Holiday Sales · Retail

Cyber Monday and the world’s easiest retail prediction

There are a lot of things that are hard to know about the future of retail. Predicting that Cyber Monday will set a record is not among them.

One doesn’t need a team of analysts, the latest in machine learning algorithms, IBM Watson or a Ph.D in statistics to come to this conclusion. One just needs to acknowledge that e-commerce has been growing on average about 15% year over year for the last several years.

So while I have not seen a precise breakout, I’m willing to guess that e-commerce set a record just about every day this year–and has done so for many years. It’s been true for the Saturday before Christmas, for Thanksgiving, for Black Friday last year and the year before that and the year before that. And it will be true for this Thursday and next Wednesday. And I’m willing to bet it will be true in 2019 as well.

Whether the specific increase on any given day will vary much from the longer-term trend will largely be a function of the intensity of promotional offers, consumer confidence and the vagaries of weather (which can affect folks’ willingness to go to a store as well as whether seasonal merchandise does unusually well or not). Given this–and without the benefit of any sophisticated tools–my guess is Cyber Monday sales will be up around 20%.  Check in with me tomorrow to see how I did.

Of course whether I or anyone else is mostly right or mostly wrong means just about nothing. There is no news value in the predictions and there is very little strategic import in the actual outcome. Retailers have already ordered their merchandise for the holiday season. A good chunk of staffing and marketing is already decided upon. For the most part, the retailers with winning digital value propositions will run increases better than the averages and the losers will cede relative share. We knew that going into today and we will know it tomorrow.

So the news is not in whether the industry numbers increased 17% or 27%. The news is not in any given retailer’s decision to offer 2 day free shipping or take their discount up to 25% over last year’s 20%. You don’t have to be a retail savant to decide to give margin away. Anyone can engage in a race to the bottom. The sad fact is you can be a pretty boring retailer and still post a decent sales increase on Cyber Monday if you are desperate enough.

No the real news concerns those retailers that are doing what it takes to be more remarkable day in and day out. That aren’t chasing their tails seducing the promiscuous customer. That aren’t continuing to swim in a sea of sameness where the only thing they can do to move the top-line is to give stuff away.

A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here.  

Since the article originally appeared the Cyber Monday specific numbers are in. Sales were up 19.3%. How sales and profits will turn out. Well who knows?

 

Holiday Sales · Retail

The mass hysteria we call ‘Black Friday’

I will admit that I have been more than a little Grinch-like about both Black Friday and its unfortunately named cousin “Cyber Monday” for some time. While it’s an exaggeration to say it’s all much ado about nothing, there are a few inconvenient truths about Black Friday that are worth remembering.

It’s not the biggest shopping day of the year. That will be December 22nd. I promise.

The deals are rarely all that good. Certainly many of the so-called “door busters” offer real savings, but bear in mind the best promotions usually have limited quantities and represent a minute percentage of any given brand’s offering. For the rest of the store discounts are typically better as we approach Christmas or, even more so, in the week after.

It’s less and less important every year. As online shopping continues to grow (my guess is an increase of ~ 16% this holiday season) the brick and mortar contribution piece is contracting. More importantly, in the last several years, many retailers offer discounts in advance of the actual day, and then extend those discounts over the weekend. And of course a lot of retailers are now open on Thanksgiving. This all serves to spread out consumer spending over the days before and after the actual Black Friday.

A great Black Friday (or Cyber Monday) is largely meaningless. Despite all the attention and craziness, for most retailers, less than 5% of total November/December sales occur on Black Friday. Given the heavy discounts the contribution to seasonal gross profits is even less.  Studies over the past decade have also shown that Black Friday success has little correlation with overall holiday performance. So move along, nothing to see here.

It’s far more cultural phenomenon, than useful shopping event. Does it make sense for retailers to extend their shopping hours, incur greater hassle and take a margin hit just to drive sales to this one day? Is it rational for so many consumers to get up super early, wait in massive lines and deal with throngs of people to get the exact same stuff you can get ordering from the comfort of your home only to have it show up hassle free at your home or office a couple of days later? No, we do it because we’ve always done it and because of the self-reinforcing media trap.

Isn’t it ironic? On Thursday, in the US at least, most of us are all grateful and thankful and reflective. On Friday, we push through the tryptophan and carb loading hangover and turn into weapons of massive consumption.

