business news in context, analysis with attitude

There’s an excellent piece in the Chicago Tribune that explores the tensions that can take place within retail businesses during tough times, when sales and traffic are down and management is looking for a way, any way, to drive the numbers in the right direction.

There often is the inclination to expand into new product categories, on the theory that new products will prove attractive to existing customers and therefore generate a higher average transaction. There are numerous examples of such efforts: drug store chain Walgreen has begun selling a clothing line called Casual Gear in its stores, just as home improvement chain Menards set up grocery aisles in a number of its stores and electronics dealer Best Buy decided to sell musical instruments in selected locations.

This trend, it seems, is supported by a recent report from TNS Retail Forward and PricewaterhouseCoopers, which predicts that many existing retail formats will come to the end of the “expansion runway” by 2015, and will be forced to enter new markets, come up with new formats, or expand the range of products they sell from existing stores.

However, as the Tribune correctly notes, it doesn’t always work. Home Depot, for example, “went too far off base when it opened a handful of convenience stores that sold candy bars, cigarettes, coffee and fuel in the parking lots of its stores in Georgia and Tennessee. The sixth and last store opened in June 2007 and there are no plans to open any more,” according to the story, which notes that Starbucks may also have gone too far when it started selling books and CDs in its cafés, an extension that may have gone farther afield than the customer was willing to go.

"The limits of what these big boxes are leads retailers to continue to want to find a way to experiment," Neil Stern, senior partner at McMillan Doolittle LLP, tells the Tribune. "The question from the consumer is, what do you accept from the brand and what feels foreign."

KC's View:
The other approach to a business downturn, of course, is the famous “we’ve got to get back to fundamentals” speech, which in my experience often reflects both a lack of imagination and a fear of the unknown. (And, sometimes, a fear of losing one’s job because that can happen when you tick your neck out too far.)

The whole notion of “fundamentals” is that you’re supposed to be doing them every day…if you have to “get back” to them, there probably are deeper problems in the business that a pep talk about “back to basics” won’t solve. And it could be too late for a return to fundamentals to get you over the rough patch, anyway.

To return to a song I’ve been singing a lot lately, mostly because it seems so relevant to the moment, the key to whether these expansionist efforts work will no doubt be whether they are strategic or just tactical moves…if they are organic to the broader business plan, as opposed to just an idea that may sell a few more SKUs, then they may pan out. But if not…well, we all know what happens then.