communicating a brand may be harder for multibrand retailers than
for their single-brand counterparts, but brand building is
essential for both.
TERILYN A. HENDERSON AND ELIZABETH A. MIHAS
The McKinsey Quarterly, 2000 Number 3, pp. 110–117
Facing a marketplace overflowing with
stores, most retailers have spent the past several years tirelessly
searching for new ways to grow. In the case of runaway successes
such as the apparel manufacturers Nike and Calvin Klein, the secret
appears to be strong, well-leveraged brands, which, McKinsey
research shows, add five points on average to shareholder returns.
Do retailers have the same access to brand magic? Vertically
integrated ones certainly do. Companies, such as Gap and Victoria's
Secret, that design, manufacture, and market their own products have
very substantial long-term growth expectations embedded in their
share price, reflecting, in part, the expectations created by their
brand strength (Exhibit 1).
Some retail brands have been built from
the ground up virtually overnight. One vertically integrated
single-brand retailer—Old Navy, Gap's retro-hip discount concept,
offering a proprietary line of value-priced family apparel—sprang
onto the scene in 1994. Five years of phenomenal growth later, Old
Navy had sales of $2.6 billion and could claim to be the first
retail chain to have reached $1 billion in sales within 48 months of
its launch. There seems to be no end in sight: Old Navy plans to add
upward of 140 stores to its base of more than 420 this year and then
to expand overseas.
But the picture is quite different for retailers—category killers,
department stores, discounters, and the like—that sell a range of
other companies' brands. Although some multibrand retailers have
managed to command a national brand identity (in Sears's case, one
founded on reliability), many suffer from a lack of brand
distinctiveness independent of the brands they carry. In fact, many
multibrand retailers have lavished more thought and care on those
brands than on their own banner.
But the multibrand retailers, like their
single-brand counterparts, can and must create a brand personality
with which consumers want to identify and rethink the underlying
business system that is needed to deliver it. According to our
analysis of retailers in a number of formats, consumers actually
make more frequent visits, check out larger-than-average shopping
baskets, or pay price premiums at the stores of brands they perceive
as strong (Exhibit 2).1
A POWERFUL PERSONALITY
The building of a brand starts with a precise definition of the
target customer group and its needs and expectations and proceeds to
a realistic assessment of
well the brand currently meets them. Next, the retailer must decide
which of the benefits it can offer will give the brand a distinctive
position in the marketplace. Then the retailer's marketing and
advertising efforts must fashion an image around the brand that is
not only consistent with these benefits but also credibly promises
that they will bring excitement and satisfaction.
For example, the single-brand clothing retailer Abercrombie & Fitch
has developed a powerful personality that is fun-loving,
independent, and sexually uninhibited—a winning formula with
teenagers and college students. To remain familiar with teen tastes
and to spark ideas for new merchandise, A&F sends about 30 staffers
to college campuses each month to chat with students about what they
play, wear, listen to, and read. This kind of research led to A&F's
recent success with wind pants. (These resemble track-and-field
pants but are generally made of nylon.) The stores themselves,
featuring comfortable armchairs, are designed to be gathering
places. They are staffed by high-energy "brand reps" recruited from
local campuses and dressed in A&F clothes. Selling skills are not
required; the job is to look good wearing the company's brand and to
have fun inside the store. In some sense, the merchandise is
supposed to sell itself.
A&F's main promotional tool has been its controversial
quarterly magazine-catalog crammed with product information, sexual
imagery, and provocative articles (such as "Condoms in ample supply"
and "Drinking 101"). Large blowups of enticing photographs from the
magalog appear in store displays. This potent combination of
aggressive merchandising, imagery, and promotion gave A&F's stock a
handsome price premium. It also allowed the company to clock
double-digit annual growth in comparable-store sales in the late
1990s. But lackluster comparable-store performance in the fourth
quarter of 1999 suggests that A&F will have to work still harder to
keep essentially fickle customers loyal as Delia's, Gap, Old Navy,
and the like vie for their attention.
Another single-brand retailer with personality is Victoria's Secret,
whose well-known fashion models suffuse its underclothes with beauty
and sensuality. The salonlike feel of the stores and the very large
representations of popular models displayed in them project this
personality throughout the customer experience.
THE MULTIBRAND CHALLENGE
Evoking such powerful associations is much more difficult for
multibrand retailers, which don't shape and control every aspect of
the merchandise they sell or every instance of its exposure to the
public. Traditionally, multicategory retailers haven't aspired to
attain the indelible personalities of their vertical competitors but
have instead sought to distinguish themselves along functional
dimensions, such as price, convenience, and service.
