Reports of Sears’ death slightly exaggerated (for now)

Not many people are seeing the softer side of Sears these days, or the harder side for that matter. Tech Ticker reports that Jeff Matthews of hedge fund RAM Partners says the much anticipated Sears turnaround story may never happen because Sears Holding Corp. Chairman Edward Lampert doesn’t know how to run retail. Barron’s recently ran a story pointing out Sears’ many problems -- sagging sales, shabby stores, inattentive service, uncompetitive pricing – and suggesting the company’s stock price could fall another 50%. Beyond frightening. Credit Suisse analyst Gary Balter wrote an earnings note titled, “Put A Fork In It.”

Are the naysayers right? Is Sears done?

Sears has certainly gotten close to the max in cutting costs – there have been reports of only one sales associate per floor. In a world with where national big box stores provide competitively priced appliances on the one hand, and local dealers lavish personal attention and customer service on the other, Sears needs to be competitive on some dimension to survive, since there’s no net over the abyss of the middle.

Sears could focus on a smart reinvention its stores. The company still has some fabulously reputable brands, like Kenmore, DieHard, Craftsman, and Land’s End. Sears has actually made a number of good decisions lately – a plan to start selling toys and to offer a Christmas Club card, where consumers add value beforehand and get a 3% bonus on the funds. This has some old-fashioned, Big Book Catalog-style appeal. On the 21st century front, Sears’ MyGofer experiment, which merges online shopping and the ability to pick items up at a brick and mortar location, might allow Sears to unlock some value of all those Sears and Kmart stores. (But note to Sears: if you’re going to position yourself as a serious Internet player, make sure pranksters can’t rewrite your content and punk the living daylights out of you.)

It’s always hard to see around corners, but it’s an interesting question to ponder: what would a successful Sears look like in five years?

Shhh… Abercrombie is Cutting Prices

Last night at the mall, we saw what it looks like when retailers who don’t want to discount do the dirty deed in hushed tones. Just a few feet inside the lease line at an Abercrombie & Fitch store, we saw fleece tops at 50% off—a whacked price put onto a tasteful little sign no bigger than a postcard. We saw this throughout the store, motivating price points on merchandise clearly meant for the upcoming fall/winter season. This A&F store even had a sign at the entry announcing a back-to-school sale (odd, since prime back-to-school shopping season is behind us). Deep discounts? On current season merchandise? Is this really “we will not become promotional” A&F? Since the onset of the recession, shoppers have flocked to low-price retailers like T.J. Maxx and Ross. Nearly every clothing chain has aggressively discounted to try to win over penny-pinching shoppers. But in the face of all this discounting, A&F has stubbornly held onto its loftier price structure to protect its “aspirational” brand.

Last week, A&F announced that its sales dove a frightening 29 percent in August – the eleventh straight month of double digit sales declines for the retailer. Sure, times are tough and the teen (and parent) clothing budget has been squeezed, but rival Aeropostale, with its less expensive, but still fashionable, apparel managed to increase sales a very respectable 9%. A&F has finally, reluctantly, quietly capitulated to shoppers’ demand for a deal (while still clinging hopefully to the idea of an aspirational brand). “It (discounting) is not the primary vehicle nor will it be the primary vehicle for driving business, but it is part of the balance at this point… but it is not the driving force of this business. The driving force is fashion, quality, aspiration, and will continue to be so,” Chief Executive Officer Michael Jeffries said on an Aug. 14 conference call.

A&F may have done its job of creating a high-priced brand image a little too well. Despite a current move to more price cutting, the company’s success ultimately depends on the willingness of teens to drop $50 on “Perfect Butt” sweatpants once the economy rebounds. Still, now that teens have learned that for the same $50 they can get a pair of sweats and jeans at Aeropostale and still have money in their pocket for a couple of tickets to a movie, it may not be so simple to get them to return. Habituation is a tough monkey to overcome.

Sara Lee’s bread is making less dough

Somebody doesn’t like Sara Lee. It almost seems unfair. After finally recovering from the low carb diet craze of the 90s, the company is feeling the squeeze from private label, especially in the bread aisle. Thanks to the recession, customers are shunning name brand loaves (and cakes) in favor of cheaper private label starches in order to stretch their grocery budget. Sara Lee must also compete with price-slashing name brand rivals.

Not to pick on Sara Lee – other packaged-food companies are getting pinched – but you have to wonder whether Sara Lee fully understands the customer motivations and behaviors played out at the shelf that might be causing sales to plunge. The company knows profits are down, but competitors Kraft and Kellogg are turning in respectable numbers as shoppers trade takeout for meals at home. Does Sara Lee know why buyers are reaching for the doughy store brand whole wheat instead of Sara Lee’s innovative Soft & Smooth loaf? Does the company understand on a volumetric basis those who have come to the store fully intending to buy the brand, but then bail in the swirl of the last three feet? And why they bail? Is it price, promotion, packaging or an intriguing blend of yes to all that? Or maybe is it some other lure or allure?

