The Brand Man Speaks

Abercrombie and Fitch CEO, Jeffries, the most OVERPAID exec in survey

Teen, young adult retailer Abercrombie and Fitch had been one of America's most successful apparel companies. Despite premium prices, its targets...young men and women (who wanted to aspire to the brand's young, good looking and sexy image) bought its clothing in large numbers. Even older men who kept fit were avid buyers of A and F.

Then the recession hit and it hit A and F big time. The publicly traded company refused to discount its products or have big periodic sales to drive business. Instead, the brand (under its CEO Michael Jeffries) insisted in could withstand the weak economy (and a major drop in sales and profits) by staying the course with its premium pricing and lifestyle positioning.

I generally have been a proponent of consistent branding and NOT falling into the hole of going the discount pricing route to generate traffic and business---it is hard to recover from that move. However, this recession is unlike any we have seen before and with any significant paradigm shift, long held beliefs and business strategies get tested. Evolution of one's brand strategy is the appropriate course these days.

It does appear in today's new economy ( and it will continue I believe even with a recovery) consumers are demanding value and a strategically sound pricing plan (whether its Prada or Levi's or A and F) has to become a part of any brand strategy.

A and F's refusal to alter their business model seems to be causing the brand some major harm. It is no longer the darling of its prime target...on a recent shopping trip across the US, I found A an F stores consistently empty while other competitors for the young market were busy like H and M and Forever 21.

What is amazing is that CEO Michael Jeffries was paid in excess of $71 Million in total compensation last year despite the company's terrible financial performance...he was paid higher than virtually all of his industry peers again despite the brand's significantly declining sales and profits. Why? I'm not sure, but The Corporate Library, a research entity that tracks CEO compensation, has identified Mr. Jeffries as the one of the MOST overpaid CEOs.

Mind you this is NOT a privately held company but a publicly traded one...and one would think and hope that stockholders and Board members would significantly adjust Mr. Jeffries compensation given the company's very poor performance. If I was a stockholder in this company I would be screaming at the board...to take some of his compensation and plow it back into the company's marketing effort. I also find it hard to believe that ethically and morally Mr. Jeffries can justify his compensation. Where are the CEO's who do the right thing and voluntarily reduce their compensation when their companies are doing poorly? I wonder how may employees have lost their jobs and A and F because of the weak economy while Mr. Jeffries still gets paid top dollar?

Watching out for you everyday.

Eli

Brand Reinvention: Defunct retailer brands get new life: Linen and Things revisted

The recession has taken a toll on a whole host of retailers many of whom were well known names in the consumer products industry. Several notables include Polaroid, Sharper Image and home goods retailer Linen and Things.

When Linen and Things went out of business some months ago after failing to recapitalize and restructure out of bankruptcy, many thought it was a dead brand name. Not so. A partnership of Gordon Brothers Brands and Hilco Consumer Capital bought the former retailer's brand and have reinvented it hoping to capitalize on good will, a notable name and a strong loyal consumer base through email addresses.

The new venture is only web based with no effort to launch any brick and mortar stores. The goal to use a lower overhead business model via the internet to regenerate the brand into a profitable one.

Can it be done? Maybe yes, maybe no.

Linen and Things came to life in a robust economy in which consumers couldn't stop consuming especially for their homes. Housing sales were booming and people were spending lots of time in upgraded home environments entertaining and living large. Bed Bath and Beyond created the big box "discount" home goods category and Linen and Things was a me-too follow up.

When Linen and Things business started to waiver, I wrote that one of the reasons it was suffering (and Bed Bath and Beyond was not) was it had no real brand identity. It was just enjoying the spill over from Bed Bath and Beyond and it thrived on sales generated by easily available and plentiful discount coupons (20% off a single item) to spur sales. BB and B also used these coupons, but they were distributed more sparingly. I had at any one time 3 LNT for every 1 BBB coupons. That drove my business to LNT over BBB frequently.

