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.


Creating meaning at scale

In case you haven’t noticed, there is a whole lot of bifurcation going on. And in many markets, the middle is all but collapsing.


At one end are the Walmart’s, the Home Depot’s, the Amazon’s–the low price, vast assortment guys. Their pitch is easy to understand. We have just about everything you could possibly want, virtually anytime you want it, at the low, low price. Operationally this is incredibly difficult to scale. But from the customer’s perspective, it couldn’t be more simple to grasp. Dominance and value (defined by price) creates meaning.

At the other end of the spectrum are the brands built around market niches, product differentiation and the somewhat intangible “brand personality.” What defines meaningfulness here is built on deep customer insight, emotional connection and, more and more, the ability to treat different customers differently.

Historically, luxury brands thrived by merchandising exclusive products in spectacular settings delivered face-to-face by well-trained sales associates. To the extent companies could replicate this model as they added stores, they could continue to create meaning and deliver it at scale. Yet, as all things digital become increasingly important, the notion of what constitutes a meaningful one-to-one “luxury” relationship is being challenged.

The best specialty stores have succeeded by curating merchandise for a particular “lifestyle” and presenting it in a distinctive environment that reinforced a unique brand image. These companies created a business model that was simple to replicate and led to the ubiquity of many of these brands in affluent malls and upscale shopping areas of most major cities. Now, with product choice and availability exploding and new micro-niche brands emerging online, the concept of “specialty” is being redefined.

The hyper-growth, venture-backed “pure-play” brands that have launched over the past few years–think Gilt, Bonobos, Warby Parker–found it comparatively easy to scale at first. They exploited many of the advantages of a direct-to-consumer model and employed low-cost acquisition techniques to build an initial base of customers–what I like to call the obsessive core.

But it turns out that creating meaning at the scale that will lead to profitability isn’t so easy (or economically viable). Too many newer customers of these high-flying brands have started to equate meaning with discounts. Others, it turns out rather predictably, need the meaning that comes from a physical presence to derive theirs. Many see this hybrid-model as an exciting new area of growth. Others see it as clear evidence that most e-commerce only brands are finding it very difficult to deliver meaning at scale.

In an anything, anytime, anywhere, anyway world, it’s getting harder and harder to break through the clutter, to win the battle for share of attention, to create the all essential meaning that matters for customers.

If you seem to be stuck in a sea of sameness, selling average products to average people, relentlessly promoting just to stay even, it’s time to get off the bridge. The collapse is near.

If your customer is choosing you mostly on price, you had better be the low-cost provider. Otherwise you will lose the inevitable race to the bottom.

If you believe you have the ability to be meaningful to a well-defined set of customers who choose you over the competition for specific, sustainable reasons, good on you.

Just remember, as Bernadette reminds us, it’s not so easy to create meaning at scale, particularly if you need that scale to stay in business.

The discount ring

I’m amazed that Wall Street analysts are “surprised” that as hot brands get bigger (think Michael Kors, kate spade), their level of discounting increases. Apparently they were all sleeping during their first year economics course when supply and demand was covered.







Whether it’s Walmart or Chanel, at the center of any brand’s customer bullseye will be customers who don’t need a discount (or any extra incentive) to buy. This is what I referred to in my recent obsessive core post. As we move out in the rings, away from the center, we encounter customer segments that are less and less intrinsically loyal and thus more in need of extra incentives to buy.

Since Walmart’s value proposition is largely about price–whereas Chanel’s rests on a high percentage of full-price selling–the composition and dynamics of these various customer segment rings will obviously be quite different. But the fact remains that as a brand grows by casting a wider net for customers it will, at some point, develop a discount ring.

As the name implies, customers in the discount ring don’t buy unless they get a deal. In fact, most brands will have multiple discount rings. There will be a ring that needs only minor or modest incentives to pull the trigger. Others only come off the sidelines when prices hit a much deeper level of markdown (or some other incentive).

Unless we are examining a brand that has decided strategically to shun price discounting completely–or assessing certain companies early in their life-cycle–the existence (and relative growth) of a discount ring should surprise no decent analyst.

The real question for anyone trying to understand the validity of a brand’s long-term customer growth strategy is whether the company has a firm grasp of the dynamics within each of these rings and is intelligently balancing the portfolio of these different customer segments.

Coach is a brand that in recent years lost its grip on its customer portfolio and pushed too far on the discount ring. They have paid a steep price and are now trying to rebalance.

In Michael Kors’ case, there are only so many customers willing to pay at or close to full-price for their core offering. Sustaining growth means appealing to more customers. And that means they will need to become more reliant on more price sensitive customers.

Ultimately the point at which the discount ring becomes meaningful is mostly a matter of brand maturity and math. If you get shocked by that it just means you’re not paying attention.

The starting point–the pivotal matter of strategy and intelligent customer development–is to build a level of deep insight about each relevant customer segment. Then we must become intentional about how each plays into the brand’s long-term growth. Having a discount ring emerge is not automatically a matter of good or bad. How it plays out over time is a strategic choice.

Choose wisely.

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.



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.



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.

Where everybody knows your name. The “new shopkeepers.”

More and more the retail world is bifurcating.

At one end of the spectrum, you have the high-efficiency players. Great prices, endless assortments, super convenience, built for speed. Amazon, Walmart, iTunes, Home Depot. You get the picture.

While each go about it slightly differently, their world is mostly a mass market one. Customer segmentation means little. For all intents and purposes, you shop there anonymously.

At the other end of the spectrum are what I like to call the “new shopkeepers.” In the (good?) old days retail was characterized by owner-run, single location, small specialty shops. The butcher, the baker, the candle-stick maker. No CRM system was needed because the shopkeeper knew you, knew what you liked and she tailored her assortment and experience to you and her other like-minded customers.

We know that very few of these old-timey shopkeepers are around any more. But the new shopkeepers embrace the fundamental principles of old. Deep customer insight. Remarkable experiences. Relationships, not transactions. They treat different customers differently. They know your name.

Your mission–if you choose to accept it–is to pick a lane. Too many retailers straddle the line, trying to be something for everyone and ultimately being totally unremarkable and eventually irrelevant.

If you can’t out-Amazon Amazon–I’m looking at you Best Buy!–you had better move strongly to the other end of the continuum. You had better embrace all things customer-centric.

I’d get started if I were you. You have a lot of names to learn.