What’s a Brand Worth?
As retailers hunker down and focus on cost-cutting measures and other efficiencies, it’s important that they don’t lose sight of one of their most valuable assets: their brand.
“In a recession, brand is more important than ever, as retailers with a well-positioned brand have the opportunity to thrive and seize a bigger piece of the pie in terms of customers,” said Lee Carpenter, chairman and CEO, Interbrand Design Forum, Dayton, Ohio.
Carpenter made his remarks in conjunction with the release of his company’s first-ever ranking of the top retail brands in America. The report, “The Most Valuable U.S. Retail Brands,” can be found starting on page 35 of this issue. The study is based on the proposition that retail brands have a financial value that can be measured. It determines brand value in much the same way that analysts value other assets: on the basis of how much a company is likely to earn in the future (details of the valuation methodology are included in the report).
According to Carpenter, retailers are now accepting the idea that brand has transcended its traditional marketing role and should be adopted as an idea that runs through every part of the company. The report defines brand as the particular set of tangible and intangible assets (or liabilities) that customers attribute to a retailer.
“Branding in retail generates value in two ways: It influences consumer choice and is a key competitive asset, offering the highest security of future earnings,” Carpenter said during a presentation at the National Retail Federation’s annual conference in New York City this past January. “During a time of increased competition and lowered sales, brands that have successful propositions, such as Wal-Mart, and offer an engaging shopping experience, like Best Buy, will come out on top.”
Wal-Mart ranked as the top U.S. brand in the study, with a brand value of a whopping $129 billion, followed by Best Buy, The Home Depot, Target and CVS.
“Wal-Mart is not only No. 1, but it is so by a huge margin,” Carpenter said. “The brand value of Best Buy, No. 2 on the list, is $21 billion.”
Carpenter noted that the Wal-Mart ranking in many ways reflects the chain’s new-found emphasis on brand.
“Wal-Mart has always been a colossus of operational excellence,” he explained. “What has changed is that recently it began to act like a brand in that it has become very interested in consumers and how they perceive the Wal-Mart brand. It’s investing a lot of money in managing its brand.”
Department stores did not fare very well in the ranking, with only Nordstrom, in large part due to its outstanding customer-service reputation, cracking the top 20.
“In a big surprise, Macy’s and Saks didn’t make the list at all,” Carpenter said. “As an overall group, department stores are perceived as lacking innovation, unique experiences and exclusive merchandise.”
Also, he added, the high number of branded departments in these outlets pose a challenge to the retail store brand.
In terms of specialty apparel rankings, Carpenter said the results indicate a lack of differentiation among the top brands, which suggests the format is suffering from risk avoidance. “Specialty retailers aren’t so special anymore,” he added.
Missing from the rankings are supermarkets, with one exception. Whole Foods Market (No. 47) is perceived to have the highest-quality food offering in the industry.
The study makes clear that brand strategy has got to drive business strategy. “Managing a retail brand is critical to retail success,” Carpenter said, “especially in these times.”