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The Transformation of Abercrombie & Fitch

The Abercrombie & Fitch brand and specialty chain is on fire. Sales grew 30 percent YoY in the last four reported quarters. The share price of Abercrombie’s parent ANF has rocketed from $35 to a high of $194 in the last year, aided in part by sibling brand Hollister’s 10 percent growth over the period. 

The previous high point was $85, hit in April 2007. Once considered an icon of mall-based specialty retailing, Abercrombie had become increasingly irrelevant, rocked by scandal, and dispatched as a canceled relic of the dying mall economy. So, what accounts for this remarkable turnaround?

A Complete Reinvention

Credit goes to Fran Horowitz and her management team. When Horowitz was elevated to CEO in February 2017, sales and profits were sliding and shares were at $12. Her mandate: a complete reinvention – of talent, culture, and processes in the back of house; brand, product, marketing, and stores in the front. Of course, they also needed to stabilize performance, manage through the pandemic, and endure ongoing brand reputational hits from damaging media reports on Abercrombie and its former CEO Mike Jeffries, who left the business in 2014.

I attribute the brand’s turnaround to three foundational initiatives: re-engineering merchant processes, reinventing the brand, and accelerating digital investments.

Re-Engineering Merchant Processes

When Horowitz took over, the merchandising function was broken. Jeffries was notorious for controlling or at least approving all customer-facing creative decisions. For clothing, this extended from the “no black” stricture (black was considered “too dressy” for the Abercrombie brand), to building the line and determining the cut, make, and materials in a garment. From the beginning, the buyers were “glorified sourcers,” according to one former exec. When the merchant princes reigned over much of specialty fashion retail in the 1980s and 1990s, similar divisions of labor sometimes worked famously well. But over the years the ANF corporation became wildly more complicated growing Abercrombie Kids, Hollister, and Gilly Hicks, while also expanding into new store formats, channels, and geographies. When this geometric growth in complexity proved beyond the capacity of Jeffries to make every decision, the merchants had limited experience and capability to step up.

Under Horowitz’s leadership, the merchants were given both longer-term strategic and shorter-term tactical responsibility for building their merchandise categories and incorporating customer, competitive, and fashion trends into their work. Re-engineering the role of the merchant had become standard at The Limited Inc. in the mid-to-late 1990s, but Jeffries’ Abercrombie was so uniquely successful at the time that he was exempt from the mandate. The current re-engineering took a substantial investment in process redesign, consumer research, and new talent – and needless to say, several years to operationalize and optimize.

Reinventing the Abercrombie & Fitch Brand

Evolving the Abercrombie brand was an even bigger hurdle. There was no clear endpoint, and thus, no roadmap. In the 1990s, Jeffries and The Limited Inc. CEO Les Wexner created a fictional narrative of the aspirational customers – a ripped, handsome, cool guy and his equally comely, totally natural girlfriend, both juniors at the University of Virginia living a full frat/sorority social life; and (when wearing clothes) dressed in casual prep. The idea behind these images was that teens would buy into the brand because they aspired to look like them, socialize with them, date them, be them, etc.

Jeffries famously said the brand was designed “not for everyone” but for the “cool kids.” Its lifestyle brand architecture was copped from the luxury designer world with Ralph Lauren as the biggest influence. Indeed, Abercrombie quickly became the teen luxury brand, offering premium fabrics, premium prices, and a club-like store atmosphere.

This positioning worked fabulously. In fiscal year 1999, the brand achieved a billion dollars in sales and wait for it, a 23.5 percent operating margin. The brand continued to grow until the Great Recession in 2008/09 (which impacted nearly every premium brand), but mostly recovered by 2011.

  • Fall From Grace

It worked, that is until it didn’t. Beginning in 2012, the brand entered a seven-year slide, eight if you include the pandemic. The brand had edged to $2.1 billion in sales in 2011. By 2019, it shrank to $1.5 billion.

There are many reasons for Abercrombie’s decline – the quick rise and cannibalization from Hollister, the tsunami of smartphone culture and ecommerce, and declining mall traffic, etc. But perhaps the most significant factor was that the Abercrombie brand was increasingly considered not just out of touch but also actively discriminatory. The focus on the singular “hero” body and attitude no longer exerted its pull.