Please don’t tell anybody but one of my dirty little secrets is that despite my alleged “retail influencer” status I haven’t stepped inside a retail store or mall on a Black Friday in many years. It’s caused more than a few people to say “what kind of retail analyst are you anyway?”

My answer is always the same: The sane and serene kind.

A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here.  

I’m honored to have been named one of the top 5 retail voices on LinkedIn.  Thanks to all of you that continue to follow and share my work.

Retail · The 8 Essentials of Remarkable Retail

Nordstrom: No good deeds go unpunished

Nordstrom–not only one of my favorite places to shop but also a brand I regularly feature in my keynotes on remarkable retail–recently reported strong quarterly operating performance and raised its outlook. So, naturally the stock promptly got whacked–and continues to be caught up in the market downdraft. To be sure, a non-recurring $72MM charge related to credit card billing errors does not inspire confidence. But unless this unexpected earnings hit suggests some underlying management issue it indicates nothing about the go-forward health of the business which, from where I sit, looks rather healthy.

It IS a confusing time for shares of most retailers. I’m not talking about JC Penney, Sears or legions of others hopelessly stuck in the boring middle. I’m referring to companies that are not only competitively well positioned but have also recently reported solid sales and earnings. Despite a strong consumer outlook, everyone from Amazon to Walmart to Macy’s to Home Depot to Target seems to be falling out of favor. Some of this is surely part of the broader market correction and lingering tariff concerns. But much of it is more than a bit mystifying.

In Nordstrom’s case, I remain bullish. The company is showing signs of maturity and is hardly immune from the competitive pressures brought on by industry over-building and digital disruption. Barring a wholly new and unexpected major growth initiative, the accessible luxury retailer has few new locations to open and already has a very well developed e-commerce and off-price business. Yet they seem to be executing well on most of my 8 Essentials of Remarkable Retail and that bodes well for the future. Let’s take a closer look.

  1. Digitally-enabled. For more than a decade Nordstrom has not only been building out best-in-class e-commerce capabilities (online sales now account for 30% of total company revenues!), but architecting its customer experience to reflect that the majority of physical stores sales start in a digital channel. Nordstrom complements its already excellent in-store customer service by arming many sales associated with tablets or other mobile devices.
  2. Human-centered. Being “customer-centric” sounds good, but most efforts fall short largely because brands do not actually incorporate empathetic design-thinking into just about everything they do. Nordstrom, like their neighbors up the street, are much closer to customer-obsessed than virtually all of their competition.
  3. Harmonized. This is my reframe of the over-used term “omni-channel.” But unlike the way many retailers have approached all things omni, it’s not about being everywhere, it’s showing up remarkably where it matters. And it’s realizing that customers don’t care about channels and it’s all just commerce. The key is to execute a one brand, many channels strategy where discordant notes in the customer experience are rooted out and the major areas of experiential delight are amplified. Nordstrom scores well on all key dimensions here–and has for some time. Nordstrom was a first mover in deploying buy online pick-up in store (BOPIS) and continues to elevate its capabilities by dedicating (and expanding) in-store service desks, among other points of seamless integration.
  4. Personal. With a newly improved loyalty program, private label credit card business and high e-commerce penetration, Nordstrom has a massive amount of customer data to make everything it does more intensely customer relevant. Its targeted marketing efforts are good and getting better and it has identified implementing “personalization at scale” as a strategic priority. Fine-tuning its one-to-one marketing efforts, introducing more customized products and experiences and further leveraging its personal shopping program represent additional upside opportunities.
  5. Mobile. Recognizing that a smart device is an increasingly common (and important) companion in most customers’s shopping journeys, Nordstrom has been building out its capabilities, including acquiring two leading edge tech companies earlier this year. Its increasingly sophisticated and useful app has helped earn the brand a top ratingin 2018 Gartner L2’s Digital IQ rankings.
  6. Connected. While there are opportunities to participate more actively in the sharing economy, Nordstrom’s overall social game is strong, earning it the leading US department store rating from BrandWatch.
  7. Memorable. While its department store brethren are swimming in a sea of sameness, Nordstrom excels on delivering unique and relevant customer service and product. It continues to strengthen its merchandise game by offering a well-curated range of price points across multiple formats. This offering is increasingly differentiated–either because the brands are exclusive to Nordstrom or are in limited distribution. Nordstrom’s plan to up the penetration of “preferred”, “emerging” and “owned” brands strengthens the brand’s uniqueness and should provide improved margin opportunities.
  8. Radical. Nordstrom is not quite Amazon-like in its commitment to a culture of experimentation and willingness to fail forward, but they have placed some pretty big equity bets in fast-growing brands like HauteLook, Bonobos and Trunk Club (whoops), in addition to being one of the first traditional retailers to launch an innovation lab (since absorbed back into the company). They are constantly trying new things online and in-store. Most interesting are their new Local concepts  Unlike some competitors who are trying smaller format stores mostly by editing out products and/or whole categories, Local is a completely re-conceptualized format emphasizing services and convenience. These stores have the potential to be materially additive to market share on a trade-area by trade-area basis.

