Amazon vs Toys R Us: A Train Wreck Waiting To Happen

ToysrusToday's Wall Street Journal (subscription required) and Pittsburgh Post Gazette features a story on Amazon and Toys "R" Us, the high hopes they once had, and where they are now.

John Eyler, then CEO of Toys "R" Us, testified, "We are at a point in the relationship with Amazon where we have no trust whatsoever in dealing with this organization." If it sounds familiar, it should: it's a variation on the same refrain you used to hear from companies dealing with Microsoft, and more recently, Google. These companies have had, at different times in their maturation, a sense of "manifest destiny".

This is all well when you're only playing with yourself; but when you get others involved, it is important to understand how early naivete can lead to disillusionment. Versioning is a discipline well-understood in the technical world but particularly useful in cases like Toys "R" Us. Amazon, in my view, could have done a better job of illustrating the roadmap for its business partners, particularly in highlighting potential hurdles in years to come.

While candid discussions like that might have torpedoed some relationships they were attempting to build, I think those relationships would have been doomed in any case. Now, much of what Amazon has build into their retail services platform may have been based on the business logic of a partner profile that may never quite fit.

Versioning is something Microsoft does quite well. They spend a disproportionate amount of resources working with their partners, and while much of this effort gets pooh-poohed today, it was of tremendous use to companies like Starz when I worked with them in the mid-90s to contemplate their own future. Starz' early involvement with Microsoft gave it the insight to negotiate VOD and IPTV rights to films released by Sony Picture Entertainment and Disney, and perhaps more importantly, making it impossible for latecomers like Netflix to get the same access to content.

Investigating Gap's Decision To Remodel

Gap_logo_1The Gap has shut down its two most popular web sites prior to the Holiday season, causing headlines, presenting would-be shoppers with a none-too-friendly face, and potentially losing millions of dollars of sales.

Toby Lenk, head of Gap Inc. Direct (and longtime e-commerce pioneer, having started eToys), as one of the architects behind the change, could have chosen IBM, Blue Martini, or any number of companies to assist in the process. Instead, the year-long project was done entirely in-house, ensuring that any innovations are not easily shared with competitors. Lenk allowed that the change involved overhauling all the back-office systems used to track inventory and manage promotions.

Given that, look to Gap to have as least an eighteen-month lead over its competitors (primarily because this change was probably linked to Gap's recent store redesign). Reading between the lines, look to the software to provide Gap with the ability to leverage events in its brand new stores. Perhaps this will also lead to the issuance of actual Gap Inc. patents, which would help it eliminate unexpected payments - I believe Gap has already paid out millions of dollars - to intellectual property holders like Soverain Software LLC, who  have strong protection on basic shopping cart patents.

Inside New York's Restaurant Week

Timewarner_circle_1This next week marks the latest NYC "Restaurant Week" where restaurants all over the city offer a three-course lunch for $20.12 (and some even offer dinner for $35). Restaurant Week is a great opportunity to sample a restaurant that may usually be out of your budget.

Heather Cross of About.com (now owned by the New York Times) has compiled a great list of participating restaurants to visit. (Bummer - Masa isn't on the list.) I think restaurant reviews are a prime opportunity for blogs and as proof, here are great entries from NYC Eats, A Full BellyLuxist, and Gridskipper.

One way to size the New York restaurant business can be found in a recent Times article profiling Seamless Web, a restaurant ordering business that operates exclusively in Manhattan. The company made $50 million in revenue last year and CEO Jason Finger expects to reach $80 million in sales this year. The company currently serves more than 100,000 people and about 750 restaurants in New York, or about $67,000 in revenues per restaurant. Yowza.

Seamless Web wouldn't be the success it is without vigorous cooperation from city officials. That organization, NYC & Company has become arguably the best advocate of local businesses in the country. From launching a 311 service (like 911, but only if your emergency is finding a great place for dinner) to creating a Chief Marketing Officer position to find innovative ways to generate revenue without raising taxes, the organization has created examples that its fellow ShopAmerica members have emulated.

