Fall 2007
Holiday Strategies: An Industry Roundtable

Participants

Moderated by…


Patricia Norins, Publisher
Specialty Retail Report


Nancy Tanker, Managing Editor
Specialty Retail Report

Participants…


Michael Brielmann, President
Gift Giant/Personalized by Santa
The Gift Giant, Ltd. is the world’s leading importer, manufacturer, distributor and retailer of hand-painted personalized gifts for all occasions. The Gift Giant is the creator of the “Personalized By Santa” cart program, with 350+ mall locations for the 2007 holidays, and the creator of “ggBaby,” a cart program currently being tested.


Caye Watts, Sr. VP, Director of Specialty Leasing
Jones Lang LaSalle Retail
Jones Lang LaSalle Retail is the largest third-party shopping center manager with a 51-million-square-foot portfolio of more than 130 regional malls and transportation terminals across 28 states. The company provides expertise in all facets of the retail industry, including leasing, specialty leasing, property management, financial reporting, development services, marketing and research.


Mike Mahoney, President
SolarEx Sunglasses
SolarEx Sunglasses supplies more than 1,000 cart and kiosk customers worldwide. The company also assists current and new operators with cart locations and turnkey packages.


John Kokinchak, Sr. VP, Property Mgmt.
Developers Diversified Realty
Developers Diversified Realty is a self-administered and self-managed real estate investment trust (REIT), operating as a fully integrated real estate company that acquires, develops, leases and manages shopping centers. DDR currently owns and manages 735 retail operating and development properties in 45 states, plus Puerto Rico and Brazil, totaling more than 155 million square feet of real estate.


AJ Chad, VP, Sales and Marketing
EZ Refillable Candles
EZ Refillable Candles has broken the paradigms of the traditional candle business, pioneering unique concepts such as personalized and easy-to-refill candles for specialty retail. EZRC sells its products—including its newest Foto Candles—to more than 100 carts. “Exceed Customers’ Expectations” has always been the company’s motto.

Holiday Sales Strategies

In mid-August, Specialty Retail Report asked five industry leaders to share their insights into the coming holiday season. Will soft spots in the economy put a damper on consumer spending? What percentage of sales can retailers expect in the last few weeks of the season? What staffing resources can retailers tap to find and manage the best salespeople? And of course, what strategies can retailers use to land the most sales possible this holiday and build a strong business over the long term?

Here are excerpts from this candid conversation as you put your holiday selling plans in motion.

Patricia Norins, SRR: Let’s start off by talking about what kind of trends we’re going to see this holiday season. Is the consumer ready to spend no matter how the economy’s doing? How is the holiday season shaping up?

John Kokinchak, DDR: Based on traffic and sales information across our portfolio—and recognize that our portfolio is built perhaps a little differently than others in the industry … we don’t expect this holiday season to be any different. People are dealing with “the economic issues,” if you will, clearly in a different manner than a lot of us had thought that they would.

Fuel and the cost of it has not been an issue in purchasing decisions—or at least it hasn’t shown itself as a factor that could impact the holidays. What we are seeing, and what we are a little concerned about, is the bottom falling out of the real estate industry—both commercial and residential—and the massive amount of layoffs that we see taking place already because of recent developments within the economic world. If they continue—and unfortunately… I think it’s going to continue—then we are a long way from resolving this issue. I think the Fed is going to be making some announcements fairly soon that may calm it down, but at some point in time, the damage has been done. We’re seeing record, record defaults on mortgages. We’re seeing mortgage companies get completely out of the business. There were two very large mortgage companies that recently laid off over 6,000 people, and those are going to continue to happen throughout the country, and I think it will probably have some type of lasting impact into the holiday season that may or may not affect the retail industry as a whole.

Norins: If some of these economic pressures may mean less spending, how can specialty retailers proactively respond?

Michael Brielmann, Gift Giant/Personalized by Santa: Well, what John said is certainly concerning, and I’m hoping that if that continues—and I also do expect that it will continue—that those [economic setbacks] are regional. … We think that by having a national presence, we’ll be able to sustain any kind of weakness in any one particular segment of the market. I did see the 7,000-plus layoffs that John was talking about on the news, and they seemed to be located in one particular head-quartered area. If that continues to be replicated in many different cities, it’s going to be a big problem for everybody. I just hope that if that does happen, it happens after the holiday season.

AJ Chad, EZ Refillable Candles: I personally think that from a specialty retailer point of view…if [retailers] just stay with the basics—they have a product that’s different from the mass-market retailers and the Wal-Marts of the world …and go out there and use every opportunity to market their products—they [can] give more incentive for the consumers to spend more money at their kiosk. Those types of basics will certainly help specialty retailers all along, and the effects of all these economic factors we can overcome.

Michael Mahoney, SolarEx Sunglasses: I agree with AJ. As a retailer operating during the holiday, there’s not a lot you can do about the economics of the situation. You don’t have the power to cut interest rates like the Fed does, but what you do have the power to do is run the best program you can. That’s normally where everybody loses most of their money—in their operations and not running a tight program. Not training their employees. Not making sure they have product, and making sure they have the right product. Making sure the cart’s visually merchandised. Being on top of your losses and just running a strong program is the best way that a retailer can succeed through any economic times. You’re pretty much powerless against those larger issues at hand, but by far, running a bad program is going to cost you more dollars in the long run than any of those large, macroeconomic issues that are at hand, either regionally or nationally.

