IMKTG REPORT March 4 2003

al berrios & co. IMKTG REPORT 03.04.03: Emerging Media, retail HRM, more

THIS WEEK'S CONTENTS ARE:
[1] UPDATES: Executive Summary of REPORT, REPORT portal updates
[2] BRANDSTRATEGY: An Analysis of Abercrombie + Fitch
[3] CONSUMERFOCUS: Strategies on Reaching Opinion Leaders Revisited
[4] MEDIA: Shoppintainment, Multi-Branding, Packaging as Media
[5] MANAGEMENT: Re-Evaluating Your Entry Level HR Strategies II
[6] Events REPORT: Bear Stearns 9th Annual Retail, Restaurants & Apparel Conference
[7] Events REPORT: "Influential Marketing: Targeting the Source of Consumer Trends"
[8] Opinion REPORT: A Case for Skipping Grad School
[9] CORRECTION: The Phlat Ball

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[1] UPDATES: Executive Summary of REPORT, REPORT portal updates

>> "We employ college kids part time that we can pay less." - Seth Johnson, Executive Vice President, Chief Operating Officer, Abercrombie + Fitch

Good morning execs,

Last week, I attended an analyst conference on retail, restaurants, and apparel, and had in-depth discussions with CFOs, CEOs, and Chairmen on the state of their businesses. The BrandStrategy section today highlights one of the companies I felt deserved a closer look, Abercrombie. I also attended a discussion on "Influentials". Remember on Feb. 11th, 2003, we tackled opinion leaders in the ConsumerFocus section? Well, I questioned the CEO who coined the term and wrote a book about it. Check out what he said, and my response, in the ConsumerFocus section. As a result, I will post-pone a discussion of our Consumer Value Model. In today's Management section, I am continuing our analysis on HR strategies. Last week we discussed white-collar attitudes. Today, blue-collar attitudes. Next will be a discussion on unions, the U.S. Equal Employment Opportunity Commission, disgruntled employees, and in coming weeks, I will tie it all together with how it affects consumers. And finally, available exclusively online, our next Opinion REPORT on the point of getting an advanced degree.

This week, we've redesigned our IMKTG REPORT portal to make it easier for you to navigate. I hope you find it a powerful tool.

Enjoy the rest.

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[2] BRANDSTRATEGY: An Analysis of Abercrombie + Fitch

Abercrombie + Fitch's CEO is getting $12 million in cash for the next five years and $500,000 GUARANTEED! for the rest of his life, whether he makes or breaks the company. Supposedly, he's done such a good job, all he has to do is be there and breathe to get paid. Obviously, this unusual compensation package wasn't brought up at the analyst meeting I attended last week, nor their uniform policy problems in California that force employees to purchase and wear Abercrombie apparel, (some so pricey, it negates Abercrombie retail-level, part-time hourly wages). And there was no mention of their soft-porn-like corporate image or the after affects of their public relations fumble with Asian stereotyping t-shirt images. But since costs are down, and clothes still "trendy", this alternative to GAP seems to be impervious to consumer backlash. According to company EVP/COO Seth Johnson, 2003 goals will be store expansion, increased penetration into female categories across all ages (no pun intended), and to increase internet presence. Marketing communications will focus on direct mail, their website, and their catalogue in 2003. Abercrombie doesn't have any elaborate pricing or discounting strategies in place, with most of its resources and service expenditures dedicated to infrastructure, logistics, and inventory management. Although they claimed that in order to make Abercrombie an aspirational brand (with little marketing) depends on in-store experience and customer service, HR practices aren't a priority, as demonstrated by Seth's apparent non-concern with part-time employees.

BOTTOM LINE: With consumers trending towards a simplified lifestyle (as analyzed by al berrios & co.), with vintage and military influences impacting almost all fashion styles in 2003, Abercrombie simply has to react in order to capture sales in their core college target group. With their multi-tier emulation of GAP, their lower-priced, A14-18 Hollister brand has also experienced success and by expanding stores, Abercrombie will continue to grow. Although their strategy isn't unique, the way they'll manage their uniform policy and associated costs should they lose will be, as it may potentially impact the rest of the brand-apparel retail industry. Although I don't own Abercrombie stock, I would recommend it on the basis that it doesn't really take a genius to manage this company as they're managing it now. However, within 8 to 10 years, they may start to encounter difficulties, as has GAP, with keeping up with trends, strategic pricing, and yet-to-emerge competitors challenging them for a new generation of consumers.

