May/June 2008

A Retail Publication by

The retail industry is adjusting to a new reality. Soaring energy costs, turbulent financial markets and a sluggish economy are causing retailers to revise their bottom-line projections. Many firms have stopped reporting monthly sales. Consumers have put the brakes on spending, leading stores to tighten inventory, improve space allocations, and give merchants and associates volume-based incentives. Executives are rethinking their capital projects even as pressure continues to achieve speedy return on investment. Store openings are proceeding at a much slower pace, despite the fact that an engaging store experience connects emotionally with customers and helps maintain margins. Even the most price-sensitive consumer looks forward to a little shopping excitement—an important consideration, as shoppers are beginning to adjust to gas and food prices by becoming more organized, consolidating shopping trips and spending more time in the store. “In spite of all the belt tightening, retailers don’t have to give up on improving the store experience in favor of lower prices,” says Ray Faustman, senior vice president of sourcing and implementation for Design Forum. “You can still get greater value from time and money by applying best practices in supply chain management.” ooking to make a splash with a new or improved store, businesses who’ve saved millions without sacrificing speed or quality think it’s a very hot idea. In addition, selecting vendors and suppliers and developing profitable long-term relationships with them will be critical going forward, in good economic times or bad. Top-ranked companies point to their strategic procurement efforts as pivotal in their success. Sourcing and procurement directly impact all the value drivers in an organization. Using them with a strategic plan can help firms tackle the 10 to 15 percent increase in the cost of building materials, the impact of higher energy expenditures, as well as the average time it now takes to complete a new store—31 weeks up from 29 weeks. And it tracks and measures performance. “In our experience, retail rollouts can save an average of 21 percent when they take the time to develop a strategy and avail themselves of the specialized digital sourcing tools available today,” says Faustman. “That’s across just facility-related expenses alone. But you can put your team to work on energy management services, building maintenance and custodial service as well. All indirect spend categories should be looked at.” In good or bad times, today’s consumer-driven multi-channel marketplace and the intense competition between retailers means that companies must grow and refresh their stores with increasing regularity. Setting aside money for expansion, design and development has a significant potential upside. Companies just need to be smart about how they do it. Narrowing the assortment is another way to gain an immediate capital release. Stores are cutting back on inventories to avoid markdowns. For optimal results, they are putting shoppers at the center of their thinking and strategy, and making choices aligned with their brand. Successful companies know how to concentrate investments on the customer touchpoints that will have the greatest impact on profitable demand. Right now that might be private label

Allocation Strategies in

Tough Times
brands or prepared meals. Today’s powerful and unbiased analytic tools are helping stores address the sometimes disruptive challenges that occur in the attempt to rationalize assortments. Everyone is under pressure to innovate and offer new services and departments that better fit their new and particular markets. But with retailers facing both economic and real estate constraints, store square footage is not going up. Selling space must be analyzed for performance, and optimized. Companies are focusing their spending on areas with the most potential for customer engagement, and improvement to the experience of the store. With capital allocation and efficiency at the top of the list today, more companies are turning to the new modeling and simulation tools that can save time and money when it comes to innovating around space, brand and assortments. These algorithmic wonders put speed, creativity and cost-effectiveness at your fingertips. “And if you take advantage of strategic sourcing methods, the money you save on implementation can be spent to explore that kind of new thinking. Or to elevate the brand standard in terms of differentiation or development. Let’s say you want to put eco-friendly elements and brand-unique features in the store,” says Faustman. “You will probably be able to find a way to afford them.” The businesses performing well right now are the value merchants, warehouse clubs and drugstores. And the low-end is beginning to invest more in the store experience, putting pressure on the middle and high end to kick their brand experience up another notch to justify their higher margins. The secret to high-performing stores is staying focused on the brand experience when there’s pressure to make it all about price—and there’s a strong signal coming from the consumer that price is king. “You have more choices than you know,” says Faustman. “Tight budgets do not need to drag down a company’s performance and profitability. You can institute strategic sourcing. You can inexpensively model different space allocation plans that maximize the benefit for the customer, and do the same thing with capital allocation plans that will keep the business from overspending sometimes 25 to 50 percent. There’s always a better way to do things, rather than just cutting the budget on capital projects—a method sorely lacking in process and measurable results.”