Sales are an important, obvious, but crude measure of how shoppers interact with brands. If companies hope to stop the slide toward private label, they need to be where the in-the-moment calculations of the shopper occur. They need to take hold of the in-aisle thinking of shoppers who buy the brand, don’t buy it, and most tellingly, the ones who intended to do so and then decided in favor of another.

Gilly Hicks – We’re Not Sold

When it comes to Gilly Hicks, the lifestyle lingerie emporium aimed at teens and the newest brand in the Abercrombie stable, there’s one thing we can all agree on: the store itself is beautiful, luxurious, and sexy. The look of the space has won raves from fashion bloggers and stock analysts alike. The branding is brilliant, although entirely fictional: Abercrombie CEO Mike Jeffries concocted an elaborate Australian back story for the entirely American underwear brand (who knew “down under” had other meanings?) A portrait of “Gilly” hangs in the stores, to add a faux vintage feel to the shop. Gilly Hicks hopes to be younger and hipper than, but just as successful as, Victoria’s Secret.

The opening of Gilly Hicks has been controversial. Although Citigroup analyst Kimberly C. Greenberger praised the store’s “cute and sweetly sexy” image and said, “We believe Gilly Hicks could be a more wholesome alternative (to Victoria's Secret), and mothers would not mind taking their 15-year-olds to Gilly Hicks to shop,” an assortment of critics have attacked the whole notion of trying to sell sex to teens. Everything from the store’s racy ad campaign, featuring 7-foot-tall posters of naked men, to the website, which broadcasts a video showing women swimming topless, and the effort to sell sexy lingerie to teens has drawn complaints.

But the ultimate question, indeed, the only question is, will it sell? Gilly Hicks represents a huge per store investment, from the home-like front porch exterior to the dimly lit Ralph Lauren-on-steroids interior, with a huge amount of square footage dedicated to selling a tiny passel of products that would fit comfortably inside the closet of a New York City studio apartment. On the one hand, other companies have made big profits using edgy, sexy ads to sell to the teenage set. The other companies in Abercrombie’s stable, Abercrombie & Fitch, abercrombie, and Hollister, have deftly won over their target markets. Unfortunately for Abercrombie, we think it’s highly doubtful that Gilly Hicks is going to help the company bust out of a recession-fueled slump, despite the store’s gorgeous environment. Luxury undergarments for teens are not a natural sell in the best of times, and right now, the retailers that are thriving are mostly value brands aimed at the prudent. Add in the store’s sales crew – the young-side-of-20-something associates look as great as the store, but are without the years of experience in fitting bras and selling intimate wear – and it seems like an even bigger, and more expensive, misstep. What do you think?

Drop a quarter in the jar if you like this post

Maybe I wasn’t in an especially charitable mood, but I thought I had seen it all when I recently spotted a styrofoam cup duct taped to the delivery window of a Dunkin’ Donuts, a sight which gave off the weird vibe that drive-through customers should offer a reward to a forearm for handing them a bag.

There are a few topics that are guaranteed to generate heated arguments on the internet. Is it rude ask people to take their shoes off in your house? Is it tacky to have a cash bar at your wedding? And today’s subject, should behind-the-counter employees solicit tips in a jar next to the register? Anywhere you see counter service, you’re likely to see a jar or cup filled with dollar bills and coins. Cold Stone Creamery has raised the tip jar to an art form – workers break out into loud goofy songs when you drop a bill into the jar. Even teachers have gotten in on the act – one instructor conducted an informal experiment by setting a tip jar on his desk, and found that a few of his students threw in some (promptly refunded) change. Nowhere is the tip jar more ubiquitous than the coffee shop, whether it’s the indie rock dive around the corner or corporate behemoth Starbucks. There’s a certain logic behind the coffee shop tip jar; after all, say baristas, bartenders get tips, and making a latte is at least as complicated as pouring a draft beer.

Tip jars have their supporters. Counter service employees are delighted to get a few extra dollars for their efforts. Store owners and managers are happy to have their employees rewarded without having to raise prices or wages. And some customers don’t mind the jars, or even find some of the more creative hand written signs amusing. But other customers are angered by the creeping spread of tip jars. According to internet tipping guru James G. Lewis, “most people hate” the jars, and “tip jars are out of place at any food-service establishment that does not actually bring the food to your table and keep your drinks refilled.” According to a study by the Emily Post Institute, only 30% of respondents feel obligated to deposit money in a tip jar.

