August 1, 2008
Retail, Restaurants Suffer As Buyers Hunker Down
Pittsburg Tribune
By Rick Stouffer

It hasn’t been a good week for U.S. retailers and restaurants.

Within the last seven days, one department store chain, Reading-based Boscov’s, was forced to deny reports it soon would file for Chapter 11 bankruptcy protection, while another chain, Mervyn's, filed for Chapter 11.

Two restaurant chains that are part of billionaire John Kluge’s empire, Bennigan’s and Steak ‘n Ale, went one step further, filing in U.S. Bankruptcy Court for Chapter 7 liquidation. More than 200 company-owned locations permanently closed.

Retailing experts say a combination of factors — including the weak economy, soaring prices for essentials like gasoline and food, the mortgage mess and tightening credit by financial institutions — have combined to place more than a few consumer product companies on shaky ground.

The International Council of Shopping Centers predicts 144,000 individual stores will close in 2008, up 7 percent from one year ago and the most closings in at least 14 years.

“The economic downturn impacts how people shop,” said Monica Tang, a San Francisco-based retail strategist for consulting firm Kurt Salmon Associates. “Some people will continue shopping at the same places but will just buy less, while others will go to lower-price stores.”

With gasoline remaining around $3.95 a gallon and basic foods costing much more than even six months ago, price has become the determining factor as to where consumers shop, said Frank Jones.

“Oil prices, tight credit, mortgage woes, job security – all play on consumers’ psyches,” said Jones, a New York-based vice president in the Performance Improvement Practice at restructuring/financial advisory firm AlixPartners. “In our latest consumer survey, low price has become the determinant for where people are shopping, over things such as quality and service.”

“The economic slowdown is affecting everyone because consumers are spending more for necessities, oil and food, and have less money to spend on other things, like retail,” said Hemant Sangwan, a Toronto-based consultant in Global Insight’s Advisory Services Division.

While the economic slowdown is touching all retail categories, midpriced stores appear to be the most widely impacted, experts said. Boscov’s is in the middle of the downturn.

Founded 97 years ago, Boscov’s has 49 stores in six states and remains privately held. Company CEO Ken Lakin said last week the company is working with advisers to improve its finances and avoid bankruptcy.

“Across the country, it has been one of the worst spring seasons we have ever seen,” Lakin said. “Consumers have really pulled back on their spending. The middle-American consumer is hurting, so we are hurting.”

Boscov’s has four stores in the Pittsburgh region: two former Kaufmann’s in Monroeville Mall and South Hills Village divested two years ago by Macy’s, and stores in Beaver Valley Mall in Monaca and Clearview Mall in Butler. About 600 employees remain at the local stores, Lakin said.

Family members have put $28 million in equity into the company to keep it running and avoid bankruptcy, and Boscov’s could close up to 10 money-losing stores, the New York Post said.

Boscov’s refinanced its real estate holdings this year, and the family has stepped up to support the company, though Lakin declined to give details.

Lakin has promised that stores will be well-stocked for back-to-school shopping and the holidays.

But getting the money needed to restock shelves, pay vendors and transport goods won't be easy to come by over the next few months, the experts agreed.

“There was easy money out there, very willing lenders ready to make loans to retailers,” said Ron Paul, president of restaurant consulting firm Technomic, of Chicago.

According to Technomic research, the top 20 casual dining chains, like recently closed Bennigan’s and Steak ‘n Ale, increased the number of locations by 45 percent between 2002 and 2007. Restaurant sales during the same period rose 31 percent.

“Casual dining is overbuilt,” Paul said. “Restaurants also suffered from a sea of sameness, and consumers had no loyalty.”

Retail, notoriously roller-coaster-like in terms of busy and slow periods, relies for the most part on short-term loans to finance merchandise purchases and even to meet payroll during very slow periods.

Now, with financial institutions cutting back lending and tightening credit terms, many are balking at fronting new loans, putting retailers in a bind.

Technomic’s Paul believes there will be more restaurant chains this year that will seek Chapter 11 bankruptcy protection, although he wouldn’t name any.

“Because of the overall growth of the chains over the last few years, this shakeup will be the worst ever,” Paul said.

July 22, 2008
USA Today
Electronics Retailers Find Service Sells
By Jayne O’Donnell

Three of the TVs are dark in Wal-Mart’s electronics department, where the only two clerks in sight stock a shelf and disappear. At a nearby Target, the digital camera desk is unmanned, and there’s no staff roaming electronics. In Circuit City, a clerk concedes it’s his first day on the job and first week in the country.

But over at Best Buy, three clerks staff the “Geek Squad” counter, and another hovers nearby, poised for questions, which he handles with ease.

A recent shopping trip with a sales training expert underscored the state of competition and service in retail electronics. Business at Best Buy, even in a weak economy, is thriving, thanks, experts say, to its emphasis on service. By contrast, its once-mighty rival Circuit City has fallen far, brought down by a reputation for lax customer service and aggressive competition from Best Buy, as well as mass merchants such as Wal-Mart and Target, online sites and office stores, including Staples.

“Across many industries, we’ve seen that the retailers that grow customer-service ratings the fastest have greater sales growth,” says Chris Denove of J.D. Power and Associates. “Prices have come down dramatically on electronics items, and at the same time, the complexity of the products has increased. Expert advice is more important than ever.”

Circuit City’s struggles could serve as a case study in the critical role of customer service in the retail industry, especially electronics. Last year, Circuit City laid off thousands of its best-paid and most knowledgeable sales staffers, only to see many of them snatched up by Best Buy. And since March, Circuit City’s answer to Best Buy’s popular Geek Squad tech-help team — called Firedog — has laid off up to 200 people. And its cable TV-installation unit has shut down.

Earlier this month, Blockbuster dropped plans to buy Circuit City after studying its finances. Circuit City has said little about its plans other than to say it is exploring “strategic alternatives” to increase shareholder value.

“Best Buy’s strategy is not to cut back on people,” says Mike Mallett of Corporate Research International, which conducts customer and secret shopping surveys. “Best Buy gets it.”

On the other hand, Mallett says, Circuit City is “going down because they’re not doing a better job” of handling customers.

Denove agrees. Circuit City “decided to cut out its high-paid commissioned salespeople in favor of a younger and less experienced sales force,” he says. “While this move cut costs in the short term, the new staff simply wasn’t as effective at selling complex electronics and didn’t provide the same levels of customer service. The net result was a downward spiral in sales.”

Circuit City declined requests for an interview. But COO John Harlow told analysts last month that the company was working to improve service in home entertainment and to increase training.

Circuit City’s plight underscores the challenges for retailers as a sputtering economy forces staff cutbacks, just as shoppers increasingly need hand-holding help with complicated high-tech products.

Signaling for Help
The timing is crucial. In February, broadcast TV will switch from analog to digital signals — a shift that’s expected to send crowds into stores to buy digital TVs that many won’t know how to fully operate. Nearly a third of TV owners don’t know what type of TV they have — analog or digital — a Best Buy survey of 1,000 consumers this spring found. And with financially squeezed families spending more leisure time at home, some sales data suggest that consumers may buy more gaming and other home-entertainment devices.

