marketing and business observations

Have Retail Sales Lost Their Appeal?

Written by WellHeeled on May 31, 2010 · 11 Comments

Is a sale still a sale when it happens all the time? I’ve never done a random sample to prove this, but I have a sneaking suspicion that on any day of the year, retailers (particularly apparel / clothing / accessories retailers) are promoting discounted prices for whatever reason. Everywhere I go, there seems to be a up to 30% off (or 40% or 50%) sign hung outside storefronts or prominently displayed on websites. That’s not even counting websites and stores devoted specifically to discounted pricing.

Going down the chronological list, you have the sales named after holidays, and then other ambiguously named promotions tucked in between. See for example: After Christmas, New Year, Spring, President’s Day, Easter, Memorial Day, Get-Ready-For-Summer, July 4th, Twice-A-Year, Annual Blowout, Labor Day, Fall, Halloween, Thanksgiving, Black Friday, Winter, and Christmas. Then there are the special pricing on top of sales – for example, 20% to 40% off everything already discounted, the clearance sale, the last-chance sale.

As a consumer, I can’t complain about great sales. I wonder though, have retailers conditioned customers to expect all sales, all the time? The proliferation of discounted prices has imbued in us a sense that there’s always another sale (or sale on sales) just around the corner, so who buys full-priced items anymore?

A 2000 article says that too many store sales can backfire, because consumers just aren’t sure if a sale is really a sale, and if full-priced items are worth paying for anymore if they will end up on the discounted rack in a month or two. One of my girlfriends only buy clothes, shoes, or bags if they are on sale, and not just on any kind of sale – she is the shopping maestro who somehow gets a 20% off an item that has already been marked down 3 times so that in the end, she only paid $20 for a $120 dress.

Sales are an easy way to get consumers in the door, but that comes at a price to retailers. When sales have become so ubiquitous that they are no longer a special opportunity, but an everyday occurrence, what’s the incentive for customers to pay full price?

Have you grown immune to sales? What would you pay full-price for?

image source: revolveclothing.com

Restaurant Cuisine Hierarchy: Why Are There More Expensive French Restaurants Than Expensive Chinese Restaurants?

Written by WellHeeled on November 17, 2009 · 12 Comments

Have you noticed that the nicest, most expensive restaurants usually offer French / Continental cuisine, whereas Asian restaurants (Indian, Chinese, Vietnamese, etc.) and Mexican restaurants are usually at a much lower price point?

Of course, that statement is not an absolute – but on the whole, the most expensive restaurants (think those with Michelin stars, $300+ meals, and extensive wine / alcohol lists) are French or continental restaurants. Fast food places, meanwhile, are far more likely offer Chinese, Indian, or Mexican fare. Even Asian restaurants that are nicer and more expensive are almost uniformly “fusion” restaurants (with the exception of pricey Japanese sushi houses).

As a big lover of almost all cuisines, I’ve wondered about this disparity for a long time. I thought about titling this post Disparity in Restaurant Prices by Different Ethnic / Cultural Cuisines, but wow, a mouthful, eh?

For ease of writing purposes, I’ve decided to make French restaurants and Chinese restaurants my two subjects of study.

Non-Scientific Survey of # of High-Class French Restaurants vs. Chinese Restaurants

If I search for “French restaurants” on Yelp in San Francisco and focus only on the $$$$ price category, I come up with 8 results on the first page. If I search for “Chinese restaurants” with the same price designation, however, there is only one result - Jai Yun.

A similar search for New York City – the dining capital of the U.S. – resulted in 5 Chinese restaurants categorized as $$$$ on Yelp. There are, however, 10 results for French restaurants on the first page alone, and many more restaurants extending beyond the first page.

Why Are There More Expensive French Restaurants Than Chinese Restaurants?

Can it be that French cuisine requires more skill / expensive ingredients than, say, Chinese cuisine? I don’t know – perhaps, but I am hesitant to attribute only skill or ingredients to such a great disparity. Somehow, in the “restaurant hierarchy”, consumers (and I admit, myself included) have become accustomed to pay much more for a plate of beef bourguignon than a plate of stir-fried beef and broccoli.

A large part of this restaurant hierarchy comes down to branding and history. French and continental cuisine have been branded as an exquisite dining experience, whereas Chinese or Mexican food have been categorized as mostly “fast-food” – delicious, yes, but still “fast food”. A couple that want to celebrate their 20th anniversary goes to a 4-star French restaurant. A couple that is exhausted after work orders Chinese takeout from the corner cafe.

