Digital first retail

Many traditional retailers are already living in a “digital first” world. If your brand isn’t quite there yet, it’s likely only a matter of time–a short time.

Digital first means that even if the customer ultimately buys in a brick & mortar location, their journey starts online.

Digital first means that the primary way prospective customers learn about your brand is through your website, social media or online peer-to-peer reviews.

Digital first means whether the customer comes to your store for a particular transaction or not is determined by how well your online or mobile presence meets their needs in a highly relevant and compelling way.

Digital first means that holding on to the customer relationships that matter is largely determined by how well your digital tools eliminate customer experience friction and are rooted in a treat different customers differently philosophy.

Digital first means that the way your customers activate their passion for your company and become true brand ambassadors is primarily by sharing their remarkable experiences via their smartphones, tablets and other digital devices.

Digital first retail profoundly changes the way we engage customers, the way we deploy technology and the way we re-envision the physical store experience. It causes us to break down our silo-ed thinking and organizations to put the customer at the center of everything we do.

It’s not easy.

It’s not inexpensive.

It’s not without risk.

But frankly we have no other choice but to embrace it and get on with it.

And I’d hurry if I were you.

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.



The heart of omni-channel

You can fixate on the decline of brick & mortar retail all you want, but for the foreseeable future–in the vast majority of product categories–more than 90% of sales are still going to be done in physical stores.

You can make a big deal of the hyper growth in your digital channels, but don’t forget that many of those customer relationships started in a store. And many of the sales you ring up as a web order originated through exploration done in a physical location.

Sure, there are a handful of web companies where expansion into brick & mortar sites is secondary and mainly serves as a way to address the shortcomings of a purely digital experience. But for the overwhelming majority of brands, the physical store will be the dominant driver of sales, whether that revenue is actually booked in a store or not.

The other often neglected fact is that for many retailers their most profitable customers purchase regularly in both brick & mortar and e-commerce channels. If the physical store experience wanes, you can expect overall sales and profits to suffer.

As industry analysts and the press hyper-focus on a company’s e-commerce performance, the danger is that physical locations get short-changed. We are already seeing many retailers disinvest in their stores. These brands should tread very carefully.

As there is a continued rush to “right-size” store counts, many retailers will discover that closing stores will dramatically affect their e-commerce growth in the vacated trade areas. If your store closing analysis doesn’t include the impact on your web sales you are making a huge mistake. Too many stores were opened pre-recession. Too many stores will be closed in the next few years. Tread carefully here as well.

Without question you should be investing mightily in digital capabilities and just about anything mobile. But physical retail is likely to remain the heart of omni-channel for most brands for a long time.

You can go on and on about omni-channel this and omni-channel that, but screw up the store experience and you will be paying the price for years to come.

Different, not dead: The future of brick & mortar retail

“Reports of my death have been greatly exaggerated.” 

Mark Twain*

Media reports highlight the dramatic shift of spending from traditional stores to e-commerce. Industry analysts and pundits predict the demise of brands with substantial investments in retail real estate. We live in an increasingly virtual world, they say, and those with deep roots in the physical realm are starting to look more and more like dinosaurs.

The transformation of shopping fueled by all things digital is profound with no signs of deceleration. The crazy little thing called the internet is changing virtually (pun intended) everything. But anyone who thinks that brick and mortar stores are going away has it wrong. Here’s why.

Brick and mortar retail can enhance the value proposition. Physical retail offers many important advantages–the ability to see and try on products, instant gratification, face-to-face customer service, social interaction and so on–that digital selling cannot readily replicate.

Purchase events matter. There is a reason that e-commerce penetration in many product categories remains low. Where the risk of buying online is perceived as high (apparel, many big ticket items), direct-to-consumer shares remain in the single digits. Brands like Zappo’s have innovated in customer service to overcome some of e-commerce’s limitations, but long-term growth potential is modest. In fact, e-commerce darlings like Bonobos, Nasty Gal and Warby Parker have begun to broaden their reach–and address flattening growth–by opening physical stores. Plenty of products–particularly perishables and low-priced items–also have underlying economic reasons why direct selling volume will remain constrained.

