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Part 2

Hispanic Marketing
While there are controversies concerning the large Hispanic population in the United States, from an independent retail point of view, this represents a market that in many cases has not be addressed, and represents additional potential income. Not every retail market area has a significant Hispanic population, but the numbers are growing and are becoming more geographically diverse.

How can a retailer serve this market successfully?
“The Hispanic population this year has the largest disposable income of any minority,” says Industry Consultant and Crazy Mountain CEO Randy Eller. “I think at the retail level and the vendor level that people who study that market and react to it are going to be big winners. Do we know their culture? Do we know their holidays? Do we know how they celebrate birthdays, anniversaries, etc.?”

Doug Cofiell, president of Ivystone Group, comments, “To me it seems the Box stores are serving the ethnic markets a lot better than the independents.”
“And that is a shame,” adds Ivystone Group’s V.P. Michael Steidle. “Precious Moments is a big time collectible among the Hispanic market. We have some friends who are Hispanic, and she shops at a Hallmark shop that is part of a chain, and when I looked up the Precious Moments numbers for that store, it was the top performer for that chain. I pointed it out to the owner and he said, ‘We’ve always wonder why that was so.’ So, I think that store owners don’t realize what is driving the Hispanic market or making and attempt to capture it.”

“There are Ideation stores on the West Coast, says retailer and Ideation President Tom Ungrodt, “who have seen a change to a large Hispanic population and who have had to change their product mix and it has been a struggle for them. In time we are going to have to address that.”
But what are those changes that need to be made to serve this market?
Down in McAllen, Texas, where over 88 percent of the population of the Metropolitan Statistical Area is Hispanic, Bruce Leahy, a long-time specialty retailer, has found out how to cater to this audience.

Leahy currently has three Quips and Quotes retail stores, each about 11,000 to 15,000 sq.ft. in McAllen, which has an estimated population of about 125,000 people.

“I used to have nine stores,” says Leahy. “All Hallmark Gold Crown stores. Now I do more business with three than I did with nine. Hallmark doesn’t know how to market to Hispanics. They think that anything that works in Kansas City works everywhere. It isn’t so.

“For Hallmark, the Houston area was the lowest in greeting card sales, and south Texas [McAllen is only 10 minutes away from the Mexico/U.S. border] was the lowest of the low.

“Hispanics do not use social expressions such as cards. They have close knit families, often large, and they see each other often. If someone has a birthday they go to peoples’ houses. No one buys a birthday card. That’s more of a Gringo custom.

“The next thing is religion. They tend to be over 90% Catholic, and we sell a lot of religious merchandise. About two years ago, we enlarged our religious section by 50% and we doubled our sales. Needless to say, this year we’ve expanded it some more; Cathedral Art, Faith Collection, a lot of Demdaco. United [Designs] used to have stained-glass votive candles with the Holy Family on one and Our Lady of Guadalupe on another, and we sold tens of thousands of dollars of those. The Serenity Collection from Midwest — anything that has to do with faith, Christianity, and angels and saints, we do very will with. First Communion, confirmation, we do well with.

“Precious Moments is popular, and it has to do with family and sentiment—it’s in that gray area of religion. Mother’s Day is just phenomenal. Many families have five to eight siblings, and they are all very close. Mother’s Day is very big here.

“Mostly it’s about the right categories. But where it’s appropriate and an item comes in Spanish, we’ll buy some Spanish language products. We do very little with Spanish cards, they are just not into that.”

Leahy says that about 75% of the staff is bi-lingual and there’s always someone around to speak to someone in Spanish or English.

How did Leahy get to be so smart about marketing to Hispanics.

“I made of all of the mistakes, and some of them twice,” he jokes.

The fact that it is more about having the right categories rather than Spanish-language products should help retailers when they need to adjust their product mix.

Vendors haven’t yet paid a lot of attention to this market.
When asked if Midwest did much in the way of Hispanic products, CEO Rick Contino answered, “Not really. Our demographics are so broad and it is still a niche market. We’ve tried in various product lines, such as a more Hispanic-oriented grouping in our Christmas collection. It sells well in those areas with a large Hispanic population.”

At OneCoast, CEO Ted Teele says, “Hispanic we have not approached yet. But we have talked about it.”

The Market Has Changed
By all accounts, the Big Box stores changed the way Americans shop, and forced independent retailers to find ways to compete other than on price.
“I think the major change was a change in the shopping patterns of the female consumer,” says Alexis Bighley, president of Gift Creation Concepts. “That is the overwhelming change. She reduced the frequency of visits to the independent gift shop and card shop. And in doing that not only did the shop lose opportunities to sell merchandise, there was also a shift in the type of merchandise she would like to purchase. A dramatic shift away from collectibles and into more impulse type merchandise; merchandise under $25 retail.

