Push “blend”

It wasn’t very long ago that engaging with most brands meant dealing with their disparate pieces. One 800 number for order status, a different one for delivery. Websites and physical stores that often bore only a passing resemblance to each other. Getting bounced from one department to the next to resolve a customer service issue or get a question answered. And then needing to start over again with each person with whom we spoke.

Then–slowly at first–some companies began to realize that customers didn’t care how we were organized. Customers didn’t want to hear about the limitations of our “legacy systems.”  We may talk about channels, but customers don’t even know what that means. And they don’t care.

Upstart brands challenged the incumbents by attacking the friction in consumers’ path to purchase. Companies as diverse as Nordstrom, Amazon, Bonobos and Warby Parker made it their job to integrate the critical pieces of the shopping experience on behalf of the customer. They challenged the traditional verticality in retail and embraced the notion that brands are horizontal.

They assembled great ingredients and then they pushed “blend.”

As retailers we may be organized by the parts and the pieces. We may make decisions on discrete components. We may measure and tweak each variable in the equation.

But at the moment of truth, when the customer decides to enter our store, click on an ad, put another item in their cart or recommend us to a friend, she’s thinking about the whole blended concoction.

 

 

Attraction, not promotion

If you are familiar with 12-step recovery programs you know that most employ the Eleventh Tradition of Alcoholics Anonymous, which goes as follows: “Our public relations policy is based on attraction rather than promotion.”

The obvious reason for this practice is that 12 Step programs have the anonymity of their attendees at their core. Moreover, AA–and its many spin-off programs–reject self-seeking as a personal value. But it goes deeper.

Most people do not wish to sold to or want to heed the clarion call of “pick me, pick me.” If I have to hit you over the head again and again with my message, perhaps you are not open to hearing it. Or maybe what I’m selling isn’t for you. Constantly reducing your price or pitching me all sorts of deals may be an intelligent way to clear a market, but all too often it’s a sign of your desperation.

12 Step programs are among the first viral programs to scale. They gained momentum through word of mouth and blossomed into powerful tribes as more and more struggling addicts came to be attracted to and embraced the lifestyle of successful recovery. No TV. No radio. No sexy print campaigns. No 3 suits for the price of 1. When it works it’s largely because those seeking relief come to want what others in the program have.

In the business world, it’s easy to see some parallels. Successful brands like Nordstrom and Neiman Marcus run very few promotional events, have little “on sale” most days of the year and have very low advertising to sales ratios. Customers are attracted to the brands because of the differentiated customer experience, well curated merchandise and many, many stories of highly satisfied customers. Net Promoter Scores are high.

Contrast this with Sears and JC Penney who inundate us with an onslaught of commercials, a mountain of circulars and endless promotions and discounts. How many of their shoppers go because it is truly their favorite place to shop? How many rave about their experience to their friends? Unsurprisingly, marketing costs are high and margins are low.

Migrating to a strategy rooted firmly in attraction vs. promotion does not suit every brand, nor is it an easy, risk-free journey. Yet, I have to wonder how many brands even take the time to examine these fundamentally different approaches? How many are intentional about their choices to go down one path vs. the other? How many want to win by authentically working to persuade their best prospects to say “I’ll have what she’s having” rather than keep beating the dead horse of relentless sales promotion.

Maybe you can win on price. Maybe you can out shout the other guy. Maybe, just maybe, if you can coerce just a few more customers to give you a try you can make your sales plan.

Maybe.

 

 

 

 

All in

There is no shortage of business bestsellers, insightful white-papers and Harvard Business Review articles regaling us with multi-point programs to drive successful growth strategies. Consultants abound–including this guy–pushing clever frameworks to guide your brand to the corporate promised land.

Best demonstrated practices. Core capabilities. Disruptive innovation. Business process re-engineering. We’ve heard it all.

Yet despite an abundance of knowing, there is a paucity of doing. The same companies with the same access to the same information–employing high quality, well-intentioned  executives–get widely (and sometimes wildly) different results.

