumer takes a break from the unprecedented 30 year spending frenzy they have been on, one pundit or the other calls for the end of retail as we know it.

In 1981- 1982 the stock market suffered one of its worst years in decades. Fortunes were lost and the warnings began that Americans were racking up debts that had reached unsustainable levels. I thought for sure that this would cause an adjustment to retail purchasing, but still the American consumer kept on spending.

On October 19^th, 1987 the stock market suffered what was up until then the single largest point drop in history. “Black Monday” saw the market loose 22% of its value in a single day. I went to the local mall to see how the stores were faring, and I couldn’t find a parking space.

Sept. 11, 2001, the day that America’s very way of life came under attack, did little to change the way America spends. After a brief time to morn, retail spending actually increased as President Bush reminded us that shopping was a patriotic duty.

Even the burst of the dot com bubble later in 2001-2002 did nothing to stop spending. Somehow, even though everybody knew it could not happen, the American consumer just kept buying at a torrid pace.

The warnings issued over the years were based on solid reasoning. Consumers in 2007 were spending more than they made. The savings rate in this country had actually fallen to a negative number. With consumer buying making up over 70% of the nation’s Gross Domestic Product, there were strong indications that it could not continue. It’s because of these worrying trends that whenever the economy hit a rough patch, the calls for the death of retail rose in volume.

I had been though every one of these major economic upheavals and I had seen the consumer spend its way out each and every time.

So when the “Credit Crunch”, or the “Housing Bubble” or the “Economic Meltdown” or whatever nomenclature sticks, happened on Sept. 29^th, 2008, I went where I always go to see how the economy is faring, I went to the store.

What I found stopped me dead in my tracks.

For weeks, the aisles were empty. Almost nobody was shopping and nobody was planning to shop. Even those who were shopping were only spending what they absolutely had to.

For a full year, the American Consumer has stayed out of the big box retail shops in record numbers. It’s not a simple correction; it’s a big change in the American Consumer's buying attitude. One that may make the way retailers are operating today obsolete.

The trends driving the change coming to retail include:

The rise of frugality

• Unemployment
• Savings rate
• Garage sale chic

Going green

• Sustainability
• Buying local
• safety

Consumer intelligence

• Lessons learned
• The internet
• New Options

These trends will not be going away when the economy ”recovers”. I say that with some qualification, because it is very possible that the economy will never “recover” in the sense that things go back to the way they were.

It’s a whole new ballgame out there where increases in the stock value of large retailers will not be predicated on growth, where new shoppers don’t exist and where brands have no more importance than either outlet or price.

Institutional Intelligence

I just attended a sales training seminar which focused on how to do a better job of pushing products for the company.

I’m old. Really, really old. And I have been selling, in one form or another, for most of my adult life. I’ve had more than my fair share of “training”.

Selling, as my experience has shown me, is nothing more than solving problems…at a profit.

First you need to find out what the problem is, figure out how what you’re selling can solve the problem, and then determine to what degree the customer wants the problem solved, meaning how much money are they willing to spend to make the problem go away.

Now you have just been taught in one paragraph what it took a trainer half a day to teach.

I think they make these training seminars painful so that you’ll actually look forward to going back to work.

As a rule, I try to take any opportunity to learn. What I learned today is that my company has no idea how to teach product knowledge or selling skills.

It was amazing to learn how ill informed the salespeople at the training were. At best they had no idea about how to answer customer questions and at worst they have been giving customers simply dead wrong answers, sometimes for years.

The poor trainer may have been the most clueless of all. She had very little institutional intelligence she could shed on the training beyond having us open the book and watch the video.

So how, exactly, are you supposed to get the product knowledge that customers expect?

In the two years I have been with the company, this was my first training seminar. Sure, they show you video’s and make you take competency tests before you wander out onto the sales floor after orientation, but none of that training has anything to do with what happens in the real world. You are basically swinging without a net.

If you don’t come into the business with some knowledge about what you are selling, then you are forced to learn it on your own or hope that someone else in the department has an idea about how to answer customer questions.

As a Home Improvement Warehouse, our employees are supposed to be a font of knowledge for the customers who wander in. At least that’s what the TV ads all say.

Customers expect me to know which wood flooring is best for a dog that can’t stop peeing in the house, which products will protect ceramic tile from a cat that can’t stop throwing up, and the best way to get bleach stains out of the carpet.

Here’s an idea; train the dog, shoot the cat and don’t be stupid enough to mess with bleach while standing on the carpet.

I know that’s a little rough for you cat lovers, so if you’d like, you can shoot the dog or the dumb bastard that spilled the bleach, your choice.

So unless you are old like me and have come into contact with more than your share of dog pee, cat puke and bleach stains, you have no way of knowing how to respond to these, all too common, customer questions.

It can be frustrating for new employees which helps explain the huge percentage, in some cases 90%, of employees leaving within the first 30 days. Nobody wants to feel dumb, and you certainly don’t what to take abuse for being dumb from a complete stranger.

So you are left with using your free time to search out information on your own so you can become a better employee…at a salary of $11.50 and hour, or you have to depend on the senior people in your department, if there are any, to point the way.

That’s why nobody knows anything.

The information they get on their own may or may not be correct and the history handed down from the elders may be just plain crap. Either way, there is no real way to become smart about what you sell unless you do the work on your own.

Imagine a fireman that picks up his skills on the internet, or a doctor who reads a few brochures before an operation. I know those are extreme examples, but if you spent anytime with my customers you’d know that they do expect me to constantly pull their butts out of fires and to do brain surgery.

And the worst part is that the company, and store management, expects it too.

Why is there so little time or money allocated to continuing education for employees?

