September

Newsletter for Instructors 2015

This newsletter provides teaching tips and summarizes article abstracts for case discussions for the following topics:

• China Is Top Emerging Retail Market (Chapters 5)

• CVS Is Muy Serio About Engaging Hispanics (Chapter 5 )

• The Sephora Effect: How the Cosmetics Retailer Transformed the Beauty Industry (Chapter 5 and 18)

• Apple to Push Customers from Its Stores to Its Site (Chapter 18)

• For Publix, Success Comes Down to Its Owners (Chapters 9)

• The Latest Fashion, Trending on Google (Chapter 13)

• Whole Foods Calls the Shots for Startups (Chapter 13)

• Abercrombie & Fitch Dials Back The Sex (Chapter 5)

• Organic Farmers Object to Whole Foods Rating System (Chapters 1 3)

Retail Tidbits Social Sites Move to Boost Retail Sales Amazon Rolls Out Free Same-Day Delivery Nordstrom Kicks Its Omnichannel Strategy to the Curb Retailers Suffer the High Cost of Overstocks and Out-of-Stocks Target Puts Some Food Suppliers on the Back Burner Ahold-Delhaize Deal Would Create One of Largest Grocery Chains in U.S. Walmart Pushes for Improved Animal Welfare

If you are interested in the text book please visit www.mhhe.com/levy9e. Simple registration is required to gain access to the newsletters and other instructor materials. If you would like to see this newsletter and the previous editions, go to: http://warrington.ufl.edu/centers/retailcenter/research/publications.asp

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C OMMEN TS? C ON TAC T US

Teaching Tips

Additional Material for Teaching Retail Classes

A website, part of the University of Florida Miller Center for Retailing Education and Research, provides materials for retail class instructors including: • Nine syllabi from instructors • Classroom exercises • Team projects • PowerPoint slides • Copies of this newsletter and previous issues • List of retail links, cases and videos

The website is available at http://warrington.ufl.edu/centers/retailcenter/teach/

Please consider sharing your materials with other instructors through this website by sending your course syllabi, classroom exercises, projects, teaching types, etc. to bart.weitz@warrington.ufl.edu or mlevy@babson.edu

China Is Top Emerging Retail Market Marianne Wilson, The New York Times, June 1, 2015

Use with Chapter 5, “Retail Market Strategy”

Every year, the global management consulting firm A.T. Kearney releases its Global Retail Development Index (GRDI), summarizing how various regions and nations have emerged and expanded in terms of their retail development in the previous year. It thus ranks the top 30 in terms of retail growth. The most recent release grants top position to China, where retail grew by 11.6 percent in 2014. Although it suffers from minimal growth in its gross domestic product, China has a thriving retail market, which is likely to reach $8 trillion soon and then surpass the United States as the world’s largest within the next few years.

Some of the reason for China’s status relates to the turbulent conditions in other areas of the world that traditionally have exhibited notable retail growth, such as the Middle East, Russia, and Latin America. Yet overall, Asia as a region is thriving in this sector, with entries such as Mongolia (ranked fifth) and Malaysia (ranked ninth). Moreover, Asia’s e-commerce market is huge, already surpassing that of North America. Its prospects for growth are similarly massive, because Internet penetration still has room to expand. Thus some observers predict that e-commerce will grow as much as 25 percent annually in Asia.

Although they missed the top rank, three Latin American nations still are prominent in the GRDI, appearing among the top 10. Yet the trends show decreasing growth in this area, with predictions of further shrink in the future. Similarly, in the Middle East, recent

economic and political events have hindered retail growth, such that previously strong contenders such as Jordan and Kuwait have dropped in the rankings.

On the flip side, Central Asia and sub-Saharan Africa represent regions where retail growth traditionally has been slow, but it appears to be increasing. For example, Botswana, Nigeria, and Angola have entered the list, and Ghana, Namibia, and Zambia just missed being included. The retail opportunities in these nations appear likely to increase in the future as well, due to their expanding middle classes and urbanization trends. The report also identifies “small gems” in Central Asia, such as Georgia, Armenia, and Kazakhstan, as well as citing Azerbaijan, with its massive oil reserves, as a relatively unknown but promising luxury destination.

