Breaking down Target's Canadian launch

Target’s expansion into Canada in 2013 was met with high expectations, and a level of excitement, all of which was decidedly missing when Walmart made a similar move in 1994 with the purchase of 122 Woolco stores.

The fiscal year generated $1.3 billion for Target, and the team operated with a gross margin rate of 14.9 percent. Although this was below the company’s expectations, considering the volume of openings – 124 in less than a year, these results would be considered a win by many retailers (although operating losses for the next two years are a tough metric to swallow). 

TARGET 2013 sales vs store count results - RETAIL ASSEMBLY news.jpg

The quarter-by-quarter sales are increasing at a faster rate than the number of stores. However, the concern is the low margin rates in the second half of the year as the retailer began to clear excess inventory. 

 

TARGET 2013 gross margin results - RETAIL ASSEMBLY news.jpg

Strangely though, this isn’t what the customer is seeing. Empty shelves have been the widely reported inventory story in the country’s media. At a dinner party this past weekend in rural Ontario, the consensus around the table was that the company was “selling out” of merchandise too quickly because the company wasn’t buying enough. 

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    Image by Doug Stevens via  The Wall Street Journal Blog

Image by Doug Stevens via The Wall Street Journal Blog

Much of the retailer’s launch shows consumer perception at odds with what the business is telling the merchant and buying team. Initially, Target had indicated that the higher-than-expected demand attributed to the lack of inventory. However, almost a year into business it indicates a larger distribution and allocation issue with the retailer.


Is it possible that Target’s sales plans would never have allowed the buyers to fill store shelves? Typically if a retailer is missing its sales plans, as Target is consistent in suggesting, it results in the opposite issue of too much inventory in-store.


Pricing perception is another issue that both the media and consumers have embraced. Higher pricing is something Canadians are particularly sensitive to as higher duties and shipping costs often put goods just south of the border 10 to 15 percent less expensive on average. Target has always understood this, and despite multiple pricing surveys indicating Target is on-par with their Canadian competition, consumers believe they are being over-charged for goods compared with US Target stores.


A feature unique to Canada’s retail landscape is the brand and product exclusivity the country’s major players have secured. Unlike most countries, Canada has only one or two national players in each market category. This lockout may have prevented Target from forming key relationships with suppliers immediately in the country.


The retailer managed to secure some excellent working relationships regardless, a grocery partner was announced almost immediately and the Starbuck’s partnership soon followed. Many apparel designer collaborations, which Target has become known for, were rolled out in Canada including Peter Pilotto and 3.1 Phillip Lim. 

Announcements with Root’s Beaver Canoe brand were a bit later, the exclusive home collection not to launch until September 2013, and Aliment du Quebec in the same period.

 

Despite Target’s initial challenges with inventory and distribution, some product assortment hurdles, and diminishing pricing concerns, it’s surprising the Canadian consumer hasn’t embraced the many social efforts of the company.

Image via https://www.facebook.com/TargetCanada

Image via https://www.facebook.com/TargetCanada

Their marketing is downright clever and suited perfectly to the market. It combines national pride, humo(u)r and friendliness which appeals to the broader population. In addition, Target has a full collection of stores which are all LEED certified – a remarkable feat considering they purchased their locations from HBC.

 

Target also distributes 5 percent of its profit through local community and social programs. School nutrition programs, Lac-Megantic Relief efforts, and Alberta flood relief have all benefited last year.

 

This reinforces the truly national focus the retailer has taken, embracing both major cities and small-town Canada. Their launch events featured storytellers in Halifax, the three tenors in Toronto, free Christmas tree farms in Sudbury, a hockey tournament in West Ferris, an art installation in Edmonton, and Carly Rae Jepsen in Mission BC.

 

Although Target has secured only 0.2 percent of Canada’s coveted grocery market to-date, we expect they will come out on top.  

 

RETAIL ASSEMBLY is a mission-driven organization, upgrading skills and enhancing great businesses. Our top offering to this day is The Retail Buying Course, with case studies, great foundations and business insight. And if you wanted a deep dive into inventory management and demand-planning, our Bundle is coveted across the industry.

 

Tailored menswear growth slows

This is a classic example of ‘be careful what you wish for because you just might get it.’
— Marshal Cohen, Chief Industry Analyst at NPD

After experiencing a strong gain of 23.7 percent in 2011, the men's tailored  market has seen slower growth over the past 12 months.  According to reports from The NDP Group, the tailored market saw a decline of 3.2 percent to $4.5 billion.  Suits and suiting separates were the highlights, experiencing growth of 5 percent and 8.9 percent, respectively.  It was the sport coat category which pulled the overall figures down, resulting in a decline of almost 21 percent.

 

Men purchasing tailored pieces as an investment, find little need to replenish their wardrobe seasonally.  Suits operate on a much slower fashion cycle than fashion, which requires an update every year - most men are able to carryover a tailored purchase for several seasons.  "Last year's feast became this year's famine, and the number from 2011 looked great until they had to be 'anniversary-ed' last year, " Marshal Cohen, Chief Industry Analyst at NPD said.    

 

Although the short-term 2012 yearly figure shows a decline, the two-year trend in tailored clothing remains strong - with overall growth of 20.5 percent.  The category figures show a shift in consumer demand towards suiting and suit separates.  

