DDI Forum examines industry trends

WEB EXTRA! The below account of DDI's sixth-annual Forum contains information that can only be found online.

DDI’s annual Forum, held Oct. 14-16, at Atlanta’s InterContinental Buckhead Hotel was a refreshing exchange of ideas among leaders in the retail design industry. Attendees took home a wealth of insight from experts such as Dan Hill, president of Sensory Logic and author of Body of Truth: Leveraging What Consumers Can’t or Won’t Say, and Al Ries, co-author of The Origin of Brands and chairman of Ries & Ries, an Atlanta-based consulting firm. In addition to speaker sessions, attendees participated in breakout groups to discuss solutions regarding perplexing issues affecting the retail design industry.

State of the Industry
DDI’s editor in chief, RoxAnna Sway, presented the annual State of the Industry Report to kick off the Forum weekend. The retail report highlights trends over the past year and provides insight to what might happen in 2006. According to the report, the following are some dominant trends to watch in retail now and into the future:

The store experience: The in-store experience is growing in importance as a motivator of sales. While buying decisions have always been hugely influenced by what the customer sees in the store, new data based on research by advertising giant Saatchi & Saatchi indicates that 85 percent of purchase decisions are now reached in stores. And according to Saatchi & Saatchi, 80 percent of those decisions are made in just four seconds. “A store’s design, ambience, product packaging and display each are making lightening-quick impressions, which are playing an ever-bigger part in what’s bought”—so says an article in WWD, based on a Saatchi interview.

New geography: Stores are exploring new territory—off-mall locations, new types of village and mixed-use centers, inner-urban neighborhoods and pop-up stores. More and more, retail is being combined with residential development so consumers can “live where they shop.” Many of these new venues offer a 24/7 atmosphere, with daytime shopping giving way to nighttime dining and entertainment.

New formats/new businesses: Big-box stores, including Best Buy, are developing smaller boutique concepts. Specialty chains are launching new brands at a feverish pace. Home Depot’s entry into Manhattan, and other similar retailer ventures, requires the development of non-prototype formats. Wal-Mart and Target have developed unique store designs that are community/locale specific. Wal-Mart’s new “Mediterranean” store and its experimental “green” store are entirely new directions for the retailer. This type of creative experimentation could spell the end to the mindless cloning or rolling out of hyper-standardized stores.

Democratization of retail and design: With top-name architects and fashion designers, including Michael Graves and Isaac Mizrahi, creating goods for Target, and Karl Lagerfield designing for H&M, good design and fashionable merchandise are no longer the exclusive provenance of the wealthy. “Class for mass” is a clear trend that resonates through our society. While the wealthy insulate themselves by moving even further up the economic scale of goods and services, the buying public can enjoy a better standard of style and design than has ever been available to them before. The democratization also extends to shopping venues, as shoppers cross-pollinate, with the wealthy shopping at Wal-Mart and the budget-minded occasionally splurging in designer boutiques. As the wealthy migrate upward, stores like LVMH’s lofty Celux in Tokyo, which charges admission fees to shop, may become a trend.

Waning brand influence? People will always buy brands. Coca-Cola, Nike and Fruit of the Loom are not going away anytime soon. However, for a large portion of the populace, apparel and accessory brand logos and labels are becoming less compelling. In the Fourth Annual Keys Fashion Index, a national survey of fashion and apparel brand labels and logos, conducted by Brand Keys, two-thirds of respondents report that brands are now less important to them than in the past. Of 16,000 respondents, 10 times as many said brands were “much less” or “less” important than said brands were “more” or “much more” important. This is a marked change from the past, when brand importance was steadily increasing.

It’s the demographics, Stupid: Retailers are finally getting it. Society is rapidly changing, and the rising tide of aging boomers and multiculturals [Hispanics, Asians, etc.] are going to have a major impact on our culture, commerce and consumer opportunities. Teens and kid market segments are also evolving in new ways. Men are shopping more, and women, who account for more than $5 trillion of consumer purchases annually, have to be accessed and targeted differently today. Internet shoppers, whose numbers are rapidly increasing, are another segment on which retailers need to focus.

Becoming polarized: As consumers skew more to the two ends of the economic spectrum—discount and luxury—the middle, made up of department stores and many standardized specialty chains, is suffering. Consequently, consumers are basing more buying decisions on psychological polarities as well: practical or emotional. Practical purchases at stores like Wal-Mart, Home Depot and Costco are rewarded with shopping expeditions in upscale boutiques and stores that resonate emotionally. Starbucks, Williams-Sonoma, Anthropologie, Restoration Hardware, Tiffany and Whole Foods Market are examples of stores that incorporate emotional appeal into their store experiences. Another type of polarization is becoming evident as consumers—the segment called LOHAS—exhibit a desire for eco-friendly products, lifestyles and attitudes, while others drive gas-hogging SUVs and have little or no interest in recycling.