Finally, the GRDI puts Russia in last place in the list of 30, noting that though its economic and political issues have disrupted its retail growth prospects, the market is simply too big for retail firms to ignore.

Discussion Question:

1. Which global markets are most attractive for retailers? Explain your answers.

Overall, Asia represents a highly promising retail market, and China is the best bet in that region. China has a massive population that increasingly demands retail offerings. Even smaller nations in this region are enjoying expansion and increasing growth. But retailers should not ignore countries in other areas, even if their political situations are a little unstable. For example, several nations in Africa are undergoing rapid development and represent nearly untapped market for savvy retailers

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CVS Is Muy Serio About Engaging Hispanics George Anderson, Retail Wire, June 4, 2015

Use with Chapter 5, “Retail Market Strategy”

When a retail chain spans the entire United States, it needs to take the diversity of the clientele carefully into account. Even if everyone, regardless of their demographics, might need the offerings available in a convenience or drug store at some point, the way they want them will vary widely.

Accordingly, CVS has undertaken a new initiative to ensure it is serving Hispanic U.S. populations appropriately and effectively. It began by acquiring the largest Hispanic-owned drugstore chain, then moved forward by remodeling stores in Hispanic-dominant markets such as Miami.

In accordance with these developments, CVS has announced it will start testing a new “CVC/pharmacy y mas” concept. In focal stores, all staff will be bilingual, and the shelves will stock brands familiar to Hispanic consumers, including Café la Llave, Creolina, Agustin Reyes, Suavitel, and Fabuloso. Cuban coffee will be brewed and served every day. In addition, stores that manifest the concept will provide a larger proportion of value- and family-sized products, along with competitive pricing positions.

Discussion Questions:

1. What is CVS doing to attract Hispanic customers? The new concept seeks to appeal to Hispanic customers by making it easier for them to complete their shopping tasks, such as by providing in-store staff who speak both Spanish and English. It also reflects Hispanic consumers’ preferences, such as their substantial consumption of Cuban-style coffee.

2. What are the advantages and disadvantages of this strategy? If Spanish-speaking consumers find the initiative appealing, because it helps them get information about their prescriptions and over-the-counter medication more easily, it may be a popular option. However, even as it is embracing diversity, CVS is assuming that the Hispanic market is homogeneous, which is problematic. Not all Spanish-speaking consumers are Cuban for example, and people whose ancestors came from other nations might have little interest in Cuban coffee in the middle of the afternoon.

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The Sephora Effect: How the Cosmetics Retailer Transformed the Beauty Industry Sarah Halzack, Washington Post, March 9, 2015

Use with Chapter 5, “Retail Market Strategy,” and Chapter 18, “Customer Service”

There once was a gap in the cosmetics retail market. Shoppers could grab inexpensive, questionable quality products at their local drugstore or grocer, or they could visit the high-end counters in department stores to purchase expensive, exclusive cosmetic brands. But that gap has rapidly and effectively been filled by specialty beauty brands such as Sephora and Ulta.

In dedicated stores, usually located conveniently in local shopping centers or malls, Ulta and Sephora create in-store experiences that allow consumers to play with the products. The products on their shelves range from private-label to trendy national brands, and the store designs are hip and fun.

As a result, these retail options appeal greatly to millennials, who tend to exhibit little brand loyalty. By visiting a Sephora or Ulta, they can review various options, without having to visit separate stores or counters. They also enjoy the potential of finding a unique, cutting-edge product that no one else is wearing; the stores’ assortment strategies explicitly seek to stock lesser known brands and items. The “treasure hunt” experience created by these stores thus allows young beauty consumers to have fun in the process. Most of them have watched bloggers apply various make-up styles or read reviews of

different products online, so they feel self-sufficient enough to search and try the cosmetics on their own.

As a result of these compelling appeals, both these brands have enjoyed remarkable growth rates. At Ulta, that has meant tripling the number of its stores since 2007, increasing its single-quarter profits by up to 30 percent, and growing its revenues by 21 percent. For Sephora, which is owned by the luxury French conglomerate LVMH, the numbers are a little harder to discern. Still the brand operates almost 1,800 stores worldwide, 360 of them in North America. It also plans to create an “Innovation Lab” that will be tasked with developing new in-store and e-commerce technologies to ensure its continued growth.

