The problem with ‘good enough’

There are two ways to lose to ‘good enough.’

The first is to believe that you can get away with good enough much longer.

As consumer choices continue to expand, as the pace of innovation increases, as the battle for our attention reaches a fevered pitch, as it becomes more and more difficult for anyone to separate the signal from the noise, your solid, yet undifferentiated, value proposition is going to lose out to the remarkable and the more relevant. Good enough just isn’t anymore.

The second way is to over-estimate the strength of your brand. A specific, very topical, example may be helpful here.

Sears owns and sells several well-known proprietary brands, such as Kenmore, Craftsman and DieHard. One can do consumer surveys–as I have done many times in the past–that clearly indicate that the #1 brand choice for major appliances is Kenmore, the #1 brand choice for tools is Craftsman and the #1 battery choice is Diehard. Many consumers will even state that if they needed any of these products in the next week that their preferred place to shop is at Sears. Yet, both Sears and these private brands have been leaking market share for well over a decade. How come?

Well, If I’m working on a major kitchen remodel and I need not only appliances, but also cabinets, a countertop, fixtures and the like, I might prefer Kenmore, but the appliance selection at Home Depot or Lowe’s is very likely good enough for me to achieve the overall solution I desire.

If I’m working on a DIY project and it turns out I need a new drill to get the job done, I’m headed to a home improvement warehouse or hardware store that has all the key items required to complete the task. Am I likely to get back in my car and make an extra trip to the mall to buy the Craftsman drill, or am I likely to view the selection of national brand choices where I already am as good enough?

If my car battery dies, the chances are the replacement is coming from the closest service station or from wherever I’m towed. Regardless of my stated preference for DieHard, in the context of my needs at the moment of truth, just about any brand that is available to me is good enough.

In matters of spirituality, accepting that we are good enough just as we are leads to greater serenity.

In matters of the marketplace, misunderstanding the power of good enough may have far more dire consequences.

 

 

JC Penney: Better isn’t the same as good

I bought some JC Penney shares on Thursday in advance of their earnings announcement.

I almost never buy individual stocks, but this was an easy decision. Penney’s execution has improved dramatically since Ron Johnson’s departure. Two major competitors–Sears and Kohl’s–are flailing. The year-over-year comparison is absurdly easy. Inventory seems to be tightly managed, which virtually guarantees a solid lift in gross margin. But mostly importantly, negative Wall Street sentiment has been fueled by much fundamental misunderstanding–as evidenced by the large amount of short interest.

My hunch was right. Penney’s reported better than expected performance. And the stock has popped some 15%.

Yet I am keenly aware that better is not the same as good. Penney’s has a huge amount of work to do just to get back to the performance level of the pre-Johnson era which, frankly, was solidly mediocre. The moderate department store sector has basically become a zero sum game where top-line growth must come from stealing share from the competition. And competition is, and will remain, intense.

I am, however, optimistic about the immediate-term. The self-inflicted wounds of the Johnson era are gone. Marketing and merchandising are moving in the right direction. Appropriate attention is now being placed on e-commerce and omni-channel capabilities. As Sears sinks into oblivion, JCP is poised to gain market share and leverage their real estate position. Mike Ullman’s back-to-basics strategy is appropriately conservative and should result in steadily improving gross margins.

It’s also important to note that a year ago Penney’s had done virtually everything one could think of to chase customers away. Importantly, a significant percentage of their stores were off-line in preparation for the home re-launch. Gross margins were getting pummeled by clearance markdowns. Lastly, retail remains a relatively high fixed cost business. As sales improve (both in-store and on-line) Penney’s will start to see tremendous operating leverage.

So for me, better is a virtual certainty for Penney’s–at least for the next few quarters. And those who see the brand at the brink and in need of massive store closings are going to be disappointed (and, as an aside, they also fail to understand the importance of physical stores in driving the online business and overall omni-channel strategy).

Better is easy.

Good? That’s a whole different question.

5 reasons Sears should liquidate ASAP

As a former Sears senior executive I’ve followed the once mighty brand’s journey from mediocrity to bad to just plain sad. What a long strange trip it’s been.

