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Interbrand Design Forum's Ideations Newsletter - January/February 2007
Interbrand Design Forum's Ideations Newsletter - January/February 2007

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January/February 2007

A Report on the Current State of Retail produced by

There’s an aspect of retail that parallels prizefighting: the tendency for the reigning heavyweights to refuse fights, which is very bad for profits. Some of the world’s top brands—with nearly 100 percent brand awareness in all their markets—have refused to face their hottest challenges and consequently lost the interest of their biggest fans, who naturally move on to lighter-weight retailers with something more relevant or exciting to offer. We could be talking about Sears. Gap. Or even Wal-Mart. But that’s also what happened to McDonald’s in the late 90s. Fast food was being blamed for an obesity epidemic, and the old images of Ronald McDonald were doing nothing to assuage the growing worry felt by the mothers of kids that still enjoyed Happy Meals. Mickey D’s initial response was to strike a defensive pose, leaving them open for the counterpunch of healthier fare. “The awareness attached to the old image had become a weakness instead of a strength,” says Todd Belveal, Design Forum’s vice president, strategic services. “The image needed to have new attributes attached to it to make it represent something relevant to its customers’ changing needs, something that was uniquely McDonald’s.” When the company dealt head-on with its weakness—worried moms—average restaurant sales set a new record. In the last three years, healthy food offerings, upgraded stores, and an eat-well-andstay-active ad campaign leveraged their brand awareness and returned them to a position of strength. Constantly under pressure for quick and short-term solutions, retailers often hit snags trying to remedy a symptom while overlooking the deeper business problem and its long-term implications. Like a strength masquerading as a weakness. “A retailer can’t afford to be shy about having its weaknesses thoroughly assessed, maybe as an ongoing exercise,” says Belveal. “But most companies are not culturally predisposed to do so. It requires standing back to look at the big picture, taking a more holistic view. Looking at ways to round yourself out as a retailer. It’s not easy, or everyone would be doing it, but where you do see it done it is worth the effort.” One of the most picked-on categories in retail is American automotive, called down for being extremely powerful but notoriously short-sighted. In the case of GM, their strength is their high market penetration—thousands of dealers carrying the full line of many brands. But the brands are being exhausted by the need to feed the distribution channel. A year ago the company was making record losses. “The distribution channel is driving the brand. Their greatest strength is now their weakness,” says Belveal. “GM can’t be profitable pushing metal onto the street that no one wants. Contrast that to Toyota, who has less product and fewer dealers. If GM were a traditional retailer, they would be trimming assortments and closing their underperforming stores. That’s a hard business fact.”

In terms of “playing to your weakness,” The Home Depot is a very interesting retailer to watch. Especially in the wake of CEO Bob Nardelli’s resignation amid furor over his pay and Home Depot’s lagging stock prices. Analysts, who relate the home improvement giant’s earnings potential to macro trends like the homebuilding industry, speculate that Home Depot’s fortunes may soften with the market.

The retailer has focused mostly on its home remodeling project muscle, and has designed its stores around large planned purchases—decks, hot tubs, kitchens. Now it’s looking for a new combination and more agility by broadening the appeal of the brand and reducing dependence on building booms and home equity loans. “But now it’s a matter of making up for lost time,” says Belveal. “In a perfect retail world, retailers would always have brand expansion ideas in the works.” Still a top 100 global brand in spite of their continued decline, Gap’s traditional strength—its ability to move in fresh design and merchandising directions—has become its biggest weakness. A constant stream of changes has hurt the brand’s credibility. Simply continuing what has become an endless cycle of trying to crack the code on the right store design or assortment breadth is not likely to reverse things. “Gap has one of the strongest retail brands out there, and it will improve,” says Belveal. “That being said, a fresh perspective on how to connect with customers and a healthy dose of new inspiration will be required. Gap might consider point-blank asking their once-loyal customers why they are now resisting the brand. “The lesson for every retailer is that you need to look deeper. You’ve got to be vigilant in managing your concept beyond its strength. Too many companies over-invest in their strengths, which need to be balanced with steps to mitigate weaknesses. It’s a smart way to reduce risk and protect future earnings for your brand.” The best prizefighters don’t rely on brute strength. They possess finesse, a desire to win, and the ability to outclass their opponents with strategy, rather than simply knocking them out.