As mentioned at the outset, Nordstrom is a comparatively mature brand with limited major growth pathways. But to view the company from the lens that is weighing on most “traditional” retailers does not appreciate the degree to which the company has outstanding real estate (~95% of full-line stores are in “A” malls), one of the few materially profitable and superbly-integrated digital businesses, strong customer loyalty and important differentiators in customer service and merchandise offerings. Moreover, most of its out-sized capital investments (including expansion into Canada and NYC) will soon be behind it.

Nordstrom will never have the upside that Amazon (or even TJX) has. But it is one of the best positioned, well-executed retailers on the planet. I don’t expect that to change any time soon.

Maybe it’s time for a little bit more respect?

A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here.  

I’m honored to have been named one of the top 5 retail voices on LinkedIn.  Thanks to all of you that continue to follow and share my work.

A really bad time to be boring · Retail · Store closings

The critical question for struggling retailers: Too much store or not enough brand?

I suspect hardly anyone is surprised when an ailing retailer announces plans to shutter locations en masse. Across the last several years we’ve seen dozens of once mighty chains close hundreds of stores in hopes of staving off a trip to the retail graveyard.

Last week, having already closed some 120 stores in a bid to shrink to prosperity, Macy’s announced that it plans to eventually reduce the size of many of its under-performing stores. These “neighborhood stores” (four of which are currently being tested) will also undergo merchandising and service changes. In a Wall Street Journal article discussing the new strategy I was quoted as saying ““If you’ve got too much space, it means your brand isn’t resonating. It’s not a real estate problem, it’s a brand problem.” And while that quotation was a bit out of context and not meant specific to the viability of Macy’s new strategy, I do think it’s critical for retailers to be sure they are working on the right problem. From my experience, more times than not, a massive retrenchment of brick & mortar space is most often an indication of poor customer relevance, not bad real estate.

Of course, this does not mean retailers should not prune store locations and/or look to resize current (or planned future) locations. Clearly real estate decisions, be they specific location or size of footprint, need to reflect today’s consumer and competitive situation. And we know that the United States is, on average, significantly over-stored. We know that some retailers went a bit wild and crazy with store expansion plans in an era of cheap money. We know that the growth of e-commerce can often cause a radical rethink of physical asset deployment. Some store closings and some optimization of space is inevitable for most retailers.

If a consolidation of a retailer’s real estate portfolio, along with a robust digital strategy, results in a more remarkable customer experience that, in turn, leads to growing customer value then the strategy may well be sound. But this is rarely the case. Usually the shrinking to prosperity strategy is driven by a lack of physical store sales productivity which has been caused by losing market share to competitors with a better value proposition. So–at least in theory–you can improve productivity metrics by reducing the denominator. But that presumes that sales (the numerator) are at least stable. And the track record on that is poor. Show me a list of retailers that have cut their square footage massively in recent years and you’ve pretty much got a list of bankrupt or nearly bankrupt brands.

A lot of times Amazon–or e-commerce in general–is cited as the reason that retailers need a lot less square footage. Unfortunately this argument doesn’t hold up all that well. In turns out there are plenty of “traditional” retailers that have winning value propositions that are doing little if anything to the size of their stores. In fact many are opening stores. This is because their value proposition is unique, highly relevant, remarkable and well-harmonized across channels. I very much doubt Apple, Sephora, Costco, Nike, TJX, Neiman Marcus, Nordstrom, among many others, will be announcing major contractions of their physical space anytime soon because their brands are more than big enough for their real estate.

