Small is the new stupid

With e-commerce continuing to grow far faster than brick & mortar sales–and already comprising more than 10% of many brands’ total revenues–the implication seems to be that retailers need far fewer stores and that future locations should be considerably smaller. After all, simple math tells us that with shrinking physical store sales, average productivity will decline, thereby making each remaining store less profitable. Moreover, the logic goes, it is much smarter to offer a wider range of products via the web owing to the efficiencies of centralized inventory and the like.

In fact, the folks on Wall Street seem to think that this is not only obvious, but it is the only way for retailers to be successful in this brave new omni-channel world. Be careful what you wish for.

While it is quite apparent that, in aggregate, most North American and Western European markets are over-stored, it is dangerous for an individual retailer to assume that aggressively shrinking their physical footprint is the pathway to success. For one thing, for most brands, physical stores help drive the web business–and vice versa. Closing stores and editing assortments too ruthlessly can drive down brand preference and market share, which ultimately is likely to reflect negatively on total profitability.

But the biggest challenge for most retailers and their brick & mortar strategy is how to remain relevant and remarkable in a blended channel world and how to create compelling reasons for customers to traffic their stores when so much of everything is readily available on the web, often at a lower price.

The quest to get small through the relentless pursuit of store productivity tends to drive brands to carry only their known best sellers. The victims of this strategy are the new, the interesting, the differentiated. If stores are reduced to selling only the safe bets–only average products for the average customer–then the internet becomes the best way to discover the remarkable. Alternatively, specialty stores may emerge to attack the market opportunity vacated by the bigger chains, who keep planing the edges of what they carry to “optimize the box”.

Either way, a get smaller strategy may only serve to make a brand’s brick & mortar stores all that much less interesting and accelerate an already precarious position into a downward spiral.

Surely, for some retailers, a rationalization of their store portfolio is overdue and a radical re-think of their physical store model is an urgent and important need. Sadly, for others, getting small will only turn out to be incredibly stupid.

 

Everywhere. And nowhere.

You’ve probably read the admonishments. You must be everywhere your customer is: online, bricks & mortar, mobile, Facebook, Twitter, Pinterest and on and on.

You’re told the future is now and that future is all about allowing the consumer to shop anytime, anywhere, anyway.

You’re urged to create a seamless experience across all channels and touch-points.

And much of this is valid. If you don’t meet your customer where she is (and is headed), you’re very likely to be yesterday’s news (RIP Radio Shack). More and more, the consumer IS everywhere and channel hop is becoming the norm.

But for those who think that all they need is a little omni-channel pixie dust and a side order of frictionless commerce, think again.

In the rush to embrace all things digital, integrated and omni-channel, far too many brands have lost sight of the need to be relevant and remarkable. Most of the capabilities that industry white papers wax eloquent about–and consultants relentlessly peddle–are merely the new table-stakes. And, quite frankly, your mileage will vary. Perhaps a lot.

Sears has made huge investments to create powerful digital and integrated commerce capabilities. In fact, they are regularly recognized for their leadership position in many aspects of what industry pundits describe as the holy grail of everywhere commerce. So how’s that working out? Oh yeah, they forgot to sell stuff people want in the way people want it. This is certain to end badly.

On the other hand, Amazon has managed to become a retail industry behemoth, crushing competitors in its wake and continuing to gobble up market share, all without physical stores and, in many cases, putting forth a pretty lackluster mobile and social presence. Their lack of “omni” doesn’t seem to be slowing them down too much.

As I’ve pointed out before, the future of omni-channel will not be even distributed. For those brands that rush eagerly into the “everywhere retail” world without a clear view of the customers they wish to serve and how they wish to serve them in a relevant and remarkable way, don’t be surprised when you don’t get the ROI you hoped for.

It’s quite possible to be everywhere and nowhere at the same time.

Setting yourself up for failure

If you fly airplanes, perform surgery or work for the Department of Homeland Security, when you have a bad day somebody dies. Avoiding a mistake is all important.