  • Rising From the Ashes

Most new CEOs tasked with saving a legacy brand would reference its “deep heritage” (Founded in 1892!). But Horowitz and her team had other ideas. They knew in 2017 that the brand needed to become more modern, inclusive, and digitally driven; millennials aging out of their teens were still the largest segment of the population and the teen specialty apparel space, led by the American Eagle and Hollister brands, was hotly contested. Hollister’s sales surpassed Abercrombie’s in 2012.

But Horowitz wanted to get all the foundational stuff done first, stabilize the business, and fix the merchant function. During this transitional period, the team did major consumer-listening as well as merchandise and marketing testing. Horowitz’s catchphrase at the time was, “Patience.” You could see that their assortments were evolving, but it was unclear what the final destination was.

Then at their June 2022 investor day, the corporation announced that they were no longer targeting teens with Abercrombie, but rather millennials and adults 21-40+ years. Corey Robinson, a talented creative and merchant, was elevated to Chief Product Officer in September 2023. In the Q4 2023 Investor Presentation, the team further fleshed out the new positioning. They killed the drop-dead, gorgeous college kids. They incinerated the prep. In the stores, on the website, and on their social media, there was not one whiff of the legacy brand (except for their fragrance, Fierce).

Accelerating Digital

Jeffries always promoted the youthful attitude of ANF’s brands, and his creative vision was most vividly imagined in analog. The younger Horowitz and her even younger team better understood digital natives.

They began closing Abercrombie flagship stores in New York and other international fashion capitals and invested more heavily in digital marketing, ecommerce, and unified commerce capabilities. These investments proved prescient during the pandemic. In 2022, as part of their “>>FWD >>” strategic plan, they announced an initiative to “Accelerate an Enterprise-Wide Digital Revolution,” propelling investments in customer analytics and a concerted effort to improve the customer experience. To increase awareness and buzz around Abercrombie’s new brand positioning, the plan was to spend more money on digital and influencer-driven marketing.

Interestingly, their digital and real estate strategies are nuanced by nameplate. With 260 stores, Abercrombie is primarily a digital brand, with about 60 percent of sales in ecommerce. In contrast, Hollister customers are fully engaged digitally but prefer to buy in their 500+ stores, with only 30 percent of sales online.

They Aren’t Done

Completely reinventing a brand is courageous. That A&F has seen robust, early success with their new brand positioning is, well, impressive! But, in my view, the team isn’t yet done.

  • When you walk into a store or visit the site, you cannot immediately tell where you are. There is no design signature, no unique voice. You don’t yet feel like you “know” this brand; you have no emotional associations, no hits of dopamine. They still lack an updated, holistic brand identity.
  • For now, they’ve done a great job designing and assorting products for their target customers, creating a great shopping experience and drawing in their new target customer segment. But there is nothing distinctly different from their competition.

I do find the brand today “hotly inclusive”: Millennials in a range of races, ages, sizes, gender identifications (at least during Pride month), occasions, and locations, all express confidence. Perhaps there is something to own there, but it is not yet “signature.” Given the team’s track record, I can’t wait to see what’s next.

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The Covid Chronicles

Being declared nonessential during the Covid-19 pandemic lockdowns perfectly captures the literal truth about mall-based specialty retail.

In fact, specialty stores only exist in the first place because they are magic. They invite us into beautiful stage sets, create new aspirations and help cater to our most refined tastes. Les Wexner, the one-time owner of over a dozen specialty retail chains, frequently reminded his executives that they were in the “wants” business, not the “needs” business. His most scathing (and still printable) critique of his brands’ marketing or displays would be “this looks like JCPenney.” The more magic his stores created, the more margin. The…math…was…that…simple.

Over the past decade, we’ve witnessed a broad and steady decline in that magic, inflicted in part by the infectiousness of a handheld supercomputer that brings the world directly to us. During this pandemic, we worry whether a trip to the mall would be safe; but the journey had already become increasingly unnecessary and banal.

So, what’s next for the malls and their tenants?

