Are you done cutting those cookies?

In today’s retail world there are a few truths I hold to be self-evident:

  • Folks don’t need or want much more stuff, so we had better not count on overall spending growing much, if at all.
  • With just about anything available anytime, anywhere, anyway, competing on scarcity of information and access is no longer a viable strategy for most brands.
  • Engaging in a price war is not likely to end well–unless you are Amazon.
  • Consumers are overwhelmed by information and the distracted customer has become the norm. The new battleground is for share of attention.
  • Mass marketing is becoming less effective by the day.
  • No customer wants to be average.

And yet so much of the product we see, the stores we visit, the websites we surf and the marketing we encounter, looks awfully familiar.

Our Boards encourage us to adopt best practices, and by the time we do, the industry leaders are on to something entirely different.

We pick the tried and true, because it seems safe, when it is precisely the opposite.

We choose average because it’s easy to manage and seems to scale. Until it doesn’t and we are left to wonder what the hell happened.

For most of us, the only way to win going forward is to eschew boring and average. We must know our customers better than the competition and use that information to treat different customers differently. We must commit to being intensely relevant and utterly remarkable. We must amplify our signal amidst the noise.

Let somebody else can make the cookies.

 

 

 

 

 

My top ten posts of 2015

As has become a tradition, I present my most popular blog posts from this year.

  1.  Bleak Friday
  2.  Learning to surf
  3.  I see dead marketers
  4.  Omni-channel myths, distortions and, yeah, that’s just silly
  5.  What if omni-channel is too expensive?
  6.  An end to omni-channel?
  7.  It’s later than you think
  8.  Luxury retail’s big stall
  9.  Sears: The world’s slowest liquidation sale (redux)
  10.  The fault in our stores

And here are a few more that didn’t quite make the cut, but that I’m rather proud of….

  1. Retail’s new front door
  2. No new stores ever!
  3. A dim signal amidst the noise
  4. Everywhere and nowhere
  5. I fought the math and the math won

As I wrap up my sixth year writing this blog I am so grateful for your attention, support and feedback.

Best wishes for a safe, happy and prosperous New Year!

Retail’s great bifurcation

It’s not that malls are dying. In fact, many malls are not only surviving, quite a few are thriving.

Despite all the doomsayers, physical retail is not facing extinction. Not only are many retailers opening significant numbers of profitable locations, many of the most highly valued and rapidly growing pure-play online brands are opening brick & mortar locations. These new units are among the most productive of any specialty retail sites anywhere.

Department stores aren’t going away any time soon either, despite the constant buzz of consternation from Wall Street. Several major players are successfully reinventing themselves.

What IS happening is a great bifurcation. The proverbial fork in the road. The increasingly clear emergence of “have’s” and “have not’s. And the looming death in the middle.

“Class A” malls and the also-rans.

Retailers that have a well articulated target consumer and seamlessly meet those customers needs anytime, anywhere, anyway, versus stores drowning in a sea of sameness, offering disjointed service and peddling average products to average people.

Brands that either go big, efficient and cheap or intimate and remarkable, versus those that get stuck in the middle or are trapped in an inevitable race to the bottom.

There are obvious choices to be made. The chasm is widening. The poles are becoming more extreme.

Yet many of us remain stuck. Many brands keep straddling the line.We fail to choose because a bold commitment seems risky, when in fact it is our inaction that is the riskiest decision of all.

Pick a lane. Start driving.

And you might want to step on the gas.

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Omni-channel’s migration dilemma: Holiday edition

Last year I wrote a post about what I called retail’s “omni-channel migration dilemma” wherein I observed that while the deployment of so-called omni-channel strategies–i.e. making it easier for consumers to shop anytime, anywhere, anyway–improves the customer experience immensely, the outcomes for most retailers were, thus far, not quite so wonderful.

At the heart of this argument were three core points:

  • With few exceptions, omni-channel retailers’ total revenues remain essentially flat, meaning that robust growth online is mostly cannabilizing brick & mortar sales;
  • In many cases, the profitability of e-commerce is actually worse than a physical store sale. This is particularly true for lower transaction value players like Walmart and Target.
  • In their quest to become “all things omni-channel”, retailers are investing enormous sums–and in some cases–getting distracted from arguably higher value-added activities.

You don’t have to be a math whiz to understand that spending a lot of money to end up–if you’re lucky–with basically the same total revenue at a lower margin is not exactly a genius strategy. But this is where we find Macy’s and many other retailers right now.

The omni-channel frenzy around the holiday shopping season only shines a harsher light on the issue. By launching sales earlier and earlier, by pushing deep discount events like Cyber Monday and by offering free shipping pretty much throughout the season, the tilt toward online sales is exacerbated and margins continue to shrink. Consumers win through great deals. And retailers lose, as overall sales are likely to go absolutely nowhere.

Now some have argued that omni-channel is ruining retail. They are wrong. They’re wrong not only because it is pointless to fight reality, but also because efforts that are fundamentally rooted in the desire to improve the customer experience are rarely misguided. The key is not to confuse necessary with sufficient, nor “the what” with “the how.”

So we should not get distracted by analysts who try to extrapolate one or two days of sales as part of some trend.

And we should bear in mind that online sales for most omni-channel retailers remain far less than 10% of their total business. So even healthy e-commerce growth is not likely to offset seemingly small declines in physical stores sales. You don’t have to trust me on this. Do the math.

But mostly we should remember that the story is not about all things omni-channel, nor what happens on Black Friday, Cyber Monday or the few weeks that comprise the holiday shopping season.

