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. 

Bricks & Clicks · Embrace the blur · Innovation · Retail

Will Amazon 4-Star live up to its reviews?

After learning that Amazon might open up to 3,000 Go stores by 2021, the industry was still catching its collective breath when the retail behemoth opened an entirely new format in Manhattan’s Soho neighborhood last week. Amazon 4-Star is the latest move into physical retail on the part of the once online-only retailer, joining Amazon Books and Whole Foods. If this keeps up, some might start to wonder whether the retail apocalypse narrative may not be entirely accurate (indeed, sarcasm is my superpower).

Just about anything Amazon does tends to be of keen interest and can often send shockwaves throughout the sector. Not only is the company often several steps ahead of the competition, but it possesses the culture and the spending capacity to try a lot of stuff and keep everyone on their toes, desperately trying to figure out what’s next. So at this point it’s anyone’s guess where this particular experiment could lead over time. Yet the idea behind this new concept, along with what I have observed in visiting Amazon’s growing fleet of bookstores, so far leaves me unimpressed.

The organizing principle of 4-Star seems similar to Amazon’s foray into physical book stores: edit down a vastly larger online assortment to a core of mostly “greatest hits” (best sellers, customer favorites and new & trending), add some cool technology, and layer on some of that omni-channel stuff we’ve all heard so much about. At one level, this seems eminently sensible. If we already know what the customer buys online, surely translating that to a physical store is not only the “right” product strategy, but will lead to excellent productivity. Unfortunately this left-brain driven translation from the digital world to brick and mortar can often be underwhelming. There are a few reasons for this.

Shopping online just isn’t the same as shopping in a store.

While e-commerce works well when we are on a mission, it’s not as good when we are engaged in discovery. Most websites are optimized for speed and conversion. Conversely, a really good brick-and-mortar experience can deliver an entirely different customer journey by leveraging displays, product adjacencies, sight lines to neighboring departments, in-person sales assistance, etc. Category management strategies that ultimately determine a brand’s success play out in fundamentally different ways in a physical store. The ability to see, touch and/or try on products requires that assortment strategies be tailored to the unique dynamics of a store shopping experience.

 

Optimizing our way to boring.

Best sellers, by definition, are what some comparatively mass audience has already voted on; the peak of the bell curve, not the extremes. Any student of retail knows what great merchants have done for centuries to create competitive differentiation and maximize long-term productivity—namely they curate an interesting combination of what already works along with offering up interesting items that add to the overall experience, supported by loss leaders that help spur traffic and complementary items that drive up basket size. Heavy reliance on carrying only the most popular items inevitably causes a regression to the mean, which can easily make for rather boring and/or disjointed stores.

Be careful what you wish for.

Among the many dumb things Sears has done over the years, there were two whoppers that speak to my thesis that I was also “blessed” to witness firsthand. The first happened some 15 years ago when the financial types started to have more influence than the merchants and store operators. This led to an initiative to improve our sagging financial performance where the driving logic was essentially to keep the best sellers and eliminate (or shrink) the products with below average financial performance. While mathematically that sounds appealing, back in the real world it had the effect of lowering traffic and reducing conversion as it made our stores even less customer relevant, while also ignoring the key ingredients to building profitable market-baskets and creating customer lifetime value.

The other little oopsy daisy came a year or so later when we acquired Lands’ End and were rolling out its product to hundreds of Sears stores. The Lands’ End merchants insisted that virtually all of their direct-to-consumer best sellers had to be included in the new Sears’ retail assortment. When translated to carrying a basic depth and breadth of sizes and colors the resulting offering not only didn’t make much sense in the context of other products we carried, it led to inventory levels that had no chance of being productive. But hey, what’s a few hundred million dollars of markdowns among friends?

The lesson, of course, is that a remarkable retail experience should be built from the customer’s perspective, be competitively unique and be mindful of leveraging the unique characteristics that only a physical store can deliver. Digital can be hugely important in informing the brick and mortar execution, but should not overwhelm the overall experience design..

