Customer Experience · Omni-channel · Reimagining Retail · Retail

These brands apparently did not get the ‘retail apocalypse’ memo

For a couple of years now pundits, analysts, journalists and various other retail observers have been advancing the “retail apocalypse” narrative. A typical story or opinion piece warns of the “death of the mall,”  points out how “e-commerce is eating the world,” and generally suggests that “traditional” retailers are toast.

Alas, facts are stubborn things, as I point out in my keynote talks and highlighted in a recent Forbes article, “Physical Retail Is Not Dead. Boring Retail Is.”

Recent reports from several high-profile–and clearly brick & mortar-dominant–retailers underscore the uselessness of broad statements about the future of physical shopping. Despite the supposed plague descending upon those poor sods who continue to open actual stores, Lululemon and Costco managed to drive double-digit comparable store increases and robust e-commerce growth. Same with Ulta, the beauty brand that is opening 100 new stores this year. If physical retail is dead, please also get the word out to TJX, Ross, Dollar General and Aldi, all of which continue to open significant numbers of new locations. Oh, and don’t forget Warby Parker, Indochino, Untuckit, Everlane, Fabletics and many other brands that started online, only to discover that physical stores are essential to their next stage of growth—and may actually be the key to their making any real money.

Alternatively, if we look at China where, frankly, much of the really cool stuff in retail is happening, it turns out shopping behemoth Alibaba is stepping up its “new retail” strategy by opening more Hema stores and making investments in various brick & mortar-centric retail concepts. I wonder if those who continue to promulgate the “death of physical retail” storyline are short the publicly-traded brands in the two biggest retail markets on the planet that continue to defy their thesis?

Of course, the real issue is the foolishness of adopting a one-size-fits-all view of a huge and complicated industry. The future will not be evenly distributed and individual retail brand’s mileage will vary—often considerably. What we know to be true is that in sectors where e-commerce penetration is higher than 40% or so—typically where the product can literally be delivered digitally, as is the case with music, books and games—most of physical retail has been wiped out. We know that in sectors where the supply of retail space greatly exceeded the sustainable demand (I’m looking at you department stores), in some cases owing to the growth of e-commerce, in other cases owing to the rise of better value propositions (off-the-mall and off-price competition), a massive consolidation is occurring. Most notably, we know that retailers that got stuck in the middle, failing either to choose to be great at price/value and convenience (what I like to call “optimized buying”) or to deliver a remarkable shopping experience, are extinct or being pushed to the brink of irrelevance.

Just as misleading and potentially dangerous as making pronouncements about a retail apocalypse are those that adopt the Alfred E. Neumann position (note to Millennials: Google it) and find solace in e-commerce being “only 10%” of all retail. The impact of digital disruption varies considerably by sector, a particular retailer’s cost structure and whether or not a given retailer has executed a well-harmonized omnichannel strategy. For every Nordstrom and Neiman Marcus that have captured a fair share of the shift to digital shopping for themselves and continue to grow overall in relatively mature markets, we have J.C. Penney and Toys ‘R’ Us that pretty much missed the boat entirely.

It’s easy to blame Amazon for all of the industry’s woes. But it isn’t true. It’s easy to say that malls are dead. Yet many are incredibly vibrant and healthy. It’s easy to pronounce the death of physical retail. But then you have to explain the thousands of new stores that are opening and the dozens of overwhelmingly brick & mortar-centric brands that are thriving.

So if you are one of those people going on and on about the retail apocalypse please just cut it out. Your lack of perspective and nuance is not helping.

It is crystal clear, however, that many more malls and stores will close without aggressive actions to reimagine and reinvent themselves. Struggling brands desperately need to go from boring to remarkable. Struggling brands need to adopt a culture of experimentation and be willing to be retail radicals. Struggling brands need to stop the nonsense about channels and realize it’s all just commerce, and that the customer is the ultimate channel. Struggling brands need to learn to treat different customers differently. And struggling brands need to hurry. Time is not on their side.

When this all comes together, we see the positive results that are possible. When it doesn’t, there is no longer any place to hide.

Lululemon--39312-detailp

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.  

