Since recession-related purging has ended for most major chains, the numbers from the U.S. retail industry in the first half of November are now a reflection of retailing itself, not just a byproduct of economic chaos. There are real retail struggles behind store closings, real customers behind store openings, and real strategy behind 2010 expansion plans. Without so much recessionary noise, what November numbers show is a real struggle for U.S. retailers. That is, the struggle for retail relevance.
The latest chain to go the way of the irrelevant is Trans World Entertainment Corp (TWMC), which announced that it would be adding 125 f.y.e (for your entertainment) stores to the 2009 Store Closings list at the end of the holiday shopping season. This is just the latest downsizing move after the retail CD and DVD chain closed 101 stores last year and has operated for 11 consecutive quarters without turning a profit.
After three years of doing basically the same things in the same ways and expecting different results, f.y.e. has come up with an aggressive strategy for this holiday season. In 50 of its stores, all single music CDs will be selling for $9.99, a price which matches Apple's charge for an iTunes download. It's also a price point that will keep this last major music-movie-game retail chain competitive against all the thousands of electronics, discount, department, book stores, and other retail outlets that carry the same disc entertainment inventory.
Certainly f.y.e. needs to find a way to make itself equal to its competitors. But I'm not sure if "becoming the same" is a strong magnetic force that is going to draw people through its doors.
The chain's one definite unique selling proposition is its used inventory. Customers can't buy or sell used music, movies and games at their local Best Buy, Wal-Mart, or Borders. It seems like there would never be a better time to focus a spotlight on the ability to turn old stuff on your shelves into brand new Christmas gifts than in a holiday shopping season with record high unemployment. But f.y.e. would have to be confident that it could unload all that used merchandise, otherwise it will be ending the year having transformed itself into the world's largest garage sale.
Also losing the battle for relevance are bookstore chains B. Dalton (BKS) and Waldenbooks (BGP). Like CD's and DVDs, physical books are also being replaced by electronic and downloadable alternatives. By the time the new decade begins, the last 50 B. Dalton stores will be nothing more than a Wikipedia entry. The question is whether Waldenbooks and f.y.e. will follow B. Dalton into retail obsolescence, or whether they will find their way back to relevance. Hopefully their business models for the new decade include more than just a bet that enough people will stay stuck in the past to keep them alive.
Staying relevant is also a constant challenge in the restaurant sector of the retail industry. One chain that has risen to the challenge during the recession is quick-service chain, Panera Bread (PNRA). It's hard to believe that in the same year that the U.S. retail landscape became littered with shuttered, dark, and vacant spaces that a new Panera restaurant has opened just about every five days. In a year when Americans started buying store brand canned vegetables instead of eating out, Panera added 80 locations to the 2009 Store Openings tally.
Without any drastic menu changes or $5 meal deals, Panera saw its same-store sales grow 3.3%, its guest count rise 1.8%, and its average transaction increase 3.2% in its third quarter. While there is plenty to brag about in those numbers, the thing that CEO Ray Dellarco says he's most proud of is the fact that his chain serves "antibiotic-free, all natural, organic, low fat breads, bagels and pastries baked fresh throughout the day," according to a recent interview in the Cleveland Jewish News.
Dellarco also credits the chain's continued success to a fresh menu, and the new items that it adds to that menu five times a year. As a frequent Panera customer myself, I credit their success to something altogether different.
I have visited Panera in at least six different states and they all had two things in common - extremely friendly employees and extremely busy laptop users. The free WiFi is a definite draw and personally, I am willing to put up with the chain's rising prices, the shrinking portions, and the always dirty silverware in order to have a comfortable place to work which is run by employees who seem to be genuinely appreciative of my presence.
While I'm sure that the menu is a draw for a good number of people (fresh bread can be very addictive), what I noticed in the worst days of the recession was that Panera was filled with business people doing business when other restaurants were wondering where all their business had gone. The chain found a way to keep itself relevant by becoming a destination for people who want to eat, but need to work. In an uncomfortable economy, what could be better than comfort food eaten in a comfortable work space?
One more food-related retail chain that has remained relevant in the past year is Edible Arrangements, the special occasions fruit bouquet delivery chain. While Panera was opening one store every five days, a new Edible Arrangements store was being added to the 2009 Store Openings list about once every three days.