For retailers, success could increasingly hinge on service. D.L. Baron, CEO of Experticity, which develops electronic customer-service monitors, says his company's research shows at least 20% of customers will leave a store if they aren’t helped quickly. In this economy, few companies can afford that risk.

Best Buy and Circuit City face rising competition, too. Wal-Mart is trying to enhance customer service: It announced last week that it will begin a pilot project of home-installation services this month.

Yet, with electronics stores, as in other retail sectors, it’s small specialty shops that typically provide the best service of all, surveys show. (They also tend to charge more.) A mystery shopping report on customer service in TV sales released Monday by J.D. Power concluded that sales staff at smaller electronics stores are more attentive than those at Best Buy and Circuit City. The study also shows that Best Buy and Circuit City, in turn, outperform mass merchandisers, including Wal-Mart and Target, in service.

Whatever any shortcomings in service, Wal-Mart and other mass discounters have managed to raise their market share of electronics since at least 2005, according to the trade publication Twice. That suggests that some people, at least, are willing for forgo service for low prices, says Tim Herbert of the Consumer Electronics Association.

Focusing only on price, though, could be a mistake for most people, Denove says, especially with TVs. “Since TVs moved to solid-state technology in the ‘60s, they’ve essentially been ‘plug and play’ and completely maintenance-free,” Denove says. “Today’s HDTVs, by contrast, include so many inputs and outputs that unless you’re very sophisticated with electronics, it’s better to let a professional set your TV up.”

Denove says cable and satellite installers have told him that in about half the homes they visit, the owners have hooked their TV up wrong, to the point where a new $2,000 TV isn’t even playing in high-definition.

“There are a lot of confused customers, and they need extra help,” says Lisa Smith, Best Buy’s vice president for customer service.

Corporate Research International, which has been doing undercover shopping studies of electronics stores for nearly two years using about 3,000 shoppers, finds that Best Buy has consistently outperformed Circuit City during that period. And both rank higher in customer service than the big discounters do. Wal-Mart’s test of installation services suggests that the discounter recognizes that further gains in electronics sales may be contingent upon superior service.

Online, Best Buy is posting informational pieces about electronics, along with answers to common questions about TV’s digital conversion. It’s also set up a toll-free line — 877-BBY-DTV9 — on which consumers can speak with a “trained home theater specialist” and also buy a converter box using the government-issued discount vouchers that are available to consumers.

Service Best at Specialty Stores
The new J.D. Power mystery shopper study shows Best Buy’s overall salesmanship — which includes courtesy and product knowledge — tops Circuit City. Still, as is the case throughout the retail industry, you get help even more quickly at the sometimes pricier small specialty stores. J.D. Power found it took more than three times as long to be helped at either Best Buy or Circuit City than at specialty stores. The J.D. Power study was based on reports by 2,000 “mystery shoppers” hired to shop anonymously.

The big national electronics stores have plenty of fans, of course. Roman Blahut of Pompton Plains, N.Y., bought a 52-inch flat-screen HDTV at Best Buy last year and paid a friend to set it up for him. This month, he bought an Apple laptop and a desktop computer from Best Buy and paid $300 for the Geek Squad to come set them up. He likes Best Buy because, “I know they have good deals.”

With his recent purchase, customer service played a big role because “I don’t know anything about computers,” Blahut says.

Still, some, such as Diane Messina of Tucson, say they’re more concerned with price than service. She scours the Web to find the best price on any electronics items she’s considering.

“I can handle most installations, and I don’t have a need for the in-store clerks,” Messina says. “If I find something that I cannot handle, the manufacturer’s website, troubleshooting searches or online forums usually do the trick.”

That’s why retail strategist Michael Brown of Kurt Salmon Associates thinks big discounters will continue to succeed with electronics despite their spotty customer service. People such as Messina aren’t afraid to take on technology alone. Discounters, including Wal-Mart and Target, “know their niche, and they know how they’re going to market to that niche,” Brown says.

In the meantime, Circuit City’s Harlow also told analysts that his company is trying to mend its public image by viewing its stores through customers’ eyes. It’s adding policies on training and greeting, speeding up checkout, delivering quicker and friendlier service and improving merchandise presentation.

Revamping customer service has been a slow process, Harlow acknowledged, but he says it’s proven to be time well-spent: Internal customer surveys and reports from mystery shoppers, he says, showed a big improvement.

“Admittedly, we have to go further in improving customer service in our stores, but I am encouraged by the significant progress we have made,” Harlow said in the June earnings call.

J.D. Power’s quarterly survey on customer service in TV sales shows no gains in Circuit City’s scores, though results from Corporate Research International found that Circuit City’s scores have risen slightly in the past few quarters.

The electronics retailers that do it right have true experts as salespeople, says Robert Richardson, the sales expert who led the tour of stores here recently and who is CEO of Associates Interactive in Buffalo. In addition, he says, they make sure displays are neatly arranged, all TVs are on and customers can enjoy hands-on experience in the store.

On the recent shopping trip here, prominently placed big-screen TVs were turned off at Wal-Mart. And the display models for several of the wireless mice and keyboards were missing at Circuit City. Clerks at both Best Buy and Circuit City were unclear about some of the products and services their stores offered, but Best Buy had more — and more knowledgeable — staff on hand.

Given the complex nature of electronics, salespeople need to be available and able to engage with customers about their needs, Richardson says.

“Good conversation skills,” he says, “aren’t intuitive, but they can be taught.”

Chuck O’Donnell, Best Buy's New Jersey district services manager, who trains many employees in his area, says he stresses that clerks should talk as if they’re speaking with friends or family: “A lot of this stuff is commoditized. So what is the difference? It’s our people. It’s got to be.”

“As the economy tightens,” Richardson says, “everyone is going to be lowering price to the lowest possible point, so service becomes the most important differentiator between retailers. It’s the reason why a consumer would choose to shop at one over another.”

July 18, 2008
The Wall Street Journal
Levi's Marketers Hope One Size Fits All Jeans and Ads Will Get Only Minimal Tailoring In Global 501 Campaign
By Ray A. Smith

Levi Strauss & Co. is betting one size can fit all.

Bucking industry trends, Levi Strauss is retooling its signature button-fly 501 jeans so that they will have the same fit in each of the 110 countries in which the company says they are sold.

Simultaneously, the San Francisco-based company is launching its first global marketing campaign in which print and television ads contain the same theme, content and slogan, “Live Unbuttoned,” the world over. In some cases, the actors will change to resemble the populace in the country where the ad is being presented.

Levi’s new global marketing campaign will feature print and television ads that contain the same theme, content and slogan, ‘Live Unbuttoned,’ the world over.

The campaign, created by Bartle Bogle Hegarty, shows characters letting go of inhibitions and being carefree, which viewers in some markets outside the U.S. might interpret as glorifying recklessness. One TV ad debuting in early August, for example, shows a young man and woman exchanging flirtatious glances as they unbutton their 501s.

Ultimately, they both pull down their jeans and, holding hands, leap off a pier into the ocean. The final shot shows them kissing underwater as the words “501” and “Live Unbuttoned” appear.

