Category — Case Studies

Macy’s is turning some of its backrooms into warehouses to compete more effectively against Amazon and other online retailers, reports Dana Mattioli in the Wall Street Journal (5/15/12). “We’ve spent the last 153 years building warehouses,” says Peter Sachse, Macy’s chief stores officer. “We just called them stores.” Macy’s plan is to “convert 292 of its 800-plus stores for the task, with expanded storerooms and new technology that dynamically updates the status of every item in every store.” The idea is that excess inventory in stores can readily be sold online, and vice versa. It will also save “time and money on shipping” because items ordered online can be shipped from the store closest to the shopper.

The challenge is that, unlike Amazon, which uses barcode-reading robots to pick and pack orders, Macy’s is relying on human beings foraging through stores to find items and then packing and shipping them to online customers. Finding an item can be especially difficult when its color has a trendy but vague name like “magical” or “journey.” Macy’s actually is far from the first retailer to integrate its online and instore distribution and fulfillment operations. Retailers have been working at this “since the late 1990s,” although the technology required for success is now “finally in place.”

Nordstrom has been filling “online orders with goods shipped from its stores” since 2009 “and now ships from all 117 of its full-line stores.” But “omnichannel” distribution, as it is known, can be complicated and expensive, in that it can require shipping “from, say, seven separate stores” versus “one online warehouse.” Whether the store or the website gets credit for the sale is another tricky issue. However, Jamie Nordstrom, who heads up Nordstrom’s online operations, says the approach “has cut the level of markdowns and improved margins.” Macy’s profits, meanwhile, have “jumped 38 percent,” and its online sales 34 percent, in its most recent quarter.

A "carefully crafted distribution strategy" was the key to success for "Tinker, Tailor, Soldier, Spy," reports Erica Orden in the Wall Street Journal (1/11/12). The plan was to do "the reverse of the usual pattern in modern Hollywood, where big movies typically open on as many screens as possible — often upwards of 3,000 — on the theory that such wide exposure maximizes the impact of costly national advertising campaigns." James Schamus, chief executive of Focus Features, the film’s distributor, instead decided to open on just four screens, expanded cautiously to about 55, and then waited until after the holidays before going to 800 screens.

"Our goal with ‘Tinker’ was to play underneath the traditional December blood bath, forgoing a massive media spend and aggressive print count and rather making sure the film completely dominated the specialized part of the market," says James. The strategy is known as a "platform release," and is designed to tailor "distribution based on early information about demographics and feedback from moviegoers." Initially, the assumption was it would attract an older, matinee audience. Surprisingly, it proved popular at late-evening showings, suggesting a wider, younger audience.

But Focus didn’t expand quickly into a few hundred screens because that "would require the studio to pay for essentially the same size television campaign but wouldn’t provide the exposure to the 800 or so theaters it was ultimately looking to reach." Once it reached the 800-screen range, James said each theater was hand-picked. "We talk about the neighborhood and we talk about the historical grosses for those theaters so we know where the money is," he says. As a result, Tinker managed to earn "more money per screen among the top-10 grossing films than any but the No. 1 film" during at least one weekend in January.

Left for dead in 2009, Esquire magazine in 2012 is "killing it," reports David Carr in the New York Times (1/23/12). Just three years ago, Esquire’s editor-in-chief, David Granger, was firing staff and cutting editorial pages, having been "beaten up by a crop of lad magazines … then hammered by the flight of advertisers and readers to the web." Advertising pages were down 24.3 percent and the magazine made a list of "twelve major brands" that would be gone in a year.

Instead, in 2011 "Esquire was up 13.5 percent in ad pages from the previous year," and Hearst, its publisher, says it "was No. 1 in year-over-year performance." Esquire’s journey back from the brink "is complicated," but started with keeping its "seasoned writers and editors" versus dumping them in favor of "shiny faces with reduced price tags." David Granger also "departed from standard design templates and modernized the front of the magazine to reflect the growing interest in marginalia and small laughs, with goofy asides and in-jokes."

