Mckinsey - Branding

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acing a marketplace overflowing with stores, most retailers have spent the past several years tirelessly searching for new ways to grow.

In the case of runaway successes such as the apparel manufacturers Nikeand Calvin Klein, the secret appears to be strong, well-leveraged brands,which, McKinsey research shows, add five points on average to shareholderreturns. Do retailers have the same access to brand magic? Vertically inte-grated ones certainly do. Companies, such as Gap and Victoria’s Secret, that

retail brands

Teri Henderson is a principal in McKinsey’s Boston office, and Liz Mihas is a principal in the Chicagooffice. Copyright © 2000 McKinsey & Company. All rights reserved.

This article can be found on our Web site at www.mckinseyquarterly.com/retail/bure00.asp.

R E T A I L110

Building

Terilyn A. Henderson and Elizabeth A. Mihas

Establishing and communicating a brand may be harder for multibrandretailers than for their single-brand counterparts, but brand building is

essential for both.

F

(110-117)Retail brands v3.5 6/26/00 2:18 PM Page 110

PHIL FOSTER


design, manufacture, and market their own products have very substantiallong-term growth expectations embedded in their share price, reflecting, inpart, the expectations created by their brand strength (Exhibit 1).

Some retail brands havebeen built from theground up virtuallyovernight. One verti-cally integrated single-brand retailer—OldNavy, Gap’s retro-hipdiscount concept,offering a proprietaryline of value-pricedfamily apparel—sprangonto the scene in 1994.Five years of phenom-enal growth later, OldNavy had sales of $2.6 billion and couldclaim to be the firstretail chain to havereached $1 billion in

sales within 48 months of its launch. There seems to be no end in sight:Old Navy plans to add upward of 140 stores to its base of more than 420this year and then to expand overseas.

But the picture is quite different for retailers—category killers, departmentstores, discounters, and the like—that sell a range of other companies’brands. Although some multibrand retailers have managed to command anational brand identity (in Sears’s case, one founded on reliability), manysuffer from a lack of brand distinctiveness independent of the brands theycarry. In fact, many multibrand retailers have lavished more thought andcare on those brands than on their own banner.

But the multibrand retailers, like their single-brand counterparts, can andmust create a brand personality with which consumers want to identifyand rethink the underlying business system that is needed to deliver it.According to our analysis of retailers in a number of formats, consumersactually make more frequent visits, check out larger-than-average shoppingbaskets, or pay price premiums at the stores of brands they perceive asstrong (Exhibit 2).1

112 THE McKINSEY QUARTERLY 2000 NUMBER 3

E X H I B I T 1

Great expectations: Strong brands influence share prices

1As of January 31, 2000; assumes US inflation rate of 2.7%.2Compound annual growth rate.Source: FCG Marketing branding survey, 1998; analyst reports; McKinsey analysis

Value from currentperformance

52

61

55

50

48

22

10

13

18

12

26

29

32

32

40Target

Walgreen

Wal-Mart

The HomeDepot

Gap

Breakdown ofcurrent equityvalue,1 percent

Total sales, 1998,$ billion

31

15

138

30

9

Sales CAGR,2

1994–98, percent

25

14

13

25

10

Value from short-termgrowth expectations

Value from long-termgrowth expectations

1See David C. Court, Mark G. Leiter, and Mark A. Loch, “Brand leverage,” The McKinsey Quarterly, 1999Number 2, pp. 100–10.


A powerful personality

The building of a brand starts with a precise definition of the target cus-tomer group and its needs and expectations and proceeds to a realisticassessment of how well the brandcurrently meets them. Next, theretailer must decide which of thebenefits it can offer will give thebrand a distinctive position in themarketplace. Then the retailer’smarketing and advertising effortsmust fashion an image around the brand that is not only consistent withthese benefits but also credibly promises that they will bring excitementand satisfaction.