For most of us, however, our success is rooted in finding ways to differentiate ourselves and our brands in a world that is ever noisier, overwhelmingly crowded and increasingly blurry. Without innovation–without nearly constant evolution and change–we risk falling behind, or worse, sinking into the sea of irrelevance.

For the work we do, safety is not found in dogged adherence to a process designed to guarantee a specific result; where variation is inherently what needs to be exposed and eradicated.

For most of us, the works that matters requires that we adopt a process that explicitly recognizes failure as an inevitable outcome. Anything less–anything seemingly safer–is too timid, too boring, too fundamentally devoid of the remarkable, to have a chance to make the impact we need.

Setting ourselves up for failure is precisely what increases our odds for success.

 

 

The future of omni-channel will not be evenly distributed

While many brands were slow to drink the omni-channel Kool-Aid, failing to recognize a fundamental shift in consumer behavior that began over a decade ago, most are now throwing gobs of money at various cross-channel marketing and “seamless integration” initiatives. Breathless pronouncements fill industry presentations and press releases. CEO’s throw around terms like “channel agnostic” and “the blur” as casually as they talk about the most recent quarter’s earnings per share. Many have even created new positions with “omni-channel” featured prominently in the titles.

As someone who has been beating the one brand, many channels drum for a long, long time, I’m hardly one to criticize the thrust of these efforts. Yet as many brands invest people, technology and dollars in search of a cohesive blended channel, frictionless commerce strategy, one very critical consideration must be kept front and center. I call it omni-channel’s migration dilemma.

The growth of online commerce and digital marketing impacts different brand’s marginal economics differently. We know for sure that building out e-commerce, mobile and other digital capabilities is expensive. Investing in consumer friendly technology like order online and pickup in store requires costly technology and process redesign work. If all that happens is that companies spend a bunch of money to merely spread the same amount of revenue over their traditional and digital sales channels, profits gets worse not better.

The story is even more depressing if a company sells lower priced items. In most cases, the marginal profitability of selling an item online is lower than selling it in a physical store. Every sale that migrates from a brick and mortar location to e-commerce not only lowers the productivity of the store that lost the sale, but it erodes total company profitability. This can actually be the start of a cycle of store closings and assortment narrowing that is almost certain to end badly.

Some companies clearly understand this phenomenon and have either gone slowly into digital commerce and cross-channel integration or have basically sat on the sidelines. H&M and Primark are some examples. While this may have short-term financial benefits, long-term it’s hard to imagine how these brands can ignore a fundamental and profound shift in consumer dynamics.

The implications of all this are two-fold.

First, most retailers must think of enabling their omni-channel strategy as necessary, but not sufficient. And rather than blindly embracing all things omni-channel, they need to have a deep understanding of their core customer segments priorities and their relative competitive position against those needs. Armed with this information–and rooted in an understanding of the underlying economic drivers–a phased, multi-year and well-reasoned roadmap can be implemented.

Second, and by far most importantly, if a brand lacks a compelling value proposition that generates above average, incrementally profitable future growth, moving into the omni-channel future will only portend lower returns on investment and, potentially, a trip to the retail graveyard. The dynamics of an omni-channel world can be a source of competitive advantage, but only if the underlying brand promise and delivery is relevant and remarkable. Far too many brands are treating omni-channel capabilities as a panacea, when in fact it may ultimately be poison. Unless you’re Amazon (and let’s remember Amazon has never earned a profit) you can’t and shouldn’t avoid being thrust into a blended channel world. But how you do it matters a great deal and you can’t use au courant new tools and technologies to mask problems with your core business model.

The future of omni-channel will not be evenly distributed. Those brands with strong value propositions and compelling economics will use leadership in customer-centricity and frictionless commerce to extend their competitive positions, create strong brand advocates and generate extraordinary financial returns. Those brands that already suffer from a lack of customer connection and relevance will only see their weaknesses made more obvious by the sea changes that are sweeping the industry. Investing in omni-channel may allow them to continue to tread water for a bit, but eventually they will go under. Brands that are stuck in the vast, undifferentiated middle need to pick a lane and get busy. Without breaking out from the pack, investment in omni-channel may allow them to hold serve, but they will never win the game.

