Small is the new interesting

It’s been at least 20 years now that most value creation in retail has been driven by big. Big stores–both physical and digital. Big assortments. Big advertising.

Walmart and Target. Home Depot and Lowes. Amazon and eBay. Best Buy, Ikea, Office Depot and on and on. Superstores, category killers and the “endless aisle” online guys have won big (heh, heh) on scale, efficiency and low prices.

There’s a lot to be said for pushing the frontiers of big. When your goal is to be the “we have everything store” your marching orders are pretty clear. When you have to be the winner in a price war, your focus is obvious.

The problem is that big has its limits. And a closer examination of many “winning” retailers’ strategies reveals that big is losing momentum.

It turns out that a strategy of big eventually faces diminishing returns. It turns out that most of the winners of the past decade or so are running out of new stores to build. It turns out that many of the mass promotions that drive incremental business lose money. It turns out that for most of these brands e-commerce growth is unprofitable. But mostly it turns out that big is boring. And consumers are starting to notice.

There’s no question that big is here to stay. There’s little doubt that for many consumers–and a vast number of purchase occasions–the quest for dominant product selection, convenience and great prices will remain paramount. But that doesn’t mean that’s where the future opportunities lie or that your strategy shouldn’t shift.

Shift happens. And it’s a shift away from mass marketing to becoming more personalized. Away from overwhelming assortments to editing and curation. Away from products that everybody has to items and experiences that the consumer creates. Away from the seemingly inevitable regression towards the mean to a deliberate choice to eschew the obvious and explore the edges.

Many brands will have a hard time breaking out of the pursuit of big. They are too vested in building scale, too scared of Wall St.’s reaction to a strategy pivot, too addicted to mass advertising.

Of course, therein lies our opportunity. Maybe it’s time to embrace small while the rest of those guys continue to flog big.


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.



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.


Honey, I shrunk the store

Until Amazon–and a handful of other pure-play concepts–emerged as power-house brands, a retail growth strategy largely consisted of two major components: build bigger stores and create a bigger retail footprint.

Whether you were Walmart, Office Depot, Coach or Lowe’s, your strategy was mostly about pushing the limits of market dominance: expanding your assortments to cover every related purchase occasion and expanding locations to cover every trade area perceived to be viable.

Then digital happened, and if a large part of your product offering could be delivered without the need of a physical location (think Best Buy, Blockbuster or Borders–and that’s just the “B’s”) this has proved to be a big problem indeed.

And show-rooming happened, and if you were in categories where the consumer likes the research service found in a brick and mortar location, but ultimately buys on price, you were losing a lot of business to direct-to-consumer players not burdened by your overhead structure.

Then there’s the emergence of omni-channel retailing, and if you aren’t making it frictionless for your customer to shop anytime, anywhere, anyway, you were losing share to those who have truly embraced customer-centric retailing.

Last, but not least, the recession happened, and many of the consumers you were counting on–you know, the ones that had become weapons of massive consumption fueled by easy credit–suddenly pulled back big time, and many of the locations you opened in the last five years or so are dead in the water.

So for most, it’s time to shrink.

Fewer, more productive stores. New, smaller formats that resonate more strongly with today’s blended channel realities and that can work in different kinds of trade areas.

But if you think getting smaller is just about physical space, think again.

When you think smaller, think more intimate. Become more personalized, more intensely relevant. Treat different customers differently.

In the future the customer shouldn’t walk away from interacting with your brand thinking that you have down-sized. They should feel that you know them, you get them and that your brand was built with them at the center of all that you do.

The end of e-commerce

We’ve gotten pretty used to talking about e-commerce and brick & mortar retail as if they were two entirely separate things operating in parallel universes. In fact, industry commentators often treat the “on-line shopper” as some sort of new species.

Yet more and more the notion of e-commerce as a channel unto itself is collapsing. A distinction without a difference.

Yes, some on-line only businesses like Amazon will continue to thrive, and no doubt we will continue to see purely digital retailers launched. Some will carve out profitable niches.

But with few exceptions, the real action–and the biggest source of future growth–lies with omni-channel retailers, that is, those brands with a compelling presence in brick & mortar and on the web (and mobile, and social, etc.).

