Retail Upscale Experience, Downscale Prices
Retailers are going upscale -- or at least want customers to feel like they are.
Retailers of a variety of products and price ranges are increasingly attempting to draw middle-class and upscale shoppers into their stores. That upmarket push means upgrading their image, revamping store formats, recasting merchandise and fleeing the mall for trendier environs. But the twist is that while consumers may be shopping in a more plush setting, they are still finding bargains.
THE JOURNAL REPORT
See the full Trends report.Here's a look at various facets of this trend and others in the retail sector:
1 > IMAGE IS EVERYTHING
Retailers are tailoring their advertising, merchandise and store formats to shoppers who want a more upscale experience.
Macy's, a unit of Federated Department Stores Inc., is focusing less on coupon promotions and more on national, image advertising. Macy's locations are getting wider aisles, prominent in-store guidance signs and sofas, and television sets in dressing rooms.
And it's not just department stores that are getting makeovers. Limited Inc.'s Bath & Body Works chain is continuing efforts to transform itself from a seller of soap and fragrances to an affordable beauty boutique with an apothecary atmosphere modeled after famed Manhattan shop C.O. Bigelow. This holiday season, jewelry retailer Zale Corp. launched an ambitious campaign to shed its image as a promotions-driven mall store and market itself as an upscale, image-conscious jeweler.
Even Wal-Mart Stores Inc., which became the world's largest retailer by offering the lowest prices to the cash-strapped masses, has put together an effort to siphon away more upscale shoppers from Target Corp. and Costco Wholesale Corp. The discount retailer is improving its offerings in women's apparel, crafting "lifestyle" ads for both television and less conventional outlets such as Vogue magazine, and designing stores that appear less crowded and cluttered.
"There are emotional drivers and social drivers of this trading-up phenomenon," says Neil Fiske, chief executive of Bath & Body Works. "Taking care of yourself is one. There's [also] a whole trend behind [upgrading] the home."
2 > THE BIG GET BIGGER
A consolidation and buyout wave has hit many of the sector's largest players.
The reasons: Many retailers are battered by competition and need a partner to expand advertising and help them gain clout with suppliers. Some are feeling pressure from Wal-Mart even though their sector remains stable.
Federated's purchase of May Department Stores has combined the Macy's, Bloomingdale's, Marshall Field's, Lord & Taylor and Filene's department-store chains. Private-equity firms took private Neiman Marcus Group Inc. and Toys "R" Us Inc. in separate deals. Upscale retailer Saks Inc. has sold parts of its empire. And grocer Albertsons Inc., battered by Wal-Mart's storming of the industry, has fielded a bid from Kroger Co.
Some experts see the merger-and-acquisition activity continuing for several months or years as more shakeout happens in the industry and private-equity firms eventually look to flip their retail acquisitions for a profit.
"The big will continue to get bigger," says Dan Stanek, an executive vice president at market-analysis firm Retail Forward, based in Columbus, Ohio.
3 > BUILDING A BETTER LIFESTYLE
Open-air pedestrian walkways, dozens of small merchants, no large anchor store. Developers are embracing this format, known as the lifestyle center, as the replacement for outdated enclosed malls.
"There isn't going to be this one super-regional mall model that everyone" constructs, says Mr. Stanek. "Consumers have said that rather than going into a one-million-square-foot mall, they're more interested in getting to specific stores."
The International Council of Shopping Centers, a trade association, says there are currently 132 lifestyle centers in the U.S. that total nearly 50 million square feet. That's still small next to the 951 million square feet of enclosed mall space in the U.S. Still, more than 60% of the lifestyle-center square footage has opened since 2000. And 52 more lifestyle centers -- totaling 7.3 million square feet -- are under construction, according to the council.
Developers often build lifestyle centers in upper-income communities where older, upscale shoppers will be drawn to typical lifestyle-center tenants: Williams-Sonoma, Barnes & Noble, Borders, Gap, Bath & Body Works, Pottery Barn and Victoria's Secret.
Taking the trend a step further, some developers are building so-called retail districts -- which combine office, retail, residential and open spaces -- on the sites of demolished older malls. Continuum Partners' Belmar development in the Denver suburb of Lakewood, Colo., proposes one million square feet of retail space in the lifestyle-center format, 900,000 square feet of office space, nine acres of parks and 1,300 homes. Belmar would sit on the 104-acre site of Lakewood's former Villa Italia Mall.
"Once the retailers learn they can survive without the department store," says Mark Falcone, Continuum's CEO, "they move into more unconventional formats like these multilevel retail districts."
4 > INSTALLATION WITH THAT?
In the continuing quest for higher sales per square foot and, consequently, better profits, retailers have started offering services complementary to their merchandise.
Electronics retailer Best Buy Co. last year ramped up its Geek Squad service for fixing home electronics. Circuit City Stores Inc. added in-home installation services this year. Home Depot Inc. and Lowe's Cos. have added installation services for merchandise such as window blinds.
The trend aims to boost same-store sales, or sales at stores open at least a year -- a key retail measure. Such growth carries high margins because the gains are made against fixed costs.