Link: NYC & Company's New York City Restaurant Week 2005

WiFi in Coffeehouses: Driving Traffic vs Driving Sales

CoffeehouseI wanted to mention a great article in the New York Times (registration required) on the impact of adding wireless access to coffeehouses. - and the competitive pressure to keep up with the Starbucks of the world. Victrola Café & Art has bucked the trend and has taken out not just their WiFi, but the power outlets as well.

Glenn Fleischman has an excellent article on the social issues that led to this change in policy. "Worse than just the sheer number of laptop users, is that many of these patrons will camp six to eight hours -- and not buy anything. This seemed astounding to me, but she said that it was typical, not unusual."

There are positive things that come out of having broadband access in a marketplace: faster credit card authorizations; cheaper telephone costs through VOIP; streaming video into the store, and so on. All of these great things are for naught if the sheer congestion of non-paying customers causes paying customers to stay away in droves.

Starbucks is trying to create a specific environment, a specific mood, a special place. Starbucks employees here in Denver have told me that they don't mind people coming into their stores just to use the WiFi, without purchasing a single item. This seems to be true in my conversations with Starbucks employees in other cities.

Filling seats can be well and good but there are hidden costs, in the form of congestion and parking. It seems to me that if you're going to put broadband into your venue, you need to have a very well thought out plan that uses Internet access to create incentives for incremental sales.

How People Search

GooglebuyingcycleSearch Engine Lowdown has a nice analysis of the recently published Millward Brown study on the importance of search in the process of purchasing business technology products.

While there are the usual research snippets - Adweek cites that more than half of the survey's respondents said they used search engines to research purchases - it is a reminder of how far search has come in its everyday utility for shopping.

Consider that the very notion of search has changed from Yahoo's original approach, to Google's spartan keyword analysis technology, to entirely new approaches such as the Swim Finder popularized by Lands' End (registration required).

Consumers want more from life, and the Internet has made it possible to accommodate just about any search type: even for real-sized women who just want a swim suit that makes them happy.

Just as the domination of I Love Lucy did not guarantee similar success in other television genres, I doubt Google's dominance with keywords will translate into control over all search.

Sydney Airport to Become a Lifestyle Center

SydneyThe Sydney Morning Herald reports the Federal Government yesterday approved controversial plans for the local airport to become a "business and leisure village." The plan calls for the addition of buildings that could hold hotels, cinemas, parking garages, and shops.

The Lord Mayor of Sydney, Clover Moore, thought this development would create a miniature city half the size of the Parramatta Central Business District. Westfield, one of the world's largest shopping center companies, is headquartered in Sydney.

Such airport developments are not uncommon. The Amsterdam Schiphol Airport has a shopping mall, hotels, athletic club and casino on premises. Here are the top 5 airports in the world, as ranked by UK-based Skytrax:

  1. Hong Kong International
  2. Changi International (Singapore)
  3. Incheon Airport (Seoul, Korea)
  4. Munich Airport (Germany)
  5. Kansai International (Japan)

In the survey, Minneapolis-St. Paul ranked #20 in the survey and #1 in North America. The survey is based on 31 criteria, including airport access, public transit availability, terminal comfort, ambience and cleanliness, immigration wait times and service, terminal signage, friendliness and language skills of airport staff, ease of connections, entertainment, shopping and dining options, and Internet options. It does not measure elements like on-time performance, lost baggage or customer complaints.

What's A CEO Worth? Inside Terry Lundgren's 2004 Bonus

Terry_lundgren_2Many observers are chagrined at the $3.7 million payout that was approved for Federated CEO Terry Lundgren, especially rank-and-file managers. The question is whether Lundgren's affordable luxury strategy has benefited Federated shareholders, and if so, whether the board was justified in granting the $2.5 million bonus (in addition to Lundgren's salary increase from $1.1 million to $1.2 million).

