Tag Archives: retail

Why many products are always “on sale” – and why buyers fall for it

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My wife and I had a running joke going for a while with the Kohl’s circular that would come in the Sunday newspaper: every week was “the biggest sale of the year!” This is a common strategy for many retailers and consumers continue to fall for it:

“People don’t have a gut sense of absolute value. It’s just that they’re sensitive to contrast. So if you say I’m getting 40 percent off, I’m interested, no matter what the actual cost is.”

“The whole concept of a sale or a discount has become really perverted,” said Shell, a co-director of Boston University’s Center for Science & Medical Journalism and a contributing editor to Atlantic Monthly. “So what is the price? We think of price as a number, something that’s coolly objective, but it’s not. It’s a highly emotional construct. Price is manipulated to attract the consumer.

“If people see a sweater on a table for $50, they don’t buy it. If they see the same sweater was once $100, they will. We’re highly swayed by reference price. … There are some things that are almost perennially on sale, like mattresses and jewelry. We buy almost all our clothing on sale.”

“Retailers are now outfoxing consumers,” said Kit Yarrow, chair of the psychology department at Golden Gate University, where she is a jointly appointed professor of both psychology and marketing. “They’ve figured out how to offer a bargain in a way that the consumer doesn’t even know what they’re buying anymore.”

So how could consumers fight back? Some common strategies:

1. In certain areas, like credit card offers and statements or the calories in restaurant meals, having sellers display more information so that the consumer can theoretically make more rational decisions based on more information. Do all consumers use this information? Does the extra information “wear off” over time, particularly in light of enticing promotions or marketing? You can hear the same argument about health care from some people – if everyone knew, doctors and patients, how much every test or treatment was going to cost, different choices would be made.

2. Use an envelope system (or a debit card) for spending money so that one has a better idea of the total spending limit. This may help overspending but does it help eliminate all “impulse buys” or the deals one purchases?

3. Aren’t consumer education classes in high schools supposed to help talk about finances and such? And do they help much? Do such classes typically talk about how marketing works and different ways to think about deals?

4. There are companies that claim to not offer deals and have “no-haggle prices” or something like that. Think of CarMax or Saturn. Since most other retailers do offer deals, some companies can take an opposite tack.

The conclusion: prices are a social construction and taps into basic human impulses to avoid losses (paying the higher price)

How neighborhood affluence affects heat wave deaths

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In describing which residents are more affected by heat waves, a newspaper piece cities a sociological study and misses the bigger picture by emphasizing whether there is a shopping district nearby:

People who live in areas without “inviting” businesses are more at risk of dying. A 2006 study published in the American Sociological Review looked at the 1995 heat wave in Chicago and found that mortality rates were higher in areas where businesses were not well tended and leaned toward the bar-and-liquor-store variety.

With fewer businesses that could coax the elderly and other at-risk residents out of their homes and into the safety of air-conditioning, death rates rise, the study authors found.

What is the lesson here: move to a neighborhood with well-kept stores in order to reduce one’s risk of dying in a heat wave? On the whole, it isn’t really the stores that matter: it is about the overall affluence of the neighborhood which then affects the stores. People living in neighborhood with fewer stores are also more likely to be in places with less resources and perhaps less social services. The newspaper is presenting some data without providing a deeper look at the underlying relationship between these two factors.

Then, perhaps fighting the effects of heat waves goes far beyond opening swimming pools and “cooling centers.” Even as many cities have developed plans to deal with heat waves, including Chicago which was hit hard by a 1995 heat wave, it is part of larger structural issues that dictate which neighborhoods have resources and which do not.

Continued issues for Walmart in Chicago

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Even with discussions last year suggesting more amity between Walmart and the city of Chicago (and an earlier post here), there are still some issues for the retailer in the city.

