The Power of Retail

Furniture and home giant Ikea is keen to focus on developing markets such as Russia, China and Eastern Europe after the cut down in spending in some of its major markets. At the opening of its 35th store in the US, located in Brooklyn, NYC, Anders Dahlvig the company’s chief executive stated that the housing downturn in the US had led to the slowdown in its global sales and did not expect a recovery for at least two years. He added that growth in many European countries was slowing down and that “A lot of things are going in the wrong direction.”

Besides the US, countries like the UK and Germany have been badly affected and even strong markets such as Spain have been effected with the downturn. The company’s outlets in Spain and Portugal had a record turnover of GBP1.19 billion this year, an increase of 42% over last years figures. So far the company has 11 stores in Spain and will be opening additional stores in Jerez, Granada, La Coruna, Valladolid and Madrid, aiming for a total of 40 stores by 2020. In total Ikea has 279 stores in 36 countries and hopes to reach 300 by the year end.

Sales for the month of May rose higher than forecasted levels showing that consumers did have more cash in their wallets thanks to the US government’s rebate checks that had been distributed. According to the US Commerce Department, there was an increase in retail sales that was more than double of what was expected by economists on Wall Street. On average sales rose 1.2% as compared to the 0.7 % forecasted by economists, even considering the higher prices for gasoline. One of the only sectors that did not see an increase was the automobile sector.

Staples recently announced that it will be offering a small selection of DVD movie rentals starting in June at its US stores. According to the Staples sspokeswoman, “A new in-store ‘no-return’ DVD rental service, called Flexplay, will let customers rent the latest movie titles without having to return them to the store.” The system is perfect for business travelers as well as small business owners. The Flexplay system will let you view a fresh selection of movies anytime and anywhere. The original DVD gets erased 48 hours after opening it and can be recycled with other plastics.

According to its website, Flexplay Technologies Inc. of Atlanta is a developer and a supplier of limited-life optical media technology; Flexplay time-limited DVDs offer unlimited, perfect quality DVD playback in any standard DVD player, but only within a pre-set viewing window that begins when the use opens the sealed Flexplay DVD package.

The slow economy, sky-rocketing gas prices and a tough job market is making things especially hard for retailers this summer. There is a sudden trend for spate of sales across retailers luring in shoppers who avoided the stores in the coldest May in six years. With suddenly increasing temperatures, the demand for fans, air conditioners, summer apparel, and cold drink has shot up according to industry consultant Planalytics, that helps retailers predict and manage the weather’s impact on sales.

According to Scott Bernhardt, CEO of Planalytics, “You had a tough spring and then suddenly a shock to the system; people were rushing out to buy these things.” The company has estimated that sales for weather specific items such as air conditioners increased by 20%, bottled water by 4%, swimwear by 6%, sandals by 9%, as compared to the same week in 2007. The highest gains took place in the Northeast.

Besides the sudden heat wave, generous economy stimulus checks given by the government, the cash registers at many retailers will be ringing and happy this summer, although consumers will start tightening their wallet again.

With most checks hitting shoppers’ hands in July, Retail Forward projects 6% year-over-year sales growth for the upcoming third quarter, half of which the company is attributing to the stimulus checks. But gimmicks like government checks are only designed to ease short-term pain, not fundamentally change the market. Beneath the uplifting near-term trends, there are plenty of signs of consumers’ cutting back.

A Lehman Brothers report issued Monday says that while 2008 may not bring a recession as traditionally defined–two straight quarters of negative gross domestic product growth–the National Bureau of Economic Research is primed to call a recession based on “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production and wholesale-retail sales.”

Gap is looking to reduce the amount of space it leases in some malls, as an effort to cut back on its rental expenses. The company has had declining revenues for three of the last four quarters. According to Glenn Murphy, CEO of Gap, the retailer is considering the 40 million sq ft that it leases as an asset rather than a cost, stating that “How are we going to monetize it and maximize it to make sure we can get the P&L (profit and loss) benefit by doing the work that needs to be done on this 40 million square feet?”

The company is likely to reduce the size of its stores so that it can save its rent, and will also combine some of its stores for kids and babies into the original Gap store for adults. Admitting that the company “got carried away because we were doing so well”, Murphy said that they necessarily did not need such large stores. He added that the benefits of the reduction in real estate space will not come into effect till 2009.

Retail developers are changing the way they have done business lately. With the weak US economy, which has made developers wary of starting new projects, developers are instead tweaking existing projects to create new retail formats. As one executive calls it, it is the “intensification” or “densification” of shopping centers that are already present as a way to turn the tide away from an over-malled country.

Developers are looking for new formats and underutilized space that they can use to create something different. According to the chairman and CEO of the country’s second largest developer, General Growth Properties, John Bucksbaum, “Intensifying the use of property is certainly the major innovation.” One of the malls being redevolped by the company in Holladay, Utah is getting offices and residential growth as part of being de-malled. The re-done mall will open in 2010, as a mixed use format with shops, restaurants, cafes, grocery stores, condos, townhouses, cinemas, offices, riverside trails as well as a public plaza.