The Covid Chronicles

There’s a group of retail executives in Columbus, Ohio who are still committed to perpetuating that magic. We call ourselves CBUS Retail, with the motto, “We love retail.” We are currently producing — supported by Klarna and other like-minded sponsors – a nine-episode, streamed video series entitled “Specialty Retail in Crisis: The Covid Chronicles.”  The series describes the massive disruption in this sector, paints a view of its future and suggests strategies for post-pandemic success. So far, we’ve interviewed 40 analysts, operators and founders from retail hubs across the country. Here is a synthesis of the series.

1. Pre-Covid

Of course, the mall economy was already troubled well before the pandemic, plagued by a persistent supply-demand imbalance, eroding margins and falling productivity. The dynamic duo, Michael Dart and Robin Lewis list several key reasons:

  • Oversupply
    • Persistent falling manufacturing costs.
    • Continued growth of non-mall options – discount, value, outlet and off-price; clubs and big boxes; everything digital.
  • Shrinking demand
    • The mall’s targeting of, and dependence on a shrinking middle class.
    • Consumers spending more on experiences and health & wellness, and less on physical products (aka “dematerialization”).

Other speakers highlighted two other distinct failures of the mall’s tenants:

  • A generation’s-long inability of department stores to increase mall traffic.
  • Specialty chains’ increasing lack of novelty, creativity and differentiation.

In short, too much product, too many stores, and not enough magic.

2. Direct Impacts of the Pandemic

If zombie malls with zombie stores filled with zombie product populated much of the retail landscape pre-pandemic, Covid-19 appears to be finally killing off many of these walking dead. Since March, retailers will have announced the closure of an estimated 25,000+ stores, and a net ~300 malls are projected to “repurpose” or succumb during the next three years. So far, over two dozen specialty and department store retailers have declared bankruptcies, with most emerging much slimmer, with new owners. We are told to expect more Chapter 7’s and 11’s this spring.

NPD’s Marshal Cohen describes “The Discretionary Divergence” in consumer spending.

Shows the categories diverging in spending

3. The Silver Lining

As the pandemic continues to wreck stores, profits, jobs and livelihoods, not to mention lives, our speakers see plenty of future upside for the sector. First, much of the structural oversupply will be gutted from the marketplace. BMO Capital Markets analyst Simeon Siegel argues that the current crisis allows public retailers to strategically downsize without incurring shareholder ire. Most agree that digital commerce is racing through puberty during the pandemic and now stands at least as tall as its offline parent. All in all, there’s a scramble to re-form and reform retail: The future of specialty retail is up for grabs.

4. The Future

A More Diversified and Dynamic Landscape, With Faster Lifecycles and Lower Peaks

With malls and legacy retailers hobbled, the barriers to entry for emerging retailers have never been lower. Traditional wholesalers and DTC brands are finding more mall vacancies with lower rents and more flexible terms, according to Steve Morris, Asset Strategy Group’s CEO. Ottawa-based Shopify provides inexpensive Retail-as-a-Service to over a million ecommerce merchants, who can also co-list their products on other shopping and social platforms including Amazon, eBay, Facebook and Instagram.

Forrester’s Sucharita Kodali foresees an intense battle over the next decade between legacy analog brands now adopting digital first mindsets vs. digital natives seeking heightened customer connection and growth through operating stores.

Whoever wins, the spoils will likely be smaller than before. Analog-first brands that took a generation or more to build tend to top out at $2-3 billion in the U.S. at retail, according to Siegel, with only NIKE swooshing beyond. The current generation of venture-fueled concepts – monied, impatient, and viral-when-successful – will peak faster, but at a level limited to consumers’ goldfish-sized attention spans.

Given the increasingly complex and integrated nature of the equation, analog + digital = sale, J.Crew’s Billy May believes we should focus mostly on market and customer profitability, not channel.

Oliver Chen of Cowen argues that community is the unlock for sustaining consumer loyalty in an attention-deficit world. Aerie and Glossier use social media especially well to foster engagement, according to Chen. Pre-pandemic, Revolve, a brand positioned to party, hosted big, fab, in-person parties instead of investing in brick and mortar.

