Retail Insights

Birth, Life and Death: A Retail Cycle

murraysRob Kaufelt walked into Murray’s Cheese on Bleecker Street in New York’s Greenwich Village in the early ’90s and noticed a sign saying the store was closing after a 50-year run. The owners were tired, the neighborhood was changing, and the lease was up. Rob came from a family of grocers. He was a deli man who was used to getting up early and, at that moment, was out of work. His latest store had failed. On a whim, Rob made an offer on the business and was shocked when it was accepted. He moved it across the street for cheaper rent and started cutting cheese.

One thing led to another: Cheese classes, catering, wholesaling to restaurants, an e-commerce business, an outpost in Grand Central Terminal, a Murray’s Cheese Bar restaurant, and a deal with Kroger. By the end of 2015, there will be some 250 Murray’s Cheese outposts in Kroger stores across the country. Rob and Murray’s are evangelically getting Americans past Vermont cheddar and Wisconsin flavored Jacks. Whoever Murray was, he probably couldn’t imagine cheese becoming so chic, and his family is likely regretting not keeping at least a piece of the action. Rob, needless to say, is doing very well and has more grown-up toys than any man I know.

The Circle of Life

Retail is historically about birth, life, and death. Most merchant empires rarely last 50 years. The pages of The Robin Report have recently been filled with near-death notices, most of them well deserved. Retail, as we know it, is under tremendous pressure. So much of what we consume is now subject to commodity pricing. If the markup on a scarf is 2,000 percent and the markup on a Nissan is 3 percent, which one is fair? The Nissan may be sold on the presumption that the dealership makes its money on services and parts. The cars sold, regardless of price, are mostly engines providing future revenue, not unlike printers with their expensive and frequently replaced ink cartridges. That scarf is subject to the taste of the buyer, and the context and skill in which it is merchandised or romanced at the point of sale determines its value. And it is a one-shot sale without a sustainable aftermarket.

Lowest Common Denominator

In many of the global big-box channels, the operative marketing strategy is price matching. Waitrose with Tesco; Best Buy with everybody. It is a slow poison drip as margins decline and more costs have to be wrung out of the supply chain. Most consumers have no idea how retail works. We all know the basics of buying for one price and selling for another. We know what flipping a house is, and somehow that price differential is acceptable to us.

In between sales margins, there is customer service, a memorable selling environment, a passion for products and, most importantly, the cold cash. A successful luxury goods store associate generally has a personal book of customers. These über sales people know what their best customers like and what they are willing to spend. These associates can make six-figure incomes and, although they may appear to be obsequious in the store, they are laughing all the way to the bank. So much of the art of retail is the magical smoke that overcompensates for the margin.

The smoke, however, is clearing.

Transparency

In luxury goods, the fight to maintain price consistency is being lost. Across cyberspace, the selling of discounted branded luxury goods is proliferating. Twenty years ago, there was a grey market in goods that “fell off the truck.” The market was about closeouts and merchants finding ways of dealing with the need for quick cash. In 2015, the market for luxury goods has exploded, and with it, the ability to control who gets what, at what price, has almost disappeared. The same factory that manufactures for LVMH from 8AM to 8PM is making knockoffs from midnight to dawn. (Which sets up the very interesting question about what really defines a counterfeit.) The same handbag sells for different prices in Shanghai, Tokyo, Paris and New York. The savvy 21st century buyer knows this and spends her money accordingly.

Pattern Recognition

All the constructs that have governed retail for centuries are coming apart. Thanks to the Internet, we have access to pricing information. Our shopping trips are becoming boring, repetitive commodity-based experiences. After all, what is a commodity? It’s anything that is purchased regularly and needs no accompanying personal service. Think about what you buy at the grocery store. Once we reach a certain age, roughly 80% of our purchases are routine. Why should we have to keep going back to acquire the same old stuff in the same non-efficient manner? I’ve made the argument on these pages before that grocery as we know it is ripe for reinvention.

And then there’s the case for connoisseurship. We all know the difference between a good haircut and a bad one; the defining question is whether we care. Wine comes in a standard-sized bottle. We can easily taste and see the difference between a plonk or a “Two-Buck Chuck” from Trader Joe’s and a $15 Malbec from Argentina. But very few of us can distinguish the difference between that Malbec and one at twice the price.

Authenticity

Yet in the midst of this, we have Murray’s Cheese, which is booming. Several cautionary points. The product is artisanal; Rob buys from small suppliers across the world. Every store doesn’t necessary get the same stuff because cheese by nature is seasonal and regional. Cheese has no standard size. We buy it at the discretion of the cutter, so a little blue goes a long way. Cheese making at its best is a craft, not an industry. Dannon can complain about flat sales for its extraordinarily bland product, but Murray’s can sell locally made yogurt in the cheese section at a premium price. Artisanal foods escape commodity status and price comparisons. And this phenomenon is a huge cultural trend among Millennials who search for unique, artisanal, well-crafted products and services.

Murray’s Cheese on Bleecker Street is an epicurean destination for North American foodies. It is a happy place. Its customer service ratings from Zagat are off the charts. The only not-so-happy people inside the store are the kids in strollers. The cutters hand out samples; the delicious, fragrant scent stays in your hair for hours. The take-a-number system lets you browse while you wait. There is a classroom on the mezzanine overlooking the store where the cheese-tasting school is conducted. I call it a legalized introduction to up-market dairy dependence.

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Natural Selection

I’m an optimist. Retailing is here to stay. There are some experiences that cannot be had on a computer, tablet or phone. Someone is always going to be reinventing. Retail is constantly evolving; it’s survival of the fittest with the strongest experiential genes. Look at the brighter side. Each bankruptcy frees up people and real estate. It’s open season for new ideas. I like to think of it as business composting.

Retailers on the top 10 list of merchants for each of the past five decades have changed with great regularity. Each decade, players in the top 10 have disappeared. Who ranks No. 1 changes only every 10 years. When you’re good, you deserve to stay on top.

My 13-year-old stepdaughter, whose phone is grafted to her left hand, still lights up when mom offers to take her shopping. Kids recognize a good experience when they have one. And they can sniff out a fake in a heartbeat.

My message: Let the giants crash and let the retail garden be renewed. Composting is good for the environment.

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