1. Over the weekend, activists in Little Village, a neighborhood on Chicago’s west side, said they think Walmart should locate one of their stores in their neighborhood rather than just building on the south side:

At a news conference Sunday afternoon at 26th Street and Kolin, Raul Montes Jr. said people could benefit from having a Wal-Mart more centrally located in the city, vs. the locations on the South Side, which are currently planned.

Montes says Wal-Mart would do well at 26th and Kostner, which has been vacant for years. Montes says he and others in Little Village have sent letters to their alderman over the past few months and have so far, gotten no response.

He says they feel ignored.

2. Last night, Walmart representatives presented plans to residents of Lakeview, a neighborhood on the north side, regarding a proposed smaller version of their store called “Walmart Market.” There was some opposition from the crowd:

About 200 people — many wearing anti-Wal-Mart buttons and stickers — filed into the Wellington Avenue United Church of Christ to hear the proposal.

John Bisio, a Wal-Mart Stores Inc. public affairs senior manager, said that although he recognized the citizens’ concerns, the smaller facility at Broadway and Surf Street would not interfere with the neighborhood’s character…

But many in the audience could be heard snickering at company representatives’ arguments for why the 32,000-square-foot Walmart Market would be good for the North Side neighborhood.

After the presentation, several residents overwhelmingly shouted down the proposal and urged Alderman Tunney to push forth the zoning limitation in City Council.

It is interesting to contrast these two responses to Walmart: one neighborhood wants a store while another is very skeptical and thinks the store is unnecessary and could harm the neighborhood.

But with big box stores wanting to move into cities (Target recently talking about plans to open on State Street as well as recently opening their first store in Manhattan), these discussions will continue to take place.

High vacancy rates at strip malls and shopping centers

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More sour news regarding the economy, this time regarding retail space in strip malls and shopping malls:

Mall vacancies hit their highest level in at least 11 years in the first quarter, new figures from real-estate research company Reis Inc. showed. In the top 80 U.S. markets, the average vacancy rate was 9.1%, up from 8.7%.

The outlook is especially bad for strip malls and other neighborhood shopping centers. Their vacancy rate is expected to top 11.1% later this year, up from 10.9%, Reis predicts. That would be the highest level since 1990.

In 2005, the mall-vacancy rate hit a low of 5.1%. For strip centers the boom-time low vacancy rate was 6.7% that same year.

The article goes on to mention how this problem is particularly acute on the suburban fringe where development was taking place or was predicted to take place.

While strip malls take a beating from those opposed to sprawl and suburban garishness (think James Howard Kunstler – see his TED speech on the topic here), they can be quite important to local economies. From where I live in the suburbs (roughly 25-30 miles west of Chicago), there are numerous strip malls, including a number that I can walk to within fifteen minutes. While most of these businesses are not flashy, they encompass certain consumer needs from car care places to drug stores to restaurants to hardware stores. I have always wondered how businesses thrive in these settings: there is so much competition (why can’t the customer just go to the competition in the strip mall down the street?) and many decry the strip mall (though it would be an interesting debate to see whether people think they are worse than big box stores).

Target coming to Carson’s building on State Street

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State Street is a venerated shopping street in Chicago. Prior to the construction of the retail stores on Michigan Avenue north of the Chicago River, State Street was the home to department stores with familiar names like Marshall Fields and Carson’s. And now there is news that Target is planning to open a store in Carson’s iconic building:

Target will lease 124,000 square feet over two floors, but only 54,000-square feet will be selling space, the company said.

The retailer, known for its cheap chic, has been in talks for more than a year to lease space at the landmark Sullivan Center at State and Madison Streets. Carson’s closed its store there 2007…

The city has poured $24.4 million in tax-increment-financing to help restore the Louis Sullivan building, which also houses offices. Chicago-based developer Joseph Freed & Associates, the building’s owner, has invested another $190 million in the national and Chicago historic landmark in the last decade.

“I applaud Target for bringing this urban store concept to Chicago, as well as the new jobs and economic opportunity this store will create,” Daley said. “Target will be an important addition to State Street, one of Chicago’s most important retail centers, and will be located in one of city’s most architecturally significant buildings.”