In response to these developments, many drugstore chains have sought to make their cosmetics offerings more appealing as well, using better lighting, more sophisticated displays, and increased tester options.

In the department store channel, JCPenney even has acknowledged Sephora’s dominance, entering into an agreement to located more than 400 Sephora “store-within-a-store” operations in its outposts. Similarly, Macy’s acquired a brand called Bluemercury, a chain that runs dozens of spas and specialty stores, seemingly to compete more effectively and directly with Sephora and Ulta. It represents the first time Macy’s has undergone such a massive acquisition in decades, suggesting that it is taking these market shifts very seriously.

Discussion Questions: 1. Why are Sephora and Ulta so successful?

The success of these chains reflects their unique and dedicated appeal to modern consumers, who want to try out their cosmetics in an interesting, fun environment and who do not want to be tied to any single brand.

2. Which retailers are their primary competitors? Drugstore offerings and make-up counters in department stores remain well-established channels for selling cosmetics, so they continue to compete. In addition, Ulta and Sephora must compete with each other.

3. Should other competitors “stay the course,” or should they copy Sephora and Ulta? Justify your answer. They likely need to find a middle ground between these options. That is, drugstores cannot become dedicated cosmetic retailers, but they can improve the environment surrounding the aisles in which they sell cosmetic products. They already carry multiple brands, but they might want to expand their ranges to feature lesser known or cutting-edge brands. The cosmetic counters in department stores would have a harder time transitioning, because they currently are dedicated to unique brands and explicitly adopt a high-end positioning. In this case, they might be better off to “stay the course” and seek to expand their sales among shoppers who already visit the counters.

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Apple to Push Customers from Its Stores to Its Site Matthew Stern, Retail Wire, April 10, 2015

Use with Chapter 18, “Customer Service”

Apple fans who have made new product launches not-to-be-missed events—dedicating hours and even days to wait in line to be among the first to obtain the latest offering—may need to find some new uses for their time. In particular for the launch of the Apple Watch, the company explicitly aimed to encourage consumers to order online, rather than visit stores on the release date.

With this sort of launch, Apple ensures that everyone who wants a new product gets it, even if not immediately. Consumers who order online receive confirmation and a promised delivery date, avoiding the frustration that some shoppers expressed when they waited in line for hours, only to find that the store had run out of stock. Furthermore, Apple can gauge interest better, especially if consumers are willing to pre-order prior to the official launch date. With such data, the company can better forecast its sales and production needs.

Accordingly, the company has informed sales staff that they should encourage shoppers to visit the website to place orders for their tech equipment. With this approach, Apple seemingly is prioritizing getting products to consumers when they want them, rather than earning ever more press and attention focused on long lines and sold-out inventory.

Discussion Questions:

1. Why is Apple diverting customers to the web?

The goal of this shift seemingly is to ensure customers can obtain the products they want. 2. What are the advantages and disadvantages of such a move?

When customers get what they want, they generally are more pleased and less frustrated. However, some shoppers seem to enjoy the festive atmosphere surrounding new product launches, so Apple might be losing some of the experiential value it previously has provided fans. It also does not receive all the free press that has gone along with prior product launches.

3. Do you believe it was a good move? Maybe. It seems as if getting products in consumers’ hands is a good thing, and Apple already has such strong name recognition that perhaps it doesn’t really need any more reports about how long people are willing to wait for its products. However, it might want to continue encouraging the festive atmosphere surrounding launches for some of its products, so that people who love to be first can enjoy that experience too.

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For Publix, Success Comes Down to Its Owners George Anderson, Retail Wire, May 13, 2015

Use with Chapter 9, “Human Resource Management”

At Publix, a regional grocery store chain that started in Florida and is prominent throughout the southeastern United States, a key differentiator is its ownership structure. That might seem like a strange thing to use as a strategic advantage, considering that grocery shoppers are unlikely to take the time to think about who owns the store where they pick up their milk and bread. But according to the company’s CEO, because employees account for a substantial portion of ownership shares—around 30 percent of the total shares available—the owners are what makes Publix different from any other chain.