Levi Strauss CEO John Anderson says the company is going with both a global fit and global campaign because it believes straight-leg jeans are a global fashion trend, and now is the time to establish the 501 as the obvious option for shoppers around the world. But some analysts say financial considerations are also surely a contributing factor: It is simply cheaper to produce, sell and market one kind of jeans than dozens of varieties.

“One of the benefits of speaking with one voice is you can be more efficient and stretch your money,” says Joyce King Thomas, chief creative officer at ad agency McCann Erickson, a unit of Interpublic Group, who had no involvement with the campaign.

There is a reason American apparel companies often tailor the fit of their clothing when selling abroad: People in different parts of the world have different shapes and preferences. And some industry observers say Levi Strauss could have a tough time selling the concept of a single global fit. “At the end of the day, the customer may like the way the product looks and the image it represents, but if they don’t like the fit, they’re not going to buy it,” says Monica Tang, an analyst with retail consultant Kurt Salmon Associates.

Levi Strauss says the fabric on the jeans is designed to mold to the wearer’s body, regardless of body shape, which will help to account for differences in body type. The company also says it will continue to tailor the sizes offered to different parts of the world.

The stakes are high for Levi Strauss, whose sales peaked at $7.1 billion in 1996 before sliding for eight years while the company missed trends like premium denim and generally failed to respond quickly to changing consumer tastes among young people. Net sales rose 4% to $4.4 billion in 2007, when positive currency effects are included. They fell 8% in the second quarter of this year amid problems related to implementing a new software system designed to boost efficiency.

Levi Strauss has long played the localization game just like a lot of other companies. It has had creative teams in different regions that tinkered with the fit of its 501 jeans to cater to local tastes and fads. A 501 jean bought in New York sometimes had a different fit and look than one bought in Hong Kong. The “rise” (the distance between the crotch and the waistband) might be slightly higher or lower, or a seam more curved, or one pair of jeans might have a different pocket design.

And because the Levi brand has stood for different things in different places, the marketing message has varied by location. In Europe, where the company ran separate ad campaigns, Levi Strauss is considered premium denim, and its five-pocket 501s are more expensive there. But in America, a Levi 501 jean is considered more of a staple, and ads have consistently alluded to Levi Strauss’s American roots.

Levi Strauss declined to disclose the cost of its new marketing campaign, which also includes billboards and viral videos – clips posted on popular Web-video sites such as YouTube. Levi spent $77.7 million on ads in the U.S. last year, according to ad-tracking firm TNS Media Intelligence.

Levi Strauss joins a long list of multinational companies trying to market globally. What the company is doing is “gutsy in today’s world,” says Neil Parker, global head of strategy at branding agency Wolff Olins, a unit of Omnicom Group Inc. “We’re living in a world that has moved a long way beyond Western advertising culture being exported everywhere on a consistent basis. How the core idea of what the brand is about gets translated really needs to be flexible to accommodate regional differences.”

What is more, he says, fashion is much more about individual style these days, making it harder for an apparel company to dictate a trend from the “top-down.”

June 17, 2008
Supermarket Online
Poor Allocation of Store Staff Hours Costing Retailers

UK retailers are wasting about 7.5% of their annual wage bill, or about £2 billion a year, due to a mismatch between the number of labour hours allocated to stores and those that are actually needed, according to a new British study.

The research from management consultancy Kurt Salmon Associates (KSA) also shows that if retailers knew exactly what hours were required to complete back-office tasks, they would have more funds to spend on staff for customer-facing activity that could drive sales.

Labour remains retailers’ second-largest cost after merchandise, but the study, which looked at data from the firm’s clients in Europe and North America, showed that most retailers do not have a clear idea of how long it takes store staff to carry out specific processes and tasks, leading to a lack of logic behind the number of labour hours allocated and those that are actually needed.

The study’s authors said that if there was better visibility of how time was spent, down to the department level, retailers could make clearer decisions regarding the trade-off between cost and service.

They added that the level of wastage was raised by the fact that typically 40% of store staff hours are taken up by back office support processes frequently involving duplication of tasks and inconsistent procedures, often because job times are not being measured regularly, particularly when a procedure has been changed.

KSA’s research also revealed that many store managers often allocate more hours and focus on those tasks on which they are more rigorously monitored, such as management reporting, queue length, and availability of promotion lines.

June 16, 2008
USA Today
The Necktie, Knot What It Used To Be, Still Hangs On

They were the best of ties. They were the worst of ties.

Skinny little beatnik ties and mod doublewide ties. Suave and sophisticated Frank Sinatra ties and greedy Gordon Gekko power ties. Bar Mitzvah boy clip-on ties and Jerry Garcia trippin’ ties.

And, of course, all those closet doors decked with millions of gifted ties.

But now, with another Father’s Day upon us, comes word that the necktie — that elongated swatch of silk or polyester or rayon whose donning has long marked a male rite of passage while serving no discernible utility — may be fading into the fashion sunset.

The recent decision by the Men’s Dress Furnishings Association — the trade group for America’s neckwear makers — to shut down has some folks tied up in knots. A calendar crammed with casual Fridays (and Mondays and Thursdays...) has exacted its last, grim toll, some said.

In an age where some people show up for job interviews in flip-flops, the imminent death of the tie seems plausible.

It’s been a good, long time, after all, since America was a nation of necktie-wearers.

Look back at pictures from the Great Depression and you’ll see men who put on ties before taking their place on soup lines. The stands at baseball games were once filled with men in ties — even on weekends. In the years after World War II, when employers created thousands of new office jobs, the sidewalks of downtowns across the country were thronged by men whose necks were cloaked in soldierly stripes and solids.

But before we deliver the eulogy for the necktie, consider this:

Men have been wrapping and winding pieces of cloth around their necks for hundreds of years. It’s clear that the tie, once the very symbol of the male establishment, is far from the icon it used to be.

Still, there’s small comfort for neckwear makers: At least they’re not selling fedoras.

And, given the fickleness of fashion and the fact that some occasions still demand a tie, it’s probably too soon to write its epitaph.

Predictions of the necktie’s demise have been circulating for years. In the mid-1990s, designer Gianni Versace offered his vision of male fashion in a coffee-table book titled “Men Without Ties,” a sure sign of where things were headed. A bronzed Adonis dashed across its cover dressed in nothing but a few ties, lashed loosely around his waist.

The burgeoning popularity of casual Fridays turned khakis and open collar-shirts into suitable wear for workplaces previously better suited to suits. The dot-com boom filled thousands of instant offices with laid-back twentysomethings who saw no point in lashing something tight around their necks.

But rumors of the tie’s death are roughly equivalent to the longtime predictions that the computer would soon turn society paperless. There’s a lot of truth to the prognostication, but somehow it hasn’t quite turned out that way.

Clearly, the tie business is nothing like the old days. In the early 1970s, when sales peaked, manufacturers sold between 200 million and 250 million ties a year in the U.S. Today annual sales have dropped to about 50 million, according to Lee Terrill, president of the neckwear division of Phillips-Van Heusen Corp., the nation’s largest tie maker.

A Gallup poll last year found just 6% of men wearing neckties to work each day, down from 10% in 2002. More than two-thirds of the men surveyed said they never wear a tie to work, up from 59% five years earlier.

