Response to "Has Bling Lost its Lustre?"

Just wanted to point out something interesting about the risks that retailers run by discounting their wares in a time like this.

An obvious one is the slim margins that cut into profits when additional discounts are provided. An important indicator in retailing is same-store sales at stores that have been opened for over one year. Offering deals and discounts can drive sales, so your same-store sales number looks nice, but your profit number may not be so pretty. Of course, you also avoid other expensive problems like too much inventory left over after the holidays, so I think they know what they're doing.

Importantly also is the risk of diluting brand equity with too many discounts. Consumers are quick-learners and if they see that a certain retailer continually offers discounts, they will wait for those discounts. If they see big, flashy 40% off signs, they may not feel that those Ambercrombie jeans or lululemon yoga pants are worth $90+ anymore.


Well lululemon is attempting to avoid that by refusing to provide discounts.

Christine Day, the former Starbucks executive who became chief executive at Lululemon earlier this year, said the company won't follow the lead of rival retailers and rely on deep discounts to build sales. Heavy markdowns would hurt the brand's image, she said.

Instead, Lululemon is offering deals to its customers for yoga classes. It is also marking down some prices, which is pinching profit margins. But it will not run 60 to 80 per cent off sales to clear merchandise, she said.

Marina Strauss. "Lululemon shares drop 25% on lowered outlook." ReportonBusiness.com (December 11, 2008). http://www.theglobeandmail.com/servlet/story/RTGAM.20081211.wlulustaff11/BNStory/Business/ (accessed December 22, 2008).

I still refuse to buy their clothes, but that's a story for another day.

HP - What do you have to say?

http://h30393.www3.hp.com/printing/gwen.html

Excuse me, but how much did you love the HP campaign with Gwen Stefani and the guy from Burton snowboards? A lot? Me too.

More on this later.

http://www.youtube.com/watch?v=4Fmk2vwef18

Has the bling lost its lustre?

Luxury is out. Parsimony is in. Is this the new statement of 2009? Well after reading this article in the Toronto star you may have to think twice when purchasing a luxury item.

"This is the definitely the worst we've seen the luxury market in decades," says Milton Pedraza, CEO of the New York-based Luxury Institute consulting firm.Forbes magazine says the number of Chinese billionaires has dropped by more than half, to 24 from 66, after the collapse of global stock markets this fall. And it figures that at least half the Russians on its rich list could be gone by next year."

If you can get the same item for half the price or even lower then what's the reason for purchasing luxury items at a time like this? I know my parents are trying to save money wherever they can. So companies with their high prices and well known brand names may suffer where other stores like WAL-MART may be gaining customers with their slogan "roll back prices". How will companies like Harry Rosen or Bulgari survive in this crisis?
Well, "luxury menswear retailer Harry Rosen placed full-page advertising in newspapers this month blaring "Harry's Economic Bailout Package For the Rest of Us," with discounts starting at 40 per cent off." Now how creative is that! Harry Rosen states, "In this kind of climate you have to do something out of the ordinary to stand out." I definitly think Harry Rosen will succeed in this recession by creating alternative methods on how to solve the problem. Also by analyzing your customers and just by making your products stand out.
I've been working at Danier Leather over the holidays and I would say that Danier Leather is a luxury item. However, sales are not decreasing, they are staying at a constant level compared to last year. Why would you think people would still be spending the same amount of money? Well, they have these sales where you can buy any two accessories and get one free or discounted coats that are half price. Leather is also ever gold where people will never get sick of.

So what do you think? Will luxury items continue to sell or will the consumers turn to the product without the brandname?

Potent Quotables

Education's purpose is to replace an empty mind with an open one.
Malcolm Forbes

Where did the carriers go wrong?

When you first look at the pretty iPhone with its large screen and dice-rolling capabilities, you probably think that it "reshaped" the industry by forcing BlackBerry to come out with the touchscreen-featuring Storm.

I should mention at this point that I adore my BlackBerry Curve and do not forsee giving up my precious precious QWERTY keyboard anytime soon.

A recent article in BusinessWeek, however, highlight some more subversive ways in which Apple and the iPhone has changed the cellphone industry. Wireless industry. Mobile communications industry. Whatever its known as nowadays.

Wildstrom, Stephen, "How Apple's iPhone Reshaped the Industry," BusinessWeek. 11 December 2008, http://www.businessweek.com/magazine/content/08_51/b4113078121012.htm?campaign_id=rss_daily (accessed December 15, 2008).

(ps hows my bibliographic form? better?)

I think the neat thing about this article is that it highlights how powerful a company can be in bending the marketplace to its will, and the type of struggles that are behind the scenes in interdependant industries like wireless communications.