Preparing for Good Times
After the end of what felt like the lengthiest primary season ever, we’ve finally narrowed down the presidential candidates. You could almost hear the country’s collective sigh of relief. Now the race can focus while we get a handle on some clear objectives from the nominees. People are ready for change. They respond to clean, simple messages. Retail works the same way. Shoppers look across the field of retail options to judge which brand propositions relate most closely to themselves and their values. They weigh the experience and narrow their choices. Clear alternatives are more important to them now, given the burdens of time constraints, economic pressures and the uncertain future. Smart companies will find the capital to explore opportunities for connecting with customers during this transitional time. And it won’t be by copycatting. Retail brands need to look, feel, sound and smell completely different from their competitors. It needs to be a clear choice. Shoppers expect retailers to understand their needs, and right now they need lower prices. However, when everyone competes on price, consumers become more particular. And they are much less tolerant of poor service and indifferent shopping experiences. Most bricks-and-clicks retailers are part of the social web through customer reviews. If you have yet to establish an ongoing conversation with customers through your website or marketing research efforts, now’s the time to initiate one. Ask consumers what they like/want/need via shopping intercepts and interviews, using the sophisticated techniques available today for pinpointing robust, actionable insights. It’s a great time to get back some of your entrepreneurial spirit and use new knowledge to innovate around the store. Although it is often accused of being stodgy, Wal-Mart has been one of the most aggressive retailers in terms of renovating and testing new store experiences and conversing with customers. There’s a Wal-Mart blog! Most recently, the company took a few knocks for their lackluster fashion apparel launch, and it’s still low on the fashion learning curve. But it has taken a stand in consumer electronics, completing a department redesign in stores nationwide that addresses customers’ issues with its merchandising. Bentonville is also at work integrating the online experience in the store, at the shopper’s request. And of course, it made headlines for leading the way on green through energy conservation, and are now in hot pursuit of sustainable packaging. We’re in a bi-polar economy. It’s a difficult market right now and at the same time it’s not. When you look across all categories, for instance, home-related stores are most affected and apparel is slowing down, but some categories like supermarkets and value stores are doing great. Drop prices if you must, but heighten the experience absolutely. Remember, strapped for cash or not, people still choose based on emotion and they shop with a sense of anticipation and fun. We’re in a slowdown, not a recession. Take the optimistic view on the long term, and invest now in the store experience so you can come out ahead when things turn around. I’ve heard it said, and from thirty years’ experience I wholeheartedly agree: a slowdown is a terrible thing to waste.
Thoughtfully,

Chairman’s Commentary

We’re in a bi-polar economy.

The Home Depot sees the current economic downturn as a time of lower risk. It is investing $3 billion over two years to develop new systems, store improvements, and the hiring of skilled associates. CEO Frank Blake finds that this is one of the rare times a company as large as his is willing to accept and push for change, because the upside is so clear. The plan is to renovate stores for easier navigation, and add more training to turn around Home Depot’s reputation for poor customer service. When the economy picks up again, flush customers will be able to speak with knowledgeable tradespeople and rest assured the merchandise they are looking for is in stock. I noticed the company didn’t share any plans to cut prices, only to improve experience.