But the necktie still has its defenders and devotees, men who invest the kind of affection in their ties that a golf shirt will probably never know.

Smith has a collection of more than 400 ties in his closets. They are vital accessories in a job requiring him to deliver many speeches and presentations — more than 700 in the past eight years. Every Smith speech is punctuated with a tie themed to the subject.

A tie with a giraffe on it for a speech about the qualities that make a good supervisor, one who is able to raise his head above the fracas to see the landscape clearly. Another featuring a painting by Charles Rennie Mackintosh of a rose inside a teardrop that he saves for delivering eulogies.

“When I walk into a room, they’ll look at my necktie, they’ll actually pick it up when I walk in, and say ‘Oh, what are you going to talk about today? and I’ll say, ‘Oh, wait and see.’ It actually creates a sense of mystery,” Smith says.

Smith’s collection, though, pales compared to the more than 1,000 ties owned by Richard Arutunian, a retired Southern California neckwear manufacturer.

Arutunian rejects this talk that the tie has come undone. A tie is singularly irreplaceable, he says, uniquely capable of sending a message about its wearer to women and to his fellow men.

“To me it tells more about the person than even the shoe does,” says Arutunian, who long served as official tie historian for the neckwear industry association’s predecessor. “Is he trying to impress me? Is he wearing a tie because he has to wear that tie? How is he tying that knot?”

Wearing cloth around the neck stretches back a long way. Some trace the modern tie to the early 1600s when Croatian fighters looped fabric around their necks before battle, captivating the public’s imagination.

Hard to believe, but for most of history men were the peacocks of the fashion world, and that included draping their necks in all sorts of status symbols, from waterfall cloths to cravats, says Paula Baxter, who curated an exhibit that closed last year at the New York Public Library on the rakish history of men’s wear.

The era of the male dandy ended in the late 19th century, when the uniformity of the tailored suit took over. In the early 1920s, neckwear makers began cutting cloth on the bias — diagonally, at an angle to the weave — and the modern tie was born. It found a welcome home on the necks of the expanding ranks of white-collar workers.

By the 1960s, 600 companies made ties in the U.S., mostly smaller, regional manufacturers. They banded together in a professional association that lobbied on their behalf.

Those days are long past.

Today there are only about two dozen companies making ties in the U.S., and the business is dominated by huge firms. Many of the ties American men wear are made overseas. It didn’t seem to make any sense to keep running an association built for an industry so fundamentally different from what it used to be, says Terrill, the neckwear business executive and a member of the association’s board.

“We didn’t think anybody would notice,” he says, of the decision to close.

Instead, the association’s closure has been greeted as confirmation that the tie is done.

The suggestion alarms Terrill, who says that sales have steadied and ties are poised to make a modest comeback.

There are still a few islands of tie-wearers. Lawyers and folks in finance and insurance work in offices where suits and tie remain the badges of professionalism.

“When you wear a tie it still says ... you’re dressed for the occasion,” says Amy Klaris, a retail strategist at consulting firm Kurt Salmon Associates.

Today, with the economy softening, men need to market themselves and a big part of that is the way they dress. That will send the pendulum swinging, albeit subtly, back to the suit and tie, Terrill says.

In the past 10 or 15 years, as dress codes loosened, men who’d always worn ties “were making a statement. I’m not going to wear a tie because I don’t have to wear a tie,” Terrill says. “But now so many people don’t wear a tie, that it’s a statement to wear one.”

That sounds like wishful thinking to Corlett, the consultant. She agrees that sales of ties have leveled off, but a comeback is unlikely.

“I think it’s about as untrue as women returning to hosiery. Once you free the body of the tie and the hose, yeah, you may go back to it occasionally to make a statement or on dress-up day, but nobody willingly goes back to wearing a tie five days a week,” she says.

For those waiting to see if men will once again embrace the constriction that comes with ties, she suggests looking to examples in women’s fashion.

“You know,” she says, “corsets never came back.”

May 18, 2008
Chicago Tribune
Change Boosts P&G’s Febreze; Nearing $1B Sales Milestone
By Dan Sewell

It took some new uses to turn Procter & Gamble Co.’s Febreze into a brand now within whiffing distance of the billion-dollar annual sales milestone.

After its first few years on the market, people weren’t using the original fabric odor spray all that often, and sales were flattening. But researchers then realized people were already trying out the spray in other ways in their homes.

That led to new Febreze products – air fresheners, plug-in scents, candles and team-ups with P&G detergents and household cleaners. Marking its 10th anniversary, Febreze has more changes ahead this summer, backed by stepped-up marketing.

Its story is an example of how household products companies first build an image, then a brand.

“You get a connection with the consumer, in terms of understanding what the brand is and more importantly, what it stands for,” said Bruce Cohen, a strategist for the retail consulting firm Kurt Salmon Associates. “It needs to stand for something distinctive and authentic in the consumer’s mind.”

Example: People connect V8, the vegetable juice, with something healthy and nutritious. So, Cohen said, Campbell Soup Co.’s subsequent line of V8 soup doesn’t need much explanation or introduction.

Same with the Clorox Co.’s namesake bleach, immediately associated in many consumers’ minds with clean and disinfecting, leading to products such as household wipes and toilet bowl cleaners.

“That connection allows them to develop new products ... the consumer gives you permission,” Cohen said. “That’s the secret sauce.”

In Febreze’s case, he said, the brand reminds people of “a fresh-smelling, clean home.”

Martin Hettich, P&G’s air care market director for North America, recently previewed for The Associated Press Febreze plans that include a combined fabric/air freshener in a more-stylish bottle, with an easier-to-use pump that sprays a finer mist than previous models.

And he recounted that, after a fast start in 1998 that saw Febreze quickly top $100 million in sales, then slowed, researchers decided the next move by visiting consumers in their homes, sitting on their sofas, and watching.

“They were using their fabric refresher in a way it was not designed for at that point,” Hettich said. “They were using it for a little spritz in the air; using it in a surround way.”

Entry into the air freshener market followed in 2004, with a campaign touting Febreze as “a breath of fresh air.” The brand saw a 27% sales increase, and it has maintained 20+% annual growth rates as its product line has expanded.

P&G says Febreze now leads both the fabric spray and the aerosol spray categories and is the second-leading air care brand behind Glade. Spokeswoman Pashen Black of Racine, Wis.-based SC Johnson, maker of Glade, said the privately held company wouldn't discuss competitive rankings.

Febreze, with more than $800 million in annual sales, has been added to other P&G products, including Tide detergent and Swiffer dusters. Those brands count the additional sales in their own revenue figures; otherwise, Hettich said, Febreze would already top $1 billion, joining 23 other P&G brands including Tide and Pampers diapers and becoming one of the fastest to reach the mark.

Febreze also has begun licensing products outside P&G.

E-Z DO Inc., an Edison, N.J.-based closet innovation company, and Brandscape LLC, an Atlanta-based product development and marketing firm, have a joint venture through Febreze. They are rolling out Febreze Closet Renewable freshening products through retailers that include Bed Bath & Beyond Inc. and Target Corp., said Brandscape head Nick McKay.