In Amazon’s case, more times than not, it plays by a different set of rules, some of which other retailers would be wise to emulate, others that the competition can only dream about. Amazon’s 4-Star may turn out to be this generation’s Service Merchandise. More likely, however, it is the first of many iterations and merely the tip of the iceberg in a broader and more aggressive move into physical retail.

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 October 16th I’ll be in San Antonio delivering the opening keynote at X/SPECS . November 8th I’ll kick of the eRetailerSummit in Chicago.

For more info on my speaking and workshops go here. 

Digital Disruption · Radical · Retail

Gee, I thought you were in the mattress business?

In my current keynote, I make the observation that many retailers have gotten themselves into trouble watching the last decade or so happen to them. Primarily for this reason, No. 8 in my “Essentials of Remarkable Retail” is the need to be “Radical” and to embrace a culture of experimentation.

Clay ChristiensenGary Hamel and many others have highlighted how legacy brands often struggle to keep pace with innovation. While there are some examples of industry incumbents responding well to disruption, it is far more typical (at least in retail) for companies to get this wrong. Having been a Sears executive when, arguably, there was still a chance for a meaningful turnaround, I often point out that we did not lack the knowledge that Home Depot and Lowe’s were on a trajectory to destroy our primary competitive advantage. What we lacked was the willingness to act. Some of this was clearly linked to culture, process, risk aversion and the like. But a lot of it was tied to how we defined what business we were in. This faulty line of thinking is a mistake oft repeated.

The latest example of this phenomenon is what’s transpiring in the $29 billion mattress category. Drive around any major city and you’re likely to encounter quite a few mattress specialty stores, the most prominent being Mattress Firm with over 3,000 locations in the U.S. Department stores like Macy’s and JC Penney also have significant mattress businesses. Mattresses are sold through traditional furniture stores like Ashley or Haverty’s as well. Given the size and profitability of the industry, the pace of digital disruption and competitive intensity, you might think that a few of these players would be aggressively pursuing innovative new formats. You’d be wrong.

In a rather ironic twist, Casper, which launched as an online only brand in 2014 and has raised $240 million in venture capital funding, is set to open 200 stores while industry leader Mattress Firm appears about to file bankruptcy to facilitate mass store closings. Casper is far from the only industry insurgent. Purple, Saatva and others are all trying to carve out sizable and sustainable positions. Most will not be around in 5 years time, but they will wreak havoc in the meantime and one or two might get acquired for what is likely to be stupid money. In fact, Tuft & Needle, Casper’s primary direct competitor, just merged with mattress manufacturing behemoth Serta Simmons.

casper_stores_1.0

Given the accelerating pace of change and the investment community’s tendency to value growth over profit, it’s not easy to be certain which disruptive model will take hold and which will be exercises in setting a big pile of cash on fire. Nevertheless, if you are Folger’s and you limit the way you see your business, you miss the value created by Starbucks. If you are Blockbuster and decide you are in the business of distributing videos through physical locations, you miss Netflix. If you are Sears and you decide you are a multi-category retailer selling a whole bunch of stuff mostly through mall-based department stores, you miss the home improvement warehouse opportunity. Oh yeah, and you also miss Amazon.

Many things in life are defined (and obscured) by our lens and filters. We need not look beyond the partisan hackery of America’s current political climate to see the truth of this. Yet in the context of how we manage our brands, respond to disruption and stay one step ahead of the consumer, we should take a lesson from the world of psychology. There are three fundamental steps to unlocking the opportunity that lays beyond our fears. First, is awareness. We must deeply understand our customers, their journey and how it is evolving, as well as the competitive dynamics that are at play. Second, is acceptance. We can see something but not truly own the truth of it and all the potential implications. The third is, of course, the most important: action.

Until we find ourselves in the arena, trying stuffseeing failure as an option, we are likely to have the next decade happen to us as well.

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 October 16th I’ll be in San Antonio delivering the opening keynote at X/SPECS . November 8th I’ll kick of the eRetailerSummit in Chicago.

