Silicon Valley Informs The Shopping Experience

The Wall Street Journal: “With online pricing and inventory easily accessible, consumers are increasingly becoming brand and retailer agnostic. So retailers are turning to Silicon Valley for everything from artificial intelligence to data to draw consumers in … Even the smallest changes online—facilitated by artificial intelligence and algorithms—can make a difference in sales, retailers are discovering.”

“Italian lingerie brand Cosabella gauged customer response to change the color of its ‘buy’ button to pink and its banner to specify it is Italian family-owned, bumping up revenue by 38%. It is also using image-recognition technology … tailoring its website to individual customers based on the advertising image they click to get to the site.”

“Retailers are also customizing the shopping experience in stores, where around 90% of U.S. purchasing still takes place … For example, Burberry Group PLC can ask for a customer’s name and type it into an app when the person walks in, giving access to personal data, including his or her last purchase and whether the person prefers still or sparkling water—and potentially some of his or her public social media presence, too.”

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Costco Golf Balls: The New ‘Two-Buck Chuck’

The Wall Street Journal: Costco, the warehouse retail giant, first began selling golf balls last fall, under its Kirkland Signature brand that is affixed to a wide range of products and carries discount prices. Available for $29.99 for two dozen, the balls instantly ranked among the cheapest on the market … But what made the balls a hot item among fanatical golfers is the revelation that, by some accounts, they perform like rivals that sell for more than twice as much.”

“That idea sent shock waves through a billion-dollar industry, left Costco out of stock for weeks at a time and caused secondary-market prices for the ball to soar. Its popularity is threatening one of the sport’s long-held consumer beliefs: when it comes to the quality of golf balls, you generally get what you pay for.”

“The balls were made at a factory in South Korea by a company called Nassau Golf, which also manufactures balls for TaylorMade, one of the major equipment manufacturers … the company had an excess supply that it sold to Costco through a third-party trader … According to a Nassau executive based in Europe … both Nassau and TaylorMade, its biggest client, are unhappy with the rise of the $1.25 golf ball and that the company won’t sell excess supply in such large quantities again.”

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Empty Malls Enable Online Fulfillment

The Wall Street Journal: “Retailers are converting empty mall space into makeshift distribution centers used for package pickup and returns of goods bought online. At the same time, online merchants are opening physical stores to reach more customers, either via short-term leases in pop-up stores or long-term tenancies like Amazon.com’s upcoming move into Manhattan’s Time Warner Center.”

“More retail centers, including those at town-center locations in smaller cities, are housing Amazon Lockers, which allow Amazon’s online customers to pick up and return packages at their convenience. Other online retailers without any physical stores are looking to provide options for their customers to drop off unwanted purchases in person in shopping centers where they can get immediate refunds.

“One startup, Happy Returns, accepts in-person returns from participating online retailers at six malls in California, Chicago and Virginia … Returned items are sent to a regional processing hub, then on to retailers’ fulfillment centers, third-party logistics companies or liquidators. Happy Returns hopes to build a national network that includes open-air shopping centers, high-end grocery stores and coffee shops and is aiming to have a presence in the top 20 metro areas by 2017, said David Sobie, president and co-founder of the start-up.”

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Pottery Barn Catalogs: What a Mess!

The Wall Street Journal: “Shoppers have long wanted to live in the pages of a home furnishings catalog. Now brands are obsessing over shots that are just untidy enough that they look more like places where real people actually might live. It’s the décor equivalent of a model with bed-head hair or a partially untucked shirt … Pottery Barn’s January catalogs have photos of unmade beds and overflowing storage baskets. But there is a line they will not cross: A dining room scene doesn’t feature stacks of dirty plates, but it does have a chair pulled out with an unfolded napkin strewn across it.”

“The catalog from the Land of Nod, Crate and Barrel’s children’s division … makes sure its props include items found in many children’s rooms, such as a well-loved stuffed animal. There are shoes on the floor and books on the shelf. Toys are often tossed about, but in a controlled way—one that looks as if it could be tidied quickly if needed.”

Pottery Barn’s “makeover extends into its product design, with the introduction of shrunken, more affordable pieces. The collection aims to change the brand’s perception of selling only oversize , often pricey furniture designed for sprawling suburban homes. The new merchandise, including a $299 arm chair, is meant to appeal to two sets of new shoppers: young adults outfitting their first apartment and boomers relocating from the suburbs to smaller, urban spaces.”

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Crowd Cow: The New Digital Slaughterhouse

The New York Times: Crowd Cow is “an online service that sells whole cows from small ranchers, divided into manageable orders, usually about 10 to 12 pounds, and delivered to homes as frozen, vacuum-sealed cuts … Rather than putting its own brand on the meat it buys, Crowd Cow advertises the beef’s producers and allows them to tell the stories of their ranches on its website.”

“Joe Heitzeberg, the chief executive of Crowd Cow, which has sold nearly 200 cows online, founded the company with Ethan Lowry. He said their idea was to teach the consumer about the particulars of each ranch.” He explains: “We’re saying it’s like microbrews and wine. There are differences. We want you to understand the differences.”

“Most of the beef on Crowd Cow and similar websites is grass-fed, which research has shown has higher levels of healthful omega-3 fatty acids … While even large commercial cattle operations now sell grass-fed beef and many supermarkets stock it, some consumers prefer the beef they get from small producers online … Much of its beef comes in variety packs: A recent sale from Step by Step Farm in Curtis, Wash., featured a $69 package that included four eight-ounce flat iron steaks, two 10-ounce chuck steaks and two pounds of ground beef.”