In particular, the CEO cites the improved service that employees provide, because they have “skin in the game.” This effect has been in place since the start of the firm. Its original founder believed that employees would be more conscientious and careful in their work if they could also earn profits from improved store performance. As a result, Publix frequently appears in lists of the best places to work; one survey showed that 78 percent of its employees would recommend it as an employer.

These positive reviews affect the stores’ performance in the consumer market too. In various polls, it ranks as the best grocer in the south, as well as second in the nation, behind only Trader Joe’s. Thus it appears that the founder was right: Giving employees a vested interest in the company’s performance leads to better performance, both at the bottom line and in the store aisles.

Discussion Questions: 1. How important is employee ownership to Publix? Very important. Because employees own such a substantial stake in the company, they evidently work to make sure their stores, and thus the chain overall, succeed by providing excellent customer service.

2. Is Publix a special case or do you think employee-owned companies are always stronger than those not owned by workers? I think that employee ownership would be beneficial in a lot of settings, especially retail. In some sectors, it might not work, but this benefit helps employees feel connected to their employer. In addition to motivating them with the promise of better returns on their investment, this connection likely gives them a sense of pride and ownership that should translate into more dedicated performance.

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The Latest Fashion, Trending on Google Hiroko Tabuchi, The New York Times, April 26, 2015

Use with Chapter 13, “Buying Merchandise”

Considering that users rely on Google to provide them with information about virtually any topic, it should come as no surprise that Google continues to expand the reach and promise of its predictive analytics. A recent option seems like a perfect match, because of its rapidly changing markets. That is, these days, Google is predicting fashion.

In a recently released report for example, Google noted that no one is into string bikinis anymore, and skinny jeans are on their way out. But palazzo pants and tulle skirts are starting to be the focus of more shoppers’ searches, suggesting they are the next big things.

The reports go into more depth than just citing what’s hot and what’s not though. In line with its ambition to transform into an e-commerce site, rather than just a search engine, Google offers insights into which trends suggest sustained growth (e.g., tulle skirts, jogger pants), which ones are temporary trends (e.g., emoji shirts), which ones exhibit seasonal growth each year (e.g., white jumpsuits), and which fashions are just plain done (e.g., peplum jackets, scarf vests).

In addition to biannual summary reports, which it will issue for free to retailers, Google sells its analytics capabilities to fashion firms, providing them with real-time insights into search trends. These firms in turn can forecast demand, predict required inventory levels, and enhance their supply chain operations. For example, fast fashion retailers might note a recently emerging trend in Google searches, then make sure to have those items in stores within weeks to get ahead of the trend and maintain their image as fashion destinations.

Google’s approach also can break down the trends by geographical region, thus alerting smaller retailers about what their local clientele want. In one example, Google showed that searches for white jumpsuits increased in the area around Jackson, Mississippi, in May, soon after a local stylist had held a big fashion show touting the items as functional alternatives to dresses. Then Solange Knowles wore a jumpsuit as she rode a bicycle to her wedding in New Orleans, prompting even more searches among southern fashionistas. Only thereafter did the trend spread throughout the United States.

The current round of analytics focus on clothing fashion, but they certainly are not limited to that market. Thus, in addition to selling the services to interested companies, Google can promote itself as a premier advertising channel. Imagine if Google can identify the newest trends in dining room furniture, based on the searches it receives. Then it can turn to furniture manufacturers and retailers, offering evidence that their latest styles are already of interest (or not) to shoppers who are looking for those items. Such an appeal makes it nearly impossible for the advertiser to miss the value of advertising on Google.

Other companies have attempted similar analytical approaches; IBM predicted the emergence of the steampunk movement several months before hipsters wearing top hats and corsets were a common sight. In addition, Spotify’s essential business model helps musicians track the popularity of their songs in virtually real time.

But Google has an advantage in this market, because of its ubiquity in consumers’ searches for information. It gathers more data than virtually any other company, which implies that it knows more about consumers too. However, some observers argue that this ubiquity might be a detriment to the accuracy of Google’s predictions. People might search for “palazzo pants” because they want to investigate and buy the fashion—or they could simply be confused about what palazzo pants are and run a search to figure out what the term means, with no intentions of ever wearing them.