January/February 2007

The Teachings of 2006
As I reflect on 2006, enlightenment came in many forms. Sometimes it was pleasant, sometimes it was painful. How many of you fell into the Christmas tree playing your kids’ Nintendo Wii this holiday? I’m guessing there were a few of you, since Wii was the awesome hit of the season. Besides the need to push the furniture out of the way before you challenge the kids to virtual tennis in the living room, there’s an important lesson to be learned. A retail lesson. Experience beats beauty. Although Sony PlayStation 3 and Microsoft’s Xbox 360 have incredible nextgeneration graphics, the technically wimpy Wii—without high definition video, fewer ports and connectors, and a smaller price tag—steals the show. Because its wireless motion-sensitive remote allows you to realistically throw a punch, roll a bowling ball or slash a sword, even non-videogamers want to play. It’s irresistibly involving. A couple of kids at the local electronics store showed us the power of experience when they test-played a Wii next to a PlayStation 3. The passive yet beautiful graphics of PS3 managed to hold the interest of a few people. But there was an excited crowd cheering on the kid who was happily working up a sweat with Nintendo. So whether you knocked over the tree or merely endangered the ceremonial candles, take that lesson to heart. Think about how to get people deeply involved with your brand. It’s one heck of a competitive advantage. Other lessons from 2006? Apparently, restrooms are the new retail. For quite a few years now, we’ve been saying how important it is to monitor the thoughts, feelings and needs of your shopper before you design the store, so you can get it strategically right. In 2006, calls to understand the consumer reached a crescendo. Two enterprising groups—one in London, one in Manhattan—actually did so and created radical concepts in response to an unmet shopper need. Procter & Gamble’s Charmin opened a pop-up twenty-stall public bathroom to promote the brand to holiday tourists in Times Square where clean public restrooms are scarce—5,600 people showed up the first day. The space consisted of a lavish waiting room with flat-screen TVs, a fireplace and a mini-dance floor for children, which strikes me as amusingly appropriate. The London restroom franchise, WC1, opened opposite Selfridges. It’s apparently very posh indeed. Billed as a glamorous urban
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Chairman’s Commentary

sanctuary for ladies, it cost two million dollars to create and offers a sleek spa environment with chandeliers, music and attentive service. The retailer anticipates a thousand customers a day at 5 pounds per visit (that’s almost ten bucks). Ten more outlets are planned. Who didn’t pay attention to the customer in 2006? Probably all the fashion apparel outlets who gambled and lost on skinny jeans. In America, where 62 percent of the female population wears a plus size, that’s a painful miscalculation. Media is the new creative. Last year, we talked often about the “store as media,” theorizing that the store is the one place your brand message can be lived, not just broadcast. Others seemed to think “store as media” meant that shoppers were to be treated like a captive audience for relentless TV commercials. Screens are everywhere. I think the most important lesson we’re learning about digital media in the store is, first, that you can’t ignore the way media is consumed and by whom—in a given space, at a given moment in time. And second, ideas can’t be media neutral. In this new “culture of connection” everything has to work in harmony in order to get the greatest creative leverage and shopper participation at every retail touch point, including plasma screens. We’ll be learning and sharing a lot more about in-store digital in 2007. Courage is a process. Last year, one of our biggest, most successful retail clients taught us this lesson as they willingly worked with us to optimize space—in spite of some deeply ingrained business habits that were clearly hell for them to break. I’m told some of their executives broke into a sweat as we worked through this very rigorous process, a process that requires you let go of something in order to get something better. Well, sweat is the natural reaction when you ask a successful merchant to give up linear feet. Very, very tough stuff, especially when your numbers are already great. It’s the equivalent of Tiger Woods changing his swing after he won the Masters. As it turned out, the client’s numbers are getting even better. Let us all resolve to continue to keep our minds open and increase our tolerance for risk in 2007. Thoughtfully,

D. Lee Carpenter Chairman & CEO

D. Lee Carpenter, Chairman & CEO Jill Davis, Editor Andrew Miller, Design/Production For more information or to be placed on our mailing list, visit out website, www.designforum.com and complete the contact form.