From a historical perspective, fine dining in America has traditionally belonged to French / continental cuisine. The best chefs at the best restaurants are frequently trained at French culinary institutes. Also, French cuisine is still more mainstream / less foreign than Chinese or Vietnamese cuisine might be to the general American public.

The market supports different cuisines at separate price points.

Self-Perpetuating Circle & Challenges of Rebranding

This phenomenon has become self-sustaining – as more French restaurants are usually acknowledged as “occasion” restaurants – the places you go to celebrate an engagement, wine and dine clients, or impress your parents, it becomes easier to find backing and the dining base needed to sustain a high-class French restaurant. It’s a circle that perpetuates itself.

People have come to expect different things from French restaurants (service, ambiance, exquisite meals) than Chinese or Mexican restaurants (fast service, low prices). In addition, there are such a proliferation of cheap, mom-and-pop Chinese / Mexican restaurants (especially in big cities with a large immigrant population) where you can get an entire lunch for $5. It’s even cheaper than McDonald’s!

The chef who wants to start a 4-star Chinese restaurant not only has to compete with (1) the French restaurants for patrons who would pay $100 for a meal for two, (2) he/she must also convince the patrons of the cheaper Chinese restaurants that it IS worth it to pay $25 for beef & broccoli (which at his shop may be made with organic grass-fed beef) instead of $8 for the same dish a few blocks over, and (3) change the mentality of future patrons that Chinese food is only for take-out or casual sit-down dining.

The chef who wants to open and make a profit from a 4-star, $30-per-entree Chinese or Vietnamese or Mexican restaurant must redefine an entire consumer mindset. They must rebrand an ethnic cuisine. Rebranding is hard work – and it’s no wonder that few chefs have successfully accomplished such a task.

What do you think? I love food and I love consumer behavior, so I find this a fascinating topic. Please share & discuss!

Would You Rent Your Clothes For A Party?

Written by WellHeeled on November 12, 2009 · 16 Comments

Rental has gone from your old standby’s (DVDs, cars for the weekend, etc.) to high fashion. Bag, Borrow, or Steal (Avelle) rents out high-end purses and accessories. Wear Today Gone Tomorrow offers designers dresses rentals at 5%-10% of their retail price.

And now a new business has come into the mix: Rent The Runway also offers consumers the opportunity to rent dresses at a fraction of what they would cost. A $3,000 dress by Christian Siriano (the 4th season winner of Project Runway) can be rented for about $200.

This is another sign of the transumer transformation – the idea that instead of pursuing an ownership model, consumers can pay for a leasing lifestyle instead. Rather than spending $1,000 on an evening gown that you only wear once, for example, you can rent the same gown for $100 for a night.

Renting luxury has become a way for people to (a) spend money on only when they want to use an item, (b) achieve a level of luxury that would be above their means if they had to own the product, and/or (c) introduce more variety into their wardrobe without the corresponding cash outlay.

It’s a good idea not to buy a dress that you won’t wear more than once, and renting a dress once would be cheaper than buying it. It can even be a “green” method – effectively hundreds of people would be “sharing” one dress. (Although then you get into the impact of shipping / dry-cleaning, etc., so I’m not sure what the net effect would be).

This rental model has existed before in wedding gowns and in men’s formal wear – but it’s only recently when renting regular lady’s formal wear has become an option. If gents can rent their tuxedos for a swanky gala, why can’t ladies rent an Oscar De La Renta or a Caroline Herrera?

Still, I would rather save and get a $500 dress that I really love then to spend $100 to rent a $1,000 dress 5 times. Despite it all, I suppose there are still elements of ownership, especially when it comes to personal items such as clothing and accessories, that appeal to me.

Would you rent your clothes for a party?

Interesting Facts About Off-Price Retailers (i.e. TJ Maxx, Marshalls, etc.)

Written by WellHeeled on September 3, 2009 · 17 Comments

TJ Maxx Event

This morning I had the pleasure of going to a TJ Maxx event held for bloggers (thanks to @happysquid), where we went on a “behind-the-scenes” tour and listened to Allison Deyette, a fashion consultant, talk about latest trends for the fall.

