Vintage Filings Business Blog

US online retail sales this holiday season will reach $44 billion, a 12 percent increase over last year and the slowest growth rate to date, according to Forrester Research. This year’s weakened growth is indicative of the difficult economic environment catching up with formerly resilient Web buyers.

Although US consumers are pessimistic about the health of the economy, they expressed a marked interest in the ability of the Web to save them money. Forty-eight percent of consumers surveyed, compared with 41 percent in 2007, said that they can find the best values and deals online. Additionally, 36 percent of consumers said that they would be more likely to shop online due to high gas prices, compared with 22 percent who expressed the same sentiment last year. Forrester expects that the majority of holiday online sales will be driven by shoppers who have previously purchased online, rather than first time online buyers.

“While eCommerce has traditionally been resistant to negative offline trends, growing concerns about the stability of the economy are finally affecting consumers’ online shopping decisions,” said Forrester Research Principal Analyst Sucharita Mulpuru. “This is going to be a very competitive online shopping season, so retailers should take immediate steps to bolster their customer retention strategies in order to ensure repeat purchases.”

More than two-thirds of consumers surveyed said that they are planning to spend more or about the same online as they did last year. Core holiday product categories such as clothing will remain top choices for online buyers, as well as books, DVDs/videos, music, gift certificates, and toys. Respondents also indicated that they will be seeking free shipping offers more often this year than last.

“A main attraction of the online shopping environment is the breadth of information that it offers,” said Patti Freeman Evans, Forrester Research Vice President and Research Director. “Retailers should expand their use of online marketing tactics on search engines and comparison-shopping sites since shoppers are likely to be researching the Web more thoroughly when deciding on this year’s holiday gifts.”

This year’s annual holiday forecast was a collaboration between Forrester Research and JupiterResearch, now a Forrester Research company. Two surveys were conducted to measure the attitudes and expectations of online consumers during the upcoming holiday shopping season, which was defined as the months of November and December. The first survey was fielded in September 2008 and received 2,153 individual responses. The second survey was fielded in early October 2008 and received 1,042 individual responses.

U.S. consumers are likely to be spooked by higher prices this Halloween, as candy and costume accessories are up in price compared to last year, according to The Nielsen Company. Costume hair coloring products show the greatest increase, averaging $4.42, which is up $2.46 or 126 percent versus the same period one year ago. Candy sales average $3.59, up $0.10, while chocolate candy sales average $4.22, up $0.17.

“For many consumers, the most frightening part of Halloween may be higher prices” said Tom Pirovano, director of Industry Insights, The Nielsen Company. “That said, few parents will deny their children the fun of dressing up and trick-or-treating, so we expect sales to remain strong.”

The eight-week period leading up to and including Halloween accounts for nearly 90 percent of costume hair coloring annual sales activity and approximately 25 percent of false eyelash and accessory sales. More of a year-round seller, false nails and nail decorations rack up only 15 percent of their annual dollar sales during the Halloween season.

Goblin’ Up the Goodies

It’s not Halloween without candy and U.S. consumers expected to purchase more than $1.9 billion in candy during the Halloween season, with chocolate candy accounting for $1.2 billion of Halloween candy sales and non-chocolate candy accounting for nearly $672 million. Halloween generates the greatest sales volume of sweets for the entire year.

“Despite the wide varieties of candies available, there’s no doubt that chocolate remains king,” said Pirovano. “Chocolate miniatures, in particular, experience a high surge of sales around Halloween that is hard to match other times of the year.”

More than one-third (35 percent) of total annual sales of chocolate miniatures take place during the Halloween season, according to Nielsen’s analysis. Likewise, 36 percent of non-chocolate miniatures, 25 percent of lollipops and 18 percent of bubble gum sales occur during the same time frame.

Wait . . .Wait. . . Buy!

Whether procrastination or an attempt to get the best deal, consumers tend to wait until the last minute to purchase Halloween candy. From early October to Halloween, weekly candy sales more than double – - from $196 million to $436 million⁶, with the most candy sales occurring on October 28.

“In today’s tough economy, it’s very possible we will see more consumers waiting to buy candy, as budget conscious consumers wait for the biggest bargains.” said Pirovano.

