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Case A3: Abercrombie & Fitch: Hiring for Looks

Clothing retailer Abercrombie & Fitch often recruited on college campuses and in the mall to find attractive young people and then urged them to apply for jobs. This company, known for building an attractive workforce, did so by aggressively hiring pretty young women and handsome young men to match their all-American brand image. Abercrombie & Fitch refers to these great-looking sales associates as brand ambassadors. They project the retailer’s brand and make the store a better experience for customers.

Is seeking good-looking employees a necessary trend in the retail industry? Is hiring an attractive sales force a smart and necessary practice to differentiate the store in the competitive retail environment? Do salespeople need to mirror the images seen in the retailer’s catalog and home page? Does all-American mean thin, tall, and white with blonde hair and blue eyes? If the store has great-looking college students working in the store, will others want to shop there? How important are retail experience and ability versus a pretty face?

In seeking good-looking employees, companies are risking lawsuits for discriminatory hiring practices. Hiring attractive people is not illegal, but discrimination on the basis of age, gender, race, national origin, disability, or ethnicity is. Employers may establish and enforce grooming and appearance standards. Exceptions to Title VII are possible if the employer can prove that one of the protected characteristics is a bona fide occupational qualification.

In 2003, Abercrombie & Fitch was named in two class-action lawsuits alleging discriminatory hiring practices. Black, Asian, and Latino plaintiffs alleged that they were denied sales associated positions. These workers were directed to low-visibility jobs in the stock room or maintenances department.

Abercrombie & Fitch did not admit guilt and denies that it engaged in any discriminatory practices but settled these cases for $40 million distributed to several thousand minority and female plaintiffs. The company agreed to appoint a vice president for diversity, use benchmarks, train all hiring managers, and hire 25 diversity recruits in an attempt to alter its white, all-American image and more accurately reflect the applicant pool in its stores. The settlement also calls for Abercrombie & Fitch to increase diversity in its promotional materials.

DISCUSSION QUESTIONS

1. Why would Abercrombie & Fitch want to hire employees with a certain look?

2. From a business perspective, do you think this is a good idea? What about from an ethical perspective or a legal perspective?

Case A4: Salon-Only Hair Care Products Found Outside the Salon

High-end, salon-only hair care products have been showing up on the shelves at grocery stores, discounters, and drugstores. Premium brands such as Nexxus, Paul Mitchell, Redken, Rusk, and Sebastian are clearly marked with “For Sale in Professional Salons Only.” However, these brands are being sold through mass-market chains in addition to the exclusive salon-only channel. This practice is known as diverting products from the intended channel of distribution.

Is this practice illegal? Currently there is no legislation prohibiting mass retailers from selling premium brands. Because a strong gray market exists for professional hair care products, drug chains, discounters, and food retailers offer salon-only brands in the same health and beauty aisles as the mass-market hair care brands. These high-demand hair care lines are also available through online retail sites.

When beauty supply distributors or wholesalers break contractual agreements with manufacturers, the makers of salon-only brands lose millions of dollars and risk their exclusive brand image and reputation when their products are sold in stores. Improperly diverted hair care products are estimated to be valued at up to $800 million of the industry’s $29 billion in annual sales.

On the Paul Mitchell Web site (www.paulmitchell.com), the company is reminding customers to fight against the manufacturing, distribution, and retailing of counterfeit products through its Product Control Campaign. This education program is designed to warn customers of the possible danger of purchasing the Paul Mitchell brand from intermediaries other than professional salons. The risks associated with purchasing diverted products include possible tampering, expiration, contamination, or substitution.

DISCUSSION QUESTIONS

1. How do customers, manufacturers, salons, and retailers react to the practice of diverting “salon-only” products to discounters, drug chains, and grocery stores?

2. Will the education campaign launched by Paul Mitchell change where consumers shop for professional hair care products? Explain your rationale.