“What led up to that? You can take many elements and combine them, but I think that the young, upwardly mobile female shopper just doesn’t have the time to shop. You just don’t see women having lunch and going out shopping like they used to do 20 years ago. They just don’t have the time.”

“The biggest trend I see,” says Ivystone Group’s Cofiell, “is not that identifiable—it is the change in the shopping habits of the frequent shopper. It revolves a lot around entertainment—if you look at children’s parties or dropping by someone’s house, everything is a gift-giving opportunity. And a lot of retailers have not adapted to that very well.

“Customers entertain so much these days that it takes up a lot of their time and social schedules that its almost impossible to fathom it. Every time you go to someone’s house you bring a chip-and-dip and a recipe. Not that many years ago, those kinds of products were not successful at the independent retail level.

Eller adds, “All of the demographic data I’ve seen shows the typical shopper truly goes everywhere. She’ll go to Wal•Mart and then turn around and go to specialty stores like Nordstrom and Saks. It doesn’t matter where she is going as long as we are fulfilling her needs when she is in our stores.”

“If you look a performance over the last several years, it has been the high-end stores like Nordstrom and Saks that have done well, and the low-end stores like Target are struggling. There’s no question that there is disposable income out there and that people are going to higher end stores to spend it.”

“We are changing faster than at any other time in history,” says OneCoast’s Teele, “because of four major impacts: rise of discounters and Big Boxes; the manufacture of products in Asia, especially in China; the Internet and e-commerce, and rising energy costs.

“This is a permanent shift, much like the change from railroads to airlines, which will create whole new markets and new winners, and people have to make the shift in order to prosper.”

“One of our vendors has the philosophy that they have to go where their shoppers go,” says Cofiell, “and I think that is completely right. They know their customers don’t go to the same places any more so they have to find out where that is to reach her.

“If you look at a line like Tag, they’re hitting that overall market and doing well. It’s the lifestyle. Now instead of having one set of formal china, the customers want four sets of everyday that they can match to the occasion. And people don’t care what they spend on that.
“That’s a big change.”
“I’ve seen a trend to gourmet products that are packaged to go as a gift,” says Ivystone Grooup’s Steidle. “It’s a hot category. It was one of the busiest areas in Atlanta. Something someone can grab and go.”

Staying Alive

If the industry has stabilized and is showing some growth, what are specialty retailers doing, or what should they be doing, to keep the momentum going?

“It all comes down to adding value,” says OneCoast’s Teele, “and I see that a lot more in more retailers. I see retailers being much more creative in doing events, making a visit to the store like going to a party, or providing another service, whether it is design services or printing services for a stationery store. They’re adding value. As [Thomas L.] Friedman asks in his book The World is Flat, ‘what’s your special sauce?’ Whatever people did to be different a few years ago isn’t good enough today, and I think that is a permanent shift.”

“We’re still event oriented,” says Ungrodt of his three retail stores. “We have regular monthly activities in the store, whether it is a simple thing like a sale, or we have artists, we have sales reps, or we have coordinated with some community event. We have really tried to be involved with the community and I think that today people really relate to that kind of marketing.

“The other thing is we believe strongly in developing our customer database and sending them printed pieces, whether it be fliers or catalogs. We never stop promoting. We spend about 5-6% of our volume on promotion. That’s the single most important thing we do.”

“Retailers are getting more innovative,” says Gift Creations Concepts’ Bighley. “The good ones are using their mailing lists more often for short, targeted mailings. Whether it is for events, sales, or something else. Some have gone to local electronic media such as radio, and a handful have said they’ve had very good results. These are in smaller communities. We’re encouraging them to use e-mail, which is very cost effective.

“No one talks to me about [the Internet] much. I think they’re getting more comfortable with the Web— 60% of our stores have websites. Of that 60% maybe 20 to 25% are actively using their sites. We’ve got to do better on the Web and e-mail as an industry.

“The other thing we have to do as an industry,” says Bighley, “is accept promotional pricing. Whether it’s 20% off or gift with purchase. It used to happen in our stores once or twice a year, and that is something we’re going to have to get used to using more often. And do it more targeted to the consumer—by direct mail and e-mail. And we need margin builders from vendors, too. We need the $5 item you can sell for $19.95 and then put it on sale for $14.95 and still make a profit. We discovered Transpac a few years ago and they’re wonderful in this respect.”

“We haven’t evolved as an industry as aggressively as we should,” says Ungrodt. “From a merchandising standpoint we seem to chase trends more than we establish them. I would hope that we can become trendsetters in some of the marketplace.

