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Industry News - March 18, 2008



Cost-Cutting Consumers Trade Down from Steak to Chicken
Reports from retailers across many sectors indicate that consumers are trading down in their shopping behavior. With the housing downturn, weakening labor markets and surging energy costs, the trading down behavior is having a major impact on retailing, presenting opportunities for some chains and challenges for others.

According to Deborah Weinswig, Retailing / Broadlines, Food & Drug, and Home Improvement, Citi Investment Research, trading down behavior affects all consumers, which leads to belt tightening and bargain hunting, and can be broken down into four key bullet points.

“Trading Down” to Private Label
Private label has become more appealing to consumers, as the quality and packaging of store-branded products has significantly improved. Prices are also typically 20% lower than like-branded items. Safeway Stores recently noted that its corporate brands have gained share and that this was an industry phenomenon. Similarly, Target commented that private label penetration increased 300 bps in 2007 from 15% to 18%. BJ’s and Costco both mentioned food and health and beauty products have gained market share.

“Trading Down” to Lower-Priced Products
Warehouse clubs and food retailers have all commented that they are experiencing trading down from “steak to chicken.” With food inflation estimated to increase 3.5% to 4.5% in 2008, higher food prices will likely force more consumers to buy less expensive foods. The USDA forecasts could prove to be low, since food inflation was already 5.8% in January 2008.

“Trading Down” to Cheaper Channels
This type of "trading down" includes switching to lower-priced channels. Around the last recession, Wal-Mart outcomped Target almost every month (5/00-7/03) and that reversed when the economy strengthened (8/03-11/07). Now for 3 months in a row, we have seen Wal-Mart outcomp Target and we believe this is the beginning of a longer-term trend. This observation was part of the thesis for our recent downgrade of Target.

“Trading In” From Restaurants
In 2007, food-at-home share of the consumer’s overall food expenditures increased for the first time since 2001 to 53.2% (the highest share since 1997), representing a +210 basis points year-over-year increase (the highest year-over-year increase in food-at-home share since the 1940s). Most recently, January food-at-home share further expanded to 54.6%.

In an economic climate as turbulent as this one, it is likely that luxury retailers will not significantly lose their shopper base and low price retailers stand to gain from the trading down shift. However, retailers in the middle of the spectrum are likely to feel the squeeze. Retailers such as Nordstroms, Tiffany’s and Neiman Marcus in the luxury field and low-price, value retailers such as Wal-Mart, Costco and BJ’s will capitalize on the shift. But mid-price retailers like Kohl’s, The Gap and Target can expect to feel the affects of “trading down” behavior.

-Christina Zarrello


Ahold USA Boosts Retail Business Transformation Initiative with Consulting
Ahold USA selects Capgemini and Enabler Wipro to jointly provide consulting and integration services to support Ahold’s transformation initiatives onto an Oracle platform. The Oracle Retail enterprise-wide system will replace a mix of packaged and custom applications. Capgemini, a provider of consulting, technology and outsourcing services and Enabler Wipro, an IT and business services company, have signed a multi-year consulting and systems integration agreement with Ahold. Capgemini and Enabler Wipro will drive the deployment of Oracle Retail applications and implement strategies designed to differentiate Ahold brands within the U.S. market. Ahold deploys Capgemini and Enabler Wipro to support its domestic strategic initiatives across a broad range of areas including merchandising, supply chain, store operations, planning and analysis.

Sports Authority Adds IBM Self-Service Kiosks
Sports Authority uses ski-lift ticketing kiosks to reduce shoppers’ lift ticket purchase times. The athletics retailer uses IBM self-service kiosks to provide skiers and snowboarders a faster, easier way to purchase ski-lift tickets. Twenty-four Colorado-based Sports Authority stores installed the IBM AnyPlace Kiosks, running Livewire interactive software. The software enables the company to automate a manual system and significantly reduce the amount of time ski-lift ticket-shoppers stand in line. In the four months since installing the new kiosks, ticket sales have increased 500 percent over last year’s numbers, according to Sports Authority.

IGA Northwest Supermarkets Add Promotion Planning and Optimization Tool
IGA Northwest Supermarkets, a collection of more than 70 stores located across seven western states, choose the Revionics Promotion Planning and Optimization tool. IGA Northwest Supermarkets are supplied and supported by SUPERVALU. IGA Northwest Supermarkets leverages Revionics’ Software-as-a-Service promotional service to aggregate and analyze promotional activity for all members. The implementation allows the Ad Group to act as a single promotional entity.

Zappos.com Adds Mobile Fulfillment System
Zappos.com implements a mobile fulfillment system to ramp order volume. The online retailer chooses Kiva Systems, a developer of mobile solutions for the distribution and order fulfillment industry. The retailer installed a Kiva Mobile Fulfillment System at one of the company’s distribution centers. Zappos plans to use Kiva’s ItemFetch split-case picking system and OrderFetch shipping sorter at its Shepherdsville, KY-based facility to store, move and sort a variety of products, including shoes, apparel and accessories.

More Technology News


Alien Technology Enters Expanded RFID Integration Agreement with SATO
Alien Technology, a provider of Radio Frequency Identification (RFID) UHF products and services, has entered into an expanded RFID reseller and systems integration agreement with SATO America. SATO America is an Automatic Identification and Data Collection (AIDC) provider of barcode printing, labeling and EPC/RFID solutions. SATO America has expanded its product offering to include complete RFID integration solution services with tags and readers from Alien Technology. As part of its expanded relationship with Alien Technology, SATO now offers supply chain customers access to Alien’s portfolio of Squiggle tags, powered by the Alien H2 chip.

ECRS Provides Self-Checkout to Independent Retailers
ECRS introduces self-checkout for independent retailers and integrates its enterprise retail automation software, Catapult and its stand-alone self-checkout solution, QUICKcheck. The merging of these two ECRS products creates a complete retail automation suite for small to mid-size retailers. The ECRS self-checkout solution offers features such as a self-learning weight security system, a bilingual user interface and an attendant workstation component, which allows the attendant to monitor and control each station from across the room. QUICKcheck also can be quickly converted into a fully functional cashier POS station if needed. The compact ePay Kiosk is designed for smaller stores with limited square footage that want to add a faster checkout option for customers paying with credit, debit or FSA.

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