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Column by Ted Hurlbut
Building Brand Equity
Whether it's quality, selection, product knowledge, or customer service, small retailers can leverage a stronger brand identity to take on big-box competitors
In the past two years, there's been a lot written about Federated's acquisition of the May Company and the subsequent conversion of many longstanding local department stores into a Macy's franchise. Much of the commentary has focused on the loss of the local touch -- so long a hallmark of the department store business -- and the leveling effect of replacing these local stores with a generic, national retailing strategy. By contrast, little has been said about the opportunities this presents for smaller, independent specialty retailers.
One of those opportunities is brand equity.
The recent departure of Macy's chief marketing officer, Anne MacDonald, whose mission it was to build the Macy's name into a premiere national retail brand, calls out the incompatibility of long-term store brand-building with delivering quarterly results for Wall Street. It's the all-too-familiar conundrum of merchant vs. marketer. Merchants drive sales in quarterly bursts with coupons and price promotions, while marketers build brand equity over years. However, big, public companies like Macy's are being given less and less time to show more and more results. And Federated is under the gun from Wall Street to show results from its acquisition of the May Company back in August 2005.
Building brand equity is crucial for any retailer, big or small. Brand equity is the understanding that customers have of exactly what your store means to them. It is the source of their loyalty to you, and your assurance of future success. It is the means by which you differentiate yourself from your competition. And, it is a fundamental opportunity that an independent specialty retailer has to create a competitive advantage over their big-box brethren.
For far too many large corporate retailers, their primary strategy is to build sales through low prices, to leverage their sheer size into economies of scale that drive down their costs and allow them to offer the lowest possible prices. Their entire business model is built on volume, and the primary tool of choice in their toolkit is price promotion. Sales, circulars, coupons, special events -- however the promotion is structured -- the offering is built around price.
That said, there are some big-box retailers that have been able to establish solid brand identities exclusive of price, such as Best Buy, Barnes & Noble, Home Depot, and Staples. But even these stalwarts frequently resort to competing on price to build volume, and once a retailer steps out onto that slippery slope, it can be very difficult to pull back and re-establish price-value integrity. And once on the slippery slope of competing on the basis of price, margin erosion inevitably follows.
Building brand equity for your store is a critical element in maintaining pricing integrity, protecting margins, and assuring long-term profitability. Building brand equity requires clarity of purpose. When customers think of you, they will focus on the one thing at which you excel. Focusing yourself and all of your people like a laser beam on that one thing, whether it be quality, selection, product knowledge or customer service, and building everything you do around that core mission, is the key to building retail brand equity.
Anne MacDonald lasted less than two months at Macy's. It didn't take long for Macy's to decide how exactly they wanted to position one of the most venerated names in retail.
At the time of her hiring in April, Federated chairman and CEO Terry Lundgren effused that MacDonald's "track record with iconic brands will help take Macy's to the next level of strategic marketing insight and innovation," noting that her mission "will be to lead us outside of the traditional realm of retail-store marketing."
It appears now that Macy's wasn't so comfortable leaving that sale-cycle realm after all.
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