During the current economic slowdown, there are many varying opinions on television, online and in newspapers regarding how to correct the current situation.  However there is one consistent theme among them all: public companies have to cut costs anywhere possible to maintain the highest level of profitability possible.  And one of the best spots to cut corporate costs is with IT departments.  With the advent of SaaS (software as a service), companies can utilize third party technology as opposed to hiring a team of full time IT professionals.  A good illustration of this fact is a company called Digital Fuel who has announced relief for enterprises that want to rapidly cut IT costs. At a time when every company is looking to streamline spending, Digital Fuel is leading the way by offering companies insight into where and how to save IT dollars today and in the future.

“There is a lack of visibility into IT costs and IT service utilization in many organizations which results in businesses creating redundancies and not optimizing their investment in IT,” said Barbara Gomolski, Managing Vice President, at Gartner Inc. “By providing real-time and ongoing visibility into IT spend and cost drivers, organizations can significantly reduce IT spend—often by as much as 15%¹ or more—simply by identifying and cutting out duplication and waste.” However, locating and isolating this excess is a challenging task. Digital Fuel addresses this problem head-on by providing enterprises with instant insight into IT cost drivers—unnecessary spend and service usage, poorly utilized IT spend, and avoidable cost over runs.

Digital Fuel’s award winning ServiceFlow software solution provides this important insight with unique capabilities that map business services to their underlying components and costs. Furthermore, by making IT costs transparent, ServiceFlow allows IT to continuously drive down costs on an on-going basis and focus IT spend on services that deliver real business value. The solution is available as a hosted service or on-premise solution.

“With Digital Fuel we were able to help our customers realize approximately $10 million in IT services billing reductions in our first year,” said Floyd Rutan, Executive Director of Cummins Business Services. “It gave us powerful insights into IT service usage across our organization. We’re now using Digital Fuel as a key component of our overall IT service management initiatives.”

In today’s uncertain economic times, Digital Fuel is providing a highly valuable, easy to use solution that delivers immediate value to reduce costs and improve overall service delivery. More than 500 enterprise organizations across a broad range of industries rely on Digital Fuel as the foundation for managing their IT services to dramatically cut costs and improve services.

“Cutting IT costs is priority number one for enterprises in today’s economic downturn,” said Yisrael Dancziger, CEO of Digital Fuel. “We see our software as a big relief boat for thousands of organizations looking to immediately cut IT costs and as a means to keep IT service organizations continually streamlined for the long-term. By cutting 25% of IT service costs, companies can get much needed relief in an area that accounts for a large percentage of overall operational costs.”

In a difficult economic era, saving on IT is a key prerequisite to ensuring profitability.  With that in mind Dell has launched the “Simplify and Save” blog to help businesses engage and exchange best-practices with Dell, experts and each other on how to win in today’s tough times with smart, simple IT strategies.  At Dell IdeaStorm, customers are also encouraged to share their ideas for how they are simplifying IT and saving in their businesses or how else they would like to see Dell help.

IT decision makers from businesses of all sizes can learn about and contribute to conversations on energy-efficient IT; virtualization; data storage; managed services for large and small and medium businesses; server, desktop and laptop replacement strategies; financing options, social media, strategies and tools and more.

According to a recent report from Gartner analysts John Rizzuto and Betsy Burton, continued IT investment is imperative for all enterprises, whether the objective is to maintain or to gain competitiveness.  Michael Dell discussed similar ideas with a group of small-and-medium-business owners during their recent visit to Dell as part of the 2008 Small Business Excellence Award.

In the inaugural Simplify and Save blog post, chairman and CEO, Michael Dell, explains: “The first reaction in any downturn is to cut costs. But what then? Where do you invest to drive competitiveness and prepare for growth? Challenging periods also present significant opportunities. Technology investments done right are the one thing that drive productivity and help drive cost out, which is what almost every business is looking for right now.”

“Customers confirm complexity is out of control as the cost of managing IT exceeds the cost of acquiring it,” said Steve Schuckenbrock, Dell CIO and president of Global Services. “With 70 percent of IT budgets spent just keeping the lights on, too little is left for innovation. Our focus is on solutions and services that simplify IT management to free up resources for projects that drive business results.”