On Friday June 15 I will be keynoting The Shopper Insights & Retail Activation Conference in Chicago.  For more on my speaking and workshops go here.

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

Sears: The world’s slowest liquidation sale picks up the pace

The Lampert Delusion might be a good name for a Robert Ludlum novel. Unfortunately it is more apropos of the apparent strategy Sears Holdings’ principal shareholder and CEO is employing to try to save the flailing retail chain.

Regular readers may remember that I have been calling Sears “the world’s slowest liquidation sale” since 2013 as it became clear that Lampert had no credible strategy to stop Sears and Kmart from sinking further into irrelevance–much less restoring them to meaningful profitability. Since then, nothing material has been done to get the brands back on track, and asset after asset has been unloaded to fund widening operating losses.

The good news — in one way of looking at it — is that Sears had significant fungible assets of decent value to raise cash and a more than cozy relationship with a few willing buyers. Unfortunately, in many cases, by the time Sears sells off something, it is doing so at fire-sale prices and in a manner that only further weakens its core business. Which is why my provocative post from 2014 is looking more prescient every day.

So while Lampert has been slinging strategic nonsense for over a decade, he has been able to keep Sears Holdings alive well past its expiration date. However, today’s action to close yet another bunch of stores is almost certain to accelerate Sears’ trip to the retail graveyard. Here’s why:

First, and most importantly, closing stores does precisely nothing to improve customer relevance. Neither Sears nor Kmart suffers from a “too many stores” problem. They suffer from being boring, irrelevant and poorly executed retail concepts. Tellingly, both have exited multiple markets and trade areas that lots of other similar retailers make work. There is a reason the Kohl’s or Macy’s or Home Depot down the street from the stores Sears is closing remain profitable, and it mostly comes down to customer relevance and remarkability.

Second, closing these stores does little to improve profitability. Sears lost $324 million in the first quarter on a 11.9% comparable store sales decline. You cannot possibly show me any math that suggests shuttering these stores will make a dent in those deeply disturbing statistics. Moreover, almost none of the volume lost from these closings will be made up online or in neighboring stores.

Third, as a practical matter, neither Sears nor Kmart is a national retailer anymore, and as they shed volume they deleverage or make inefficient their operating systems. As marketing moves further to digitization and personalization, national scale economics are less important, but they still matter.

The supply chain is highly dependent on scale. Continue to drop volume, and logistics costs as a percentage of revenue go up — or service must be cut, further weakening Sears’ competitive position. Sears has a lot of product that is home delivered. Take volume out of a delivery area, and costs go up or service must go down. As revenues continue to contract, vendors not only become worried about getting paid but also aren’t likely to focus product development and marketing resources on an ever-shrinking chain. It gets harder and harder for Sears to offer anything proprietary or unique in its merchandise assortments.

Fourth, a key point of differentiation for decades has been Sears’ proprietary brands, particularly Kenmore, Craftsman and Diehard. As these products get distribution elsewhere, Sears may generate some incremental cash, but it continues to give customers fewer reasons to shop in its stores or on its captive e-commerce sites.

The simple reality is this: Nothing of any consequence has been done or is being done that will materially reverse the downward trajectory of the company. Closing stores and selling off key elements of the business may slightly improve cash flow, but they further weaken Sears’ and Kmart’s value propositions. Operating losses remain huge with no end in sight. And Sears Holdings is quickly running out of things to raise significant cash.

In an ode to Hemingway, the way Sears will go bankrupt is gradually and then suddenly. Dead brand walking.

838634748_sears-store-750x500

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.  

On June 15 I will be doing a keynote at The Shopper Insights & Retail Activation Conference in Chicago.  For more on my speaking and workshops go here.

Being Remarkable · Reimagining Retail · Store closings

It’s just about time for full-on panic at J.C. Penney

It’s been a long sad slog for J.C. Penney. In 2011, after more than a decade of (at best) mediocre performance, the company brought in Ron Johnson from Apple as its new CEO. In what some saw as a bold attempt at transformation — and others saw as a misguided Hail Mary pass — retail’s latest savior changed just about everything all at once, and to put it mildly, the results were disastrous. Sales plummeted by about a third, the stock tanked, and Johnson was eventually shown the door.