I found the stores very very similar, preferring BBB which seemed to have more higher end goods and an overall better selection. But save for the coupons, I really couldn't see any reason for LNT to exist...other than the sheer volume of people buying stuff for their homes.

As the economy faltered, so did the fortunes of LNT, as has been the case with many me-too brands when consumers cut back spending and the brands with less identifiable reasons for being had little to keep them in business.

Can LNT reinvent itself and succeed just online? I think it can as long as its brand strategists understand they have to create a meaningful reason for being....a pricing strategy that under cuts BBB significantly because the LNT brand's overhead is so much lower?...perhaps offering unique items BBB does not carry that are desired by consumers (yes, consumer interest is key...just carrying different stuff that doesn't sell isn't going to work)....great online service? Top notch experts online or by phone to help with decisions, (BBB is weak in this area both online and in-store)...

I have read that the company is planning to launch a private label brand called, "Linen and Things" as well. That might have some value (if the products are good value) given consumers strong interest in private label brands these days...decent quality and a great price...

Whatever it is, LNT will only succeed online if it develops a core reason for being that resonates with consumers and is significantly distinguished from BBB and any web-only home goods "store". One key competitor in the web only game is Overstock.com which offers an amazing array of home goods for some incredibly low prices. (I recently picked up a high end flatware set for 70% less than a home goods store and 40% less than Amazon.com). So if LNT takes a discount pricing posture they have stiff competition already in the web only marketplace.

I expect more defunct brands to be reinvented but online only.

Watching out for you everyday.

Eli

WalMart trying (again) to go upscale with offerings to keep more affluent consumers

WalMart has been one of the few bright spots in the retail industry over the past two years since the recession began. Its strong value proposition has reinforced its relationship with lower income Americans and has brought in more middle class consumers and some upper middle class folks as well. Everyone seems to be looking for a bargain or at least the lowest price on the items they need for everyday living.

Empirical evidence does show that more middle income consumers are willing to go to WalMart instead of Target and the other higher image stores they frequented in the past. The question remains can WalMart again try to win over these more affluent consumers for the long term and if they can, do they risk once again alienating their core customer?

Not more than a few years ago, WalMart in more robust times, was upgrading their stores, bringing in higher margin goods and "better" brand names. The plan failed simply because the more affluent consumer didn't become a regular consumer and the core customer felt that WalMart had forgotten them raised prices everywhere and drove these people to dollar stores.

WalMart, after a number of reporting periods with declining sales when others were doing well, figured it out...they did NOT belong in the more affluent consumer chase. They refocused their marketing and ad efforts back at savings and value and business began to boom again.

Along comes the recession and WalMart is perfectly positioned to benefit...and has...from this difficult economic environment. Yes, not unexpectedly given the extent of this near depression economy, more middle class shoppers (who now see themselves a lower middle income) have turned to WalMart. Some upper middle class shoppers (who now see themselves as more middle class) have also sought out savings at the big W. WalMart is benefiting greatly.

Now comes word that the retail giant is not satisfied and is hell-bent on figuring out a way to keep the higher income more status conscious shopper long term. They are already back bringing in higher margin goods, better brands and more "service". The stores are getting major overalls to look more like Targets (again). Will it work this time?

Yes and No.

To some extent the answer is YES because we have seen a significant buying behavioral change among middle and upper middle income consumers. They are giving up their need for status consumption (they can't afford it) and going for the basics with an occasional indulgence. They are acting more like lower income consumers than ever before. I do see a lot of these people continuing to shop for bargains and value over image and prestige long term. This recession has had a profound effect on millions of Americans. They like saving money and the stigma of shopping at WalMart is fading because saving money is more important than where something is purchased.

Will these consumers spend more at WalMart? They already are buying more than commodity items there. But, there does remain a major risk. Going too upscale with goods and brands may again backfire because consumers are in general doing without stuff they do not need regardless of store. Thus, WalMart could get stuck with inventory they shouldn't have added in the first place. I also believe some portion of the upper middle income consumer who now is willing to shop at WalMart will choose to go elsewhere when conditions improve why?