Having spent more than a decade working in omni-channel retail driving customer-centric growth initiatives, I’m often asked which company is the leader in this space. I usually say Nordstrom.

I led strategy and multi-channel marketing at Neiman Marcus during the time Nordstrom began investing in customer-centricity and cross-channel integration. So I can spout chapter and verse about the differences between our approaches and all the opportunities we missed. But with Neiman’s announcement this week of their new customer-centric organization (better late than never!) there are a few key things to point out:

  • Neiman’s has a lot of catching up to do
  • We knew the same things Nordstrom knew when they aggressively committed to their strategy nearly a decade ago
  • Nordstrom acted, we (mostly) watched.

We can quibble about some of the facts and the differences in our relative situations, but when it comes down to why they are the leader and Neiman’s–and plenty of others–are playing catching up, it comes down to this:

  • Nordstrom had a CEO who fundamentally believed in the vision and who committed to going beyond short-term pressures and strict ROI calculations
  • They went all in.

In a world that moves faster and faster all the time, organizations are really left with two core strategic options: Wait and see or go all in. Most choose the former and end up going out of business or stuck in the muddling middle.

Going all in doesn’t mean investing with reckless abandon or rolling the dice. Most all in companies do plenty of testing and learning. But testing with a view toward scaling up or moving on is a sign of commitment and strength not uncertainty and weakness.

Going all in must start at the top, with an executive who is wired to say yes. An all in strategy is fraught with risk. Mistakes will be made. You need a boss who has your back.

Going all in necessarily requires a supportive culture, but without complete organizational commitment it’s not nearly enough.

Going all in doesn’t pre-suppose a journey without bumps in the road. All in companies know how to fail better.

Culture eats strategy for breakfast?

Commitment eats strategy for lunch, dinner and a late night snack.

 

Silos belong on farms (redux)

If you attended last week’s Shop.org conference you heard the term “omni-channel” thrown around quite a bit. In fact, an entire break-out session track was devoted to retail’s latest and greatest buzzword.

As is true with most conferences, attendees were regaled with pithy anecdotes of burgeoning success. “If you would just follow our play book you too could achieve your omni-channel dreams”, seemed to be a common theme.

Often lost amidst the breathless case studies and clever frameworks, was a simple and powerful reality. If you desire to be customer-centric–and it’s hard to imagine why you wouldn’t want to be–you cannot have fragmented data, uncoordinated marketing programs, channel-centric metrics and a decentralized organization. Period. End of story.

Silos belong on farms.

Three years ago I wrote about the concept of one brand, multiple channels, but I am hardly the first person to espouse this view. So why is there still such a gap between the knowing and the doing?

As is so often the case, the answer is at the nexus of leadership and fear. All the noble experiments and clever PowerPoints in the world get you nowhere unless change is driven from the top. And this innovation agenda requires radical acceptance of the reality that slow deliberate change is, in fact,  the most risky path.

The inconvenient truth is that most CEO’s are afraid to invest in technology with uncertain ROI and fear push-back from their direct reports who have thrived in a silo chieftain world. Letting go of age-old performance measurement systems and taking funds away from legacy marketing programs, even in the face of obvious ineffectiveness, seems scary.

But if you want to be really scared, take a look at what the competition and the most coveted consumers are doing right now. Brands like Nordstrom are winning precisely because their leadership began busting silos nearly a decade ago, well before a clear ROI could be calculated. And, increasingly, consumers are directing their loyalty to brands that engage in frictionless commerce.

Silos belong on farms. Silo busting belongs first on your to-do list.

 

 

 

 

Out of Barneys’ rubble: What’s next for luxury fashion’s biggest boutique

Yesterday Barneys New York averted yet another trip to bankruptcy court through a major restructuring deal that converted most of their debt to equity (http://bloom.bg/IUyHir).