Former CEO Mike Ullman returned to stabilize the rapidly deteriorating situation — which he did. Then in August 2015, Home Depot’s Marvin Ellison was brought in as the new CEO. In the more than five years since the Ron Johnson debacle, Penney’s has tried many things to claw back lost market share, improve profitability and become more relevant for a new generation. Very little of it has gained any traction. The stock, which traded around $40 when Johnson joined — and in the $20s when he left — sunk to just above $2 after a hugely disappointing quarterly earning report and the announcement that Ellison was leaving to join Lowe’s.

This is bad. Very bad. And I will be the first to admit that I am a bit surprised.

While it is clear that Penney’s is in some ways the poster child for “the collapse of the middle” that I frequently speak about, there were reasons to believe that Penney’s was well positioned to regain meaningful market share.

First, under Johnson, the company essentially fired one-third of its customers through a series of bone-headed moves. While it is difficult to win back customers in an intensely competitive market, I thought a decent subset would return once the obvious blunders were fixed. For the most part, it hasn’t happened.

Second, Sears, its most similar on-the-mall competitor, has closed hundreds of stores in the past few years — surely Penney’s would pick up a fair share. But if it has, it’s not so obvious.

Third, in addition to continuing to expand its successful Sephora in-store shops, Penney’s has added new products and services (including home appliances and mattresses) to attract new customers, drive incremental traffic and improve store productivity. So where’s the beef?

Fourth, after being a laggard in e-commerce and omni-channel, Penney’s has taken steps to elevate these capabilities. Yet the growth hasn’t followed.

Lastly, the categories in which it competes have performed pretty solidly the past few quarters. Penney’s failure to grow revenue at least 3-4% means it is losing share.

So Penney’s now finds itself in a situation where it has been engaged in years of cost cutting and store closings. There is very little gas left in that particular tank. The problem is no longer fundamentally about cost position or store footprint; it is about customer relevance and revenue. Penney’s finds itself in a situation where competitors have ceded hundreds of millions of dollars of sales through store closings, yet apparently little has migrated to its benefit. Penney’s finds itself in the middle of the best year in recent retail industry history, yet is struggles to keep pace. And now its CEO elects to leave.

It simply won’t get any easier from here.

While the seemingly imminent demise of Sears will provide incremental market share opportunities, we should not lose sight of the fact that the moderate department store sector continues to decline with no end in sight. Sales of online apparel are expected to double within the next few years, which will continue to pressure the economics of brick-and-mortar retailers that don’t execute a well-harmonized multi-channel strategy. Younger shoppers will become increasingly important to the overall fortunes of just about any retailer, and Penney’s has done little to contemporize its brand. And while Penney’s may have a few stores to close, mass store shutterings are almost certain to accelerate its decline. The best barometer of success going forward is robust trade area growth, derived from stable to slightly positive comp store sales and strong double-digit e-commerce growth.

Given the bifurcation of retail and the death of boring, J.C. Penney is a long way from being a remarkable and compelling retailer. Yet the positive retail cycle we are in and the likely shuttering of hundreds of directly competitive stores over the next six to 18 months will give the more-than-100-year-old brand an unprecedented opportunity to grab share. If it cannot improve its performance dramatically over the next few quarters, the issue won’t be whether a transformation is ever possible; it will be whether the once-stored retailer will even be around at any reasonable scale much longer.

And if that doesn’t incite panic, I don’t know what will.

jc-penney-store-1200xx2048-1152-0-107

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.  

On June 15 I will be doing a keynote at The Shopper Insights & Retail Activation Conference in Chicago.  For more on my speaking and workshops go here.

Being Remarkable · Reimagining Retail · Retail

Is this the beginning of a department store renaissance? Eh, not so much.

Nearly two weeks ago Macy’s beat quarterly sales and earnings expectations and many on Wall Street promptly lost their mind. Same story with Dillard’s. Then Kohl’s followed up with a similarly surprising upside report that led some to conclude that maybe, just maybe, the long-beleaguered department store sector might be seeing a resurgence or—dare we say it out loud?—the beginning of a renaissance.

