The alternative reality of retail “sales improvement”

According to many, including management, sales at JC Penney improved in the just reported quarter. They were down 12%.

Sales improved at Best Buy too, declining 0.4%.

Of course what they really mean is that the negative trend improved. Things are bad. Just not quite as much as last time.

But improvement in the sense of growing market share, being more relevant to consumers, having more money to pay the bills–you know that sort of trivial stuff–the cold splash of reality is that it’s still not happening.

So if you are on a plane hurtling toward the earth, you might take some comfort in learning that the dive is no longer so steep. More time to pray, more time to reflect on your life and more time for the pilot (hopefully!) to pull out before you smash into the ground.

If you are trying to lose weight you might be somewhat happier that this week you “only” gained two pounds, rather than last week’s five. But no matter what you tell yourself, you are still further away from your goal.

Or if your 401K was down 25% last year and you are only down 12% this year, you might feel just a bit less badly about your needing to work until you’re 80  (until you realize that it will take a 47% gain just to get back to even–which, coincidentally, is the same increase that Penney’s need to get back to the start of the Ron Johnson era).

Don’t get me wrong, obviously when a trend has been relentlessly negative, an improvement in that decline sure beats the alternative. And a less steep descent provides the promise of a potential ascent.

Just don’t confuse better with good.

And don’t forget as long as you are growing more slowly than your best competitor, you are still losing ground.

Your boat may not be drifting as badly, but you are still miles from the shore.

 

 

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.

 

Mr. CEO, tear down this wall!

It’s not hard to find literally hundreds of articles imploring brands to adopt a multi-channel–or as is fast becoming de rigueur, “omni-channel”–strategy.  I’ve written my fair share of them.

Typically these articles provide helpful hints or highlight core capabilities one must embrace to achieve this recommended state of retail nirvana. In fact, at last week’s CRMC conference in Chicago, speaker after speaker delineated the usual suspects.

We must have a 360-degree view of the customer. We need to become channel-agnostic. We must leverage actionable customer insight to drive personalized interactions. Our customer experience should be seamless across touch-points. And so on.

All good stuff to be sure. Yet the cold hard truth is that while these components are all quite necessary, they are simply not sufficient.

The unfortunate reality is that all the Vice Presidents of Customer Insight and all the Directors of CRM and, for that matter, all the whatever you want to call your new leader of cross-channel initiatives, can do an exemplary job and it won’t get you there as long as a few other conditions exist.

If your brand is still fundamentally organized by channel rather than customer, you will only get so far.

If your company’s senior leadership is rewarded by channel performance, more than brand and customer-driven metrics, you face an insurmountable challenge.

Without the walls between channels being torn down–without the Board and Mr. or Ms. CEO making customer-centricity THE driving force of your customer growth strategy–all the well-intentioned efforts of an enlightened few will fail to gain essential traction.

So Ms. CEO tear down those walls!  What are you waiting for?

 

 

 

No pottery, no barn, no crates, no barrels

Is Crate & Barrel a good name for an upscale home furnishings store?

Does it bother you that Pottery Barn has no pottery for sale and that their stores look nothing like a barn?

In my experience, one of the most frustrating experiences one can have in business is to go through a naming exercise for a new product or service.

I worked on developing a new specialty store concept several years ago and during the search for its name, our CEO came into my office virtually every day to either throw out some idea he came up with the night before (“what if we call it ‘Cool Stuff’?”) or to get my reaction to some existing store name that baffled him (“what’s up with Banana Republic?”).

Of course the issue is that so often we become obsessed with the name, rather than focusing our attention on building a brand. A name without a relevant, differentiated and compelling set of experiences, delivered consistently, over time, risks becoming just a meaningless description.

Now, experts in branding will tell you that there are qualities that make for better names–things like being unique, memorable, easy to pronounce, evocative, supportive of your positioning and the like. And, I certainly recommend that you incorporate this advice into your naming process. By now it’s clear that BlackBerry was a better choice than sticking with the product’s original more literal name PocketLink.

So go spend some time on finding a “good” name. But spend far more time and effort on creating and executing a great brand.

And if you need some inspiration, go do a Google search on your Apple.

 

 

 

 

 

Blaming the hole

None of the top 10 retail profit leaders in 1970 remain on the list today, and only half are still around at all.

Leading brands like Best Buy and Barnes & Noble, that just a few years ago were building stores as fast as good sites could be found, are dramatically shrinking their store base and scrambling to re-imagine the customer experience.