Why does the company put so much emphasis in their marketing about having well trained employees and then tells those employees, by their lack of commitment to any substantial training program, that they aren’t worth the time and effort to train?

The company believes that its employees are their most important asset. They just don’t think that you, as one of those employees, is all that important.

This is just another symptom of the emerging trends that will hasten the down hill slide of big box retailers. If you don’t invest in your people, then you loose a big part of the value you should be delivering to your customers. If your employees can’t give them the information they need, then they will find it someplace else, and that someplace else where be will they spend their money.

Here’s a new slogan for you;

“Let’s build something together…with you doing most of the work”

The Rise of the “Super Discounters”- Part II

I’ve blogged about how super low price retailers and a new class of “non-retailers” are threatening the dominance of Big Box stores.

So why are more and more consumers bypassing Wal-Mart? Is it simply because of the zeal to find the lowest prices? In my case it was that and a chance to get even with the brainiacs at Texas Instruments.

The story goes like this.

Late on Saturday our daughter informs us that she needs a graphing calculator for her high school freshman AP math class by Monday.

We knew this was coming. The calculator was on the list of school supplies we knew she would need back in August. But we had put off buying the calculator because the cheapest one we could find that fit the requirements cost $150.00. Some were retailing for upwards of $180.00.

So here we were, late into the weekend having to scramble to make a purchase that we really didn’t want to make. Being unwilling to risk our daughters’ acceptance into Berkeley over a lousy $150.00, I figured we were going to have to pony up the money.

We had a problem with the concept of spending that kind of dough for a variety of reasons.

My wife had a problem with spending the money because she didn’t see why a class in high school should require such an expensive piece of equipment.

I put off buying it because I simply refused to pay $150.00 for technology that Texas Instruments first introduced in the late 70’s.

Today’s $150.00 TI-89 bears a remarkable resemblance to the TI-58 launched by the company in 1977. I remember having to buy this calculator for my college classes, it cost about the same in 1983 as it does now. It was an ungainly piece of technology and I never did learn exactly how to use it.

My thinking was that if the cost of computers can drop from something like a million dollars in the 70’s to around $200 today, why is this piece of technology still being sold at 1970’s prices? I mean, my first cell phone cost me just north of a grand, but today I can pick one up for $29.00, not to mention that I don’t think my 1989 suitcase phone could take pictures.

Perusing the features listed on the packaging, I don’t think the TI-89 performs one iota better that the TI-58 did. And that brought back all of the painful memories of struggling with that damn calculator through statistics class. I was determined not to give those bastards at TI another $150.00 to be completely humiliated…again!

“Thank God for Craigslist”, were my wife’s exact words. She bypassed the usual retail channels and found a slightly used TI-83, which is the same as the TI-89 (and the TI-58 for that matter) being sold on Craigslist for a mere $50.00.

So late on Sunday, I take a trip to the local mall, not to go into the mall mind you, but to meet the owner of the TI-83 in the parking lot.

After a brief introduction and a quick review of the product, I handed the man $50.00 and drove home with our prize. I was happy to have gotten the calculator my daughter needed, but I was even happier about the fact that I had pulled one over on the jerks at Texas Instruments.

Who are these guys that think they have no need to adjust the prices of their beloved calculators to match the real world reduction in the costs of producing electronic devices?

And with that, a $150.00 in revenue is lost to the retail industry. It’s that type of transaction, which is happening everyday, that is speeding the demise of what we think of as retailers.

Wal-Mart may be able to offer the TI-89 at some reduced price, but even they can’t sell it for $50.00 and make $50.00 in profit like the man from Craigslist did.

This is a radical idea among most of the people in the industry that still talk to me. I have found that telling people how everything they think about retail is completely wrong doesn’t get you a great many returned phone calls.

Recently I tried to put the growth of this phenomenon into some kind of numerical perspective. I am attempting to correlate the trend towards these outlets with the movement of stock prices, more on that later, but here’s what I have so far.

The growth of the Super Discounters has been impressive, but is still in its infancy. The companies that provide numbers give some idea of the scale:

Company # stores Revenue

Family Dollar 6,500 $7.4 B

Dollar Tree 3,450 $4.6 B

Dollar General 8,414 Taken Private by KKR

99¢ Stores 279 $1.3 B

So no big threat here… until you consider that the segment is growing at a rate above 6%, during a time when most retailers are struggling to keep from shrinking out of existence.

It’s also telling that the biggest player has been taken private by KKR. Those are the folks who started the consolidation frenzy in the supermarket industry in the early 1990’s that drove company valuations through the roof.

Maybe they know something?

I’m just saying.

The second part of the argument is a bit harder to quantify. “Non-retailers” don’t report annual numbers. Craigslist has no clue how much of the stuff offered for sale is actually bought and nobody reports the profits from their garage sale, don’t take my word for it, ask the IRS.

There is some anecdotal evidence however.

The National Association of Resale and Thrift Shops (yes, this proves that there is a group for everybody) takes the pulse of the industry thought a series of surveys.

The latest NARTS results show that over the second quarter of this year the growth rate of the industry accelerated from a 5% annual figure to 7%. 64% of those responding had an average increase in sales of 31% and a 77% increase in new customers. 65% saw an increase in inventory offerings that averaged 28%. Most of the members reported that the inventory offerings increased in quality over previous years.

When was the last time you saw any big box retailer with double digit sales and customer traffic increases?

New stores, new customers and a new “Frugalista” mentality (the trend towards selling off your old stuff to buy new stuff) feeds into the future growth of this type of retail…at the expense of the status quo.

Nobody at Wal-Mart is afraid of these guys today, but I remember when nobody in the retail industry was afraid of Wal-Mart. These things have a way of creeping up on you.

Stay Tuned!