Caye Watts, Jones Lang LaSalle: Very well put. …I think a lot of what we’ll see will be regional. … We have weekly calls with all of our properties and we’re spread out from New York to California, and some regions will say “We’re doing great, things are good,” and another [region] will be struggling. Obviously, some of the economic factors that we’ve talked about are affecting everyone nationally, but I definitely expect [setbacks] to be more regional, because that’s typically what we’ve found in the past.

Kokinchak: I am not a retailer, so what I’m about to say should probably be taken with a grain of salt. … Specialty retailers should prepare themselves to do what we see mass retailers and/or department stores doing. We’ve trained the consumer to wait until the absolute last moment to make purchases and we see that reflected in very weak November sales. We’ve trained them that way simply because they know the markdowns are going to come. As long as the specialty retailer prices merchandise and creates a business plan in accordance with what we’ve taught the consumer, and is able to react to that and/or at least mimic the environment they operate within—that’s what they’re going to need to do to be successful this year.

Nancy Tanker, SRR: Does that necessarily mean retailers should put merchandise on sale earlier in the season?

Kokinchak: The word “sale” in our industry has become very commonplace and I think it begins to trigger the consumer to understand that markdowns are beginning to happen. It’s what we’ve trained them to expect in our industry for many, many years. Do I think that [specialty retailers] should lead the pack? No, I don’t. But I think they should be reactive to the environment that they’re operating in and stay very tuned in to what the national retailers are doing.

Chad: I hear what John’s saying about markdowns—not to be ahead of the game but at least be the reactor. As a specialty retailer, there aren’t a lot of ways that we can reduce the prices on a cart, to be honest with you. … However, we train our retailers to offer value. For instance, with our candles that need to be personalized, the personalization aspect can be given for free. Highlight that—where you are offering a value proposition versus a dollar reduction… Retailers have to be aware of what’s going on in the Macy’s and the JCPennys of the world, but just following them is not that easy for us. That’s just my point of view.

Norins: That’s a good point about offering a value proposition. In terms of the flow of sales over the course of the holidays, what percentage of sales come in during the last two weeks of December?

Brielmann: We do a minimum of 50 percent of our sales in the last two weeks.

Chad: Our numbers are even higher. We’re close to 60 to 70 percent, and I actually just advise all retailers that in November, just be happy if you break even. December, the first week, it’s going to be a little bit better. Second and third weeks—that’s when you’re going to make the most. So be prepared, be vigilant and keep your product inventory up. And do some forecasting.

Mahoney: We’ve always found that it’s about 50 percent in the last few weeks.

Norins: Caye, what are you seeing across the board from your retailers?

Watts: We track the sales really on a monthly basis, so it would be hard to speak to just those last two weeks … but in November we hear everybody saying they’re dying. The sales have almost completely dropped off during the November season and most people are wanting to move in the day before Thanksgiving and then be there through holiday. …Our focus is trying to keep people on into that January gift card season, when [shoppers] are actually cashing in all of the gift cards that they’ve received for the holidays. … I know [gift card sales have had] double-digit increases for the last several years, because it’s been a booming business for us. We’re focusing really on the holiday season being more December-January than the old November-December.

Kokinchak: We are starting to see the consumer recognizing that the gift card now has more purchasing power … much more value because of the massive markdowns that occur in January, and the inventory having to be moved off the shelves of retailers, including specialty retailers. Nobody wants to sit on merchandise.

Norins: I’d be curious to hear from a retailer perspective, what are your thoughts on staying open through January and beyond?

Chad: I have been encouraging our people to actually stay on till the 14th of February, because Valentine’s Day is a very big day for us. Foot traffic in January increases because of the cards, which certainly helps us. Last year we had a few retailers who stayed on in January, some who even stayed on until Valentine’s Day, and some who even opened in the middle of January just to do Valentine’s Day. And all of them called and said, “Why didn’t you tell us this was going to be a mini-Christmas?” I said, “I told you.” For us, there’s certainly an advantage to stay even longer, until Valentine’s Day or a little after that.

Mahoney: There is the increased traffic that you do receive because of the gift cards. … Also, it benefits the retailer if the person making the purchase [earlier in the season] knows the retailer’s going to be there through the month of December, through the month of January, through the month of February. … Even if they are flipping to a different concept for year-round, it just helps the retailer, helps build goodwill with the customer, and it actually helps you close some sales in November and December, just for [shoppers] to know that you’ll be there to back up your product.

Norins: The number-one question that I get asked prior to the holiday season is, “How do I handle staffing?” Does anyone have any hiring tips that you’ve been able to utilize at your own company? Michael, you’ve switched from owner/operator locations to company-owned stores this year so you’ve done a lot of hiring.