“Secondly we have not evolved as far as we should have on the bottom line. Our margins are still roughly the same as they were 15 to 20 years ago. As a team, retailers, importers, vendors, have to start looking at things and build margins to allow us to grow our business. Keystone of 50% or even 55% just isn’t enough with rising rents, taxes and minimum wages. We just don’t have the margins we need to reinvest and build the business the way we should.”

According to Eller, “It’s a combination of events and service. Ten to 15 years ago retailing was all about putting up nice looking displays and just opening the doors and waiting at the cash register. Today, the retailer’s No. 1 job is just getting traffic into the store.

“A lot of retailers worry too much about their prices and product selection,” says Eller. “This industry produces some great product, and the prices aren’t bad, but the challenge is if there is enough traffic into the store to see that product. Your No. 1 thought when you look in the mirror in the morning should be ‘How am I going to drive more traffic into my store today?’ And that means special events, and working closely with the community, and doing things the Box stores can’t do. When you tie a promotion in your store to kids doing something in your community then you have tied yourself to the heart of the community that controls the purse. Some of the most successful retailers I know are all about helping the kids in the community. The Big Boxes can’t do it.

“Every community has a high school, and every high school has a band, and they are all going to the Rose Bowl this year and need to raise money.”

“The biggest challenge I see today is a void in creativity at the retail end,” says Michael Russo, president of the Gift Association of America, and Help! columnist for Giftware News. “Some of the stores have nice merchandise, but their ability to create eye-catching displays has taken a vacation. The stores are boring. Example, one store I visit has a large wall, maybe 20 feet of candles. But it looks like they took one style of candle and ran it for 20 feet in a bunch of different colors. There’s nothing to entice me to buy.”

The Aging Factor

The specialty retail shop tends to be owned by middle-aged or older people. What does this mean for the future?

“When I look at our customers [of Gift Creations Concepts],” says Bighley, “they’ve owned their stores for 20 years or more. That’s a long time. And usually it is a second or third career. In most cases independent retailers weren’t trained in retailing.

If you have 10 years in another career and 20 years in retailing, that easily puts you in the 50-something age range.

“We are beginning to see a few more of our customers who have children who are interested in taking over the business. They’ve tried other careers and now they’re interested. Maybe it’s the diversity of the product, I don’t know.”

“I think the store owners still seem pretty middle-aged,” says Russo.

“Basically, they are hiring younger people to work in the shop, but the owner/buyer is still middle aged. I’m afraid that they aren’t listening to the younger people who I think have some very exciting ideas.

“Some of the young people I’ve talked to are excited and fun to talk to. Someday they’ll have their own shop. What’s great about them, too,” says Russo, “is instead of staying behind the counter, they actually come out they are interested in engaging you in conversation. Years ago that wasn’t the case. It’s a breath of fresh air.

“That’s good. They are seeing that it works to build business for them,” he concludes.

Cofiell says, “I think things will change over time. People ask me if our business is going to disappear, that it can’t be sustained. And I say ‘no,’ because I think the entrepreneurial spirit in America is such that when it sees a need it jumps in to fill it. I think the need just isn’t that great at this point, but it will be, and we’ll start to see a newer breed of retailers. I don’t think they will do the same things [as older ones]; I don’t think they’ll be as much in a box. They’ll think much more about their shoppers. Right now I think that is the biggest mistake being made: they aren’t thinking about their customers enough.”

Tech Talk

Electronic technology, especially the Internet, continues to affect independent retailers, and will grow as the years go by. While some retailers are hesitant to fully embrace some of the new technology, there is little doubt that it will make retailers’ lives easier, and in many cases richer, as they offer more services and increase sales.

“Yes we are seeing [technology] creeping in,” says Mike Russo, “but it is still causing some confusion. The tech people still don’t understand that the people in the stores need hand holding. They aren’t going to wake up the next day and understand all this stuff. The middle-aged and older owners are still a little bit nervous and not really sure that they are doing things right. The younger ones pick it up a lot quicker.

“What I’d like to see happen,” continues Russo, “is for the older owners to understand that once they get a grip on technology they will actually carve out extra time for themselves in their work day. It cuts a lot of tasks in half.

“A lot of inquiries we get at the Gift Association are for the point of sale (POS) systems. And they want it to do everything now. They want it to capture as much information as possible, which I think is good. They’re able to generate customer lists, they’re able to see what categories are selling so they can plan better when they buy, they can calculate their open to buy much more accurately. That’s what’s really going to help them.”

“With the information age and POS systems out there that are affordable,” says Ungrodt, “retailers are doing a much better job of tracking things better than they ever had.”

Speaking somewhat prophetically, OneCoast’s Teele said, “Something you can expect to see coming soon, is vendors supporting the websites of their retailers. In terms of managing content, and drop shipping. The content comes right out of the vendor’s site and onto the retailer’s site. When someone buys from that site it is drop shipped form the vendor.”And that is exactly what is happening right now with several vendors and Web developers.