There’s been plenty of research on tipping – we know that younger people tip more than older Americans, people in the Northeast tip more than Southerners, and that people tip more when it’s sunnier outside. But the tip jar is a bit of a black hole. We have some anecdotal observations -- according to business psychologist Larina Kase, “Patrons can feel uncomfortable when there is a tip jar for services they feel do not deserve a tip.” But does the tip jar’s potential customer discomfort outweigh the morale boost for employees? It may be time for a well-designed study on tip jars that could determine whether they help or hurt the top and bottom line.

The not-so-gullible consumer

Imagine a patient who goes to the doctor for help with sleeplessness. If the doctor were to prescribe a medication saying, “this may or may not do any good, it’s not especially strong, but let’s give it a try to start out with and see if it helps,” it’s not very likely that the patient’s sleeplessness will be remedied. But if the doctor were to prescribe the same medication with the admonishment, “This is very powerful, so make sure you don’t leave the bottle on your nightstand. You can’t take the chance you might take an extra one while you’re half-asleep. Keep it well inside your medicine cabinet” -- it’s much more likely the patient will get to dreamland.

The power of suggestion can be surprisingly effective. For example, research on placebos has found that they can alleviate pain, depression, and anxiety, lessen the symptoms of Parkinson’s disease, and have even shrunk tumors. John Tierney's recent New York Times article ”Calculating Consumer Happiness at Any Price” explores the power of suggestion in the consumer realm: do we place a higher value on items that we’re told are more costly? According to social psychologists’ and behavioral economists’ research, it depends.

In the lab, there’s evidence consumers respond better to items they’re told are more expensive. If you tell participants the wine they’re tasting costs $90 a bottle, the reward centers of their brains will light up more than if you tell them it’s a $10 bottle. But when customers are spending their own money rather than the hypothetical dollars in a laboratory, it turns out to be difficult to sway people from following their own tastes. Two behavioral economists in Tel Aviv monitored the choices of people who ordered from a prix fixe menu where the actual cost of each entrée was noted next to the items. After three months of testing various combinations of prices, the researchers found they couldn’t sway the customers. They were no more likely to select the entrée with the highest perceived value than any other entree. As one of the behavioral economists said, “Maybe when it comes to food, people do have reasonably stable preferences. Some people like shrimp and some don’t, even if it’s worth a lot of money.” (The fact that Israeli researchers were testing pork shank and shrimp gnocchi as part of the menu experiment is another story…..)

Despite the mountain of laboratory evidence that variations in sticker prices sway consumers, the effect fell apart in the real world test at the restaurant. That should serve as a warning to those of us who study customer behavior. While techniques such as focus groups and virtual reality shopping may provide some insights, it’s vital to watch how consumers actually behave when they’re spending their own money in the store, not just in the lab.

Judge a book by its cover at your own peril

One hundred and ten years after its 1818 founding in New York City, venerable retailer Brooks Brothers opened its second store, in Boston, on that city’s famed Newbury Street. A cautionary tale for the ages happened one morning when a man entered the store in tattered clothing, wearing rubber boots, and smelling a bit rank. The “up” salesman would not wait on him (the associate whose turn it was to help the next customer). The other salesmen looked away, busying themselves with anything else to avoid the unwelcome stranger. When the man finally asked for help from anyone within earshot, he was pawned off on the most junior salesman, who had no choice but to offer some assistance. Then, in the next two hours, the stranger ordered up $10,000 in custom-made suits, shoes and furnishings. (As you might guess, the “up” man tried to claim the sale as his own, to no avail). When the young salesman began asking the stranger about himself, he learned the man just arrived in town from his home in Vermont, where he was the owner of a highly successful hog farming business.

Fast–forward to the reverse situation. What happens when customers are the ones judging salespeople? According to a recent article in the New York Times, a new study found that people give higher customer satisfaction ratings to white male employees than to women and members of minorities, even when their performance is the same. In one test, about 12,000 patients in an HMO rated their doctors. The number of follow-up email messages doctors sent to patients increased their patient ratings only when the doctor was a white man. In another experiment, students watched videotaped interactions between a bookshop sales clerk and customers, and were asked to rate the customer service. Three actors played the part of the sales clerk—a white male, a black male, and a white female. All used the same settings and scripts. The subjects shown the white male clerk rated the bookshop’s service 19% higher than subjects who viewed the other two actors. Even women and people of color gave white males higher marks. Since over 60 percent of employees have at least some of their pay linked to customer satisfaction results, these biases are not just socially undesirable, they hit female and minority employees squarely in the pocketbook.

According to David R. Hekman, the lead author of the study and professor at the University of Wisconsin, Milwaukee, “Someone needs to call customers out on their biases.” Hopefully, if people are made aware of their subconscious biases through coverage of studies like these, they will be less likely to penalize female and minority employees on satisfaction surveys. Another possibility would be to create employee evaluation tools that are truly objective. Techniques such as video analytics can deliver a bias-free analysis of the customer experience. Any other ideas on how we can eradicate the hidden biases that occur when shoppers evaluate employees (or vice versa)?