I love the way you lie

Whether you stumbled upon Richard Chang’s excellent article “Outlets may not be the bargain you think“–or happen to remember my post from 3 years ago entitled “Faux clearance: Do outlet customers really care”–you may already know that the vast majority of merchandise sold through outlet and off-price channels is made specifically for those stores. Moreover, most of the purported discounts are entirely made up.

With few exceptions, much of the product sold through “regular” channels–department stores, specialty stores, e-commerce–is sold at a discount, and often a substantial one. Open today’s newspaper, or go on-line, and you will see tons of product discounted 20-50%. If you are a Joseph A. Bank customer you can often get a “Buy 1, Get 2 Free” deal. Take advantage of an additional savings coupon, or use your store credit card at many retailers, and you’re likely to reap at least another 10% discount.

While, arguably, we have seen an uptick in promotional intensity in recent years, the notion of marking something up to be able to then claim big savings has been a core component of most brands’ playbooks for at least as long as I’ve been in retail–and that’s over 20 years. For many retailers, the concept of “regular” price is purely fictional.

An essential part of Ron Johnson’s attempt at transforming JC Penney was the concept of every day, “fair and square” pricing. Surely–his left brain must have told him–customers would understand that $40 every day is better than $60 some days and $40 only on the days we happened to be running a sale. No more smoke and mirrors! No more waiting for a sale! No more wasted costs on advertising and store expenses to manage this expensive con job!

Well, we all know how that turned out.

My hope is that brands will be far more transparent in their pricing and discounting strategy. But barring legislative action, my experience tells me that holding my breath for this wish will only turn my face blue.

Whether it’s out of customer ignorance or some weird twist in evolutionary biology, the reality is we’re all part of a grand delusion.

We love the way you lie. And more, apparently, is better.

 

Black Friday: Bright, shiny object edition

This Friday, as we emerge from our tryptophan induced haze, many of us will head to the mall seeking “door busters” and all manner of supposed fantastic bargains. Others will stay home to be met by breathless live shots from these same malls as reporters provide color commentary on this annual frenzy of conspicuous consumption. Industry pundits will pontificate as they are wont to do. Joy will spread throughout the land.

No matter that most Black Friday deals aren’t, in fact, deals.

No matter that the growth in internet shopping–and increasingly earlier launches of holiday promotions–continue to shift sales away from Black Friday.

No matter that, as Seth Godin nails in his recent post, Black Friday is more media trap, than consumer bonanza.

No matter that compelling evidence shows that Black Friday performance is largely irrelevant to predicting seasonal success.

For some consumers, a very limited budget–or a desire for certain highly scarce items–make aspects of the Black Friday slog worthwhile. Others simply go for the experience and aren’t kidding themselves that the savings justify the hassle and time investment.

But the sad reality is that many consumers who will hit the stores in a couple of days are simply misinformed. They have fallen prey to the mythology we continue to spin.

Given the dynamics of the retail industry and the media, I have no illusions that any of this will end any time soon. But none of us have to live in the denial of reality if we so choose.

Choose wisely.

And Hype-y Holidays!

 

 

 

Neiman Marcus & Target: A glorious failure

“Ever tried. Ever failed. No matter. Try again. Fail again. Fail better.”

-  Samuel Beckett

If you pay attention to this sort of thing, you know that several months back Neiman Marcus and Target made a big splash when they announced a partnership to jointly market a limited collection of fashion items for the holidays. This announcement was followed by a lot of PR hoopla and a high-profile television and social media advertising campaign.

And guess what? It was a bust.

The product offering failed to generate the sales frenzy that past designer collaborations from Tar-zhay have, and the merchandise has been marked down 50 – 70%. The media are now out with their post-mortem bashings, many taking the “I knew it was a bad idea all along” route.

Having previously led strategy and corporate marketing at Neiman Marcus for several years, I’ve gotten plenty of questions about my take on the strategy and its execution (NOTE: full disclosure, I remain a Neiman’s investor). Frankly, I think much of the criticism misses the mark entirely.

Clearly, a lot of the execution was messed up. Prices were generally too high, designer brands were extended too broadly and some of the product was just plain goofy: a $50 Rag & Bone boys’ sweater? That was never a good idea.

Big picture, however, the concept was fundamentally good for both Target and Neiman’s. Target is well-known for enhancing its fashion cred with such partnerships; so for them, this was a no-brainer. If they made any money on it, all the better. But the real value is in brand enhancement.

For Neiman Marcus, the strategic value may be less obvious but, in essence, their foray into “mass-tige” is no different from Karl Lagerfeld or Jimmy Choo doing their special offerings at H&M. The goal is to generate buzz and expose their brands to a demographic that they need to cultivate for the long-term. Forging a longer-term and/or more broad partnership would be dumb. But experiments, such as what was tried here, can be shrewd moves indeed.