The reach into additional households will enhance Febreze recognition, along with what Hettich says will be the biggest advertising campaign in brand history this summer.

He said the current economic slowdown isn’t hurting sales:

“What we’re finding is that people are cutting down on their trips to the mall, they’re eating out less; by virtue of spending more time in their home, they actually want to make sure their homes smell nicer.”

May 5, 2008
Women’s Wear Daily
The Pressure Is On: Retail Anxiety Builds As Economy Weakens
By David Moin with contributions by Cate T. Corcoran

Fear plus frustration equals premature — and aggressive — markdowns.

That seems to be the current state of play as the struggling economy has turned retailing into a challenging game of inventory management, urgent belt-tightening and guesswork planning for seasons ahead.

Skyrocketing food and gas prices are pinching consumers at all income levels, and industry executives are said to be scurrying to get their receipts and expenses in line with their rate of sales. The cold, hard reality is that the merchandise in stores today was ordered almost six months ago — when the economy, while weakening, was in better health. Making things worse is that no one knows when the economy will hit bottom, with many saying there won’t be any improvement for at least two years.

“I’ve never experienced anything like this before,” said Jane Elfers, Chief Executive Officer of Lord & Taylor. “When I speak to veterans of the industry, who have been in the business for 40-plus years, they tell me they’ve never seen anything like this, either. It really puts the pressure on retailers to innovate to get customers to shop.”

And if they don’t, the warning signals are flashing: On Friday, Linens-N-Things became the latest in a growing list of retailers declaring bankruptcy this year.

Meanwhile, markdowns are creating greater angst than usual. Last week, consumers on retailers’ e-mail lists found their in-boxes full of promotions. Macy’s, Bloomingdale’s, J. Crew, Neiman Marcus, Endless and Sigerson Morrison were offering anywhere from 20% to 40% off, usually with free shipping.

“The sales are across the board, not just online,” said an executive at a large, multichannel retailer. “Everyone is trying to get rid of inventory they bought a lot earlier, and not have it hanging around in the fall.”

On Friday, Saks Fifth Avenue raised some eyebrows with advertisements in New York newspapers promoting 40% off selected merchandise. The flagship had many red signs atop racks flagging 40% off, across the designer sportswear and couture floors as well as bridge and contemporary labels. Most often, spring goods were on sale, whereas Fall One deliveries appeared at full price. The main floor had plenty of handbags at 30% off, drawing swarms of shoppers.

Stephen I. Sadove, chairman and CEO of Saks Fifth Avenue, reiterating comments made at a Lehman’s conference last week, said, “It’s our intent to clean up our inventories by the end of the season. It’s better to sell product on first markdowns rather than second markdowns.”

The sale, announced privately Thursday and Friday, and advertised for Saturday, was a week ahead of last year’s.

“Everybody gets crazy when it’s designer merchandise getting marked down earlier,” said one luxury retailer. “It’s not as big of an issue with bridge and contemporary.”

Last week also saw some retail downgrades by Standard & Poor’s, including Barnes & Noble, due to “a challenging macroenvironment, increased price competition and the lack of a Harry Potter book to boost traffic and sales in fiscal year 2009.”

Pier One also was downgraded because “sales of home furnishing items typically lag a rebound in housing, which we do not see occurring this year.” And Bed Bath & Beyond got downgraded due to “near-term margin compression on potential clearance sales from the closure of Linens-N-Things locations.”

What’s got many in the industry talking is an ominous prediction from J.C. Penney’s chairman, Myron “Mike” Ullman III, who last month said the nation is halfway through the subprime mortgage crisis. Ullman said $2 trillion in home values have dissolved and consumers could stand to lose another $2 trillion. The $19.86 billion Penney’s is reducing store openings to 36, from 50, leading to a savings of $200 million in capital expenditures. There will be 20 major store renovations, down from the 65 originally planned, and the retailer is “moderating” the inventory buy, which is generally purchased four to nine months ahead of the selling season.

After 39 years in the retail business, “I don’t think I’ve been in an environment so unpredictable....For 2008 to 2009, there is a very difficult outlook,” Ullman said at an analysts’ presentation. “We really don’t know what 2008 and 2009 will look like.”

The middle market, to which Penney’s, Kohl’s, Macy’s and Target cater, and the aspirational market, such as Nordstrom and Coach, for those shopping at a rung below designer price points, appear to have been the hardest hit by the economic downturn. “The aspirational market just kind of tanked out. Those in the $250,000 to $500,000 income have been tanking with the market," said Greg Furman, chairman and founder of the Luxury Marketing Council, at a panel discussion conducted by the group last week.

Douglas Gollan, president of Elite Traveler, the private jet luxury magazine whose readers have an average household income of $5.3 million, said, “I’m very bullish on very rich people. I’m not as positive on the entire market. What’s happening in the economy I would compare to a Category 5 hurricane.”

Throughout the industry, there is no consensus on how long retail will struggle or when the economy will turn. Lincoln Palsgrove IV, senior marketing manager for the South Street Seaport, who participated in the panel, said business at the Seaport “is looking pretty rosy because we have foreign visitors.” However, he believes retailing overall is “in for some tougher days into 2009.”

A more optimistic prognostication came from Robert H. McCooey Jr., senior vice president of new listings and capital markets at The Nasdaq OMX Group. “I get to go around and meet business leaders and see CEOs confident about the fundamentals. Most run their businesses in the mind-set of a short but shallow recession.” He added that “bringing the IPO market back to life will be a sure sign of recovery.”

The industry will be closely eyeing April sales results, which get reported this week. They are expected to be better than those in March, but still in the negative column for many retailers.

“Thanksgiving weekend was the last positive performance, and there has been a continuing downturn since then,” observed Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates. “April will not be fully indicative of any major reversal of the negatives.”

Contemporary sportswear; sandals, particularly gladiator styles; bathing suits, and cotton sundresses have fared well at many stores, though suits, in men’s and women’s, and the kids’ businesses are said to be poor. Other sportswear is considered to be doing just okay, as are handbags and jewelry. Retailers said that during hard times, people are still treating themselves to simple pleasures, such as ice cream, the movies and coffee (primarily less expensive ones — Starbucks last week scaled back its U.S. expansion after poor financial results). Because consumers are eating out less and cooking at home more, food retailers are expected to do well, as are drugstores.

Department stores through much of this year have been tracking at midsingle negative comps, with women’s fashion chains even more negative, while big discounters such as Wal-Mart and those on the high end, such as Neiman Marcus, have performed slightly up or a little behind.

Burt Tansky, Chairman and CEO of the Neiman Marcus Group, speaking last week at a seminar organized by the Emanuel Weintraub Associates consulting firm, described the business climate by saying: “It can be bleak, but it can also be finite. Since World War II, recessions, on average, have lasted 11 months.” As for how Neiman’s is weathering the storm: “We are on a diet. We are planning conservatively, controlling our expenses and finding ways to be efficient....Trading down is not an issue. The customer may pull back but won’t pull out or trade down.” They’re tightening their “alligator and ostrich” belts, he said.

