Hot Trends: In a Frigid Economy

The retail industry is experiencing a Mark Twain moment. Reports that consumer spending died were greatly exaggerated. Retail sales, although down, are not dead.

The truth is that given the right incentive, consumers will spend. That was the resounding message learned from the recent “Cash for Clunkers” program, which revived car sales and brought a glimmer of optimism to the near-comatose automobile industry.

“If retailers are clever,” advised Paula Rosenblum, founding partner at Miami-based Retail Systems Research, “they will imitate the ‘Cash for Clunkers’ campaign in their promotions.”

The key to motivating spending is the value proposition. When the price is right, product sells. Rosenblum noted that the retail mantra of recent years—Right Product, Right Place, Right Time—now has a fourth component: Right Price. Indeed, in a recessionary climate, “right price” may be weightier than the sum total of the other three components. In fact, the worst of times actually seem to foster the best opportunities for retailers marketing price first, and product second.

“Wal-Mart is certainly making hay in the current economy,” Rosenblum said, “and the reason they stopped reporting comp-store sales was because it was destabilizing in an emotional market.”

In the first six months of this fiscal year, sales at Wal-Mart’s U.S. stores were 2% ahead of the same period in 2008.

The value-shopping trend in the United States goes beyond saving money when budgets are tight. According to Rosenblum, value-priced retailing feeds consumers’ desires to feel like savvy, smart shoppers; it is not just a byproduct of the current economy but actually the “new normal” in retailing.

Indicative of this emerging psychographic, dollar stores and extreme-value retailers such as Family Dollar are booming. Kohl’s value message has also come across strong, with August sales 4.8% ahead of August 2008, and comp-store sales in August tracking 0.2% ahead. Year-to-date, Kohl’s sales are up 1.8%.

Anna’s Linens, based in Costa Mesa, Calif., is benefiting both from the success of its extreme-value offering and the demise of competitor Linens ‘n Things. With 255 stores in 17 states, and 2008 sales of $342.4 million, Anna’s Linens has a solid presence and is poised for growth.

“Pre-recession, Anna’s Linens didn’t look all that exciting,” said Cynthia Cohen, president of Strategic Mindshare, a Miami-based retail consulting firm. “Now it has stepped into the void created by Linens ‘n Things in a market that is growing because people are shopping down. It’s one of my favorite stores; the footprint is smaller than a Bed Bath & Beyond or Linens ‘n Things, but that doesn’t necessarily mean there is less inventory.”

The privately held, family-owned Anna’s Linens has well-positioned real estate, typically in more affordable “B” strip centers, and merchandise is priced below most of its competitors.

The Lipstick Syndrome: Just because Jane Consumer is a savvier, more frugal shopper, she isn’t willing to deny herself an occasional fashion perk—and when apparel is too pricey or beyond her budget, cosmetics, jewelry and accessories are what she chooses.

Legend has it, according to Cohen, that an uptick in lipstick purchases has historically signaled the onset of a recession in apparel sales. The current economy is no exception, Cohen said.

“Women are shopping their closets for apparel,” she added, “then buying accessories, statement jewelry and handbags to update the look.”

Smart retailers are expanding their accessories and small-ticket lines to satisfy the trend. For instance, Cohen tagged J. Crew Group’s accessories format as one of the impressive new responses to evolving consumer demand, and she pointed to upscale brands such as Kate Spade and Henri Bendel’s new accessories format as retail concepts to watch.

Certainly within the Liz Claiborne family of domestic-based direct brands, Kate Spade is the shining star. With 48 specialty stores and 29 outlet locations, Kate Spade’s second-quarter sales were $33 million, a 12.1% increase over the same period in 2008. Conversely, second-quarter sales at Claiborne’s Juicy Couture stores fell 25.3% compared with 2008, and sales at Lucky Brand stores were down 8.8%. Both Juicy Couture and Lucky Brand are merchandised primarily with apparel; accessories are secondary. The opposite is true at Kate Spade stores, a brand that is synonymous foremost with accessories and high-end handbags.

Perhaps no retailer has responded more directly to the accessories trend than Henri Bendel, owned by Limited Brands. In spring, the company announced it was getting out of the apparel business and, beginning this fall, would concentrate on the lucrative categories of accessories, beauty and gifts. The company has developed a mall format and has upcoming stores planned for Los Angeles; Costa Mesa, Calif.; Dallas; Short Hills, N.J.; and King of Prussia, Pa.

J. Crew debuted its Accessories concept in June, opening a 500-sq.-ft. boutique adjacent to the women’s department of its New York City Soho location. From the outside, the Accessories store appears to be a stand-alone shop; however, the interiors are connected so that shoppers can easily assemble full outfits of apparel and accessories.

Millard “Mickey” Drexler, J. Crew chairman and CEO, noted when the store opened this summer that although two additional Accessories stores were on tap to open, the company was not yet committed to a rollout of the concept across its portfolio. He also confirmed that, whenever an Accessories store opened, it would always adjoin a J. Crew apparel store.

“Why have a customer walk to another store? We will always integrate accessories with apparel,” Drexler stated at that time.

Small but Bold: Apparel retailers that follow Drexler’s example and integrate accessories and apparel are faring better—and those that prioritize accessories merchandise appear to be thriving.

Houston-based Francesca’s Collections excels in this category. The 10-year-old privately held boutique retailer operates more than 142 stores in 30 states as well as a comprehensive online store. The company has estimated annual sales of $40 million and plans to grow to more than 200 stores within the next four years.

Francesca’s carries an eclectic mix of moderately priced fashion-forward apparel, accessories and gifts that appeal equally to hip teens, 20’s trend-setters and mothers with a funky, youthful style. Handbags, statement jewelry and assorted gifts outnumber apparel SKUs, but the compelling strategy, as with J. Crew, is to promote the total ensemble to shoppers.

The small-footprint prototype typically occupies a prominent but tiny inline space in upscale malls and lifestyle centers, which contributes to more cost-effective operations and appeals to consumers seeking an intimate, cozy shopping experience.

However, not every Francesca’s store is a carbon copy of another. In addition to creating a boldly eclectic blend of merchandise, Francesca’s prides itself on coloring each store with a unique style that will appeal to its individual market.

This speaks to yet another trend: localization of the total shopping experience, which distinguishes higher-performing retailers from laggards. Retail Systems Research’s Rosenblum explained that unlike 15 or 20 years ago, when stores were told to set floors “just like the picture,” the message today should be to merchandise with a localized mind-set.

A recent merchandising study conducted by Retail Systems Research reinforced this approach.

“We found there was a definite correlation between performance and those retailers that used input from local field associates to tweak assortments and how store shelves looked,” asserted Rosenblum.

The study found that among the best-of-breed