Financo Panel Lauds Product, Online Marketing

Quinn Halford, James Mammarella, January 25, 2010

While acknowledging that 2009 was yet another year when pricing was the dominant strategic challenge in retail, panelists at the Financo Annual Merchandising Industry Chief Executives Event earlier this month trumpeted the virtues of product design and brand integrity.

Host Gilbert Harrison, chairman and ceo, Financo Inc., also encouraged discussion of social media as a marketing and traffic-driving tool, which led to some lively give-and-take on the merits of e-commerce vs. brick and mortar stores.

But panelists were unanimous in insisting that quality, creativity and integrity in product design is the chief difference-maker in today's retail environment, which while tough is not unique in the historical span of the marketplace. Indeed, several panelists said consumers are enthusiastically rewarding companies that hew to the tried and true practices of merchants from days gone by.

“There's no race to get there,” said Mickey Drexler, chairman and ceo of apparel retailer J. Crew Group. “For me the race is to maintain the integrity of your products.” Drexler recalled coming across retailing icon Stanley Marcus one morning “personally on the phone with a woman in Lynchburg, Virginia,” getting first hand consumer feedback. “He ran a store.”

“You've got to touch and feel and know what's going on,” agreed Solomon Lew, chairman of Australian multi-format softlines retailer Just Group, who called his method “MBWA: management by walking around.”

The back-to-basics approach was also evident in the entertainment-driven end of the retail spectrum. “Products, storytelling and service,” said James Fielding, president, Disney Stores, are the watchwords in the repositioning of the company's 350 stores. Along with value, he said, products had to project “newness, quality.”

“Quality has become more important than ever,” stated Sir Philip Green, principal of U.K.-based Arcadia Group of Brands, which includes the Topshop and Topman chains. While noting that the market has “forced us to be more efficient,” he stressed that efficiency is “not just cost-cutting. We need great people in our business,” from designers to operations. Focusing on quality, Green said, pays off. “Great product doesn't lie. The customer will tell you.”

One of the ways customers are talking back, said Betsy McLaughlin, ceo of teen fashion merchant Hot Topic, is through the array of social networking media. “The idea of being connected” to the brand and to brand-linked special events is crucial to building loyalty with younger consumers, she said. In addition, “getting their opinion” on styles and trends is a vital function of social media such as Twitter, Facebook and MySpace.

Offering a similar perspective from the vantage point of a major supplier, Bruce Rockowitz, President, Li & Fung Ltd., said while pricing discussions have increased among all his company's customers, there are still factors that trump price. He said of his Japanese merchants, for example, “They care about relationship. The relationship is more important than the best price.”

That formula plays all the way through vendor to retailer to consumer, said Lew. “It's all about the offer, the integrity of the brand, the quality, the visual.” He admitted this was not an iconoclast point of view: “It's old-fashioned retail.”

The panel was in general agreement that online merchandising is both a blessing and a curse. On the plus side, the internet helps excite the shopper and can drive incremental business. On the negative side, the constant, global price war for identical and similar products adds to both retailers' and suppliers' competitive headaches.

Rockowitz observed that in 2009 price became “the primary concern of everyone” as companies focused on potential “downside, rather than on growth.”

Green, whose company opened its first Topshop store in the U.S. in May 2009, in New York's dynamic retail neighborhood of Soho, said the company plans 200 U.S. units eventually, with perhaps a dozen flagship locations. “This will drive the web business,” he added, noting the company's U.S. online sales doubled in the last year.

However, it is not clear that non-store sales are all gravy. “The P&L on our internet business is inflated,” said Green, whose Arcadia Group owns and franchises a total of 3,115 stores in 34 countries. “We service it out of our brick and mortar business.”

McLaughlin expressed great satisfaction with the ability of her chains' online presence to create additional in-store sales and strengthen their competitive edge. She pointed to tie-ins with music and movie celebrities that provide a third leg of Hot Topic's merchandising tripod – and revealed how brick and mortar can combine with the internet for a sum that is greater than the parts.

“We jumped on the experience train early,” she said, remarking that Hot Topic's goal is to “connect the consumer with the experience – rather than just try to put products and consumers together.”

Citing three web-and-store reasons for a very good 2009 at Hot Topic, McLaughlin pointed to:

Product. Social media can help make a fashion product especially desirable, so trendy that young consumers “have to have it now – not in three days” and so they head to the malls.Pricing. She lauded Aeropostale for creating a “feeding frenzy” this holiday season with $5 T-shirts that also generated “people driven to the mall.”Experience connected with shopping. Realizing that “the place to hang out for young people is the internet,” and not the mall, she said that these consumers have nevertheless shown they will hit the stores when a well-tuned experience is prepared there, and promoted online.

Thus, rather than dwelling on internet retail sales, McLaughlin emphasized the strategic nature of using interactive social media. She said Hot Topic online cultivation of its teen demographic is “shaping how they shop, and how they learn about brands.”

Fielding agreed that “social media is very much 'MBWA' in its function to provide “immediate feedback, that shopkeeper” role.

Drexler, who said J. Crew derives 28% of revenues from non-store sales, referred several times to how the retail landscape has changed over time – and will continue to change. He noted that many stores he competed with 20 years ago are no longer in business, and there is no guarantee any particular merchant will survive. “The franchise lasts as long as the creative product” has integrity and its retail producer executes “follow-through” that the consumer embraces.

He said he used to periodically visit leading department stores and spend “five days finding treasures in every store.” Now, he noted, there is a severe lack of differentiated product. “You can buy almost anything anywhere...there is not enough change going on in the product line in the world today.”

“Get rid of the side view and rear view mirrors,” Drexler said, suggesting that getting stale and looking back to what used to work are not options. “The world is a matter of what will be.”

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