Alas, this rising ebullience seems far more driven by a mix of hope, misunderstanding and a heaping side order of denial than any compelling evidence that the tide is turning in any meaningful or sustainable way. Once again we are in real danger of confusing better with good.

To be sure, both Macy’s and Kohl’s sales and profits were much improved over last year. Yet their performance must be viewed from the perspective of both short-term factors and longer-term realities. On the clearly positive side there is solid evidence that both struggling retailers are executing better. In Macy’s case, inventory looks to be well managed (yielding fewer markdowns) and efforts to capture cost efficiencies appear to be paying dividends. A few targeted strategic initiatives, including Kohl’s partnership with Amazon, seem to be driving some incremental business.

With a bit more context, however, these results aren’t really all that stellar. And they most definitely are not yet strong indicators of any substantive turnaround. Notably, both retailers’ sales benefitted significantly from the move of a major promotional event into the quarter. Without this shift, same-store sales would have increased only about 1.7% at Macy’s, and Kohl’s would have been more or less flat (not that this metric is all that useful anymore anyway). That is neither keeping up with inflation nor maintaining pace with the overall growth of the broader categories in which they compete. The optimist might see losing market share at a slightly slower rate as a win. The realist opines that there is a lot more work to do to go from decidedly lackluster to objectively good.

The other thing to bear in mind is that J.C. Penney and Sears (and now Bon-Ton) have been leaking volume through store closings and comparable store sales declines. It’s hard to imagine that Macy’s and Kohl’s have not benefitted materially from this dynamic. While J.C. Penney’s future is increasingly uncertain, any upside from Bon-Ton will be short-lived. Sears looks to be the gift that keeps giving, though likely for only a few quarters more as I expect that Sears will close substantially all of its full-line stores within the next year. While this creates one-time market share gaining opportunities and fixed cost leverage, once the dust settles two factors will come into sharper relief.

The first is the contributions from a strong economy. Recent macro-economic factors have been generally positive for the product categories in which Macy’s and Kohl’s compete. Whether there will continue to be some wind beneath the sails of U.S. retail more broadly—and for the moderate-priced apparel, accessories and home categories in particular—remains to be seen. Clearly my crystal ball is no better than anyone else’s—and maybe worse. But my best guess is that both the economy and the jump ball for market share occasioned by department store consolidation peaks within the next few quarters.

The second factor that looms large seems to be the one Wall Street forgets. The moderate department store sector has been in decline for a long, long time. Some of this has to do with evolving customer trends. Some with stagnant income growth. Some with the rise of superior competing business models: initially category killers, then off-price and dollar stores and now, increasingly, Amazon. And some with more than a fair share of self-inflicted wounds. Regardless, the entire moderate sector, to varying degrees, is stuck in the vast, undifferentiated and boring middle. A somewhat better version of mediocre may the first step on an eventual path to greatness, but it may be just that: a first step.

Lift the veil from a quarter or two of slightly above average performance and the drivers of broader share losses (and related widespread shuttering of stores) continue unabated. Off-price and dollar stores, which in recent years have accounted for the biggest drain on Macy’s, Kohl’s et al., are opening up hundreds of new stores at the same time they are starting to turn up their digital game. Amazon is becoming a bigger factor everyday—and it has yet to make a big push into physical stores. Even if any of the leading department stores miraculously became more innovative and customer relevant they would continue to face significant headwinds. Bottom line: show me someone who believes that a transformation of mid-priced department stores is possible in the foreseeable future and you’ve probably clued me into who has been providing Eddie Lampert with his strategic consulting advice.

As the middle continues to collapse, it is now completely a market-share game. The near-term good news is that Macy’s and Kohl’s competition has made it relatively easy to grab some share. The near-term good news is that a generally healthy economy tends to raise the tide for all. The near-term good news is that Macy’s and Kohl’s operating discipline allows them to convert relatively small sales increases into nice incremental profit opportunities.

The bad news is neither one of them goes from incrementally better to demonstrably good until they make much more substantive and fundamental strategic changes that move them from mostly boring to truly remarkable. Neither brand has spelled out what that looks like in any compelling fashion. And once designed, getting there from here is no small task. Until then, it is way too early to declare victory.

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.  