There is no lack of creativity for any special occasion at Edible Arrangements. They figured out at least 100 different ways to sculpt, skewer, and style produce so that it can rightfully take its place as the centerpiece of any gathering. Creative or not, though, it's not obvious how the chain has continued to thrive in the midst of a newfound American frugality.
Sending flowers is not cheap. Sending a "bouquet" of hand-cut chocolate dipped fresh fruit is even less cheap. But if given a choice between fresh-cut flowers that you can look at for less than a week, and a cornucopia of fresh-cut fruit that you can munch on for about that same period of time, the edible choice somehow seems less extravagant.
I have seen Edible Arrangements show up at a baby shower, a funeral luncheon, and a pre-surgery head-shaving party. Each of the senders of the edible bouquet made it known that they had received a gift of fruit themselves. I imagine it happens that way a lot.
Flowers are nice. Flowered shaped pineapples are memorable. Memorable trumps nice. Edible Arrangements keeps growing.
Leveraging its own success, Edible Arrangements has dared to launch a new concept called Frutation, in the hope that a flair for fruit can become relevant for everyday living. The Frutation menu includes FruSalads (greens and fruit), FruSalsas (pita and fruit dip), FruZees (drinkable fruit), fruit sundaes (banana split without the ice cream), and, of course, their famous dipped fruit creations.
It's risky to introduce a new concept into any economy, much less a deeply recessed one. It's even riskier to separate Frutation from its successful and well-established birth brand, but that's exactly what founder and CEO Tariq Farid has decided to do.
The first standalone Frutation opened in Puerto Rico in October, and one month later, Farid is confident that 50 Frutation franchise agreements will be signed before 2010 has barely begun. This is in addition to the new Edible Arrangement locations that Farid hopes will be opening every week in 2010. And since that's hardly enough to keep an innovator like Farid busy, he will be adding a new Isbanbul Edible Arrangements location to the 2010 Global Store Openings list just to keep things interesting.
Other retailers - like Abercrombie & Fitch (ANF) - that seem to be losing their relevance in their home country may be using global expansion as their workaround plan. But there are still plenty of U.S. retail chains that believe that there is more market share to be gained in America.
In fact the 2010 Store Openings list has more than 5,100 plans for expansion on it already. This is a completely different kind of U.S. retail industry list than was being amassed at this same time last year. Admittedly until lights are on, shelves are stocked, and doors are opened, this is still just a list of dreams. But the fact that such a wish list exists at all is completely relevant.
Comments
It surprises me that Trans World, B Dalton, and other sellers of physical content never picked up on their greatest asset once selling books & CDs turned out to be irrelevant. (And come on, it’s not like we didn’t see this coming since Napster launched in 1999…)
As a gathering place for large numbers of people with similar interests — and with thousands of publicity-hungry indie bands and starving authors — these stores were in a great position to live off of live events and in-stores while finding ancillary products to complement declining content sales. But they didn’t…
Trans World does in-store and on-site events constantly, normally in excess of 10 a week, and usually pushing some up and comer. Plus, they are becoming more like spencer gifts with the miscellaneous items that they are carrying. What they need to do is not devote half of their floor space to a dying medium, get some commercials out about buying used product and about their customer service, and re-evaluate the salaries of their upper management.
FYE is a good store, and their prices are not that bad, however there is the remaining stigma from when they used to charge full retail for everything. Their used prices are cheaper than renting movies on many DVDs. They need to promote that they are not exactly what they used to be. They need to promote the used, promote the $9.99 CDs, and promote the depth of the catalog (they carry and have easy access to many titles that most places don’t generally carry). They need to promote convenience. What is easier, ordering a movie online and waiting for it to ship or picking it up on the way home from work on a Friday and popping it in that same evening. I actually emailed one of their higher ups because they just keep seeming to miss the point.
“Used to” charge? The area in which I live had, until a few weeks ago, no fewer than six FYE stores in relatively close proximity; the only stores where I’ve seen the $9.99 price point were the ones that were subsequently closed. It’s difficult, after all, clearing out a couple thousand square feet of inventory when, as a chain, your average price point is within a dollar over or under MSRP.