Unless you work at Istithmar–the PE firm that paid more than $940MM for Barneys in 2007 (oops!)–or owned Barneys debt, this is a big deal (pun intended). Barneys no longer has to divert the majority of its cash to service debt and now has greater capacity to improve existing operations and focus resources on growth.

So we’re good now, right? Not so fast.

To be sure, buying a marquee brand at fire sale prices sets up Barneys new class of equity owners for potentially high returns. And newish CEO Mark Lee has done a solid job of executing the basics and going after the proverbial low-hanging fruit. But we need to deal with a few facts.

We should not forget that Barneys recent improved performance comes at a time when virtually all luxury brands have performed well as the US market recovers from the devastating effects of the recession. As the market returns to 2007 levels–and we’re pretty much there–the reality is that the US luxury market is pretty mature.  Maintaining outsized revenue growth in the future is mostly going to need to come from market share gains and/or new stores.

The more looming reality is that Barneys is basically a 2 1/2 store chain. It’s no big secret that the New York and Beverly Hills stores drive the majority of profits while the Chicago flagship is a solid, but way less significant contributor. But expansions of flagship stores to markets like Scottsdale and Dallas have been disasters, and the Co-op stores have had decidedly mixed results.

Yes, Barneys expanded to markets like Las Vegas at precisely the worst time and yes, there have been execution follies along the way. But the bigger issue is that Barneys, as currently envisioned, is basically a big boutique. Unlike Neiman Marcus and Saks, which play in a full-range of affluent customer price points and target multiple lifestyles, Barney’s is tightly focused on a more specific customer from both a fashion point of view and price range.  In huge fashion markets like New York and LA, they can thrive. In smaller markets, faced with long-standing department store and boutique competition, it’s much, much harder.

Barneys has tried to correct for this by building smaller stores. While the stores are beautiful and contain a lot of great product, they mostly end up looking like a smaller boutique concept trying to fill up too big a space. So far, in markets like Dallas and Scottsdale, customers seem to agree.

For Barneys to profitably and meaningfully move beyond more than a handful of cities they are going to have to address a wider market while still maintaining a strong sense of their unique DNA and brand image. Faced with strong omni-channel competition like Saks, Neiman Marcus and Nordstrom–not to mention a whole host of e-commerce only players and local boutiques–that is no easy task.

 

 

JC Penney swings for the fences (Part 1)

New CEO Ron Johnson’s first big move to re-invent JC Penney was to eliminate their intensely promotional high/low pricing strategy. The key elements are:

  • Moving most products to “fair and square” every day pricing
  • Establishing month-long themed value pricing for certain key items
  • Simplifying and creating regular break dates for permanent markdowns.

To break-through the sea of sameness that envelops the slow growth moderate department stores space, Penney’s clearly needs to take bold action. And any student of retail knows that other needed changes to product assortments, in-store experience and digital strategy will take multiple years to fully implement. So what should we make of this “radical” new pricing initiative?

First, anyone who knows retail knows how foolish a high/low pricing strategy seems. The amount of money spent advertising events in weekly circulars and various broadcast media is enormous (and increasingly ineffective). The payroll and collateral costs of constantly changing in-store signing is a major line item. And “forcing” consumers to wait for a sale or have a coupon or get your store credit card to obtain the best price is seemingly a big customer dissatisfier.

So going to “fair and square” everyday pricing would seem to be a win for the consumer and a major improvement to any retailer’s earnings. Why not emulate Nordstrom and get both great Net Promoter scores and have an advertising to sales ratio that is the envy of the competition? It’s a slam dunk, right?

Well, not so fast Skippy.

First of all, unlike Nordstrom, every promotional retailer like Penney’s (and Sears and Macy’s and Bed, Bath & Beyond, etc.) has taught their customers–over many, many years–that their “regular” price is a sucker price. Reversing this perception will not happen quickly, no matter how creative your new ad campaign is and no matter how much money you throw at it in the first few months.

