Built for me

We’ve all been there.

We walk into a new store, check out a just opened restaurant, surf a recently discovered website or perhaps slip into the front seat of that new model car and instantly it hits us: whoever designed this must have had me in mind.

The overall feel, the tiniest details, the careful editing, all seem built around our particular wants and needs. We can’t wait to come back and there is a pretty good chance we’re eager to tell all our friends about our new-found love.

Contrast that experience with the brands we engage with infrequently, or try once, never to return. In many cases–as a point in strategy–that’s not only fine, it’s desirable. It’s not supposed to be for us. Walmart is not trying to get the Saks customer. And vice versa.

But if you aren’t winning with the consumer segments your brand is supposed to be for, than clearly you’ve got work to do.

More and more, building deep engagement, loyalty and “remarkability” in a world of constant connection, ever-expanding choices and a blitzkrieg of marketing communications, demands that you become the signal amidst the noise.

Increasingly retail is shifting toward  “Me-tail.”

If your core customer segments don’t resonate with a “built for me” notion,  you need to get at the root cause. And you need to get busy.

 

 

It’s time to let go of that hammer

You probably know the saying: “If all you have is a hammer, everything looks like a nail.”

This explains a lot of behavior we see with the leadership at struggling retailers.

If you came up through the merchant ranks, chances are you obsess about product–rather than the consumer–and fall woefully behind in creating a compelling omni-channel shopping experience. Today, you are desperately playing catch-up.

If the only way you know to drive revenue is through relentless price promotions, you now sit lamenting the lack of customer loyalty and your shrinking margins.

If you made your money through financial re-engineering and scorched earth expense reductions, you assume your latest investment will cost cut its way to prosperity, rather than realize that your overwhelming issue is top-line growth (I’m looking at you Eddie Lampert!).

If you drove same-store sales through price increases rather than customer and transaction growth–as the US luxury retail industry did for many years–post-recession you find yourself with too narrow a customer base to sustain profitable growth. You now are working overtime to win back customers you priced out of your brand.

All of these problems were caused by a monolithic view of strategy and a failure to gain deep insight into customer behavior. Most were preventable.

Of course, the past is history and the future is a mystery.

But there is no mystery in the failed wisdom of clinging to the past and continually wielding the hammer that got you into trouble in the first place.

Let go.

Move on.

Get some new tools.

 

 

 

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.

 

Luxury’s back!!! Uh, not so fast.

With last quarter’s improved earnings–and a string of positive same-store sales reports–many have declared that the luxury market is once again booming.

While there is no question that business is on fire in developing luxury markets like China, the results in mature markets suggest a business that IS dramatically improved–and on a much more positive trajectory–but recovered? I beg to differ.

Better is not the same as good.  Let’s look at a few examples.

Neiman Marcus (full disclosure: my former employer and I still own an equity stake) is the clear leader in full-line luxury retail and today reported a December sales increase of 4.7%  In their most recently released quarterly earnings, Neiman’s reported a 7% same-store sales increase and a 33% increase in operating earnings compared to last year.

Today Saks reported a 11.8% increase in December sale-store sales.  In their last quarterly report, they showed a year over year sales increase of 4% and a doubling of their operating income.

This is all sounds pretty good until you compare these results to the same period just before the recession started.  Compared to the comparable quarter in 2007, Neiman’s sales are 18% below where they were–and this is after opening several new stores and having a rapidly growing e-commerce business.  More dramatically their quarterly earnings are still only half of what they were at their 2007 peak.

Same basic story at Saks: their sales are still down some 17% compared to 2007 (though they have closed a few full-line stores) and pre-tax operating earnings are down 30%.

Nordstrom–the best in class “accessible luxury” player–was affected less during the recession and has bounced back more strongly.  Their overall sales are pulling ahead of 2007, buoyed by new store openings, a leading omni-channel capability and a more broadly accessible offering.  While they have clearly gained market share, their earning are still about a third less than they were three years ago.

I have little doubt that virtually every player catering to the high end will report significantly improved earnings this next reporting period. And I’m delighted to see this positive trend.  But very few will have truly recovered.

A complete recovery will require more than just return of the ultra-high net worth customers and a bounce off the bottom.  It’s going to take a broader consumer recovery.  It’s going to take a better in-store customer experience.  It’s going to take building in more tangible value to the merchandise offering.  It’s going to take making the brand more accessible, while preserving the core customer.  It’s going to take a more compelling omni-channel strategy.  Fundamentally, it’s going to mean that all these players become more customer-centric rather than product-centric.

It can happen–it needs to happen–but it won’t fully happen anytime soon.