But a new breed of multicategory retailer combining functional
benefits with the emotional and relationship benefits that give a
brand a true personality in the eyes of consumers has now emerged.
Two on-line grocers, Webvan and Streamline.com, are among the many
multibrand retailers seeking to build brands around the emotional
benefits—a life free of humdrum tasks like grocery shopping—that
functional benefits such as convenience, assortment, and rapid
customer service can provide. Webvan offers deliveries within 30
minutes as well as such specialty products as flowers, high-quality
prepared meals, cigars, and an extensive assortment of fine wines.
The emotional appeal of the two services is reflected in
Streamline's motto: "Life just became a whole lot simpler."
Kohl's, another successful multibrand retailer, racked up compound
annual growth of 22 percent in sales and 30 percent in net profits
between 1992 and 1998 by starting with a clear definition of its
target market. Focusing on customers for middle-market apparel, the
chain has carved out a distinct position between discounters and
department stores. Parquet floors, recessed lighting, and elegant
fixtures create a department store feel, and the merchandise on
display consists of well-known national apparel brands generally
offered at promotional prices. Kohl's has also tried to simplify the
shopping experience by locating its stores outside of crowded
regional shopping malls and by expediting the checkout process. The
chain's advertising tag line—"That's more like it"—helps make Kohl's
patrons feel like savvy shoppers.
Translating brand-building aspirations into reality calls for
management attention across the entire business system. Few
management teams are more focused on this issue than Wal-Mart's. The
retailer's store greeters and folksy style portray the chain as a
friendly and trusted partner in a complex world (Exhibit 3).
Wal-Mart honors the promises it makes—the lowest everyday price—by
stocking national brands at low prices in a down-home service
environment. To ensure that the goods offered at these prices are
actually available in the stores, the company has developed Retail
Link, an information system that informs both suppliers and store
managers of each product's inventory level, order status, and
location in the distribution system. The electronic sharing of data
permits buyers and store managers to plan precisely how to meet
demand in each store. Every Saturday morning, the company's senior
management takes part in a teleconference that focuses on the rapid
correction of lapses in supply-chain product deliveries. Wal-Mart
also assures a high level of service by offering performance-based
incentives to employees at virtually every level.
Target, the home-furnishings and apparel retailer, has also crafted
a clear brand personality, but one occupying upscale territory by
mass-merchandise standards. The chain aims to project a
trend-setting personality to families
though younger and more educated, fashion-aware, and affluent than
those shopping at Wal-Mart, are still value conscious. Target's
customers have come to expect well-designed branded and nonbranded
merchandise that can't be found in other discount stores—for
instance, kitchenware designed by the architect Michael Graves,
Stiffel lamps, and Mikasa tableware. The chain's awareness of
contemporary fashion springs from a trend-focused apparel team that
gets much of its inspiration from Europe. In a sign that consumers
understand the brand's image, some Target shoppers wryly pronounce
the chain's name with French fashion flair: "tar-ZHAY."
Once retailers have devised the value proposition and personality of
a brand, they must give it visibility. Target created its
"bull's-eye" ad campaign purely to build a brand image. The
conspicuous absence of products in these ads broke all conventions
of retail advertising; consumers instead encountered a vivid dancing
logo that associated the brand with a stylish contemporary
lifestyle. Such advertising, which places the brand and the promise
of the store ahead of its merchandise, is likely to become more
common in the industry.
Another important step in the brand-building process is assuring a
brand's proximity to consumers. For the sake of customers'
convenience, the office supply competitors Staples and Office Depot,
for example, have begun putting smaller stores in more locations,
expanding the definition of the brand by giving the consumer access
to a killer assortment of goods through whatever format or channel
best suits a given transaction. The culmination of this trend, of
course, is electronic commerce over the World Wide Web. Big-box
retailers in particular increasingly face the challenges of
multichannel management and the need to provide a consistent brand
statement across each channel. The ultimate mix of channels remains
to be seen.
~ ~ ~
It is impossible to imagine a retailer surviving and flourishing in
the years to come without creating a genuinely robust brand.
Establishing and communicating it is more difficult for multibrand
retailers than for their single-brand counterparts, but brand
building is essential for both. Senior managers must make building
the brand an integral part of how they think about the business,
whether they are deciding what their target segments will be or how
to speak to customers. Multibrand retailers must take back from
their vendors full responsibility for managing their banner brand.
Only then can they build and maintain all of the value-creation
potential of the names on their doors.
Teri Henderson is a principal
in McKinsey's Boston office, and Liz Mihas is a consultant
in the Chicago office. Copyright © 2000 McKinsey & Company. All
1. See David C. Court, Mark G. Leiter, and Mark A.
leverage," The McKinsey Quarterly, 1999 Number 2, pp.
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