For publicly traded companies, supply-chain finance is a key to fulfilling orders and expanding business operations.  However with the current credit crisis, many companies are unsure of how to move forward.  I recently discovered a company called PrimeRevenue, a global provider of Supply Chain Finance (SCF) solutions, who reported strong demand for Supply Chain Finance as companies struggle to source liquidity in today’s credit-constrained environment.

PrimeRevenue’s SCF Platform is an online network that links global companies (“Buyers”), their suppliers (“Suppliers”), and third-party Financial Institutions in a secure web environment. Through Supply Chain Finance, Suppliers of all sizes can access financing based on the credit risk profile of the large Buyer. This serves to both increase the availability and drive down the cost of financing for Suppliers, reducing cost and financial risk throughout the Buyer’s supply chain. A network of financial institutions provides liquidity to fund early payment requests.

Approximately 300 new Suppliers have been added to the SCF Platform — totaling a spend volume of $5.8 billion — in the six months ending September 2008. Not including these new suppliers, payments processed by PrimeRevenue from its founding in 2004 to September 30, 2008 total $36 billion, outpacing all other SCF providers worldwide.

PrimeRevenue CEO Joe Juliano said: “Working capital finance is the lifeblood of modern commerce. Today, its flow is severely constricted. It is critical for companies to have flexible, reliable and available access to cash when needed – which is exactly what our Supply Chain Finance platform delivers.” Added Juliano: “Our substantial growth over the past few months is a direct consequence of increased strain in the credit markets. Companies are telling us that they see Supply Chain Finance as a complement to existing working capital facilities, or as an outright replacement to those that have been removed. All have welcomed the value our ‘on-demand’ working capital facility gives them to meet on-going business requirements in this unprecedented credit crunch.”

Suppliers cite PrimeRevenue as a powerful option in the current credit market environment. Masonite Corporation, one of the world’s leading manufacturers of interior doors and entry door systems, announced its participation in the PrimeRevenue SCF Program in September 2008. Masonite joined at the invitation of one of its large retail customers. “We are very pleased to have worked with PrimeRevenue and our customer to launch this facility at attractive rates in an extremely difficult credit market. This transaction demonstrates our continued focus on creating cost efficient access to capital markets and strengthening cash flow,” said Fred Lynch, President and Chief Executive Officer of Masonite.

Since the advent of the ‘credit crunch’ in August 2007, supplier-initiated receivables sold via the PrimeRevenue solution grew approximately 40%. Several thousand supplier accounts are live and trading and suppliers have been able to access financing in 22 countries worldwide, receiving payments in 9 currencies. Financial institution partners include Bank of America, BMO Capital Markets, Macquarie Bank, Morgan Stanley, and National City Bank, among others.

The deepening economic crisis has the potential to impact every industry, business and household in America. Many companies have gone into survival mode, resulting in budget cuts, hiring freezes and layoffs. Although some industries, such as Healthcare and IT — the #1 and #2 industries for jobs in Q3 2008 — will continue to provide job security, most will suffer and leave workers in fear of reduced benefits, pay, or even losing their jobs.

As businesses evaluate their resources, middle management and high-paying jobs will face the most scrutiny, especially those with an indirect impact on the bottom line. In addition, more employers will offer early retirement packages to make room for younger, less expensive talent, allowing Gen X and Gen Y to move up the corporate ladder faster. However, more responsibility does not always mean higher compensation; these workers will need to set realistic salary expectations.

Many employers will look to reduce HR costs to avoid potential layoffs and will need to carefully determine necessary reductions in benefits without damaging employee moral. To help compensate for these changes, more companies will defer new benefits that increase operating expenses, instead opting for more creative, less expensive benefits such as flex-time and telecommuting.

The failing economy will also lead to higher employee retention and less job hopping, with fewer workers willing or able to switch jobs. However, more professionals will become passive job seekers to prepare for possible unexpected job loss, and some may even return to school to improve their skills and marketability.

