In this series, Queen’s prof Ken Wong and Capital C CEO Tony Chapman tackle marketing challenges. This month they focus on the department store dilemma – specifically Zellers’ undifferentiated woes.

Tony: Richard Baker, the real estate tycoon that bought Hudson’s Bay Company and Zellers last year, said in an Aug. 27 Globe and Mail article that profits will double in 2009 – a remarkable result achieved from $300 million worth of cost cutting rather than increased sales.

I see this as a Band-Aid on a festering sore. I can’t think of one organization that has achieved sustainable growth through cost cutting. Sustainability can only come through positioning your offering in a meaningful way and ensuring that all of your efforts – merchandise, marketing, operations, store design, loyalty programs, real estate – are calibrated accordingly. Take Zellers, for example. In my opinion they have lost their way. I have no idea what they stand for.

Ken: Zellers used to shout ‘the lowest price is the law’ and backed it up (for a while). Then they claimed one of the best toy departments in Canada and backed it up (for a while). Then came the aborted integration with the Bay (that muddied both formats) and the death stroke: when costs were cut to survive the lagging sales and the toy centre among others fell victim.

It isn’t complex to resolve: pick a theme and deliver. And never forget the constants in retailing – clean the store, keep the shelves stocked and tidy and die before you let promoted items go out of stock.

I was encouraged when they said they’d upgrade women’s clothing and launched the new Alfred Sung Pure line at a value price point. But now, how does cost reduction fix these problems? Hey Zellers, pick a card, any card, but pick one. Oh, and by the way, make it just one!

Tony: The problem is that most retailers fight the same direct strategy and invariably look to price as the tie breaker – a difficult proposition to claim, let alone achieve, when your primary competitor is Walmart. Zellers has to adopt a new strategy. Target did it with an indirect strategy – change the criteria by which the consumer buys. They did it by democratizing style.

Ken: Yes. Some people sell what they want, while the best ask ‘What problem will we solve?’ before they decide what to sell. They need to focus on someone around whom they can make decisions. Here’s an interesting exercise: if Zellers was a person, what TV program would they watch? What magazine? Having trouble deciding an answer? No wonder they keep flitting around.

Tony: You are calling for Zellers to create a persona, and through it uncover powerful consumer and shopper insights that can lead to a platform that the consumer wants to buy. Insights are the lifeblood of any brand and their only hope in uncovering profitable white space.

Ken: Yes, in old-school vocabulary, a ‘brand’ with some relevance. But this is not a problem solved by rethinking what they stand for. There’s enormous potential for them to show how they support that position. Quick, what is Zeller’s private label called? Can anyone find an online presence for them? And I cannot believe the folks at Sung are happy about seeing their brand name portrayed in a very dated flyer. It’s almost as though they weren’t watching the competition.

Tony: I think they are preoccupied by one competitor. They are hoping for differentiation through selection – the ‘Everything from A to Z’ campaign – but is this meaningful to the consumer who in this economy is moving to under-consumption and simplification?

If I was their CMO I might take my cue from dollar stores, Winners and Costco, three retailers that have managed to compete against the lower price retailers by understanding the magnetic appeal of offering their consumer a daily treasure hunt: ‘Look what I found.’ To deliver on this strategy, they need to offer the consumer a range of everyday goods and services, value priced, but their focus should be to draw the consumers attention to daily treasures – whether they be limited editions, brands available exclusively at Zellers or too-good-to-believe, today-only pricing – treasures that will get the consumer talking and, more importantly, visiting Zellers more often.

Ken Wong is a career academic at Queen’s School of Business and a consultant at Toronto-based Level 5. Tony Chapman is an entrepreneur/career brand guru and founder of Toronto-based indie agency Capital C.