The Enemy's Playbook: How To Fight Back Against Big Retailer Tactics

This year, don't go head to head with the big box stores. Instead, put these 3 small-business tactics to work for you to attract holiday shoppers.

NOVEMBER 13, 2013 

The holiday shopping wars have begun extra early this year, and major retailers are upping the ante. From promoting big discounts to opening their doors on Thanksgiving Day, large retailers appear to be pulling out all the stops this year.

It’s easy to see why: Retail analysts predict that consumers won’t be very merry with their spending this holiday season. A recent report from Morgan Stanley predicts that same-store sales will climb just 1.6 percent this year, which would make it the worst shopping season since 2008. Stores are working harder than ever to attract those frugal shoppers. And November and December are the most important months of the year for many retailers. The National Retail Federation says theholiday season can account for 20 to 40 percent of retailers' annual sales.

The smartest thing independents can do is say, 'We’re not going to compete directly with the Targets of the world.'

But what can small and independent retailers do to win over shoppers in this year’s hyper-competitive, perhaps downright dismal shopping environment? According to Candace Corlett, president of WSL Strategic Retail, a New York City-based retail consulting firm, "The smartest thing independents can do is say, 'We’re not going to compete directly with the Targets of the world.'"

Changing Tactics

So if you shouldn't go head to head with the big box stores, what should you do? Corlett recommends that independent retailers focus on their strengths—things they can do better than major retailers—and find creative ways to lure shoppers into their stores and convince them to buy.  

Here’s a look at three ways big retailers plan to attract shoppers this holiday season and how independents can fight back:

Major Retailer Strategy #1: Stay open longer—even on Thanksgiving Day.Several major retailers, including Macy’s, Kohl’s, JCPenney, Toys R Us and Best Buy, plan to open on Thanksgiving Day or in the evening hours before Black Friday. Their hope is to entice shoppers into their stores earlier by offering attractive “doorbusters,” whether that's low-priced TVs or a free snow globe, and other limited-time deals that will lure them and their gift budgets away from competitors before Black Friday’s shopping frenzy even begins.

Retailers are also starting early because it's a short shopping season with only 26 days between Thanksgiving to Christmas. Hanukkah also starts early this year—the day before Thanksgiving—meaning retailers need to get a head start to attract Hanukkah shoppers.

How to fight back: Independent retailers shouldn’t try to compete on Thanksgiving Day, says Jan Kniffen, a New York City-based retail analyst. But they can hold their own extended-hour shopping events for customers on other days between Thanksgiving and Christmas. “I think extended hours work for independents, just not on Thanksgiving and Black Friday,” Kniffen says. "The major retailers really steal the show that day."

Given that shoppers are being drawn to stores earlier this year, hosting events earlier in the shopping season—such as late November or early December—may be better than holding off until mid- or late-December. Cocktail parties, book readings and other holiday-themed events can entice shoppers into the stores.

Another effective strategy: playing up the holiday spirit. Many big retailers don’t decorate as much for the holidays as they used to, Corlett says. Independent stores can deck themselves out for the holidays and become a holiday destination. "What independents have going for them around the holidays is that people like to go to the stores to get the holiday spirit,” Corlett says. “There’s nothing like a mall to squash that spirit.”

Major Retailer Strategy #2: Price-slashing. The big box stores have already started rolling out early sales and discounts to entice shoppers, a strategy that will likely continue or even ramp up as Christmas approaches. A holiday shopping survey by Accenture found that 62 percent of shoppers say they'd need a 30 percent discount in order to be convinced to buy something this holiday season. Even retailers like Nordstrom, Macy's, REI and Bloomingdale's that have traditionally been reluctant to drop prices and offer sales around the holidays are already promoting huge discounts of 40 percent off or more.

How to fight back: Most independent retailers can’t afford to slash their prices or match large retailers’ discounts—nor should they try, experts say. Instead, smaller businesses should focus on providing customers with extra perks that draw shoppers into their stores and make it worth spending a little extra.

Corlett suggests that smaller retailers try to do a better job of helping their customers figure out what gifts to buy. “Be a shopping buddy—don’t just be a store,” Corlett advises. That might include setting up a display with the top five hottest gift items for the season, she suggests. “Make it the top five fashion items, the top five things for women or the top five things for babies. Just make sure you have enough of it in stock.”

Stores should also think about bundling items that could be bought together as a gift. For instance, a store that sells bathrobes might put bubble bath, candles or mugs with chamomile tea nearby to suggest as complementary purchases. A store could then offer a discount to shoppers who buy several items as a bundled gift. “Companion products increase the value of the gifts," Corlett says, "and increase the value of the transactions.”

