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Corra Consulting - Jet, Lego & Macy’s Off-Price

13January

Jet, Lego & Macy’s Off-Price

The Thread's Top Three:

1.  Amazon Bought This Man's Company. Now He's Coming for Them.  Businessweek’s profile on Marc Lore and his newest concept, Jet, is chock-full of interesting information that can in no small way be covered in a summary. You will want to read this article. Positioned as an online warehouse club, Jet’s hard launch is slated for this March. Its revenue model is based on membership fees like Costco’s, and its management contends that it has an algorithm that can find ever- greater savings in shipping and, in doing so, will deliver the lowest price and greatest value for shoppers who are willing to rethink how they purchase. Moreover, this last portion--the how they purchase--raises two possibilities: will we see the rise of regional retail players again? Does everyone still remember Bradlees, Caldor, and Montgomery Ward, etc? And, will the answer to increasing the average shopping cart price be in bulk purchasing as opposed to figuring out how to replicate the impulse purchasing behavior online? For Amazon, who has seemingly focused more on phones than on business basics such as this, Jet could represent a formidable threat to profits that have already taken a significant hit of late. I, for one, am eager to see what happens.

2.  How Lego Became the Apple of Toys.  This article not only chronicles a research process that Corra has embraced from the beginning, but it illustrates the growth that can organically be gained when you begin with two questions: how does my core customer use my product, and how could I make my product better? With Lego, they refocused on play and the design of their bricks, and it brought them back from the brink of bankruptcy. This article is a good reminder of how easy it is to go off-course and how hard it is to commit to doing 2-3 things right every year. The lessons are there for all of us. If you are a maker of couches, observe how people sit in them. If you are a maker of lights, observe how people use them to see and/or to create a mood. If you are a maker of tabletop, observe how your product feels in your shoppers’ hands and when and where they like to use them. To succeed with your core customer, commit to being with them. It will amaze you how simple your customers’ wants are and, yet, how hard it is for your customers to find manufacturers with the proficiency to meet them.

3.  Macy's mulls taking on T.J. Maxx, Nordstrom Rack in "off-price" wars.  Macy’s and its MMG design and sourcing group is one of the best-run product development machines in our retail landscape. And, I think the average consumer would be floored to realize just how much of the product they buy from Macy’s comes from this group as opposed to the designer nameplates that have become synonymous with the department store chain. To this point, the addition of an outlet could have a very positive impact on the Macy’s parent company--providing an outlet for private label programs that failed to perform and, in doing so, cleaning up Macy’s selling floors by reserving the space for in-line, profitable and well-performing products. Although in theory this sounds fantastic, I still believe there are some very significant hurdles that will need to be overcome for both Macy’s and its new “off-price” chain to succeed. They will need to work hard to avoid what happened with Christmas Tree Shops, which one could argue has become a bit of a clearing house for Bed Bath & Beyond and, as such, has become less fun to shop for consumers. And, not insignificantly, they’re going to have to figure out what they want to do about the brands (e.g., Ralph Lauren, Calvin Klein, etc.). These brands currently sell full price to Macy’s and off-price to TJX and, more than likely, love the latter arrangement. The advantage to working with TJX is that the business is a clean one, and the terms are always the terms. Business like this in today’s landscape is a pleasure to do. So, if a line is drawn in the sand and Macy’s says that they want the exclusive rights to the off-price designer merchandise, will the manufacturers have the confidence that charge-backs won’t rear their heads--changing the terms of the purchase orders, and will this new outlet have the door count to be able to clean these manufacturers out of their inventories? Retail is an industry where so many people do not want to know how “the sausage is made,” and should this particular Pandora’s box be opened, there’s going to be no avoiding it for Macy’s.


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