Case A5: SaksFirst Builds Customer Relationships

It’s Wednesday afternoon, and as usual, Gwendolyn has a fitting room ready for Mrs. Johnson. She has picked out some of the new items in Mrs. Johnson’s size that came in the previous week. She has everything from scarves to jewelry to shoes ready to go along with the outfits.

“Good evening, Mrs. Johnson. So how was your birthday?” Gwen asked.

“It was wonderful. My husband took me to Italy. Thank you for the card.”

“I pulled some new items for you to try on.” Gwendolyn said.

“Thank you, Gwen. You are the best!” replied Mrs. Johnson.

The reason Mrs. Johnson has such a friendly relationship with Gwen is because Mrs. Johnson is a regular customer and a SaksFirst member.

Saks Fifth Avenue started in the early twentieth century. Saks is considered the epitome of class, style, and luxury. When customers go to Saks, they receive excellent customer service, when they join SaksFirst – started in 1994 – they also receive a lot of additional benefits. SaksFirst is a preferred customer program that helps facilitate more personal customer sales associate relationships.

To become a member, a customer has to have a Saks Fifth Avenue credit card, and once she or he spends at least $1,000 a year, the customer is automatically enrolled. For every dollar spent, the customer will receive a reward point. At the end of the year, preferred customers receive 2, 4, or 6 percent in bonus points based on how much they charged that year above $5,000 at Saks.

SaksFirst customers receive many exclusive benefits. The tangible benefits include the points, rewards, and discounts. Customers also receive complimentary shipping and delivery for catalog and online orders, advance notice of sale events, the SaksFirst newsletter, catalogs, promotions and giveaways, double- and triple-point events, and double points on their birthdays. The intangible benefits include recognition and preferential treatment.

For the retailer, the main purpose of the SaksFirst program is to promote excellent customer service. The better the relationship between the customer and the sales associates, the more money loyal customers will spend. Every year there is a triple-point event in the first week of November. That one-day event accounts for the highest volume sales day of the year, higher than the day after Thanksgiving or Christmas. Knowing this, the company understands the importance of the preferred program.

The SaksFirst program can also be used by sales associated as a selling tool. If a customer is uneasy about purchasing large-ticket items, the sales associate can remind the member of the bonus certificate that will return a percentage of the cost. Sales associates are motivated to enroll as many of their customers as they can because they are given incentives such as “lottery tickets” that are redeemed for cash.

DISCUSSION QUESTIONS

1. How does SaksFirst build loyalty for Saks Fifth Avenue versus other upscale retailers (such as Nordstrom)?

2. How effective is the SaksFirst program in developing customer loyalty?

3. Whom should Saks target the SaksFirst program toward?

4. Is the SaksFirst program worth what it spends giving back to customers?

Case A6: Men’s Wearhouse: Adding Complementary Merchandise and Services to Bring Value to Customers

Men’s Wearhouse, Inc. is one of the largest discount men’s apparel companies in North America. The first location of this men’s specialty store was opened in August 1973 in a strip shopping center near Houston, Texas. Thirty years later, Men’s Wearhouse operates 693 stores in 44 states in America and 10 provinces in Canada under the Men’s Wearhouse, K&G and Moore’s brand names.

MERCHANDISE

Men’s Wearhouse sells high-quality men’s clothing at prices 20 to 30 percent lower than department stores. This retailer specializes in suits and other tailored business apparel. Other merchandise offered includes dress shirts, slacks, sports jackets, and sweaters. As many businesses moved to a more casual dress code, Men’s Wearhouse responded by increasing the casual dress code, Men’s Wearhouse responded by increasing the casual business clothing selections in its stores. This retailer offers both national branded attire and its own private-label brands. Men’s Wearhouse also sells accessories such as ties, belts, and shoes. In 1994, the company successfully added Big-and-Tall sizes to its product offerings.