When the media quotes the rapid growth of e-commerce, don’t forget that much of that growth is fueled by the digital operations of traditional brick and mortar players such as Macy’s, Best Buy and Neiman Marcus.

The reasons for this are simple. Consumers think brand first, channel second. Consumers use multiple touch points on their purchase decision journey. More and more, consumers value the unique convenience of on-line shopping, but often will appreciate the unique benefits of a physical store.

Forward thinking omni-channel retailers like Nordstrom have stopped breaking out the sales of their e-commerce division and their brick and mortar stores because they accept the idea that the distinction is increasingly meaningless. More importantly, they act on this insight and have worked hard (and invested mightily) to eliminate shopping friction and make their brand available anytime, anywhere, anyway.

So forget e-commerce and brick & mortar. Stop with the separate P&L’s, non-sensical incentives and channel-centric customer analysis.

Put the customer at the center of everything you do, and build from there. Rinse and repeat.






The endless aisle and the world’s smallest parking lot

When I was in business school, one of the major consulting firms was notorious for asking interviewees the question: “what if energy were free?”  The short answer, of course, is “just about everything.” But the point of the question was to see if candidates could understand what a driving factor energy costs were in most businesses and consumers lives and whether the interviewees could quickly sort out the profound implications of no longer having that constraint.

I’ve been in retail about 20 years and for most of that time physical space has been the huge driving factor and constraint.

Retailers spend millions of dollars investing in stores and filling their shelves with millions of dollars in inventory. A lot of time and energy goes into visual merchandising and store display standards. Companies invest in planning and allocation software to optimize precious retail selling space and flow merchandise through their supply chains. You worry about things like “parking ratios” (the number of spaces you need per thousand of square feet).

And all along, Wall Street keeps you obsessively focused on comparable store sales growth, productivity per square foot and growth in square footage.

What would be different if most, if not all, of that did not matter anymore?

For more and more consumers, digital marketing and e-commerce has made the aisles endless and physical display meaningless. And the store is always open. Their parking lot is their desk chair, their couch, the smart phone or tablet in their hand. And your physical store is starting to look more and more like a showroom.

It won’t be long before most established retailers won’t be able to economically add any more net physical square footage. And if you are Barnes & Noble, the Gap, Sears or Best Buy, congratulations. You are already there.

If you are a multi-channel retailer where more than 10% of your sales are done through e-commerce and that channel is growing at double-digit rates, focusing on comparable store sales growth is becoming increasingly irrelevant. Comparable customer segment growth is far more meaningful.

If you have a lot of capital invested in physical stores and a large and growing percentage of your customers engage with your brand digitally before coming to your store, chances are you need a radical re-think about how you will drive brick and mortar productivity in an increasingly omni-channel world.

In a world of endless aisles and the anytime, anywhere, anyway consumer, just about everything is different. Or soon will be.

So the question is: are you?



Shrinkage. Be prepared for more cold water.

Yesterday Best Buy announced its plans to shrink its U.S. big-box square footage by 10% to compete more effectively with Amazon and other digital competitors.

Expect to hear more announcements like this–at least from those retailers who get how hard the winds of change are blowing for brick and mortar retailers. Physical retail is not going away, but the assortment and prices advantages of pure play e-tailers are overwhelming for more and more consumers.

For retailers that do not offer a compelling omni-channel strategy the writing is on the wall.  They have too many stores and the stores they have are too big. They risk becoming showrooms for consumers that ultimately will buy on-line or from more price competitive and more convenient brick and mortar competitors.

For some, all is not lost. Smart investments in a seamless cross-channel “bricks and mobile” offering can allow them to capture customers regardless of which channel they prefer. Instead of investing in building more and bigger stores, they should invest in making the stores they have more relevant and differentiated, taking advantage of the unique capabilities of a physical location. There are plenty of customers willing to shop in stores with great design, great service and an overall remarkable experience.

For others, the future is bleak. For them, I’m reminded of the memorable line from the movie The Sixth Sense.

“I see dead people.They only see what they want to see. They don’t know they’re dead.”