On June 15 I will be doing a keynote at The Shopper Insights & Retail Activation Conference in Chicago. Contact me for a special discount. For more on my speaking and workshops go here.

Retail

Memories: Two kinds

At a basic level there are really only two kinds of memories.

For many of us, the first type are all too familiar–and the most problematic. We remember the pain of the past: a failed relationship, the promotion we didn’t get, the hurtful comment of a relative or friend, an apology we “deserved” and are still waiting for, any number of actions that somehow or other hurt our feelings. And on and on.

The other kind are those that lift our spirit: remembering the birth of our child, the feeling of first falling in love, hoisting that trophy, crossing that finish line (literally or figuratively) or, as we do in the United States today, honoring the memory of those who died in service to our country.

Until someone invents a time machine that allows us to go back and attempt to fix that which didn’t go as we would have wanted or planned, ruminating on negative memories keeps us stuck and limits our potential. At some point, as Lily Tomlin allegedly said, “we must give up all hope for a better past.” The only thing that allows us to move on is to forgive unconditionally and let it all go. Easier said than done, I know.

While it’s possible to get just as stuck on positive memories–and at this point you might want to sing an impromptu version of “Glory Days”–they still typically fill us with love, warmth and compassion. They remind us of what’s possible. They serve to put life in better perspective and sharper relief. They steep us in gratitude.

Most importantly, when we acknowledge the two kinds and are aware of the keen differences, we can more clearly see how getting attached to one set is not in our best long-term interest.

And then we get to make a different choice.

memorial-day-flags-1

This post was also published on my more spiritually oriented blog I Got Here As Fast As I Could.

Retail

Despite Amazon tire deal, talk of a Sears turnaround is just hot air

Having spent 12 years of my career at Sears, I find it particularly sad to see the once-storied retailer sink slowly into oblivion in what I frequently refer to as the world’s slowest liquidation sale. Equally troubling is the continued efforts by Eddie Lampert, chairman and CEO of Sears Holdings SHLD +8.72%, to suggest a transformation is still possible. As I have written before — and there is no nice way to say this — you’d have to be either gullible or stupid to believe that anything resembling a turnaround is in the cards.

So from a “Can Sears be saved?” point of view, despite the short-term pop in the stock price, there is nothing remotely hopeful in last week’s announcement that will start selling Sears’ tires. As with last year’s similar Kenmore deal, Sears may slightly delay the inevitable, but Amazon is likely the real winner.

Having held the title of vice president for corporate strategy at Sears at one point, I know that its private brands (and the services that surround them) once represented the core of Sears’ consumer and shareholder value. Set the wayback machine to 15 years or so ago, and brands like Kenmore, Craftsman and DieHard collectively were worth many multiples of what Sears Holdings in its entirety is worth today. Starting in the mid-1990s, as Sears lost market share to category killers such as Home Depot, Lowe’s and Best Buy, the value of these proprietary brands began a pronounced and prolonged descent.

Since Lampert has owned and run Sears, it has only gotten worse, as nothing of any consequence has been done to reverse the retailer’s overall fortunes. Simply put, the value of these brands continues to decline as Sears shrinks.

At this point, almost anything that expands distribution and generates cash is probably worth doing. Opportunities to have struck a grander bargain with those omnichannel brands with the best distribution power, market share and growth potential — which my team aggressively explored in 2003 — have long since passed. These retailers frankly don’t need anything material from Sears anymore.

For Amazon, however, this makes good sense. First, Amazon does not have a significant position in the tire category. Second, as with the Kenmore deal, Amazon gets access to a well-known brand and related services at what is likely to be at or near fire-sale prices. Third, we already know that Amazon is starting to push an aggressive private-brand strategy, and this gives it a decent jump-start in a sizable segment. And while selling Sears’ house brands is not exclusive right now, for all intents and purposes, it may be in the not too distant future as Sears continues to close stores and struggles with its own e-commerce offerings. Lastly, given its scale and scope, Amazon can well afford to do some experimentation.

Importantly, this particular deal is different from the Kenmore partnership in that it drives sorely needed traffic to more than 400 Sears’ Auto Centers. However, the likelihood that this traffic is material, particularly as Sears continues to shrink its fleet, is relatively small. Still, clearly every little bit helps, particularly when Sears is faced with so few viable alternatives.

