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If You Direct Import Children’s Products, Read This!

Guest Blog by Quin D. Dodd, Esq.

Once upon a time the U.S. Consumer Product Safety Commission (CPSC) was a rather quiet federal regulatory agency, tucked away in the Washington suburb of Bethesda, Maryland.  Then came 2007, dubbed “The Year of the Recall,” with lead-contaminated toys from China grabbing weekly headlines.  Congress reacted by passing the most sweeping reforms to the laws governing the safety of children’s products since the inception of the agency—the Consumer Product Safety Improvement Act of 2008 (CPSIA).

In addition to imposing strict new limits for lead, phthalates and durable nursery products, among others, the CPSIA culminated on February 8, 2013 into what has been called “The Mother of all CPSC Regulations”— the Testing and Certification Rule (or “1107 Rule,” codified at 16 CFR 1107).  This rule sets forth very specific testing, record keeping and other requirements for U.S. importers and domestic manufacturers of children’s products – any product “primarily intended” for children 12 years old and younger.  In a nutshell, this rule requires that U.S. importers and domestic manufacturers of children’s products:

  • Order CPSC-approved lab testing and certify that those products meet all applicable CPSC standards, including documenting and appropriately responding to any sample failure;
  • Undertake additional testing of the product after certification and during manufacture of the product (how frequently is unspecified but must impart a “high degree of assurance” that all products meet all CPSC standards);
  • Monitor and document any “material change” to the product that could affect compliance with standards; and
  • Implement company policies and employee training to prevent any attempts at “undue influence” over test labs (effectively, any attempts to skew test results).

The 1107 Rule presents a unique challenge for U.S. retailers who direct-import children’s products:  they just buy and import the products; they don’t make them.  Short of opening an office in every overseas factory from which they source, how are direct-import retailers in the U.S. supposed to ensure that all these requirements are met?

The answer lies in two additional CPSC-regulations recently passed:

1.              Component Part Testing (“1109”) Rule.  This regulation allows the U.S. importer to rely on a certificate from an overseas supplier to, in turn, issue the CPSC-mandated product certificate prior to importation, so long as “due care” is exercised to ensure that the supplier did what is required of them under the 1107 Rule.  Cutting through the regulatory jargon, this means that the U.S. importer should require the overseas supplier provide proof that they undertook all the necessary activities and obtained all the necessary documentation under the 1107 Rule.

2.              HDXRF and Other “Alternative” Test Methods.  As stated, the 1107 Rule requires some testing during actual manufacture of children’s products, in addition to that for certification.  That testing, however, can be either via a third-party lab (“periodic testing”) or on-site factory (“production”) testing.   Regardless of which avenue the U.S. retailer  or supplier may choose, on February 20, 2013, the CPSC for the first time allowed High Definition X-ray Fluorescence (HDXRF) to be used for both lead paint AND substrate (content) testing.  Unlike traditional “wet chemistry,” HDXRF technology is non-destructive and available for use in both portable and benchtop instruments, making it easy to use in either a lab or factory setting. Since lead is the number one source of seizures at U.S. ports,  HDXRF represents a major cost-saving opportunity for either periodic or production testing under the 1107 Rule for both suppliers and U.S. importer-retailers.

The 1107 Rule, while complex and not necessarily a fun read, is manageable.  Just make sure you deal with it now, before the CPSC asks you why, as an importer of record, you failed to do so.

Quin Dodd is a Washington, DC attorney practicing exclusively in the area of product safety law, and formerly served as Chief of Staff of the CPSC from 2006 to 2008.  He may be reached at:  quin@quindoddlaw.com. 

J.C. Penney Co. – Start With People

Guest Blog by Lior Arussy

The Wall Street Journal recently reported on the low employee morale inherited by J.C. Penney’s returning CEO, Myron “Mike” Ullman, after the chain slashed its workforce by tens of thousands over the past year. Retail is not just a business of merchandising and discounts, as it has been portrayed by the media in the last week since the department-store chain ousted its former chief executive Ron Johnson.  Retail is a people business as well, which Mr. Johnson clearly did not understand.

Creating a new retail platform, as was attempted with the “JCP” branding platform, requires the organization to lean on its brand ambassadors.  If the transformation from J.C. Penney to JCP was executed as I’ve seen so many in the past, regardless of executive’s intentions, it probably sounded to employees as “Everything you have done so far was wrong, this is the new right.”  Or perhaps, “Even our name is old an outdated, so we’re changing it.” Even without thousands of layoffs, a poorly planned and executed transformation will quickly create low employee morale. Now imagine the thousands and thousands of employees who face customers every day. What expression do you think they have on their face? How keen are they to help their customers? What is their attitude towards confused customers who are looking for a discount?