Of course, the impact of e-commerce and shifting consumer preferences affect different categories quite differently, so there is no one size fits all prescription when it comes to any given retailers situation. Having said that, it always gives me pause when a brand that (allegedly) serves a large audience and derives most of its sales from brick & mortar locations discovers it must shut down a store in an otherwise well performing mall or in a trade area that has oodles of other “national” retailers that are not struggling in the least. Again, this suggests the problem is with the brand, not the location.

For Macy’s in particular, their neighborhood store strategy may well turn out to be value enhancing. Time will tell. But in some ways it is akin to admitting defeat in those trade areas unless other aspects of their overall digital strategy lead to meaningful market share growth.

When retailers get into trouble the easy thing to do is cut costs. Most struggling retailers have the expense optimization hammer and are always looking for the next nail. What’s harder, but ultimately far more important, is to become truly customer-obsessed and to invest behind being more remarkable than the competition. Until that happens, whether we are talking about Sears, JC Penney, Dillard’s, Kohl’s, Macy’s or any other brand that remains largely stuck in the boring middle, shrinking is not going to be the answer.

A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here.  

I’m honored to have been named one of the top 5 retail voices on LinkedIn.  Thanks to all of you that continue to follow and share my work.

e-commerce · Embrace the blur · Retail

Pure-play e-commerce’s scaling woes continue

Just a couple of years ago the conventional wisdom was that e-commerce was going to wreak havoc with every aspect of physical retail. This “e-commerce will eat the world” hypothesis continues to drive the “retail apocalypse” nonsense. It has even caused some normally level-headed analysts (and some maybe not so much) to suggest that brick & mortar stores will cease to exist within 10 – 20 years. I’ll take the over on that bet.

As it turns out lots of folks still like to shop in stores, including–and I hope you are sitting down for this–millennials! It also turns out that many retail categories do not lend themselves to high (or even meaningful) online shopping penetration. But there is another reason that e-commerce is not going to get to 100%, much less 40%, market share any time soon: the economic are often terrible. And while Amazon is leveraging its massive scale and expertise to improve its anemic profit margins, for some high profile disruptive brands the profit challenges are only getting worse.

Earlier this year I wrote about pure-play e-commerce’s scaling problems calling attention to what I saw as the increasingly questionable economics of Wayfair, Stitch Fix and Blue Apron, among others. Quite a few folks challenged my conclusions, much as the excellent work by Peter Fader and Dan McCarthy on similar topics has attracted its share of critics. Aside from being called a Luddite and being told to do some anatomically impossible things, it was suggested that I failed to appreciate how these brands would soon realize the fruits of their massive investments in technology, customer acquisition and “brand” and start to make it rain (okay that’s my wording not theirs).

As luck would have it, we now have some updated facts (author’s note: historians believe data and objective truth were once important to drawing conclusions on any particular object of discourse). Wayfair reported its quarterly earnings just last week and, once again, sales were way up. And once again losses widened. They are now deep into what I refer to as their ruh-roh moment as customer acquisition costs have grown to a staggering $196. They are fast becoming the poster child for profitless prosperity (though I imagine Uber and WeWork might get jealous of that appellation).

Luxury marketplace Farfetch just went public, so we now have visibility into their economics. Their story is much like Wayfair’s. Booming sales, worsening profits and less than stellar marginal customer acquisition economics. Zalando, the Germany based online business, is also public and their latest earnings show great sales growth and deteriorating profits as well. Revolve has filed for an IPO and its financials reveal strong sales growth, little movement on profitability and some truly scary stats on high rates of returns. Coincidence, or an underlying business model issue?

The picture at Stitch Fix and Blue Apron is a bit murkier, but still points to the difficulty in scaling online only businesses. Stitch Fix continues to enjoy solid growth and is marginally profitable, but its growth trajectory is slowing markedly. For Blue Apron, they just reported another terrible quarter. The stock has cratered this year as the meal-kit brand attempts to rein in spiraling costs has resulted in significant customer defections and worsening customer acquisition. And this speaks to an underlying dilemma. These brands could stop investing in customers that have little or no chance of every being profitable, but then their sales growth would go from wow to tepid.