According to one department store CEO, “Business is rough everywhere. You’ve got to keep managing the inventory and getting ahead of it and making sure receipts are in line with projected sales. Sales are getting worse and worse, so you need to make sure the inventories are aligned with sales projections based on the true trend. April is going to be better than March, but that has to do with the extra day of Easter. We are still seeing down comps. We were up against bad comps from a year ago and it’s still bad and that shows how bad it is really.”

Generally, retailers can stop shipment on receipts four or five months ahead of delivery, depending on whether it's basics or fashion goods and depending on the vendor. European luxury designers are likely to have stricter arrangements with retailers, whereas companies such as Liz Claiborne and Jones tend to construct gross margin agreements with stores.

Fortunately for them, there are new markets emerging, such as Russia, and off-pricers like Marshalls and TJ Maxx are waiting with open arms. The outlet business continues to grow, as well.

Through the adversity, a silver lining is emerging. “Retail leaders are getting better at reading the tea leaves,” said Aronson.

Though many store executives have been issuing somber views, sometimes to provide realistic or lowered expectations to Wall Street, “retail leaders are not ‘cry wolf’ kind of people and are reacting to what’s going on in the economy and the difficulties their customers are facing,” he continued. “They recognize that this downturn is different from others because it has more variables occurring all at once.” He cited unemployment rising at 5.2%; record-high gas prices, at $3.62 last week for regular; housing that starts at a record low, off more than 20%, and the high euro, causing rising prices on imports.

“Most retailers are reacting to these conditions prudently by moderating new store expansion, tightening inventories and addressing expense levels until the storm clouds clear,” Aronson said. “It’s the perfect storm of many real economic issues.”

“It’s tough, definitely difficult and volatile,” said one executive from a national women’s fashion specialty chain. “You can have a good day and then a not-so-good day. There is no constant trend. [The consumer] is very interested in the deal. Pricing is so much more competitive. If you turn on a promotion, you see a reaction. Everybody is constantly having a sale. If the product is good, and if it’s different, she’s willing to pay, but you’ve got to get her over the hump with a promotion. It’s very tough. We are planning for business to be tough for a while, but we really don’t know for how long. We are buying less than last year. Our planning is conservative. We are not planning comp growth. Our holiday planning is pretty much set at this point. Department stores are the most promotional I’ve ever seen them. But everybody is being very promotional.”

May 4, 2008
Boston Globe
Downscaled Hopes for an Upscale Mall
By Jenn Abelson

The Natick Collection was envisioned as a destination for suburban shoppers searching for luxury goods, but sales at some high-end boutiques, some merchants say, are stagnating, and other stores are opting out of the mall altogether.

On a recent spring day, Neiman Marcus is a ghost town. Almost everything is on sale at Calvin Klein. Gucci has delayed its opening several times, and Italian designer Piazza Sempione has bailed on its lease entirely.

The highly anticipated Natick Collection, a suburban bastion of luxury shopping where some rents are higher than coveted Newbury Street, is off to a slow start, according to retail analysts, store owners, managers, and employees at more than a dozen stores.

Some merchants blame the weak traffic on a potential recession and anemic consumer spending. Indeed, across the country retailers are seeing fewer shoppers, shutting stores, or filing for bankruptcy as people pull back on discretionary spending and worry more about paying for basics like milk and gas.

Yet others say the problem may go even deeper, that high-end designers and top-notch fashion in the suburbs simply haven’t caught on. Natick was supposed to be the next fashion frontier, debuting the state's first Nordstrom and first suburban Neiman Marcus as part of a multimillion-dollar 500,000-square-foot expansion that opened last fall.

But the hype has fallen short in this town 20 miles west of Boston. After a brisk holiday season, traffic has slowed, on some days, to a near standstill, merchants say. The older part of the mall, which features staples like Macy’s and Gap, still sees a crush of shoppers on the weekends, they say. And while Nordstrom is popular, much of the vast new wing - with soaring skylights, concierge service, and fake birch trees – often remains empty.

“We had a rough winter,” said Betty Riaz, owner of trendy boutique Stil, who pays upwards of $100 per square foot for the Natick store, which is more than her Newbury Street shop. “It’s been quiet. Even if you have money, you may not have taste. We have to educate our customers on style. It’s hard. I thought it would be easier in Natick.”

General Growth Properties, which runs the mall, said it has not heard concerns about sluggish sales and that the slowdown in consumer spending and luxury shopping has not had an impact on the mall. Michael McNaughton, General Growth’s vice president for asset management Northeast, said business at stores in the original part of the mall has “grown tremendously” since the expansion opened last fall, and that the new wing has exceeded expectations. But he declined to provide specific traffic or sales numbers.

McNaughton disputed the suggestion that Natick wasn’t ready for high fashion, but added: “Not every retailer is for every customer.”

In recent weeks, stores have stepped up promotions in an attempt to lure people into the luxury wing, where $3,000 Louis Vuitton bags and $500 shaving kits are plentiful. For the month of April, Neiman Marcus offered free Bellini cocktails every Saturday afternoon as part of a “Sip and Shop” event to showcase its designer handbags. Bright pink banners hung from the ceiling near Sears in the older section of the mall, beseeching customers: “Neiman Marcus. Go Back. Turn Right. Shop Fabulous.”

Last month, Lululemon Athletica hosted “Zen Wednesday” outside Neiman Marcus, offering a free yoga class followed by tapas and juice elixirs served by the French restaurant Sel de la Terre. Two weeks ago, boutique Stil hosted a luncheon and fashion show in the middle of the mall.

Retail analysts say General Growth may have misread the demographics and overestimated the reach of the shopping center. While there is ample wealth in this region — the average household income is about $110,000, nearly double the state average — there is still a culture of buttoned-up Yankees who aren’t accustomed to indulgent spending on luxury goods, according to Madison Riley, a retail strategist at Kurt Salmon Associates in Boston. And the younger moms paying attention to fashion are more likely to buy a Burberry blanket for their baby carriage than $350 designer jeans for themselves.

“There has been a culture in the Boston area of that Yankee thriftiness, even when one had money,” Riley said. “That’s changed in the city of Boston but the mentality still resides in the suburbs, and that is impacting Natick.”

Boston, with its influx of tourists, wealthy empty-nesters, and stylish yuppies, has had better success proving its fashion sense, keeping busy new stores like Jimmy Choo and Gucci. Fashionistas on the North and South shores are also more likely to hit the Boston Neiman Marcus and the shops on Newbury, rather than head out to the western suburbs, according to Mike Tesler, president of Retail Concepts, a consultant firm in Norwell who was not involved in the project.

The combination of Gucci’s multiple delays, the pullout of Piazza Sempione, and other vacancies in the new wing has worried some retailers about the future of the mall. Gucci would not comment on the reasons behind its delays, and Piazza Sempione would only confirm that it had backed out of the lease in Natick.

Tesler, who recently visited Natick Collection for a business lunch, said only three other cars were parked in the new premium lot, which charges $5 and is closer to the luxury wing. Over the five times he’s visited the mall in recent months, the number of cars in the lot has decreased with each trip.

Several Neiman Marcus employees, not authorized to speak publicly to the Globe, complained of very slow sales and Neiman bosses instructing employees to make calls to the same customers two to three times a week to seek more business.