LOCATION

Men’s Wearhouse stores are located in strip shopping centers adjacent to residential areas. This proximity to the shopper’s home is a benefit for customers who must visit the store twice, once to select a suit and a second time to pick up the garment after it has been altered. Locating outside of malls in strip shopping centers allows for a generous store size (between 4,000 and 4,500 square feet) while still controlling costs associated with rent. Executives at Men’s Wearhouse also observed that men prefer to stay away from a crowded mall when shopping for clothing.

PROMOTION

Men’s Wearhouse uses a variety of media to inform and remind customers about its stores, merchandise, and sales events. The company’s founder, Chairman, and CEO, George Zimmer, is the gravelly voiced spokesperson featured in both television and radio advertisements espousing the company’s memorable tag line, “You’re going to like the way you look. I guarantee it.”

SERVICES

Men’s Wearhouse is known for having a well-trained sales staff that can assist customers with their wardrobe selection. In addition to helpful sales associated, each tailored item can be brought back to the store for free pressing when needed. All stores have an in-house tailor to make the necessary alterations to ensure the desired fit for each garment. Another service offered at Men’s Wearhouse is the Perfect Fit Credit Card loyalty program. This frequent shopper program lets repeat customers charge their purchases, earn points toward discount coupons, and save 5 percent on all purchases placed on the card.

GROWTH STRATEGIES

One of the most profitable additions to the services provided by Men’s Wearhouse is the tuxedo rental business. Men’s formalwear has been offered since 1999 in the United States and represented $51 million in sales in 2003. This service offering has been so strong that in encouraged the company to expand the floor space in the stores, move into the dry cleaning arena, and being a test for women’s bridal wear.

Because tuxedos need to be dry cleaned between each prom and wedding party, Men’s Wearhouse quickly saw the importance of acquiring a dry cleaning chain and expanding into this business. Currently, the $7 billion dry cleaning industry is comprised primarily of small, single-facility, family-owned operations.

To launch the women’s formalwear concept, Men’s Wearhouse is test marketing two locations of its new bridal shop, Bride and Joy, in California. These stores will offer convenient shopping for the women in the bridal party including the bride, bride’s maids, and the mother of the bride. The test stores will be located next door to Men’s Wearhouses in approximately 3,000 square foot stores.

DISCUSSION QUESTIONS

1. Men’s Wearhouse successfully added tuxedo rental to its merchandise offerings in 1999. Now this retailer plans to add women’s bridal wear and the service of dry cleaning. List the pros and cons for each of these growth strategies.

2. What other merchandise and services could Men’s Wearhouse add to reach a new segment of the market, benefit customers, and grow its business?

Case A7: Borders Bookstore: A Merchandise Display Problem

Michael Chaim, general manager of the Borders Bookstore in Madison, Wisconsin, was proud of his store. Located in a city that has one of the highest levels of book purchases per capita, Chaim felt Borders’ selection; services and location near the 40,000-student university served the community well. Even with competitive pressure from the newly opened Barnes & Noble on the west side of town, his bookstore/café was often a busy place.

Chaim was taken aback when an article in a widely read alternative newspaper criticized the bookstore’s merchandise arrangement as being prejudiced. The store carries a large selection of literature and poetry, but it separates some specialty categories, such as African American literature, gay and lesbian literature and feminist literature, from the general literature and poetry sections. In part, this arrangement reflects Borders’ college town roots in Ann Arbor, Michigan, where specialty collections were established to match course offerings.

The article described this arrangement as “ghettoizing” authors who were not white males, though some female authors were in the general literature and poetry sections. The article and some follow-up letters to the newspaper’s editor derided Borders for the few “nontraditional” authors who made it into the general literature collection.

They felt that these African American, homosexual, Native American, and other nontraditional writers probably would not have been separated from the general collection had the management known the literature better. While Madison is known as a very liberal community, Chaim thought the accusation was unfair. He strongly believed that he was doing his customers a service in highlighting authors and literary genres that might be overlooked in a large, nondifferentiated collection. More immediately, he knew that he should respond to the article’s accusations.