For example, the single-brand clothing retailer Abercrombie & Fitch hasdeveloped a powerful personality that is fun-loving, independent, and sexu-ally uninhibited—a winning formula with teenagers and college students.To remain familiar with teen tastes and to spark ideas for new merchan-dise, A&F sends about 30 staffers to college campuses each month to chatwith students about what they play, wear, listen to, and read. This kind of research led to A&F’s recent success with wind pants. (These resembletrack-and-field pants but are generally made of nylon.) The stores them-selves, featuring com-fortable armchairs, aredesigned to be gath-ering places. They arestaffed by high-energy“brand reps” recruitedfrom local campusesand dressed in A&Fclothes. Selling skills arenot required; the job isto look good wearingthe company’s brandand to have fun insidethe store. In some sense,the merchandise is sup-posed to sell itself.

A&F’s main promo-tional tool has been itscontroversial “mag-alog”—a quarterly

113B U I L D I N G R E TA I L B R A N D S

E X H I B I T 2

Strong brands drive performance

Correlation between brand strength1 and annual sales per square foot (SSF)

1Index of quality, distinctiveness, and consistency.Source: FCG Marketing branding survey, 1998; analyst reports; McKinsey analysis

Discounters

SSF,

$

Kmart

0 20 40 60 80 100

Wal-Mart

Target

Department stores

SSF,

$

0

100

200

300

400

Bloomingdale’s NeimanMarcus

Saks FifthAvenue

General merchandisers

SSF,

$

0

100

200

300

400

0 20 40 60 80 100

Sears

J. C. Penney

Big-box retailers

SSF,

$

0 20 40 60 80 1000

200

400

600

800

Circuit City

Best Buy

Brand strength

Brand strength

Brand strength

Brand strength

0

100

200

300

400

0 85 90 95 100

tata

The building of a brand starts witha precise definition of the targetcustomer group and its needs


magazine-catalog crammed with product information, sexual imagery, andprovocative articles (such as “Condoms in ample supply” and “Drinking

101”). Large blowups of enticingphotographs from the magalogappear in store displays. This potentcombination of aggressive merchan-dising, imagery, and promotion gaveA&F’s stock a handsome price pre-mium. It also allowed the company

to clock double-digit annual growth in comparable-store sales in the late1990s. But lackluster comparable-store performance in the fourth quarterof 1999 suggests that A&F will have to work still harder to keep essentiallyfickle customers loyal as Delia’s, Gap, Old Navy, and the like vie for theirattention.

Another single-brand retailer with personality is Victoria’s Secret, whosewell-known fashion models suffuse its underclothes with beauty and sensu-ality. The salonlike feel of the stores and the very large representations ofpopular models displayed in them project this personality throughout thecustomer experience.

The multibrand challenge

Evoking such powerful associations is much more difficult for multibrandretailers, which don’t shape and control every aspect of the merchandise they

sell or every instance of its exposure to the public. Traditionally,multicategory retailers haven’t aspired to attain the indelible

personalities of their vertical competitors but have insteadsought to distinguish themselves along functional dimen-sions, such as price, convenience, and service.

But a new breed of multicategory retailer combiningfunctional benefits with the emotional and relationshipbenefits that give a brand a true personality in the eyesof consumers has now emerged. Two on-line grocers,

Webvan and Streamline.com, are among the many multi-brand retailers seeking to build brands around the emo-

tional benefits—a life free of humdrum tasks like groceryshopping—that functional benefits such as convenience, assort-

ment, and rapid customer service can provide. Webvan offers deliverieswithin 30 minutes as well as such specialty products as flowers, high-qualityprepared meals, cigars, and an extensive assortment of fine wines. The emo-tional appeal of the two services is reflected in Streamline’s motto: “Life justbecame a whole lot simpler.”


A&F’s chief promotional tool is a“magalog” with provocative articles,like “Condoms in ample supply”


Kohl’s, another successful multibrand retailer, racked up compound annualgrowth of 22 percent in sales and 30 percent in net profits between 1992 and1998 by starting with a clear defini-tion of its target market. Focusingon customers for middle-marketapparel, the chain has carved out adistinct position between discoun-ters and department stores. Parquetfloors, recessed lighting, and elegantfixtures create a department storefeel, and the merchandise on displayconsists of well-known nationalapparel brands generally offered atpromotional prices. Kohl’s has alsotried to simplify the shopping experi-ence by locating its stores outside ofcrowded regional shopping malls andby expediting the checkout process. The chain’s advertising tag line—“That’s more like it”—helps make Kohl’s patrons feel like savvy shoppers.

