Lairig Marketing

JC Penney Earnings Call – He Said. She (Didn’t) Said.

Back in mid-February, Lairig Marketing examined the “extreme J.C. Penney makeover” plans announced by new CEO Ron Johnson, ex-Apple Store genius (get it?!?!). We raised three issues:

- The new everyday-low approach wouldn’t make it past this Fall
- The idea of 100-stores-within-a-store seemed more Dhaka than Dallas
- Was there no end to Ellen Degeneres’ spokesperson dilution?

The J.C. Penney Q1-2012 earnings call transcript is hot off the press. It is a great read. And, sorry to use this line again…but the transcript ensures that we have another Harvard Business case study underway.

JCP’s Q1 results stunk on ice. The big story was traffic, off 10%. This was the main driver for an astounding drop of 18.9% year-over-year in same-store comps.

But here is something no one mentioned, and not a single Wall Street analyst asked during the Q&A. Online sales were down – what’s a bigger word than astounding? – nearly 28%.

Just like that. J.C. Penney dropped out of shoppers’ consideration set.

Johnson and team spoke at length about how his team was on the right track, but investors took JCP to the woodshed yesterday, giving it a 20% beating.

One question future MBAs will deal with: was Johnson right in starting the makeover with his new pricing scheme? No more sales. No more coupons.

The bigger issue we feel is how it was executed. The three tiers – everyday, month long, and best – aren’t exactly self-evident. On the call, Johnson fell not just a little on his sword regarding the confusion:

- “One of the thing we concluded…is that our marketing…is not doing the work it needs to communicate our pricing strategy…”
- “You will also note we started to put the compare [of month long prices] to our everyday.”
- “We now have TV supporting [our best price promotions].”
- “…in June, it will be the third time we have changed our point-of-sale signs [in stores].”

There’s a lot of fixing on the fly to undo the erroneous notion that retail customers will embrace a “simpler” pricing structure. Still, J.C. Penney execs don’t seem to feel they need anything akin to the old “$X off for all purchases over $Y” coupon to replace lost weekend traffic. Expect to see them revisit that misconception soon.

As for Ellen Degeneres? J.C. Penney wasted millions. She was used to explain new “fair and square” concepts like easy returns, full-dollar pricing (none of the $x.99 thing), and coupon-free shopping. None of these attempt to address the biggest problem – the confusing pricing tiers.

Ellen would be the worst person to do it, anyway. Imagine her trying to explain the difference between “everyday” and “best” pricing in her sing-songy A.D.H.D-ish stream-of-consciousness manner. Whose head would explode first – hers or the viewer’s?

As for the 100-stores-within-a-store strategy, Ron Johnson needs shoppers, and investors, to wait four years to see that come to fruition. Which, in the retail world, is equal to two eternities.

In the meantime, J.C. Penney will need to keep reaching into its rabbit hat.

Jim Beam Branding – Something To Toast

For a long time, Fortune Brands served as an excellent example of a “House of Brands” – a company with no rhyme or reason from a marketing perspective. Fortune was a company with well-known but disparate brands like Titleist, Moen, and Jim Beam.

Wall Street typically hates mashed-up conglomerates as much as good brand strategists do. They hated Fortune Brands. After severe hounding by activist investor/hedge fund manager Bill Ackman, Fortune sold the golf-related businesses and created a new company for the spirits side of the “house.”

And, for what it’s worth, Fortune Brands is STILL a classic house of brands. The newly and imaginatively named “Fortune Brands Home & Security” includes classics like Moen (obviously), Kitchen Craft and Master Lock. Nothing named “Fortune.”

But this story is about Jim Beam, and how, from both investor and marketer points of view, being on its own would let it achieve its full potential.

In theory at least.

You see, even though it renamed its business within Fortune Brands as, simply, Beam Worldwide way back in 2006, this wasn’t going to be a “Jim Beam-only” story.

Back then, Beam Worldwide was buying up companies left and right, across the entire spirits spectrum, among them Courvoisier, Maker’s Mark, Teachers, Cruzan (rum) and EFFEN (vodka).

As a stand-alone company, now Beam Inc., the acquisitions continue. Two weeks ago Beam announced it would add ANOTHER two brands – Pinnacle vodka and Calico Jack rum.

