Ann Arbor Area BUSINESS MONTHLY magazine brings the reader the latest business news and information important to the businesspeople in Washtenaw County. Each month articles cover real estate, legal, Internet, employee concerns and the climate of business in the greater Ann Arbor area. There is news about company employees and feature articles on local businesses. We cover business news from Ann Arbor, Chelsea, Dexter, Manchester, Milan, Saline, Whitmore Lake, and Ypsilanti.
Retailers Hoping For A Good
Holiday Buying Season
Thomas Ungrodt, President and CEO of Ideation and the Crown House of Gifts
By David A. Baker and Margaret J. Baker
Have a holly, jolly Christmas;
It's the best time of the year
I don't know if there'll be snow,
but have a cup of cheer.
Some well-prepared retailers in Washtenaw County may be having a cup of cheer if they experience the anticipated improved holiday sales this year. For these retailers, it appears that the brutal 2008 holiday season and the sluggish start in 2009 are now resolving into a jolly year-end finish.
The holiday season is critical for the retail industry. The roughly 35-day period from Black Friday (the Friday after Thanksgiving) to the end of the year can represent between 50 to 65% of a retailer's revenue for the year.
So, at this time each year retailers nervously increase marketing spend, order inventory, stock the shelves, and staff the stores in preparation for the holiday season's sales surge that can make or break their year.
When 2009 comes to a close, some retail sectors sales will be up from 2008, while others will be down. Health and personal care, sporting goods, hobby stores, books and music, and general merchandise have all grown sales slightly compared to 2008. Furniture, home furnishings, electronics, and appliances, however, did not fare as well. However, even the decrease in these sectors looks tolerable compared to double-digit percentage drop experienced by building materials, garden equipment, and gas stations.
U.S. retail (excluding motor vehicle and parts dealers) is a gigantic $4 trillion industry with a recent history of somewhat reliable annual sales levels. When the sudden economic crisis hit in Q4 2008, many retailers were caught off guard and forced out of business causing tumult in the economy. According to consulting firm Bain & Company, 45 retail chains representing roughly $30 billion in annual sales have gone bankrupt between 2008 and 2009.
We see this impact locally as well. One example is Borders, headquartered in Ann Arbor. In 2008, the holiday season delivered to Borders same-store sales levels that were down almost 15% from the 2007 holiday season.
Forced to consolidate as it refines its business strategy, Borders recently announced the closing of 200 of its roughly 330 Waldenbooks stores nationwide, eliminating 1,500 jobs, many of which will be from Michigan.
Despite their industry struggles to date, Michigan retailers have a cautiously rosy outlook. According to Jim Hallan, President and CEO of the Michigan Retailers Association (MRA), Michigan retailers on the whole are more optimistic about this year's holiday season than they were last year.
Each month, says Hallan, the MRA partners with the Federal Reserve to gauge the pulse of retail activity in Michigan. In November, 64% of the retail community said that this holiday season will be "as good or better than last year." Last year that number was 55%. "So," explains Hallan, "we see a marked increase in at least some retail confidence."
Hallan is clear about the reasons for retail's boost in confidence. The economy is stable, the stock market has returned to previous levels, gasoline prices are down about a dollar from last year, and auto OEM's have emerged again. In short, it seems we have gotten through the worst of the recession.
"What trumps everything, though," Hallan reminds us, "is unemployment. That is the major holdback right now; that is the number one factor. The number one issue on everybody's mind, whether it's Washtenaw County or the state of Michigan, is job growth, economic development, and the stabilizing of the revenue stream to state government." As long as unemployment continues unabated, then, retail's recovery will be dampened.
Thomas D. Ungrodt, President and CEO of Ideation, agrees. Ideation is a retailer offering a catalog program to 500 retailers across the country and operating three retail locations in Washtenaw County. "Unemployment affects my traffic," explains Ungrodt. "People are a little more cautious about what they might do. I can't say that unemployment is a clear impact, but it does seem people are just a little more aware of purchasing habits."
Ungrodt would be more confident of the season's success if it weren't for the volatile nature of the industry and the season. "The thing to remember for our business is that we tend to have hot, trendy merchandise. We always have one or two hot items or lines that can make a huge difference in our season by 1%-3%. Right now I don't have that hot selling item. We've got some items that are good, but we don't have anything yet that will sell like Webkinz did in 2007."
Others share Ungrodt's tentative optimism. Mark Bishar is Vice President of Marketing for Big George's Home Appliance Mart, a family-owned home appliance retail store in Ann Arbor celebrating its 50th anniversary this year. "For the next 6-8 months," notes Bishar, "I think people are looking for value. Our sales look good, but our industry is in such turmoil that I can't rely on sales patterns looking forward."