To be fair, there are a few online only brands that are scaling successfully. YNAP, which was acquired by Richemont earlier this year, is a case in point. The luxury e-tailer formed by the merger of Yoox and Net-a-porter is solidly profitable and continues to grow nicely, albeit now barely above the industry’s overall e-commerce growth rate. With much higher than average order size and customer lifetime value they are largely immune from the factors that hamstring or sink other pure-plays (high marginal fulfillment and customer acquisition costs).

As the majority of pure-play brands are private, we don’t much about their profitability. But anecdotally we know that some of the most high profile disruptive brands continue to post big losses. We know that several that were burning tons of cash were bailed out by Walmart. We know that one of the first things HBC’s new CEO did was sell off Gilt. Most importantly, we know that just about every digitally native brand is now opening physical stores. We also know that many of these brands are now seeing the majority of their marginal growth come from their brick & mortar locations. And we can suspect that when many of them leave the ranks of pure-plays their marginal economics get better–often dramatically so.

I will not be so bold as to say there will be no such thing as a profitable online only brand of any real size in a few years time. I am, however, confident that we will see several notable collapses within the next 12-18 months and that the real action in digital commerce will continue to be in the blurring of the lines between channels, not the growth of e-commerce at the expense of brick & mortar.

A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here.  

I’m honored to have been named one of the top 5 retail voices on LinkedIn.  Thanks to all of you that continue to follow and share my work.

Retail

Are private brands key to beating Amazon?

As Amazon continues to steal significant market share in most product categories, many retailers find themselves on their heels desperately seeking an antidote to the online behemoth’s growing dominance. Investing in the long tail, improving web site performance and reducing shipping time and pricing are tactics being pursued to neutralize the threat. More recently, though, quite a few retailers are upping their private brand game.

Store “owned” brands are hardly new. More than a century ago leading department stores began selling products under their own labels. In the decades that followed retailer exclusive offerings expanded, with most positioned as low price alternatives to more expensive national brands. Things even got pushed to the extreme during the generic product craze of the early 80’s, which readers of a certain age will undoubtedly remember–and some of us have tried to forget.

Over time, however, some companies augmented their strategy by creating brands that were meant to be distinctive in their own right and no longer positioned at the low end of a retailer’s product portfolio. This is really the key distinction between a private label–which has little consumer recognition and loyalty–and a private brand.  Historically Sears was probably the most successful with this approach, launching brands like Kenmore, Craftsman, Weatherbeater and DieHard, all of which garnered significant national market share. Supermarkets also got on this bandwagon as did most other major department stores like Macy’s, Bloomingdales and Nordstrom. In more recent years, Costco and Trader Joe’s have experienced tremendous success with their own private brands.

Given their lower cost structure versus comparable national brands, a robust private brand offers the opportunity to materially improve gross margins. Yet being consistently good at delivering compelling product requires significant investment in design and sourcing talent. When done right, private brands offer more differentiated assortments and better profits. Done poorly, a retailer’s merchandising strategy can quickly lose competitive relevance and markdowns can become excessive, as Kohl’s discovered a few years back.

So the underlying rationale for a sound private brand strategy is clear. What’s newer, however, for some major retailers is using private brands to help “Amazon-proof” their assortments. Here the benefit is clear as well. If a brand can only be found at one retailer, then it’s impossible to price shop for a better deal for that product at Amazon–or any other retailer for that matter. Obviously consumers can still try to comparison shop for a similar product but the trade-offs are harder to understand.

For these reasons brands as diverse as TargetSaks Off 5thJC Penney and Tractor Supply Company continue to strengthen their owned brand game. Nordstrom is increasingly emphasizing “strategic brands”–which include both private brands and semi-exclusive or limited distribution brands–as a core part of its growth and margin expansion strategy. Brandless, a relatively new website that recently raised $240 million in venture capital earlier this year, pretends not to be a brand while building a rich portfolio of proprietary products all under the same, er, name. Whatever you call it, strategically it’s a different variation of the same theme.

