Being Remarkable · Innovation · Retail

Macy’s: After Big Earnings Whiff, Here’s What It Needs To Do

Last week Macy’s missed its revenue and earnings forecast for the first quarter, sending its shares tumbling.

While the talk of a retail apocalypse is just so much hype, the intense waves of digital disruption and shifting consumer preferences assure that the future of retail–and the impact on many large and lumbering players like Macy’s–will not be evenly distributed.

We now live in a digital-first world where the line between brick & mortar sales and e-commerce is mostly a distinction without a difference. Fellow retail analyst Doug Stephens describes this new landscape as “phygital.” But whatever you label it, the consumer’s path to purchase has changed substantially–and with it the role of the store. And, increasingly, same-store sales are a largely irrelevant metric.

Nevertheless, the continuing overall poor performance of Macy’s is concerning and underscores the problems faced by many legacy brands. To get back on track, Macy’s needs to aggressively address several fundamental problems.

  • Eschew the sea of sameness. Macy’s, like so many other retailers, picked a really bad time to be so boring. Redundant, repetitive and fundamentally uninteresting product has become the norm. If customers don’t have a compelling reason (other than price) to traffic either their website or store, Macy’s will continue to hemorrhage market share.
  • It’s the experience stupid! Having remarkable and relevant products is critically important and a necessary foundation, but it’s hardly sufficient. If Macy’s continues to provide me-too visual presentation, marketing that is indistinguishable from every other department store and lackluster customer service they will continue to make price the deciding factor for most consumers.
  • Omni-channel is dead, at least in the way many have been pursuing it. Macy’s spent a lot of time and money trying to be all things to all people. Channel ubiquity with continued mediocrity is pointless. All retailers need to think about how to best harmonize and simplify the shopping across the moments of truth that matter the most for customers. Otherwise we’re just spending a lot of money to move customers between channels, not gaining relevance, share of wallet and profits.
  • Strategically re-imagine the store and the store footprint. Analysts are going to keep pushing Macy’s to close stores. And to be sure, shrinking of both store counts and store size is probably required. But the reason this is even a talking point has much more to do with the weakness of Macy’s value proposition, not their sheer number of stores. Online helps stores and stores help online. Period. Mediocre retailers that close a lot of stores are likely starting a downward spiral from which they will never return. The key is to understand the store as the hub of an ecosystem for the brand, not an asset to be merely fine-tuned for productivity. Focus on being remarkable instead of mediocre and focus on how stores strategically drive online (and vice versa) and the store closing discussion recedes into the background.
  • Don’t start a price war. With pricing pressures from Amazon, outlet stores and all the off-price players there might be a tendency to get overly focused on pricing. But don’t forget, the problem with a price war is you might win.
  • Become a testing machine. It’s easy to blame Amazon for the troubles facing the industry. But by far the biggest reason retailers are in trouble is their abject failure to innovate. Every retailer needs an R&D budget and every retailer needs to test, fail and test again. Retailers were too scared to fail and now their failing because of it. As Seth reminds us “if failure is not an option, than neither is success.”

Of course all of this is more easily said than done, particularly as Wall Street pushes for short-term fixes and Amazon continues to lower its thin margin hammer on most sectors of retail. Yet it’s hard to escape the fact that more of the same at Macy’s will only yield more of the same.

What Macy’s needs is a lot more innovation.

What investors need is just a bit more patience.

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

Being Remarkable · Innovation · Retail

Retailers picked a really bad time to be so boring

Perhaps you’ve noticed that things are pretty tough across the retail industry these days?

Competition has never been more fierce. Average unit retail prices are getting compressed, putting ever greater downward pressure on margins. Retailers and developers that overbuilt for years are at long last facing a reckoning. Radical transparency and ease of anytime, anywhere, anyway shopping are hammering those that have failed to innovate and differentiate.

Of course, not so long ago retail brands could get away peddling average products for average people. There was a time when retailers and the brands they sold held most of the cards. There was a time when rapid industry growth could smooth over patches of mediocrity. There was a time when being just a little bit interesting could win the customer’s attention and give retailers a good shot at making the sale.

That time is over. Forever.

Now the customer is very much in charge. Now largely stagnant markets require brands to steal share to have any chance of material top line growth. Now much of retail is drowning in a sea of sameness. Now the consumer is overwhelmed by choices and the battle for share of attention is only won by the weird, the intensely relevant, the remarkable.

And yet….

And yet when entrepreneurs chased force multiplication effectiveness, many legacy brands chose to focus on incremental efficiency gains. While innovative start-ups took risks, the big retailers mostly hunkered down. As a wave of profound change was rippling through the industry, many just decided to watch and study and analyze. But mostly watch. When venture capital was piling into the bold and interesting, much of mainstream retail remained decidedly dull.