“The state of our economy has put a strain on businesses across America. Many companies are going to extra lengths to assure that their organization will stay profitable, while attempting to minimize layoffs throughout this economic hardship,” says Rich Milgram, CEO of Beyond.com, Inc. “As a result of reduced hiring, job seekers will need to diversify their skills, take advantage of learning opportunities, and demonstrate value to employers to increase their chances of surviving this recession. Most importantly, professionals should approach this difficult time with a positive attitude and realize that today’s challenges will lead to greater opportunities in the future.”

Every company cuts costs during a recession but only some companies actually improve their competitive position. Forty-eight percent of the companies who cut expenses across the board during the last major recession either lost ground or remained an also-ran, according to a new research report by Diamond Management & Technology Consultants. However, more than half of the companies Diamond examined actually increased gross margins during the recession year of 2001, and by the end of the recession had improved margins by an average of 20 percent.

“Don’t waste a crisis,” said Adam Gutstein, Diamond’s President and CEO. “Staying the course in times of uncertainty may seem like a safe option. But in fact, honestly assessing your company’s performance during the last recession and building a roadmap to realize value from cost-cutting and investments during this downturn are the keys to emerging from a recession as a winner.”

“Our research reveals that at the very time when leaders are tempted to shorten their time horizon and make arbitrary across-the-board cuts, superior performers dig into the data about their company performance and outsmart the competition,” said John Sviokla, Diamond’s Managing Partner of Innovation and Research. “Everyone cuts costs, but doing so in a way that improves the design and performance of the business separates the winners from losers.”

Diamond found that companies fall into one of four categories, based on how they enter and how they emerge from an economic downturn. “Stalwarts” are consistently high performers, ranked within the top quartile among their industry peers before and after a recession. “Low idlers” did not show any significant difference in performance regardless of economic conditions.

Two other categories of companies experience significant swings of 10 percent or more when comparing their financial performance relative to their industry peers. “Disappointed Stars” suffer worse performance when a recession turns. However, companies identified as “Opportunists” rebound from a recession and improve their relative competitive position.

The financial performance of four in ten of the companies analyzed moved up or down in the period from 1998 through the post-recession period of 2003. In that time Stalwarts and Opportunists created more than $350 billion in market value. Low Idlers and Disappointed Stars destroyed over $200 billion.

“Our research shows that tough economic times mark a turning point for many companies,” said Diamond partner Paul Blase. “Strong performance before a recession does not guarantee a higher tendency for success once the economy recovers. But a recession, as painful as it may be, is often an opportunity for growth and improved performance at companies willing to invest carefully.”

Seven lessons to thrive in a downturn, while improving the fundamental design of the business:

1. Cut the right costs by getting at the root cause of expenses – Firms that performed more thoughtful reviews created more value. For example, a large HMO conducted a root cause analysis of the economics of customer transactions and interactions. Rather than across-the-board cuts that would have decreased customer service, the HMO introduced call-deflection tactics that generated $21 million in annual savings while keeping customer satisfaction high.

2. Automate, Automate, Automate – For leading competitors the cost-cutting mandate during a recession is an opportunity to take advantage of the rapid decrease in the cost of information technology. Southern Company, the huge, Atlanta-based utility, installed an automatic meter-reading system in 2008, yielding both cost savings and the opportunity to improve its business design by providing meaningful data about power usage.

3. Use Vendors to Create Lower, Variable Costs – Companies that nurture their in-house core competencies and carefully offload other functions to vendors often reduce near-terms costs. Furthermore, adding more variable costs to the design of the business gives management more freedom to respond to shifting economic conditions.

4. Identify the Customers to Grow On – Unprofitable and highly transactional customer relationships should be reassessed during a recession. Singapore Airlines remained profitable when East Asia suffered from a currency crisis in 1997 by cutting back on short-haul routes and investing $300 million to cater to business and first-class travelers.

5. Optimize the Marketing Mix – As every advertising agency knows, cutting the marketing budget is typical in a downturn. Leading companies analyze all their customer channels—advertising, the web, phone-based customer service, face-to-face—to match the optimal channel to the optimal interaction. For example, an investor services company has invested in a new Web capability that allows brokerage firms to host their own investor chat rooms and validate how many shares of stock a chat room participant has in a given security. By building a social media channel for its clients, this company is looking to increase financial transactions with minimal costs.