Consumer segments matter. Great customer intimate brands embrace the notion of treating different customers differently. When you do this, you understand the different needs, wants and behaviors of varied customer types. Depending on the product and the particular consumer, the purchase journey may begin and end at a physical store. For others, they will never set foot in a brick & mortar location. Others will research online and buy in store. You get the idea. Your mission is to understand the role your physical locations play in being intensely relevant and remarkable for the customers you need to attract, retain and grow. Then build out and customize the experience accordingly.

The blended channel is the only channel. Stop thinking channels and start thinking about a consistent, integrated customer experience for your brand. Other than products and experiences that can be delivered completely digitally, the majority of retail purchases are influenced by both the digital and physical realms. More and more data is emerging to confirm this. Your mileage will vary, but silo-ed thinking, organizations, incentives and metrics confuse, rather than illuminate.

Frictionless commerce is essential. Let’s be blunt: there’s more heat than light in the discussion of omni-channel capabilities. Strategically, the key is to hone in on how to be differentiated, relevant and remarkable for the customers you wish to serve. And then you must root out the sources of friction in your customer experience. With more consumers going back and forth between digital and physical channels in their decision journey, if you don’t make it easy to do business with you chances are there is a competitor who is ready to pounce.

Mobile adds value to physical retail. When e-commerce was either sitting at your home or office surfing the web, the distinction between digital and brick & mortar really meant something. Now with consumers untethered and having increasingly powerful devices with them 24/7, mobile becomes the great integrator–and makes the distinction between e-commerce and brick & mortar less relevant all the time.

Seismic changes ARE impacting retail. With the exception of companies in the early stages of maturity, most retailers need fewer stores and many of the stores they have will need to be smaller. But assuming that physical retail is going away any time soon is just plain wrong. The tendency to isolate e-commerce and brick & mortar performance is equally misguided.

Amazon and a handful of best-in-class e-commerce companies will continue to thrive. And new pure play digital models will undoubtedly emerge to captivate consumers and gobble up share.

But there is plenty of business to be done in physical stores. Less, but still plenty. And most of the growth in what is counted as e-commerce is not a shift to online-only brands, but rather to brands that have cohesive omni-channel strategies. Think Nordstrom and Macy’s so far. For them, stores are assets, not liabilities. But the way brick and mortar retail drives consumer engagement and loyalty is morphing quickly.

These emerging winners follow a simple but compelling formula:

More focused.

More differentiated.

More relevant.

More remarkable.

More personalized.

More integrated.

See you in the blur.


* This isn’t, apparently, the actual quotation, but one that has become part of his folklore.

5 reasons Sears should liquidate ASAP

As a former Sears senior executive I’ve followed the once mighty brand’s journey from mediocrity to bad to just plain sad. What a long strange trip it’s been.

When I left in late 2003 we were gaining traction in our core full-line department store business and piloting several important growth initiatives. To be fair, whether we could pull off the necessary transformation was highly questionable. But one thing is now certain. The subsequent actions taken under a decade of Eddie Lampert’s leadership have assured the retailer’s demise.

For some time now, I’ve been referring to Sears as the world’s slowest liquidation sale. After yesterday’s annual shareholder meeting, it is time to stop the charade and embrace the inevitable. Here are the 5 reasons Sears needs to throw in the towel:

  • No value proposition. No reason for being. After all this time Lampert has still failed to articulate a vision of why and how Sears will fight and win in the intensively competitive mid-market sector. In fact, just about every action that has been taken over the last 10 years has weakened Sears competitive position. And the horrific results make this plain for all to see. The world–and particularly the mall–does not need a place to buy a wrench and a blouse and a toaster oven.
  • The competitive gap continues to widen. In every major product category Sears has lost relevance (and market share) while key competitors continue to improve. In hard goods, Sears is fundamentally disadvantaged by their real estate and as a practical matter there is not enough time nor capital to fix this core issue. In soft lines, they have been given a great gift by the recent foibles of JC Penney and Kohl’s and yet still woefully under-performed. Both competitors have key advantages relative to Sears. As they start to execute better they will win back the share they lost.
  • Digging a deeper hole.  For Sears to be a successful omni-channel retailer their core physical stores have to be compelling. Sears has under-invested in their brick and mortar stores for years, so not only do they have a lot of catching up to do, they have to develop and roll-out a new store design and related technology support. One need only to look at the capital that successful retailers like Nordstrom and Macy’s are investing to get a sense for the magnitude of what will be required. There is simply no way for Sears to earn an adequate return on this level of investment. More practically, Sears can’t possibly fund this.
  • A leader who is either a liar or delusional. The results speak for themselves: Lampert doesn’t know what he is doing. After 28 straight quarters of declining sales–let THAT sink in for a minute–he has the chutzpah to assert, among other things, that Sears is investing in where retail will be in the future (huh?), that the “Shop My Way” member program is some huge differentiator, that having fewer, less convenient locations than the competition is a good thing and that Sears can compete effectively with Amazon. All of these hypotheses would be laughable if the implications were not so tragic. Whether he really believes any of this is, or is merely spinning the story to buy time, remains an open question. But regardless of whether he is being disingenuous or whether he is nuts, you’d be crazy to give him your money.
  • Valuable assets get less valuable every day. There are pockets of meaningful value within Sears Holdings. But proprietary brands like Craftsman, Kenmore and Diehard are not sold where the majority of customers wish to buy them. Ultimately the brands are only as good as their distribution channels. Simply stated, as Sears and Kmart continue to weaken, so do the value of these brands. Side deals with hardware stores and Costco barely move the dial. Sears real estate is also cited as a major source of value, yet the real estate portfolio is a very mixed bag: some great properties in A malls, but lots of locations that are mostly liabilities. Regardless of how this all nets out, it is becoming increasingly clear that, on balance, mall-based commercial real estate has lots of supply, but relatively little demand for new tenancy. As retailers continue to prune and down-size their locations it is difficult, if not impossible, to make a case for Sears real estate value increasing over time.

The uncomfortable and sad reality is this: Sears has zero chance of transforming itself into a viable retail entity. Any further investment in this sinking ship is throwing good money after bad. Stripping out the idiosyncratic technical reasons for gyrations in the Sears stock, the underlying true company economic value declines each and every day. There is no plausible scenario where this trajectory will change.

Frankly, it’s been game over for some time now. It’s only Sears legacy equity and Lampert’s ability to pick at the carcass that has propped up the corpse.

Let’s stop the insanity.




In the first decade of e-commerce’s ascension, with rare exception, the consumer was sitting in their home or office using a desktop computer to do their online shopping. It was a completely virtual experience where the advantages were clear: 24/7 access, wider selection, often lower pricing and so on. So were the disadvantages: inability to try on the product, no instant gratification, no sales help, etc.

Even as e-commerce began to chip away at brick & mortar stores’ dominance, the physical retail experience stayed basically the same. To reap the advantages of in-store shopping you had to travel to the store. Once there, if you wanted product information you had to track down a sales associate and hope that he or she knew what they were talking about. What you could buy had to be in-stock in that particular location. And when you wanted to buy something, you went to a sales register at the front of the store or located in a merchandise department.

With the explosion in mobile devices and smart phones the consumer decision journey is rapidly becoming untethered. Previously a digital shopping experience by definition meant you weren’t in (or close to) a store. But, more and more, what we once counted as an e-commerce shopping trip or sale, versus one made in a physical store, is a distinction without a difference. It’s now a bricks and mobile world.

Increasingly, store sales associates are untethered from their POS registers, lending them the ability to work with a consumer at the real point of sale and arming them with the digital tools that can meaningfully enhance the customer experience.

Today’s omni-channel leaders are keenly aware of how the un-tethering of retail is profoundly altering the consumer and competitive landscape.

For others–the relentless defenders of the status quo–it’s their thinking and willingness to act decisively that needs to be untethered. Hopefully that occurs before their business model becomes unhinged.