The State Street store would be in keeping with the discount chain’s recent strategy to push into urban cores with smaller stores. Target recently signed deals to open a 70,000-square-foot store in the heart of Seattle and a 100,000-square foot store in a shuttered Macy’s in downtown Los Angeles. Those stores are slated to open in 2012.

“We look forward to preserving this Chicago treasure and blending in with the building’s aesthetic, said John Griffith, executive vice president, property development at Target. “A hallmark of Target is our flexibility in store design.”

As for Target’s iconic red bull’s eye, the retailer is still working out the details of incorporating its logo while still respecting the building’s historic status.

This announcement comes as both Target and Wal-Mart have announced plans recently to move into more urban markets. A few thoughts about this:

1. It is somewhat ironic that the stores like Carson’s and Macy’s (purchaser of Marshall Field’s) are mainly about sales from suburban malls while stores like Target and Wal-Mart, symbol of big-box suburbia, now want to be part of the city.

2. Is there anyone who is going to complain about Target moving into this iconic building? When Macy’s bought Marshall Field’s several years ago and moved into the flagship store on State Street, a lot of Chicago residents were mad that one of their iconic businesses had been replaced. Will there be similar concern about Target or are people just happy that they can get to the trendy Target in the middle of the city? (Imagine if Wal-Mart was planning to move into this location.)

3. It will be interesting to see how Target blends their image and layout with this historic building.

4. What does this move say about State Street compared to other shopping areas in the city? State Street seems to be an odd mix of suburban stores on a historic street. Couple this move with the ongoing saga of Block 37 and one has to wonder if there is any long-term plan for State Street.

How Wal-Mart plans to regain its edge

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Here is an interesting summary of Wal-Mart’s corporate plans for the near future. The headline of the article says it all: “Wal-Mart, humbled king of retail, plots comeback.”

Three years ago, Wal-Mart ruled for convenience, selection and price. But today it is losing customers and revenue, and smarting from decisions that backfired.

Wal-Mart is not in danger of ceding its place atop the retail world. But competitors have begun to chip away at its dominance.

Over the last year, revenue at Wal-Mart stores open at least a year has fallen by an average 0.75 percent each quarter, according to the International Council of Shopping Centers. Revenue rose by an average of nearly 1.7 percent at Target, 8 percent at Costco and 5.9 percent at Family Dollar.

To fight back, Wal-Mart is again emphasizing low prices and adding back thousands of products it had culled in an overzealous bid to clean up stores. It’s also plotting an expansion into cities, even neighborhoods where others dare not go.

Even as the article talks about stagnant or slightly declining sales at existing stores plus some questionable decisions (like reducing the number of products on the shelves), the main issue seems to be perceptions. On the business side, Wal-Mart has been challenged, particularly on the lower end by dollar stores. But business has not tanked and Wal-Mart still thinks it has new markets to tap in the United States, particularly in urban areas. What do investors and shareholders think – is it just about stronger growth right now? On the public image side, stores like Target have offered an enticing alternative. And yet Wal-Mart has changed the layout and design of its stores to look more like Target and this seems to have helped. Ultimately, the article says Target’s revenues are still one-sixth of that of Wal-Mart.

It sounds like Wal-Mart thinks they need to make some changes. There is no guarantee that any business, even a behemoth like Wal-Mart, will continue to expand or even be profitable. And just by virtue of its size, Wal-Mart’s actions will continue to be scrutinized.

Efforts to revive local shopping malls; how about an ice skating rink?

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The recent economic downturn has severely affected many retailers, especially shopping malls. One local mall, Charlestowne Mall in St. Charles, has been hit particularly hard and is looking for ways to bring in more shoppers. One idea: build an ice skating rink.

Barring an eleventh-hour change of heart, 94 employees at the Sears store at Charlestowne Mall in St. Charles will lose their jobs in two months. But the mall management and city officials hope to coax the retail giant to stay.