There is no shortage of unique, impactful and useful innovations that have emerged from the new age of digital disruption. It’s just that so little of it has come from traditional retailers. At precisely the time that so many retailers desperately need innovation, their cupboards are woefully bare. Confronted by me-too marketing, look-a-like stores, repetitive products and shoddy customer experiences, so many once-proud brands still have next to nothing new, differentiated and exciting to offer.

Today you can take the name off the door and Staples, Office Depot and Office Max are virtually indistinguishable. Same for Macy’s and Dillard’s, Lowe’s and Home Depot. And on and on.

The danger of death by years of inaction, thousands of tiny compromises and clinging to the false notion that a company can shrink to prosperity is now very real. Half measures have availed them nothing. Taking so few risks has turned out to be the riskiest thing retailers could have possibly chosen.

In fact, it’s hard to imagine a worse time to be so boring.

And, ironically, many of these retailers are about to experience a lot of excitement. Just not the fun kind.

Now isn’t that special?

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

Innovation

The future of retail will not be evenly distributed

If you follow retail at all you’ve no doubt read multiple recent stories claiming that we are in the midst of a “retail apocalypse.” Like Chicken Little, these journalists and pundits see the sky falling on physical stores and a veritable tsunami of store closings, mall foreclosures and bankruptcies. I imagine they also expect a plague of locusts to descend upon us at any minute, as darkness covers the land.

Of course, this is all nonsense. The reports of traditional retail’s death are, to paraphrase Mark Twain, “greatly exaggerated”–as several of my esteemed colleagues have rightly pointed out. Barring an asteroid hitting Earth, the vast majority of retail will still be done in brick & mortar stores for a long, long time. Most of the major retail brands we know and love will remain household names. Hundred of regional malls will not only survive but continue to do quite well, thank you.

While the disaster scenarios are fake news, one can’t be too sanguine either. Yet, at the other end of the spectrum, we now have an emerging cadre of apocalypse deniers, who counter the claims of the alarmists with their own equally false narrative. Let’s take a look at their most common arguments.

Retail is still growing. This is true, but very misleading. First, the tepid growth in physical retail is not keeping pace with inflation, contributing to a profit squeeze for most players. Second, the main thing that nudges the number into the positive is the concentrated out-sized growth in a few categories, most notably off-price and dollar stores. So the growth in retail is good for a few–and pretty much sucks for everyone else.

Overbuilding of stores is causing a one-time correction. I’d rate this one “true-ish.” The US has been over-stored and over-malled for more than a decade and eventually, the bubble had to burst. But the rationalization and consolidation of commercial real estate go beyond a mere correction, however deep. We are witnessing a fundamental re-structuring of both the number of retail locations and the size and configuration of those boxes. Certainly, a big whack to the stores counts of flagging retailers was (and remains) overdue. And I do expect that the pace of store closings will subside substantially after the first quarter of next year. But anyone who doesn’t see the profound shift is missing the big picture.

Besides lots of new stores are opening. Yes, and this is one of the reasons that physical retail is far from extinct. But–and it’s a big but–while thousands of new stores are opening, they are, almost across the board, much smaller footprints than the stores being shuttered AND they are typically located in very different types of real estate. Hundreds of TJ Maxx and Dollar General stores don’t come close to offsetting the impact of hundreds of Sears, J.C. Penney and Macy’s closings. And while the store openings of  “disruptors” like Bonobos and Warby Parker get a lot of press, not only are their stores tiny, they are very likely to slow their pace substantially unless they can begin to demonstrate profitability.

Malls and retailers are re-inventing themselves with an emphasis on experience. Without question, the most successful malls are reformatting, adding restaurants, theaters, hot specialty formats and other experiential elements to differentiate themselves and drive foot traffic. The problem is bulldozing a mall anchor and/or replacing failed retail tenants with a steak house, juice bar or art show may be smart business for the developer, but it doesn’t necessarily help the retailers that are struggling. As far as retailers themselves, yes, a few are investing in experiential improvements, but for every cool Nike or Apple store there are dozens of retailers that haven’t invested a bit in innovation (or have limited themselves to some gimmicky shiny object that has an immaterial impact on customer relevancy).

The issue is that the future of retail will not be evenly distributed. Far from it.

Even a small shift of spending online (or failure to maintain real growth) can cause a great deleveraging of physical store economics. The closing (or massive re-purposing) of lower quality malls will be highly disruptive to particular major tenants. Online is growing disproportionately, affecting certain categories far more than others. Customers’ continued willingness to trade down and shop for discounts puts greater pressure on retailers with weaker value propositions and poor cost positions. And on and on.

Apocalypse? No.

But the suggestion that most retailers are not seeing their world’s rocked mightily is both misguided and dangerous. Similarly, the blanket notion that the sky is falling on everyone is equally wrong-headed.