Discussion Questions

1. Although Chaim has several options, one is to duplicate the titles that could be shelved in either the general literature collection or a specialty collection. What are the advantages and disadvantages of this tactic?

2. The Borders store described in this case is in a college town. How should the merchandise be arranged in a different location, such as a suburban residential location or a more urban setting?

Case A8: The Gap and Old Navy

donald fisher and wife launched The Gap in 1969. Initially, The Gap stores were unique in offering every size and style of Levi’s, arranged by size for convenience. When the teen-jean craze slowed in the mid-1970s, stores were repositioned for people interested in a fashionable, causal lifestyle. Donald Fisher, then CEO, and Mickey Drexler, then president, added other chains to The Gap portfolio of specialty apparel stores: Banana Republic and Old Navy. Banana Republic is positioned at the high end of the quality/price spectrum that includes the moderately priced Gap and the company’s newest chain, Old Navy, featuring the least expensive clothing.

For years, the flagship Gap stores, with $11.6 billion in sales and an estimated $1.1 billion in profits, made up more than a third of the entire company’s profits. But in May 1999, Gap began to lose the edge it had enjoyed for several years. Other competitors such as Abercrombie & Fitch and American Eagle Outfitter were beginning their assault on the fashion market with trendier clothes and better, more aggressive advertising campaigns.

For six consecutive months, sales at Gap stores fell to all-time lows, taking the stock price down with them. The apparel market was in a transitional phase that favored either high-priced designer-name fashions or the low-end wear that has consistently sold well. This trend was reflected in large sales increases in the high- and low-end Gap chains—Banana Republic and Old Navy were selling very well. The challenge for Gap was that it needed a new marketing plan without disrupting the strong sales of its other stores. Drexler was well aware of this fact and brought with him new and innovative ideas that the company desperately needed. Drexler, the Gap’s president since 1983, became the CEO in October 1999 when Robert Fisher, the president and son of the Gap founders, retired. The company’s stock immediately rose 10 percent on the news of Drexler taking over.

Mickey Drexler developed the concept for the Old Navy chain to cater to the new lifestyle of teens and young adults who want fashion but do not have much to spend on clothing. He selected the name for the chain after seeing it on a building during a walk around Paris. Old Navy is consistent with the growing strength of discount stores in apparel retailing. Consumers were predicted to spend $40 billion—nearly a third of their apparel dollars—at discount department stores, off-pricers, and factory outlets in 1999. It is not only price that drives consumers into discount stores for apparel. The industry has made great efforts in assortment, quality, and fashion. Discount stores have also come a long way in improving display, borrowing ideas from regular stores. In 1999, the Old Navy, with 16 percent of the stores, accounted for 35 percent of the sales of Gap Inc.

The Old Navy Clothing Stores have the same kind of merchandise as The Gap stores, but will be able to keep prices low by using lighter-weight, less expensive fabrics in addition to scaled-down store decor and lower-priced locations in strip shopping malls. Old Navy stores have unique design elements featuring 1950 Chevies and merchandise piled on old freezers.

Although half of all Old Navy stores are within a mile of a Gap, they take only 5 to 10 percent of Gap’s business, with all of the rest coming from elsewhere. As COO of Gap, Inc., John Wilson said, “It’s a temporary hit, but the volume comes back; we’d rather cannibalize our own business than have the competition do it.”

In April 1999, Jenny Ming was appointed president of Old Navy. Ming started her career at The Gap in 1986 as a buyer. Ming has a knack for predicting what hip-looking clothing will appeal to the masses and making big bets on producing large quantities to ensure that these items will be in stock. One of her early successes was dramatically increasing the sales of T-shirts by increasing the color assortment from six to a couple dozen and marketing them all year, instead of just in the summer. More recently she was the key force behind the explosive growth of fleece merchandise.

Old Navy’s new, four-story, 100,000–square-foot flagship store in San Francisco is its largest ever built. This store is similar to its 80,000–square-foot showplace in New York, with a deejay booth where shoppers can create their own CDs and a lower-level, fashion-forward, off-price department.