According to Ryp Walters at OverCoffee Productions (www.overcoffee.com), drop shipping has long been considered a challenge for many manufacturers as it was time consuming and tedious, although retailers often requested the option. OverCoffee Productions is now introducing its Drop Shipping and Virtual Store program to manufacturers and retailers as a way to make drop shipping a turnkey and streamlined process for retailers and manufacturers.

Basically, a retailer works with manufacturers with which she or he already has established accounts. OverCoffee will help the retailer choose a template for the retailer’s website, and get it up and running. This also works for retailers who already have a website.

The vendors then load images and content onto a master site that automatically loads and updates the retailer’s website.

When a customer visits the retailer’s website and places an order, the order is drop shipped from the vendor with the retailer’s label on it.

The margins are a little smaller, maybe half, than a direct in-store sale, but it is another sale without a lot of extra work.

The products, inventory levels and merchandising are all controlled by the vendor, but the consumer still works directly with the retailer’s website — making it a turnkey program for the retailers and allowing them branding control, too.

“Manufacturers are able to provide a great experience to their retailers,” says Walters, “by allowing their customers more opportunities to purchase from them without the retailer having to carry all of the manufacturer’s inventory in their shops or warehouses.”

“The whole experience is a win-win-win solution,” says Walters. “A manufacturer can provide a level of service to its retailers that it’s never had before, its retailers can offer a level of fulfillment to their customers that they’ve never had before, and their customers are happy to receive their orders as quickly as possible.

“Drop shipping through our virtual stores has made the whole concept easier for manufacturers to be able to introduce this option to their retailers,” says Walters. “By offering this option to their retailers, manufacturers can help increase the selection of their products in the marketplace while still allowing the retailer the recognition it needs with their customer.”

Several vendors are already beginning to use this program, and vendors using the program can determine how retailers can qualify to participate. Based on qualifications, a monthly fee and commission fee will be determined.

Another benefit to OverCoffee’s clients is that this program will work well with OverCoffee’s Personalization Engine whereby a customer can customize a product online through a retailer’s website. The customer can see the product as it is being created, and approve the final design before it’s ordered. The manufacturer can then take the designed piece, produce it, and ship it directly to the customer.

One vendor who is offering to build and host a website for retailers is Oddity Inc., a vendor of candles, candle accessories and home decor. For under $200 a year, Oddity will build, register and host the retailer’s site. There are 10 templates from which to choose. It becomes “Your Shop Name’s Oddity Store” on the Web.Oddity hosts it, they keep it up to date with product, they process the credit card orders and they drop ship the product to the customer. The retailer gets 35 percent of the retail price without any expenses.

If a retailer already has a website, they just put a link to their Oddity Store and they can take advantage of all the features without having to change their website.

According to Scott Williams, president of Oddity, “We get a lot of phone calls from consumers asking where they can get the product. We’d try to find one for them, and then the retailer wouldn’t have the product in stock. This way, with an Oddity Store site, a retailer is always in stock and we can direct consumers to their website.” It’s another win-win situation.

What’s does the future hold? Predictions are that you will see in-store kiosks where customers order online for a product to be dropped shipped to them. This puts a virtual store inside a bricks-and-mortar store.

In the stationery arena, companies are offering a slew of technological advances for retailers and their customers. For example, at the National Stationery Show this year, Epson presented its imaging technologies that enables retailers to have their customers instantly print custom invitations, greeting cards and more. The Paper Menu (251/479-2993) created a personalized gift wrap that allows customers to put their own images on gift wrap.

The Internet also provides a host of opportunities for retailers to communicate and learn from other retailers and industry experts.
Just starting up is RetailSpeaks a website forum (www.retailspeaks.com) established by Cinda Baxter, a stationery retailer in Minnesota. Here retailers can share information with each other in a closed, secure setting, rather than an open blog. The cost is $40 per year to join, and there are some restrictions so that it is strictly small independent retailers talking to each other.

And in September, the Gift and Home Channel was launched on the Web at www.giftandhomechannel.com. This website, designed specifically for the independent retailer, has on-demand video segments about visual merchandising, customer service, product information and more.

As GCC’s Bighley says, “There are fascinating things on the Internet. Things on retailing that can be adapted to stores. And often not from our industry. If you’re going to make all your money the last 90 days of the year, you have to find ways to satisfy customers for the other times, too.”

What’s Ahead?

With changes going on in China, manufacturers planning to go direct, drop-shipping programs coming online, and technology finding new ways to do things in a retail setting—you just know things are going to change.

As the author and scientist Isaac Asimov said, “The only constant is change, continuing change, inevitable change.... No sensible decision can be made any longer without taking into account not only the world as it is, but the world as it will be.”

Fasten your seatbelt.