A Re-Engineered Retail Value Chain

During the pandemic, the design and merchandising teams at the tween girls’ retailer Justice took the whole product development process virtual — from inspiration to concept to line — removing months from their calendar. The compressed timelines prioritized merchant conviction and improvisation ahead of test-read-react. Truly energized by the speed, efficiency and empowerment in the new process, VPs Kat Depizzo and Julia Hanna  are convinced these changes will largely be permanent.

More frequent and smaller buys closer to floorset/listing is a recurring theme. Lower markdowns will make up for slightly higher unit costs. Supply chains will be leaner, faster and more distributed, avoiding single points of failure. Inventory transparency is doubly important as omnichannel options proliferate. Good forecasts are the ultimate lubricant in a lean, forward-positioned supply chain. From a tech perspective, Karl Haller demonstrates how IBM projects demand to the store level.

In stores, all agree that we’ll move towards contactless customer service and payments post-pandemic. Kodali states, “a customer should never have to wait in line to talk to a person.” WD Partners’ Lee Peterson reports that Alibaba is way ahead on these and other innovations in his talk “Innovation, Alibaba Style.” There was widespread agreement that Chinese companies and consumers provide a good benchmark for what’s ahead.

A New Role for Physical Stores

Cathaleen Chen wrote a Business of Fashion article in August, both profound and so obvious (as in why-in-my-decades-in-this-business-hadn’t-I-thought-of-it kind of obvious). There are four roles for physical stores: brand, service, immersive experience and community. Think slow on this.

A future strategy for a market-based store “portfolio” makes sense. Some stores offer full brand presentation, high-touch service and interactive community building; at the other end of the spectrum, are dark stores that only fulfill pick-ups and deliveries.

Less Algorithm, More Imagination

Author of “Aesthetic Intelligence,” Pauline Brown, states that in business there should be a tension between analysis and aesthetics. But that the only way to beat the robots is through the uniquely human ability to create beauty, infuse joy, and surprise and delight customers.

Aaron Walters, CEO of Altar’d State, asserts that the larger a business gets, the more it needs to either simplify the model or empower its employees. He advocates bringing the “special” back to specialty retailing.

Former Google executive and arts student, Abigail Holtz, observes that ecommerce has not evolved for 20 years and now seems emotionless and flat, not effortless and fun; and stores have their own shortcomings. She created online shopping site The Lobby to merge the best of both channels, where they curate emerging brands “doing something special” and make shopping fun with an original, authentic and very human-centered interface.

Magic.

NOTE: This is just a small sample of the smart commentary in the series. Please visit https://cbusretail.org/covid-chronicles-season-one/ to stream for free and join our live Community Roundtable https://cbusretail.org/member-events/ on January 6 to discuss the series content with several of the speakers.

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True Stories: Strategies from Seven High-Growth Specialty Retailers

There is not much “new” to write about when it comes to specialty retail. How often can we talk about the inexorability of Amazon; the metastasizing of dollar/value retailing; the exigency for experience; the hotness of young, unproven business models; the hard march to AI and automation? And let’s re-mention the digital-native darlings.

What I’ve never seen remarked upon is that there is a small group of quite traditional, offline-native specialty retail chains, focusing on things that specialty retailers have always focused on, who are also experiencing significant store, comps and profit growth.

This G7 is: Aerie, Athleta, Bath & Body Works, Boot Barn, Lululemon, Madewell, and Ulta Beauty.

On the surface, these high-growth chains have little in common. Madewell and Aerie are adolescents, launched in 2006; Boot Barn is a grizzled-yet-vigorous 40+ years old. Five of the seven are mostly mall chains, combatting landlord traffic declines. Two feature mostly third-party brands. One is male dominant; another sees men’s as a huge growth initiative. Combined, they sell active, beauty, boots, denim, intimates, home fragrance, personal care, sleepwear, sportswear, workwear and cowboy hats.

So why are these retailers winning while their peers suffer? I recently posed that very question to a group of my colleagues (all current and former specialty retail execs). Our answers should not surprise you.

Aerie
This intimates brand took several years to find its footing, but for the past 20 quarters has experienced double-digit comps. With 141 standalone and 170 side x side stores, Aerie will soon exceed $1 billion in annual sales.