Which brings me to my last point. What gratifies me the most is that Neiman’s actually tried something bold and, arguably, counter-intuitive. Neiman Marcus’ last CEO–and my former boss–Burt Tansky was a brilliant merchant and remains a luxury and fashion industry icon–and rightly so. But he was hardly a risk-taker and fundamentally not wired to say ‘yes’ to strategic innovation. Kudos to Karen Katz and her team for being willing to push the envelope.

It’s so very easy to label something a failure after the fact and to castigate management for its ineptitude. The far easier path for leaders of course is to never try. You rarely get criticized for the things you didn’t do.

It’s a terrible strategy to eliminate the possibility of failure. Great companies and great leaders are not characterized by an absence of failure.

Without trying, there is no growth. Without failure, there is no learning. The key is to fail better.

So was the Neiman Marcus and Target partnership a failure? In the immediate-term, definitely. But the overall grade from where I sit is “Incomplete.”

If the lesson Neiman Marcus takes away from this project–and it is a project, not a strategy–is to pull back on innovation, to stop experimenting, than it will be a huge waste of time and resources. If it strengthens their resolve, if they apply their learning to improve the process of innovation, than it will be the most glorious of failures.

Massively easy. Precisely wrong.

Most of the year turn on the TV, open your Inbox, wade through the Sunday paper and just about all you see are advertisements filled with store-wide sales and category-wide coupons and double points this and double points that.

During this Holiday season it’s even worse. More advertising. Promotions layered on top of promotions. Door busters. Early opening specials. And on and on.

It’s the retail industry’s equivalent of carpet bombing.

Why focus on best fit consumer segments? Why worry about reinforcing–or at least not denigrating–your brand positioning? Why fret about profitability? Let God–or the Finance department–sort it out after the fact.

The typical defense of this approach is that it works.

Really? Show me the data.

If your definition of “works” is market share, rather than building progressively deeper relationships with valuable customers, I will grant you that. If it’s about revenue, instead of profitability, okay you win.

But the real reason is that it is easy.

Developing actionable customer segmentation methods, building a permission asset, testing your way into progressively deeper personalization and increasingly differentiated and relevant value propositions takes time, involves risk and requires a financial investment.

Relying on mass, undifferentiated marketing is taking the easy way out. And for many, it will be the shortest way out of relevance and, ultimately, out of business.

Black Friday, Cyber Monday and the din of irrelevant analysis

During the past week–unless you were blissfully disconnected from all sources of media–you were likely inundated with news articles, tweets, posts and endless TV stories about Americans as weapons of massive consumption.

Reporters and pundits alike pontificated about the significance of earlier and earlier store openings, the relentless quest for the best “door busters”, the incredible growth of on-line shopping and the startling (to some at least) emergence of mobile apps.

Casting aside the glaring irony that after spending a few hours (allegedly) being grateful for all that we have, we quickly pivot and decide that, after further review, we don’t have nearly enough, much of what the media shares about the significance of our shopping habits during the past week is highly misleading.

Consider a few facts. First, historically there has been poor correlation between retailers’ performance during the Thanksgiving weekend and their overall performance for the quarter. In fact, there is growing evidence that there is an inverse correlation. Second, for most brands, Black Friday and Cyber Monday represent a small percentage of total sales for the holidays. Third, with Thanksgiving coming early this year, holiday sales are going to be more back-loaded than usual. Fourth, as more brands launch promotions prior to Black Friday, consumers spread their sales over more days, making any single event less important. Fifth, sales aren’t profits. Giving product away, and driving an abnormal amount of business to one or two days, wreaks havoc on profitability.

For those of you who breathlessly conclude that a given retailer “won” because of big increases on a given day or that Cyber Monday was a huge success because of a double-digit sales gain please realize the jury is still out.

A quick anecdote: when I was at Neiman Marcus we kept sweetening the deal on our thrice yearly InCircle Rewards promotion. Every time we added a new element our comp stores sales went up nicely, and it appeared that the incremental cost of the promotion was more than covered by the extra gross margin dollars we gained during the multi-day event.

Then a member of my analytics team wondered if anyone had looked at the possibility that as we made the deal better and better perhaps we were driving sales that would have occurred anyway (at a higher margin) into those sales days. Great question. So we did the analysis.

Lo and behold a comparative analysis that included a week before and after the event showed clearly that there was no appreciable increase in total sales. There was a change however. Our profits got worse.

The lesson is clear and compelling. Concluding that a sales event was a success without a more complete picture of how consumer behavior was changed over a longer period of time AND without including a profitability analysis is irrelevant.

I can hope that the media will pull back on disseminating useless information or that they will at least provide more helpful context. Not very likely, I know.

But there is one thing I can do. I can pay less attention.

And so can you.