Smart phones and tablets, that barely existed 5 years ago, are putting unprecedented power in the hands of consumers and blurring the lines between the physical and digital worlds.

More and more people are finding that what worked for them in the past isn’t getting the job done today. Sometimes painfully so.

That feeling of being a round peg in a square hole isn’t going away. Call it the “New Normal” or whatever you want, but it’s here to stay.

You can scream that this isn’t fair, or you can accept that there is no such thing as fairness. There is simply reality.

You can hang on to the illusion that you can control the way the universe unfolds, or you can get to work on the things that matter than you can actually affect.

You can stop blaming the hole.

Holes are going to change in size and number and complexity. New holes will emerge all the time. And probably at a faster rate than ever imagined.

But let’s be clear. If you find yourself being a round peg in a square hole, it’s the peg that’s the problem.

 

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

This is the 3rd straight year that I’ve attended a National Retail Federation “Big Show” session and a senior retail executive takes the stage and proclaims that the multichannel–or “omni-channel” if you want to be trendy–customer spends more than a single channel customer.

In fact, they say–pausing to create a little extra anticipation as they prepare to bestow another morsel of massive insight–the more channels she shops in, the more she spends.

I then scan the crowd and notice dozens, maybe hundreds, of my fellow attendees furiously taking notes. I check the Twitter feed and there is a sudden burst of activity as these pearls of wisdom. Must. Be. Shared.

From where I sit, if you care about such things and this is actually news to you, it only proves on thing. You haven’t been paying attention. At all. Let’s hope the boss doesn’t find out.

The reality is that Sears and JC Penney were reporting that their multi-channel customers outspent single channel customer by 3 or 4X nearly a decade ago.

At Neiman Marcus we reported the same phenomenon in public statements in 2006 and 2007.  Lots of other brands have said essentially the same thing over the last several years. Look it up. I’ll wait.

So now that we know to be skeptical about how NRF selects its speakers–and you’re aware that you need to up your market research game–so what?

First of all, it might be better to state things this way: your best customer is a multi-channel customer. The distinction being that if someone is already a good customer they are more likely to start engaging with you in other forms (web, mobile, social, etc.). Understanding cause and effect, and segmenting your customers by pathway to profitability, is well worth the effort.

Second, stating facts about customer behavior isn’t a strategy. You aren’t going to win in an increasingly omni-channel (see how trendy I am!) world unless you fully embrace customer-centricity, are committed to treating different customers differently AND you have a clear idea of how each channel or touch-point delivers a remarkable customer experience.

So if you are just learning to appreciate the multi-channel customer and are thinking about an omni-channel initiative, I’d get started.

And I’d hurry. It’s later than you think.

 

My Top Ten Blog Posts of 2012

Happy New Year.

And now, as has become my custom, here are my top ten posts of the past year. Enjoy. Comment. Debate. Share.

1.   The world’s best loyalty program.

2.  The end of e-commerce.

3.  JCPenney’s Road to Recovery (Part 2): The intervention.

4.  JCPenney swings for the fences (Part 1).

5.  JCPenney’s Road to Recovery (Part 1): The reality distortion field.

6.  JCPenney’s Road to Recovery (Part 3): The 10 point action plan.

7.  In gut we trust.

8.  Now you’re just somebody that I used to know.

9.  Honey, I shrunk the store.

10. 8 things that are wrong with your omni-channel strategy.

And one of my personal favorites that, in my humble opinion, was mostly overlooked: Knowing what ‘yes’ looks like.

But it did get excerpted in Seth Godin’s new book The Icarus Deception.  So I got that going for me. Which is nice.

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.

 

 

 

 

 

 

 

Learning to harmonize

Let’s face it, nobody’s likely to be happy to hear you join Mumford & Sons on stage–or Crosby, Stills & Nash if you are old like me–to belt out a few tunes together. But that’s just some incredibly unlikely scenario.

What’s much more real is the need to harmonize in your business.

Your brick and mortar presence, e-commerce business, mobile offering, call center, marketing, and all other branded consumer touch-points, don’t need to be identical, but they need to be harmonious.

Perhaps you’ve experienced a musical performance where someone hits a discordant note. It’s obvious and not very pleasing. If it persists you’re not likely to want to hear more and you’re not likely to want to come back.

Chances are there are quite a few discordant notes in your marketing and your customer experience.

Maybe it’s time to hold a choir practice?