(below: the backroom where 10,000 pieces are processed every week)

Ring-a-ding: What I Got

I received a $50 gift card at the event, which I used to buy a pearl and silver filigree ring for $25. This ring caught my eye because I’ve been wanting to get a cocktail ring that’s noticeable but understated. Many other stores carried pretty rings, but they were either too dainty or too bling-y or flashy (or, you know, too expensive). I love pearls, and I like the slightly vintage look of this ring. It’s apparently handmade in Israal by a company called Sea-Noy.

TJ Maxx had such a wonderful jewelry section, I haven’t expected that. I’ll have to go back sometime to use what’s leftover on my gift card.

Interesting Facts About Off-Price Retailers

Most of the bloggers there came from the beauty / fashion space, which was obvious, because they were all very stylishly dressed. As I was representing the personal finance space, I figured I could be forgiven for wearing something a bit less edgy. The fashion talks were very interesting – according to Allison, a feminine purple blouse is THE accessory to have for Fall. But what I found more interesting were the little tidbits about sourcing and buying in the off-price world:

TJ Maxx buyers travel 40 weeks out of the year to speak to vendors all over the world.
Off-price retailers engage in “opportunistic” buying, i.e. when forecasting mistakes, canceled orders, or overproduction result in more items that a full-priced retailer can buy, an off-price will come in and buy the merchandise at vastly discounted prices.
Most of the merchandise at off-price retailers are in-season, and are released at the same time as full-priced merchandise at department stores. (i.e., you can find a dress at Nordstroms and the same dress at TJ Maxx in the same week.)
Off-price retailers have a fast turnaround time of as short as 2-3 weeks from the time a shipment is ordered to the time that the products are delivered, processed, and shown on the floor.
Department stores have the option of shipping back merchandise they don’t sell, but off-price retailers’ purchases are final.

My Thoughts

I imagine designers are of two minds on off-price retailers. On the one hand, excess inventory can be moved quickly and there is no danger of returns = (less) money in the bank. Cha-ching! On the other hand, having pieces at such discounted prices do hurt the brand image and readjusts consumer expectations (another reason why designers are now resisting the firesale prices of late 2008 and early 2009).

On my imaginary third hand, the brand image issue may be mitigated because upscale department stores offer more than just a dress or a pair of shoes – it offers the experience of walking into a beautiful store, with great lighting, tasteful displays, and more consistent product offerings. When you purchase a dress from Bloomingdales or an upscale boutique, you’re not just buying the dress. You’re buying an experience.

In this economy, however, I think cold, hard price considerations will outweigh most experiential buying preferences. The retail space as a whole has been badly hit by the recession, but off-price retailers such as TJ Maxx, Marshalls, Ross, and Loehmanns will do better than other retailers through this time.

My Thoughts As A Consumer

Great merchandise for 50%+ off? Sounds great to me.

Profits & Markups in the Fashion Industry (or, Did Banana Republic Make Money Off My $20 Dress?)

Written by WellHeeled on August 22, 2009 · 7 Comments

Given the proliferation of recession sales lately, I’ve been wondering about its effects on retailers, specifically women’s apparel. I recently purchased a linen dress from Banana Republic. It’s MSRP (manufacturer suggested retail price) is $98, but after several discounts, I purchased the dress for $20. So, how much of a markup did Banana Republic still receive? Did the retailer still make a profit off that dress?

According to my research, the clearest and most straightforward explanation on profit margins / markups in the fashion industry came from the Toronto Fashion Incubator website.

What are the profit margins in the fashion industry? What is the mark up for retail?

Susan Langdon (executive director of Toronto Fashion Incubator) says:

The basic costing formula for ready-to-wear apparel is this:

a) total of all raw materials (fabric, notions, cutting, sewing cost i.e.labour, label, ) x 2 = wholesale price

b) wholesale price x 2 = suggested retail price**

**You always need to provide the suggested retail price because this gives all of your retailers the same opportunity to sell the goods at the same price. It puts all of your customers on a fair playing field so that no one undercuts another.

The above basic formula is called “keystone” pricing and it’s suitable for selling in domestic markets. It builds in a basic profit margin of 100% from raw material cost to wholesale and again from wholesale to retail.

If you find that the suggested retail is higher than you would like it to be, you’ll have to reduce your raw material costs somehow by finding less expensive fabric or streamlining your production methods.