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[3] CONSUMERFOCUS: Strategies on Reaching Opinion Leaders Revisited

Why waste your time and resources reaching a group of people that no one knows who they are, where they are, or how they're created? Ed Keller, CEO of RoperASW, believes it's worth our while. His premise is that 10% of the population influence the other 90% to do everything from buying a specific item to eating a particular food. He prophesizes that it is imperative to get the endorsement of these "Influentials" because it's more efficient and cost-effective. What wasn't cleared up for me prior to this discussion was that "Influentials" aren't "Buffs" (that minority or niche audience that is so involved with a product, brand, industry, that they typically know things 5 to 7 years out in advance vs. an Influential who is only aware of things 3 to 5 years out in advance). So, can we create an "Influential"? Ed confirmed for us that although it isn't fully understood how "Influentials" are created, it is theoretically possible to create them, once you understand the common attributes to "Influentials" (i.e. activists, limited lifespan, educated, respected in community). Upon learning this, I posed Ed the question: "If I were to engage in a smear campaign against a competitor, and assuming my own record was spotless, is it theoretically possible to create 'Influentials' that would seek out more information concerning the misdeeds of my competitor, and consequently offer me their business?" The answer was yes. However, he advised caution. Your sudden smear campaign may beg the question what are you hiding.

BOTTOM LINE: Most marketing textbooks will instruct you not to engage in such a campaign anyway, since it's always best to talk about yourself, than your competitor. Therefore, al berrios & co. reaffirms our recommendation on not wasting your resources on this consumer segment because it would take additional resources to find or create your own group of opinion leaders, when the masses are easier to identify and sub-segment. Although focusing on reaching only opinion leaders may minimize your long-term marketing communication costs, it will maximize your Consumer Risk since your entire awareness is dependent on a smaller group of consumers.

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[4] MEDIA: Shoppintainment, Multi-Branding, Packaging as Media

Last year, Toys R Us opened a store in Times Square. For $10 million, they got a family destination the equivalence of an amusement park. Cabelas keeps guys shopping by setting up stores with wilderness displays, not just sell-thru. Sketcher's also opened a Time Square store, with a DJ and other live entertainment for their younger shoppers. With a dizzying array of options available to consumers in how they make a purchase, bricks-and-mortar retailers have decided to build on "flash appeal", (a component of the Consumer Value Model as defined by al berrios & co.), in order to keep 'em coming. This strategy is obviously pricey, but brand immersive. On the other spectrum, restaurateurs like Yum! Brands are multi-branding in an effort to stem costs and increase customer choices, according to CFO Dave Deno. In something that resembles media cross-platform selling, QSRs have discovered that they can increase per-store sales just by splitting a lease amongst two of their brands (typically a popular, national one, with a less popular, regional one), thereby also increasing awareness for the other brand. Both concepts leverage non-media assets to increase and enhance awareness of brands. In the case of packaging as media, consumer product companies with national distribution are alleging that their distribution channels are just as effective at creating awareness as media, and should be regarded as valuable partners to ad agencies, not just clients. This was the sentiment of Steve Heyer, President/COO of Coke, who al berrios & co. believes will rise to CEO (especially at the rate he's already ascended into his current role) within the next 3 to 5 years.

BOTTOM LINE: In what solidifies traditional media's loss of value as the exclusive channel to reach consumers with marketing communications, alternatives, both innovate and bizarre, are being noticed and recognized as effective. With consumer attention splintering hourly, marketers need alternatives. Although embedded advertising, such as placements on popular television programming, has become the unavoidable future of media, in the face of innovations like these that actually increase the value consumers derive from retail and consumer service brands, how can traditional media, which is increasingly decreasing consumer value, compete? Primarily, by adjusting your business models to this new reality, and secondarily, by keeping your content as relevant as possible to your core audience. Don't worry about losing audience, because you can always keep or recapture them via new content choices (i.e. ESPN, EXPN, ESPN Classics, etc.)