"It's remarkable the impact [Apple] has had," says Jim Balsillie, co-CEO of BlackBerry maker Research In Motion (RIMM). "They exposed a lot of disintermediation risk in the industry." Balsillie says when RIM proposed application stores a couple of years ago, the carriers were hostile. But Apple's success is forcing the carriers to play. "Now everyone wants [an app store]," Balsillie says, and RIM will oblige next year, offering terms that will give carriers some of the action.

Even neater is the fact that Apple has created much/most/all of this power through marketing. They are able to control the marketplace because they have created a product that consumer want. Apple has obviously been able to tap into consumber desire here. They are also great hype-inducers, which adds considerably to their power as well.

Ahh marketing. So much more than finding customer needs and filling them. Finding vulnerabilities in the business strategies of your competitors and expoiting them. So much more enticing.

Cruising the Middle Road with Starbucks

An excerpt from an article in today's Financial Post called "Making Starbucks recession proof" by Steven Kates:

"In its positioning efforts, Starbucks needs to emphasize that it provides great-tasting coffee, reliability, speed, convenience, and cleanliness for the customers' dollars...it may have to relinquish some of the shared cultural associations of its past, including authenticity, or a connection to the European barista culture. Afterall, how authentic can mass-produced coffee really be? In this regard, Starbucks is very much like McDonald's, local coffee chains and independent coffeehouses."
Full Article: http://www.financialpost.com/story.html?id=1049967

As I sit and read this article in my local Williams Coffee Pub, I wonder what the implications of Starbucks' massive growth and subsequent contractions will be in the coming months, and how bright it really was to cling to its so-called "authentic" association for as long as it did.

My trips to Starbucks are normally for one reason and for one reason only: Chai Tea Lattes. I don't buy them because they are "authentic" or "European" (because they blatantly are not), but because they are so tasty. $5 medium tasty? Well, that becomes questionable as my bank account dwindles.

But that's neither here nor there. Where is Starbucks to go now? Their exuberantly priced coffee and Borg-like expansion onto the street corners of our cities the kiosks of our campuses got so out of hand that they became a novelty. And the scariest thing about novelties is that they wear off. So Starbucks in now closing stores and elbowing for space in the morning routine of increasingly price-sensitive customers with the likes of Tim Horton's and (Gasp!) McDonalds.

The author suggests that Starbucks should emphasize that although it is a very large corporation, it is a nice very large corporation. It needs to abandon that tricky word "authentic" for something different...but personally I think "good corporate citizen" is even less authentic than the word "authentic."

I am sitting at Williams right now because I was hungry and they serve sandwiches, I was thirsty (and in need of a caffeine fix) and they serve coffee, and I wanted to use my computer and they have wireless. I don't really know whether or not Williams is a good corporate citizen. They provide a straight-forward service for my straight-forward needs.

Or do they? Why didn't I just go home? I have sandwiches, coffee, and wireless there. Hmmm.

Where can Starbucks fit now that the niche they created for themselves is being filled by smaller, cooler, and more "authentic" coffee places? As their store counts decrease, which will be the first to go? Which will be the last?

Shoppers Drug Mart - Luxe Express?

I was driving down King St. in Hamilton the other day and noticed that on the corner of King and Dundurn, the former Harvey's restaurant had been turned into a "Shoppers Express." I didn't go in, but when I hear the word "Express," I immediately think quick, convenient, and CHEAP.

Has anyone been into this or another Shoppers Express? What did you think?

Ok, so why is this even worth writing about? Well, I had also recently read an article in the November 29 edition of the Globe and Mail called "Looking good in a recession" by Marina Strauss. The article talked about which companies are thriving in this difficult retail environment and why. Shoppers, who has recently had huge success with their increased upscale offerings and higher margins, is nonetheless managing to grow their sales. Anyone who has been into one of the shiny new Shoppers stores has undoubtedly noticed the huge selection of premium frangrances in fancy white-washed display walls with clean looking sales girls wearing black pants and one of those little apron things. They took a big risk by moving to this part of the market, but the execution was excellent and they are grappling a piece of the market for themselves away from Wal-Mart. In fact, they have recently launched another format that pushes the fancy-shmancy envelope yet further.

"It's September and retailers are already feeling the pinch of sluggish consumer spending, but not here in a wealthy enclave in north Toronto. Shoppers Drug Mart Corp. is opening one of its biggest, glitziest new outlets and it doesn't look much like a drugstore, with its high ceilings, large windows and bright ambience." - from the Globe and Mail article

Ok so these musings lead to one question...why Shoppers Express? Am I correct in thinking that it is a low-price alternative? If I am wrong, what vulnerability for their plan have I exposed by even thinking that it was low-price? What is the significance of its location (Hamilton), compared to the other Shoppers store that is opening (The Beaches in Toronto)? And how about the timing? Will the format survive a launch into one of the most troublesome economic periods in our lifetime? Or maybe this is the best time to launch... hmmmmm.

The article in question is unfortunately not available online, but can be found in the back issues of the Globe in Innis library.