The Good News
Nevertheless, Ungrodt is guardedly enthusiastic about the 2009 holiday season. "We're tracking up," Ungrodt reports. "We are up 5% from last year, and up from 2008 across all three stores. We've got several factors working against us right now for the holiday season, but I'm very optimistic that we're going to see an increase for the last two months in 2009."
"People are pretty optimistic in our business. The weak will go away and the strong will become stronger. I have lost some competition, which may be adding a point or two to our local business. South Lyon and Brighton, for example, do not have a store like ours, so we get a good bit of business from those locations. Many work in Ann Arbor and stop by my store on the way home. Every point counts and we're working it one point at a time."
Five Golden Rings of Retail Advice
So, how can a retailer succeed in an industry in turmoil? Here are five tips for retailers to consider.
- WORK THE BASICS
As a starting point, retailers should effectively manage all aspects of the core business. "Retailers that have worked the basics of retailing," argues Hallan, "have been doing very well. They look back over what has made them successful over the years. " These basics include core aspects of customer service, merchandising, and managing inventory.
These barriers can be the silver lining of the recession for retailers. "Adjustments like this are good," claims Ungrodt. "It forces you to do things that you never had to do before. It forces you to turn over every rock of your business and look at it again: merchandising, wages, rent, advertising, everything. You need to consistently reevaluate things to make sure you're doing your best in all the basic functions of your business."
- FOCUS ON AND ADAPT TO THE CUSTOMER
Retailers should also have a crystal clear idea of the target customer, and be willing and ready to make speedy adjustments to the changing needs of those customers.
"We focus on customers who want a smooth experience of buying a product and getting it installed," exclaims Bishar. "We're about selling the product, delivering it, installing it, and taking away the old one - and we're giving them a great price for it. Our strategy, then, is to simply continue this approach to our target customers for the holiday buying season. "
Similarly, Ungrodt emphasizes the importance of adapting to customer needs. "If we see something in demand by our customers, we'll concentrate all of our resources to put a purchase order together and get that item shipped and in the stores as soon as possible to be the first in the area to have it in stock. We pride ourselves on being able to move on a dime. The big box stores can't move like we can."
- DIFFERENTIATE FROM COMPETITORS
Retailers need to understand the competitive choices available to customers and stake out a unique position among those competitors.
Carving out a niche for his stores is also critical for Ungrodt's sales success. "We will go look for merchandise that is unique to our marketplace that not everybody down the street has. This naturally drives our business. We have a lot of different lines that you can only get in our store."
Big George's realizes that, as an independent store, they need to compete against the large chains by offering skilled sales personnel and top-notch customer service. In Bishar's words, "We compete for the customers who really want service. Our customers often say, 'Listen, your price is not that far away from Best Buy, so I'm here because I appreciate your service.' We've seen an increase in comments such as this from our customers."
- CREATE A SHOPPING EXPERIENCE
Local retailers have a competitive advantage that online stores or out-of-town locations don't: a convenient location that provides a remarkable shopping experience. Retailers should concentrate on using this fact to their advantage.
"Online purchasing has captured a portion of the marketplace," concedes Hallan, "but by far the majority of shoppers still like that shopping experience. Walking through the door, touching and feeling the merchandise, tasting the full enjoyment of shopping are all part of the shopping experience. This still dominates the marketplace."
Ungrodt agrees. "If you just open the front doors and expect people to come in, that won't work. That was old school. It used to work that way, with people standing in line if you have a little sale. That doesn't work anymore. You have to go get them, and you have to create an environment in your store that's fun, exciting, and friendly."
- MARKET WITH A MULTICHANNEL APPROACH
Retailers not only need to market consistently and concertedly, they need to speak to a customer audience that naturally shops in a multichannel fashion: phone, internet, and physical location. Invitations for customers to "call, click, or stop by" the store should be met with a shopping experience that is consistent no matter which method they choose.
"I'm so committed to the multichannel concept," says Ungrodt. I think it's critical to have all three: internet, call center, and physical stores. You can be good a one or two, but you have to have all three to survive. Consumers don't shop the same way they did before."
Bishar has noticed this change as well. "Customers are definitely using the internet more than last year. I would say that regardless of age, 90% of the people walking into our store have used the internet in some fashion for that particular shopping experience. The use it to find the store, look up product reviews, or just run general Google searches on the product before coming in to the store."
The Grinch Can't Stop Christmas
Even if the economy has wavered, and unemployment has remained high, the holiday season is here just the same. And that is always good news for retailers.
As Hallan reminds us, "The holiday spirit usually prevails, and people will buy for their family." Ungrodt is more direct: "Nobody's going to cancel Christmas." Now that is a cup of cheer for all area retailers.