So, here we are again. Beam has become a house of brands. On steroids.

Should we hate it as much as we hated Fortune Brands? No.

Beam Inc. is laser focused on the categories it should be in (and knows where it shouldn’t be, selling off its wine business years ago). The many Beam brands might not have any direct synergies – for example, EFFEN marketing programs aren’t going to help Courvoisier’s sales one lick (!!!) – but the marketing best practices, passion, and operations can be leveraged across the entire portfolio.

This is a house of brands that will indeed be greater than the sum of its parts. So much so that today we add it to the Lairig Marketing Index.

Late as usual. BEAM has already run straight up 50% since its October “relaunch.” (And we are down already 0.5% for today, due to the stock market’s once-a-week “Greek spasm.”) But that shows how confident we are.

There is much more potential value in and across Beam to “unlock,” as investors say. You can drink to that.

It’s “National Pat Yourself On The Back” Day

We interrupt our short series on the near-term direction of the U.S. economy (see part 1 here and part 2 here) to highlight a big story from yesterday’s business press.

You might have heard that Best Buy plans to:
- close 50 of its big-box stores
- cut 400 corporate jobs
- open 100 more mobile-only stores

Most important was this decision:
“Best Buy will be deploying…its new Connected Store format…remodeled big-box stores that focus on connections, services and multi-channel experience through a total transformation of both the store and the operating environment.”

Translation of that last line of corporate-speak = “out with the toasters, in with the focus on Interwebs stuff.”

So, why a pat on the back? In our most-read post ever, December 1, well before anyone could have known how Holiday Season 2011 would finish, and therefore what Best Buy management should do in 2012, we said this:

“This is not a marketing communications story, nor a ‘branding’ story…This is one of those big ‘P’ stories – ‘Place' and ‘Product.’ Best Buy is spread way too thin in both for focused growth in sales and operating profit.”

Place and Product. Exactly what Best Buy management is going to fix. And not a single mention in its new plan of any branding, marketing, or social media communications.

By December, of course, just about anyone could have pointed out Best Buy’s problems. And many business journalists did, as well as pi**ed off customers who flamed the comments section of any article about Best Buy.

But we humbly believe Lairig Marketing was the only one to (A) look at Best Buy from a business/financial perspective (as well as a marketing one, of course) and (B) prescribe a strategic solution, and (C) have it match what Best Buy announced yesterday.

Show us Seth Godin’s Best Buy post.

Show us Guy Kawasaki’s Best Buy post. Or tweet. Or “speaking engagement.”

Exactly.

Time to go pick up a Mega Million ticket…

The Apple Of JC Penney’s Eye ?

The set-up to this story is pretty well known, so let’s summarize quickly:

The genius (get it ?!?!?) behind the Apple Store concept and execution, Ron Johnson, took the CEO role at J.C. Penney in November. Two months later he announced a complete business overhaul. The requisite change-of-logo and new brand theme.

Plus the requisite appointment of Ellen Degeneres as J.C. Penney spokesperson, making this her 428th company among the S&P 500 for which she holds such a role (that assumes she doesn’t sign on with Deere & Co. before this post gets, um, posted).

The real deal came in CEO Ron Johnson’s focus on merchandising, including pricing. Turning into “Fair and Square” and “Your Favorite Store” will be driven mainly via:

• A simplified pricing structure
• A massive store-within-a-store transformation

A critical component of the three-pronged pricing strategy is the elimination of deep-discount sales. Instead – *drum roll* – everyday low pricing. We’ve seen this “EDL” movie before. About a hundred times. It doesn’t end well. See Walmart. Several times.

Two-to-one odds JCP “modifies” its everyday-low approach by late September/early October 2012.

Much more problematic will be the retail renovations. From several of the media mentions of the new JCP comes this: “The company also plans to install 100 mini-shops in each location…” A hundred?

First, from a branding standpoint. Apple didn’t have to do any “brand” marketing these past several years. Instead, the sum of a TON of product marketing for iMacs and iPods and iPhones and iPads yielded a 1 + 1 + 1 + 1 = a zillion effect.

The sum of 100 stores-within-a-J.C.Penney-store will equal brand chaos.