Aerie’s success stems from a brand positioning focused on un-retouched body positivity, a fun and more casual aesthetic and a genuine embrace of diversity and inclusion — a brand for “real women” according to brand President Jennifer Foyle. As Victoria’s Secret’s angels have fallen, Aerie has risen. Its core product focus was initially in t-shirt bras, bralettes, cotton undies and sleepwear, but as the brand attains more “lifestyle” dimension, it is expanding into apparel and active, with huge growth implications.

Let’s also not overlook Aerie’s strong sibling connection to American Eagle Outfitter, who generates its own store traffic, lends its strong brand equity and builds awareness and trial for whatever Aerie cooks up next.

Athleta
Athleta was founded in 1998 and acquired by Gap in 2008. With 190 stores and exceeding $1 billion in sales, the women’s activewear retailer is considered the singular growth vehicle within Gap Inc’s specialty labels (excluding Old Navy, which Gap Inc. will spin off in 2020).

Women’s active apparel is an estimated $24 billion market, growing six percent annually (NPD). While Lululemon owns the premium yoga wear positioning, Athleta merchandises a broader assortment of “sportwear” in the store, with sections marked for training, hiking, yoga, “commute” and girls. They also have more style variation, colors and sizes than Lulu. Additionally, the brand actively messages its social responsibility — for women’s empowerment and, as a B Corp, for fair trade and sustainability. Athleta positions itself as a premium brand, with prices just a bit lower than Lulu’s (e.g., core leggings at Athleta are $89-109 vs. $98-129 at Lululemon).

A big draw for many customers is the brand’s loyalty program. While the retailer runs mostly clean ticket, its Rewards program offers five points for every dollar spent, which build to coupons worth $10 for every 100 points earned.

Bath & Body Works
Bath & Body Works was birthed from the Express apparel chain in 1990, and is now, combined with White Barn Candle Company, a $5 billion unit of L Brands operating 1,740+ stores. The most dazzling statistic, however, is its 23 percent operating profit margin.

How does this personal and home fragrance brand continue to grow so rapidly when two-thirds of its fleet remains in malls? First, Bath & Body Works has chosen to compete in product categories – giftable and everyday products with high margins in categories that, through its merchandising skill and scale, the retailer can thoroughly dominate. Second, the body lotion, soap, fine and home fragrances are treated as fashion, with frequent launches and in-store storytelling driving demand that no other retailer can sustainably match. Third, it merchandises with agility and speed. Its domestic sourcing capability allows it to test and react quickly and confidently, helping to maximize sales and minimize markdowns. Lastly, the company makes major investments in consumer insight-led product innovation, which allows it to improve quality and innovate new products in areas its customers value most.

Boot Barn
With sales nearing $850 million and 250 stores, Boot Barn is the country’s largest western and work wear retailer. The roughly $8 billion western wear market (think Ariat, Wrangler and Justin) is driven by the popularity of country music, ranching and agriculture, horse ownership, and Western events like rodeo. The roughly $12 billion rugged workwear sector (think Carhartt and Wolverine) is driven largely by outdoor blue-collar jobs in construction and oil & gas. Over time, the western + work combo has evolved into a highly productive format, generating significant cross shopping between the two segments. Boot Barn had once grown mostly by acquiring smaller regional competitors in what has always been a highly fragmented sector. But since its last acquisition in 2015 of the 25-store Sheplers chain, Boot Barn has relied principally on organic growth.

Boot Barn’s biggest selling point is a category-killer sized assortment of cowboy boots in one section and a like assortment of work boots in another. The boots are all open stock, assorted by size. If you are a size 10, go to the rack marked size 10, quickly try any number of styles, and if a pair fits, walk to the wrap and hand over your $200+. The vendor then is immediately alerted of the sale, and delivers the replenishment SKU straight from its DC. But other selling points are: head-to-toe merchandise mix; full omnichannel ordering and delivering capabilities; a local store that authentically represents the western and work lifestyles; store associates who are boot experts and themselves live the life; and a brand that invests in community rodeos, 4-H clubs, veterans and other local organizations.