Simple. People still have a tendency to gravitate to people like themselves or those of a higher income level (if they can get into that club). I do not see that psychological element changing long term. Shopping at WalMart is still a stigma for many not just because it is WalMart but because of the fact that it still attracts the kind of lower income folks upper middle income people really rather not shop around.

In research my firm has conducted, we found upper middle income consumers still wary of unemployed young people loitering around the WalMart stores, especially in their parking lots. They find the stores unattractive (even the upgraded ones) and the service extremely poor (despite efforts to improve it). Finally, even though buying cheap is chic, upper middle income consumers still need to feel good about where they shop and indications are most will abandon WalMart when the economy turns upwards or sooner if other more image oriented retailers lure them back with better pricing and values.

Research also shows that lower income shoppers are having a harder time making ends meet at all and feel that WalMart is still charging more than they should for basics. Further, as before, when lower income shopper see (empirical evidence) more well-heeled folks in "their" store, they become suspicious that prices are going up further and feel maybe it's time to go elsewhere for better prices. Finally, research shows that prices are good at WalMart but many times not the lowest. Surprisingly, more upscale retailers and sundry/drug stores are competing with WalMart prices and in cases beating them. Consumers are more savvy than ever and will seek out the "best" prices. WalMart is trying to deal with this new competition by advertising they are constantly researching other stores prices to "ensure" the best prices in their stores....they clearly are aware their value positioning is being challenged by a whole new set of competitors.

Interest times. Interesting stuff. I will continue to monitor the WalMart strategy shift and report back as new information and findings surface. Until then....

Watching out for you everyday.

Eli

Apple Launches new iPhone 3GS today but not without problems

Despite best efforts based on previous iPhone launches where Apple was ill-prepared, Apple faced few but in some cases major meltdowns today.

One horrific example took place at Apple's Lincoln Rd. Miami Beach location at which computer systems died within minutes of serving the first customer around 6:AM, 15 minutes earlier than planned. The early opening was to be a surprise to those who waited in lines from last evening or very early this morning.

The Miami Beach location was unable to take care of any of the people waiting for phones despite a long line of buyers many of whom had preregistered online to buy the phone being assured they would only need a few minutes to set up and pay for the phone and be on their way.

The wait was over three and half hours for many, more for those on line without pre-reserved phone reservations. Management at the local store miss handled their problem during the first two hours by failing to communicate honestly with those waiting. The store was the only one in Florida, possibly the US experiencing major technical difficulties but store personnel initially tried to explain the delay as system wide until people phoning into their friends in line told a different story. Apple Miami Beach ended up with egg on its face for its cover-up.

Even the local AT&T store three blocks away had no problems and no waiting time for the new phone however die hard Apple fans were afraid to leave the line in fear that the information about AT&T's South Beach store would prove faulty.

What still is clear is that despite all the problems Apple may encounter, it has built a brand with great loyalty to the point its fans will be made miserable and unhappy yet remain committed to the brand and its products.

Watching out for you everyday.

Eli

H&M, the cheap chic Swedish based retailer to sell high end Jimmy Choo line

As the economy continues to plague the retail industry, cheap chic Swedish based retailer H&M is taking a step to meld more high end fashion names with lower prices at its stores worldwide.

After showcasing limited edition apparel from such fashion and celebrity names as Madonna, Stella McCartney, Karl Langerfeld, Roberto Cavalli among others, H&M has struck a deal to sell shoes and accessories from luxury brand Jimmy Choo. Choo shoes are most well-known (and rose to notoriety) for their frequent appearance and inclusion in the story line of the TV Show, "Sex and the City". Many feel that Sarah Jessica Parker's character Carrie Bradshaw single-handily put Jimmy Choo on affluent and not so affluent women's "must have" list.

I believe the key to surviving this retail meltdown is providing meaningful and desirable as well as unique merchandise to consumers at a "good" value. Women will always love their shoes but will love them more at a better price. At the same time, luxury brands are suffering greatly and associations with retailers like H&M can help boost consumer interest and sales in these difficult times.