D. Lee Carpenter Chairman & CEO

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

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GuestFeature
What differentiates your company is not your market position or your brand recognition. It is not even your products. It is the talent that drives all of those things. Quality talent within any organization has always been the key competitive differentiator.
by Rusty Rueff

What is

A Talent Brand?
Companies with strong brands know who their customers are and how the brand appeals to each group of constituents. They have strategies and messages built around the brand from top to bottom. Strict guidelines determine how the brand is portrayed, reproduced, placed and talked about. And they make sure the brand is conveyed in all of the organization’s communications. Or do they? Many times, because of plentiful supply, companies have not put the same effort into making sure the overall brand is carried through in their efforts to communicate with the quality talent they need to recruit. They have not defined what makes their organization a unique place to work. They have not mapped out the type of person they want to attract and go after. They have not built messages and programs to go out and get those people. In short, they have not identified or put any work into their “talent brand.” If the reputation of a company’s products or services is its face, the talent brand is its heart and soul. It represents the collective goodwill of the people who make the company go. The talent brand is about service, positive interaction and mutual respect, but it is also about livelihoods, hope and aspirations. These qualities are the essence of the talent brand. Just like a product brand, a company’s talent brand builds over time. It can engender the same feelings of desire, the same dreams that a compelling product message brings to life. It can bring tremendous loyalty and, through word of mouth, more traffic to your doorstep.

Whoever is charged with creating your talent brand should collaborate with your marketing team to determine the compelling link between the company, its philosophies, goals, principles and its talent. What is it about the essence of the company that makes candidates feel like they want to be a part of it all? Find out in as much detail as possible who your target employee is. Create a message that speaks to your ideal candidate—and only your ideal candidate. Those of you with marketing expertise may recognize the outlines of a positioning framework in the approach we are describing.

Rusty Rueff Co-Author, Talent Force An oft-quoted, leading thinker on talent management, Rusty Rueff is co-author with Hank Stringer on Talent Force: A New Manifesto for the Human Side of Business. He is the former Executive VP of HR at Electronic Arts, the number one global video game company, and one of Fortune’s “Best Companies to Work For.” Most recently, he was the CEO of SNOCAP, a digital licensing and copyright management firm for record labels and individual artists, which was recently purchased by imeem, inc. the world’s largest provider of streaming music. He can be contacted through www.rustyrueff.com.

Some companies have created and communicated an effective talent brand for years. U.S. outdoor equipment outfitter REI has long enjoyed a reputation of providing an engaging work environment and comprehensive benefits. REI also projects an image that automatically attracts the kind of employees the company wants. The company’s employees buy into its mission because the brand represents them, and in the words of brand guru Scott Bedbury, “provides an emotional context for their lives.” what can be. We are not looking for workers. We’re looking for people who can contribute, Clothing retailer Abercrombie & Fitch is a grow, think, dream and create. striking example of this type of candidate/ brand alignment. It is tough to imagine many senior citizens applying for work at Abercrombie & Fitch. The company’s brand is focused, targeted and applied with consistency to its recruiting efforts. Look at the company’s website. Continually updated, it will invariably show you a beautiful young person on the front page, the first page of the site, and the job opportunity section. When used in this way, talent branding images can simultaneously attract your target candidates while dissuading those who might not be as good a fit. For Abercrombie’s recruiting, not to mention sales, this finely honed messaging is an undeniable asset. It causes their target employees to want to be a part of it all. They just get it. As a result, walk into any Abercrombie & Fitch store and you can see the talent brand at work. Alongside your talent brand imagery, words have the same power to attract the right kind of talent. Here is the message Nike has used to greet visitors to their career site. Nike does more than outfit the world’s athletes. We are a place to explore potential, obliterate boundaries, and push the edges of

Talk about a “swoosh” statement. Copy like this gives people something to dream about—an ideal brand experience. It shows prospective candidates why Nike needs them, how they fit in and the opportunities they will have to better themselves if they work there. More importantly it reflects something that is fundamentally “Nike.” Creating a talent brand will help companies cut through the noise of the talent marketplace in a way that helps build a mutually respectful relationship with candidates. As employees are expected to show up on time every day and produce day in and day out—to continually prove themselves—so will companies find they must continually work to attract and keep their best people. Expectations, views and approaches to work are changing for participants in today’s talent market. Everyone is available all the time, waiting for the next opportunity to come along and capture his or her attention. Companies must take this hiring and retention imperative seriously. Unprepared companies will lose their best people to those with a recruitment plan for quality talent.

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