Unsurprisingly Amazon is not standing still. A year ago I predicted that Amazon would significantly increase its commitment to private branding and that definitely appears to be the case. Today Amazon offers more than 80 of its own brands and just this week the company launched two new home decor brands. Some estimates suggest Amazon private brands revenues will be reach $7.5 billion this year. In addition to its growing portfolio, Amazon has the traffic and the data to position its own brands ahead of other brands it carries, as CNBC recently examined. That’s a gift that will keep on giving.

It seems that we are in the early days of the private brand wars. Regardless, it’s extremely likely that private brands will continue gaining relative share in many categories for the foreseeable future. Whether all the investment behind them will meaningfully slow down the Amazon juggernaut is a lot less obvious.

A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here.  

My speaking page has been updated with several new events, including New York, Las Vegas and a return to Melbourne, Australia.

Inspiration · Leadership · Life Lessons

It always comes down to turnout

As the US goes to the polls today, it really doesn’t matter whether one identifies as a Democrat, Republican, Libertarian or whatever. Whether we prefer Beto or Ted, Andrew or Rod, Stacey or Brian means precisely nothing if we don’t go vote.

It turns out that our strongly held beliefs and eloquently worded arguments on social media are just so much you-know-what if we never get out of the stands and into the arena.

It turns out that even with something as mundane as our shopping intentions, if we don’t traffic the retailer’s store or website the retailer has no chance of selling us anything. No traffic, no sale.

It turns out that in the face of devastating tragedy all of our expressions of “thoughts and prayers” do rather little to change the underlying factors that led to the event in the first place.

It turns out that when someone is suffering, sending a card or flowers is nice, but it’s our showing up for them–in compassion, vulnerability and authenticity–that truly matters.

I’m not at all sure that, as the saying goes, 80% of life is showing up. But I am rather certain that it’s impossible to make a real difference if our thoughts and beliefs never turn into action.

As it turns out, it’s always been about turnout. And those that care show up.

bell

e-commerce · Retail

We’ve created a monster: Retail’s growing returns problem

At the beginning of the year I published “A Baker’s Dozen Of Provocative Retail Predictions For 2018.” In No. 11, I opined that the industry’s problem with returns would soon start to get the attention it deserves. For awhile now I have seen the growing rate of costly product returns as a ticking time bomb—particularly as e-commerce garners greater share. As we’ve gone through this year, stories of retailers tightening their return policiestracking “serial” returners and going after returns fraud have become more common. Last month, Axios joined in the chorus, calling attention to the problem of e-commerce returns in particular. Unfortunately, despite greater awareness, the issue is likely to get worse before it gets better. But eventually something has to give.

Product returns and exchanges have been the nemesis of the direct-to-consumer industry going back to the mail-order catalog days. For products that are fit and/or fabrication sensitive (think fashion, intimate apparel, shoes) returns often exceed 30%, and rates north of 40% are not unheard of. Back in the good old days, while high return rates were definitely an area of concern, the fact that the customer often paid “shipping & handling” costs helped soften the damage to the bottom line. In fact, for some brands, shipping & handling was actually a profit center.

Today? Well, not so much.

More and more free shipping is becoming the norm. Many “disruptive” brands have made free shipping “both ways” an intrinsic part of their business model. And as the holiday season approaches we are about to enter a period where free shipping offers will practically be tables stakes. In fact, Target has already announced that it will offer free two-day shipping beginning November 1. None of this bodes well for turning the tide on returns.

As is so often the case, Amazon remains the 800-pound gorilla here, particularly as free shipping is core to the Prime value proposition. And while Amazon charges for this privilege, its total fulfillment costs continue to grow as a percent of sales. While the company does not share much detail about the underlying drivers of this escalation, it’s hard to imagine that product returns are not a key contributor.

Some argue that fast, easy and inexpensive returns are all just part of being customer-centric or staying competitive. And certainly that is true. Yet it’s also true that the growing problems are largely self-inflicted and, in many cases, distorted by the increasing popularity of e-commerce. Online shopping can be incredibly convenient. At the same time it’s next to impossible for most consumers to be sure of fit, color accuracy, product quality, etc. sight unseen. So given there is no additional direct cost, it’s not surprising that many customers buy 2, 3 or 4 of the same item in different colors and/or sizes, fully expecting to return all the rest for credit. In the quest to be customer-friendly many companies have radically changed their cost structure. And not in a good way. We have met the enemy and he is us.