Men's Tailored Clothing.jpg
 
 

1 Billion reasons to celebrate: Nordstrom's online success

Written by David McKay

Seattle-based Nordstrom's online sales surpassed the $1 billion mark in 2012, which was a 37% increase over the previous year - six times the average company growth over its history.  Free shipping and free returns, in addition to access to inventory in every Nordstrom store (not just limited to e.commerce allocations) has helped fuel the business.  Customer usability has also also been a significant factor.  Customers can see items in any colour on a model, may contact a style stylist, and with # of clicks to product under 3.  

 

Additionally, the 2011 acquisition of flash-sale site HauteLook has been a key part of Nordstrom's strategy.  "We may have done a good job over the years with the Baby Boomer generation, but we have also got to figure out to be relevant to the Millennial customer, and HauteLook has built a business on figuring that out," said Jamie Nordstrom, the retailer's President of Direct.  The average age of a HauteLook member  is 30 with a household income of $75,000 yearly.  The two companies are beginning to align in more significant ways.  HauteLook has been a product testing ground for Nordstrom's 119 Rack locations - allowing the bricks-and-motar channel to buy with greater confidence product which did extremely well on the flash site.  Lorac cosmetics has been one such success story.  

 

Many luxury department stores are onto the next round of site improvements.  Saks Fifth Avenue has improved its navigation, is showing larger images and providing more editorial-like content.  Canadian luxury retailer Holt Renfrew continues to support a Showroom environment - showing product flat on white backgrounds, with some editorial images from its social media sites and printed catalogues.  Sales through the channel are limited to Gift Cards, available to be purchased and shipped only within the country.  Nordstrom, which is entering the Canadian marketplace next year with its first bricks-and-motar stores, has 15,000 Canadian credit card holders and offers easy shipping and returns to the US through their e.commerce channel already.  

 

Mango bears the fruit of Zara's business model

Photo credit: the Random Noise

Photo credit: the Random Noise

Photo credit: the Styleless Diaries

Photo credit: the Styleless Diaries

Spanish-based retailer Mango recently out-competed Inditex, the parent company of Zara, in percent increase for home-country revenues.  Mango's domestic sales increased by 20 percent, while Inditex's fell by 5 percent.  The company is applying various aspects of Inditex's now-standard best practises, including:  

  • FOCUS ON CASUAL WEAR: Two years ago, 70 percent of Mango's revenue came from party-wear.  Now, the company has flipped its blend and is seeing strong results with it's assortment grounded in casual wear.  
  • LOWER RETAILS: Mango has cut is prices to nearly 20%, significantly narrowing the price gap between comparable products at other fast fashion retailers.  
  • BRAND DIVERSIFICATION: Mango has recently launched stand-alone brands for mens and accessories with further plans for teens and specialty sizing.  
  • GLOBAL EXPANSION: Mango intends to open 300 new stores this year, compared to Inditex's 450.   

The fast-fashion sphere continues to be highly competitive, and although Mango is far from achieving Zara's top-line or productivity results, they are certainly seeing promising signals with gains in Spain where unemployment is at over 25%. 

Courtesy of GUIDANCE & CONSULT

Courtesy of GUIDANCE & CONSULT

Lululemon recap

CEO Christine Day still stood by the company's reach for quality, saying: “delivering the top quality our guests expect is a critical factor in our differentiation in the market place.” This, however, may be debatable as the recall is not the first supply chain problem in recent quarters.  Last year, there was a dye bleeding issue affecting some bright coloured tops and sheerness problems in other products. Further, there was a scandal in 2007 regarding Lululemon's VitaSea clothing line, which falsely advertised it was made from seaweed fibers to reduce stress and provide anti-inflammatory, antibacterial, hydrating and detoxifying benefits. What does this negligence in quality control say about a company's product value? 

 

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The UK's John Lewis' 4 year growth trend

The John Lewis Partnership which owns the iconic John Lewis department store, announced over the weekend that its entire staff of partners - 84,700 people - will be receiving a 17% bonus based on the performance of the company which also owns Waitrose.   JLP's Chairman has recently contributed a column in The Times on the topic of employee ownership, which he attributes to the consistent growth they've seen of late.  

But it isn't just a focus on employees, an acute understanding of their customer is also evident with double-digit increases in same-store sales, in addition to a 10% increase in UK clothing market share.  Peter Ruis, John Lewis' buying and brand director told the Guardian, "Historically we have been told that our customers are more affluent and a bit older, but increasingly research has shown that to be a bit simplistic".  The "sweet spot" is among 35 to 44 years old, and the store's cross-channel combination of home product, technology, beauty and fashion assortments reflect how that urban customer is shopping.  In 2012, Electronics, Home and Technology saw an increase of 29% year-over-year, and the online channel grew by 41% - both figures significantly outperforming the industry.  

John Lewis' Spring 2013 advert

John Lewis' Spring 2013 advert

Heading into 2013, capital spending on square footage and a boost in private label business are key areas of focus.  Ruis is also likely to bring in a new designer name for menswear, but is maintaining focus in ensuring it will be the right name, "I'd hate to have 20 or 30 of them and lose our point of view."

 "The pace and quality of innovation and initiatives has been extremely strong and is one of the central reasons for its outperformance" says Neil Saunders of Conlumino.