If you wish, you can also choose to increase the profit margin to be more than 100% between raw material cost to wholesale (not between wholesale to retail) so that it covers additional expenses like retailer discounts, sales rep commissions etc., but be careful not to price yourself out of the market. Look at where your competition is priced (both the high and low ranges) and try to remain around that.

Taking my $98 MSRP dress as an example:

The wholesale price will be 50%, or rounded to $50. To get down to the raw materials price, will be 50% of $50, or $25. Following the “keystone” pricing model discussed above, the price of the dress should be $25. But, since Banana Republic is part of the largest U.S. specialty apparel company by revenue (the Gap, Inc.) and have most of its clothing made overseas, I would assume the comapny was able to purchase the dress for much less than $25. This is because of (a) the volume discounting the Gap receives from manufacturers and (b) cheaper cost of labor and raw materials (although there will additional shipping costs).

As of the quarter ended in March 2009, Gap Inc’s shows a gross profit margin ( gross profit divided by total revenue) of almost 40%. Assuming a 40% profit margin and $20 sales price, Banana Republic made less than $8 in profit. That means the the cost of the dress to Banana Republic is around $12. (Banana Republic probably made less than 40% profit on this sale. This is because on full-priced sales, the company must be making much more than a 40% profit margin. Discounts are a way of life for mid-tier retailers, and would’ve been taken into account in company’s strategy and forecasting).

The cost of labor and raw materials of the dress is one factor, but taking into account the rent for stores, employee costs, advertising to broadcast sales, general and administrative costs, etc. etc., and the cost of that dress may have very well been close to $20.

So, did Banana Republic make money off the $20 dress?

I don’t know. Working on limited information and broad generalizations, I can only offer a vague answer: I think if Banana Republic did make a profit off the $20 dress, it must’ve not made a healthy profit margin. Sales with 80% discounts will work short-term to move excess inventory, but such drastic discounting is not sustainable nor viable as as long-term strategy.

Fortunately for Banana Republic, most consumers have purchased the dress at higher prices ($98 MSRP, $75 first discount, $50 second discount, $35 third discount), which means higher profits for the retailer. I picked up my dress during the final sale.

I love shoes and clothes, but the intersection of fashion and finance is almost more fascinating! If any readers work in the industry, please share your insights in the comments!

The Coffee Wars: McDonald’s McCafe vs. Starbucks

Written by WellHeeled on May 27, 2009 · 18 Comments

McDonald’s and Starbucks are two of the most successful and iconic consumer brands in the world. In recent weeks, I’ve received several new coupons for McDonald’s new McCafe lattes and mochas through it’s big marketing push for the new drinks. Starbucks (who has been struggling lately after years of out-performance) must be concerned about its new-found competition.

I came upon this piece on Pierce Mattie PR‘s website (note: I am not affiliated with them in any respect), and thought they asked an interesting question:

Will this new campaign help McDonald’s become the coffee brand of choice?

Here’s what I think:

McCafe will not replace Starbucks. The consumers who are seeking the ambiance and the customization that Starbucks offers will not flock en mass to McCafes. McDonald’s, to me, appears “transactional.” People pull up to the drive-through and get a Big Mac and a diet coke, or stop by before work to grab a new latte. Despite the happy characterization of Mickey D’s commercials, few people I know would suggest that as a spot for an after-date drink or a catch-up session with girlfriends.

Starbucks, on the other hand, focuses on the “experiential”. At its best, the coffee giant truly represents the “third space” between home and work where a customer can chat with the barista, order a drink to his specification, then settle in for conversation, socializing, and relaxation. Before he leaves the store, he might pick up a CD or a Starbucks coffee mug

If McDonald’s can woo the consumers who go to Starbucks four times a week and convince them to frequent McCafe twice instead, it will have achieved great success. These consumers are likely to be more interested in a transactional experience even at Starbucks (i.e. the quick morning coffee vs. the drawn-out coffee date or after-work snack).

McDonald’s chose a very opportune moment to push the McCafe concept – in the recession all consumers are looking for a better value-proposition, and McDonalds seeks to deliver that with a lower (than specialty coffee) price point but a higher (than perceived McDonald’s coffee) quality. Before the recession, an office worker may have bought a $4 frappacino before her morning meeting. Now, with a tighter budget, she may instead grab a $2 McCafe latte.

I’m not sure if the McCafe concept as a stand-alone store will catch on – I’ve visited a McCafe, and while the space is nicer and more “coffeehouse-like” than a regular McDonald’s, it’s still a far cry from the styling and the comfort of a Starbucks. I’m very excited to hear that McCafe will be coming out with new drinks over the upcoming months. More coffee drinks are always good in my book!