Second, from an experience standpoint. Walking into an Apple store is akin to chancing upon a goat rodeo. But with infinite newly built space, walls of glass, brushed stainless, and handsome wood, it turns out to be a cool and innovative goat rodeo.

J.C. Penney doesn’t have the luxury of new space, or much time. How does J.C. Penney turn ONE HUNDRED stores-within-a-store into a branded experience, versus a “place to shop”?

And how can J.C. Penney make this perform like an Apple Store?

Instead of something like a Dhaka market.

JetBlue & Southwest Airlines – Little Brand Baggage

Compared to the so-called “six legacy carriers” (American, Continental, Delta, Northwest, United, US Airways), JetBlue and Southwest are miracle children. With American recently going Chapter 11, these two are the only other airlines of note who haven’t gone broke or been acquired by someone else.

(As an aside, isn’t it funny the legacy guys can, and will, only buy each other? Two years from now, will the six-now-four be down to two?)

Typical industry measures don’t help much in figuring out where JBLU’s and LUV’s success comes from. Southwest has the highest incidence rate of complaints. And JetBlue’s on-time arrival performance for 12 months through November 2011 was abysmal, third from the bottom.

Let’s look at a something else the U.S. DOT tracks: those niggling little baggage fees. For some airlines, they are neither niggling nor little (discuss amongst yourselves).

Number one on the list through the first three quarters of 2011 is Delta, pulling a cool $650 million in nuisance, er, baggage fees. Number two is American, where a baggage-fee income stream of nearly $450 million wasn’t enough to stay out of bankruptcy court.

Way down at #10 is JetBlue, a meager $47 million. Then Southwest (who, as you might recall, made this the centerpiece of its advertising a couple of years ago), at #14, with a measly $24 million.

On a percentage of revenue basis, this nonsense is important to Delta and American. The baggage fee income represents 2.5% of their total revenue. For JetBlue, just half that. And Southwest’s is basically a rounding error, representing 0.24% of revenue.

Travelers seemed to respond. Again for the period covering the first three quarters of 2011, JBLU flew 9% more passengers year-over-year, LUV 2.4% more (off a very high base).

Delta’s traffic? Flat. American? Flat.

For different reasons, each of these four airlines has pretty much stayed with a flat budget for advertising. American because, of course, it can’t afford it. (Strangely, six weeks before bankruptcy, AA had launched a new brand campaign.) Delta is still leaning on its tired 2009 “Climbing” rebrand.

Where are JetBlue and Southwest spending? On focused initiatives. For example, JetBlue is campaigning in Boston, targeting business travelers (a first). And Southwest is expanding its focus on the Hispanic segment.

Travelers don’t need the “brand spots” from JetBlue or Southwest now. They get what they stand for. Delta and American, however, are brands that stand for, um, nothing. Each will need to spend inefficiently forever and on.

Until either or both are bought out, and lose their legacy status.

Another Best Buy Bye-Bye – Black Friday ?

Before we begin today’s post, a quick update on our Super Bowl predictions if you are interested. We are, since we got them bang on.

The Giants won 21-17 versus our fairly close prediction of 29-23. Better than that, since this is after all a blog about marketing, we predicted this:

“Not having seen a single other ad yet, we predict that Americans will…rank [Doritos] ‘Slingshot Baby’ #1 in USA Today’s Super Bowl Ad Meter ratings.”

Do we need to tell you what happened? We’ll reveal how we knew the outcome in a later post.

But for now, back to the topic of our most widely read post ever (simply because we linked to it in the comments section of a Forbes article – sha-zam). Here’s the link in case you missed it.

In a nutshell, we said management at Best Buy would find out in early January that the 2011 holiday season was a disaster, Black Friday notwithstanding. And so it was.

After tiring themselves out backslapping each other for a Black Friday that was 7% better in sales than 2010’s, Best Buy management sat stunned watching the next five weeks unfold. On January 6th Best Buy announced a 0.4% DECLINE in same-store sales for December.

But check this out (and this will be the only place you will hear this): if you strip out the reported increase in online sales, then you are left with a Best Buy brick-and-mortar December comp-sales number of MINUS 1.94%. That is a long, long way down from a plus-7% for Black Friday.

So one prediction nailed – Best Buy’s Black Friday was simply December’s sales pulled forward.

