You know what’s hard?

Customers say they want a more seamless experience across all channels and touch-points. “Sure” you say, “but it’s very expensive and complicated to implement that level of integration.”

Silo-ed data, systems, organizations and metrics are keeping your brand from being more customer-centric and relevant. “I know” is your response, “but greater centralization would be very jarring to our culture.”

In an increasingly noisy world, mass marketing and one-size-fits-all approaches fail to gain share of attention, becoming less effective by the day. You respond, “you’re right, but treating different customers differently is difficult to scale.”

Relentless price promotions and layering of discounts and reward points deteriorate profit margins, teach customers to only buy on sale and accelerate an inevitable race to the bottom. Your defense is to say “well that’s what moves the top line” and to point out how hard it is to justify full price.

In the inevitable battle between denial, defending the status quo and rationalization vs. acceptance, leaping and innovation, we tend to choose the former. And our fate is sealed.

Many of the things we avoid as too risky are, in fact, often just the opposite. The risk is in the failure to change, in the lack of passion to become intensely relevant, in being stuck in “me too” instead of choosing to become remarkably different.

What’s hard is to move where the customer is headed after the competition has already established a beach head.

What’s hard is to break through the clutter with undifferentiated products and tired messaging.

What’s hard is to acquire, grow and retain the right customers with average products for average people.

What’s hard is to catch up when you’ve fallen behind.

Mass or built for me?

All about price, or all about unique value?

Average or remarkable?

My guess is that every brand that’s gone through the work of closing stores, firing people and liquidating inventory might have a different view of what’s hard.

Not quite my tempo

Every individual has a pace at which they prefer to work. Of course it can vary given the circumstances. We can pick up the tempo in a crisis, or slow down when faced with uncertainty. But there is a rhythm that feels most natural to us and, often, folks that consistently work faster or slower than we do can frustrate us.

Organizations are similar. Some are constantly on the balls of their feet, poised for action, working briskly through issues, taking risks, experimenting. When a new opportunity arises, they are ready to pounce. They’re passionate–and in a hurry–to be part of the next big thing.

Others are at the other end of the spectrum. They sit back and observe. They are cautious, timid even, moving deliberately to scope the situation out. They’re more afraid to make a mistake than to fall behind. They constantly need to be pushed into making any meaningful change.

There are problems with going too fast, just as there can be issues with going too slow. This clip from Whiplash brilliantly illustrates that one challenge is knowing and accepting your tempo.

In case you haven’t notice, the pace of innovation is accelerating. Customer expectations are being transformed, seemingly overnight. Whole industries are being disrupted like never before.

Which is why it’s a good time for a tempo check.

And when in doubt, it’s probably better to rush, than drag.

Some customers

One of the more amusing moments of my time at Sears was when our newish CEO insisted that we stop referring to our customers as “him” and instead say “her.” This was meant to underscore the need to reinvigorate our apparel business and identify women as the most frequent decision-makers for our softline categories.

While there was merit to this strategy–and Sears testosterone-driven, male dominated culture absolutely deserved a swift kick in the, uh, pants–it ignored the complexity of Sears myriad businesses and the attendant diverse consumer segments we needed to attract, grow and retain.

Of course, Sears wasn’t alone. It’s common for business leaders and analysts to make global pronouncements about what “she wants” or how “our customer” is responding. While these statements may have an air of profundity, they’re just glib soundbites.

Today there is no everyone. There is no monolithic him or her or them.

Today the idea of being a little bit of everything to everybody is irrelevant. The era of mass is giving way to the era of us.

Today one-size-fits all strategies are running out of gas. We must treat different customers differently.

Today it’s not about “the customer” or any notion of all customers.

It’s about some customers; the right customers, carefully selected, deeply understood and served in unique and remarkable ways.

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.

 

Oh, they’re not a competitor

Shortly after I became the head of strategy and multi-channel marketing at The Neiman Marcus Group I was asked to lead a strategic planning session for our senior executives. One of the exercises I suggested was a deep dive on our opportunities and vulnerabilities against each of our key competitors. As I reviewed my overall plan one of the top leaders responded, “I like the overall approach, but you need to take Nordstrom off your list. They’re not a competitor.”

Having come to Neiman’s after 12 years at Sears–which I affectionately call my journey from the outhouse to the penthouse–I will admit that my experience in the nuances of the luxury industry was pretty lacking at that point. I certainly understood that a substantial percentage of our customers were fabulously wealthy and preferred brands that you simply could not get at Nordstrom. But I had already learned that many of our shoppers were much less affluent and that we sold quite a few brands that overlapped. Nevertheless, being the new guy–and not especially confident in my hypotheses–I acquiesced. We didn’t talk about Nordstrom.

About a year later my team initiated an in-depth analysis of customer spending and activity trends. Ultimately what we found was pretty disturbing. While our very top spending group was growing in sales and margin rate, customers that represented about 2/3 of our sales had weakening stats.