With Sarbanes-Oxley on deck and after several years of underwater options, there are fewer incentives for CEOs to add value to the organization. It falls on the board's shoulders to ensure that the CEO compensation is competitive relative to their performance, and it is up to the shareholders to ensure that the board is doing their job. And in this case, both the board and the market seem to have voted in Lundgren's favor.  Lundgren's salary is less than James Zimmerman, his predecessor, and comparable to peer CEOs at retailers that generated at least $5 billion in sales last year.

RetailWire's Michael Banks provides perspective on the difference in value between the lowest and highest paid employees in a retail company (or any company): A $15 billion department store chain with 450 stores averages about $500 in sales per hour per associate (open 12 hrs/day, 15 associates/store). An associate earning $20/hr has sales responsibility for a multiple of 25x their hourly wage ($500 divided by $20 = 25). That's a measurement of their impact on, and value to, the business.

If the CEO at this same, $15 billion department store chain has a total, annual compensation package of $3.7 million, their multiple is 4,054x ($15 billion divided by $3.7 million = 4,054), or their value to the business is about 162 times greater than the associate's.

The Increasingly Elusive Teen

HomemadesimpleIt's getting increasingly hard to market to teens.

David Card just released some insights from Jupiter Research's new report of teens. In a nutshell, the Internet isn't really all that when it comes to influencing teens. TV remains a powerful influencer of the estimated 29% of the teenage audience that guides the purchases of their friends and family. Teen word of mouth remains the top motivator and not all of the media in the world is going to change that.

I compared teen-oriented buzz marketing site Tremor.com versus HomeMadeSimple.com, a site sponsored by Bounty, Cascade, and a bevy of other favorite home brands. The graph to the right shows the predictability of HomeMadeSimple on a month-in, month-out basis ... and a huge spike in Tremor, perhaps right around a last-ditch effort to save the site. The results of this admittedly unscientific study seem to jibe with Jupiter's analysis.

Rather than banner ads, I think there will be more authentic ways to create a brand currency, perhaps through product placement in videogames (registration required) ... I've always thought that the Sims would be a great place for teenage girls, for instance.

Project Apollo: Getting an Industry of Cats to Conga

Pandg_1I apologize for being flip earlier when I slammed how advertising research is sometimes used. There really is a lot of good research being done: Arbitron with outdoor media, the Advertising Research Foundation with database fusion (registration required), and Procter & Gamble's Project Apollo: an effort with Arbitron and VNU to look at a day in the life of an average consumer, and chart the way they consume and are influenced by media.

In my view, the key insight from Project Apollo will be an understanding of how media influences consumption. Building this link has been a key selling factor for innovative media vehicles like ShopVogue.com, whose online advertiser directory has helped the magazine neatly sidestep the rather amorphous concept of wantedness.

In the past, the conventional wisdom was that the purchase consideration process started with intrusive media, like television, that could shake people out of their reverie with multimedia messages. Advertisers would gradually earn the trust of consumers by flighting messages in media like magazines that demanded greater involvement. Unfortunately, as research into search engine behavior shows, this is not generally the case. Consumers want control and will increasingly be able to thwart attempts to influence them.

Project Apollo helps fill an important gap by trying to connect the dots between exposure to advertising and purchase behavior.

Digital Hollywood: Consumers' Insatiable Appetite for Online Video

Opa_2

Michael Zimbalist of the Online Publishers Association showed off an eye-popping report on online video (Adobe Acrobat required). After seeing a video ad for a product, 34% checked out a different web site, 15% requested more information, and 14% went to the store to see it in person.

Retailers who are considering a blog should check out Lynda Keeler's efforts at delight.com. Retailers should think about how their products enrich the lives of their clientele, and Lynda's lively writing style lends itself to all kinds of retail promotions. Thanks to paidcontent.org for pointing out the site through their coverage of Digital Hollywood.

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