The net effect is that of a magazine that "looks and feels like something a bunch of guys put together for a bunch of other guys, not a glossy widget produced by a big corporation." Esquire also experimented with QR codes on its cover, calling up a video with Robert Downey Jr., for instance. Its iPad app similarly adopted a multimedia approach, and its website attracted more than "two million visitors in December," up from just 300,000 in 2009. David says he thinks "well-turned print products" are too often given short-shrift these days. "There’s nothing wrong with the magazine form that constant diligence won’t fix," he says.

Bricks-and-mortar retailers are still scrambling to respond to Amazon’s business model, reports Ann Zimmerman in the Wall Street Journal (1/23/12). "The traditional retailers are still doing business the old way while Amazon has reinvented the model," says Sucharita Mulpuru, a Forrester Research retail analyst. "Walmart and Target are willing to sell a few things at a loss," says Sucharita. "Amazon’s whole business is a loss leader." This is because Amazon uses its other businesses — like cloud data storage — "to subsidize" its lower prices.

Following a weak holiday season, "with sales at stores open at least a year rising just 1.7 percent, about half of what analysts expected," Target issued a letter to its vendors seeking "special products that would set it apart from competitors and shield it for the price comparisons that have become so easy for shoppers to perform on their computers and smartphones." It also "asked the suppliers to help it match rivals’ prices" and "said it might create a subscription service that would give shoppers a discount on regularly purchased merchandise."

Target hopes this will help reduce "showrooming," or the shopper practice of looking for an item in a store, and then buying it from an online rival. Target has suffered particularly "in electronics, movies, books and music … Those products accounted for 20 percent of Target’s annual sales of $65 billion in 2010, down from 22 percent in the prior year." The retailer has also re-launched its website and says "it will open a series of temporary boutiques" featuring items "from popular regional stores." While the boutiques may help differentiate Target, analyst Colin McGranahan says "they are completely immaterial" to its bottom line.

Kodak failed partly because it "couldn’t escape the intellectual limitations of geography," reports Rich Karlgaard in the Wall Street Journal (1/13/12). "When you study the history of great American companies that stumbled and failed, or only partially recovered," Rich writes, "you see how difficult it is to overcome the mindset of your immediate surroundings. Businesses located in places where success is the norm, and innovation is built into the ecology, have a better chance of fixing themselves."

That would be locales like Silicon Valley, and not Kodak’s hometown of Rochester, New York, says Rich. The reason, he says, is that it’s easier to lay off people in Silicon Valley because there are plenty of other places nearby where they can find new jobs. If Kodak laid off people the way, say, Intel did, "the impact on a small city and the multiplier effect of lost jobs, all at once, would have been a civic disaster." Not that Kodak’s "slow bleed" hasn’t "turned out to be a civic disaster" for Rochester, anyway.

Rich says that the Route 128 corridor, outside Boston, is another example of how geography can feed failure. Wang and Digital Equiment Corporation once prospered there, but in the early 1990s they "went poof." Rich says it’s because "Digital’s founder Ken Olsen and Wang’s founder An Wang … were stubbornly resistant to personal computers. Together, they cast a kind of omerta over the region: PCs must never be mentioned!" IBM survived, Rich suggests, because, being based outside New York City it had "zero tolerance for omerta … The world might be flat," writes Rich, "but innovation and adaptation remain local."

As much as Lego would like to appeal to kids, it’s the grownups that seem to be its most ardent fans, reports Daniel Michaels in the Wall Street Journal (11/17/11). "We still see ourselves as a toy company, but the world is challenging us on that," says Tormod Askildsen, a senior director at Lego in Billund, Denmark. Early signs of this challenge happened in 1995, "when an adult fan modified sophisticated design software to create a virtual-Lego program, L Draw. In 1998, Lego introduced Mindstorms, a line of robot-building kits with motors, sensors and small programmable computers. It was aimed at kids under 13, but more than half its buyers were over 20," according to Tormod.

Soon after, Lego "learned that adults were hacking Mindstorms software to soup up robots." Five years after that, the company went bankrupt because it dumbed down kits by using big, preformed pieces that sapped creativity." It was adults who told them they had blundered. "Fans tried to tell us we were on the wrong track, but we said, these are adults and we’re a toy company," says Tormod. "Until then, Lego was a pretty closed, arrogant company." But now Lego is embracing its inner adult, to the point where it has anointed 13 grownups as Lego Certified Professionals.