J.C. Penney must focus on its people first.  Every day, its 116,000 employees are making decisions that will amount to its brand equity.  Every organization’s brand equity is equal to the sum total of their employees’ decisions both in front of the customer and behind the scenes on behalf of the customer. If employees are enthusiastic, passionate and caring, customers will make purchases.  People do not buy from cynical uncaring employees. (Check out www.cyncismkills.com.)

The human factor is the most elusive and challenging in every corporate strategy.  The good news is, if you unlock your workforce’s energy, they will not only meet, but exceed, your customer’s expectations. Here are my best, most heartfelt ideas for Mr. Ullman:

  1. Start thinking in terms of employee engagement. Measure your workforce’s state of mind, the true pulse of the organization. Involve your employees in valuable discussions and lean on them to help strategize and design your next moves.
  2. Create a cause to which people can connect. Stop designing transformations around stockholders and stakeholders. Instead, focus on fulfilling your customer’s needs and positively impacting their lives.
  3. Give employees a reason to have pride in the brand. Yes, brand pride is key to your future success. Connect your people to J.C. Penney’s heritage and develop a clear program to disseminate that emotional bond throughout the organization and beyond.
  4. Embrace empowerment. Equip every manager with the tools and authority to engage their employees.
  5. Innovate and then innovate some more. Establish small teams across all levels of the organization and provide them a forum for generating new ideas and leading initiatives to delight customers.
  6. Give employees the power to delight. Provide employees the opportunity to deliver great experiences that will increase loyalty and customer profitability.
  7. Celebrate the customer heroes. Establish a sustainable culture that is committed to recognizing and rewarding its customer heroes.
  8. Repeatedly connect back to the cause. Make sure employees can see the progress made on the goals to reach the organization’s vision and fulfill its higher cause.

As we all know, history often repeats itself. The now defunct Circuit City fired its top sales people because they were too costly and just two years later filed for bankruptcy. Any company strategy that does not embrace fully the role of the organization’s employees, fails to understand a very simple truth.  In the moment of truth, when a customer and employee connect, the brand is created. How the employee chooses to engage the customer at that moment of truth, will determine if the corporate strategy will succeed or fail.

Apple’s retail success was highly dependent on the spirit of its employees. There was no evidence that a similar spirit was developed at the JCP brand.  Whatever spirit the J.C. Penney workforce had a year ago has been most likely destroyed a strategy that undermined them and not only by the job cuts. Although it’s easy to rely heavily on merchandising, store design and slick advertising, take heed that employee morale is a force that cannot be ignored.

The opportunity that Mr. Ullman is inheriting is quite significant; if he can take the 116,000 J.C. Penney employees and inspire them to be brand ambassadors, he will create a tsunami of positive brand loyalty and profits.  The good news is that with the right approach, morale can be turned and cynicism can be transformed to passion. I wish Mr. Ullman good luck on his journey.

Lior Arussy is CEO of Strativity

Leverage the marketplace – convert a NON-BUYER into a BUYER

Guest Blog by David Zahn

Conventional wisdom in retailers and FMCG manufacturers focuses on growing the business by maximizing market share and increasing conversion among existing shoppers /consumers.  By targeting this population, it is assumed to be more efficient and productive than trying to convince those do not currently shop at a store or in a category to become shoppers at that outlet or in that aisle.

However, for REAL growth to occur, we have to actually leverage the marketplace where we have been hesitant to go – at NON-CONSUMPTION. Historically and conventionally, we have believed that it is harder to convert a NON-BUYER into a BUYER than it is to get someone to switch. And, while there is both intuitive logic to that and plenty of proof to lean on; that does not grow the market in total. For that to occur, the shopper has to make incremental purchases and not just swap from one to another.

