Epic battles of history: customer vs. channel

Because virtually all retailers have historically organized themselves around their sales channels, there is major conflict.

Because customer data typically resides in silos, a mighty struggle exists to provide a holistic, customer-centric view.

Because systems are not integrated, attempts to provide a seamless customer experience are fraught with friction.

Because companies most often employ metrics and incentives that are aligned against internal dynamics, rather than the way customers shop, tensions abound.

As the channels evaporate in consumer’s minds, the battle between what your customer wants, needs and expects, and that which your various silo chieftains and defenders of the status quo try to hold onto, is intensifying.

To be sure, the shift from a channel-centric culture to a customer-centric one is incredibly difficult. The investments to integrate data, inventory, point of sale systems and supply chains can be enormous. The complexities in reworking incentive structures and performance tracking are undoubtedly time-consuming and challenging. And re-mapping processes and re-training an entire organization is hardly trivial.

But in the battle between customer and channel is there any question which side will ultimately win?

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.

 

Everywhere. And nowhere.

You’ve probably read the admonishments. You must be everywhere your customer is: online, bricks & mortar, mobile, Facebook, Twitter, Pinterest and on and on.

You’re told the future is now and that future is all about allowing the consumer to shop anytime, anywhere, anyway.

You’re urged to create a seamless experience across all channels and touch-points.

And much of this is valid. If you don’t meet your customer where she is (and is headed), you’re very likely to be yesterday’s news (RIP Radio Shack). More and more, the consumer IS everywhere and channel hop is becoming the norm.

But for those who think that all they need is a little omni-channel pixie dust and a side order of frictionless commerce, think again.

In the rush to embrace all things digital, integrated and omni-channel, far too many brands have lost sight of the need to be relevant and remarkable. Most of the capabilities that industry white papers wax eloquent about–and consultants relentlessly peddle–are merely the new table-stakes. And, quite frankly, your mileage will vary. Perhaps a lot.

Sears has made huge investments to create powerful digital and integrated commerce capabilities. In fact, they are regularly recognized for their leadership position in many aspects of what industry pundits describe as the holy grail of everywhere commerce. So how’s that working out? Oh yeah, they forgot to sell stuff people want in the way people want it. This is certain to end badly.

On the other hand, Amazon has managed to become a retail industry behemoth, crushing competitors in its wake and continuing to gobble up market share, all without physical stores and, in many cases, putting forth a pretty lackluster mobile and social presence. Their lack of “omni” doesn’t seem to be slowing them down too much.

As I’ve pointed out before, the future of omni-channel will not be even distributed. For those brands that rush eagerly into the “everywhere retail” world without a clear view of the customers they wish to serve and how they wish to serve them in a relevant and remarkable way, don’t be surprised when you don’t get the ROI you hoped for.

It’s quite possible to be everywhere and nowhere at the same time.

As the channels evaporate . . .

By now, it should be readily apparent that a very large–and growing–percentage of customers bounce back and forth between digital and physical channels when shopping.

By now, it’s obvious that the exploding usage of mobile devices is blurring the distinction between e-commerce and bricks & mortar.

By now, we should understand that, in fact, it’s only retailers that talk about channels. You never hear customers speak in that way.

And yet…

And yet, we obsess over same-same stores sales, rather than same-market or same-customer segment performance.

We close under-performing stores in a quest to boost profitability, only to discover that we’ve often made matters worse.

We organize our teams, metrics and incentives around sales channels instead of customers, and wonder why we struggle with consumer relevance and engagement.

As the channels evaporate in the minds of our customers, the only two questions for us are: do we accept this reality and are we ready to act accordingly?

Oh, and one more: just what the heck are we waiting for?

 

 

Innovating to parity

Let’s face it, most traditional retailers aren’t very good at innovation. There is no such thing as an R&D budget at most of them. Many barely even have any real process or tangible goals centered on bringing new things to market. Labeling your typical large retailer “reactive” when it comes to innovation is being generous and polite.  Not surprisingly, most of the useful disruption in the retail space has come from outsiders and start-ups.

Recently we have seen a number of sleeping giants begin to awaken to the need to raise their game and pick up the pace. The digital transformation that has swept through retail, and the resulting blurring of the channels, makes it impossible for even the most conservative of brands to sit idle.

Yet, here’s the problem. Most of these retailers are merely focused on closing the gap between them and the obvious or emerging leaders. Once some new technology or marketing technique or experiential dimension begins to prove itself out, then these companies kick into action. Apple starts doing untethered checkout, a couple of  years later mobile POS starts springing up nearly everywhere. A few brands have success with order online, pick up in store, and soon that is on everyone’s list of 2015 projects.

There’s nothing inherently wrong with being mindful of which new strategies are gaining consumer and economic traction and positioning yourself to be a fast follower. And to be sure, if a company finds itself in trouble, it is completely sensible to find the areas of innovation that can quickly deliver the greatest near-term leverage.

But most of these brands are really just innovating to parity. By the time their innovation efforts get to scale, the next big thing is beginning to emerge and once again they themselves behind. It’s the proverbial difference between skating to where the puck is, rather than skating to where it’s going to be.

It’s great that more companies are embracing innovation. But it’s not enough to merely step on the innovation treadmill.

Winning in today’s environment requires a commitment to anticipate, to leap, to experiment, to fail, to refine and get up and try again.

Leading from behind has never worked.

And hoping to lead from parity probably won’t cut it either.

 

 

 

 

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.