Brielmann: Some of the challenges we’ve experienced are [due to] different labor laws in different states, which is something that we had to get our arms around. … Also, we’ve been able to use national payroll companies. I would advise anybody doing [what we’re doing] to immediately get in contact with either with ADP or Paychecks, or one of the big guys in payroll processing, because they’ve got some great products out there now that can help effectively roll out thousands of employees. … All of our employees this holiday season will actually be given what appears to be like a debit card, [but] it’s a pay card. We don’t have to cut them checks. We don’t have to have our cart managers have people come in to pick up checks or be responsible to hold checks or disseminate checks. Every Friday, the funds that were earned become immediately available on that card, and those employees don’t even have to go into the cart to pick up their checks. They can [withdraw funds] free of charge at many different ATMs, and if they wanted to get the whole balance off the card they can even withdraw it at any bank. So there are certain technologies that make it a little bit easier to [manage employees] now than in years past.

As far as finding employees, you need to use technology also. You need to use Craigslist. We use our website for job applications. To find people, our theory is like the waterfall theory. You can’t find 2,000 good people; you need to find, for example in our case about 300 really good people, and then those cart managers need to hire and train their own staff, and be responsible and accountable for them. So if each cart has five to eight employees, [the location managers] need to then hire those people. Then we just try to make it as easy as possible administratively for those cart managers to manage their employees, so that their focus is solely on visuals and sales.

Chad: Ours being an owner-operator type program, we provide recommendations to our operators and tell them to use their local resources to meet their needs for staffing. If the timing seems appropriate, we try to educate them to take help from their immediate family. Also, [we recommend that retailers] stay in touch with the church groups and schools, and have some people lined up, so when you need them they’re available. Put up some notices on the bulletin board of malls. …The local resources are what we highlight and recommend that our operators utilize the most they can.

Mahoney: Retailers need to know that their job of hiring and training doesn’t ever stop, throughout the whole holiday season—and probably should never stop for as long as they’re operating carts. They should always have a “Now Hiring” sign up. They should always be constantly recruiting new employees, pulling from anybody who gives you good service in the food court or somebody that’s helping you out at one of the stores where you’re buying your own personal gifts. A lot of times other retailers will have extra applications that you can use, because they simply don’t have the hours to give to everybody. … For every two people you hire, you’re going to probably get one good one for the two-month holiday season.

And you’re going to be exposed to new employees throughout the holiday season. You’re going to have kids who come home from college who aren’t available November 1st, but then you’ll find out around Thanksgiving that they’re home and they’re available for you for six or seven weeks. If you had stopped the hunting process after the first week in November, you’d never even be exposed to those people.

Norins: Great staffing tips. I’d like to close out our Roundtable by asking if you could share one bit of advice for the newcomers in our industry coming into their first
holiday season.

Brielmann: I would say: Don’t worry if you miss your sales targets, because the malls will refund your rent. [laughter] Well, I’ll be serious and say that persistence is the key. We’ve tried for many years to evolve our brand and grow our business. It’s been a struggle at times, and it hasn’t always worked according to plan. We’ve gone back, put our nose to the grindstone and worked hard to execute a new plan the following year, and every year we’ve gotten better at that. So I don’t think you should look at specialty retailing as a “one-and-done” type of an opportunity. It’s certainly a fantastic industry, and there’s a lot of potential. Hard work over time is going to be rewarded. … So I would say: Just keep working at it.

Chad: I’d say to the new retailers … that it’s not an easy industry. You’ve got to keep your cool, be patient and work at it, and eventually you will succeed. Focus on your product and try to promote it as much as you can, and be aggressive in your sales.

Mahoney: I think AJ’s right on that. You know, throughout the years we’ve all made mistakes. Some of our mistakes have been more expensive than others, but we’ve all learned from them. This is not a get-rich-quick industry. There are always stories of [retailers] doing $500,000 or $300,000 in two months, but those stories are few and far between. Sometimes, when lightning strikes, you do hit it hot, but that’s not the industry norm by any means. There’s money to be made, but you need to be organized, you need to be persistent, and you’re probably going to make some mistakes out of the gate—and you’re going to learn from them. It’s a good industry to be in, but it’s more slow-and-steady than it is any sort of get-rich-quick scheme by any means.

Watts: Not being a retailer, my advice would obviously be from the developer perspective: Take advantage of the resources that the developer has there to help. … Our marketing department is there to help. At this point in time, when we have retailers coming back for the holiday, we’re helping them as far as putting up displays on empty carts to remind people that they’re coming back and let people know that they’ll be in the same location. We’re very much working on more marketing and signage in the malls for temp tenants—especially the ones who return year after year. They definitely should take advantage of that, and make sure they’re aware of the resources that are available to them at the local mall office to help them promote their business.

Kokinchak: I think everyone’s touched upon a lot of different areas that either create success or create failure. Probably the most pertinent that I could agree with is the fact that retail is one of the toughest industries out there. It is certainly not a sprint; it’s a marathon. Gone are the days where we have these “instant wonders” that make people very wealthy over a short period of time. It’s about sustaining over the long period of time, and people need to understand that when they become involved in the industry.

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