And the city and mall owners see hope in new business coming to Charlestowne, including an ice arena…

There might be reasons to be optimistic about the mall. Anchor stores Kohl’s and Von Maur both own the property they operate, making them less likely to leave. Aiston said the mall also disclosed it’s in negotiations to bring two or three new businesses to the mall, including a restaurant.

In addition, the mall may soon have a new headline attraction. Aiston and Kekatos said the city is reviewing plans the mall owners submitted to build an 18,000-square-foot ice arena at the mall to revive foot traffic.

“What I really want the public to know is our new ownership is fabulous,” Kekatos said. “You have to remember it’s only been going on seven months since they’ve purchased the mall. We’re updating the interior and the exterior of the mall. The community, the people in it, they just don’t understand that it takes time to do all this.”

This seems to be a common strategy for shopping malls: attract new kinds of businesses that will bring in a steady flow of potential shoppers. The restaurant strategy has been a common one – it moves malls beyond the world of the shopping mall food court with its quick food and may bring in a crowd with more time and money. But bringing in a shopping rink hints at another area of potential uses: recreational uses. Could the shopping malls of the future include things like ice skating rinks, gyms, climbing walls, and more? If so, this could help further transform malls from shopping spaces to community centers.

It is also interesting that the quest for developers and mall owners to add uses to shopping malls mirrors the efforts of many downtowns who have also been interested in increasing foot traffic. Of course, the shopping mall is often blamed for helping to kill off many downtowns but perhaps they are both now in the same boat. Are there enough retail and recreational and restaurant businesses to fill all of the space in shopping malls and downtowns?

Innovative (or strange) mall designs

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Many shopping malls are not that exciting to look at: they are functional in providing retail space and enough amenities to keep shoppers coming back. When critics talk about the blandness or homogeneity of suburbs, shopping malls are often included in the analysis: if you have been in one shopping mall, you have been in them all. But what if architects and designers took the shopping mall in a new direction? Popular Mechanics highlights “the world’s 18 strangest shopping malls.”

Some questions: do these different designs increase retail sales? Do shoppers have a better overall experience in these places?

h/t Instapundit

The first Target arrives in Manhattan

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Ariel Kaminer writes in the New York Times about shopping at the first Target in Manhattan which is located in East Harlem:

It is a sharp contrast to hopping from store to store for kitchen tools here, socks there, electronics in yet another place… That dominant New York shopping model has its charms, but really, remind me what they are. I like local merchants as much as the next New York nostalgist, but on a torpid summer day there is much to be said for the suburban efficiency of one-stop shopping…

It all seems so convenient (and cheap) that you start to think you should just buy everything then and there, to have on hand when you need it.

But what did I need? … Four Riedel wine glasses ($39.99)? (When the same brand is available at Target and Tiffany, it’s time to re-evaluate the distinction between mass and class.)…

After several hours, I found myself wandering through the aisles with my shopping cart, glassy-eyed from the sheer glut of choices, idly reaching for things that I felt no special connection to. It was time to go.

Kaminer appears to be thinking through the implications of  of big box shopping stores that offers consumers many cheap options (and even some high-end fare). Granted, this one-stop shopping has not just been the domain of suburbanites: it has been available in department stores for a long time. But the experience of going to a downtown Macy’s or Marshall Field’s still seems quite different than going to Target. Those department stores were and still are more of an experience and you pay for that experience as opposed to a Target or Wal-Mart or Home Depot where the goal is primarily efficiency and low prices.

Additionally, the construction of urban malls and shopping centers (but usually lacking the abundant parking lots) really lowers the walls between the urban and suburban shopping experience. This Target is located in “the first retail power center in Manhattan” that also features Best Buy, Old Navy, and Costco. Though it is mainly accessible by subway, the dominant world of American shopping – malls and big box stores – is now available to Manhattanites.