Tag: Baker Retailing Center

Is Back-to-school Spending Making the Grade?

A recent report from the National Retail Federation (NRF) predicts that back-to-school sales will be higher this year than last. “The average person with children in grades K-12,” the report states, “will spend $688.62 on [his or her] children, up from $603.63 last year. Total spending is expected to reach $30.3 billion.”

Is the NRF report overly optimistic, or will the back-to-school market (retailers’ second most important season, behind the winter holidays) struggle along with the rest of the economy? Which stores – and products – will be the most popular?

”Preliminary indications seem to [suggest] a moderately good season,” says Wharton marketing professor Barbara Kahn, director of the Jay H. Baker Retailing Center. “There are certainly needs that won’t change. Kids out-grow their clothes from last year and need new ones. New school supplies are required every year. These are necessities – so to that degree, they probably [take precedence] over other purchases. But recession and economic difficulties can certainly influence the total budget spent.”

Wharton marketing professor Pinar Yildirim cites “the staggering economic numbers and high unemployment,” and suggests that consumers are probably “conscious of how much they are spending and will hold off buying items unless they have to.” She also notes, however, that “education is important to most parents, and they are less likely to cut back on items that are fundamental to schooling. In some sense, one can say that back-to-school shopping is an area where spending cuts cannot be drastic.”

Erin Armendinger, managing director of the Baker Retailing Center, points to indications suggesting that “parents are spending more than they did last year, despite the fact that consumer confidence is at a nine-month low and gas and food prices are up.” There is “the same bifurcation that we have seen through the last few years — where ‘well off’ consumers are okay, but lower-income ones are not.” 

Kahn notes that Target and other mass merchandisers, along with Macy’s, will see healthy sales this season, and that the Gap has “shown an uptick” as well. As for the higher-end segment, “for the last year, we have seen stores such as Saks, Neiman Marcus and Nordstrom hold their own fairly well; however, just recently we have seen a slight softening in the luxury market.”

Mass merchandisers like Target, adds Armendinger, “have an advantage in that they are ‘one-stop shops’ for back-to-school shopping, but consumers, especially the ones with the money, do like going to department stores such as Macy’s for fashion items. Macy’s has made a conscious effort in the last couple of years to attract younger shoppers.”

Meanwhile, recent articles in the media have pointed to shoppers’ increasing use of mobile apps to hunt down the best bargains, whether online or in brick-and-mortar stores. As good as this sounds for consumers, does it also mean that the only stores left standing will be those – like Target and Walmart – that offer the lowest prices on a broad range of items?

Not at all, says Kahn. “There have always been segments of consumers who differ according to price sensitivity, service and convenience, and I don’t see that changing. I think there will be a role for specialty stores as well as for the Walmarts. Location of the retailer will also matter. Further, there are some shoppers who shop in advance and others who wait until the last minute.”

Yildirim agrees. “We always had consumers who are price sensitive and want to pay the lowest price to get what they want,” she says. “In the past, such consumers would visit a couple of stores before they actually purchased something. Today, it is easier for price sensitive consumers to make a comparison, but the opportunity cost of time is also higher. And they have to buy a basket of items, so there is a limit to how much they can take advantage of these price comparison apps.”

In addition, some consumers are driven by the quality of a product rather than its price, she adds, including those “who prefer certain brand names, or consumers who simply don’t have the time to compare prices. High-end stores are less likely to target extremely price-sensitive consumers. Similarly, specialty stores compete on assortment rather than price. So the availability of price comparison apps has a lesser impact on these stores.”

As for the types of purchases made by parents and their school-age kids, news reports cite the increasing popularity of tech items – some reports suggest that one third of all back-to-school dollars is spent on computers, mobile phones and tablets – and note that mothers are taking a bigger role than ever before in choosing and buying these products. An ABC News Consumer Report quotes Tina Wells, CEO of Buzz Marketing: “Technology is the hot item for back to school this year,” she says. “Ten years ago, it was always fashion trending more than tech.” Mothers, she adds, are the “chief technology officer” in many families, although the kids take an active role in tech purchases. And while the older generation is paying the bills, they aren’t reaping the rewards. As Wells notes, “Parents are being handed the older technology, and kids are getting the cooler” stuff.

Featured Professors: , ,
Posted in Knowledge@Wharton Today | Also tagged , , , , , | Leave a comment

When Retailers Make Strange Bedfellows

The Neiman Marcus luxury retail chain announced a new partnership this week with discounter Target that will offer a limited collection of items from 24 American designers. According to an article in The Wall Street Journal, the items – ranging from clothing and accessories to leather goods and stationery — will be sold for the same price in both stores, and carry both company logos on their labels.

Neiman Marcus and Target are not two retailers one typically talks about in the same breath. But Wharton experts generally applaud the initiative and suggest it takes advantage of several shopping trends that have gained momentum since the economic downturn.