To purchase a PDF version of the full 2005/2006 State of the Industry Report, please visit www.ddimagazine.com, and click the Reports & Analysis tab.

Atlantic Station tour—Brian Leary, vice president of design and development, Atlantic Station

A retail trend sweeping the nation is mixed-use developments. These mini-cities, which include any combination of retail, office, residential and hospitality spaces, offer an open-air reprieve to the enclosed shopping mall. To get a view of this live-work-play trend in action, Forum attendees visited Midtown Atlanta’s new Atlantic Station, a 138-acre development located at the nexus of major highways I-75 and I-85. “We never call ourselves the ‘M-blank-blank-L’ word. We’re not a mall; we’re an alternative to that,” said Brian Leary, vice president of design and development at Atlantic Station, to DDI’s Forum attendees just five days before the development’s Oct. 20 grand opening. Indeed, the development’s ad campaign speaks to the sense of “authenticity and soul” that Atlantic Station strives to have, differentiating it, Leary implied, from traditional shopping venues. “It’s a place to walk your dog…and dog your boss,” an ad says, referencing Atlantic Station’s dog park and its numerous bars. “People are striving for this authenticity in a place like Atlanta. People are trying to reconnect,” Leary said. The development is a joint venture between Atlanta-based Jacoby Development and AIG Global Real Estate Investment Corp. The project, which has been in the works for roughly eight years, represents about $2 billion in new construction. Some of the ideas for Atlantic Station came from successful mixed-use developments across the nation. “We tried not to reinvent the wheel,” Leary said. “We went around the country to mixed-use developments and tried to figure out why they worked. Then, we tried to incorporate what we saw into Atlantic Station.”Like many mixed-use centers, Atlantic Station uses residential housing as its base, including condominiums, townhomes, lofts and apartments. The development then added what Leary referred to as a “critical mass of retail,” which served as a draw for the offices to settle in the development. A three-story Dillards, with a brick and glass façade, is the retail anchor. A 16-screen Regal movie theater dominates the skyline, a Publix adds a grocery element to the space, and hotel TWELVE, built by Novare, will open in February 2006.Many DDI Forum attendees who toured the development expressed enthusiasm about the scale of the site, but said time will tell whether Atlantic Station lives up to its promise of reconnection and authenticity.

Dan Hill, president of Sensory Logic, discusses his book, Body of Truth: Leveraging What Consumers Can’t or Won’t Say

Many businesses already understand that store design and environment, as well as product assortment and presentation, have everything to do with appealing to customers’ senses, even when customers may not always realize it. Retailers, however, do not always know how to interpret customers’ true feelings, according to Dan Hill, president of St. Paul, Minn.-based Sensory Logic Inc., which specializes in the analysis of the psycho-physiological responses of consumers to an organization’s products and services. The company concept bases a person’s preferences, likes and dislikes on that of sensory experiences, and determines one’s emotional response to such experiences through scientific testing. To do this, Hill and his associates videotape customers’ responses to a set agenda of questions, and then analyze facial expressions by playing the video back on a second-by-second basis. First inspired by reading an American Demographics article penned by David Wolfe, who spoke at last year’s DDI Forum, Hill was so intrigued by human decision-making that he formed Sensory Logic. “The way people make decisions is driven by design and by experiences,” he said. He advised that the rational, more functional elements in retail by themselves will not win over customers. Hill suggested retailers should pay attention to emotional touchpoints, such as the parking lot, display windows, entry, signage, merchandising and fitting rooms, within the retail environment. “You have to get to that emotional space—below consciousness; that’s where people spend the most time,” he said. “The reason you remember something is because it makes an emotional connection.”Hill discussed how the brain interprets stimuli. “The brain works from back to front—we feel before we think,” Hill pointed out. And that emotional response occurs in about three seconds. In attempting to define customer feelings, sometimes retailers may find it is literally written all over their faces, instead of communicated verbally in a focus group or other measure of marketing research. “Like an iceberg, most human response is formulated beneath the surface,” Hill said. For instance, 55 percent of human communication is through facial expression, according to Hill, which is why he is a proponent of facial coding. The face can achieve 3,000 different expressions, which gives away how a person feels any given moment.

The Origin of Brands—Al Ries, chairman of Atlanta-based marketing strategy firm Ries & Ries

The predominant theme throughout Al Ries’s lively presentation during Sunday brunch was this—“Avoid the mushy middle.”