Discussion Questions
1. How do you think the growth of Old Navy will affect the sales in The Gap chain?

2. In the next five years, where should Gap, Inc., place the greatest resources: Old Navy, Gap, or Banana Republic? Why?

3. In what ways could the Gap chain enhance customer appeal and loyalty?

Case A9: Blue Sky Surf Shop—Twenty-One Years of Surfing and Still Going Strong

Blue Sky Surf Shop in St. Augustine, Florida, is owned and operated by husband and wife Dave and Nancy Macri. After surfing in St. Augustine for several years, the Macri's, who are originally from the gulf side of Florida, decided to start their business in 1979 in what was then a small, low-key surfer’s town. Located on Anastasia Blvd. (the main route through Anastasia Island and a direct road to the beach), the shop is not out of sight but is easily missed if one is not looking for it. This is not a disadvantage to the store because (unlike most businesses in tourist-dependent St. Augustine) Blue Sky relies on local surfers and word of mouth for 90 percent of its business. Surfers from Jacksonville, Gainesville, Daytona Beach, and the west coast of Florida flock to St. Augustine for the consistent waves, clean water, and wide open beaches, and all rely on Blue Sky for surf accessories.

Blue Sky receives most of its business from males between ages 10 and 25 as opposed to a lot of larger, more diversified surf shops that also carry camping, kayaking, and fishing equipment aimed at the adult and family markets. Unlike many surf shops that cater to multi-sport lifestyles, Blue Sky has remained true to the hardcore surfer by carrying products that are solely related to surfing and the lifestyle that accompanies it. This customer demographic demands very knowledgeable service and high-quality products. All the employees at Blue Sky are avid surfers; some are even past or presently sponsored by companies. This gives them a huge advantage with customers who know what they want and are very fast at spotting below-par products and service. A very large portion of the competition employs almost any teenager or young adult willing to work, many of whom have never surfed.

Customers entering Blue Sky, see surf videos constantly playing on a television monitor, over 200 brand new surfboards neatly displayed on floor racks, and the best brand name clothing. This quickly tells them they are in the best possible place to suit their needs. Just as back in 1979, when the store was a mere 600 square feet, it’s dedicated to maximizing every inch for surfers needs. The store is now 1,800 square feet and Blue Sky consistently carries roughly 250 new and 60 used surfboards, more than any other shop in northeast Florida. Going into its 21st year of business, Blue Sky has perfected the concept of quality products and service while staying true to its original clientele, no matter what the rate of expansion.

Although the majority of surfers are male, Blue Sky has always been aware of the female surf market. However, unlike most of its competition, it does not waste space with hundreds of interchangeable bikinis and swimwear. It sells functional bathing suits, surf trunks, wetsuits, and anything else a female surfer could possibly need. Even though the female market may be smaller, Blue Sky is and always has been about supplying anyone that truly loves to surf.

With more and more surf shops popping up in St. Augustine, many of which have large advertising budgets, Blue Sky need not worry about losing customers; 21 years of solid no-frills service has built an extremely loyal customer base. You couldn’t put a price tag on the store’s word-of-mouth reputation. It does occasionally advertise in local newsletters and newspapers, but at a fraction of the cost of any competition. A very smart idea to further satisfy customers and to add to its exposure is Blue Sky’s free surf report. Many other surf shops and companies have 1-900 telephone numbers that give you surf conditions, surf forecasts, water temperature, and tides, but most of these lines cost between fifty cents and a $1.25 per minute for their services. Blue Sky provides this valuable service absolutely free. This exemplifies the ability of Blue Sky to do small but highly effective things to evolve and satisfy, yet always keep in tune with the original philosophy of being the “surfer’s surf shop.”

Discussion Questions
1. What is the target market of Blue Sky Surf Shop?