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[5] MANAGEMENT: Re-Evaluating Your Entry Level HR Strategy: II

It all started with a simple question: what's your turnover rate? To them, it represents just another number. To me, and millions of shoppers worldwide, it represents the meaning of our relationship with a consumer service brand. In the restaurant business, it averages 200%. In retail, around 100%. Welcome to the world of retail-level HR, where seniority is 6 months, pay is regulated by Government, and highest education necessary to succeed is a high school degree. This week, I had the opportunity to question Abercrombie + Fitch, Aeropostale, and Blockbuster executives on their retail-level turnover and effectiveness. Although I regret not having the time to visit any of these stores recently, I have shopped or worked at these brands' stores when I was a teenager. According to Seth Johnson, EVP/COO of Abercrombie, they prefer lower-paid college students as part-time employees because they "reflect the lifestyles of our customers." Aero had similar practices in place, with at least one manager, one full-timer and one part-timer manning a store at anytime. Although specific internal policies are hard to come by, rest assured, while management tells their retail-level work force that customer service is key, they institute policies that customers don't like, (i.e. Blockbuster's near-abusive late-fee policies, that, according to many customers, isn't their fault, but the fault of the Blockbuster employee that didn't scan their movie in on time) yet constitutes a substantial reason behind their financial success.)

BOTTOM LINE: Ideally, your retail-level workforce should 1) deliver a valuable service to customers, every time, 2) relay important marketing communications to the customer, in an effort to minimize reliance on advertising, 3) convey critical concerns from customers to management, while quickly arriving at noticeable and satisfactory resolutions, 4) increase per-store profitability by minimizing cost of HR activities and maximizing customer purchases from associate interactions. This is not impossible to achieve. As we learned in the last IMKTG REPORT, involvement is crucial to getting employee opt-in to management strategy. Without it, they just work for a paycheck, until they find a bigger check. An uncaring and misunderstanding management discourages a workforce. And contrary to popular management beliefs, bonuses and incentives solely based on monetary awards isn't the best way to motivate. What made my store succeed when I was working at one of these brands was a sense of collegiality between shift workers. And this started at the store manager level. If he cared, we all cared. And we demonstrated our belief in the brand by making sure every customer left satisfied, advised them on valuable deals, counseled them on corporate initiatives and requested feedback, and maintained a stable workforce with very low turnover. If every single customer interaction were in this manner, companies like Blockbuster would more efficiently enter retail and gaming businesses. al berrios & co. understands how difficult it can be to maintain such customer interaction consistency across thousands of managers, however, it all starts with senior management not thinking of retail level HR as simply a matter of cost. Retail level is your most powerful platform in the war for differentiation. And in order to assure this platform is exploited effectively, your HR strategies should start in the executive suite. Remember, if anyone spends more than 30 hours a week doing something, it's important and personal, so you must make sure you regard your sales force with similar importance (which also means firing prudently, preferably staggered, so as to maintain morale and not show the appearance of a potentially flawed management strategy). There must be a consistent, easy to digest, and relevant-to-their-personal-lives dialogue (not strategic direction) coming from your office right down to your store managers' desk.

RELATED ARTICLES:
<< Love Your Customers? Then Love Your Service Reps
<< Re-Evaluating Your Entry Level HR Strategies
>> Re-Evaluating Your Entry Level HR Strategies: Unions & EEOC
>> Re-Evaluating Your Entry Level HR Strategies: State of Education

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[6] Events REPORT: Bear Stearns 9th Annual Retail, Restaurants & Apparel Conference

If you've never been to one of those often-talked-about analyst conferences, then you're missing out. Even with four of me and 36 hours in one day, I would not have been able to take it all in, but the amount of information and contacts achieved is priceless… and I got it all for free. Upon arriving to the Bear Stearns offices in midtown, I realized that I'm probably in the wrong business - investment banks have money to burn, as apparent by the sheer size of this one office, not including fancy technology and posh furniture. Humbled, I proceeded to the conference area - 4 auditoriums (stadium-sized, reclining leather seats, web-streaming-capable room, free food, drinks, and access to 3 $2000-per Bloomberg terminals) where analysts ran hurriedly like rats in a maze looking for the next piece of information. Analysts don't seem to like to make friends, because I didn't get a single friendly "hello" or even "what company are you from" as is typical at just about every event I've ever attended. But, since I wasn't there to make friends, I made myself at home, grabbed every single piece of literature I could find and prepped myself for the next speaker. After 5 sessions spread across three days, I was mentally and physically exhausted. I slept most of the day on the third day. It was definitely worth going.