Lululemon
In 2000, Lululemon opened its first boutique in Vancouver, Canada, offering its own make of high-priced, yoga wear for women in a serene, centered aesthetic. The brand quickly evolved to be the status brand for all yoga-inspired fashion; and now “sweat” replaces serenity as a core equity. For FY2019, Lululemon claims 460+ stores in 14 countries, nearly $4 billion in sales, $1,600 in store sales per square foot, and an operating margin likely above 22 percent.

To achieve this success in what was a decade ago still a niche fashion segment, the brand did many things right — foremost was designing a legging that made a woman’s buttocks look toned and fabulous. It entered new markets by enlisting yoga studio instructors as brand ambassadors, hiring only yogis as customer-facing associates and sponsoring and supporting the local yoga community. The brand famously conducts yoga classes in-store on Sunday mornings. Its current phase of double-digit expansion is to use this formula to grow significantly across other “sweat” activities (running, training, etc.) and across more classifications of fitness apparel and accessories. Digital, men and international are also big targets for growth. One example of the business’ omni/digital prowess is that lululemon.com lists markdown product located in individual stores across the chain. Pop-up stores? Lululemon has over 40 of them.

That yoga wear/athleisure has now become mainstream, casual-occasion dressing also helps. One Canadian journalist best summed up the brand’s magic, “Lulu is not selling workout clothes so much as they are selling membership to a club with a very appealing uniform.”

Madewell
At 138 stores, roughly $650 million in sales and a looming IPO, Madewell’s continued growth momentum caught me and my colleagues by surprise. A fast-growing and profitable mid-market women’s specialty apparel chain?

With denim at the foundation of its assortment, Madewell has had the good fortune of riding (and perhaps playing a central role in) the diversity of denim pant silhouettes, fits and sizes for women. Remember when low-rise, skinny was the uniform? See how many more jeans and matching tops you now have to buy! But leave it to Mickey Drexler and his teams to somehow make basics “must have” fashion items through continuously landing on-trend collections and superior storytelling.

Another factor in the business’ success is the “heritage brand” play of Madewell 1937. The store design, types and copy convey a simpler time, but also help communicate the high quality (made well) garment construction, with an implied greater value and longevity than competing designer denim brands can offer. The brand also makes a unique commitment to social change: by donating an old pair of jeans, which will be recycled into home insulation for Habitat for Humanity homes, you get a discount on the next new pair you buy.

A Sample of Madewell Denim Silhouettes

Ulta Beauty
Founded in 1990 in suburban Chicago, Ulta has 1,241 stores and an estimated $7.4 billion in sales. The retailer adopted an old formula, the off-mall category killer, and added a couple “new retail” twists. Defining beauty broadly, Ulta has assembled an estimated 500 well-established and emerging brands from prestige and mass cosmetics, fragrance, skincare and haircare. Second, the store incorporates a 900+ square foot beauty salon, adding to the store’s “customer experience,” imparting expertise and providing product referrals. Third, Ulta has had tremendous success courting and quickly becoming the biggest outlet for celebrity and social-media fueled emerging beauty brands such as Too Faced, Kylie Cosmetics and SugarBearHair.

Perhaps it’s the company’s Midwest heritage, but the broad-based, accessible assortment is matched with attentive, expert and above all friendly customer service, forging significant customer loyalty. The company’s Ultamate Rewards program has 33 million members and captures over 95 percent of Ulta’s transactions. Within the beauty space, Ulta has a comparatively large and active social media presence and, at least during this holiday, dominance in paid search.

Takeaways
What can we learn from these retailers’ growth stories? Pre-Amazon Prime, malls multiplied and brands ruled. If a brand could claim one big thing (i.e., lowest price, biggest assortment, aspirational lifestyle, best customer experience, sexiest underwear, etc.), that was sufficient for success. In this current era of endless disruption, Barbara Kahn in her book The Shopping Revolution, argues that a successful retailer must stake a claim in at least two dimensions.