From an Amazon perspective, even if Sears Auto Centers shrink considerably — or go away entirely — it has started to build category knowledge and insight to inform future bricks-and-clicks partnerships and/or the opening of its own physical stores.

As Sears’ market position continues to deteriorate, moves such as these smack more of desperation than the renaissance that Lampert et al. would like us to believe. Don’t be fooled. While it turns out there are still a few worthwhile assets within the Sears portfolio, the cupboard is growing increasingly bare.

Tick tock.

sears auto center closing Best of Store Closings by Date and Final Going Out of Business Sales Last Days

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.  

On May 22nd I will be doing the opening keynote at Retail at Google 2018 in Dublin. For more on my speaking and workshops go here.

Innovation · Inspiration · Life Lessons

Out of ignorance or fear?

There are all sorts of reasons we stay stuck, fail to take action on the things we tell ourselves really matter, spin on items big and small.

Whether it’s deepening (or ending) a personal relationship, finishing our book, quitting a soul-crushing job or starting that new business we keep talking about, there is an aspect of our evolutionary biology that holds us back.

Vulnerability is scary.

Bringing our ideas, wishes and dreams into the light risks criticism–or even ridicule.

All too often, The Resistance is real.

Half the battle in overcoming our fears is to accept the reality that we crave both growth and safety at the same time. Yet there is simply no talking ourselves out of the fact of our hard-wiring. Our job, then, is to learn how to quiet the lizard brain and press on.

Ignorance is a different matter entirely.

Ignorance is often a major contributor to stoking our fear and anxiety. One needs neither an advanced degree–or any degree at all–nor dedication of substantial time and effort to see how much our society is burdened by irrational fears borne largely out of misinformation, misunderstanding and verifiable mistruths.

The fact is, in the developed world at least, most people have plenty of access to all the information they need to be reasonably well informed. Most folks have the tools to apply a decent level of discernment.

If it matters to you and you don’t know, your ignorance is a willful act.

In fighting our stuckness, in being willing to put our art out into the ether, in exposing who we are to another person, in contributing to a better world, it’s important to understand what holds us back.

Fear is a dragon to slay. Ignorance is a choice.

 

This post was simultaneously published on my more spiritually driven blog I Got Here As Fast As I Could.

e-commerce · Retail · The Amazon Effect

Is Amazon finally getting serious about retail profitability?

There seems little doubt that Amazon.com AMZN -0.27% is crushing it and Macy’s is flailing. So who has the best profitability? Well, it’s not even close.

Macy’s operating margin is just over 6%. In recently reporting what was widely seen as a blowout quarter, Amazon is just now approaching a whopping 2% in its non-Amazon Web Services business. By just about any comparison, in most categories, Amazon’s margin performance appears to be anywhere from lousy to lackluster, despite its vast capabilities and more than 20 years of working hard at most of it.

One particularly disturbing trend is rising shipping and fulfillment costs. With Amazon’s massive scale, you might think this would be a growing source of profit leverage. You’d be wrong. Logistics costs continue to rise faster than revenues.

This is not terribly surprising. The structure of Amazon’s Prime program (which recently surpassed 100 million members) essentially encourages customers to overuse “free” shipping for frequent small orders—which generally have low (or non-existent) profits. Amazon also continues to aggressively push same-day delivery, which, at current scale, has terrible marginal economics.

Amazon’s growing success in apparel may be great for the top line, but returns and exchanges tend to be much higher than average, pushing supply chain costs further in the wrong direction.

Before anyone quibbles with my high-level analysis, I will state that I know the company has been making substantial investments for the long term. I realize that there are many instances where Amazon could make more money but it continues to prioritize market share gains over decent (or any) near-term returns. And I understand that Wall Street clearly values growth over profits. Yet against this backdrop, it does seem as if there is a subtle shift in focus.