These days, “you can’t pigeonhole a customer into one store or type of retail experience,” says Wharton marketing professor Barbara Kahn, who is director of Wharton’s Jay H. Baker Retailing Center. “Neiman shoppers may also shop at Walmart or Target. People who stay at the Ritz Carlton for business may stay at Marriott when they are traveling with family. People who routinely shop at Walmart or Target may splurge for a special occasion at Neiman or Saks.”

Target has been partnering with many luxury brands “in hopes of continuing their own cache as a design-oriented retailer,” Kahn adds. “This partnership with Neiman Marcus follows in that stream. For Neiman Marcus, the idea is to lure customers who may not usually shop in Neiman to come into the store – particularly the younger consumer. Even Neiman’s core customer may buy at lower price points from time to time in other channels or retailers.”

Wharton marketing professor David Bell notes that shoppers are going to multiple retailers “and might be prepared to spread their patronage across seemingly very different types of stores. Segmentation is no longer completely ‘cut and dried.’ Target already has been able to attract a clientele that is more upscale than the stores’ product mix would imply. I doubt Neiman Marcus would do this kind of deal with J.C. Penney.”

According to the Journal article, the new collection will be available December 1 for three weeks at Target and Neiman stores and on-line. Target will be producing the 50 items being offered at a price range of $7.99 to $499.99 (with an average price of $60) and will feature such designers as Diane von Furstenberg, Derek Lam, Rodarte and Tory Burch, the article adds.

All this raises the question of what each store – and the individual designers – will be getting out of this partnership. For Target, the advantages are clear, says Erin Armendinger, managing director of the Baker Retailing Center. “It will bring a high-end feel and great designer brands to their customers – who tend to care about these things: Look at the Missoni deal last year.” As for Neiman, “it is hoping to bring in a new customer.”

Wharton marketing professor Stephen Hoch sees each retailer “borrowing brand equity from the other. Target borrows luxury and exclusivity from Neiman, and Neiman borrows affordable chic and democratization from Target.”

As for the designers themselves, they clearly stand to benefit from this deal. “It broadens their appeal and gets their name/designs better known,” says Kahn. “Although there was some reluctance earlier on by some designers, the Target promotions have been so successful and fun, and have not seemed to dilute the appeal of the designers who have participated, so I think people are less risk averse.” Hoch notes that “the designers want scale and more exposure beyond the cloistered world of haute couture. There have been many successful attempts like this one and I know of no disasters for the designer.”

And for whom does this experiment post the greater risk? “Definitely for Neiman Marcus,” says Armendinger. “They risk diluting their brand. The worst thing that could happen is that their customers perceive this as [the store] moving ‘down.’ On the other hand, in the best case, they will seem hip, young, fresh and a little bit more accessible.”

The biggest risk overall, adds Bell, is “brand dilution and erosion of positioning. Each store already has a pretty strong image, along with unique strengths and weaknesses, and the positioning could be disrupted by a ‘blending’ of the two stores. In addition, the risks and benefits might be asymmetric: Neiman could be seen as ‘cheap’ – or, in a better case, ‘good value’, while Target might be seen as ‘expensive,’ or, in a better case, ‘upscale.’”

The Journal article notes that the median household income for Neiman Marcus shoppers is $150,000 to $200,000 versus $64,000 for Target, while the median age is 48 at Neiman versus 40 at Target. Neiman has 77 stores versus 1,763 for Target.

Meanwhile, are there other retailer-combinations out there for whom such an experiment could work? Saks and H&M? or Nordstrom and T.J. Maxx or Walmart? According to Wharton marketing professor Leonard Lodish, “Target is different than the above retailers because Target has used design as part of its positioning since it was started. It will be harder for Walmart or T.J. Maxx to pull something like this off successfully.” Kahn, too, cites the design appeal that both chains have typically focused on: “The connection between Neiman and Target is that they both pride themselves on high-end design appeal, and they execute consistently to their own missions. They don’t try to be what they are not. That protects their brand when they experiment.”

Other “odd couple matchups” are possible, adds Hoch, although Target and Neiman “have a first mover advantage and a novelty effect.”

What could Neiman and Target do to ensure that this experiment is a success? “If they start doing things with these items that are not consistent with the designer image, it will mess things up — like sending out coupons or having temporary price reductions,” says Lodish. “They also need to very clearly differentiate the Target-Neiman [merchandise] from the Neiman-only [merchandise].”

One possible downside for Neiman, adds Kahn, is if the partnership “encourages too much traffic into their store at a busy time, which might chase away core customers. A temporary leave is bearable, but one hopes [customers] don’t translate this into never coming back. The other problem is if [the two retailers] haven’t put the collection together well and if it does not appeal to anyone, then there is excess inventory to get rid of.”

In the end, says Hoch, “the risks seem very minimal. It is an in-and-out promotion with minimal inventory commitment, like a flash sale. I am sure that they will produce [small] quantities and run out quickly. It is all about the buzz.”

Posted in Knowledge@Wharton Today | Also tagged , , , , , , , , , , | Leave a comment