Restructuring

Brand Distribution Best Practice Post Covid

Our research and industry dialogue ‘Future in Brand Distribution’ has been off to an enlightening start. Four weeks in, executive talks and our online survey have already returned much valuable inspiration on the future of the lifestyle industry.

The sentiment we encountered in the industry dialogues was generally positive and energising, even though many still find themselves in lockdowns. It seems as though the Covid-19 pandemic not only gave a boost to digital transformation but also liberated some of the brand industry’s best creative thinking.

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How to get Quality into your Brand Strategy and Planning

Key learnings of 30 years brand strategy and planning. Tips how to improve your brand growth planning, today.

Regularly media reports that companies take a zero-based budget (ZBB) approach, and cite respective studies. In light of Covid19 pandemic, many brands applied cost-cutting exercises to adjust their strategy and planning.

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Can New Business Models Help Save the US Retail Marketplace?

Retailers and landlords are scrambling to figure out how to survive as consumers have accelerated the shift to e-commerce. Will they be able to reinvent themselves or become one of the many businesses weakened by the Covid-19 pandemic?

Retailers across the United States are facing mass extinction as a fallout from the Covid-19 pandemic that’s raging across the country. Between 20,000 – 25,000 stores are projected to have closed in 2020, including the who’s who of American retailers (Macy’s, Brooks Brothers, etc.) shuttering their doors as a result of, or to stave off, bankruptcy. Over half of these closures will hit mall-based retailers, putting even greater pressure on many malls across the US. While the pandemic did not cause the decline of many US retailers, it clearly has accelerated the largest restructuring of the US retail landscape since the end of World War II.

covid retail store closures
(Source: CoreSight Research, Wall Street Journal)

Retailers, and especially mall-based landlords, have seen the warning signs that the consumer shopping behaviour was changing for the past 5-10 years. But a myriad of factors have hampered their ability to reinvent themselves.

  • Over-supply of retail: The US has the highest square footage of retail space per capita worldwide, 40% higher than Canada and two times the space of Australia. The post-WWII flight to the suburbs across the United States fuelled a massive expansion of retail stores, especially at malls where consumers could easily shop multiple stores in one easy location. The mall has been an icon of American culture, where teens would go to hang out with friends, young families would go for the indoor playground and retirees would go to socialize and exercise. The decline of the mall is tearing apart the fabric of many communities across the US.
  • Decline in apparel spending: US consumers have been spending less on clothing, as a percentage of their disposable income. For the past 40 years society has become less formal, and younger generations have placed greater emphasis on experiences rather than material goods. The constant pressure to eke out positive comps has led many brands to focus on discounting to drive growth, rather than on differentiation.  This shift in mindset opened the door for fast fashion brands like Zara or H&M to enter the market and leverage their supply chain expertise to shift the value equation.
covid retail business model
Apparel Spending, percent of disposable income 1928-2010 (Source: US Dept. of Labor, NPD)
  • E-commerce Acceleration: Much has been written about how Amazon has reshaped many different retail industries. E-commerce now represents 37% of all apparel and accessory revenue and, unsurprisingly, was the only bright spot for many retailers who pivoted their business model last spring as stores shut down.

As dire as the US retail marketplace may seem, there are a many brands and retail landlords who are experimenting with different business models to try to meet the changing needs of the US consumer. While it’s unknown if and when consumer shopping behaviour will return to normal, these business models are at least undertaking different strategies rather than embodying the definition of insanity; “doing the same thing over and over again and expecting a different result.”

Landlords Buying Bankrupt Brands

Over 1,000 malls exist throughout the US, spread across major metropolitan areas to smaller rural towns. By some estimates, potentially a third of America’s malls will close their doors, fundamentally impacting numerous communities around the country.

To combat the decline, two leading mall owners, Simon Property Group and Brookfield Properties, have acquired a number of apparel retailers in partnership with Authentic Brands Group. The strategy behind buying fabled yet beleaguered brands like JC Penny, Brooks Brothers and Forever 21 is twofold. First, it enables them to cherry pick the best doors of these brands at a significantly reduced price, most of which will be located in one of their malls. For a mall to remain relevant, it’s needs enough appealing stores to attract consumers and drive foot traffic.  If more of their tenants have to close, the mall begins to look and feel like a ghost town, making them even less welcoming for prospective shoppers. This strategy also helps landlords protect their downside risk by keeping occupancy levels (artificially?) high to not trigger an exit clause for existing tenants.

While clearly something was already broken for these brands to fall into Chapter 11, by reducing their debt, lowering fixed costs like rent and skimming off the best locations through the reorganisation process, these brands might just have enough runway to survive. Not every acquisition will be successful. But for a landlord, having a portfolio of brands that they are invested in to succeed will better align their incentives and possibly keep some of their malls from meeting their demise.

Brick & Mortar as an E-Commerce Hub

The onset of Covid-19 forced many retailers to accelerate plans towards a greater omni-channel shopping environment: curbside pick-up, contactless transactions, etc. This has helped to maintain some of their business during the pandemic. Leading retailers have further evolved their brick & mortar doors to serve their own e-commerce business.

Today, over 60% of households in the United States are Amazon Prime members, which gives them access to free shipping and in many locations, 2-day or faster shipping. What would have been considered outrageous just a few years ago has now become the norm for most US consumers. To fight back the Amazon onslaught, larger brick & mortar retailers, like Target, are making significant investments to allow customers to not only pick up same day orders in store but also to use their physical footprint as mini distribution centres. “Having all these nodes and physical retail stores has been their magic pill on how to compete with others like Amazon and pure e-commerce players,” says, Greg Conner, VP of Global Sales at Bastian Solutions. Using stores as their e-commerce hub, Target has been able to fulfil 80% of its total e-commerce volume while also saving money, since stores are 40% cheaper than shipping for a large warehouse. “We already own the building, the lights are on and we have a replenishment process … it’s allowing us to deliver faster for our guests than we could have before,” according to Target spokesperson Jill Lewis.”