Discussion Question:

1. How can retailers use Google to predict new fashion trends? With the biannual reports, fashion retailers can see what general trends are emerging, or declining, and make their inventory choices accordingly. For example, if Google says skinny jeans are out, and a retailer still has a huge stock of these items, it can determine that it likely should put them on sale sooner rather than later. In addition, retailers willing to pay for more detailed analytics could gain insights into regional trends and how they should designate inventory to different stores across the country.

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Whole Foods Calls the Shots for Startups Annie Gasparro and Leslie Josephs, The Wall Street Journal, May 7, 2015

Use with Chapter 13, “Buying Merchandise”

For producers of organic and natural food products, getting on to the shelves of Whole Foods’ national chain of stores seems like a dream come true. They can go from small batches to extensive production, gaining assistance and insights from Whole Foods’ buyers and extensive market knowledge.

But that dream also has a cost. In particular, Whole Foods maintains a long list of prohibited ingredients. Thus even if a product is natural in all other respects, if it contains any bleached flour, it will not make the Whole Foods grade. In addition, it requires any companies that claim to be organic to undergo the formal certification process, so that their product packaging may host the organic certification label. Such processes can cost tens of thousands of dollars, depending on the product and practices of the company.

Other changes demanded by the retailer are specific to its interactions with a supplier. For example, it strongly recommended that an ice cream brand change the cursive font on the packaging to block type, warning that millennial consumers would be unable to read cursive writing. It has asked suppliers to develop new versions or flavors of their products, and it has encouraged some small firms to change their names to ensure greater appeal among Whole Foods’ vast market.

Another requirement might create troubling issues over time: Whole Foods often requires suppliers to sign exclusive agreements, such that they promise to sell their products only in its stores. If the products catch on though, other retailers will quickly come calling, hoping to stock some of the popular items in their stores too. The exclusivity agreement then can come to seem limiting, in that the supplier cannot diversify its supply channels. If, following the expiration of these contracts, brands get really big, they also run the risk that Whole Foods will drop them, as insufficiently protective of its differentiated image. That is what happened to Chobani yogurt, which gained great popularity through Whole Foods but then found itself dropped from shelves once it became just another product that consumers could find in virtually any grocery store.

Yet together with these requirements and demands, Whole Foods often provides invaluable support for its small, young suppliers. It offers marketing assistance, facilitates ingredient sourcing, provides sales forecasts, and even issues low interest loans to help the companies scale up their production.

Discussion Questions:

1. What do some small start-ups have to do to sell to Whole Foods? In some cases, they are required to change their ingredients or their packaging. They also might have to pursue organic certification, and they often must agree to sign exclusive agreements, such that only Whole Foods may carry their products.

2. Is it worth it? For most suppliers, absolutely! In addition to its stringent demands, Whole Foods offers invaluable assistance. Furthermore, it is renowned as the place to find high quality, organic, and innovative food products. If a supplier can gain entry into Whole Foods, it can access a national market of interested consumers and other retail chains.

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Abercrombie & Fitch Dials Back The Sex Suzanne Kapner and Joann S. Lublin, The Wall Street Journal, April 24, 2015

Use with Chapter 5, “Retail Market Strategy”

The bell has been tolling for a while for Abercrombie & Fitch. For years, observers have noted its dwindling sales, struggling image, and legal challenges. Finally, the clothing retailer has determined to redefine itself. But the question is what that redefinition ultimately will mean for the beleaguered firm.

Criticized for its focus on appearances, including its insistence on hiring sales staff who reflected a certain standard in their body type and physical features, Abercrombie & Fitch now has promised to alter its personnel practices. For example, rather than referring to in-store staffers as “Models,” it will call them “Brand Representatives” henceforward.

Faced with complaints from parents that its marketing was too overtly sexualized, it also has committed to minimizing the amount of nudity featured in its catalogs and direct mail, as well as on advertisements on store walls. The models on shopping bags and gift cards also will be fully clothed from now on.

Noting trends toward greater individuality, and away from brand logos emblazoned on clothing, Abercrombie & Fitch and its sister brand Hollister will start stocking more standard fare, without any evident brand logos.