Reprints of articles or excerpts without the express written permission of Design Forum is prohibited. Ideations is printed bimonthly. Subscriptions: $125 annually in the U.S.; $150 elsewhere. © 2006

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Business needs a breath of fresh air. We are, at last, coming out of a dark and trying period in our economy and society— an era of slow growth and dashed expectations, of criminal wrongdoing and ethical misconduct at some of the world’s best-known companies. We’ve seen the face of business at its worst and it hasn’t been a pretty sight. It’s time to rediscover the power of business at its best and to develop a better way to lead, compete, and succeed. The good news: Despite the headlines and scandals over the last five years, the
1. Being different makes all the difference. Winning companies don’t just sell competitive products. They stand for important ideas. Behind every maverick company is a distinctive and disruptive sense of purpose—and the companies with the clearest sense of purpose win. Is there any more powerful example of this message than Southwest Airlines? Ideas matter: The only sustainable form of market leadership is thought leadership. 2. Sharing your values beats selling values The more companies raise quality and lower prices the less they seem to impress their customers. When just about everything keeps getting cheaper and better, offering customers something that’s a little cheaper and better won’t win them over. That’s why the most precious asset in business is an emotional connection with customers, a psychological contract that redefines expectations and reinvents a category. Think about Starbucks. Experiences matter. People want to do business with companies that share their values and put those values on display in a consistent and engaging way. 3. Nobody is as smart as everybody. Where do great ideas come from? The answer is: anywhere in the world, and anyone in the world, if you’re smart enough to ask. This is a big change. Business leaders used to assume that if they were in charge, they were supposed to have all the answers. The companies that are most likely to dominate their business are the ones most adept at harnessing the collective intelligence of everyone with whom they do business. Your leadership mindset matters: Applying the new outside-in logic of innovation means abandoning familiar assumptions about where great ideas come from, who gets to be part of your organization and how to inspire the best contributions from them.

William Taylor and Polly LaBarre Coauthors, Mavericks at Work Bill is the cofounder and founding editor of Fast Company. His essays appear in the Harvard Business Review and the New York Times. He is currently an adjunct professor at Babson College. Polly is former senior editor of Fast Company, where she wrote articles on strategy, creativity and personal success. She has appeared on leading TV programs such as Good Morning America, CNBC and Nightly Business Report. Contact them at www.MavericksAtWork.com.

economy has experienced a period of transformation and realignment, a power shift so profound that we’re just beginning to appreciate what it means for the future of business—and for how all of us go about the business of building companies that work and doing work that matters. In industry after industry, organizations and executives that were once dismissed as upstarts, as outliers, as wild-cards and mavericks, have achieved positions of financial prosperity and market leadership. That unconventional spirit is the defining spirit for the next era of business leadership. In an age of hyper-competition and non-stop innovation, the only way to stand out from the crowd is to stand for something truly unique. Originality has become the acid test of strategy.
There are many ways to be a maverick. But most subscribe to a set of principles that represent the new face of business at its best, a better way to compete, lead, and win. Here are four of those principles.

business as they are about finance, engineering, marketing? Maverick companies understand that the most urgent business decisions are not just what new markets to enter or what new products to launch, but whom to hire, and how to mold great teams out of gifted individuals. There is an iron-clad connection between your approach to the talent market and success in the product market. Talent matters: Any company or leader that aspires to unleash a disruptive presence in the marketplace needs to devise a distinctive approach to the workplace. Maverick companies do the work that matters most—the work of originality, creativity, and experimentation. They demonstrate that you can build companies around high ideals and fierce competitive ambitions, that the most powerful way to create economic value is to embrace a set of values that go beyond just amassing power, and that business, at its best, is too exciting, too important, and too much fun to be left to the dead hand of business as usual.

4. The people are the company. Be honest: How many companies do you know that are as creative, as disciplined, as businesslike about the people factor in

A Report on the Current State of Retail produced by

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