6. Invest When Others Can’t – Stalwart companies keep investing in R&D when times are tough, the Diamond research revealed. Gillette, for example, launched its Sensor brand of shaving products in mid-recession in the early 1990’s and by 1997, 49 percent of Gillette’s sales came from new products introduced in the previous five years. Intel invested 14 percent of sales (a whopping 174 percent of 2001 profits) during the 2001 recession on production innovations to produce faster, cheaper, smaller computer chips. Intel then launched new products months ahead of schedule and reported its highest growth rate since 1996.

7. Focus on Your Core – Across-the-board investments don’t work any better than across-the-board cuts during a recession. Leaders succeed by focusing new investments in core strengths or developing their next core strength. During the 2001 recession Microsoft bet on the launch of one product: the Xbox game console. One of the most successful launches in videogame history, Microsoft sold 1.5 million Xboxes in the first two months.

“Managing risks in times of uncertainty is paramount,” said Gutstein. “That’s why it’s important for management to ask hard questions. How did we perform during the last recession? How well prepared are we this time? Did we learn the right lessons? And have we done the analysis and plotted the course to emerge stronger this time?

“Leaders that follow these principles and execute a structured plan can proceed with confidence and emerge stronger when the market turns.”

Despite the rapidly increasing use of handheld mobile devices throughout the United States, higher-end applications remain vastly under-used by the country’s consumers, according to results of an Accenture survey released this week.

The survey found that 88 percent of U.S. consumers said they never use their mobile phones or other mobile devices to watch videos; 84 percent said they never use their mobile phones or mobile devices to send email; and 79 percent said they never employ them to play “games on the go.”

The purpose of the survey, which divided the more than 5,000 adult respondents into three age groups (18 to 34, 35 to 54, and 55 and older), was to identify and quantify spending patterns and usage involving more than a dozen consumer electronics devices and applications, including cell phones, personal computers, TVs and the Internet.

The survey also revealed that 38 percent of all respondents spent less than $500 to buy consumer electronics products during the previous year. In this same time period spending was highest among those in the 18-to-34 age group, with 17 percent of them purchasing between $1,500 and $3,000 of consumer electronics, compared with only 11 percent of those at least 35 years old.

Similarly, four times as many of the 18-to-24 year olds–the extreme young end of the 18-to-34 participant group–said they spent more than $3,000 on consumer electronics products during the previous year, than did those 55 and older (12 percent and 3 percent, respectively). This 18-to-24 year old group revealed that they are twice as willing as those over 55 to pay a subscription fee of between $1 and $5 per month for someone to help them by phone to install and configure their consumer electronics products (12 percent and 6 percent, respectively).

The survey also found particularly sharp contrasts in usage of social networking, blogging and online site usage between those in the 18-to-24 age range and those 55 and older. The 18-24 year olds were more than 10 times as likely as those over 55 to use social networking sites (73 percent versus 7 percent) and seven times as likely as those 55 and olders to write blogs or contribute to online sites (35 percent versus 5 percent).

“These survey results point to important missed business opportunities in the mobile handset and social networking arenas,” said Kumu Puri, a senior executive with Accenture’s Electronics & High Tech practice. “Clearly, many consumers are not widely embracing higher end cell phone applications. And the vast majority of older Americans, in particular, are not inspired by the social networking phenomenon.

“To capitalize on these market realities, consumer technology companies need to customize their ease of use and design differentiation for the different age groups,” Puri added. “This begins with envisioning a specific consumer’s experience and delivering that through hardware, software and services that are more compelling and enjoyable.”

It is not a secret that the US is going through difficult economic times, and right now is a key time to review your company’s marketing strategies to ensure that you are achieving the highest return on investment possible. InsightExpress, a digital marketing research firm, has released the results of research examining how the economic climate is affecting online advertising campaigns. The data also points to steps that advertisers and agencies can take to ensure that their branded communications continue to impact a more cautious and frugal consumer.

From January 2007 through August 2008, InsightExpress analyzed a rolling 3-month average of its online advertising campaign norms for key brand metrics (unaided awareness, aided awareness, message association, brand favorability, and purchase intent). The company then compared the data from their InsightNorms normative database against the Consumer Confidence Index, while simultaneously looking deeper for examples of campaigns that continued to outperform benchmarks despite the challenging economic environment.