Yet the harsh reality is that few retailers will escape unscathed from the seismic changes affecting the industry. Indeed we stand at a precipice. Without radical change and heretofore unseen levels of innovation, many major players are in for a world of hurt.

The clock is ticking. I’d hurry if I were you.

william_ford_gibson

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

Innovation · Leadership

The crushing force of retail insularity

Urban Outfitters is the latest retailer to be called out for the insularity of its board leadership. And rightly so. The lack of diversity, measured on just about every relevant dimension, has been a persistent and intractable issue for many large company boards.

It’s hard to imagine an industry that is more in need of outside, diverse and challenging perspectives than retail. New technology, shifting consumer desires and disruptive business models have been wracking the industry for more than a decade, with the pace of change only seeming to accelerate. We now face profit squeezes, layoffs, store closings and bankruptcies at unprecedented rates.

Yet few of the legacy retail brands being hammered (some to the point of extinction) by these seismic changes have done much, if anything, to bring in Directors with deep knowledge of the changing technology, business model and consumer landscape. I warned about this five years ago, spurred on mostly by noting the appalling lack of relevant expertise on the J.C. Penney board to effectively challenge the reckless “hail Mary” strategy being promulgated by then CEO Ron Johnson. While clearly Penney’s needed to do something bold to get back on track, it should have been obvious how wrong-headed many of the ideas were. A stock that traded around $40 per share when Johnson started now trades at under $6.

The insularity on the part of corporate boards is but one issue plaguing traditional retail. The last two retailers I worked for as a senior executive, as well as many of the consulting clients I have advised, suffer mightily from a culture of insularity that extends beyond board composition. Show me an organization that is losing customer relevance (and resultant market share) and chances are you’ve shown me a company that is inwardly focused on process, budget allocations, cost reduction and intramural warfare between rival internal factions. These brands know appallingly little about the competition and potentially game-changing technology. They lack deep and actionable customer insight. Mostly, they are paralyzed by analysis and unwilling to take the risks that today’s fast-moving retail industry demands.

Extreme insularity within retail organizations is, arguably, the single biggest barrier to a brand making the changes necessary to thrive, must less survive, in what some call the “retail apocalypse.” Providing leadership opportunities (board or otherwise) to folks with diverse backgrounds is, in my mind, a moral imperative. But more than that, it is just smart business. Action must be taken, not just lip service. As Jack Kornfield reminds us: “The trouble is you think you have time.”

urbanoutfitters-storefront

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

Innovation · Leadership

Premature celebration

Imagine the lead runner in a marathon stopping at Mile 6, throwing his arms up in the air, engaging in a series of high fives and a receiving a dousing of champagne.

Imagine your Captain coming over the loudspeaker to welcome you to London while your plane is still over the middle of the Atlantic.

Imagine spiking the football a yard before you’re actually in the end zone.

Imagine a bunch of legislators taking a victory lap for transforming one sixth of the US economy without any impact data and well before a law has actually been passed. Well, I guess that’s not so hard to imagine.

But I digress.

Your cool entrepreneurial concept is not the same as an actual viable business.

My idea for a book is far from a published manuscript. And all those blog drafts I have saved? So what, who cares?

Unless it ships, it might as well not exist.

To be fair, we have to start somewhere. And until we’ve started, we remain stuck in intention, wishes, hopes and dreams. So good on you for launching, for taking that first step, for putting yourself out there.

So, sure, let’s feel good about our progress along the way. Appreciating the journey and enjoying the ride is important. But let’s refrain from declaring victory until we’ve made a real difference in the world.

It turns out, if it’s important, people will remember what you did.

And trust is a very hard thing to win back.

1433837383949431621

 

 

 

Retail

Sears’ March Toward Bankruptcy: Gradually, Then Suddenly

I get the nostalgic love for Sears.

Sears was a pioneer in catalog shopping, the creation of the department store, the boom in suburban regional malls and the advent of powerful private brands. They even sold houses through the mail. Years ago, when I was an executive at Sears, I remember sitting in focus groups and hearing some customers talk glowingly about how Sears was the only company to give them a credit card when they got out of school and how nearly everything they bought for their first home came from Sears. Kenmore. Craftsman. Diehard. All iconic.

I get the disdain for Sears too.

Consumers have suffered through years of mismanagement and, at times, what seemed like episode after episode of willful neglect. Long-term employees have seen their pride turn to embarrassment and sorrow. Investors have endured a roller coaster, with each plunge from the top growing deeper and deeper.

What I don’t get is the wishful thinking.

Despite more than a decade of steady declines in performance, despite the absence of a coherent turnaround strategy, despite the massive operating losses, some investors return to the stock like they might return to a bad love affair. In fact, since the company stated last month it had substantial doubt about its ability to survive, the stock has rallied. And some pundits continue to opine on the various ways Sears could survive as a leaner, meaner version of its storied past. Don’t be fooled.