Second, every retailer has a customer segment that is intensely deal driven. This group refuses to buy unless they are convinced they have gotten the best possible price. And they believe they can ferret that out. They love the thrill of the hunt. Buying something without some special incentive is an anathema to them.

History shows–whether you are Sears, Macy’s or Saks–that when you pull back on promotions this segment’s business drops like a rock. If they are a tiny fraction (or an unprofitable piece) of your sales, it’s not a big issue. If, as I suspect is the case at JCP, they are a meaningful profit contributor, the short-term hit is significant and they will be hard to win back.

Third, like it or not, promotional marketing creates urgency to buy. Major events with limited time offers drive traffic. In-store messages that shout a great deal increase conversion. Over time hopefully Penney’s can teach their consumers that every day is a good day to check out their store and that there is no reason to shop around for a better deal. In the immediate term sales will suffer.

Lastly, and perhaps most importantly, the math on everyday pricing is tough. While it is true that most consumers buy at the lowest promotional price, it is also true that there are plenty of customers who pay full price (or receive a lesser discount). To achieve the same gross margin percentage would mean setting an everyday “fair and square” price that is above the lowest historical promotional price. But by doing that, you will be uncompetitive with your direct competitors.

An informal price check I did yesterday (at the mall closest to Penney’s corporate headquarters) revealed that Penney’s price on several key national brands was several dollars higher than Macy’s and Sears. For consumers that pay attention to such things, this will undermine JCP’s pricing integrity and cost them business. This also creates an opportunity for Penney’s competitors to attack them directly on the one major initial plank of their new strategy.

The other alternative is to set prices to be consistently competitive day in and day out. Doing so will drive Penney’s gross margin rates down, which will require a very significant increase in sales just to maintain the gross margin dollar productivity at last year’s levels–which weren’t at all impressive.

Penney’s has acknowledged that they expect to take a near-term sales hit as they implement their new pricing strategy. And everyone recognizes that pricing is just one piece of a multi-faceted, multi-year transformation.

My fear is that this pricing change is much more of a swing for the fences move then the new management team realizes and that the first few innings of this new game will be far more brutal than expected.

While unconfirmed, initial reports are that sales having taken a bigger hit than management anticipated, which could lead to inventory issues and a huge loss of momentum for the new leadership at Penney’s.

I applaud Ron Johnson’s willingness to go big and bold. However, I expect his credibility and tenacity will soon be tested.

***********

In Part 2 I explore what else Penney’s new strategy must entail.

 

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.

 

 

 

 

 

When the last 15 years happens to you

If you are in retail, the last 15 years or so have brought enormous change. Let me call out a few profound shifts:

  • Winning business model bifurcation: Price and dominant assortments at one end (Wal-mart, Amazon); remarkable experience and assortment curation/product differentiation on the other (Nordstrom, Louis Vuitton). The result is death in the middle.
  • Digital retail: What started as an electronic catalog is now not only a high growth channel approaching 10% of many categories’ sales–and much higher if the product can be delivered digitally–but an increasingly important medium for promotion, interaction, customer reviews, price checking, etc.
  • The constantly connected–and inter-connected–consumer.  As more and more consumers are armed with powerful mobile devices the notion of anytime, anywhere, anyway retail has become a reality–and expectation. Social networking, product review sites and pricing apps are creating greater and greater information transparency. The brand is no longer in charge. The consumer is.
  • The omni-channel blur. Most of your customers will engage with multiple touch points in their decision journeys. As mobile commerce grows–and it becomes easier for consumers to seamlessly move between various applications to gather product information, check prices, confirm inventory availability, get product reviews and the like–the notion of distinct channels breaks down. It’s a frictionless, compelling experience that matters, not making each of your channels better. New ways of consumer engagement, new ways of organizing your business, new ways of measuring and incentivizing become mandatory. Silos belong on farms.

While it is true that remarkable new business models sometimes emerge quickly and unexpectedly, most winning concepts that have gobbled up market share from industry incumbents did not come out of nowhere.