When I left in late 2003 we were gaining traction in our core full-line department store business and piloting several important growth initiatives. To be fair, whether we could pull off the necessary transformation was highly questionable. But one thing is now certain. The subsequent actions taken under a decade of Eddie Lampert’s leadership have assured the retailer’s demise.

For some time now, I’ve been referring to Sears as the world’s slowest liquidation sale. After yesterday’s annual shareholder meeting, it is time to stop the charade and embrace the inevitable. Here are the 5 reasons Sears needs to throw in the towel:

  • No value proposition. No reason for being. After all this time Lampert has still failed to articulate a vision of why and how Sears will fight and win in the intensively competitive mid-market sector. In fact, just about every action that has been taken over the last 10 years has weakened Sears competitive position. And the horrific results make this plain for all to see. The world does not need a place to buy a wrench and a blouse and a toaster oven.
  • The competitive gap continues to widen. In every major product category Sears has lost relevance (and market share) while key competitors continue to improve. In hard goods, Sears is fundamentally disadvantaged by their real estate and as a practical matter there is not enough time nor capital to fix this core issue. In soft lines, they have been given a great gift by the recent foibles of JC Penney and Kohl’s and yet still woefully under-performed. Both competitors have key advantages relative to Sears. As they start to execute better they will win back the share they lost.
  • Digging a deeper hole.  For Sears to be a successful omni-channel retailer their core physical stores have to be compelling. Sears has under-invested in their brick and mortar stores for years, so not only do they have a lot of catching up to do, they have to develop and roll-out a new store design and related technology support. One need only to look at the capital that successful retailers like Nordstrom and Macy’s are investing to get a sense for the magnitude of what will be required. There is simply no way for Sears to earn an adequate return on this level of investment. More practically, Sears can’t possibly fund this.
  • A leader who is either a liar or delusional. The results speak for themselves: Lampert doesn’t know what he is doing. After 28 straight quarters of declining sales–let THAT sink in for a minute–he has the chutzpah to assert, among other things, that Sears is investing in where retail will be in the future (huh?), that the “Shop My Way” member program is some huge differentiator, that having fewer, less convenient locations than the competition is a good thing and that Sears can compete effectively with Amazon. All of these hypotheses would be laughable if the implications were not so tragic. Whether he really believes any of this is, or is merely spinning the story to buy time, remains an open question. But regardless of whether he is being disingenuous or whether he is nuts, you’d be crazy to give him your money.
  • Valuable assets get less valuable every day. There are pockets of meaningful value within Sears Holdings. But proprietary brands like Craftsman, Kenmore and Diehard are not sold where the majority of customers wish to buy them. Ultimately the brands are only as good as their distribution channels. Simply stated, as Sears and Kmart continue to weaken, so do the value of these brands. Side deals with hardware stores and Costco barely move the dial. Sears real estate is also cited as a major source of value, yet the real estate portfolio is a very mixed bag: some great properties in A malls, but lots of locations that are mostly liabilities. Regardless of how this all nets out, it is becoming increasingly clear that, on balance, mall-based commercial real estate has lots of supply, but relatively little demand for new tenancy. As retailers continue to prune and down-size their locations it is difficult, if not impossible, to make a case for Sears real estate value increasing over time.

The uncomfortable and sad reality is this: Sears has zero chance of transforming itself into a viable retail entity. Any further investment in this sinking ship is throwing good money after bad. Stripping out the idiosyncratic technical reasons for gyrations in the Sears stock, the underlying true company economic value declines each and every day. There is no plausible scenario where this trajectory will change.

Frankly, it’s been game over for some time now. It’s only Sears legacy equity and Lampert’s ability to pick at the carcass that has propped up the corpse.

Let’s stop the insanity.

 

 

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.

 

 

 

 

Sears Holdings to convert most stores to indoor waterparks

After years of fighting declining sales and anemic profits, Sears Holdings (the parent company of Sears and Kmart) announced today that it would convert all of its more than 800 mall-based Sears department stores to indoor water parks. The new parks–reportedly to be called “Eddie World”–are scheduled to open in early 2015. Proceeds from the company’s spin-off of Lands’ End will be used to fund the renovations and re-branding.