Major Retailer Strategy #3: Online shopping and “showrooming.” Online holiday shopping is predicted to grow 15.1 percent in 2013, according to eMarketer, and many major retailers have bolstered their online presence and are offering free shipping and quick delivery to make online shopping even easier, more rewarding and compete with the convenience of shopping on sites like Amazon.com. For example, Nordstrom is offering free delivery on all orders, while Macy's has focusedon improving its inventory management and getting products to shoppers faster.

One disturbing trend for smaller brick-and-mortar retailers is the habit of “showrooming”—the idea that shoppers will visit their stores to browse and check out products but then actually make their purchases on Amazon or some other retailers’ website where they can find the product at a lower price.

How to fight back: Independent retailers should make sure that a portion of their gift items are unique products that can't easily be purchased for less online. If a business can’t offer a unique selection of gifts because, say, they sell cameras or refrigerators, they should offer a better level of service that online retailers can. For instance, a smaller retailer might be able to provide fast delivery times, offering to deliver the product to a customer's home the following evening and set it up for them.

Loyalty reward programs can also be an effective way for independent retailers to win. Giving loyal customers exclusive discounts, free gifts and special treatment, such as their own shopping events, can help prevent them from shopping online. As Kniffen says, “If you’re an independent, making people feel special is the best weapon you’ve got."

Read more articles on sales.

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Wal-Mart cuts earnings forecast again amid price wars with grocery, dollar stores

Wal-Mart Stores Inc. (WMT), the world’s largest retailer, cut its annual profit forecast for the second time since August as the uneven economic recovery and increased competition from dollar stores hurt sales. The shares fell.

Profit per share in the year ending January 2014 will be $5.11 to $5.21, excluding items such as store closings in Brazil andChina, Bentonville, Arkansas-based Wal-Mart said today in a statement. The midpoint of the range trails analysts’ average estimate of $5.19. The company forecast $5.10 to $5.30 three months ago and profit as high as $5.40 in February.

Chief Executive Officer Mike Duke is trying to improve Wal-Mart’s grocery selection and keep prices low to fend off smaller-format stores that offer merchandise starting at $1, all while consumers restrain spending because of unemployment and higher taxes. Sales at Wal-Mart U.S. stores open at least 12 months excluding fuel fell 0.3 percent in the quarter ended Oct. 25. Analysts predicted they’d be little changed.

Related News:

• More Americans Than Forecast File Unemployment Claims
• Yellen Says Economy Performing ‘Far Short’ of Potential

“In retail, it comes down to same-store sales, and today was another disappointment,” Brian Yarbrough, an analyst at Edward Jones & Co. in St. Louis, said today in an interview. “On the fringe, they’ve got to be losing customers.”

He recommends buying the shares.

Wal-Mart’s U.S. same-store sales have slid for three straight quarters as a 2 percentage point increase in Social Security taxes reduced spending among its shoppers, many of whom live paycheck to paycheck. The 16-day federal government shutdown that ended Oct. 17 also has damped consumer confidence. The Thomson Reuters/University of Michigan index of consumer sentiment dropped to the lowest level in almost two years this year month.

Inventory Growth

Wal-Mart, which has a corporate goal of keeping inventory growth at or less than the rate of net sales growth, scaled back its orders from suppliers for the third and fourth quarters to keep inventory from rising too quickly, according to an e-mail from ordering manager at the company’s headquarters that was obtained by Bloomberg News.

In response to the report in September, the retailer said it felt good about its inventory position and was managing it appropriately. The order pullback wasn’t across the board and was happening “category by category,” David Tovar, a spokesman, said at the time.

U.S. inventory increased 5.1 percent, Bill Simon, the company’s U.S. CEO, said today on a conference call. While that was slower than the 6.9 percent inventory gain in the previous quarter, it was faster than third-quarter U.S. net sales growth of 2.4 percent.

Shares Fall

Wal-Mart shares rose 0.4 percent to $79.21 at 10:56 a.m. in New York. The stock had gained 16 percent this year through yesterday, compared with a 25 percent increase for the Standard & Poor’s 500 Index.

Net income in the third quarter rose 2.8 percent to $3.74 billion, or $1.14 a share, from $3.64 billion, or $1.08, a year earlier, the company said. The average of 26 analysts’ estimatescompiled by Bloomberg was $1.13. Revenue increased 1.7 percent to $115.7 billion, trailing the $116.8 billion average projection.

Sales at Menomonee Falls, Wisconsin-based Kohl’s Corp. (KSS) also trailed analysts’ estimates, falling 1 percent to $4.44 billion, compared with the $4.55 billion average projection. The shares slid 7.3 percent to $53.99.

Sales in Wal-Mart’s international division increased 0.2 percent to $33.1 billion. Excluding the effect of foreign-currency fluctuations, sales would have risen 4.1 percent to $34.4 billion.

