3 O'Clock High: Mr. Softie's Lump of Coal
"I see the future and it will be."
My first job out of college was in the management training program for Macy*s (now a division of Federated (FD)). Upon completion of said training I managed the Men's Departments in one of the suburban stores.
Heady and glamorous as that sounds, life in the stores wasn't all color coordinating the suits so each size run was placed on the racks by hue, from light to dark, left to right. As a soon-to-go Chapter 11 cash-strapped operation, Macy's was given to running increasingly desperate promotions, often with short-notice given to the stores. The idea in HQ was turning over merchandise to generate some liquidity. This is the dying retailer version of the hurry-up offense in football; the very fact that a company has been reduced to churning merchandise means the company is in big trouble. It's not a strategy that figures to work but the team is out of better options.
None of which was my concern, as a low-level department manager. Running a suburban, mid-level store, my focus was strictly in dealing with the folks who came into our shop. The hyperactive promotions didn't bother me because I was particularly concerned about Macy's, they bothered me because we rarely had the advertised products in sufficient quantity and sizes. When HQ would run a full page ad on a dress shoe that my shop only had in size 7 and 14 it would make for a very, very long day of trying to appease customers who felt lied to by the company.
Giving great customer service with limited resources is as much art as process but infuriating shoppers is easy: just lure them to your store by advertising products that the store doesn't have. If a dirty store is a screw you then advertising what you don't carry is borderline fraud. It's a Bait and Switch and both the customer and myself as department manager would know it.
Which brings us to Microsoft and tonight's midnight release of the Xbox360. Microsoft is rolling out the big promotional guns for the 360, taking maximum advantage of their 6-month lead over Sony's (SNE) new PS iteration. The hype may or may not serve Microsoft well in the long-run but the product is going to be a large pain in the backside for retailers this year for three decent reasons, all related to the above Bait and Switch point:
- Microsoft is only shipping 3 million boxes, world-wide.
100% sell-through is a lock. I'd put the over-under on the exact point at which the 360 is sold-out (for the purposes of a typical consumer) at about 10AM est on Friday morning.
If the product is a hit, retailers get to pitch customers on the idea that "nothing says Christmas Morning Magic like a rain check!" If the 360 doesn't sell out, it'll be because it's a flop.
The retailers lose either way.
- The Line-Up isn't "must have".
18 games will be available for the 360 as of tomorrow. Electronic Arts (ERTS) is coming out with an impressive sounding 5 of their industry-standard sports titles for the 360. The problem is the rush-to-market means the games are stripped down versions of the games for the earlier platforms, only dressed up to take varying levels of advantage of the 360's HD capabilities (for example, only 5 courses in the 360's Tiger Woods game; that's simply not enough, for those who play these things).
The best-reviewed of all the available games is Activisions (ATVI) Call of Duty. I'm long Activision and I still don't have the squash to pretend that Call of Duty can make up for a disappointing Madden, in terms of software sales.
- Speaking of bait and switch...
The 360 is $299. Unless you want to get one that your kid won't be ashamed of; in which case it's $399. And you'll probably need to get some more accessories which will bring you near $500 before you've gotten any good games.
It's priced too high to begin with and it comes in a perplexing array of configurations. Which is about what you'd expect from a PC company but isn't something your average Best Buy (BBY) is prepared to deal with in a customer-pleasing manner.
Add it up and you've got a product that is capped under $2billion in pre-2006 hardware sales, US wide and is to be released via the channels of maximum frustration. It's likely to be a "hit" but it's going to be as much trouble as it's worth for the retailers; a problem which gets worse with every breathless TV report from the release parties.
This. That. Other things.
- I'm filming a segment for CNBC's On the Money tonight, for air on Black Friday. The topic, of course, is the outlook for retail sales. Inasmuch as we will know much more about the outlook on Friday than we do currently, this spot has all sorts of humiliating "Dewey Defeats Truman" potential.
I'm a sucker for these opportunities to eschew the wimpy safety net of reliance upon "having any information" whilst talking on TV, so this should be great.
I'm sticking with "Decent top-line results but bad margins" as my outlook until I have reason to change it.
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