In a press release, Sears Holdings Chairman & CEO Eddie Lampert said that the company worked with consultants Bain & Company for over a year to explore strategic options for its chronically under-performing stores. “Our initial review revealed that almost anything would be a better use of all that space than what we were currently doing, but I knew we had a fiduciary responsibility to get more specific,” said Lampert in the prepared statement.

According to people familiar with Sears’ deliberations, the company embarked on an extensive consumer research exercise which took longer to complete than expected as many respondents were surprised to learn that Sears was still in business. Ultimately more than a dozen different options–ranging from what one former Sears executive characterized as “bulldoze the suckers,” to repurposing the buildings as urban contemporary rental apartments (initially dubbed “The Loftier Side of Sears”)–were considered.

According to the press release the decision to convert the stores to indoor waterparks centered on America’s growing interest in family-based entertainment, the convenient locations of the existing units, the relative ease of turning escalators into water slides and what Lampert referred to in the press release as Sears’ “core capability in plummeting.”

Sources with knowledge of Sears’ analysis said that the company also considered, but rebuffed, offers from both Forever 21 and Apple to acquire the stores as part of their expansion strategies. Forever 21 is reportedly interested in piloting a new concept aimed at aging baby-boomers called Forever 39. The stores would feature wildly inappropriately, but more comfortably sized, apparel and accessories than the company’s flagship brand.

Apple, under new retail store chief Angela Ahrendts, is considering launching Apple Mega Stores, where the company’s 3 products would be displayed over and over on more than 200 displays, of varying sizes and configurations, across a wide expanse and on multiple levels. The much larger units would also dramatically expand the number of Apple Geniuses, though the company does not expect any improvement in average wait times or the ability to actually solve your problem.

In a phone call with analysts this morning, Lampert indicated that Sears Holdings is also considering shuttering its entire fleet of Kmart stores. The company recently conducted pilots in Charlotte and Phoenix where it simply didn’t open any of its more than 32 Kmart units in the market for more than a week. According to Lampert “we didn’t get a single call. Not one. No one seemed to notice at all. So we have to really take a hard look at that.”

In pre-market trading Sears shares were up over 11% on the news.

 

Dead brand walking

The business graveyard is filled with brands that have gone from the lofty heights of recognition, stature and profitability to flagging relevance and, ultimately, complete extinction. For every long-standing, legacy brand that continues to thrive (think Kraft or Coca-Cola) there is a former high flier that is now gone (think Borders or Oldsmobile).

Sometimes companies are hit by a largely unexpected exogenous force that sends them reeling. More often than not, the company’s ultimate demise surprises no one.

For some of us–investors or potential employees, for example–the key is to separate out the walking dead from the exciting turnaround story or the metaphorical Phoenix.

For business leaders, the obvious implication is to become aware of the early warning signs of decreasing brand relevance, accept the need to change and take the requisite actions. The obvious question, of course, is why are there so very many strategy meltdowns?

In my experience, brands go from healthy to critical in one or more of three ways.

First, you can’t fix a problem you aren’t aware you have. Many dead or dying brands lacked a fundamental level of customer insight. So not only did they not appreciate their vulnerability early enough, they didn’t focus on the important things quickly enough.

Second, just because you know something, doesn’t mean you accept it as the new reality. When I was a senior executive at Sears–the poster child for dead brands walking–we had tons of evidence that clearly showed our weakening relevance and declining profitability in our core home improvement and appliance businesses. Did those that could have changed Sears’ destiny truly accept that without aggressively attacking these issues it would eventually be game over? Sadly, then, as it is now, the answer is “no.”

More recently, when I ran strategy and multi-channel marketing at Neiman Marcus, we had plenty of customer research and analytics that our strategy of narrowing our assortments and pushing prices ever higher was losing us valuable customers to Nordstrom (among others). Did we accept that it constrained our growth and made us increasingly vulnerable in an economic downturn? Fortunately the harsh lesson of the recent recession–and a new CEO–”forced” Neiman’s to address these problems before they became crippling.

Lastly, even with keen awareness and complete acceptance of new realities, we regularly fail to take the (often radical) action needed. This is mostly about fear. Fear of being wrong. Fear of looking stupid. Fear of getting fired. Fear of risking one’s legacy or resume value.