After hearing from consumers that they were tired of dark, perfume-laden stores, where tree branch decorations blocked clothing displays, the retailer has turned up the lights, turned down the scent machines, and removed the trees.

But even as it promises all these changes, observers wonder how it will set itself apart. Without the huge “A&F” logo, what makes its sweatshirts any more appealing than a similar offering from another retailer? Without nearly naked models, how can Abercrombie & Fitch promote its cutting-edge, risky image?

There likely are good answers to these questions. Unfortunately though, it does not appear as if the retailer has found them yet. Its sales continue to decline, even after the announcements and implementation of the radical changes. According to one branding expert, “They are going to turn up the lights and put shirts on the dudes, but there is no accompanying story.” Although executives with Abercrombie & Fitch and Hollister insist that their brands remain strong, consumers seem uncertain about what that means. Can brands really be iconic if no one recognizes the icon anymore?

Discussion Questions:

1. How is Abercrombie & Fitch changing its strategy? The company is eliminating many of the edgy elements that previously have set it apart, such as its dark stores, nearly naked models, and heavy use of scent in stores. 2. What are the advantages and disadvantages of such a change? Some changes clearly are necessary, because the things that were working a few years ago are no longer working among the latest cohort of consumers. However, by making such radical changes, Abercrombie & Fitch risks losing its distinct brand identity. 3. Do you believe the changes will be positive for the firm?

They might help in the short term, because people who used to love Abercrombie & Fitch but got tired of big logos, for example, might return to the more welcoming stores. However, over time, without a distinctive brand advantage, Abercrombie & Fitch will likely fall to competition from other companies that have established their positioning using other elements but that sell similar items. Top of Document

Organic Farmers Object to Whole Foods Rating System Stephanie Strom, The New York Times, June 12, 2015 Use with Chapter 13, “Buying Merchandise”

In an effort to help consumers make more informed choices, Whole Foods introduced its three-tiered Responsibly Grown program. Using various criteria related to production methods, sustainability, and labor polities, it assigns points to each shipment of produce it receives. Depending on the points earned, the vegetables and fruit then get ranked “good,” “better,” or “best.”

The program seems relatively simple for consumers, which is purposeful. The straightforward classification into just three tiers means that they can easily determine the quality of various options—as guaranteed by Whole Foods—and decide which one matches their preferences. It also enables Whole Foods to price its products with more differentiation, charging higher prices for the “best” options.

However, for many of the suppliers that sell their products to Whole Foods, the system adds substantial and seemingly unnecessary complexity that can undercut the very value they seek to offer. In particular, organic suppliers complain that Responsibly Grown can make all their efforts to attain organic certification worthless. The reason for their complaints stems from the different standards applied for organic certification versus the Responsibly Grown criteria. Whereas being organic automatically earns a supplier 78 points (and 220 points are required for a “best” rating) in Whole Foods new system, Responsibly Grown also takes factors into account that fall outside the requirements for being certified organic. For example, Whole Foods assigns points when farmers use alternative energy sources, recycle waste, designate some of their

fields as conservation areas, or reduce their water consumption.

As a result of these standards, it is possible for a conventional farmer, using pesticides, to earn a higher ranking than an organic farmer that avoids them completely. According to many organic farmers that have long-standing relationships with Whole Foods, such a possibility is both absurd and damaging to their business. Their surprise and dismay is particular strong because it is Whole Foods imposing the new criteria. They are unhappy that the retailer that has been largely responsible for the boom in the organic market is taking this position. In a letter that a group of organic farmers sent to Whole Foods, protesting the program, they noted, “Whole Foods has done so much to help educate consumers about the advantages of eating an organic diet. This new rating program undermines, to a great degree, that effort.”

At the same time, the vast growth in the organic market overall implies that Whole Foods might not be the only channel that farmers can use to get their organic products to consumers. Already, Costco has outpaced Whole Foods as the largest seller of organic foods, and Walmart has committed to increasing its stocks of such products. Discussion Questions: 1. What is Whole Foods’ new rating system all about? With its Responsibly Grown program, Whole Foods seeks to make it easier for consumers to decide what kind of produce they want, at what level of quality, and for what price. The simple categorization means that consumers do not have to weigh all the traits of the products themselves. It also allows the retailer to charge differentiated prices.