Our other notion that discounting destroyed profitability won’t be confirmed for a while, until BBY’s next quarterly call. Management has put itself in the crosshairs, meanwhile, by assuring investors that profits will come in as planned. Hah.

This is of a piece with JC Penney’s recent announcement of a new pricing strategy (which we’ll review in a later post). The sharp tacks in retail are starting to admit that slashing prices doesn’t equate to consumer value.

So, who will be the first to opt out of Black Friday 2012? JC Penney because it wants to?

Or Best Buy, because it has to?

Capital None: Five Times Nothing Is Nothing

Jerry Stiller is a hoot. He could sell a Big Mac to a vegan. But he signed up for a pretty shady deal with Capital One last September.

If you live in an area with Capital One retail branches, you can’t miss the “5X” spots in which Stiller stars. The easy part here is exposing the bank’s borderline ethics.

First, Capital One states you will “always” earn five times the average national savings rate. That is a batch of bullsh&t. The interest percentage you will earn is set and fixed on day one, for a full 365 days. If the national average doubles six months from now, well, no soup for you.

Second, the fine print. You can get the “5X” rate for putting a measly $500 in your new Capital One checking account (note to existing Cap One customers – ha ha, thanks for being loyal, you can only get 1X). However, the fine print says if you don’t increase your daily balance to $5000 (that would be 10X, but would make for a lousy TV spot) within just two months, you instantly go from 5X to 1X.

This was a simple campaign for Cap One to create. Interest rates are near zero, and because of our excellent economy, aren’t going to rise significantly before this time next year.

So, if that was the easy part, what is everyone else missing?

That all this marketing by the few remaining large banks is wasted money. As we wrote during the $5 Bank of America fiasco, most Americans are married to their current bank due to laziness. That BofA blinked so fast on the debit card fee wins them the “Wussy Marketer Award” for 2011.

The CEOs of Citibank, JP Morgan Chase, Wells Fargo, and Capital One could huddle and agree to stop all marketing. It would devastate the ad industry, but the savings would drop directly into the CEOs’ fat wallets.

And nothing would change. New customers would still walk right in, basing their choice on branch proximity and ubiquity, and corporate scale (= false sense of security).

The best strategy for banks is the “Place” P. That’s why Chase and Citi are falling over themselves to make any deal for branch space in New York City’s Hell Kitchen, where 50-story apartment buildings are popping up like so many dandelions on a warm spring day. Trust me, when one of the banks reaches 11th Avenue, you will read about it in The New York Times.

Until then, we can enjoy the Jerry Stiller Capital One spots. They are 5X funnier than any ads the other guys run.

Is Best Buy’s Best Gone Bye?

The world must wait until the first week of the New Year to know if the “record” 2011 Black Friday results mean anything. Once all the holiday shopping has been accounted for, we will know this:

• Was Black Friday really just this week’s sales pulled up a few hours?
• Did Black Friday convince holdouts to buy like mad?
• Did Black Friday prove there is no recession?
• How the f&ck can retailers make a profit when everything is on sale?

Our best (pun?) tell will be Best Buy. There is no real national competitor of similar size and scope (take that, Circuit City!). And, since consumer electronics reportedly made up 50% of the Black Friday basket, then what better indicator of retail holiday fortune?

In case you haven’t been following Best Buy going into this shopping period, here are some things you should know, buried only one layer deep in its financial results.

Best Buy’s topline growth is the result of acquisitions. On a comp-sales basis, here are the past five years in reverse chronological order: minus 1.8%, 0.6%, minus 1.3%, 2.9%, 5.0%. If the economy wasn’t a factor for this past Black Friday, then it shouldn’t have been for the past three years either, no?

While you’re considering that, think about this also – the emergence of indirect competitors of every shape and size. Local brands like hhgregg, mass merchandisers like Walmart, online retailers like Amazon, and direct-to-consumer plays like Apple. Multiply by a million, and what do you get?

A company that continues to flatten itself with more and more acquisitions. Best Buy is even expanding into kitchens, for God’s sake (Sears, anyone?). In addition, a whole small business arm is growing with acquisitions of “managed servicers” like mindSHIFT (think of an adult Geek Squad).