Since Eddie Lampert still has a few things to sell to raise the mountain of cash necessary to fund ongoing operations, it’s possible he can stave off bankruptcy a bit longer. But make no mistake, the end is in sight.

It turns out that Sears is having a hard time unloading some of its few remaining significant assets, most likely because potential buyers realize their value declines along with Sears fortunes and that they might, in fact, do better in bankruptcy court.

It turns out that Sears has been quietly closing even more stores than they previously announced.

It turns out that the idea that retailers can shrink to prosperity is typically the first sign of a death spiral.

It turns out Sears has been slowly liquidating itself for years. Dead brand walking.

I’d like nothing more than to see Sears survive as a vibrant and sustainable retailer. But, sadly, all the wishful thinking in the world will not change the inevitable.

Now, whenever I think of Sears, I’m reminded of what Hemingway wrote in The Sun Also Rises. When one of the characters is asked how he went bankrupt, he replies mournfully: “Two ways. Gradually, then suddenly.”

 

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

Walmart’s E-commerce Strategy: Pure Genius Or Venture Capitalist Bailout Fund?

Some believe Walmart should be pilloried for its laggard status in e-commerce. Many of these same folks are now cheering the company’s decision to put all e-commerce under internet wunderkind Mark Lore, as well as its new aggressive strategy to acquire online brands (Jet, ModCloth, ShoeBuy, MooseJaw and–apparently any minute–Bonobos). At last, they say, the company is serious about taking on Amazon.

The contrarian view is that Walmart was right to go slow in online shopping because of how hard it is to make money, and that encouraging too much volume to shift from physical to digital channels would de-leverage brick & mortar store economics unnecessarily. Moreover, spending billions to acquire brands that seem to have little prospect of ever being cash positive may appease Wall Street, but it is throwing good money after bad. More than a few folks have also intimated that Walmart is mostly bidding against itself in these deals as the “smart money” now sees how crazy many so-called digitally-native brand valuations have become.

I tend to side with the latter camp. And, full disclosure, I’ve never understood how Jet.com could ever make any real money. I’ve also been on record for some time in my view that much of e-commerce is profit proof and that most digitally-native brands will never turn profitable. Of course, the jury is still out on most of this, but the collapse of the flash-sales market and recent big write-downs of some high-fliers should give investors pause and encourage them to see past the hype and to dig deeper.

Either way, there are a few important things to consider as Walmart’s strategy unfolds:

  • Shopping behavior is morphing dramatically. While e-commerce remains small to the total, it is growing much faster than physical store shopping. More importantly, most shopping trips start online. Any retailer that fails to have a strong digital presence and does not offer a well integrated shopping experience will be at a distinct competitive disadvantage. Walmart, like every other retailer, needs to respond to this trend aggressively even if the marginal economics aren’t always so favorable.
  • A digital-first mindset is critical. Here is where most “traditional’ brands get stuck. When a culture is rooted in the old way of doing business and holds on to product-centric thinking and siloed organizational structures, much needed innovation is thwarted and vast numbers of opportunities are missed. Arguably, the greatest value from Walmart’s new acquisition strategy is that they are injecting a new mindset into the organization and jump-starting a cultural transformation that can pay vast dividends.
  • Demographics are destiny. The core Walmart model is rapidly maturing. Walmart has never done well with more affluent consumers and they are likely not doing particularly well with acquiring increasingly important Millennial customers. One way or another, to sustain growth Walmart needs to figure this out and scale it quickly.
  • Organic growth is hard and time is not our friend. Most large companies struggle to move the needle on growth in any material way through their own internal efforts. If anything, the pace of change is accelerating. Clearly, a smart acquisition strategy is one way to address both of these challenges.
  • E-commerce valuations are mostly irrational. I have consulted to multiple investment firms and conducted due diligence on quite a few e-commerce deals–including one of the brands that Walmart acquired. In every case the prices that were being discussed at the time either proved to be ridiculously high (as evidenced by subsequent write-downs) or the company could not present a compelling roadmap to profitability. Clearly there are, and will continue to be, exceptions. But irrationality does not last forever. Bubbles eventually burst.

As skeptical as I am, Walmart needs to do something big and bold. Minimally, their culture will get shaken up, likely in a very good way. Managing a portfolio of innovative brands should give them plenty of useful learning. And, in the scheme of things, a poor ROI on a few billions dollars will hardly bring them to their knees.

Yet mostly I am struck by the words of a venture capitalist who has been struggling mightily with how he was going to salvage a multi-million dollar investment in a “disruptive” online brand that has garnered gobs of good PR but is burning through cash with no end in sight.

As he reflected on Walmart’s most recently announced acquisition he told me this: “Now I wake up every day and thank God for companies like Walmart.”

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