In “normal times”—and for any number of reasons it’s clear these are far from normal times—such liberal and wildly unprofitable practices would have long been tamed by market forces. But as many investors have been willing to value growth over profit, the consumer has seen a huge benefit, while many brands continue to see their margins shrink.

Confronted with this reality, smart retailers are not only refining their policies and adjusting their pricing, but also turning to new technology and/or partners like Happy ReturnsOptoro (which raised $75 million earlier this year) and others that seek to help brands deal more effectively with this rising tide. At some level, returns and exchanges are simply an inherent part of the retail business. Seeking to make the best of a necessary, but costly, part of the retail equation is eminently sensible.

Real progress on reducing the overall incidence of returns, however, must focus on the root causes. Many retailers have made significant progress on reducing returns due to product damage, shipping errors and the like. Taming the monster of returns that have nothing to do with delivery quality, and everything to do with intentional customer decisions, is far more vexing.

A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here.  

November 8th I will be doing the opening keynote eRetailerSummit in Chicago. For more info on my speaking and workshops go here. 

Collapse of the middle · Embrace the blur · Retail

Strange bedfellows? Legacy retailer and disruptive brand partnerships are on the rise.

As the middle continues to collapse—and many well established retailers struggle to move from boring to remarkable—brands must continually seek new ways to become unique, more intensely relevant and truly memorable. One strategy that seems to be picking up steam involves so-called digitally native brands creating alliances with much larger legacy retail companies. Earlier this month, as just one example, Walgreen’s announced a partnership with fast growing online beauty brand Birchbox. An initial pilot will feature a Birchbox offering in 11 Walgreen stores.

The Walgreen’s and Birchbox deal is only the most recent of many business marriages forged in recent years. Target has been especially forward leaning, expanding its assortments via industry disruptors Casper (mattresses), Quip (ultrasonic toothbrushes) and Harry’s (razorblades), among more than a half dozen others. Nordstrom has been active as well, having added (and invested in) Bonobo’s (menswear) way back in 2012. More recently, it has augmented its offering with Reformation (women’s clothing) and Allbirds (shoes). Earlier this year Macy’s invested in and expanded the number of stores featuring b8ta’s store-within-a store concept and Blue Apron began testing distribution through Costco.

I first came to understand the potential power of these alliances when I worked on Sears’ 2002 acquisition of Lands’ End. While the roll-out of Lands’ End products at Sears was horribly botched (and hindered by Sears’ bigger problems), the strategic motivations are easy to grasp. For Sears, struggling to offer powerfully customer relevant brands that weren’t widely distributed at competing retailers, Land’s End held the promise of providing product differentiation, an image upgrade and acquiring new apparel shoppers. For Lands’ End, gaining access to hundreds of Sears stores provided substantially broadened customer reach, lower customer acquisition cost and improved product return rates. Importantly, Lands’ End management knew the biggest barrier to growing its customer base was making it easy for potential customers to experience the product in person—something only physical stores could help deliver. The Sears deal addressed this issue rapidly and at dramatically lower incremental capital investment.

More than 15 years later, the rationale for retailers with a large brick-and-mortar footprint and newer D2C brands to hook up is only stronger. In a world where consumers have nearly infinite product choices and it’s quite easy to shop on the basis of price, it’s never been more important for retailers to differentiate their assortments. Private brands (not “labels”) are one critically important element. Exclusive (or narrowly) distributed products is the other. Not only do these alliances present brands that are largely unique at retail, they can help boost a legacy brand’s overall image, attract new customers and drive incremental traffic.

For many fast-growing digitally native brands the appeal of such partnerships is compelling as well. While many of these brands are opening their own stores, some have used these partnership to test the waters prior to embarking on their own brick-and-mortar strategy. Some use wholesale distribution to drive incremental business in markets where their own stores won’t work. Others (Quip and Harry’s are prime examples) can expand their consumer reach when an owned store strategy simply won’t make sense given their particularly narrow products lines. The opportunity to dramatically expand customer awareness and trial with very little incremental marketing or capital investment is especially attractive.