"I have no change in [floor space], and I'm not offering any additional product, but I can really start to get my sales per square foot up" by adding services, says William Cody, a lecturer on retailing at the University of Pennsylvania's Wharton School. "That's what Wall Street likes to hear."
5 > SOMETHING FOR EVERYONE
With shoppers showing less patience and loyalty to a given store or apparel concept, more retailers are developing a stable of diverse stores and merchandise lines. The thinking: If you appeal to a range of shopping genres, at least one of your concepts is bound to be in favor at any given time.
"We're seeing concepts get going, move up to critical mass and decline much faster than they used to," says Retail Forward's Mr. Stanek. "This brings the necessity of major specialty-store operations having an entire portfolio of concepts."
Gap Inc., a pioneer in the trend of multiple store concepts with its Gap, Banana Republic and Old Navy chains, this year unveiled Forth & Towne, an apparel store aimed at women over 35.
Women's apparel chain Chico's FAS Inc. operates its namesake stores as well as White House/Black Market stores for monochrome apparel and Soma stores for intimate apparel. Retailer Abercrombie & Fitch Co. has apparel concepts covering most ages: The Abercrombie & Fitch brand for its core teen shoppers, Hollister for high-school shoppers, Ruehl for college and postcollege shoppers and Little A for kids.
6 > GOING PRIVATE
Private-label merchandise, the in-house brands of retailers, will continue to absorb more of the market.
The growth is partly a product of retailer consolidation and partly due to the low prices retailers can put on private-label goods while still reaping high margins. It also allows retailers to keep their suppliers of name-brand goods in check when it comes to pricing.
Private-label goods accounted for 17% of all global sales -- measured in dollar value -- in the fiscal year ended April 30, up from 15% two years earlier, according to ACNielsen, a New York market-research company.
7 > SHOPPING IS FUN, REALLY
Shoppers go to certain stores as much for the entertainment as for a purchase. And the quality and extent of that entertainment is improving.
Sporting-goods retailers such as Dick's Sporting Goods and Recreational Equipment Inc. now feature climbing walls in their stores. Outdoor-gear sellers like Cabela's Inc. and privately held Bass Pro Shops host exhibitions on fishing, hunting and dog training. Hardware chains offer how-to classes on site. Nike Inc.'s Niketown stores host professional athletes for autograph sessions.
Mega-retailers are paying attention. Some analysts predict that Wal-Mart's recent promotion of John Menzer to vice chairman of its U.S. stores will result in Mr. Menzer importing retail strategies that, in his previous work as CEO of Wal-Mart's international division, he saw working well in other countries. Among them: retailtainment.
China "is the world leader in retailtainment," Mr. Menzer says. "You go into the store and there's a fashion show of some of your apparel lines. They may have a computer contest. They may have a shrimp-catching contest."
8 > MOVING INTO MEDIA
Retailers are extending their marketing reach by underwriting, launching and owning various media channels.
Some have introduced their own magazines. Craft retailer Michael's Stores Inc. publishes a magazine titled Create.
Other retailers are sponsoring television shows or creating their own. Home Depot Inc. sponsors TLC's hit home-decorating program "Trading Spaces." Cabela's sponsors the "Americana Outdoors" and "Fishing & Hunting Texas" shows. And it compiles video clips mailed in by customers for its "Memories in the Field" and "Outfitter's Journal" programs. Wal-Mart, meanwhile, is supporting a reality-TV show in which high-school students compete for college scholarships.
9 > GOING IT ALONE
As retailers increasingly discover they can thrive outside a mall setting, many are jumping to lifestyle centers or smaller, open-air shopping centers or going it alone entirely.
Department store J.C. Penney Co., traditionally a mall anchor, has established several free-standing stores. Sears Holdings Corp.'s Sears, Roebuck & Co. has done the same. Part of the impetus comes from the success of Kohl's, which has expanded primarily with standalone stores.
In 2004, jewelry retailer Zale began an aggressive push into off-mall locations such as strip centers and lifestyle centers. It opened 25 Zales the Diamond Store Outlet locations in its 2004 fiscal year.
Why the exodus from the traditional mall? "One of the reasons is because mall traffic has declined," says Ed Fox, a professor of marketing at Southern Methodist University in Dallas. "Supplying retailers in malls is a lot more costly than retailers in strip malls and standalone locations, where they are easier to resupply because they have a dock in the back."
10 > WATCH AND SERVE
Many retailers, especially grocery stores, are improving the way they track customers' purchases -- and how they reward those customers.
Forget the old club card you must present with each purchase. "You're going to see retailers, particularly the grocery companies, do more with the data they gather from customers," says Mr. Fox. "They're going to give you a special discount or give you more information about what you bought or what's on sale."
As Wal-Mart further tightens its grip as the largest U.S. grocer, chains like Kroger will respond by improving their discounts for repeat customers.
And other retailers are honing their use of customer-provided data for marketing. Diamond retailer Zale says in its annual report that it intends to build a base of "predictive customer data" to better craft marketing for those of its 19 million customers who "demonstrate a high propensity to respond."
