Might happen, will happen, has happened

In a classic Rowan Atkinson and Richard Curtis routine, Rowan asks “what is the secret to great comedy?” But before Richard can offer his reply, Rowan interrupts. “Timing” he blurts out.

Timing is, of course, essential to great strategy as well. Commit too early, and we risk over-investing or distracting ourselves from something more urgent and important. Commit too late, and we might miss a new opportunity entirely or end up falling woefully behind.

Understanding when to act at all, much less knowing when to act decisively, has everything to do with developing keen awareness of relevant factors and acceptance of their implications. Here is where most get it wrong.

Because most brands fail to invest sufficiently in developing actionable market and consumer insight, their ability to discern between “might happen”, “will happen” and “has happened” is woefully lacking.

Because most organizations do not have sufficient commitment to experimentation, they aren’t ready to act boldly when “might happen” becomes “will happen”.

Because most companies spend more time defending the status quo rather than embracing the future, they are often stuck in the past and miss “has happened” entirely.

Many important dynamics have–or are about to–change your customers and your business. Whether you realize it or not, is one thing.

And whether you are prepared to act on that realization is ultimately the difference between winning and wondering what the heck just happened?

 

Timid transformation

Funny how many companies speak of the fundamental shifts affecting their industries but haven’t gotten around to changing much about they way they go to market.

And isn’t it peculiar how most brands talk about putting the customer at the center of everything they do yet–with few exceptions–they are still organized by channel and cling to a heavy reliance on mass marketing techniques?

As disruptive new business models emerge and gobble up market share in just about every sector of our economy, you would think that more industry incumbents would be motivated to change and to change profoundly. Alas, mostly we get rhetoric, empty promises and tepid experiments.

The transformative forces shaping consumer behavior–the connection economy, all things digital and so on–fray traditional loyalties, make many historically strong business models obsolete and only serve to accelerate the shift in power away from brands toward the customer.

So you would think that companies would realize the need to change as fast as their consumers. But evidence suggests that this rarely happens.

It’s far from obvious that timid transformations work.  So why then is that the path you’ve chosen?

 

 

 

Your baby is ugly

If you are anything like me, you find it pretty easy to sit on the outside and pronounce judgment on others’ foibles, follies and plain old dumb ideas. If you are anything like me, it’s also easy to be oblivious to our own misadventures in the same or similar realms.

I’ve worked on growth and innovation strategies for most of my career. On occasion we did not make the progress we wanted because we were short on ideas and inspiration. Much of the time, however, it was because someone in a position of authority was holding on to something they had birthed and they weren’t willing to let it go. If I’m honest, sometimes that person was me.

When we put our heart and soul into something it is often difficult to see it objectively. When our ego becomes attached to that concept’s success–when the strategy and our sense of self begin to meld–than we often find ourselves in a bad place.

I worked with a well-known brand whose CEO was credited with crafting and executing a strategy that was wildly successful. Financial results were excellent and the company had substantially distanced itself from its nearest competitor. Unfortunately the evidence was mounting that not only was the strategy losing steam, but major pockets of weakness were emerging, creating considerable vulnerabilities should there be an economic downturn. Subsequent analysis and consumer research revealed the scary truth.

Those of us who were growing increasingly alarmed made numerous presentations to try to persuade the CEO to see our version of reality and convince him to take action. For the most part, we failed.

We failed not because our analysis was flawed or that our logic was shaky or that we didn’t have some kick-ass PowerPoint slides. The simple fact was we were telling him his baby was ugly and he was way too identified with the strategy to see that he had over played his hand.

I’m a firm believer in data, analysis and logic. I’ve had a fair amount of success being pretty darn good at persuading people to move outside their comfort zones. I like to believe that when presented with the facts I’m open to changing my mind.

But sometimes our baby is ugly. Until we are ready to let go of our ego–to being attached to the idea that our worth and our idea are intrinsically linked–chances are that all the forceful arguments and clever PowerPoint decks are merely annoyances.

 

 

Shrinking to prosperity: The store closing delusion

Yesterday Radio Shack announced it’s closing 1,100 stores, nearly 20% of their total. Earlier this year, JC Penney took the axe to 33 units, amidst a rising call of analysts pushing for more aggressive real estate pruning. Sears has closed some 300 units across the last 3 years, including recent decisions to shutter its downtown Chicago and Seattle “flagships.”

For those pushing a shrinking to prosperity agenda, the rationale is that eliminating the weakest units in the portfolio improves overall productivity. Well, yes, that’s just math. Unfortunately you don’t make money on ratios.