China Strategy

The company has been working to reintroduce its everyday low price strategy in Brazil and China after struggling to find strong sales growth in both markets. Wal-Mart said last month that it plans to add as many as 110 stores over three years in China, while shutting some outlets and remodeling dozens more. The retailer also named two new managers, in business development and real estate, to its China team last month.

The U.S. Department of Justice and the U.S. Securities and Exchange Commission are investigating allegations that Wal-Mart systematically bribed Mexican officials so it could more quickly open stores in the country. Federal and local government agencies in Mexico also are involved in investigations. Wal-Mart said in a November filing that it also has started inquiries into potential violations of the FCPA at operations in Brazil, India and China.

The company said today that expenses related to probes of those possible violations of the Foreign Corrupt Practices Act were $69 million in the quarter, less than its guidance of $75 million to $80 million. Those expenses will be about $75 million to $80 million in the fourth quarter.

Third-quarter sales in Wal-Mart’s Sam’s Club warehouse division rose 1.1 percent to $14.1 billion.

To contact the reporter on this story: Renee Dudley in New York at rdudley6@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

WAL-MART EXPRESS: Wal-Mart testing new convenience-store approach

 

 

Dive Brief:

• Wal-Mart is building a convenience stores in its headquarters town of Bentonville, Ark., according to a report in the Northwest Arkansas Business Journal. A spokesperson told the Journal that the plan is to "test and learn," and that no other stores are planned at this time.
• The store, to be located on a 2.01 acre site the intersection of Arkansas Highway 102 and South Walton Boulevard, will open by spring and sell gasoline, snacks and staples such as milk and eggs.

Dive Insight:

There are no other details available about Wal-Mart's new convenience-store model. So anything we say here is based on conjecture. Nonetheless, there are some things worth noting.

First, the new c-store appears to be much smaller than Wal-Mart's new Walmart Express stores. Those operations run between 10,000 to 15,000 square feet. Wal-Mart has also opened a number of what it calls Walmart Neighborhood Markets, which run around 50,000 square feet. We assume that the new c-store is closer in scope to a traditional c-store model of 2,400 square feet.

Second, the convenience-store test probably does not represent a retreat from the Walmart Express pilot program. Just weeks ago Wal-Mart expressed confidence in that approach and told analysts it was tweaking its logistics systems for the stores. More details on logistics and Walmart's ideas about "ecosystems" and "tethering" as ways to move goods among different-size stores emerged last month.

Recommended Reading:

Northwest Arkansas Business Journal: Walmart building Bentonville C-store
Convenience Store News: Walmart Building Its First Convenience Store for Test

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Written by Paul Conley for FoodDive.com, original article can be located here:

http://www.fooddive.com/news/wal-mart-testing-new-convenience-store-approach/192164/

Topics: Research and Development, Retail, Marketing



ConAgra Looks to Big Data for Sales Growth

You already know grocery and big box stores are collecting data on your shopping habits — what you buy, when, how often, and for how much.

But behind the scenes, Omaha's ConAgra Foods and other consumer product manufacturers that sell to these stores have become even bigger and more sophisticated players in the “big data” game.

They're now borrowing shopper-specific data directly from retailers and crunching it in new ways to better understand consumers and respond to their needs. That's in addition to how they use internal data to forecast demand and increase sales, and use aggregate retail data to plan promotions and strengthen supply chains.

“It's a gold mine of insights and knowledge that nobody has tapped into in a big way,” said Bob Nolan, ConAgra's vice president of customer insights and analytics.

ConAgra, behind brands such as Hunt's, Orville Redenbacher and Marie Callender's, is now studying individual shopper habits at several major U.S. grocery retailers and big box stores. The retailers don't share a shopper's name, demographics or financial information, but do provide all the purchase information associated with a particular customer number.

Now, ConAgra can see how often Shopper 1234 comes into a store, how often she buys a certain product and what products she tends to buy together — pasta and tomato sauce, for example, or seemingly unrelated items, like tomato sauce and diapers. ConAgra can learn how loyal the shopper is to a certain brand, and what makes her switch among brands. And the firm can sort shopper habits by individual store location, seeing differences among neighborhoods.

Now well into its 2014 fiscal year, ConAgra is intently focused on sales growth after a disappointing 46 percent decline in first-quarter profits.

The solution will involve being more competitive on price and investing more in promotions, CEO Gary Rodkin told analysts last week.

Data analytics can help the company target exactly where promotions and discounts are working.

“We need to bend the trends on our market share. It is a market share gain. It's category by category, customer by customer. We've got smarter analytics, and we've got to put them to better use,” Rodkin said.

Consumer goods manufacturers that use data analytics to understand shoppers outperform competitors that don't, according to Progressive Grocer, citing two IBM studies published in July.