Here are the strategies that our G7, in some combination, employed to win:

  • Sell the right product categories, i.e., those with intrinsically high emotional content (and therefore loyalty and margin), like beauty, fragrance, yoga-inspired wear, denim, intimates, boots. Then merchandise to own the space in a format and channel you can dominate.
  • Create (or adjust) a brand position to resonate with current culture. Today’s culture values sweat, ruggedness, authenticity, innovation, value, convenience, body positivity, diversity, inclusivity, empowerment and social responsibility.
  • Support the local ecosystem and become its “local” store. Lululemon and Boot Barn invest in the local lifestyles that then support the store, a virtuous cycle.
  • Tell good stories. How else do you sell fashion? Bath & Body Works and Madewell excel here.
  • Innovate. Lululemon is the leader for yoga-inspired fashion and its expansion throughout sweat activities. Ulta offers the latest innovations from the trendiest brands across the market. Bath & Body Works now makes the absolute best three-wick candle.
  • Engineer loyalty. Ulta’s loyalty program covers 95 percent of transactions? Insane.
  • Roll up a highly fragmented sector. Boot Barn has a track record and the superior retail formula in its sector.
  • Consider the category, competition and cultural bend. Activewear is hot now. Denim is, too, but for how much longer? Beauty’s growth has slowed as women revisit more natural looks. (Handbags was the last major category to rocket then flame out – or at least suffer from oversaturation.) How fast would Aerie be growing if the Heathers and Mean Girls still ruled? Where would Athleta be if Chip Wilson had first started making leggings in technical cashmere?

So, let’s honor these seven retailers and their strategies as David Byrne might (though with less music) – with a celebration of specialness.

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Target’s New Business Model is Still a Work in Progress

No retail segment is more competitive than the mass segment, where retailers sell many of the same SKUs and must therefore compete based on differentiated consumer perceptions of value, access, convenience and customer experience. In 2016, the Target Corporation — facing scorching competition from Amazon and Walmart and saddled with negative comps — decided to check “all the above,” including product selection. In early 2017 the company launched a major, multi-year set of initiatives to remodel stores, improve store operations, expand omnichannel capabilities, increase the number of small-format and campus stores, and introduce dozens of new owned brands. A year ago, the company decided to accelerate these investments, and given their more recent operating results, they seem to be paying off.

It’s a difficult trick. A superior customer experience in a store often adds expense. Offering the complete suite of omnichannel options (including same-day to home or curbside pick-up) also adds expense. With these added costs, how will Target also excel in delivering value? Will this business model foot?

The New Customer Experience: A Great Start but Missing Basic Elements

The digital look and feel of the brand strongly reflect the company’s new direction. My www.target.com landing page featured three new brands in all their inclusive splendor, the day’s most pressing shopping occasions, and new omni-enabled ways to “get your Target Run done.” A very different approach than Amazon or Walmart. It seems to be working, and Target’s e-commerce, facilitated by its many omnichannel options, was up 36 percent in 2018.

Based on recent store visits I made in Columbus, Ohio, the in-store customer experience was a big change and represents a new business model. The new, remodeled, and re-fixtured stores, all with new marketing and visual merchandising, are a big improvement over the “old” Target packages. The company is essentially applying the techniques used for decades in better department, specialty and upscale grocery stores. Several departments are introduced with low tables and stands for displays, folded product or forms; varied fixture heights and types allow for good visibility and provide visual interest. Many of the aisles are now shorter in height and length and not all are parallel. Moreover, the displays and décor often showed enough sass to make you smile. I had never noticed the music before in Target, but the tracks had me “boppin” in the aisles. The total effect is that the store is more attractive, more fun, and easier to shop. The discrete sections, when merchandised well, suck you in to spend more time and money. Store traffic and comps were up 5 percent over the past year.

While the new format has raised the aesthetic bar, not all aspects of execution reached it. Several displays of folded product were askew or unkempt, and several bays read conspicuously empty or low on inventory. The swim trunks on one young mannequin rested around the boy’s ankles. There scurried no hawk-eyed associate nearby to fix any of these issues, even on a busy Saturday. Luxury-inspired displays will always feel less upscale, too, when bathed in Target’s fluorescent bulb temperatures. The company has selectively mounted halogen spots in the high ceilings, but the warmth added from those is often not sufficient.