Given the significant headwinds from growing logistic costs, the fact that profits improved dramatically suggests that both product margins and non-logistics operating costs are starting to be leveraged in more powerful ways. Moreover, in what some see as a risky move—but I see fundamentally as an acknowledgement of customer loyalty, pricing power and a growing need to offset spiraling delivery costs—Amazon is raising the price of Prime membership by $20. Despite customer protestations, I am willing to bet that Amazon comes out way ahead on this move.

Another sign of Amazon’s seriousness toward pursuing profitability is its growing investment in private brands. Amazon already has more than 70 proprietary brands, and more are sure to follow. Done right, increasing the mix of its own brands can further drive market share gains by offering strong additional value to its customers and drive gross margins higher. Expect to hear more about the significant contributions these new brands are making within the next few quarters.

When it comes to buying versus shopping, Amazon holds more and more of the cards. More than 50% of all online product searches start at Amazon. Amazon is fast closing in on owning nearly 50% of the U.S. e-commerce market and is racking up significant share in many global markets. Prime membership tends to lock consumers into a virtuous shopping cycle where, at the margin, Amazon becomes the default choice for a growing basket of stuff. As Amazon gets deeper into physical stores (organically or through another major acquisition), even the “shopping” side starts to come more seriously into view—much of which should actually help expand margins. And personally I think Amazon has yet to take anywhere close to full advantage of its powerful customer data and insight assets.

Given the complexity of its operations—and the overlapping cycle of major investments in the next wave of growth—it’s often hard to discern the underlying dynamics of Amazon’s retail operations in any given quarter. Yet a few things seem clear.

First, Amazon likely never gets to decent operating margins without addressing the supply chain cost issue. Second, private brands will soon become a more important part of the story. Third, in the not too distant future, a more aggressive brick-and-mortar strategy is likely needed to continue to drive outsized growth. Lastly, Amazon still has a lot of levers to pull to leverage its data and take advantage of its growing customer loyalty. For the most part, improved profitability can likely come at a time and date of Amazon’s own choosing.

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.  

On May 17 I will be keynoting Kibo’s 2018 Summit in Nashville, followed the next week by Retail at Google 2018 in Dublin.

Innovation · Retail · Winning on Experience

Macy’s acquires Story: Game changer or much ado about nothing?

Last week Macy’s announced it had acquired Story, a New York-based concept store, and appointed founder Rachel Shechtman to be its new “brand experience officer.” And, for the most part, enthusiastic gushing ensued. Let’s simmer down, people.

As I regularly write and speak on retailers’ need to innovate and embrace a culture of experimentation, I would be a complete hypocrite if I failed to applaud Macy’s (and newish CEO Jeff Gennette’s) willingness to take bold steps. Yet before we jump on the silver-bullet train we might wish to consider a few important points.

Is Story Successful Beyond Generating PR?

There is no question that Story is cool and innovative. There is no question that Story has punched way above its weight when it comes to generating industry and media attention. And the notion of “store as media” is an intriguing one that is appropriately starting to change the way brands must think about their brick & mortar experience.

But lest anyone forget, Story launched in 2011 and has never expanded to another city, much less another location in the New York area. It’s pretty difficult to make the argument that Story has the potential to “reinvent retail” on any significant scale when after more than six years the number of customers it has validated its impact upon is teeny tiny. Every other truly interesting “disruptive” concept I can think of that launched around the same time (or even later) has attracted significant investment capital and is well into their expansion plans. So, to be blunt, there is far more evidence to suggest that Story is a way cool Manhattan phenomenon than there is to suggest it has any real ability to be relevant to Macy’s customers—and ultimately material to Macy’s strategy.

Do You Know How Much Macy’s Paid? 

No, I didn’t think so. So how can you say it’s a genius deal? I happen to own a pretty nice car. But if you were willing to pay me $100,000 for it you would be the opposite of a genius. Perhaps Macy’s paid less than it would cost to hire Shechtman as a consultant for a couple of years, in which case that sounds like a bargain. Maybe it paid millions for something it could have done itself years ago, in which case that sounds more dumb and desperate. Maybe we should say “who cares?” as regardless it’s probably chump change to a huge company like Macy’s. In any event, we just don’t know. So please hold your applause.