Looking at the matrix below, labeled Four Types of Shopping, you see in the lower-left quadrant  how the shopper makes routinized purchases that are not impacted by the information currently available from the store or manufacturer, nor does the shopper particularly seek additional information.  Moving to the right; the lower right-hand quadrant shows the shopper seeking a solution or to meet a job, but being stymied by the lack of news or communication from the store or brand on how to accomplish that job with the products currently available.  Moving up to the upper-left quadrant; the manufacturer and store focus on switching behaviors between existing options – and while it may re-allocate the shares, profits, and sales dollars among competitors, it is not creating growth or incremental sales of any substantial amount.  The only way to grow the TOTAL business in a sustained way is to provide context, information, decision-support, and assistance to the shopper through an improved Ecosystem that aligns with the shopper’s desire to accomplish a new job or an existing job in a more successful way. Therefore, what is required is a better understanding of the jobs the shopper wishes to master and what requirements must be in place for that to lead to a purchase of a product (or combination of products purchased in concert).  Simply relying on so-called “causal data” or studying “panel data” will be helpful; but insufficient in that it is not tracking and seeking to understand the decision-making process of the shopper.  It is attempting to link correlational data (a sale occurred under this condition) and assumes it is directly responsible for the purchase.  In fact, that is rarely accurate.  The missing piece is an understanding what the purchase is designed to provide – and not simply the occurrence of a purchase.  By better understanding what the shopper is attempting to accomplish, and participating in that vision, the retailer and manufacturer can better position their offerings to accomplish that outcome.

As an example, review the following example of a “typical shopper’s experience.”Now, imagine if Mary were able to engage in her pursuit in a way that resembled a mutual effort.

If the store and brand understood what she was seeking to do and helped her think through it and make a more confident choice, they could provide the right resources and tools to aid her (and build their own businesses at the same time!).

The process is a nine-step process as defined below that begins with identifying the shopper’s job(s) and then working to identify how to best provide that within the context of the business’ capabilities, strategies, resources, and commitment.

 

 The technology/process depicted above contains a tool that focuses insights and prospective actions through a “QFD-Like” technique (QFD = Quality Function Deployment – a process used by progressive innovators to design quality into products to meet user demand) that allows for easy identification of successful initiatives and gap analysis hampering success from occurring.  This technique allows for quicker, less expensive, and more accurate decisions regarding: new item introductions, category management initiatives, shopper marketing activities, and in-store activities.

For more information on the process, please contact David Zahn, of ZAHN Consulting, LLC at davidzahn@zahnconsulting.com.

Winning Over the Right Customers

Guest Blog By David King

Many retailers still rely on fairly simple rules to target merchandising offers to customers. Historically, the bulk of targeted customers are those who have either made purchases in the product category or within a specific brand in the category. Makes sense, right? It’s a tried and true formula that works because such customers are likely to repurchase in the same category or brand. Yet, this approach does little grow the category share; The traditionally targeted customers are already spending in the category and new customers aren’t being enticed to expand their spending habits within the category.

Recently, retailers have found success looking at “winnable share” at the product category level. With this approach, the potential of each customer to spend in a category is estimated and the more potential a customer has, the better the target.

For example, let’s say we have two customers: “Bob” who spends $60 per month on bread and “Mary” who spends $10 per month. The traditional approach would favor Bob for promotional offers, but that $60 might mean that his spending potential is maxed out. In other words, targeting Bob with a promotion will not increase his spending in the category because $60 represents the most that he would ever spend. By contrast, Mary might have the same $60 potential, but $50 is being spent at another store. She has a much higher winnable share than Bob. Naturally, this approach will also uncover some high-spending customers that have still more potential.

Here’s a quick chart of what we might see:

Customer             Current Spending                                Estimated Potential                         Winnable Share

Bob                          $60.00                                                        $60.00                                                $0.00

Mary                        $10.00                                                        $60.00                                                $50.00

Sharon                    $50.00                                                        $80.00                                                $30.00

An immediate question that we face is whether those customers with a higher winnable share will respond to promotions. In most cases, they do, which means that a category manager can both generate near-term sales and build higher share.

Having an understanding of customer potential at the category level also enables two additional merchandising activities.

First, it provides managers with an overall potential for the customer base by category. This allows them to work with vendors on designing merchandising programs that achieve the best sales outcomes, both for the vendor and for the store. On a macro level, it allows management to estimate whether their potential category share is growing or shrinking and why. For instance, perhaps winnable share is stable, but sales are struggling due to ineffective promotions. Management teams can use this information to fix the fundamental efficiency issues.

A second use is in designing cross-category promotions. Let’s say that a retailer is thinking about promoting denim to sweater buyers. We would want to use our intelligence about customers’ winnable share in denim to select customers. If we’re actually making an offer in both categories — “buy a sweater and jeans together and get 20% off both” — then winnable share in both categories is useful.

In short, retailers and merchandisers are accomplishing two primary objectives as a result of moving toward understanding each customer’s winnable share by category: driving sales for current promotions by selecting the customers that will respond; and building gains in category share by pulling in new customers that would be ignored by traditional targeting efforts.

David King is executive vice president at Fulcrum