The lacklustre holiday season did not stop Macy’s, America’s largest department store chain, as it continues to grow. Macy’s scale and geographical presence allows it to build a successful e-commerce business while reducing inventory and payroll costs. On the other hand, the specialty retailer Neiman Marcus corners the luxury multi-brand segment of apparel retail while many fashion brands have either ventured into retail or have begun to build online retail platforms in an effort to bypass the middleman.
Neither big enough to reap economies of scale nor small enough to survive in a niche, the mid-tier, mid-sized retailer faces a challenge. As with all challenges approached rightly, it has the potential to be an opportunity.
Firstly, price cannot be the key driver of revenue nor the main competitive advantage. The mid-sized retailer does not have the same clout as Macy’s and cannot drive cost of goods sufficiently low enough to make a satisfactory margin after aggressive markdowns. Instead, it needs to generate interest in its product’s quality and focus on educating the customer. Take J Crew for example. The company has profited by building a brand based on a reasonable price-point and an attractive value proposition. Its aggressive campaign educates its customers on the quality of its products by highlighting the use of Italian fabrics or collaborations with specialized manufacturers. A mid-sized retailer could learn from J Crew by focusing more on quality and taste-driven products and then ensuring that customers associate the retailer’s reputation with well-priced quality through consistent marketing.
Given the moderate scale of its operations, the mid-sized retailer cannot successfully venture too far away from its core base. Belk, a mass department store chain based in the South, understands this and benefits from its incumbent position and its deep knowledge of the region. This goes beyond geography to encompass demographics as well. A mid-sized retailer must acquire a clear understanding of its customer base and seek to optimize its potential. For example, rather than seek to attract a younger demographic through a change in marketing or merchandising strategies – a strategy that carries real risk of alienating more affluent, older existing customers – a mid-sized retailer could explore ways to reach the same demographic through its existing customers. Instead of changing the fit of its dress shirts in a way that might alienate its core customer, such a retailer could mount a campaign to either sell a new fit online or to market the new fit as gifts.
This Goldlilocks approach to retailing requires the mid-sized retailer to adopt a number of new perspectives. The mid-sized retailer needs to be mindful that each door must offer goods specifically tailored to the taste and preference of its core customer base in the area. This calls for a decentralized buying approach where individual store buyers make decisions for each door. Rather than focussing all merchandising decisions at headquarters, the mid-sized retailer should concentrate on building and enforcing a comprehensive marketing and branding solution. This means that a customer should see different products in different regional stores but should experience the same level of customer service and quality assurance.
The mid-sized retailer should also rethink its private labels as brands unto themselves, representing the retailer’s values and not as an entry-level offering. Some of what I had previously written about private labels will apply here. Most importantly, the shift in emphasis from price to quality requires the mid-sized retailer to focus on the idea of premium goods as opposed to ‘affordable luxuries’. This is because premium goods offer a competitive benchmark that reflects a clear understanding of quality and establishes trust through authenticity. This, coupled with the exclusivity of private labels, provides a ready channel for customer engagement.
The mid-sized retailer should not be synonymous with mediocrity or ‘middle-of-the-way’ approaches. Nimbler than its heavyweight competitors yet having more resources than start-ups, the mid-sized retailer has real opportunities in our current economy.