In fact, history teaches us that it’s far more common to see executives holding on to a mediocre status quo rather than risk competing with one’s self or making a big bet on that new technology or innovative business model that is ultimately used against them by an upstart competitor.

Frankly, if your inability or unwillingness to act on saving your brand is rooted in fear, don’t hire McKinsey or Bain (or me for that matter) to help you with your strategy. My advice would be to get yourself a new management team and/or go see a therapist. It’s far cheaper and more likely to work. And do this before your Board figures it out.

Dead brands almost never die by accident. They die by leaders failing to see the signs of terminal illness while there’s still time to save them. And they die by management teams’ inability or unwillingness to take the necessary and decisive action before it’s too late.

Hopefully dead brands walking can be a lesson to us all.

 

 

Sears: The world’s slowest liquidation sale

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

- Cole Sear in The Sixth Sense

There probably was a time when Eddie Lampert honestly believed that Sears and Kmart could be resurrected as competitive retailers. But the concept of putting together a mediocre (and declining) department store, with an also-ran to Walmart and Target, was failed from the start.

In the intervening nine (!!!) years, Lampert has never once articulated a strategy for fundamentally improving the value proposition of either brand that made any sense.

On the contrary, he organized product and business unit teams into “competing” merchandise categories despite overwhelming evidence that consumers wanted more integration, not less. He required that every individual product earn a competitive ROI when every winning retailer on the planet understood the notion of category management and market-basket profitability. He starved both nameplates of capital when each was already woefully behind best-in-class competitors. He cut expenses to the bone when it was clear that both Sears and K-mart had a revenue problem, not a cost problem. He closed dozens of stores, further exacerbating both brands’ lack of critical mass in many markets.

Of late, he’s been pushing two ridiculous notions. The first is the idea that Sears is becoming a “membership” company. Please. This is mostly a transparent customer data grab. The value proposition of “Shop Your Way” is weak and the idea that being a member conveys any real sense of brand loyalty, engagement or fundamental profitability would be laughable if the whole endeavor weren’t so sad.

Crazy Eddie’s other big idea is transforming Sears into an “integrated digital platform.” For this to work you have to believe that Sears can compete effectively with Amazon–not to mention a whole host of leading multi-channel retailers–or that you can somehow win in an omni-channel world with a crappy, declining and shrinking brick and mortar base. Both defy basic logic.

Whether Lampert is delusional or not remains irrelevant. Whether by design or desperation, Sears has been liquidating for years.

Sears can certainly create liquidity for a bit longer by continuing to off load assets. But any realistic hope that Sears can pull out of this dive has, sadly, long since passed.

Dead man walking.

 

 

Maybe it’s a fact

“If you have the same problem for a long time, maybe it’s not a problem.  Maybe it’s a fact.”

-Yitzhak Rabin

“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”

- Talking Heads, “Cross-eyed and Painless”

I’d wager that the vast majority of business failures are rooted in a profound denial of reality.  The demise or persistent flailing of Borders, Blockbuster, Sears–and many other current or future residents of the retail graveyard–stems largely from a lack of awareness and acceptance of the unassailable facts of shifting consumer behavior.

It’s far too easy to dismiss an industry upstart or new technology as a fad or hype, until it’s too late.  It’s common to worry more about protecting your turf rather than embracing a product or service for yourself that you fear “cannabilizes” your core.

Of course this is commonplace in interpersonal relations and communications as well.  I know I can be quick to defend my behavior when I know deep down I’m the one who made the mistake, I’m the one who needs to change.

The next time someone challenges your business or your point of view, maybe your first reaction shouldn’t be to dismiss or defend.

Facts may not do what you want them to.  But that doesn’t make them untrue.  Ignore them at your own peril.

 

The world’s first omni-channel executive

The world’s first omni-channel retail executive was probably me.

In 1999 (not a typo), in a shockingly rare moment of forward thinking and risk taking, Sears’ senior leadership decided to launch an enterprise-wide initiative to glean how e-commerce and digital technology would alter our business model and to design a strategy to meet customer needs “anytime, anywhere, anyway.”