2. What are the advantages and disadvantages of this system from the perspective of the suppliers, customers, and Whole Foods? For suppliers, the Responsibly Grown program provides a new way to highlight their product quality. If they can earn a “best” ranking, they likely sell more of their production, at a higher price. However, the program also comes in conflict in some areas with organic standards, such that some farmers who have devoted substantial effort to earn organic certification might find themselves ranked relatively poorly in the new program. For consumers, the system offers an easy decision heuristic. However, it might be a little too easy. For example, a consumer might assume that a product ranked “best” would have to be organic, whereas that is not necessarily true. Finally, for Whole Foods, the program offers many benefits, including the abilities to charge higher prices and encourage suppliers to provide it with higher quality produce. The risk it runs is if enough organic farmers get frustrated with its policy and therefore decide to sell their valuable produce through other retail channels. Further, sales of products that do not receive the “best” ranking will suffer.

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Retail Tidbits Social Sites Move to Boost Retail Sales Matthew Stern, Retail Wire, June 5, 2015

After years of watching users express their deep desire to purchase and obtain products highlighted on their sites, the social media powerhouses Pinterest and Instagram are adopting new initiatives to facilitate those transactions. Whether the moves will lead to actual profits for the sites remains unclear though. Both Instagram and Pinterest soon will host “buy buttons” that will enable users to click on a featured post or picture to initiate a sales process. On Instagram, the button is similar in function to the Facebook buy button. That is, advertisers on the sites may include buy buttons in their ads. When users click, the button links them to an external website where they can complete their purchase. The process is a little different on Pinterest. The presence of “buyable” pins signals to users that they may click on the link, to receive detailed information about available colors, sizes, and other information. If they choose to purchase, the order goes directly to the merchant, without ever taking the user off the Pinterest site. Such functionality seems likely to be successful; in a recent survey, 93 percent of Pintrest users—or pinners—noted that they would like to use the site to make their purchases. However, these links are unpaid thus far, so Pinterest will not earn any revenues on the transaction.

Amazon Rolls Out Free Same-Day Delivery Tom Ryan, Retail Wire, May 29, 2015 See also Walmart Plans to Test Unlimited Shipping Service, Associated Press, May 13, 2015

Because next-day delivery is old news, Amazon has initiated same-day delivery in 14 major markets, though the service is free only for Prime members when they spend at least $35 on their orders. If non-Prime members want the items the same day, they pay $9.98; if Prime members need a small order immediately, the service costs $5.99 per order. Along with the membership and price requirements, Amazon needs the orders placed by noon and guarantees to provide the items by 9:00 that evening. Not all products can ship this way either. Those available for same-day delivery are marked by a “Prime Free Same-Day” logo on their product page on the retail website, which also allows consumers to filter their searches according to this availability. These moves signal the ever increasing effort to speed up deliveries and thereby overcome a key consumer frustration with online purchases, namely, when they have to wait several days to obtain their desired item. Thus Amazon also is testing one-hour delivery services in six markets and grocery deliveries in four metropolitan areas. Simultaneously, retail competitors such as Walmart and Google are testing their own same-day delivery services. Walmart also announced that its shipping service, guaranteeing deliver within three days, would cost subscribers $50 annually, about half the cost of an Amazon Prime membership. Even entities outside the traditional retail industry, such as Uber and Postmates, are considering how they can leverage their resources to provide inexpensive product delivery services to consumers.

Nordstrom Kicks Its Omnichannel Strategy to the Curb George Anderson, Retail Wire, May 5, 2015 In its ongoing effort to make shopping more convenient, the retail powerhouse Nordstrom has expanded into curbside pickup services for orders placed online, as well as for completed alterations. Whereas in the past, shoppers who needed their pants hemmed or their jackets taken in had to come into the store multiple times—once to select the clothing, possibly again to be fitted by the tailor, and then a third time to retrieve their altered items—today they can eliminate at least one of these steps. They pull up outside the store, call or text a dedicated number, and simply wait to have their newly altered clothes hung directly in the car. In about 20 test markets, Nordstrom also promises that online orders will be ready in about an hour. Whether an online order or an alteration, the store gives customers the ability to contact in-store employees to announce that they have arrived, so that staffers know when to head out the doors with the pickup items. Together with its flagship store remodeling efforts, Nordstrom thus is seeking to differentiate itself as not just the store retailer of choice but the preferred option across every channel.