Retail analysts believe Natick will ultimately be successful, but it may take some time.

“At cocktail parties in Chicago, LA, and New York, they talk about fashion the way we talk about sports. The focus on fashion is less and less as you get out in the suburbs,” Tesler said. “That is gradually changing, but there’s some education and work to be done.”

Paula Brennan, assistant store manager at The Art of Shaving, said the new section of the mall is pretty empty during the week, and even during busy weekends, people seem to be merely window shopping. The upscale shaving business has stayed afloat because of customers who work in the city, bought products at the Copley Place shop, and are looking for replenishments at the Natick store, near where they live.

“We’re more of a destination and not reliant on mall traffic as much as other retailers,” McClelland said.

The economy certainly isn’t helping Natick, with luxury retailers, once the pillar of strength, showing signs of lost momentum nationwide. Louis Constant, a salesman at Tommy Bahama, which sells high-end resort wear, said he blames slow business in Natick on customers being more conservative with their spending. Across the industry, sales at stores open at least a year have fallen recently at upscale merchants, including Saks Inc. and Nordstrom, which reported declines of 2.9% and 9.1% respectively.

But in Natick, department store Nordstrom is one of the exceptions. Retail analysts say the newness of Nordstrom — Natick was the first location in the state — along with its broad price points make it more accessible for shoppers, offering $1,200 Versace top coats and $30 T-shirts. Nordstrom spokesman Michael Boyd said the company has “been really pleased by the results we’ve had in Natick,” but would not comment on whether sales had met or exceeded expectations.

Riaz, owner of boutique Stil, said she has followed Nordstrom’s lead and changed the mix of her wares in Natick to include more lower-priced items over the past two months. She now sells T-shirt dresses for under $100 alongside her $800 dresses.

Nadia Nielsen, 21, of Wayland, recently had a dose of sticker shock after walking out of Neiman Marcus empty-handed. As she headed to the older part of the mall, Nielsen questioned the idea behind the upscale shopping experience.

“Out here in the suburbs, people are pretty casual,” she said. “When you go to Whole Foods and wear heels, you feel too dressed up.”

But the Natick Collection does have its hard-core loyalists, like 32-year-old Vivian Wexler.

“Yes, it’s conspicuous consumption at its finest, and I am ashamed to admit that it rocked my world down to the core,” Wexler said. “However, even if you’re not a die-hard capitalist, you’ll be astounded at how . . . convenient it is to go to one mall and be able to get your entire list of holiday gifts. They’ve got such a diversity of stores that it’s mind-boggling.”

But her last visit to Natick? December.

April 2008
Apparel Magazine
Kellwood Sizes It Right

In a largely seasonal and fashion driven business such as Kellwood’s, traditional forecasting and replenishment methods don’t always apply.

The St. Louis-based maker of Sag Harbor, Phat Farm and other mid-price apparel labels had been working with 7thOnline Assortment Planning for three and half years to help maximize sales at first price.

But the amount of data and quantitative analysis involved in determining the optimal size allocation by style by store is complex. The calculations of the size distribution are often oversimplified, not taking into account the price, revenue and margin impact of missed opportunities, stockouts in particular sizes.

Prior to adding 7thOnline size optimization technology, Kellwood didn’t have the tools to fully analyze the enormous amount of POS data now available at retail to be able to tailor assortments by door.

“We didn’t have a sophisticated means to take large amounts of data by retailer door or SKU and come up with the best size optimized recommendations for our retailers,” states John Davis, director of retail analysis and planning systems at Kellwood.

“Not all retailers have these systems,” he adds. “I think it’s moving in that direction, but somewhat slowly.”

FAST FACTS
Headquarters: St. Louis, MO
Number of Brands: 30+, including owned and licensed brands
Brand Names: Baby Phat, Democracy, Hanna Andersson, Koret, My Michelle, Phat Farm, Prophecy, Sag Harbor and many more
2006 Sales: $1.96 billion
2006 Net Earnings: $31.4 million

Getting to POS Data at the Local Level
Before 7thOnline, Kellwood’s sizing process essentially consisted of buyers’ determining the size ratio and purchase quantities of sizes by groups of stores. This strategy did not incorporate size differences by geographic location or local demand.

As a result, Kellwood often missed sales opportunities due to early size breaks in hot styles. On the other hand, Kellwood would incur excessive markdowns due to overstocked sizes in styles seeing weaker demand.

“We felt we could improve so we looked for a way to do that,” says Davis, speaking at a session at the recent NRF convention.

Through historical POS analysis and proprietary optimization algorithms, 7thOnline size optimization determines lost sales by store to create “corrected size ratios” by door. The algorithm then uses these corrected size ratios to create unique “size profiles” for each door, and then assigns each door the optimal size profile based on the client’s preferences. Finally, it creates a recommendation to allocate the assortments by size by door.

For case pack styles, the algorithm determines the optimal size mix for each pack size and the optimal distribution of available case packs to each store.

“Kellwood’s challenges are not too different from [those of] any manufacturer or retailer today that must deal in size-based assortments,” says Ben Lentini, director of implementation services at 7thOnline. “The issues of reducing size breaks and high end of season markdowns have led all manufacturers and retailers to the same objective: Maximizing sales and gross margin.”

Setting Size Strategies
Data cleansing and developing size strategies, according to Lentini, are some of the most important steps in the process. In developing size strategies, the algorithm assigns a predetermined number of size profiles to each door based on the door’s deviation from their original size profile.

A client can then explore “what if?” scenarios to see which lead to maximum sales at regular price. For instance, to determine what works best, the client may test using three unique size profiles across its stores; it may use five.

“Depending on the scope of the project, engagements can be accomplished within six to eight weeks of the receipt of the data,” says Lentini. “Once completed, a series of reports is developed to analyze and interpret the optimization results.”

7thOnline finds that its clients can reduce size breaks up to 15 percentage points and increase full-price sell-through up to 14 percentage points — leading to higher revenue and gross margin contribution.

Bob Copeland, principal at Kurt Salmon Associates (KSA), who also spoke as part of the NRF presentation, believes size optimization is a “valuable part” of KSA’s Act VerticalSM model that calls for retailers to optimize across the supply chain and integrate functions rather than focusing on traditional supply chain areas.

For retailers, according to KSA, getting more involved in design, development, manufacturing and distribution of goods is necessary to meet the needs of a more demanding consumer whose tastes are changing faster than ever.

Managing Inventory Flow Optimally
But while the calculation of the optimal sizes is a critical piece to size optimization, Copeland says it is equally important to decide how to flow and manage that inventory throughout the chain.

“How am I going to handle the order management?” asks Copeland. “How do I get that into the retailer’s system and how do I communicate that to the factory? So from a [purchase order] perspective, you have to look at both the initial order and then later that distribution order as they come into the process. All those need to be considered as you execute the size optimization.”

Copeland says this has become somewhat trickier because some larger retailers continue to increase crossdocking, in which seasonal assortments are packed at the factory, and pass through the warehouse without being unpacked before being shipped to the store. Procedures also have to be set up for the standard pack and ship model, whereby either pre-pack or open stock is flowed to the retailer.