Millions of dollars were allocated, full and part-time resources were assigned from various business and support functions, a big name consulting firm was hired to help with systems integration, governance structures were created, and yours truly was plucked from the relative obscurity of running a small division to become the Vice President of Multi-channel Development & Integration.

Over a 15 month period, our renegade bunch of retail futurists executed a ton of analysis, unearthed scary findings (we had over 200 different 1-800 numbers!), delivered PowerPoint presentations bursting with jargon and coined memorable catch-phrases (my favorite: “silos belong on farms”). We also gained a deep appreciation for the barriers erected by organizations steeped in product and channel-centric thinking and behavior.

Once we wrapped up our work–and having blown through something like $7 million– we couldn’t point to many immediate high ROI recommendations. But our work did lead to an acceleration of investment in sears.com, building systems to create a single view of the customer and the formation of a central CRM group that yielded a lot of actionable customer insight.  We also developed the confidence to make pioneering investments in critical cross-channel capabilities such as ordering on-line and picking up in-store.

Personally I gained a very firm understanding of what is required to design a customer-centric strategy and implement a frictionless, channel-agnostic experience–which I was able to leverage once I moved on to the Neiman Marcus Group and in the years since I’ve been a consultant.

The purpose of this story, however, is not to regale you with my multi-channel bona fides.

The real point is that despite all the recent fervor around omni-channel this and omni-channel that, if you were really paying attention at any time during the past ten years or so, it has been blindingly obvious that digital technology was going to dramatically change the retail customer experience.

If you were really paying attention, you would know that Sears (and others) were publicly discussing the higher spend and engagement rates of multiple channels shoppers as early as 2003.

If you were really paying attention, you would know that companies like Nordstrom have been investing heavily in channel integration technology and processes for nearly a decade.

So if you are just starting to take customer-centricity seriously now–if you are peppering your earnings reports, industry conference presentations and investor meetings with little anecdotes about cross-channel customer behavior and the omni-channel blur as if this all just started happening–all this proves is that you were not paying enough attention years ago.  One has to wonder what other game-changing stuff you are years behind on.

Of course as Seth reminds us: “The best time to start was a while ago. The second best time to start is today.”

Leading through innovation starts first with awareness. Which needs to be followed with acceptance.

It’s a choice what you decide to pay attention to. And it’s a choice to act and to act boldly. Ultimately nothing matters without action.

It’s later than you think.

Understanding your brand’s ecosystem

Your brand, if it has any depth or breadth at all, can be seen as an ecosystem of sorts–an inter-related set of processes, relationships and perceptions that ultimately determine its relevance and health.

When you don’t see your brand as an ecosystem, and neglect to accept how you must co-evolve with your customers while fighting off hostile organisms, you miss emerging problems and nascent opportunities.

Witness Sears. When I joined in 1991, major appliances and home improvement products were king, defining the brand for most consumers and contributing an overwhelming majority of profits. Until Home Depot and Lowe’s emerged as major competitors the ecosystem we played in was a relatively straightforward one. Your appliance breaks, you get a new one. You need to hammer a nail, tighten a screw, cut some wood, we had the Craftsman tool for you.

Of course, the customer was always solution focused: as the old adage goes, you don’t buy a drill because you really want a drill, but because you really want a hole.  When new brands emerged to address a broader set of needs, consumer wants became articulated as home solutions–kitchen remodel, new home construction, DIY projects and the like.  The Sears (and Kenmore and Craftsman) brand needed to evolve as well. But didn’t.

During the nineties we worked hard to improve within our narrowly defined ecosystem (existing product focus, mall-based distribution), rather than see how the ecosystem was evolving. If we had truly understood and accepted the evolution of the ecosystem we had dominated for years, it would have been clear that we HAD to be in the home improvement warehouse business.

You know how this has played out. The fundamentally stronger organisms began to win out. Sears’ failure to participate meaningfully in the evolved ecosystem has doomed them to mediocrity at best; eventual demise in the most likely scenario.

Sears is just one high-profile case, but there are many other brands that have become extinct or largely irrelevant by neglecting to truly understand the ecosystem in which they live. Or die.