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[7] Events REPORT: Knowledge+Networking Series event "Influential Marketing: Targeting the Source of Consumer Trends" hosted by the New York American Marketing Association

Did I learn anything new? Yes. Did I meet anyone interesting? No. No disrespect to the very intelligent professionals present, this event wasn't networking-worthy if you own your own company. Everyone was a seller, even if they were looking for a job. This poor networking opportunity was offset by a very interesting and debatable discussion on opinion leaders or "Influentials" as coined by Ed Keller, CEO of RoperASW. The discussion lasted 45 minutes, with long "networking" breaks pre- and post. The food sucked, too.

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[8] Opinion REPORT: A Case for Skipping Grad School

[DISCLAIMER: Opinion REPORTS is the editorial writing of al berrios & co. IMKTG REPORT, published monthly, exclusively online, for the sake of instigating intelligent debate, whether insulting or intriguing. Opinion REPORTS represent the opinions of Al Berrios, Managing Editor, solely, and no other person within al berrios & co. Unless included within the Opinion REPORT, there will be no supported facts or references included.]

Have you been thinking about going to grad school to get that "all-important" piece of parchment that says you're a "master" at something? How did you decide? Peer pressure? Your belief that you couldn't get a really good, high-paying job without it? Or maybe it was all that slick collateral they sent you describing their really amazing programs? What I'm going to discuss isn't for everyone and I am in no way discouraging you from obtaining your degree. If you already have it or are getting it, I am proud to know someone as dedicated as you. But to me, it doesn't make sense to go into massive debt paying anyone tens of thousands dollars so they can give you an acronym at the end of your name. The perception that higher ed institutions are the only ones capable of certifying your brain is really out of whack for people not pursuing careers in law or medicine. Is it impossible to educate yourself? Has experience lost all value? Is it possible to be smarter than someone with an MBA degree if you don't have an MBA degree? It is my sincere belief that higher ed institutions are marketing machines, most evident by the bloodlust in getting high rankings in those controversial U.S. News & World Report college rankings, with ego-driven "advertisers" buying stadium-like naming rights and overly bureaucratic structures built by self-congratulating, money-starved, bitter-not-being-tenured Philosophers, that condescend you into giving them money in return for having a snobbish, inexperienced, anti-social, bookworm read to you from a book they published 30 years ago with the expectations that they are preparing you for the modern world. This perhaps may be true in fields like Geology and English, where few developments occur over the centuries, but Marketing or Business Strategy? You get my point. Before you allow yourself to become brainwashed by the expectations of your environment, I encourage you to pick up a newspaper and ask why things are the way they are? You'd be surprised how much you really don't need that advanced degree to simply compare and contrast business plans that work and fail. If you don't already know, companies pay for unique creativity, not to regurgitate textbook concepts that their own managers already know.

Disclosure: Al Berrios is currently an adjunct professor at Baruch College's Zicklin School of Business and does not have a degree higher than a B.S.

RELATED ARTICLES:
<< Analysis of Toy Industry's Survival
>> Re-Evaluating Your Entry Level HR Strategies: State of Education
>> Practicality vs. Requirements: What Should We Teach Our Kids

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[9] CORRECTION: The Phlat Ball

The Phlat Ball referred to in last week's IMKTG REPORT was inaccurately described as a Frisbee. It is actually a "flying disc".

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Disclaimer: The recommendations, commentary and opinions published herein are based on public information sometimes referenced via hyperlinks. Any similarities or likeness to any ideas or commentary from any other sources not referenced is purely coincidental. al berrios & co. cannot control any results occurring from advice obtained from this publication nor any opinion(s) conveyed by any reader of this publication.

(c) 2001-2005. All Rights Reserved. al berrios & company, inc. Published by al berrios & co. This Report may not be reproduced or redistributed in any form without written permission from al berrios & co., subject to penalty.

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