I had some surgery a couple of years ago and for some time I was hobbling around, feeling a fair amount of pain.  I realized–as did those around me–that each day I was feeling a little bit better.  And that was good.  But while I was still limping, nobody was deluded that I had completely recovered.

When it comes to the luxury recovery, let’s not kids ourselves either.

 

Luxury Market Research Smackdown

A number of media outlets have picked up on the debate between Pam Danziger of Unity Marketing and Ron Kurtz of the American Affluence Research Center (AARC) concerning the future of the luxury market.  Let me boil it down for you.

In a recent AARC report Kurtz recommends that: “Luxury brands and luxury marketers should be focused on the wealthiest one percent because they are the least likely to be cutting back and are the most knowledgeable about the price points and brands that are true high-end luxury.”

Danziger fired back “This is just plain dumb advice for luxury marketers.” She goes on to suggest that “the top one percent of the market (about 1.2 million households with average incomes of $500,000 and above) simply can’t carry the entire weight of the luxury industry.” Instead, she recommends that the luxury industry cast a much wider net, aggressively going after the so-called HENRY’s (High Earners Not Yet Rich) to energize significant future growth.

So who’s right?  Well, neither one, exactly.

Kurtz is right that the most elite segment has the greatest capacity and willingness to spend on luxury. But for virtually all but the most rarefied luxury brands, it would be an unmitigated disaster to focus only on the top 1%.  As the former head of strategy and marketing at Neiman Marcus, I can assure you that customers outside the top 1% contribute a very significant percentage of sales and profits.   And if you are Saks, Net-a-Porter, Gilt Group, Louis Vuitton or Gucci, I doubt it’s much different. Most luxury brands need the truly rich and the merely affluent.

So Danziger is right that most luxury marketers need to attract a wider demographic. But she goes too far.  First, while there are many more of the HENRY’s–and their aggregate spending is significant–as you move lower in income the number of potential customers goes up, but their spending on luxury drops dramatically.  Trust me on this: I’ve seen actual, recent spending data by percentile, and the difference between a 99% percentile and a 90th percentile customer’s luxury spending is vast.

The second issue is one of positioning.  The more a brand’s target customer group becomes diffused, the harder it is to be relevant, differentiated and compelling across each distinct consumer segment.  As brands aggressively court a wider demographic they risk alienating their historically strong elite core.

Like most things in life, the answer is not black and white.  It is rarely true that brands need to focus on only one segment.  A compelling customer growth strategy can be built on multiple customer groups.  The needs and value of each segment must be well understood and segment specific strategies designed and integrated to create a powerful blend.

But the starting point is a solid understanding of your customer base.  And apparently that starts with sifting through what the facts actually say.

I’m reminded of the lyrics from the Talking Heads song “Cross-eyed and Painless.”

Facts are simple and facts are straight
Facts are lazy and facts are late
Facts all come with points of view
Facts don’t do what I want them to

Reset! Engaging Customers in the New Normal

If you missed the webinar that Jon Giegengack and I conducted earlier this week entitled Engaging Consumers and Growing Market Share in the “New Normal,” the recording of the session and presentation deck are now both available.

Webinar recording:

https://cmbinfoevents.webex.com/cmbinfoevents/lsr.php?AT=pb&SP=EC&rID=2764867&rKey=b264f15e93796eb1

Webinar deck:

http://www.cmbinfo.com/cmb-cms/wp-content/uploads/2010/10/The-New-Consumer-Report_2010.pdf

Taking Pitches

In baseball we often see a batter “take a pitch.”  In other words, before the ball is thrown the batter decides he’s not going to swing regardless of how good the pitch is.  Sometimes this is a tactic to tire his competition–the pitcher–out.  Sometimes it’s an attempt to draw a walk because that’s the best the batter can hope for under the circumstances.  Sometimes it’s a strategy to wait things out, figuring a better opportunity will present itself later.

Lots of businesses take pitches.

When Sears allows discounters and category killers to erode their core customer base and chip away at their dominant market share, they are taking pitches.

When Blockbuster fails to mount a compelling response to NetFlix and Redbox, they are taking pitches.

When Neiman Marcus, Saks and Nordstrom allow flash-sales sites like Gilt and RueLaLa to build brands with significant market value, they are taking pitches.

When dozens of companies deny the future of social networking and location-based marketing, they are taking pitches.

Of course there are times when it makes sense to wait things out–to study and analyze before placing a big bet.    Customer-centric companies know who their most important customers and prospects are, and when the metrics on those customers deteriorate, they dig in to understand the drivers and take action.

You don’t always need to swing for the fences, but it’s hard to win without a few hits.