“If you keep to the middle of the market, the market will move away from you,” Ries said. “That’s a difficult place to live.” Citing the example of Coca-Cola’s success with its Coca-Cola Classic product and Diet Coke no-calorie product, Ries points out how the $70 million ad campaign for the mid-calorie C2 product was a complete failure. Similarly in the discount retail central, Kmart got stuck in the middle between chic Target and cheap Wal-Mart, and ultimately filed for bankruptcy.

The Law of Expansion
“When you expand the brand, you weaken the brand,” Ries said. “Taking both forks doesn’t work.” Using the airline industry as an example, Ries explained that there are two distinct markets. Too many airlines try to combine the high and low ends, providing international and domestic, no frills and full service, cheap and high end, without differentiation. Southwest, however, has paved its successful path as the “one-fork airline” —business destinations only, coach only, cheap only. The outcome? The five largest airlines account for a combined total of $3.4 billion of the market, while Southwest alone accounts for $12.3 billion, Ries said.

Ries also examined the auto industry, pointing out how Mercedes went down the wrong track when it came out with the more affordable minivans, minitrucks, bikes and even the “MiniBenz.” Said Ries, “What happens when you introduce cheap versions of luxury products? Customers assume they can’t be any good. It takes a long while to kill a brand, but Mercedes is working on it.”

Wal-Mart moving up market in fashion may be another mistake in the making, Ries suggested. “Who buys the same brand their entire life?” Ries asked. “Brands are the markers that measure your progress on the ladder of life.” You buy a Swatch in college, a Seiko after your first job, and a Rolex after your first big promotion--not in the reverse order, Ries explained.

The Law of Opposites
“If you’re not the leader, you need to be the opposite of whoever got into the market first,” Ries pointed out. When Red Bull came surging on to the market with its unique small can size, every new energy drink marketer copied the small can look. Except Monster. Monster came out with the big “Monster can” size, and now is the No. 2 energy drink on the market. When the candy industry was marketed solely to children, Snickers came out as “the first adult candy bar.” When Coke was marketed as the same Coke your parents drank, Pepsi came out with “The Pepsi Generation” ad campaign, targeting a more youthful audience. When Home Depot was the “messy, male-oriented” DIY chain, Lowe’s promoted itself as the neat, clean, female-friendly store.

“You learn more by analogy than you do from your own industry, because you generally are too bogged down in the details of day to day operations,” Ries explained. “The best way to learn strategy is to adopt it from another industry.”

The Law of Second Brands
“There’s a time and a place to launch a second brand,” Ries said. “When you launch a second brand, you create a second identity. People buy a Lexus in spite of the fact they’re made by Toyota.” When Levi’s came out with a new line of tailored classics, they called them Dockers and grew them into a $1 billion brand. When Black & Decker wanted to enter the professional market, they launched DeWalt, which is the most profitable professional tool brand in the country. Sony did the same thing with PlayStation, and Apple has done the same with iPod. Creating a distinct brand, versus an extension of the original, is the secret to success.

The Law of a Word
“A brand should strive to have a word in the mind of the consumer,” Ries explained. Nokia, for example, used to make everything in the electronics industry. Now they only make cell phones, and they are the leader. Altoids, the “curiously strong” mints, are No. 1 in the category, not Tic Tacs, which were first. Prego, the “thicker spaghetti sauce,” is No. 1, not Ragu.

The Law of Decades
“A brand is not built overnight; it’s built over decades,” Ries said. “Any advertising that touches the idea or concept that is already in the subject’s mind is key, especially if there is a motivating factor. Budweiser continues to use Clydesdales in its campaigns each year, because it reflects the authenticity of the brand. Coca-cola may change its ad message every year, but the real message has always been its first message—“The Real Thing.”

The Law of Singularity
“The most important aspect of a brand is its singularity,” Ries said. As a concluding note, he added the that defining your brand as something completely separate and different from the competition is the key to keep you heads above the rest in the eye’s of your customers.

Books Recommended by Forum Attendees

--A Whole New Mind, by Daniel Pink (recommended by RoxAnna Sway, DDI)
--The Body of Truth, by Dan Hill (recommended by Judy Bell, Target Corp.)
--The Trader Joe’s Adventure: Turning a Unique Approach to Business into a Retail and Cultural Phenomenon, by Len Lewis (recommended by Jerry Gelsomino, Pratt Corp.)
--Collapse: How Societies Choose to Fail or Succeed, by Jared Diamond (recommended by Jennifer Beesley, Cost Plus World Market)
--Blink, by Malcolm Gladwell (recommended by Dan Hill, Sensory Logic)
--A Wealth of Nations, by Adam Smith (recommended by Dan Hill, Sensory Logic)
--The Nine Nations of North America, by Joel Garreau
--The World is Flat: A Brief History of the Twenty-first Century, by Thomas L. Friedman

Copyright, 2005, DDI magazine