They also claim that with the growth in e-commerce fewer stores are needed. While there is an element of truth to this, it ignores the vital inter-relationship between physical stores and digital channels. For the vast majority of multi-channel retailers the web drives store traffic and stores drive e-commerce. Close stores and you hurt your e-commerce business because your brand become less accessible, and therefore less relevant.

Now don’t get me wrong. If a company is hemorrhaging cash and the data show that a given location cannot be made cash positive quickly (including the effect on the digital business, net of closing costs), it needs to go. Marginal economics 101. And certainly with shifting populations, rapidly evolving consumer behaviors and changes in real estate conditions, there is always going to be a steady stream of real estate rationalization.

Yet the heart of the matter for all the retailers at the center of the store closing debate is this: their value proposition is not working. Unless you shift your business model to becoming more destination driven–or somehow more regionally focused–closing a bunch of stores is likely to make things worse in the aggregate. You lose economies of scale and scope. You become less convenient to your target consumers. Your brand visibility declines.

Brick and mortar retail is not dying. But it certainly is becoming different. Yet it’s not hard to find many examples of winning brands that continue to open plenty of stores (e.g. Walgreen’s, Michael Kors). In fact, in the face of all this talk about mass store closings, formerly e-commerce only players like Warby Parker and Bonobo’s are now opening physical locations. I guess they must be really stupid.

I cannot recall a single retailer that engaged in large-scale store closings in the last decade that is thriving today. Actually every one I can think of is either gone or gasping for breath.

For Radio Shack and Sears, the hacking of their store count signals that they don’t have a viable strategy to survive and that their store closings are more rooted in desperation and the desire to keep the wolf from their door. For Penney’s, if they are able to craft (and execute) a value proposition that fights and wins in the middle market–no easy task–chances are they can support more stores, not fewer. If they announce plans to cut more than 10% of their units, it’s likely the beginning of their slide into oblivion, not a sensible bit of financial engineering.

 

 

 

My Top Ten Blog Posts of 2013

As I take a break until the end of the year, here’s a recap of my top 2013 blog posts, in order of popularity.

1.   Neiman Marcus & Target: A glorious failure.

2.   JC Penney: Trouble on the home front.

3.   Math is hard, for JC Penney.

4.   Sears: The world’s slowest liquidation sale.

5.   JC Penney: Gloat edition.

6.   The multi-channel customer is your best customer. Duh.

7.   No pottery, no barn, no crates, no barrels.

8.   The world’s first omni-channel executive.

9.   Blaming the hole.

10. Silos belong on farms (redux). 

On a special note, my most viewed post of the year was actually from 2010. Fail better got a huge boost from being featured in Seth Godin’s Krypton course. Thanks Seth!

Thanks as well to everyone for reading my blog, challenging it, promoting it and just simply paying attention to my ramblings. It means a lot.

May you and those closest to you enjoy a wonderful holiday season.  Namaste.

 

 

 

 

Maybe it’s a fact

“If you have the same problem for a long time, maybe it’s not a problem.  Maybe it’s a fact.”

-Yitzhak Rabin

“Facts are simple and facts are straight
Facts are lazy and facts are late
Facts all come with points of view
Facts don’t do what I want them to”

Talking Heads, “Cross-eyed and Painless”

I’d wager that the vast majority of business failures are rooted in a profound denial of reality.  The demise or persistent flailing of Borders, Blockbuster, Sears–and many other current or future residents of the retail graveyard–stems largely from a lack of awareness and acceptance of the unassailable facts of shifting consumer behavior.

It’s far too easy to dismiss an industry upstart or new technology as a fad or hype, until it’s too late.  It’s common to worry more about protecting your turf rather than embracing a product or service for yourself that you fear “cannabilizes” your core.

Of course this is commonplace in interpersonal relations and communications as well.  I know I can be quick to defend my behavior when I know deep down I’m the one who made the mistake, I’m the one who needs to change.

The next time someone challenges your business or your point of view, maybe your first reaction shouldn’t be to dismiss or defend.

Facts may not do what you want them to.  But that doesn’t make them untrue.  Ignore them at your own peril.

 

JC Penney: Trouble on the home front

Ron Johnson’s tenure at JC Penney is the (horrible) gift that keeps on giving.

Amidst recent rumors of another CEO change, continuing Board drama and potential liquidity issues–not to mention the little challenge of pulling the core business out of its steep descent–now we have Johnson’s much vaunted Home strategy landing with a resounding thud.

And this blunder is, in many respects, the most misguided element of the “transformation”, the biggest opportunity wasted and the most vexing to fix.

