Sunday, September 20, 2009

24 - All the Answers

I worked in retail for three years and I’ve been in wholesale for an additional eleven, and I’ve never worked for the guy selling the least expensive product. So when Kerry Mitchell, president of Addition-Elle and Penningtons, and I spoke, and she detailed the reasons why AE and Penningtons are not the guardians of the lowest price point, most of it wasn’t anything that I haven’t had to explain to my own customers before: “We don’t have the volume to be at the same price as the next guy; we offer services, that cost money, that won‘t be offered by the other guy; the specifications of my product are better than the one to which you’re comparing it--you have to compare apples to apples.” And on it goes. In much the same way, there were five major reasons that Mitchell outlined in her explanation for the pricing at AE and Penningtons. The first, was volume.

Despite the “growing epidemic of obesity” that will have us all dead by the end of next week, the plus size market in Canada, is still significantly smaller than the regular size one. In March of 2008, market research firm NPD Group, found that there had been significant growth in the women’s plus market in Canada, with one in five female shoppers purchasing in plus. However; that’s still only 20% of the market and NPD’s definition of plus starts at size 14. When I spoke with Mitchell, she defined plus as truly beginning at size 18. Both measures are true, but there is a compelling logic to Mitchell’s grouping, in that most women wearing 14/16 can shop at a wider variety of stores. They may not be able to shop at every regular size store out there, but they have a significantly greater number of choices than I do at a size 18/20.

The sheer dearth of plus retailers in Canada bears this out. The same report by NPD indicated that fully 57% of plus sales were done by the top ten retailers in the field. Unlike the US, where up to half of female consumers are size 14+, Canadian women are apparently still hitting the gym, eating right and smoking like chimney stacks to stay slim. With fewer customers to service and less product to purchase, pricing increases accordingly.

This made sense to me, but I still wanted to know why it was that Reitmans could offer such significantly lower prices than Addition-Elle to plus customers. Here I’ll remind you of that t-shirt that costs me $9.99 at Reitmans vs. $16.99 at Addition-Elle. To answer this question, Mitchell explained the second reason for the price discrepancies: the corporate structure of Reitmans Canada Ltd.

From where I’m standing, it seems perfectly logical to combine the purchasing power of AE, Penningtons and the Reitman’s Encore (plus) line, so as to lower costs across the board. Apparently, they don’t agree. Apart from maintaining the same corporate address, there is little else shared by AE/Penningtons and Reitmans; they are run as entirely separate entities, and thus purchasing volume is not shared. In effect, the much higher market penetration of Reitmans (at about twice the stores than either AE or Penningtons) can’t be utilized to lower purchasing costs for AE and Penningtons over all.

The next two reasons are fairly uncomplicated: amount and quality of fabric. While it’s clear to me that my size-18 garment is not significantly larger than a size 13/14 garment, I failed to take into account that a size-26 garment is larger. More fabric costs more money. As for quality, sometimes a price difference is reflective of a difference in quality.

Sometimes, however, a t-shirt is just a t-shirt, and in those cases, the grounds for the difference in price point might be about reason number five: branding. In large part, the different divisions of Reitmans Canada are run separately because their intended audiences differ. The marketing and branding diverges significantly because the customer differs. While AE and Penningtons are under the same division umbrella, even those stores are branded differently. As with all Penningtons stores, the one closest to where I live carries the MXM line (a trendier line of clothing), but most of the store caters to women 10-15 years my senior. The AE stores, on the other hand are going after a 35-40 year old woman.

Apart from demographic, there is also the concept of brand image and what the company is trying to convey—and if there’s one thing that the Addition-Elle brand is not trying to convey, it’s being the store with the lowest price. Believe me, I understand not trying to win the race to the bottom of pricing ladder; Wal-Mart will always be around for that. I just don’t know that I’m buying the image that Addition-Elle is selling. At first I thought this was just an issue of ineffective marketing, but I’ve come to believe that, even apart from my age, I’m not their intended customer.

I shop at AE for three reasons: I am a plus size, I like to dress reasonably well, and I like to have options. What is not included in these reasons is loyalty to the AE brand. When I think about shopping there, I know that the entire store is devoted to plus sizes, affording me options, and on a good day I’ll find a couple items that work for me. But I feel like the price point has always caused me to have a really ambivalent relationship with the brand and I suspect that a lot of younger women, who are not as financially secure as the intended demographic, might feel the same way. I still do as much shopping as I can in Reitmans Encore and I can honestly say that I feel a level of loyalty to the Reitmans brand.

I wondered aloud to Mitchell, during our conversation if, given the presence of younger customers who shop at AE out of necessity and lack of other options, that brand isn’t perhaps a bit narrow in its focus. I now wonder if it might be worth it to draw these younger shoppers in with slightly lower price points in order to garner a loyal customer, potentially for life. Kind of like all of us to whom McDonald’s was marketed when we were children. The food isn’t good—we’re just loyal.

And when I say lower the price points, I don’t mean slash and burn. I’m saying bring the $49.99 hoodie down to $39.99 and it brings it out of the realm of “too expensive for the brand” and into the realm of completely reasonable. Obviously the bottom line is profit, but I think, with a customer who shops in a store out of necessity rather than choice, it’s important to make the customer feel like they aren’t just being charged what the market will grudgingly bear; because if she can escape shopping there, she will. Having said all this, I don’t know how much weight each of the factors Mitchell outlined bring to bear on pricing, so I don’t know if there’s wiggle room at all**. I simply believe it‘s worth it for the marketing team behind the scenes to explore what drives customers like me to AE and Penningtons.

A few days after I wrote my initial letter, I was shopping at Addition-Elle and a girl in her early 20s was at the counter. She decided against buying some t-shirts that she couldn’t afford after experiencing a moment of sticker shock. The sales rep at the cash urged the young woman to buy the t-shirts anyway, but the rep’s urging lacked zeal. I suspect she saw in that customer a mirror image of herself, without the benefit of an employee discount.

**In rebuttal, Ms. Mitchell indicated that AE has lowered its prices in recent years and offers frequent generous promotions and sale pricing, but that due to the other factors mentioned earlier, the wiggle room is very limited.

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