Macy’s Problems Run Deep

Macy’s has two huge and fundamental problems to address. First, it sits in a sector that has been in decades-long secular decline—and there is no reason to think that will change anytime soon. In fact, as Amazon and the off-price sector continues to expand aggressively in Macy’s core categories, it could easily get worse. Second, while Macy’s does a bit better than most of its department store brethren, it is still part of the epidemic of boring, struggling to carve out a sustainably relevant and remarkable position. It has a lot of expensive, risky and time-consuming work to do on both the customer-facing experiential parts of their business and their technological infrastructure. This all comes at a time when the company’s profits have stalled. That’s a very tall order and no one strategic initiative is likely to make a dent.

Does This Deal Fundamentally Change The Macy’s Story?

While Walmart paid silly amounts of money for Jet.com, Bonobos, et al., it now seems clear that the injection of “digitally native” senior talent has helped take the moribund retailer to an important new level. It also earned them some street cred. So acquisitions like Story can certainly contribute to an enterprise well beyond their straight discounted cash flows.

While some have referenced Macy’s earlier deal to buy Bluemercury as an analog, my guess is that if Story is to make a real difference it will be more similar to Nordstrom’s acquisition of Jeffrey over a decade ago. As that played out, it was founder Jeffrey Kalinsky’s impact on Nordstrom’s overall fashion strategy that was the source of value rather than the expansion of his eponymous stores.

The key in this situation will be whether Macy’s gives Shechtman the latitude to impact the trajectory of Macy’s brand to any material degree or whether the culture will eat her up and spit her out. And even if she gets that latitude, it is no easy task for even the most talented and experienced executive to make a big difference within an insular culture. There are far more examples of experiments that have gone awry than have worked out. We will have a far better idea about this critical dimension a year from now. Regardless, it won’t be easy.

The Opposite Is Risky

To be sure, retailers like Macy’s got into trouble because they mostly watched the last 20 years happen to them. Consciously or not, they acted as if deciding to embrace innovation was risky when, as it turns out, their reluctance to take chances was the riskiest thing they (and so many others) could have possibly done. The simple fact is, as Seth Godin reminds us, “if failure is not an option than neither is success.” The key is not to avoid failure, it’s to fail better.

Macy’s, like all those risking “death in the middle,” are desperately in need of a transformation. And that unequivocally means placing multiple bets in the hope of creating a vastly different future. Viewed from this lens, the acquisition of Story—and giving Shechtman a chance to impact the Macy’s culture and brand—is likely a pretty decent bet. As it’s highly unlikely to materially change Macy’s overall fortunes all by itself, it needs to be the first of many such wagers.

_story-01

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.  

On May 17 I will be keynoting Kibo’s 2018 Summit in Nashville, followed the next week by Retail at Google 2018 in Dublin.

A really bad time to be boring · Being Remarkable · Retail

Choosing the race to the bottom

It turns out that most retailers that find themselves at–or edging ever closer to–the precipice have much more of a revenue problem than having expenses that are fundamentally too high. And yet so many relentlessly focus on cutting costs, often leading to a further reduction in customer service.

It turns out that when the major lever a company has to drive the top line is deep discounting, they mostly end up attracting the promiscuous shopper while simultaneously lowering the margin on the customers who once were willing to pay a higher price. Over the long-term, that math never works.

And while it may be true that retailers can often do the same amount of business with a smaller footprint, it turns out that many of brands that are closing outlets in droves don’t actually have too many stores. Instead they have a value proposition that isn’t sufficiently customer relevant for the stores they have. Shuttering locations en masse may seem like the wise move to improve profits, yet it is typically the first sign of a downward spiral.

By now it should be obvious that trying to stake out a winning position by being a slightly better version of boring is untenable. The notion of cost cutting your way to prosperity is a fool’s errand.

Once we fully accept that selling average products to average people no longer works and that to make meaningful progress we must zero in on solving the right problem, we realize that for most of us the choice is clear–or should be.

We can choose to treat different customers differently, create intensely relevant and remarkable experiences and tell a story that deserves to be told time and time again.

Or, we can choose to join the race to the bottom.

Just remember, as Seth reminds us, “the problem with the race to the bottom is you might win.”

the-problem-with-the-race-to-the-bottom-is-that-you-might-win-quote-1