LVMH: A Winner in Real-Life Retail

Axios: “LVMH, the French conglomerate and owner of brands Louis Vuitton and Sephora, had a 15% rise in first-half 2017 revenue, and that did not come by running fire sales — profit was up 23% … LVMH’s success is a reason for traditional retailers to despair as much as hope. The secret behind LVMH’s success is near total control of products from conception through manufacturing and sales, the opposite strategy of traditional mass-market retailers that largely act as middlemen and little more.”

“Next to Louis Vuitton, LVMH’s most important brand is Sephora, the beauty retailer that has been gobbling up market share in the $22-billion cosmetic retail industry. Customers interviewed by Axios raved foremost about the in-store experience, with freely accessible samples of any product absent any interaction with a salesperson. If shoppers want help, these customers say, Sephora’s staff is knowledgable and eager to find them the right look.”

“LVMH is demonstrating one formula for making a success of brick-and-mortar retail. That does not mean it can rest: Even high-flying luxury retailers like Louis Vuitton must constantly innovate as e-commerce matures and offers more products and more ways to buy them.”

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Makeup Alert: The Danger is not Cosmetic

Jane E. Brody: “When you wash your hair, clean or moisturize your skin, polish your nails, or put on makeup, deodorant or sunscreen, do you ever think about whether the product you’re using may do more harm than good? Maybe you should. Thanks to a lack of federal regulations, the watchword for consumers of cosmetics and personal care products should be caveat emptor: Let the buyer beware.”

“A current case is a classic example … When in 2013 the agency received 127 reports of adverse effects from a single line of hair-care products called WEN, it discovered that the manufacturer, Chaz Dean, Inc., had been sitting on more than 21,000 complaints of hair loss and scalp damage associated with the products’ use. A class-action lawsuit filed by more than 200 women against the company and its infomercial producer Guthy-Renker was settled last year for $26.3 million. Yet the company claims that WEN hair care products are ‘totally safe’ and continues to sell them.”

“Unlike drugs, cosmetics can be sold based solely on manufacturers’ tests (or no tests at all) and claims for effectiveness and safety. Even the ingredients don’t have to be filed with the government. (Only color additives require premarket approval.).” Former FDA Chief Dr. Robert M. Califf comments: “It’s not known how much of these chemicals is absorbed through the skin and what effect they may have over a lifetime of use. The right studies of health effects have not been done.”

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Cult of Queue: The Thrill of The Wait

The New York Times: “Theolus Jackson slouched against the stanchion separating him from the entrance of Supreme, the streetwear emporium on Lafayette Street in SoHo. He had registered on the company’s website to pick up a ticket assuring him a spot near the head of a line that by 10 a.m. that day spooled around the corner toward Broadway.” He comments: “Most of the time I have my music, so I’m not bothered. I come every week — I like the vibe — and I just chill.”

Jeff Carvalho of Highsnobiety explains: “These kids don’t come to go into the store. They want to be in the line. The line is the new community. When 200 to 300 kids are lining up outside of a store, it’s because they want to be part of something.”

“Today, the queue is partly a resellers’ market: energetic young entrepreneurs snapping up wares in multiples, then flipping them at soaring markups on eBay or selling them for pocket change to finance their own buys … For many others, though, the wait itself is sufficient reward.” Noah Callahan-Bever, the editor of Complex, observes: “The death of the shopping center has created this void in kids’ lives. It’s being filled in part by this society of kids, some known to each other only from the internet, all of them into this niche product that acts as a social identifier. For them, standing in line for a T-shirt or baseball cap is a way of telling the world that you know about something that not everyone is hip to.”

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Uniqlo Tries Airport Vending Machines

Quartz: “Heattech tops and UltraLight down jackets are two of Uniqlo’s big sellers, items that represent the brand’s style of simple but highly functional clothes. And now they’ll be sold in one of retail’s simplest and most functional of venues: vending machines … The machines will have a variety of colors and styles for women and men, changing with the seasons and local customer needs, and dispensed upon purchase in small boxes or canisters. The airport locations are especially fitting for the brand’s signature thermals and jackets, which are designed to be thin but warm and easily packable.”

“Uniqlo’s vending machines … are more of an experiment, offering a cheap, efficient way to introduce the brand and its down jackets ($69.90 in the vending machines) and Heattech tops ($14.90) to a new audience … They can also give Uniqlo insight on US consumers, which Uniqlo has been trying to reach—not always successfully—for years. In urban centers such as New York, the brand has found a firm foothold, but it has struggled to get traction in suburban malls.”

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$1,400 iPhone & The Veblen Effect

Christopher Mims: “The launch of a pricey new iPhone has big implications for Apple’s financials, and it also bodes well for Apple’s continued dominance in mobile phones. Here are five reasons for Apple to go big, price-wise:” 1 Halo Effect: “An ultraexpensive edition of the iPhone makes sense as a shot in the arm for the whole brand … 2 Crazy New Tech: A big reason companies have halo products is that they give them a way to test new technologies.” 3 Supply & Demand: “If Apple’s high-end iPhone is aimed at a new segment—people willing to pay more than $1,000 for a phone—Apple can charge whatever it likes to balance supply and demand for the device, rather than worrying about whether increasing the price will hurt its overall market share.”

4 Average Selling Price: “With a phone priced upward of $1,400, Apple would have the opportunity to move the single most important metric on its balance sheet: the average selling price of a new iPhone.” 5 The Veblen Effect: “The final reason a pricey iPhone makes sense is that, paradoxically, the more expensive Apple makes the device, the more people will lust after it. Conspicuous consumption was first described in ‘The Theory of the Leisure Class’ by the economist and sociologist Thorstein Veblen, who singled out products that, contrary to logic, sold better when their prices went up.”