2. What role has location played in the long-term success of Blue Sky?

3. How has Blue Sky achieved long-term success with minimal advertising?

Case A10: Cleveland Clinic

For years, Ohio’s Cleveland Clinic has ranked with the top world-class providers of medical care. It pioneered coronary bypass surgery and developed the first kidney dialysis machine. King Hussein of Jordan used the clinic, as does the royal family of Saudi Arabia.

Big-name health care institutions like the Cleveland Clinic are after new markets for their state-of-the-art medical care, and are posing a new threat to local physicians. The expansions are also disrupting traditional relationships between physicians and their patients, physicians and their hospitals, and physicians and their fellow physicians.

Like any business, the Cleveland Clinic keeps close tabs on its core market, and the outlook wasn’t all that bright. Seven Midwestern states provided 90 percent of the clinic’s business, though population growth in that region is expected to be flat through the year 2010. But not so southeastern Florida, where the population is still growing and, in many areas, is highly affluent. Southeastern Florida appeared to be a dream market. Yachts lining the canals of the Intracoastal Waterway and a ubiquitous building boom reflect wealth and growth so palpable that clinic officials have come to call it immaculate consumption. Moreover, about 20 percent of the 3.7 million residents in Dade, Broward, and Palm Beach counties are over 65 years old. About 50 percent of the population is over 45—a potential mother lode of patients. “We felt there was room for us,” Dr. Kiser, CEO of Cleveland Clinic, said. “We decided to go on our own rather than wait to be invited.”

When the Cleveland Clinic opened an outpatient clinic in South Florida, a war broke out. In a full-page advertisement in the Miami Herald, Dr. Seropian, a local physician, pulled out the stops. He likened the clinic to dingoes (wild Australian dogs) that roam the bush, eating every kind of prey. The clinic filed suit in federal district court in Fort Lauderdale, charging, among other things, that some physicians had conspired to hamper its entry into Broward County.

Famous medical institutions like the Cleveland Clinic and Mayo are victims of their own success. Many of the once-exotic procedures that they invented are now routinely available across the country, reducing patients’ need to travel to the medical meccas. For instance, the Cleveland Clinic might once have had a hold on coronary bypass surgery, but no more. In 2000, more than 350,000 patients had the operation at hospitals throughout the United States.

“These clinics used to be the court of last resort for complex medical cases,” says Jeff Goldsmith, national health care advisor to Ernst & Young, the accounting firm. “Now, the flooding of the country with medical specialties and high technology equipment has forced them to adopt a different strategy.”

Their expertise and reputation mean formidable competition for the local medical community. “On one level,” says Jay Wolfson, a health policy expert at the University of South Florida in Tampa, “it’s like bringing in a McDonald’s. If you’re a mom-and-pop sandwich shop on the corner, you could get wiped out.”

Discussion Questions
1. Compare the Cleveland Clinic to traditional retailers.

2. What was its retail mix?

3. What factors in its environment resulted in it changing its retail mix?

Case A11: Niketown

Some things don’t need much explanation. When you see the Golden Arches, you think of McDonald’s. When you see a swirling a swirling red, white, and blue sphere, you think of Pepsi. And when you see the curvy little swoosh, “Just do it” comes to mind.

With so many nontraditional shopping alternatives competing for the customer’s attention, a key to survival in the 90s is retailers’ ability to maximize their in-store environments. Customers are bored with ordinary shopping experiences. Convenience and price aren’t enough. They want to be entertained.

With this in mind, Niketown was developed to create brand awareness about Nike as a company in an informative and fun way. It was established to promote a lifestyle as much as the product. “We wanted to engage the customer in both our products and the sport and fitness lifestyle that Nike represents,” said Mary Burns, director of operations at Nike in Beavertown, Oregon.

There are six Niketown stores in operation: in Portland, Oregon; Chicago; Atlanta; New York City; Costa Mesa, California; and San Francisco’s Union Square. The stores are tourist attractions and it’s easy to see why.