As it turned out, virtually all our sales growth during the preceding 5 years was driven by raising our average unit prices and the growth of our e-commerce business. After much hemming and hawing about the value (and cost) of doing consumer research, we finally got approval to do a series of studies to understand the underlying drivers of these outcomes. We learned a lot, most of which Neiman’s failed to act upon until the financial crisis hit. But the overwhelming conclusion was that when we lost customers (or a portion of a customer’s spending) the majority of that leakage was to Nordstrom.

Oops.

The point of this story is not to point out the limitations of the Neiman’s culture at that time, nor the power of my intuition. The fact is you don’t have to do much digging to find similar examples of mis-reading the consumer and failing to respond adequately playing out, over and over again, in any and all parts of industry.

Sometimes competition is rather direct even when there is a major value proposition innovation. Flash-sale sites clearly competed for a certain segment of the fashion business. Digital books and music obviously challenged the underlying business models of Borders and Blockbuster.

Sometimes competition might be less direct and its game-changing impact may be harder to glean at first. I’m not sure what the brand management teams at Folger’s and Maxwell House were thinking during the initial growth of Starbucks, but it’s now clear that there was a dramatic consumer preference shift that those brands failed to address–and a huge value creation opportunity that they didn’t participate in.

Even harder to see is when consumers have a more macro-substitution effect. For example, with some consumer segments, we’ve seen a broad and long-term trend to greater interest in personal experiences. This shift has, in many cases, supplanted spending on certain physical goods.

As in most elements of good strategy development the keys are pretty simple:

  • Clearly articulate a data-supported and trackable customer segmentation scheme
  • Stay current on the wants, needs and long-term value of each of those segments
  • Monitor direct competitors and emerging competitors for EACH segment
  • Model impact scenarios for nascent opportunities and threats
  • Develop potential responses and testing plans under each of those scenarios
  • When the time is right test those responses
  • Assume the time is right much earlier than seems comfortable
  • Be prepared to compete with yourself.

And one more thing. If someone tells you “Oh, they’re not a competitor” you might not want to take their word on it.

In God we trust, all others must bring data.

 

Wall Street’s simple, surefire–and mostly wrong–strategy to fix retail

Show me a struggling retailer and I’ll tell you what many Wall Street analysts will say is that company’s quickest path to new-found prosperity. Close stores. Or better yet, close a whole bunch of stores.

This was supremely evident with the frenzy that erupted on Twitter prior to JC Penney’s Analyst Day last week. Here’s a paraphrased exchange I had with one “famous”–mostly for posting photos of crappy Sears stores–Wall St. type.  Note: this is highly edited and paraphrased for brevity (and perhaps levity).

HIM: Penney’s is about to announce a bunch of store closings.

ME: I doubt it.

HIM: But they must close stores, lots and lots of stores!

ME: No they don’t. (I proceed to tell him why).

HIM: You don’t understand. They must close stores, lots and lots of stores! They need to have the same number of stores as Macy’s!

ME: That’s dumb.

HIM: You’re dumb.

The Analyst Day presentation concludes. Penney’s announces no store closings.

ME: I don’t want to say ‘I told you so’ but…

HIM: Hey, want to see my photos of really crappy Sears stores?

Now don’t get me wrong. Overall, the retail industry is over-stored. And the growth of e-commerce is causing a fundamental re-think of the number of stores a retailer requires, the size (and configuration) of these stores and how these stores need to operate. A contraction and re-working of gross retail space is inevitable.

But the knee-jerk reaction in favor of wholesale store closings is focused on the wrong problem. Struggling chains like Radio Shack and Sears aren’t in dire trouble because they have too much retail space. They are struggling because their overall value proposition isn’t working. If Radio Shack and Sears had a business model that was fundamentally sound, their needed store count overtime wouldn’t necessarily be dramatically different from what they have today. Show me a nationally branded, omni-channel retailer that is closing a lot of stores and I’ll show you one that is likely on the way to extinction.

What many on Wall Street often don’t get is that the cost of real estate for many of these established retailers is really quite low, making it easy for even chronically low productivity stores to be cash positive. And while Wall Street likes to cite the growth in e-commerce as the reason why store counts need to shrink dramatically, the reality is that for any decently integrated retailer, stores help drive the online business–and vice versa. Total customer and cross-channel economics need to be taken into account when doing a store closing analysis. When you do this analysis, along with the cash flow calculations, it turns out that closing a lot of store often makes things worse.

As for JC Penney, they are certainly far from out of the woods. They have a ton of work to do to refine and execute a merchandising and customer experience strategy that can regain share in an intensely competitive sector of the market. They are rightly focused on honing a new brand positioning and strengthening their omni-channel capabilities. My educated guess–having done this sort of analysis for other department store retailers–is that with conservative sales growth assumptions, only around 5% of Penney’s stores would be sensible candidates for near-term closure. Penney’s management is likely watching this list closely as they see how new strategies take root and they better understand the omni-channel effect.

For me, if Penney’s were to announce a large number of stores closings in the next year–say 75 or more–it wouldn’t be evidence that they are smart managers, it would be a sign that their overall strategy isn’t working.

 

 

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.