Alloy hopes to charge up teens’ holiday shopping with promotions that include Delia’s stores.
Alloy fielded calls from soft drink, health and beauty care and financial services marketers just weeks after announcing its $50 million purchase of Delia’s Corp. “We’ve been exploring possibilities as quickly as we can” since the deal was announced in August, says Alloy president Matt Diamond. First work incorporating Delia’s is planned for holidays.
At the same time, the marketing conglomerate is mulling whether to spin off and expand its retail business separately from its marketing and media arm. “We’re considering separate companies with cross ownership but separate management,” Diamond says. “The benefit would be that focused management could expand the retail side, and that would benefit our media [and marketing] business.”
Delia’s $138 million retail business nearly doubles Alloy’s portfolio to $300 million, and extends Alloy’s reach to teens girls. Delia’s 14.6 million-name database, 64 retail stores and online/catalog operations complement Alloy’s own apparel and accessories sales and teen-marketing programs. (Alloy distributes 25 million to 30 million catalogs annually.) Delia’s storefronts — Alloy’s first foray into brick-and-mortar retail — also give Alloy-owned promo shops 360 Youth and AMP another venue for teen-targeted promos. Possibilities include in-store events and digital monitors, sampling via bag stuffers and mall events. AMP CEO Gary Colen and 360 Youth exec VP Derek White will oversee cross-promotion.
Delia’s piggybacked AMP’s work on Simon Property Group’s August-October mall concert tour, Simon Dtour Live. Delia’s sponsors a Henna Tattoo Station (alongside Sprite-sponsored concerts, a Cool Water by Davidoff surfing pavilion and a Strength Magazine video game pavilion). Boston-based AMP brought Delia’s in after Alloy’s bid.
“We’ve already got strength in retail promotion. Now we eat our own cooking,” Diamond says.
The real boon is Delia’s database. It’ll boost Alloy’s own 14 million-name file to 20 million (once duplicates are removed). “We can give advertisers mass-marketing opportunities, but then target it down to [individual teens with different interests]. It’s mass marketing at the grassroots,” Diamond says.
New York City-based Delia’s has been struggling, posting losses for the last three years. Sales fell 36% to $138 million in fiscal 2002 from $215 million in 2000 as the retailer sold off or shut down non-core business and its core-business sales stayed flat. Promotion pricing and weak second-half sales hurt Delia’s profit margins last year, per Delia’s SEC filings. Brick and mortar stores account for 51% of Delia’s sales, with online and catalog sales at 49%.
Alloy has already begun management changes, hiring former J. Crew COO Walter Killough, Jr. as Alloy senior VP to oversee the database merger and Delia’s integration into Alloy’s portfolio. COO Evan Guillemin returned to Delia’s in December 2002 to turn around its sales slump; he’ll stay on under Alloy.
Delia’s began restructuring its management team with Guillemin’s return, reorienting its product offering to regain brand positioning and stabilize its balance sheet. The company was nearly delisted from NASDAQ in May when its bid price on common stock fell below one dollar, NASDAQ ‘s minimum requirement. Alloy’s purchase rendered that moot.
Hip Shopping
Forget shelf space. Think igloos
Brands get top-trend treatment at Michael K., a Manhattan store-cum-stage that opened in SoHo in August. The store is built like a nightclub, with theatrical lighting and state-of-the-art sound and video systems. Stores-within-the-store merchandising looks more like entertainment: Puma shoes are shelved in coolers inside an igloo (because they’re, you know, “cool”). The North Face shop has an actual shower with a wind machine to let customers test outdoor and camping gear.
Throughout, marketers can take advantage of touch-screen monitors at every register (for polls or games); a broadcasting system that feeds music and video to 190 screens in the store, and another 12 screens across New York City; three stages for in-store performances; programmable lighting and fog machine; museum-style display cases; front-door story walls with video screens and display cases (for product placement); and a DJ booth with live music all hours the store is open.
Michael K. projects 40,000 shoppers per week, mostly 16- to 35-year-old urbanites. The store is owned by entrepreneur Haim Kedmi, whose company Gropius Group owns 13 other stores in New York, mostly urban sportswear and shoe stores.
Spare Change
Consumers may have more influence on trade promotion than the CPGs that spend $100 billion in trade dollars each year — and the retailers who collect it.
Cannondale Associates argues that marketers need to understand consumers in order to spend trade dollars effectively. Its annual Trade Promotion Industry Study — now in its tenth year — argues that packaged goods companies and retailers should focus on shoppers’ carts, not their own pockets, to set trade promotion strategy on the category, brand or even package level, and then align it with consumer promotion tactics.
“For too long, trade promotions have been simply about dollars spent and cases moved this week,” Cannondale says in its 2003 report. “There has been little or no focus on getting the right consumers to change their purchase behaviors to build the brand and category over the long term.”
Measure which consumers respond to offers and how promos change their behavior, advises the Wilton, CT-based trade marketing consultancy. “Only by understanding how promotion drives behavioral change, among key shopper groups and over time, can we use trade promotion to drive long-term volume growth,” Cannondale concludes.
The stakes are huge. Trade promotion accounts for an average 54% of 2003 total marketing budgets, and 17.4% of gross sales, Cannondale reports. (That’s up from the previous high of 53% in 1999, and 49% in 2002.) But the percentage passed on to consumers is slipping — down to 63% for 2003 from 70% in 1998, per retailers. (Manufacturers, however, say it’s about 55% this year, up from 47% in 1998.)
Retailers complain that CPGs don’t share the consumer data they need. Cannondale found that 86% of retailers want data on longer-term impact of promotions, but only 26% of manufacturers give it.
Some CPGs are already turning the ship. Procter & Gamble and Kraft Foods get high marks from retailers for their strategic approach and execution: 14.5% of retailers surveyed name P&G among the Top 3 manufacturers on strategy, and 13.3% name Kraft. (The third, General Mills, comes in at 7.9%). Retailers say clear promotion strategy, effective consumer programs, consumer insights and category perspective set leading manufacturers apart.
— Betsy Spethmann
Understand Who
Look beyond total volume lift to see how deals affect purchases by new buyers, lapsed buyers, brand loyals, switchers, competitors’ loyals. Which in-store tactics are most effective at reaching each audience?
Understand How
Different shoppers spur incremental volume for different reasons. New buyers mean new household penetration; that requires a different response than loyal buyers trading up a size.
Look Beyond the Deal
How do shoppers buying more (or more frequently) affect long-term consumption? Quantify this; distinguish it from planned purchases that have simply been shifted as shoppers take advantage of a lower price.
Measure Long-Term Effects
Find out how much promotional trial leads to full-price repeat purchases, and how much conditions shoppers to buy only on deal.
Assign a ‘Strategic Role of Trade’
Use data to set category or brand strategy to impact volume and consumer behavior. Build trial among new users; turn light users into more frequent purchasers; expand volume with loyal shoppers.
Align External/Internal
Trade promotion should work with consumers to sway a target audience. Use ads to spur trial, with promo tactics that build frequency.
Track and Evaluate Progress
Volume change will show right away; behavioral change takes longer to measure.
Source: Cannondale Associates
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