At the beginning of 2007, brand metrics for the campaigns were outperforming InsightExpress’ historical online advertising norms. The brand metrics remained relatively stable until last November, when it first became difficult for many campaigns to surpass the historical averages, especially for aided awareness, unaided awareness, message association and brand favorability.

A comparison of InsightExpress’ normative data with the Conference Board’s Consumer Confidence Index (CCI) revealed a strong correlation between the economic climate and advertising effectiveness. Aided awareness was most highly correlated (87 percent) with the CCI, indicating that it moves with the index 87 percent of the time. Other metrics followed the CCI as well, including unaided awareness (84 percent) and message association (84 percent). While a variety of forces have an impact on online advertising effectiveness, it’s clear that the economy plays a significant role.

Yet, despite the challenging environment, many companies were able to develop successful online campaigns during this time period, which outperformed InsightExpress’ normative averages. These campaigns represented a wide array of industries, including automotive, apparel, financial services, CPG, electronics, travel and education. They also shared several common characteristics which may have helped them to succeed despite challenging market conditions:

1. Use of extended format flash video.

2. Strong branding elements in the final frames/components of the ad.

3. Interactive elements such as scroll-overs, engagement exercises (e.g., design a baseball cap), or a request to share information and win.

“Our data show that when consumer confidence is down and consumers become more attuned to their personal finances, they are less aware of online advertising,” said Drew Lipner, VP, Group Director of the Digital Media Measurement team at InsightExpress. “This means it is more important than ever to develop strong creative that will resonate with one’s target. As we’ve seen with the brands we measure and the success we’ve tracked recently, when applied correctly, pre-testing and media targeting can bolster the brand’s position, allowing them to weather the softening economy and gain and defend market share.”

If you deal with consumer transactions, this new research report offers some very important information regarding how your customers value their personal data.  Solidcore Systems has just released the results of a consumer confidence survey linked to data security at retail locations. Solidcore surveyed more than 500 consumers nationwide about credit card use, and to gauge their privacy fears and buying habits when shopping at various retail stores. The survey illustrates that consumers are concerned retailers are not doing enough to protect their personal data, and that these consumers will evaluate the risk of data breach when deciding whether or not to use credit cards at retail locations.

An overwhelming majority of consumers (81 percent) believe that some retail locations are safer than others for using credit and debit cards, and most (74 percent) would not shop where they feel their financial or personal information may be at risk. Among the consumers polled, the greatest fear is that credit and debit card payment processing systems (also known as point of sale systems) may be vulnerable to fraud or data theft. Furthermore, a significant majority of respondents would feel safer if the retailer’s point-of-sale (POS) system was certified by a trusted third-party.

Solidcore conducted this survey of more than 500 consumers from a variety of socio-economic demographics nationwide. Key findings include:

Majority of consumers worry retailers aren’t doing enough to protect data — Among the chief concerns of consumers, 42 percent of respondents worry that POS systems are insecure or at risk of fraud, while only 4 percent worry their receipt will be stolen.

Consumers will not use credit or debit cards when retailers seem untrustworthy — 81 percent of consumers acknowledge that some retail locations are safer than others for using credit and debit cards, and 74 percent of consumers acknowledged they would never shop at a retail store they feel puts their information at risk. However, 21 percent said they would sometimes shop at a “risky” retailer.

POS security certification can alleviate consumer buying fears — 83 percent of respondents felt that an industry-standard certification of POS systems from a trusted third-party would make them feel more comfortable about shopping with the retailer. Currently no industry standard exists, but retailers working with Qualified Security Assessors (QSAs) to implement security solutions can gain a degree of confidence that permeates the organization.

“This study was conducted to better understand consumer confidence in light of the more than 500 large security breaches that have occurred this year alone, according to the ID Theft Resource Center,” said Anne Bonaparte, president and CEO of Solidcore. “Overwhelmingly, consumers are concerned with how retailers handle their personal information and are likely to take their business elsewhere if they feel their information is at risk. Retailers that are truly concerned with protecting their brand must begin to place the highest priority on securing store systems, starting with POS systems. This becomes even more important as retail shopping increases for the upcoming holiday season.”