Translating brand-building aspirations into reality calls for managementattention across the entire business system. Few management teams are morefocused on this issue than Wal-Mart’s. The retailer’s store greeters and folksystyle portray the chain as a friendly and trusted partner in a complex world(Exhibit 3). Wal-Mart honors the promises it makes—the lowest everydayprice—by stocking national brands at low prices in a down-home serviceenvironment. To ensure that the goods offered at these prices are actuallyavailable in the stores, the company has developed Retail Link, an informa-tion system that informs both suppliers and store managers of each product’sinventory level, order status, and location in the distribution system. Theelectronic sharing of data permits buyers and store managers to plan pre-cisely how to meet demand in each store. Every Saturday morning, the com-pany’s senior management takes part in a teleconference that focuses on therapid correction of lapses in supply-chain product deliveries. Wal-Martalso assures a high level of service byoffering performance-based incentives to employees at virtually every level.

Target, the home-furnishingsand apparel retailer, has alsocrafted a clear brand person-ality, but one occupying upscale


53Exciting

Fun 67

Caring 80

Respected 86

Trustworthy 88

Friendly 93

E X H I B I T 3

Wal-Mart’s personality characteristics

Percent who “strongly agree” or “somewhat agree”

Source: FCG Marketing branding survey, 1998; McKinsey analysis


territory by mass-merchandise standards. The chain aims to project a trend-setting personality to families that, though younger and more educated,

fashion-aware, and affluent thanthose shopping at Wal-Mart, arestill value conscious. Target’s cus-tomers have come to expect well-designed branded and nonbrandedmerchandise that can’t be found inother discount stores—for instance,kitchenware designed by the archi-

tect Michael Graves, Stiffel lamps, and Mikasa tableware. The chain’s aware-ness of contemporary fashion springs from a trend-focused apparel teamthat gets much of its inspiration from Europe. In a sign that consumersunderstand the brand’s image, some Target shoppers wryly pronounce thechain’s name with French fashion flair: “tar-ZHAY.”

Once retailers have devised the value proposition and personality of a brand,they must give it visibility. Target created its “bull’s-eye” ad campaign purelyto build a brand image. The conspicuous absence of products in these adsbroke all conventions of retail advertising; consumers instead encountereda vivid dancing logo that associated the brand with a stylish contempo-rary lifestyle. Such advertising, which places the brand and the promise

of the store ahead of its merchandise, is likely to becomemore common in the industry.

Another important step in the brand-building process isassuring a brand’s proximity to consumers. For the sakeof customers’ convenience, the office supply competitorsStaples and Office Depot, for example, have begunputting smaller stores in more locations, expanding thedefinition of the brand by giving the consumer access to a killer assortment of goods through whatever formator channel best suits a given transaction. The culmina-

tion of this trend, of course, is electronic commerce overthe World Wide Web. Big-box retailers in particular increas-

ingly face the challenges of multichannel management and the need to pro-vide a consistent brand statement across each channel. The ultimate mix ofchannels remains to be seen.

It is impossible to imagine a retailer surviving and flourishing in the years tocome without creating a genuinely robust brand. Establishing and communi-cating it is more difficult for multibrand retailers than for their single-brand


In a sign that shoppers understandTarget’s brand image, somewryly pronounce the chain’s namewith French flair: “tar-ZHAY”


counterparts, but brand building is essential for both. Senior managers mustmake building the brand an integral part of how they think about the busi-ness, whether they are deciding what their target segments will be or howto speak to customers. Multibrand retailers must take back from their ven-dors full responsibility for managing their banner brand. Only then canthey build and maintain all of the value-creation potential of the names ontheir doors.



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