Amazon launched in 1995. The off-the mall and specialty formats that have made life difficult for the Sears’ and JC Penney’s of the world have been important competitors since the late 1990′s. Anybody paying any attention to customer data during the last 10 years has known that the so-called “multi-channel” customer outspends a single channel customer by a factor of 3-4 times.

With the benefit of 20/20 hindsight it’s clear that many Boards and many retail executives were asleep at the wheel. They failed to gain sufficient awareness of the competition and seek truly actionable customer insight. They failed to accept what was happening. And of course they failed to act. And now it’s too late.

So here’s the new reality. While many of the companies I mentioned–and countless more I’m sure you can offer up–had some 15 years to see what was happening and make the necessary changes, chances are you will have less time. A lot less time.

So I guess the question is: what are you going to do to make sure the next 5 years don’t happen to you?

 

Let’s get digital…digital

The first wave of digital retail was either about brands with a history in catalog merchandising putting up a basic e-commerce site (Williams-Sonoma, Lands’ End) or pure-plays picking off products categories that early adopters could readily embrace (Amazon). The market dealt harshly with models that could not execute a basic direct-to-consumer formula, targeted a product category that wasn’t ready for digital prime time (RIP pets.com) or a combination of both.

As consumers became more comfortable with buying on-line–and retailers got better at deploying new technologies–other categories made sense for pure-plays (Blue Nile, Zappos) and traditional retailers ramped up their multiple channel strategies. For most, this second wave was largely a silo-ed approach with the e-commerce and the bricks and mortar divisions pursuing related, but mainly independent, strategies.

In the most recent third wave, a few retailers (I’m looking at you Nordstrom) understood that most of their customers were interacting with their brand across multiple channels and touch-points. They accepted that brand trumps channel, that digital was transforming their business forever. They declared that silos belong on farms and began investing in a more integrated, customer-centric experience, leading with digital more often than not.

In the next wave, the blended channel is the only channel. The distinctions between devices, channels, touch-points and media begin to blur. Differences with little distinction. Or differences that lead to extinction if your core value proposition can be delivered better, cheaper, faster digitally.

Clearly not every product category is going completely digital. Groceries looks pretty safe. Cars too.

But failure to understand how digital transforms the customer discovery, engagement, purchasing, retention and advocacy process is a prescription for your brand’s demise.

So let’s get digital. Let me hear your actions talk.

Competing with yourself

One of the biggest mistakes companies make strategically is failing to compete with themselves.

The only reason Sears is no longer the leader in the retail home improvement industry–and now on a slow slide into oblivion–was their unwillingness to build or buy an off-the-mall response to Home Depot when they had the chance. Having personally participated in 2 separate strategic studies in the early and mid 1990′s, I can tell you that the big hang up in making the plunge was leadership’s fear of sales diversion from the “core” mall-based department stores.

Whoops.

So it was refreshing yesterday to see Nordstrom’s acquisition of HauteLook, one of the leading flash-sales sites.

The luxury/fashion off-price market has exploded in the past 3 years with upstarts like HauteLook, GiltGroupe, RueLaLa, et al creating a $1 billion+ (and growing) sub-segment through daily online sales. And it’s clear that a lot of that business has come at the expense of traditional players like Nordstrom, Neiman Marcus and Saks.

It remains to be seen whether the price Nordstrom paid was sensible. And time will tell how well they will be able to leverage their capabilities and customer database to accelerate HauteLook’s growth and profitability. But one thing is clear. The other industry incumbents have been slow to react–or have responded with utterly unremarkable tactics–and have let many start-up companies steal market share and attract new customers in a space they could have easily dominated.

Retailers are pretty good at firing people when they don’t make their seasonal sales plan or manage their budgets well. When they let hundreds of millions of dollars of potential shareholder value slip through their hands by failing to act on business that is rightfully theirs, you rarely hear a peep.

That needs to change.

And you need to be willing to compete with yourself. Last time I checked you don’t any credit for your competition’s sales.