In a related effort, high end retailer Neiman-Marcus announced that it will begin offering more value-priced quality goods this summer and fall to offset the brand's image as only a purveyor of high priced goods. Neiman's like Saks 5th Avenue has seen double digit sales and profit declines for several reporting periods over the past two years and has been looking for ways to stop the bleeding a bit.

The question is; can a retailer like Neiman's go somewhat down market and not tarnish its years of branding itself as a retailer to the rich and famous? Can it offset its long-term brand image to bring in more shoppers? Is this a good idea or just a short-term revenue generating gap until economic conditions improve?

There is tremendous risk for Neiman's with this strategy especially since consumers see little reason for high end retailers to continue to exist favoring smaller boutiques for pricier goods these days...if they are buying at all. Are we seeing the end of the larger nation-wide luxury retailer? Possibly a slow death, however, just changing the goods to slightly less expensive ones isn't the answer. Saving Neiman's, if that even makes sense, requires a complete re-branding effort not a band-aid.

Watching out for you everyday.

Eli

Ralph Lauren brands and stores struggling in recession economy

Ralph Lauren brands and its retail stores including well-known Polo by Ralph Lauren are continuing to struggle in this deep recessionary economy not unlike other luxury retailers.

Many analysts have used Ralph Lauren as a barometer of how affluent consumers react to changes in economic climates. Historically, Ralph Lauren has weathered recessions fairly well but this time even the very rich are pulling back their spending along side the middle class "aspirational" consumer.

One notable issue facing Ralph Lauren and virtually all luxury goods companies and retailers is the impact this economic downturn has had on the aspirational consumer this time around. Whether you call it greed or business development strategies, most luxury companies encouraged middle class consumers to "reach" for entry level luxury products when the economy was robust. Lauren, Vuitton, Prada, Gucci and their like created and sold lower priced entry level goods to these aspirational consumers who longed to live like the rich and famous.

This strategy worked well for the past decade enriching these luxury goods companies. To keep the ball rolling these companies added more and more entry level products to entice middle and upper middle class consumers to stay loyal. The hope was that once they "tasted" the entry level fine wares they would trade up and buy the more expensive (and more profitable) products.

By depending on these consumers for strong revenue gains, luxury goods companies were creating a high risk situation for themselves...albeit few thought the economy would drop off this greatly. Today, they are all suffering enormously from the loss of revenue from the aspirational consumer who is not likely to return to spending on unnecessary high priced status goods for some time to come.

As reported in a previous post, few companies followed the path of French luxury goods company Hermes who chose not to introduce lower priced entry level goods to reach a lower income customer. They did not benefit from the boom times and are weathering the recession quite well. Possibly a lesson to be learned by luxury goods companies for the future.

Watching out for you everyday.

Eli

Toys R Us acquires venerable FAO Schwarz toy retailer

Since the late 1880's FAO Schwarz has been the toy store to the rich and famous. However, as toys were heavily discounted by retailers like Toys R Us and WalMart, FAO struggled to stay alive. The retailer went through various reorganizations and bankruptcies over the past few decades rarely making money.

Toys R Us has announced it is acquiring the venerable toy retailer and pledges to build the brand back to its historic glory. The retailer has two stores; It's flagship in New York City and one in Las Vegas.

FAO built its brand based on offering unique often quirky toys few of which were inexpensive. Given how frequently kids go through toys, most parents couldn't imagine spending lots of money for one toy and found the discount chains allowed them to shower their kids with toy choices at a fraction of the price.

FAO Schwarz last hurrah occurred when the movie "Big" with Tom Hanks featured the store and its over sized walk-on piano keyboard.

There should be room for a unique high end toy store as long as Toys R Us management finds a way to offer experiences that are both meaningful and valuable to parents and their kids. However, given this economy in which there has been a cultural shift towards less consumption and reusing what you already have, it may be a long time before a store like FAO Schwarz can re-establish itself.

When the economy was robust, I could see a Toys R Us operating FAO at break even or even a loss like Corning Glass did with Steuben Crystal. Not so today.