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Sephora Studio: Where Small is Beautiful

Fast Company: Sephora “is tinkering with a new kind of store: an intimate boutique embedded in a neighborhood. The very first of these stores, which will be called the Sephora Studio, is launching on Newbury Street, the charming upmarket shopping street in downtown Boston, full of historic brick and stone buildings … While most Sephora stores make a big statement with their large storefronts, this small store attempts to blend into its locale.”

“At the center of the store, there are eight makeup stations where customers can book personal consultations. The product assortment is much smaller, focused on makeup, although there is a small selection of perfumes and skin care. Staff members will be well-versed in Sephora’s broader product range and may direct customers to products that can be shipped to them for free.”

“There are no cash registers, since staff members can process payments digitally, on their phones. At makeup stations, beauty advisers can take pictures of the client, then note all the products they test together, which is then emailed to the client and added to their online profile.”

“The brand is about to launch other small-format stores in similar shopping streets in Williamsburg in Brooklyn, Hoboken in New Jersey, and Washington, D.C. These stores will not replace the bigger store format, but rather complement them.”

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Adidas Grows ‘Creator Farm’ in Brooklyn

Business Insider: “In Greenpoint, Brooklyn, in an unassuming warehouse space just across the street from a stone supplier, Adidas is plotting the future. That’s where the company has built its Brooklyn Creator Farm, a relatively secret location where Adidas hosts a small team of designers from studios around the world. Their job? ‘Creating culture,’ said Marc Dolce, VP and creative director at Adidas.”

“The farm is separated into two parts: the designer’s area, and the Adidas’ Brooklyn MakerLab. The MakerLab — which is one of three in the Adidas ecosystem — has all the high-tech machinery and materials needed to create any kind of sneaker or piece of apparel the designers can dream up … The designer’s area itself is chock-full of idea boards and materials to inspire … Global Creative Director Paul Gaudio said it’s called a farm because the brand wanted the space to be ‘earthy and real and where you can get your hands dirty’.”

“The farm designers are influenced by the fluid and dynamic culture of where they are in Brooklyn. For example, a designer can join a night running group and learn not just what they need from a running shoe, but what these runners do for fun and what kind of lives they lead … “In the end, it’s very much a brand statement,” Gaudio said. “It’s who we are; It’s who we want to be. It’s so deeply connected to that strategy of understanding where culture happens. New York City is the place.”

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Function of Beauty: Algorithmic Shampoo

Business Insider: Function of Beauty “lets you create custom shampoos and conditioners based on your hair type and goals.” Zahir Dossa came up with the idea while developing his dissertation at MIT. He explains: “I saw that was the most bloated [industry] was beauty, and more interestingly, the value chain for beauty hadn’t really changed over the last 100 years. There were all these middlemen in the way.”

“Dossa decided to build a direct-to-consumer company that focused specifically on hair care. Shampoos and conditioners were the most varied because of different hair types and hair goals… Function of Beauty can create 12 billion different combinations of ingredients … You start by taking a quiz on Function of Beauty’s website about your hair … You’ll answer questions about your hair type, hair structure, and scalp moisture. Next, you’ll select five ‘hair goals’ … Then, you’ll pick which color and scent you’d like the shampoo and conditioner to be, along with the fragrance strength. After that, Function of Beauty will build your custom formula using its algorithm.”

“Once the set is delivered to a customer, they can test it out. If it doesn’t work for their hair, they can send it back and a new formula will be created, free of charge. Function of Beauty also has a subscription service, so you can have new products delivered without having to manually reorder or shop in a store.”

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Uniform Identity: Airline Apparel & Brand Experience

The New York Times: “Long ago, airline uniforms reflected the glamour of flight. Now, they have to serve more utilitarian needs. Do they reflect the airline’s image? Will they look good on most everyone? And, perhaps most important, are they comfortable? … For American Airlines, which introduced new uniforms in September, the different look was an important step in conveying a unified brand image since its merger with US Airways in 2013.” Brady Barnes of American comments: “There was a visual difference in what people were wearing, and I think, inherently, that kind of creates a barrier.”

“Most of the uniform overhauls include clothes not only for flight attendants and gate agents — ‘above the wing’ jobs — but for the luggage handlers, mechanics and other workers who make up an airline’s ‘below the wing’ work force … Shashank Nigam, chief executive of the consulting firm SimpliFlying, said uniforms were a crucial part of an airline’s brand, especially with the decline in the number of in-person encounters a traveler experiences.” He comments: “Today more than ever, the uniform is the most important symbol of an airline that a passenger interacts with and sees.”

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Nike Goes Local & Gets Physical

The New York Times: “Nike shaped itself into one of the globe’s most recognizable brands. Now it has a new idea: Go local. Facing pressure from investors and competitors like Adidas, Nike said Thursday that it was shaking up its organization to focus more on consumers in just a dozen cities around the world and on releasing new products faster in those places.”

“To keep its products relevant and make its service more personal, Nike aims to develop what it called a ‘local business, on a global scale’ and ‘deeply’ serve customers in 12 cities, including New York, Paris, Beijing and Milan. Those places are expected to deliver 80 percent of the company’s growth over the next two and a half years.”

“Despite the move to online shopping that is transforming retailing, Nike is not giving up on its physical stores. Instead, the company will use the stores to try to foster relationships with customers and further link the shops to its digital efforts. Nike, which is known for sponsoring star athletes like LeBron James and Rafael Nadal, will also try to speed up how quickly it designs and works with its suppliers to deliver new gear. The company wants to cut its product-creation cycle time in half.”

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