Centralized, Localized, Specialized

Posted by Carol Spieckerman on March 03, 2011

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Over the past decade, many retailers have set their sights on centralization, aiming to speed up trend and markdown reaction, achieve greater efficiency of scale, and maintain brand and assortment consistency.

Although slow to embrace the shift to centralization, J.C. Penney took the plunge in the early 2000’s, abolishing its store-level buying structure under growing pressure from highly-centralized retailers such as Kohl’s, Target, and Walmart.

Then, after doubling its size through the acquisition of The May Company in 2005, Macy’s embarked on its own centralization journey. It first folded the majority of the May brands, including Marshall Field’s, Filene’s and Kaufmann’s, into the Macy’s masthead. Then, in 2009, the company consolidated its four regional buying divisions – East, Central, West, and Florida – into a single organization for the first time in its 150-year history. Uber-centralization accomplished!

But wait…no sooner did centralization hit its stride than localization and specialization became the new standard. One-size-fits-all assortments were leaving savvy shoppers cold, as the Web encouraged specificity and as retailers came to be armed with increasingly granular data that could answer the call.

In 2008, Macy’s highly-publicized My Macy’s localization initiative proved that centralization doesn’t have to come at the expense of localization. The massive merchandising restructuring is paying off – 2010’s fourth-quarter profits were up an impressive 50 percent, with the My Macy’s pilot stores outperforming non-localized stores.

As remarkable as these results are, something else has caught my attention: a move that Macy’s made over two decades ago and that I see gaining traction as highly centralized retailers seek to laser-target hot categories and customer segments.

Many forget (or never knew) that teen retailer Aeropostale was originally launched in the early 80s as a private brand by none other than R.H. Macy and Co. Inc. In a groundbreaking move, the first mall-based Aeropostale specialty store was opened in 1987, and the brand quickly expanded to over 100 stores before being sold to Aeropostale’s management team and Bear Stearns. Currently, there are over 880 Aeropostale specialty stores in 49 states, as well as in Puerto Rico, and 36 in Canada.

Macy’s didn’t try that again…until this month. Macy’s is shining the spotlight on its new contemporary brand, Bar III, via its first ever pop-up shop in Manhattan. The Flatiron District micro will run for five weeks in advance of the March 6 launch of the Bar III brand in Macy’s stores. Pop-up shops no longer warrant a news flash, but Macy’s private brand pop-up, along with recent moves by J.C. Penney and Loblaw’s, point to a private-brand specialty movement that will see former lumbering giants playing in the same sandbox with nimble specialists.

In November of last year, J.C. Penney stepped back into specialization when it announced plans to launch The Foundry Big & Tall Supply Co., the first owned-retail concept created under its newly established Growth Brands division. Ten Foundry specialty stores are slated to open in May of this year, followed by an e-commerce website launch and the aggressive rollout of 150 stores by 2013. Three hundred stores are planned over the next five years.

Loblaw, a Canadian retailer most known for its strength in grocery, has just announced its plans to open a 15,000-to 20,000-square-foot Joe Fresh fashion flagship in Manhattan this fall. It has no plans to stop there. Loblaw sees the potential for opening as many as 800 stores in the U.S., ranging in size from 8,000 to 20,000 square feet. Like Macy’s, Loblaw has a history of pushing private brands beyond its borders. Loblaw started offering its President’s Choice brand to U.S. retailers in the 90s. This time, they are also striking out with owned-branded stores.

Although Macy’s and J.C. Penney could have easily plucked already-established brands from their private brand portfolios or incubated the new brands in their current store environments, they chose instead to launch the new brands through dedicated concepts. Macy’s may still be in the pop-up phase with Bar III, but it’s been widely speculated in the retail press that the brand will roll out into dedicated stores. Loblaw’s Joe Fresh is pretty fresh on the scene as well – it launched five years ago within Loblaw and the first freestanding store opened in Vancouver only last October.

At a time when even specialty stores such as the Gap are straining under scale and mass retailers such as Walmart are struggling to go small, separately branded specialty stores are a formidable way for the big guys to participate in niche opportunities – and potentially saturate markets before anyone else gets a meaningful start. At the same time, the comparatively small footprints of these stores will give them access to locations that would otherwise prove elusive.

They are becoming centralized, localized, and specialized.

Bottom line:

  • “Specialization with scale” is a phrase I’ve been using quite a bit lately in my presentations. For a while, retailers thought that the best way to achieve it was through the establishment of an online presence. Now, physical stores are becoming a critical (and complimentary) component of specialization.
  • Although multi-category lifestyle brands still have a big place in retailers’ hearts, tightly-focused specialty brands are poised for resurgence.
  • As the owned-brand specialty movement marches on, more pressure will be put on existing specialty stores.
  • Owned-brand retail is yet another tactic for boosting awareness and credibility for retailers’ brands.
  • Stores are no longer just hard assets for retailers; they’re a brand launch and deployment tactic.