It will be interesting to follow the re-brand building effort.

Watching out for you everyday.

Eli

Woody Allen protecting his image and brand successfully sues American Apparel

American Apparel the LA based clothing chain that is known more for lawsuits against its founder Dov Charney that its apparel settled a lawsuit for $5 Million with Woody Allen.

Woody Allen one of the most well-known movie personalities over the past several decades...he has directed, written and starred in many films....sued American Apparel for using an image of him as a Rabbi from the classic movie "Annie Hall" which earned Allen an Oscar as best movie. The image was used to suggest that Mr. Allen endorsed Mr. Charney's clothing line in an off-beat way. Mr. Allen objected to the use of his image and the association with American Apparel which was used in billboards in LA and NY without Mr. Allen's permission (or any payment for his likeness).

Charney is known for using very racy ads with good looking but not model perfect people. He is also been sued frequently (vs. other apparel manufacturer's for sure) for sexual harassment among other questionable behaviors. He just "moves" to a different vibe than most.

This is an important victory for people brands against the unlawful and uncompensated use of their images for commercial gain. The settlement occurred just before the lawsuit was to go to trial.

Mr. Allen originally was seeking $10 Million. Mr. Charney says he wishes it had not settled ....an action taken by his insurance company...so he says.

Watching out for you everyday.

Eli

Retailer H&M expands exclusive guest designer offerings to more stores

As the world wide recession continues to take a huge bite out of retail sales, several companies are honing their branding skills to gain as much market-share as possible.

Swedish retailer H&M which has expanded in the US dramatically in the past few years is taking its fashion forward super chic for cheap brand to another level.

In the past short runs of collaborations with high end designers and celebrities like Stella McCartney and Madonna have brought excitement and credibility to the retailer. However, these offerings were available in just a few stores and not the whole chain. The financial impact was limited by the limited availabilities. Loyalists complained they could not get the short term fashion offerings and were disappointed.

H&M will now place their guest designer apparel in nearly all their stores to meet consumer interest and demand.

This move helps further cement the brand's credibility as a leader in value priced high fashion in what is an increasingly difficult and competitive market. Many retailers have strictly gone the price discounting route and have forgotten to strengthen their brand value along the way as well. These missteps will be costly once the economy revives. H&M seems to realize that they can develop business strategies that deal with the recessionary climate and also simultaneously bolster the brand story to consumers distinguishing it from stores like Forever 21.

One analyst called it a drive to meet young fashion-oriented American's thirst for "designer gear at Main Street prices".  I think that is a good summary of H&M's goals.

Watching out for you everyday.

Eli

Luxury brand Hermes defies recession generated down turn suffered by competitors

French luxury brand Hermes is doing pretty well considering the depth and breath of the recession world wide. Despite double digit declines experienced by Gucci, Prada, Louis Vuitton and others, Hermes' brand strategy from which they have not deviated is proving very effective and a smart business tactic.

It is also quite simple.

Hermes has never chased after the aspirational consumer. The consumer whose wealth grew from middle class to upper middle class over the past decades. They didn't introduce lower priced goods to attract a younger, hipper, "yuppie" client. They didn't try fancy advertising campaigns designed to create envy or desire.

What they did was stay the course. Produce limited amount of goods and not over-expand or overreach. They did not make the brand accessible beyond the truly rich. For example their handbags in many cases require consumers to go on a waitlist for several years to buy them and can cost from $7000 to over $100,000 each.

In robust times their fortunes were not as good as the other European lux brands but in weaker times they are virtually immune to the downturn. They simply do not depend on that aspirational buyer whose income ebbs and flows with the economy.

Hermes does have many celebrity loyalists who wait patiently for their hand-made products, however, they don't flaunt those names to the public to attract trend-watching, celebrity influenced consumers.

Hermes remains a true luxury brand in a time when the word luxury has been well over-used and has lost most of its real meaning.

Bravo to Hermes.

Watching out for you everyday.

Eli