Over five years, more than a 50% increase in number of stores. Yet only a 33% increase in square footage. Comp-store sales the past two quarters have been atrocious. The real kicker? Operating income as a percent of revenues – formally stuck at 4%, is now under 3%.

No shock then that Best Buy’s stock price, which had recovered nicely from the Lehman days, collapsed last holiday season, and is now around 50% below the year-ago level.

This is not a marketing communications story, nor a “branding” story. (And oh the irony that Best Buy has long been heralded as one of the best in social media marketing.) This is one of those big “P” stories – “Place” and “Product.” Best Buy is spread way too thin in both for focused growth in sales and operating profit.

Depending on what Best Buy management does after taking in the sobering holiday-season-2011 results come next January 7th or so, this will end up five years from now being the story of an ocean liner that was slowly turned in a better direction…

Or the story of a modern-day Titanic.

The Craft Beer Trend Has Already Been Canned !

The worst keep secrets in marketing are in the U.S. beer industry:

• American brewers are owned by foreigners
• Foreign beers are brewed in America
• Traditional beer brands are losing sales
• Craft beer sales are growing exponentially

Into this world of obvious, a “brewing” trend with a not-so-obvious outcome. A recent Denver Post article indicates that the idea of selling craft beer in cans – yes, in cans – might catch on.

To craft beer gourmands, this is sacrilege. But the brewers will tell these prigs that they aren’t the target.

The initial craft craze was actually years ago, on premise. The next obvious target was at-home drinkers, who wanted a package that evoked a more upscale environment (akin to a brew pub). Hence, bottles.

Would you next try and sell cans to that group? Foolhardy. Let’s look at two remaining segments, instead.

1) Beer drinkers who swear by cans, and swear at craft beer drinkers. They seem to love sub-par brews, and really really bad beer advertising. Target them with craft beer in a can? Fuhgeddaboudit.

2) Beer drinkers who find cans way more convenient at home, tailgating, picnics, etc. AND have tried an occasional craft beer at a bar. Because they don’t ever see craft in a can at retail, they go for Swill Light. Target this segment? Youbetcha.

Gaining consensus on targeting at such a high level is a critical step in marketing strategy, so simplistic that it is often overlooked. Message dilution and media waste result when brand managers haven’t made it clear who the target is.

Nine times out of ten, a nonstrategic marketer would go after Group #1 above, purely because it is such a large segment. But Group #2, although harder to find, is much more likely to be convinced to give “craft in a can” a try.

The bad news in all of this? We have many more years of really sh*tty “Group #1” beer advertising ahead of us.

Mayor Koch Moment #7 – How’m I Doin’?

With a month to go on this year’s blogging calendar, we’ll be hard-pressed to finish updating all of our December 2010 predictions for 2011. Today’s will be easy though, since we already tipped you off with this post about the “Netflix Summer of Hell.”

Here is the key excerpt from our 2010 prediction for July 2011:

“The financial press is awash in headlines like ‘Netflix: The Best Short Ever?’…”

Sumbitch. On July 13th (!!!) Netflix hit its all-time high, just short of $ 300. Since then it has taken a death-defying plunge, settling in around $ 85. That puts Lairig Marketing in the win column for the second month in a row, getting us to a record of 4-3 through July.

There is absolutely nothing more that can be said about Netflix, so let’s turn attention to DISH Network’s Blockbuster, who we said in this post had been handed a gift by Netflix.

DISH stamped “return to sender” on it. Quite a few times. Here are some “non-blockbusterish” examples:

DISH’s Summer Of Hell
Let’s compare net subscriber adds in Q3 for the country’s two satellite providers. DIRECTV finished with an astounding +327,000. DISH had net adds of -111,000 (guess you would call that net minuses).

DISH’s Blockbuster Movie Pass. Pass.
First thing DISH does is offer a streaming service to existing subscribers, only if they throw down an extra $ 10 a month. Second, it offers Movie Pass for free to new subs. Should have been the other way round. Each move by itself is beyond comprehension. Together they are beyond words.

DISH’s Cord Cutting
Today the cable trade sites were awash in a story that DISH has been asking several TV programmers and channels what it would cost to stream live TV. One would guess they tell DISH to go pound sand and/or that it will cost just as much to stream live TV as it does to ping it off a big-ass satellite in the sky.

Seems what one might call a “DISH spiral” is underway.