“In an increasingly competitive marketplace, the ability to detect subtle shifts that were previously indiscernible is imperative,” found one study, by the IBM Center for Applied Insights and Kantar Retail.

That's because consumers today are not only bargain-conscious, but they're also no longer limited to a few retailers. Consumers, empowered by technology, have more choices — not just the neighborhood grocery, but also the warehouse club, the dollar store, the pharmacy or Amazon.

“The best way of winning their business is not to try managing them: it's to listen to them, understand them and serve them as discrete individuals,” authors of the IBM/Kantar study found. “That requires considerable analytical horsepower, though, and two-thirds of consumer products companies don't have enough.”

To boost its own horsepower, ConAgra made a big investment in its data analytics capabilities starting in early 2012. The firm hired Nolan, a former PepsiCo. executive, for a newly created position. Under his management, ConAgra added a new business function called customer analytics to the same department that houses two existing areas: shopper insights, a group started in 2006 that studies shopper behavior and needs, and category leadership, where the firm works with retailers and other manufacturers to improve the selection and display of various products. The group employs about 125 people.

Under the new customer analytics area, ConAgra has hired a dozen new employees, recruiting from other consumer goods companies and market research firms. Hiring is competitive as retailers and other manufacturers are also stepping up hiring of data analysts.

“These are different skills than we would have hired for in the past,” Nolan said. Some of the employees work in ConAgra offices, while others are deployed directly to retailers' corporate headquarters.

The firm has also leaned on its IT department to expand its in-house data center to handle the additional terabytes of information now coming its way.

With the new data enabling it to drill down to shopper-level habits, ConAgra can put a finer point on work it is already doing to understand the shopper needs and emotions that drive decisions.

Walmart also has amped up its capabilities. Even though the retailer doesn't use a loyalty card program outside of Sam's Club, it has a unique ability to correlate geography with purchase information because it has so many outlets, including Supercenters, Sam's Club, Neighborhood Markets and its online store, CEO Bill Simon said in September at a Goldman Sachs Global Retailing Conference.

“We think that gives us a competitive advantage that others would really struggle to get to,” he said.

A recent Deloitte Consulting analysis of manufacturers' use of big data analytics found that most of these firms lag in developing their analytical maturity, even though their competitive advantage depends on it. The Grocery Manufacturers Association, which sponsored the study, this fall will host its first conference designed to help retailers and manufacturers take a shared approach.

What ConAgra will do with retailers' data depends in part on what its retail customer wants out of the partnership. ConAgra declined to name its data-sharing partners but said the first retailer to share data in February wanted to better understand how people shopped in its frozen food aisles. Frozen food sales are stalled industrywide, and both retailers and manufacturers like ConAgra are eager to see that change.

One early finding was that people who buy one kind of single-serving frozen food tend to buy several kinds of single-serving frozen food. ConAgra could suggest to the retailer that it group smaller portions together, instead of stocking single-serve pizzas by family-size pizzas, for example.

That strategy might work well in one store but not in another, depending on demographics, and any suggestion to change displays would have to be easy for the retailer to execute, Nolan said. “You can't make things more complicated.”

The data may also reveal other shopping “affinities,” for example that people buying pizzas also love buffalo wings, and the retailer might decide to produce a buffalo-flavor pizza, said Christopher Durham, a private brand consultant based in Omaha.

By sharing and studying the data, he said, retailers can use it to inform private brand product development, another area where ConAgra could benefit considering its acquisition this year of private-label manufacturer Ralcorp.

“With retailers, it's not about big data, it's about big answers,” Durham said. “You can have piles and piles of data, but if there's nothing actionable coming out of it, it doesn't matter.”

It may seem strange that a grocery chain or big-box retailer would give up its information, for free, to a supplier. And strange, too, that a supplier would, for free, work with the numbers and offer advice on how the store could improve sales. Historically, retailers were reluctant to share this information, fearing that manufacturers might give the data to a competitor, or use it themselves to enter the market.

But sharing is becoming more widespread as the value of studying the data becomes clear.

Nolan said sharing information takes a sensitive approach. While ConAgra is the one crunching the numbers, the focus has to be on mutual benefit, not just what ConAgra can gain. “It's almost like being a consultant. We want to become the indispensable partner to our customers.”

Then, if ConAgra foods fit into a larger sales plan, he'll talk about how his canned tomatoes or frozen pastas can help the store.

“If they do a better job of managing their frozen department, and get more people down the aisle, ConAgra will get our share of it,” Nolan said.

Contact the writer: Barbara Soderlin

barbara.soderlin@owh.com    |   402-444-1336

Barbara Soderlin covers food safety, ConAgra, technology and employment/unemployment issues.