Sponsored Content WEBINAR: ELECTION 2008: E-mail Tips from a Political Insider   WEBINAR: Becoming the Illusionist: The Magic of Using "Brand" to Drive Response without Results Disappearing in the Process   WEBINAR: Score and Win Through Cooperation   TOOLS OF THE TRADE: Holiday's are prime-time for email marketing - maximize your ROI by getting to the inbox   ON DEMAND WEBINAR--MASTER CLASS: High Performance Online and Off-line Strategies for Large Scale Customer Acquisition   FREE WHITE PAPER - Direct Mail and the Internet Find any supplier you need - agencies, CRM, fulfillment, lists, e-commerce, paper, printers, telemarketing, and more. Featured Categories Lists and Data Telemarketing Database Marketing E-commerce Web Marketing Agency & Creative Services Print, Production & Paper Lists and Data Processing :: view all categories Get free access to more than 50,000 list data cards - one of the most comprehensive databases in the industry. >> Search Now DIRECT Buzz Blog Webinars Buyer's Guide Calculators JobZone ListFinder Promo Calendar Research Store E-Newsletters Print Magazine This Month in Direct Magazine Deal With It Direct had a full house for this year's list roundtable. Considering all the additional responsibilities on brokers' plates, that's impressive... See Full July Issue

WHY WOULD A RESPECTED AUTHORITY RECOMMEND investing in two similar companies toughing it out in a seriously competitive field? Recently, thanks to my husband, I read a very interesting, eye-opening report from Citigroup that plainly stated why both firms were on the buy list.

Kohl's and J.C. Penney, the companies addressed in the report, are (like most catalogers these days) true multichannel marketers. So there was a lot to learn from a detailed study that outlined the whys behind the positive reviews.

Have you seen Penney's catalog, print ads and Web site lately? They're clean, simple, attractive, motivational and generally well done (although the stores could still use some work). Thinking ahead of the pack, part of Penney's media plan allows customers to view its TV commercials online, where ordering is just a click away. And there's lots more under the hood of this revamped company than just updated graphics.

Deborah Weinswig of Citigroup's New York research staff outlined why her company was pro-Penney: “Its brands provide differentiation [and the] opportunity to increase sales productivity; [Penney's] integrated marketing campaign…enhances [the] top line; share buybacks [are] ahead; [its] technology remains a margin driver; and [a] high investment grade [is] on the horizon.”

Here's some of what Penney's has done in its new mode recently: added a touch of class through a “store within a store” joint venture with upscale beauty retailer Sephora; went for “with it” exclusive products that just happen to provide more margin, including new and exclusive offerings like washable/dryable men's suits (all the rage, according to a recent New York Times fashion article I perused); introduced “a.n.a” (A New Approach), an exclusive casual lifestyle brand for women; launched Studio, a home fashion “design resource”; and teamed with surfing legend Shaun Tomson to create a “carefree spirit” proprietary brand. Citicorp thinks “private brand penetration could reach 50%.”

Fresh creative, better products and margins, and other factors outlined in the Citicorp brief seem to be working. Profits for 2005's fourth quarter were up 65%. Net income for the same period, including discontinued operations, rose to $2.34 a share. First quarter 2006 sales increased by 3.5% in comparable department store sales and 12.5% in direct sales. And Penney's announced in January that online sales were now an annual “billion-dollar business.”

You may not be as familiar with Kohl's as J.C. Penney. It's still somewhat regional, but that's likely to change since more than 700 locations are now open or planned. Its stores are clean and bright, the catalogs are excellent traffic generators and the Web site strongly promotional. Citicorp's report states: “The reasons we like Kohl's include technology to support margin improvements; exclusive new brands and brand extensions [that] enhance [the] top line; advertising [that] attracts new customers and drives traffic; and [a] pending credit alliance with J.P. Morgan Chase.”

To me, Kohl's is a little more touchy-feely than Penney's. It allowed customers to donate gently used clothes and shoes at any Kohl's store to benefit Hurricane Katrina victims. For those who gave, Kohl's offered 15% off their next purchase. And, for the past five years, Kohl's has run the Kohl's Kids Who Care scholarship promotion, winners of which receive $5,000 for post-secondary education. Kohl's says, “Whether creating a summer program for at-risk youth, raising money to build a community center in India or co-founding a breast cancer research fund that raised over $550,000, this year's national Kohl's Kids Who Care winners share an amazing dedication to building strong communities through their generous actions.”

On the totally practical side, Kohl's is one of the retail innovators turning to product size optimization technology that allows retail stores to allocate the size and color of merchandise based on regional sales data. Hence that yellow sweater you wanted in size 10 will have a better chance of being available where you want it — and, to Kohl's benefit, of not appearing on the margin-reducing sales rack. Point-of-sale technology also is being employed to supply real-time inventory data. Kohl's has an excellent selection of the name brands you want and an increasing assortment of proprietary brands. I may choose Kohl's as my source for Dockers clothing and accessories, but I also usually wind up with an armload of its store-brand shirts.

Like Penney's, Kohl's has made significant sales gains. Fiscal 2005 new income jumped 19.7% from $4.1 billion in 2004 to $4.7 billion last year.

I like Citicorp's restatement of something we've all seen in the catalog business: Retailers that didn't offer high-end goods or very low prices fell by the wayside, allowing a bit more maneuvering room for those that were left. The coupling of Sears and Kmart — two weak brands that Mark Neckes, associate professor of marketing at Johnson & Wales University in Providence, RI, brilliantly noted were “joined together to go down together” — is no real competition at the low end.

Many department stores seem to be attempting a combination of constant sale prices and more upscale brands.

Though I'm usually all in favor of super-strong brand positioning, I'm not crazy about Federated Department Stores' game plan for converting stores like Burdines to the be-all brand Macy's. Burdines, here in Florida, had something quite unique for most department stores: a definitively different product line that screamed, “You're in Florida — dress like it.” That's now gone. If vanilla is to be the only choice, I don't think multichannel marketers have much to worry about when it comes to worthy competition from Federated.

Now more than ever we need lots of proprietary brands, state-of-the-art margin-boosting technology and an image-enhancing, coordinated advertising plan if we really want to compete effectively.

---

KATIE MULDOON (kmuldoon@muldoonandbaer.com) is president of DM/catalog consulting firm Muldoon & Baer Inc., Palm Beach Gardens, FL.