 

 

Where were you when the middle collapsed?

In case you haven’t noticed, most markets aren’t growing much–if they are growing at all. In many cases your top-line only expands through stealing market share.

In case you haven’t noticed, it’s getting harder to garner even a modicum of attention. In a world where the amount of noise grows louder by the day and the consumer is deluged with information–and often overwhelmed by choice–if you haven’t amplified something remarkable you’re probably on a fast trip to the brand graveyard.

In case you haven’t noticed, average doesn’t work anymore. Good enough just isn’t.

More and more, success is found at either end of a continuum. At one end of the spectrum, you can go big, winning on scale, assortment, price, convenience and efficiency. At the other end, you can get small, intensely focusing on a comparatively narrow group of consumers and delivering a set of powerfully relevant and highly valued benefits.

More and more, a fundamental choice is emerging. Hazy value propositions, sort of good prices and one-size fits all strategies are losing steam. Trying to carve out a sustainable strategy somewhere along the continuum is becoming untenable. You need to pick a lane, to push toward one of the edges.

Eventually you’re going to get asked: where were you when the middle collapsed?

bridges_down_01

But first you have to believe

I’m all for market studies. And consumer research. And fact-based analysis. I’ve rarely met a 2 x 2 matrix I didn’t like.

I’m all for laying out reasonable hypotheses and putting together a sound testing plan. If I’m honest, I’m pretty solidly in the  “in God we trust, all others must bring data” camp.

But for me there’s no getting around this pesky little slice of reality. More times than not, the truly innovative, the remarkable, the profoundly game-changing, emerges not from an abundance of analysis and left-brain thinking, but from an intuitive commitment to a bold new idea.

More than a decade ago the folks at Nordstrom didn’t have an iron-clad, ROI supported business case when they made the big leap into investing behind channel integration. They believed that putting the customer at the center of what you do is ultimately going to work out.

Steve Jobs eschewed logic and conventional wisdom to pursue Apple’s strategy of “insanely great” products. He believed that leading with design and focusing on ease of use creates breakthrough innovation and customer utility.

Just about every successful entrepreneur adopts a strong and abiding belief in her product or service in the face of facts and history that suggest that, at best, they are wasting their time and money and, at worst, they are simply nuts.

On the other side–with clients and in organizations where I’ve been a leader–a lack of belief that getting closer to the customer is generally a good idea or that it’s okay to fail has resulted in an unwillingness to invest in innovation. Any meaningful action was predicated on a tight business case and, when that was lacking, it was easier to do nothing than to take a chance. All these brands are now struggling to catch up.

Obviously commitment to a belief is not, in and of itself, sufficient. Execution always matters. And there are certainly plenty of strongly held beliefs that are wildly misguided or morally reprehensible.

Yet, when I embrace the notion that just about every great idea starts with a belief not a compelling set of facts–or that often some people see things way before my logical brain can-the field of possibilities expands.

And I believe that sounds like a pretty good thing.

 

 

No customer wants to be average

It’s only when our experience is terrible that we’d settle for average treatment. But what customer truly wants to be average?

average person

Most of the time, we hope brands know us, show us they know us and show us they value us.

And to do that, companies need to break out of a one-size-fits-all paradigm.

It’s not easy. Which is why so many stores are still filled with average products for average people and our mailboxes–virtual and otherwise–are chock-a-bloc with largely irrelevant pitches and promotions.

It also feels safe, even though it’s anything but. Relying on newspaper circulars and big TV ad campaigns and “Super Saturdays” and the same promotional calendar we ran last year, may bathe us in the warm water of familiarity, but more and more mass marketing strategies are delivering less and less.

Getting closer to the customer–making the choice to treat different customers differently–needs to be more than a slogan. It means busting the silos that get in the way of a unified and seamless experience. It means investing in deeper customer insight and the tools and techniques to deliver progressively more personalized interactions. It means embracing a test and learn mentality.

Mostly, it means radical acceptance of the reality that, for most brands, the only way to grow faster than average is to eschew the average.