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Retailers Suffer the High Cost of Overstocks and Out-of-Stocks Tom Ryan, Retail Wire, May 15, 2015

A recent study puts an actual number on the widely assumed damage caused by poor inventory management: $1.1 trillion globally. Whereas overstocking accounts for about 3.2 percent of lost retail revenue, out-of-stock events are even more costly, making up 4.1 percent of annual revenue losses. Five main factors lead to these staggering costs: (1) insufficient processes, which create gaps in the supply chain; (2) personnel issues, including poor training, laziness, and fraud; (3) data concerns, such as when retailers fail to measure stock levels properly or do not share information widely enough; (4) supplier issues, whether they fail to deliver on time or send too much of a particular product; and (5) theft. The solutions to these issues, from better training to improved system management, may seem easy to identify, yet they also demand a clear understanding of what causes inventory imbalances, which means that retailers constantly need to gather more data and improve their business intelligence.

Target Puts Some Food Suppliers on the Back Burner Paul Ziobro, The Wall Street Journal, May 18, 2015

In its ongoing effort to distinguish itself from its main competitor Walmart, Target is reinventing its product segmentation, targeting plan, and promotional schedule. The result for some well-known partners of the retail chain is the threat of a lot less support. By pursuing “demanding enthusiasts” as a primary market, Target seeks to appeal to these young, multicultural, city dwellers with more organic and healthy options, as well as smaller package sizes. As a result, some big consumer goods companies, such as Kellogg, Campbell Soup, and General Mills, can look forward to fewer promotional displays featuring multipacks of their cereal or condensed soup products. The moves come in tandem with Target’s new three-tier, in-store segmentation of products as signature (the categories and products for which it is known), outperform (midrange items), and perform (basic goods, including most consumer packaged items). In addition, Target plans to expand its private-label options, suggesting that soon, there will be little room left on the shelves for some of its longest running supply chain partners.

Ahold-Delhaize Deal Would Create One of Largest Grocery Chains in U.S. Stephanie Strom and Chad Bray, The New York Times, June 24, 2015

In a signal of just how weak the growth of the grocery sector has been, two of the largest international chains have announced their proposed merger. The Dutch Ahold company, which owns Hannaford, Stop & Shop, and Giant stores, plans to collaborate with the Belgian Delhaize Group, which is the parent company for Food Lion. The planned merger ideally would improve economies of scale and scope and help the combined entity compete better against other large chains, such as Safeway and Albertson’s. It also represents a likely response to relatively newer and more diverse forms of competition, from private-label grocers such as Aldi and Trader Joe’s, to online grocery ordering options, to dollar and convenience stores, to high-end and organic-oriented grocers such as Whole Foods. In such competitive settings, profit margins tend to be tiny, and expanding market share is particularly difficult. Rather than increasing sales, the merger thus aims to cut costs and enable the survival of all the involved parties.

Walmart Pushes for Improved Animal Welfare Stephanie Strom, The New York Times, May 22, 2015

When Walmart makes a change, for good or ill, the effects are felt throughout the world. Fortunately for the global society, many of its recent changes reflect a socially responsible standard that modern consumers increasingly demand. For example, the retailer recently issued standards for livestock producers that sell to its stores, covering the appropriate living conditions for pigs, cows, and chickens, as well as the preferred reporting norms about the uses of antibiotics when raising livestock for human consumption. Although the standards are voluntary at this point, Walmart notes that it has always started by issuing voluntary standards that it hopes suppliers will meet. In doing so, it gives them some room to institute the changes, ensures a positive relationship between the supplier and the retailer, and still ultimately results in the desired changes taking place. These standards are coming along at a time that many brands and companies are seeking to guarantee food safety and the ethical treatment of livestock, such as Tyson Chicken’s announcement that it would stop using antibiotics that also can be used by humans in its production lines. The basis for Walmart’s new standards were the “five freedoms” that a now defunct nonprofit group published several years ago. Accordingly animal welfare groups have widely praised the move, calling it a “step in the right direction.”

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