KSA feels the optimal model is a hybrid one where packing is done by door for the initial assortment push at the factory that is crossdocked to the store. Then a buffer of open stock is shipped to fill in missing sizes, with either the retailer or branded supplier holding back the inventory. Finally, the remaining inventory is flowed using optimal sizing technologies by store in what Copeland calls a “push pull push model.”

Copeland elaborates: “So what happens is the initial order is pushed and then sizes are optimized, and then that hold back is used to fill in based on the actual local selling by size. And then as you get to the end of the season and you’re getting ready to do price breaks, you’re doing an optimal push of that last remaining inventory if you have any left.”

Encouraging Retail Reaction
Davis says Kellwood is enhancing its systems to take full advantage of size optimization to improve handling of pre-packs, and working with retailers to help them execute size-optimized assortments in their processes and systems. The initial response from retailers has been encouraging, he says.

“During market when we presented our assortment plans to several large retailers it was received very positively,” says Davis. “One large retailer indicated that they in fact were developing new planning systems to take advantage of size optimize technologies themselves. Another retailer gave us what you could consider a backhand compliment — but a compliment nevertheless — and indicated that they were surprised that we were that sophisticated.”

Concludes Davis: “We feel in-stock and markdown optimization will become the norm in developing assortment plans for fashion items.”

April 29, 2008
Consulting Magazine
Sustainability Means Opportunities for Those Firms Acting Globally to Help Meet Their Clients’ Demands
By Joe Kornik

Marc Epstein likes to talk about the Toyota Prius. Not the car itself, but more Toyota’s strategy behind the development and the delivery of the first mainstream electric/gas hybrid car. In an incredibly forward-thinking moment, Toyota’s leadership brought together a team to develop what it was calling “the car of the 21st century” way back in 1993, long before it was fashionable to think of an automobile’s impact on the future. Even more innovative, perhaps, was the team Toyota assembled to work on the car. The traditional hierarchal model was replaced by what Epstein calls “an equal-access system of communication,” which included leadership, designers, engineers, marketers and production plant crew chiefs.

“The Prius was a huge risk, but it has been an absolute bonanza for Toyota,” says Epstein, author of Making Sustainability Work: Best Practices in Managing and Measuring Corporate Social, Environmental and Economic Impacts. “And it got first-mover advantage in the marketplace and with consumers, which led to Toyota controlling over 50 percent of the hybrid market even though there are more than 25 hybrids out there right now.”

And since the Prius debuted in the U.S. in 2001, Toyota has sold more than 1 million hybrid cars, twice as many as its nearest competitor. Toyota is now the No. 2 seller of automobiles worldwide, and its brand value has increased 47 percent since the Prius was launched, according to Interbrand.

What's Your Carbon Footprint?
Firms Take on Travel to Reduce Impact
Shannon Schuyler spends a lot of her time thinking of ways to reduce the carbon footprint at PricewaterhouseCoopers. “We look at everything from travel to paper usage to the impact of our employees commuting,” says Schuyler, who is a managing director with PwC. “More and more we’re finding that clients are demanding to see what we’re doing internally before they decide to have us work with them on a sustainability project.”

Although the new initiative is only a few months old, Schuyler has already found ways for PwC to reduce its overall impact. “As a company, we’re one of the largest purchasers of rental cars. So, we’ve gone out to the car-rental firms and have encouraged them to add more hybrids to their fleet,” she says. “And then we’ll want to work more with the ones that do.”

Another area that drives up a carbon footprint in a hurry is air travel. “Obviously, we travel a lot, and that has a very big impact,” she says. “But we’re also looking into ways to reduce our air travel.”

Daniel Mahler, a partner at A.T. Kearney and the firm’s global coordinator for sustainability, is also trying to reduce air travel. When Mahler began to calculate A.T. Kearney’s carbon footprint, he discovered that about 79 percent of it was due to air travel. And of that 79 percent, three-quarters of it was client related.

There’s a lesson in there for consulting firms, Epstein says. “Big risks lead to big rewards,” he says. “There are huge opportunities out there for consulting firms willing to take a risk.”

Several have, particularly in the midst of skyrocketing client demand for sustainability work.

Iván Martén, global leader of the Energy Practice at The Boston Consulting Group, says the time to act is now. “Sustainability has become a critical global issue and is indeed a real business imperative,” he says. “Maintaining society’s established, or aspiring, lifestyle while reducing carbon emissions could be the biggest challenge business executives face in this century. Companies need to move beyond the rhetoric and implement plans that are sustainable and profitable.”

One firm that’s jumped in to the sustainability movement with both feet is A.T. Kearney. As a partner and the global coordinator for sustainability, Daniel Mahler knows what’s at stake. He says, simply: “We think it’s going to be huge.”

It’s hard to put a finger on just what sustainability encompasses. Is it Dell pledging to plant a tree for every PC it sells? Is it Goldman Sachs investing $1 billion in clean energy technologies? Is it the city of San Francisco banning the use of plastic bags in supermarkets? All of the above, Mahler says. “It’s adopting business strategies that meet the needs of the company and its stakeholders today, while protecting, sustaining and enhancing the human and natural resources that we’ll need in the future.” In other words, it’s not just corporate social responsibility. Rather, it’s a completely new and innovative way to think about all aspects of your business, Mahler says.

Going to Market
A.T. Kearney launched its 90-person Sustainability Practice last June and is investing some $6 million in research and intellectual capital around the topic. “It is in A.T. Kearney’s DNA to think about topics that go beyond the classic consulting mission,” Mahler says. “It’s not about the short-term gains for clients; it’s about the essential rightness of the advice that we give to clients every day.”

Mahler says the sustainability movement at A.T. Kearney was energized by the leadership of Paul Laudicina, who took over as the firm’s chairman in September 2006. At the time, Laudicina was head of A.T. Kearney’s Global Business Policy Council and had a long-standing interest in environmental issues.

“From day one, sustainability was a top priority for Paul, both in terms of our clients and for us as a firm,” Mahler says. “The initiative has been clearly spearheaded by Paul, so it has the top-down support, but it wouldn’t be possible without the right firm DNA and a very ripe consultant body that was ready to move on it.”

That consultant body is made up of a constant pipeline of recruits who come to A.T. Kearney specifically because of the Sustainability Practice, Mahler says. “This has helped our recruiting tremendously. The younger generation is helping fuel the growth,” Mahler says. “In addition, we’ve also retained people who otherwise would’ve left A.T. Kearney.”

Like A.T. Kearney, other firms have launched standalone sustainability practices with dedicated practitioners.

Accenture launched a centralized sustainability practice with about 50 consultants last summer. The practice, made up of existing consultants and new sustainability hires, consists of sustainability experts who stay closely tethered to the firm’s other practice areas, says Sander van’t Noordende, group chief executive, resources, at Accenture. “Keeping connected [to other practice areas] is vital. Sustainability is not something we do on the side; it’s part of the way we do business,” he says. “We’ve made a significant investment, and I expect this will be one of the fastest-growing — if not the fastest-growing — practice area within Accenture over the next several years.”

PricewaterhouseCoopers, meanwhile, has had a small susta