It IS about which retailers are breaking through the sea of sameness with remarkable product AND a remarkable experience. It is about which retailers are eliminating friction for the consumers that matter the most in the places that matter most. It is about which retailers are eschewing one-size-fits-all strategies in favor of a “treat different customers differently” philosophy. It is about retailers that know where to focus and how to properly sequence their omni-channel initiatives, not blindly chase everything some consultant has pitched them.

Clearly, the future of omni-channel will not be evenly distributed.

Don’t be blinded by the hype.

The fault in our stores

As more and more retailers report strong growth online while their brick & mortar sales wane, it’s easy to conclude that physical retail is going the way of the horse-drawn carriage. In fact, plenty of pundits bang that particular drum every day.

But let’s not lose perspective.

Actual stores still account for about 94% of all retail sales. While this will continue to shrink, revenues from physical locations will garner the majority share for most retail categories for many years to come. Lest we forget, actual stores provide tangible customer value that is all but impossible to duplicate digitally. And plenty of research supports the notion that most consumers still prefer to shop in a physical store including…wait for it…Millennials. It shouldn’t surprise us that many of the fastest growing, most successful retail brands are investing in stores, not closing them.

Yet, there is plenty of fault in our stores.

Too many stores are drowning in a sea of sameness–in product, presentation and experience.

Too many stores still operate as independent entities, rather than an integral piece of a one brand, many channels customer strategy.

Too many stores remain laden with friction throughout the shopping experience.

Too many stores take a one-size-fits-all approach, rather than striving to treat different customers differently.

Too many stores are seen as liabilities to be optimized, leaving them as boring warehouses of only the best-selling, most average product.

Yes, there will be fewer stores in the future. Yes, the vast majority of stores will be smaller. Yes, it’s hard to paint any sort of growth scenario for all but a handful of retailers. But the reflexive answer cannot be to throw up our hands and automatically decide to disinvest in physical retail.

Brick & mortar retail is different, but not dead.

When we adopt an attitude that our stores are problems to be fixed–or eliminated–rather than assets to be leveraged, our fate is already sealed.

When cheap rules

In case you haven’t noticed, the retail apparel market is kind of a hot mess. Sales are going nowhere. Profits are waning. Many store closings have occurred, with more on the horizon. And for two basic reasons.

First, we aren’t buying as many items. It turns out that we actually don’t need so much stuff. It also turns out that, more and more, we are starting to value experiences over things. As Millennials become more important contributors to the market–which, after all, is merely the passage of time–this likely only gets worse.

Second, the average unit price of what customers are buying is declining. Some of this is due to the frenzy of discounting that most retailers can’t seem to break out of. But mostly it’s a substitution effect: people trading down from Neiman Marcus to Nordstrom, or from department stores to off-price stores, or from specialty stores to places like H&M, Zara and Primark.

In many cases, the consumer is saying “no” to excess, unwilling to pay a lot merely for status. Still others are reticent to support a high markup that goes to what they have come to see as needless frills and overhead.

As leaders of brands we are powerless over the first factor. But when it comes to the second we have choices. Many of us are trying to solve for this market shift by cutting expenses and closing stores. Others have launched discount versions of their core brand and are aggressively investing behind this cheaper version of themselves. Some of us are doing a combination of both.

When cheap rules it’s certainly fair game (and simply good management) to look at our cost structure, to consider rebalancing our assortments, to seek ways to become more effective and efficient.

But as leaders–as a matter of strategy–we face the proverbial fork in the road. Do we chase cheap or do we seek reasons other than price for consumers to choose us over the competition? Do we risk entering a race to the bottom or do we choose to become more personal, more relevant, more remarkable? Do we go with the flow (and what Wall St. seems to demand) or do we confidently embrace a stance of “yeah, we’re more expensive, here’s why and we’re worth it.”

Every brand is different, so the right answer must be situation specific. But we shouldn’t lose sight of the fact that it is a choice. We shouldn’t forget that once a brand trades-down there is usually no turning back. And we should always remember that the biggest problem with a race to the bottom is that we might win.

Small is the new interesting

It’s been at least 20 years now that most value creation in retail has been driven by big. Big stores–both physical and digital. Big assortments. Big advertising.

Walmart and Target. Home Depot and Lowes. Amazon and eBay. Best Buy, Ikea, Office Depot and on and on. Superstores, category killers and the “endless aisle” online guys have won big (heh, heh) on scale, efficiency and low prices.

There’s a lot to be said for pushing the frontiers of big. When your goal is to be the “we have everything store” your marching orders are pretty clear. When you have to be the winner in a price war, your focus is obvious.

The problem is that big has its limits. And a closer examination of many “winning” retailers’ strategies reveals that big is losing momentum.

It turns out that a strategy of big eventually faces diminishing returns. It turns out that most of the winners of the past decade or so are running out of new stores to build. It turns out that many of the mass promotions that drive incremental business lose money. It turns out that for most of these brands e-commerce growth is unprofitable. But mostly it turns out that big is boring. And consumers are starting to notice.

There’s no question that big is here to stay. There’s little doubt that for many consumers–and a vast number of purchase occasions–the quest for dominant product selection, convenience and great prices will remain paramount. But that doesn’t mean that’s where the future opportunities lie or that your strategy shouldn’t shift.

Shift happens. And it’s a shift away from mass marketing to becoming more personalized. Away from overwhelming assortments to editing and curation. Away from products that everybody has to items and experiences that the consumer creates. Away from the seemingly inevitable regression towards the mean to a deliberate choice to eschew the obvious and explore the edges.

Many brands will have a hard time breaking out of the pursuit of big. They are too vested in building scale, too scared of Wall St.’s reaction to a strategy pivot, too addicted to mass advertising.

Of course, therein lies our opportunity. Maybe it’s time to embrace small while the rest of those guys continue to flog big.

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