Target says they are improving backroom operations to allow associates to spend more time on the floor for “customer-facing” activities. Let’s hope its end-state business model will allocate enough resources to fix the merchandising and inventory issues.

A potentially bigger miss, in my opinion, is the stores’ failure to change its associate engagement with customers. In a bright, happy, engaging store, we shoppers expect bright, happy, engaging associates providing great service. One consistently gets energy from Costco, Container Store, and Crate & Barrel employees. At Target, my engagement with the associates was unchanged from the many years I’ve been shopping there. And is still uninspiring.

Finally, there were still longer-than-necessary lines at checkout, queued next to several unmanned lanes – with the longest line at self-checkout. I actually like to shop in stores but am always anxious when I’m not sure if I’m in the quickest line. Why not train a camera with some AI to direct me to the shortest wait? Or, more old school, open up a lane or two so there is less of an annoying wait.

The Key to the New Business Model Lies in the Merchandise Strategy

In Target’s more recent public reporting and analyst coverage, all referenced the growth and success of its new omnichannel efforts and its impact on sales and store traffic. But how profitable can having associates pick, pack, and stage-for-pickup or deliver really be?

In fact, the unlock in this business model is in the merchandise strategy. I walk through the store and see upgraded product and presentations in apparel, intimates, baby, toys, home, and beauty — all designed to evoke emotion. And let’s not forget wine. The wine used to be stacked on regular grocery shelves. Now it’s merchandised like an upscale wine shop. Momma is going to notice and she’s going to smile. The math is: more emotion equals less commodity equals more spend and more margin. The company’s curation of private brands is also an integral component. The product may not add incrementally to sales if they replace a major national brand, but they definitely add margin, probably a net of 10 percentage points worth (after subtracting cost of design and development and co-op advertising dollars from the vendors).

In short, even with its recent innovations, Target still needs to spend more dollars on visual merchandising, checkout, and upgrading associate engagement. The company needs to fund this and further differentiate itself by de-commoditizing key departments. If they succeed, mass will never be the same.

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Make the Most of Speed — A Nimble Supply Chain is Just the Start

L Brand’s speed-to-market program has delivered a virtuous cycle of positive benefits to the Victoria’s Secret and Bath & Body Works businesses, resulting in lower inventory, faster turns, lower markdowns, higher operating margins and increased sales — extraordinary progress that has set them apart from their mall-based peers.

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Five Strategies to Strengthen Stores

We all know it: the Web commodifies the customer shopping experience. Nevertheless, the sheer convenience and unlimited access provided by online shopping continues to draw a greater portion of her spend. So how can mall specialty retailers draw her back into stores, where they’ve deployed the vast majority of their assets? Mōd proposes the following five strategies:

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How to Win in Your Most Strategic Categories (Part I)

When I was VP of Brand Planning at Limited Brands, one of my team’s core responsibilities was to help with the merchandising strategies for several key business units. The main thrust was to develop plans and inculcate disciplines that would drive large-scale growth and achieve absolute dominance in specific strategic merchandise categories. These were big businesses, and our CEO Les Wexner, who drove these engagements, would devote substantial corporate resources to these efforts because he envisioned (and frequently realized) topline gains in half-billion dollar increments.

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It’s Time For Strategic Merchandising

A former boss of mine used to say, “This strategy works…until it doesn’t.”  His specific point was that all merchandising strategies eventually fail.  Hopefully, your CEO or GMM can anticipate that moment and create a new strategy, but even if they tell you to hit trend, cover entry price points, fend off Forever 21 and H&M, grow knit tops by 3x, become a wear-to-work destination, etc. – will you know how?

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Retail Strategy in the Digital Age

After twenty years focused on retail strategy, I took a two-year hiatus in an attempt to make my Internet riches with a software start-up. When I returned to consulting in late 2012 (alas, sans riches), I returned to a significantly changed retail landscape. The Internet was certainly important in 2010, but not nearly as integral. Well into the late ‘00s, stores always mattered more. Today, few retail decisions are made without consideration of digital. And for most retailers, digital is their fastest growing and most profitable channel, for both marketing and transactions.

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