What do you think? What are your experiences with McCafe drinks, and would you forgo Starbucks for McCafe instead?

Is frugality a trend? And will it stick?

Written by WellHeeled on April 10, 2009 · 18 Comments

Frugality is the new trendy?

Reading articles on declining consumer spending and increasing saving rates (and watching new words such recessionista, frugalista, and cheap-chic enter the lexicon) has made me wonder: has frugality gotten too trendy? And, will it stick?

Frugality isn’t an issue I write on, because I’ve never claimed to be frugal – I try to save and invest, yes, but I certainly have my moments. Exhibit A: $200 worth of wool gabardine from J.Crew today (if you follow me on Twitter, you would’ve seen step-by-step how the consumer pummeled the pf blogger in me.)

As an example of some recent coverage of the new return to thrift, Friday’s New York Times article is titled: “In an Age of Austerity, the Miserly Thrive”

I cringed a little at the word “miserly”. A miserly person is someone who’s cheapness is inconsiderate and inconvenient to others. Miserliness is not a quality to aspire to in any economic situation. But I see how the title “In an Age of Austerity, the Financially Responsible Thrive” might not have the same ring to it.

Then NYT used this example of an enterprising nurse who took home a duvet off the street.

“My behavior has become less strange and more of a resource,” said Katy Wolk-Stanley, 41, a nurse in Portland, Ore. A practicing penny-pincher for the last decade, she is now spreading her gospel. Last May, she started a blog with tips and tactics for cutting back called The Non-Consumer Advocate.

She knows whereof she blogs. She darns socks, dries clothes on a line she recently hung inside her house (even though it takes a few days for the clothes to dry inside), washes and reuses plastic bags and takes used clothes and furniture people leave on the street — like the slightly torn Garnet Hill duvet cover she found recently.

“It was wet, and covered with dog hair,” she said. “I washed it really well a couple of times and mended it.” Her quest for money-saving ideas “is very energizing,” she says. “You see opportunities everywhere.”

I’m glad she was handy enough to take the duvet (it’s also great for the environment – one less duvet in the landfills). But I’d feel uncomfortable using a duvet I found off the street, “wet and covered with dog hairs.” The ick factor would be too great for me to overcome (curiously, I have no problem buying clothes from thrift stores). I’ll settle for my duvet set from IKEA (bought it during one of their one-day sales for $20).

I guess this confirms what I already know: I’m just not that frugal, I like my creature comforts, and I’m willing to pay for them (although I am willing to pay LESS for them in this uncertain economic climate).

Will Frugality Stick?

As far as will frugality stick? People will always want things (or experiences). That requires money. Real estate in desirable areas such as San Francisco, Manhattan, and Los Angeles will always be pricey. Conspicuous consumption has gone out of style – for now – but who knows?

In 10 or 20 years, if things are good again or we have another bubble – will New York Times be writing about fishing discarded bedding off the streets and washing plastic bags? Will a consultant skip her $4 morning latte at Starbucks? Will the middle-class professional woman be so eager to disclose that she got her holiday dress at Goodwill instead of Neiman Marcus? Will she even go to Goodwill?

As deep and as hurtful as The Great Recession is, can it truly, permanently reprogram us as a culture of frugality? I’m hesitant to say yes. We had a huge, wild party that went too long. Now comes the hangover and the recriminations. But after a while, after we feel a little better, after we promise to never let things get so out of control, we’ll raise a glass (or two, or three) again.

Bona fide vs. Made on the side

Written by WellHeeled on December 7, 2008 · 9 Comments

Do you purchase knock-off brands?

I don’t. Not so much as a moral imperative, per se, but because I’d rather have a quality, non-name brand handbag or clothing than a knock-off version of a name brand.

A lot of designers take “inspirational cues” from each other – so I’m not talking about the Steals vs. Deals or Lust vs. Must sections that many magazines have. I just don’t see the point of products that are pointedly and unabashedly passing themselves off as something else – i.e. a bag that has never passed through a Prada factory having the Prada logo.

If I choose not to buy the real thing, why would I want to fool other people into thinking that I did? It’s almost like putting fake BMW hardware on a Honda (not knocking Hondas here… I have a Honda and I LOVE my car).