Of course traditional retail and digitally native brands alike must be quite intentional about how strategic alliances advance their long-term goals. Yet done for the right reason and executed well, these partnerships can address real pain points for each and help accelerate growth. As Amazon continues to gobble up market share—and more and more tools are introduced to help consumers compare product features and prices from any and all retailers—retail brands will face increasing pressure to find meaningful and memorable points of differentiation. And, as the broader market is finally starting to accept, few disruptive direct-to-consumer brands can scale profitability without a material brick-and-mortar presence.

Seen in this light, the rise in these partnership is far from strange. Indeed, they often are quite logical. Which is why we are likely to see quite a few more in the very near future.

A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here.  

November 8th I’ll kick of the eRetailerSummit in Chicago. For more info on my speaking and workshops go here. 

Embrace the blur · Harmonized · Retail

Retail’s ‘halo effect’: New stores boost a brand’s website traffic by 37%, study finds

One of the recurring themes in my consulting, writing and speaking is that the distinction between online and physical shopping is increasingly a distinction without a difference. The key for most brands is to deploy a well harmonized, one brand, many channels strategy and to embrace the blur. Central to this notion is realizing that a physical store often serves as the hub of a brand’s ecosystem and that brick-and-mortar stores help drive e-commerce sales—and vice versa. While I’ve come to believe this through many years of direct experience, a just released study from the International Council of Shopping Centers sheds a lot more light on the subject.

One of the key findings in the report—which is based on a sample of more than 800 retailers and 4,000 consumers—is the so-called “halo effect.” It turns out that when a retailer opens a new store, on average, that brand’s website traffic increases by 37%, relative share of web traffic goes up by 27% and the retailer’s overall brand image is enhanced. This impact is even more pronounced for newer, digitally native vertical brands. Conversely, when a retailer closes a store, web traffic typically takes a big hit.

None of this is all that surprising. Established brands that started as mail order only but eventually expanded into their own stores—think Williams-Sonoma, REI, J. Crew—have recognized and benefitted from this insight for decades. For any retailer, but especially for direct-t0-consumer brands, a physical presence serves as marketing for the brand whether the customer ultimately chooses to transact physically or online. Brick-and-mortar stores also offer the opportunity for consumers to demo or try on products, talk to a salesperson and/or get a better sense for the price/value relationship, all of which improve conversion. Importantly, particularly for newer brands trying to profitably scale, customer acquisition costs can be lower in a physical store and product returns are typically lower—often dramatically.

While it’s taken the industry a while to understand the powerful symbiotic role that exists between a compelling physical and digital presence, the evidence keeps building. One clear sign is that digitally native brands, many of which have already opened dozens of stores, have plans to open more than 850 physical locations in the coming years. Warby Parker was one of the first disruptive retailers to understand the complementarity of digital and physical shopping. The pioneering eyewear brand will soon have more than 100 brick-and-mortar locations and already derives more than half its revenues from its physical stores.

We’re also seeing what some refer to as the “billboarding” of retail or, as retail futurist Doug Stephens refers to it, viewing stores as media. In these instances physical locations serve primarily to promote a brand rather than sell products in store. B8ta and Story are good examples of this. As this phenomenon expands, retail will require new metrics as traditional measures of sales productivity and same store sales become less relevant.

Understanding the critical relationship between a brand’s physical and digital presence is also essential to store closings and/or store downsizing decisions. Viewed from a channel-centric lens, many retailers will convince themselves that they need many fewer stores and that the stores they keep (or they intend to open) can be meaningfully smaller as more business moves online. Yet viewed from a holistic customer perspective it’s easy to see how this siloed thinking can backfire. Recognizing this, a number of retail CEOs have wisely resisted Wall Street’s pressure to close more stores because they understand how damaging such a move could be.

I’m hardly the first person to challenge the retail apocalypse narrative or to suggest that physical retail is definitely different, but far from dead. And the collapse of the middle continues to push retailers to become more intensely customer relevant. The move away from mediocre and boring requires making physical stores more unique and memorable. Yet without understanding the interplay between the customers’ digital and physical experience, how this gets executed can be quite different. The more a brand understands the overall customer journey and the role that all elements of the experience play—digital and analog—the better prepared they are to become remarkable.

Regardless, one thing is quite clear. The death of the physical store is greatly exaggerated.

A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here.  

November 8th I’ll kick of the eRetailerSummit in Chicago. For more info on my speaking and workshops go here.