US post-covid business model
(Source: Multichannel Merchant)


Repurpose Dead Malls to Address Homelessness

Homelessness has become a major issue facing most large cities across the United States. Over 500,000 people were homeless in 2018, a number that will have only climbed as the Covid-19 pandemic accelerated joblessness and food insecurity. [1] A lack of affordable housing, particularly in major metropolitan areas on the East and West Coast, has forced many people to ‘camp’ on sidewalks or in tent cities.

US post-covid retail business model
(Source: Seattle Times)

A mall developer and non-profit in Washington, DC are partnering to repurpose the Alexandria Mall. “It’s a new way of thinking that is bringing together three economic phenomena: the collapse of the brick-and-mortar retail industry, the disappearance of affordable housing in America’s boom towns, and the struggle to reduce homelessness.” It’s too early to tell how successful this venture will be, but it’s a unique example of trying to use an underutilised asset for greater good in the community.

Each of these three new business models will likely not be the saviour for the post-covid retail marketplace in the United States. Yet, they offer a glimmer of hope that new and innovative ideas can help to repurpose many brick & mortar locations and ultimately spur the next generation of economic growth for the country.


About the Author:

With 25+ years in the sports and fashion industry across the United States, Europe and Asia, John Ensminger, has worked with leading brands including Nike, The North Face, K2 Sports and Carhartt to develop breakthrough, actionable strategies that strengthen their brand position and drive growth and profitability. Read more of his work here.

Rethinking store processes & merchandise management

A healthy store P & L is still at the heart of happy retailing. As Covid-19 made it somewhat easy to lower rent costs, many took the same approach with store head count. But this will certainly cost future retail productivity and flexibility.

So how do you adjust store operations in Post Covid Retail without losing more sales and compromising customer service?

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Best Practice in Retail & Online in the 2020ies

The Covid-19 pandemic is devastating for those with pre-existing conditions. But it also mobilises the best in all others: unforeseen creativity, outstanding personal engagement, true loyalty and support among many more qualities.

There is no way around acknowledging that the situation is grim wherever you look and listen across the brand and retail industry, in parts even online. But if we pay close attention, we can also observe new brand industry best practice emerging.

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How to Manage Successful Brand Post-Merger Integration

Far over 100 lifestyle brands are taken over every year. While a majority of post-merger integrations fail, here’s what the successful ones have in common.

As a seasoned experienced retail executives we have been part of my fair share of successful post-merger integrations. In our current roles, we advise family businesses and financial investors on growing their brands, organically or via acquisition. Although the backgrounds of individual companies, the company cultures as well as the strategic reasons for takeovers differed widely, clear patterns emerge for both successful and unsuccessful cases.

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Retail Portfolio Management: Renegotiating Your Rental Contracts

This is the second installment of a short series that dives into a few uncommon KPIs for successful retail portfolio management. Learn how traffic cost and footfall per hour can help you renegotiate rental contracts.

For many years, retail expansion was the main growth strategy in the brand retail world. More recently, however, brands increasingly face an under-performing retail portfolio. Realising that retail expansion doesn’t work without like-for-like growth of existing stores, brands are busy assessing their retail portfolios in order to focus on profitable stores and stores with potential for improvement.

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How to Benefit from Bestseller Management Immediately

Bestseller Management is one of the most important processes to improve sell-through and mark-down in the consumer goods industry. What KPI helps identify bestsellers and make smart decisions about them?

Some companies like Zara, Kennel & Schmenger or s.Oliver excel at managing bestsellers. While Zara works with sophisticated analytics to alter bestselling styles by fabric, color or detailing, s.Oliver masters  bestseller management to a degree that endangers its potential to innovate.

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Brands in Stormy Weather – Beyond Retail Lease Management !

Is your major store closure scare just behind you, or is it yet to come? Think about developing your retail lease management!

Doing business in highly competitive markets, experiencing the deterioration of margins and heavy brand over distribution, as well as exit and rent reduction projects have become a necessity, even for well-known fashion retailers.

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Retail Lease Management in Stormy Weather

Retail management without lease control management is like sailing in a storm but leaving the essential navigation tools at home.

How many of your global leases are about to expire this year and you missed the date to opt for an automatic extension or substantial renegotiation last year? How many leases would you have loved to leave last year, but overlooked the date for early contract termination? (more…)

Abercrombie – stripped of the Beach Models, It’s all about the Business Model

If you are a great brand and plan to grow in international retail, make sure you have a competitive brand business model. It takes more than six packs to be successful.

As the beach boy six packs are no longer in action, what is the brand’s competitive edge? Can you remember any new store opening hype lately for Abercrombie? In 2011, at the height of Abercrombie & Fitch’s international expansion, we looked for the first time at the brand’s P&L and its retail KPIs (see retail intrapreneur). In 2011 alone, US$230m in capital expenditure was spent on expansion in Asia and Europe. The US management was counting on the success of the brand’s international expansion. We questioned whether the business model was ready for European growth.

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Brand Restructuring in 20 Minutes

LEGO’s recovery from bankruptcy is a most convincing example of brand restructuring. In an excellent 20 min interview LEGO’s CEO explains how they did it. And more, you will find him somewhat singing at an investors conference.

If you believe Apple may have had the most convincing brand turn around of all time, then you should broaden your perspective by reading about LEGO’s recovery. The story is not as prominent, but has at least the same number of interesting brand strategy learnings. LEGO’s strategy mistakes and turnaround are a must-know for every brand executive. (more…)