The boldness of the new strategy was admirable: rip-up a chronically under-performing large section of the store, add new experiential elements, upgrade presentations and, most critically, bring in exciting, differentiating brands. Yet here too the misguided thinking evident in Johnson’s vision for the rest of the store is made abundantly clear.

After months of construction, tens of millions of dollars in investment and lots of hype, what we discover is a well-organized, beautifully designed space with lots of unproductive, poorly conceived merchandise. And don’t get me started on the Martha Stewart, Macy’s fiasco.

As I’ve opined before, at the core of Johnson’s erroneous strategy was trying to change Penney’s customer base too quickly. That huge miscalculation is evident in spades in the Home re-think. Brands like Jonathan Adler, Bodum, Conran and Ordning & Reda may have immediate recognition and appeal to some affluent consumers and design aficionados, but the notion that they would quickly be relevant to the Penney customer is simply nuts.

Even a brand like Michael Graves, which certainly had some success at Target, might be expected to convert reasonably well at the outset, but it’s hard to imagine it has much drawing power in the grand scheme of what is desperately needed.

Aside from these broader strokes, there are many major tactical blunders. The Bodum shop is a case in point. While the section is distinctively and attractively presented, much of the product is way too expensive. Did somebody really think many people were going to buy $200 coffee makers at Penney’s from a brand they’ve never heard of?  Other choices would be funny if they weren’t so costly. The Bodum shop (and website section) seems to believe the world is ready for a French press revolution. Maybe Williams-Sonoma or Sur la Table can lead that movement, but at Penney’s it’s just a big mark-down waiting to happen.

The Happy Chic by Jonathan Adler shop is also eye-catching, but the product assortment is way too specific to have the impact and productivity it needs. The Michael Graves and Martha Stewart shops are filled with a bunch of random stuff at odd price points.

Throughout the rest of the home section there is ample evidence of Johnson’s specialty store strategy taken too extremes. Some product is just too expensive for Penney’s core (Conran), some product is so narrowly focused in design point of view it can’t possibly be productive or contribute to a coherent view of Penney’s desired positioning.

Another issue throughout much of the new areas is lack of product density. The design does a nice job of showcasing product, but it’s Retail 101 to be mindful of having enough product and enough transactions to give yourself a chance of being profitable on the space. At Apple this “negative space” mentality works when you have strong traffic and products that cost hundreds (or thousands) of dollars.  But when one is selling $15 picture frames, $20 throw pillows and $3 dinner plates, well, not so much.

The investment in space for product demonstrations, design advice and customer service is just sad. It’s clearly an expensive exercise in productivity drain and customer irrelevance.

Some Wall Street analysts have been acknowledging the serious problems with Penney’s home business, but minimizing its magnitude because home represents “only” about 12% of revenue. And given the damage that’s been done to the rest of the business it’s fair to say that in the immediate term it’s hardly the #1 priority. But that misses the broader point.

Let’s remind ourself that prior to the Ron Johnson fiasco, Penney’s did not have a sustainable long-term strategy and plays in a retail market sector that’s been growing slower than inflation. They need a ~30% sales increase and vastly improved margin performance just to get back to where they started pre-Johnson. That means that all aspects of the store have to work. It’s also important to note that the Home store represents more than 12% of the space, and even though Penney’s has a huge opportunity in e-commerce, the reality is that today they have a relatively high fixed cost business and there is tremendous financial leverage in making the brick and mortar Home business productive.

For any department store developing top-of-mind preference and driving cross-shopping is paramount, so success in Home–or any department for that matter– is about more than traditional financial mechanics.

The most vexing issue of course is what does new (kind of) CEO Mike Ullman do now? In the immediate term he’s been focused on the right issues: trying to pull a rabbit out of the hat for the Fall season, driving more urgency and impact through promotions and creating near-term financial flexibility.  And to be fair, it will really be the Spring season before we can get a good read on whether Penney’s is getting any real traction on un-doing the mess that Ullman re-inherited.

Unfortunately for Penney’s the home category may well be the hardest and costliest piece to fix. Going back to where they were (which is largely the path they are now on for the apparel business), is not a viable option. More investment will be needed, either to build consumer interest in the new brands while they evolve the assortments, or to re-envision the space to be consistent with whatever JC Penney 3.0 turns out to be.

Regardless, a few things are clear. First, there are no easy or quick fixes. Second, immediate concerns over leadership (CEO and Board) and liquidity aren’t making the task any easier. Third, and most critically, for Penney’s to claw back lost market share and have any chance to fight and win in an intensely competitive omni-channel world, patience, new thinking and significant investment will be required.

Let’s hope they get that chance.