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Alit Crafts Winery Transparency

Quartz: Mark Tarlov’s “plan is to do for wine what Everlane has done for cashmere sweaters: eliminate distributors and retailers to bring what would traditionally be a $60-100 bottle of wine to online customers for a fraction of the cost. Also like Everlane, he wants to upend the status quo by publicly declaring his input costs—crafting the story of how he spends those dollars into an accessible course in wine appreciation.”

“Wine pricing is generally opaque—more an art than a science. But Tarlov clearly lists the input costs for his on Alit’s website, outlining just what customers are paying for when they fork over $27.45 for a bottle of his 2015 Pinot Noir from Oregon’s Willamette Valley.”

“Alit’s Pinot Noir is still more than double the average price for wine purchased in the US—even if it’s relatively inexpensive for a French oak-aged Pinot from Willamette Valley. But Tarlov is telling customers the investment is directly reflected in the product.”

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Social Media: Call Center ‘Matchmakers’

The Wall Street Journal: “The next time you dial customer service, who answers your call may be determined by what you have said on Facebook. Companies from casino operator Caesars Entertainment Corp. to wireless carrier Sprint Corp. are increasingly checking social media and other personal data to tailor calls for each customer.”

A startup called Afiniti International Holdings Ltd. has artificial intelligence software that “has been installed in more than 150 call centers by dozens of companies, examines as many as 100 databases tied to landline and cellphone numbers to determine the best agent to answer each individual caller. Such matching can result in more satisfied customers and more sales, the company says.”

“Afiniti’s technology not only pulls callers’ histories for a business and credit profile, but seeks insights into their behavior by scouring their public Facebook and Twitter posts as well as LinkedIn pages. In the case of a sales operation, a caller is matched with the agent who—based on the agent’s own call history—has been able to close deals with customers with similar characteristics.”

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Constitutional Crisis: Freedom of Promotional Speech

The Wall Street Journal: “For decades (New York State) has barred companies from tacking on a fee when customers pay with plastic instead of cash. A hair salon now challenges that law, claiming businesses have a constitutional right to impose surcharges—and that behavioral economics provides the theoretical foundation.”

“The salon can already give customers, say, $1 off for paying in cash. So why does it want the ability to add a $1 surcharge for paying with credit? What’s the difference? Enter behavioral economics … the salon argues that surcharges are more effective at changing behavior because consumers suffer from a ‘loss aversion’ bias. More customers will decide to pay with cash, the theory goes, if faced with a ‘loss’ (the $1 surcharge) than a ‘gain’ (the $1 discount).”

“The salon argues that the only meaningful difference between the two pricing schemes is what they’re called—and that’s a matter of free speech. Barring the ‘surcharge’ label but not the ‘discount’ label, the argument goes, violates the First Amendment.”

Update: “The justices’ view of the case seemed to turn on where they stood in a rolling debate at the court about how the First Amendment applies to laws regulating economic matters, an issue that generally divides the justices along ideological lines,” The New York Times reports.

“Some of the more liberal justices said that the law was an unexceptional and permissible economic regulation.” Justice Stephen Bryer comments: “What this statute says is, you can’t impose a surcharge… What’s that got to do with speech?” Justice Anthony M. Kennedy counters: “It’s a matter of how the pricing structure is communicated in the speech.”

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Store Check: Why is TJ Maxx Doing So Well?

Editor’s Note: After reading news stories about the struggles of Macy’s, Kohl’s, Sears and JC Penney, I visited a TJ Maxx yesterday (Norwalk, Conn.) to see why it is doing so well. It’s just an ordinary and ostensibly boring strip-mall store. The location is nothing special. The store itself is not new, but it is neat and orderly, well lighted, and well maintained. The sight lines are clear from one end of the store to the other, and the aisles are wide. Racks are marked, by (low) price signage, and all items are also clearly marked, with prices in large digits. Tags include a comparative retail price.

Name brands are easy to spot. A big sign on the wall lets you know that they have the same brands you’ll find at the mall, for less. Lots of displays with attractive, unusual items (treasure hunt). In addition to extensive men’s, women’s and children’s apparel (most of the store), there’s luggage, handbags, household goods, bedding, beauty care, toys, etc. Everything looks like someone just put it back in its proper place.

Oh, and restrooms are marked with a big sign, and the men’s room was not only clean, but decorated. Checkout, bordered by shelves of impulse items, is a single, long, snaky line, but moves quickly. Sure, there’s a world of complexity under its hood that makes the TJ Maxx experience what it is, but to the shopper, its magic is as plain as a sugar doughnut. PS: I do think their logo could use an update.

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Sephora Becomes Its Own Best Customer

The Wall Street Journal: “As Sephora has emerged as the hottest retailer in luxury beauty, cosmetics companies are increasingly losing out—to Sephora … Sephora and its owner, French luxury conglomerate LVMH Moët Hennessy Louis Vuitton SE, have emerged as a competitor—launching a stream of new beauty brand … sold at Sephora stores alongside Estée Lauder’s Smashbox and L’Oreal’s Urban Decay.”

“In the core makeup area of a Sephora store, LVMH’s beauty brands can take up nearly half of the shelf space. Yet, Sephora’s parent manufactures only 15 beauty brands compared with more than 200 the retailer can carry at any given time … The situation puts high-end cosmetic brands in a conundrum. Many are becoming increasingly dependent on Sephora for sales growth, but are faced with shrinking shelf space at the retailer as LVMH makes room for its own new brands.”

“To sell at Sephora, which has more than 2,300 stores around the world, brands can pay more than 60% from each sale, a higher rate than at most department stores and specialty retailers … Capitalizing on other channels isn’t always easy because Sephora has required that some brands sell their hottest products at its stores only … Revlon Inc. Chief Executive Fabian Garcia, when asked if Sephora is a heavy-handed partner, paused, ‘As a matter of practice, I will never say a customer is heavy handed. But I will say they are assertive’.”

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