If you've ever worked in retail like I have, you're probably well aware that there's nothing quite as fickle as the spending and buying habits of consumers. Shoppers are looking for that perfect balance of the newest fashion trends for themselves or their home at the lowest possible cost. It's a game of chicken that some retailers have balanced successfully, while others have fallen flat on their faces.
Luckily for us, Brand Keys came out with its 17th annual report on its Customer Loyalty Engagement Index earlier this year that breaks down 375 of the most well-known brands into 54 categories and ranks these companies against their peers to determine which are the best at driving brand loyalty.
Today, I want to focus specifically on the retail sector, which Brand Keys has broken down into six separate categories. Not only do I want to highlight the achievements of these six top-ranking companies, but I also want to examine what got them to the top in the first place, so that we may determine if there are long-term growth drivers and advantages that these businesses are exploiting that might make them solid investments.
Privately held J. Crew Group beat out a slew of other apparel companies to take the title of best brand loyalty in the apparel sector. This was somewhat surprising to me given that Abercrombie & Fitch's three chains -- Abercrombie, Abercrombie & Fitch, and Hollister -- plaster their company name across many of their shirts, providing free, and essentially mobile, marketing. However, J. Crew has succeeded on two fronts: one, by offering fresh brands at reasonable prices, and two, by having one of the most visible non-paid endorsements in First Lady Michelle Obama, who is an avid J. Crew shopper.
This was perhaps the biggest shock of all, as Kohl's (NYSE:KSS) topped Macy's for the top spot in department store brand loyalty. Given Kohl's recently weak same-store sales figures, this may not make a lot of sense, but that has more to do with a weakness in the overall economy than a weakness in the company's operational model. Kohl's relies on discounts and promotions, as well as its Kohl's charge card, to bring customers into its stores and keep them hooked. Furthermore, Kohl's online business is among the most shopper-friendly.
Was there really any question here? Of course it's Wal-Mart (NYSE:WMT), which has the clout to be able to undercut its competition on price. You often won't find consumers clamoring to recommend Wal-Mart for its labor practices or customer service; however, you'll find it nearly impossible to find a store with a bigger variety of products or more competitive pricing than Wal-Mart.
To echo the previous statement, should anyone be surprised that the top name in brand loyalty in this category is Home Depot (NYSE:HD)?
Home Depot is perfectly positioned to take advantage of growth on the consumer side of the business in terms of home remodels, as well as from the commercial side of the business thanks to a rapidly rebounding housing market. Home Depot has counted technological advancements, as well as more-skilled employees, among the reasons it excels with home improvement consumers.
Sporting and recreational goods
In sporting goods, Dick's Sporting Goods (NYSE:DKS) ascended to the top of the list because its locations are convenient for consumers to get to, its prices are competitive, and it's focused on reaching out to digital consumers through social media and apps. More interestingly, Dick's app has a built-in GPS that will automatically help consumers identify the nearest store to them.
It's a tough choice between Amazon.com (NASDAQ:AMZN) and eBay, the two premier online marketplaces in the U.S., but Brand Keys gave the crown to Amazon. The key for Amazon is its shipping service known as Amazon Prime, which offers lower shipping rates for top-tiered customers and hooks its most loyal customers to its platform. It therefore shouldn't be a surprise that Brand Keys ranked Amazon as its top overall brand in 2011 as well.
What's the takeaway?
It isn't enough just to know that these are the top companies in retail with regard to brand loyalty. We need to dig deeper and understand what they're doing, so that we might better understand what "formula" makes for a successful retailer.
One key takeaway is that price is extremely important to the consumer. Wal-Mart being able to use its clout to undercut smaller local retailers, as well as Kohl's discount and promotional events, are what initially drive customers into the store. After that, it's up to those retailers to provide the experience to keep them coming back. For Wal-Mart, it's an incredible selection; for Kohl's, it's a credit card that can keep consumers loyal to the brand.
Another important factor is that what consumers perceive to be popular will become popular with them. The fact that J. Crew sales have jumped because Michelle Obama wears the brand provides ample evidence that consumer buying habits can be easily influenced with the right product and ambassador.
Finally, the importance of technology and catering to a younger generation of buyers cannot be emphasized enough. From Home Depot with its technological upgrades at the point-of-sale to Dick's Sporting Goods with its mobile applications meant to drive a pleasurable direct-to-consumer purchasing experience, technology is becoming often the first point of contact between retailers and the consumer. As expected, Amazon takes the cake when it comes to this form of interaction, but all six companies here have done an admirable job at improving their direct-to-consumer operations.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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