This elite corps of Lego customers isn’t paid by Lego, but "acts as goodwill ambassadors" in exchange for getting bricks at wholesale. Sean Kenney, one of the chosen 13, actually “left a job at Lehman Brothers in 2002 to build Lego models full time.” He makes six figures from “clients including Marriott International, which this year commissioned models of several hotels.” Meanwhile, other adult fans are forking over upwards of $1,000 for a “5,992-piece Lego Taj Mahal" set. It’s not lost on Lego that grownups have more money to spend than kids, although this particular adult extravagance can cause family tensions. "We hear conversations about, ‘This is Daddy’s Lego," says Jamie Berard, a Lego senior designer.

Customer loyalty is the centerpiece of Kroger’s simple path to growth. By Don Henry. Years ago, when Joseph Pichler announced he was leaving the University of Kansas Business School to join Kroger, Dave Dillon — a University of Kansas graduate himself–wrote him a welcoming letter. “Dear Joe,” he recalls writing, “I am so pleased you are going to be here, and we will hopefully learn this business together.”

When Dillon shared this story in a recent Supermarket News article, it revealed a man who valued loyalty in friendship and in work as a hallmark of his career. It’s that kind of loyalty that has led Kroger to impressive growth … read >>

Steve Pinetti of Kimpton Hotels & Restaurants wants to put a smile on your face. By Tim Manners. Dog biscuits at the front door. A goldfish in your room. Animal-print robes in the bath. If you’ve ever stayed at a Kimpton hotel, it’s all very familiar. The complimentary wine hour at five. The extra-long bed (if you’re 6-foot-8). The level of personal attention that Steve Pinetti, Kimpton’s senior vice-president of inspiration and creativity, says transcends mere “customer service” and provides “genuine, heartfelt care.”

If you think you’ve never stayed at a Kimpton hotel — or the name doesn’t quite ring a bell — it’s probably because there is no hotel called Kimpton: For the most part, each of Kimpton’s 54 boutiques has its own name. Maybe you’re familiar with Hotel Allegro in Chicago, the Muse Hotel in New York City, or Nine Zero in Boston. All of them are Kimptons … read >>

A special, 32-page report, featuring summaries of all 36 Hub Prize winners and an exclusive interview with Nathan Estruth of Procter & Gamble’s FutureWorks, creators of Tide Dry Cleaners, winner of the Ultimate Hub Prize and recipient of the coveted Hub Cup. (pdf)

Granted, providing good service is not necessarily mandatory for some brands. Does anyone really need a help line for toothpaste or paper towel? Probably not. But to the extent that every product — no matter how commoditized it may be — ultimately is sold in some kind of store suggests that some version of customer service could make a difference, especially where brand loyalty is concerned.

Procter & Gamble certainly understands this, and acted upon it by creating Tide Dry Cleaners, a retail expression of its iconic Tide brand of laundry detergent. In so doing, P&G risked damaging Tide’s enviable image, equity and the brand loyalty it already enjoys. What if a Tide Dry Cleaners ruins someone’s favorite dress?

But in taking such a risk, P&G also stands to deepen loyalties to unimaginable levels by turning a generally dismal retail experience — going to the dry cleaners — into something that actually makes a positive difference in people’s daily lives.

This helps explain why Tide Dry Cleaners is the first winner of the Ultimate Hub Prize (link). Close behind were Disney’s incredible, hi-tech re-imagination of its stores and Kimberly-Clark’s U by Kotex, a gutsy shopper-marketing campaign that took the feminine-care category by storm.

All three of these initiatives, as well as the 33 other Gold, Silver and Bronze Hub Prize winners, have this in common: They apply insights and innovation to make an emotional connection where it counts the most — in the store. That’s a “customer service” and the result is not only a sale, but loyalty, as well. Here’s to all of our Hub Prize winners, and to the loyalties they have earned! Please download a PDF celebrating all 36 winners (here).