“You need to give people more choices,” said Scott Schroeder, vice president of marketing and communications for Developers Diversified Realty. “Nobody wants to make eight stops to get what they need.” He noted that the performance of certain specialty retailers and smaller “junior” anchors was an ongoing concern for the industry. “The more we can create a hub that combines value and fashion, the more appeal we have and the more customers we will retain.”

Barnes & Noble is making a serious plans to take over Borders bookstore, after the latter announced in March 2008 that it would be putting itself for sale. In a statement issues by Borders, the company stated that it was “in the midst of the strategic alternatives process and has not engaged in substantive discussions regarding any specific transaction to date.” The major source of competition for booksellers has been discounters such as Wal-Mart and Amazon lately.

Analysts surveyed by Thomson Financial expected a profit of 5 cents per share on revenues of $1.17 billion. The estimates typically exclude one-time items. The company reported that same-store sales, or sales at stores open at least a year, declined 1.5 percent in the period.

Siberia might be an unlikely place for a retail revolution, but that’s exactly what is happening! When Ikea opened last winter, shoppers loaded up their carts and yellow bags with everything from household goods, to clothes, appliances and furniture. The Ikea store in the Mega Mall opened on the side of the Ob River and expects 12 million visitors in 2008, making it an unlikely center of a retail boom.

With the retail industry seeing a downturn in the United States, Russia is becoming more and more appealing to retailers from across the world. There are big box stores opening every month and the country is likely to have more than twice as much as mall space than any other country in Europe in 2008. Malls have been around in Moscow for several years, and there are another 38 scheduled to be opening in the city and the surrounding areas by 2010.

The Russian retail sector is attracting so much attention that Ernst & Young and KPMG held a investor road show in London highlighting it last month. There are an expected 49 million sq ft of retail space that is to open in 2007 and 2008, which is more than double the expected shopping area in Poland, the country with the second largest mall development plans.

“You have this incredible purchasing power in these cities retailers want to tap into,” said Charles Slater, a partner working in the Russia office of Cushman & Wakefield, which advises mall developers headed to the Russian hinterlands. “There is a race for land.” That is another reason sparsely built Siberia is so popular.

Developers are turning to the 12 provincial cities in Russia with populations over one million, islands of prosperity with population inflows from rural migration and rising purchasing power, ripe for malls. This retail strategy is known here as the “millions,” and is embraced by leading Western retailers including Ikea and Auchan, the French food chain.

Staples has unveiled its latest brand called, M by Staples which stands for “My Style. My Way.”, and encompasses the entire range of notebooks, journals, folders, stationary, files, clips, magnets, pins and so on. These products have been created in an effort to inspire customers and connect with them on a emotional level.

According to Petter Knutrud, the senior vice president for merchandising for Staples, “Our vision in developing the M by Staples brand is to make it easy for more self-expression in the workplace. Our customers pay attention to the details of the products they use every day, and the M by Staples collection offers quality products set apart from traditional office supply offerings that reflect personal styles at a great value.”

The M by Staples will be displayed at the front of their stores and has a base in traditionalism but with a modern and stylish twist. There are items such as quilted and leather journals, plaid patterns on notebooks, bright and lively colors and patterns and so on. The company has been developing this new line for over two years and has been conducting customer research to create the perfect line of products. According to a national survey conducted by Staples, over 55% of respondents said that having stylish office accessories would get them noticed at the office.

There are a whole lot of interesting ways that people are coming up with to save some money these days, and not all are in their best interest actually. There has been a rise in visitors to Amish stores, which stock expired cans and bottles of food, dented boxes of cereal and crumbled bars of candy. For a lot of American’s looking to save money, these are a way out of higher prices for just about everything.

According to Ray Marvin, the manager of B.B’s Grocery Outlet, the range of customers varies from those coming in Mercedes to those coming in horse and buggies. Prices are often dirt cheap at these stores, such as 10cents for a bottle of salad dressing, and 50 cents for a roll of paper towels. The Food and Drug Administration prohibits the sale of expired baby food, but all other items, including food and medicine are good enough to be sold, even though they might be expired.

Amish expert Don Kraybill of Elizabethtown College in Elizabethtown, Pa., calls the popularity of salvage stores a “mini Amish industrial revolution.” He says it is a natural outgrowth of booming Amish micro-enterprises, a result of the decline in farming. “Their businesses frequently succeed because they have low overhead, they work very hard, they’re creative,” Kraybill says. “And they have an ample pool of labor within their extended families.”

The Amish are scattered across 28 states, with the highest populations in Ohio, Pennsylvania and Indiana. A deeply religious group, they traditionally live off the land and without electricity, among other modern amenities.