For more info on my speaking and workshops go here. 

Bricks and Mobile · Embrace the blur · Retail

Plot twist: Amazon’s future may soon be tied to physical stores

It’s hard to underestimate the success and increasing power of Amazon. Their market cap hovers just under $1 trillion. Their growth rates have been astounding. By most estimates Amazon now accounts for nearly 50% of all US e-commerce revenues, roughly 5% of all retail and is significantly bigger than their next 10 competitors combined. One study has some 55% of all online product searches starting at Amazon.

Last week a report that Amazon is considering opening up to 3,000 of their Amazon Go cashierless convenience stores by 2021 grabbed a lot of attention, despite their only having opened up a fourth location a few days ago. Advocates enthusiastically tout the concept’s potential ability to revolutionize shopping. Skeptics challenge the high capital cost, the reliability of the underlying technology and whether the stores really offer enough added value to take on well established players like 7-Eleven. I think both miss the larger point.

From a strictly pragmatic view, Amazon is not bound by the limitations of most retailers. They have patient investors who are much more focused on growth than short-term profits. Amazon has a strong commitment to innovation and has enormous capacity to invest for the long-term. While the economics of these stores do look rather challenging, the costs are certain to come down. And besides, at least for now, Amazon is not held to the conventional ROI hurdles that their traditional competitors face.

Whether or not the world sees 10 or 10,000 Amazon Go stores 5 years from now, what’s important to understand is that for Amazon to sustain anything remotely close to current growth rates over the long-term–much less defend against Walmart, Alibaba and others–they MUST significantly expand their physical store presence. You don’t have to possess a highly functioning crystal ball to see that one key to unlocking major growth in certain large product categories will require a substantial brick & mortar footprint. There are a few reasons for this.

The physical limitations of direct-to-consumer. Until someone invents a teleportation device (Elon, you on it?), considerable retail volume is impulsive driven, demands immediate gratification, is dependent on proximity to point of sale or is just stupid expensive to absorb the “last mile” delivery cost. Maybe Amazon is willing to have a robot or drone deliver a Slurpee to you, but that doesn’t make it a scalable business model.

The difference between buying and shopping. Amazon is really good at the “buying” process, i.e., those occasions where the customer values a highly efficient transaction, great pricing, vast (or very specifically curated) assortment and the particular convenience of direct-to-consumer delivery. “Shopping” on the other hand is less search and more discovery. It leans heavily on experience, be that the ability to interact in-person with a sales associate, see first hand the quality and/or fit of the product, figure out a broader, more complicated solution (like assembling an outfit or visualizing a re-decorating project) or simply to enjoy the social or entertainment dimensions that a brick & mortar location uniquely provides. While a customer “shopping” journey may be digitally informed, a physical dimension is often essential to conversion and customer delight.

When we understand this, it’s no surprise that most “shopping” dominant segments not only have much lower e-commerce share (groceries, prepared foods, furniture, home improvement, luxury fashion, etc.) but many digitally-native vertical brands (Warby Parker, Bonobos, Indochino, Casper) are investing in physical locations to reach consumers for whom pure online shopping is an obstacle to becoming frequent and profitable customers. Given the barriers to meaningful growth without a physical presence, Amazon will either have to place big brick & mortar bets (through their own formats and/or through acquisitions like Whole Foods) or accept a material deceleration of their growth rates over time.

Brick & mortar can be more profitable. Online shopping has two big profit drivers: the cost of acquiring (and retaining) customers with solid lifetime value and the per order dynamics of fulfilling orders. If the marginal cost of acquiring customers is greater than the marginal value of the lifetime value of those newly acquired customers the business model is unsustainable. This may well be the achilles heel of brands like Blue Apron and Wayfair. As many once online only brands are learning, it’s often cheaper to acquire a customer in a physical location than to pay the marketing tollbooth operators (Google, Facebook and, increasingly, Amazon) to target and convert the best prospects.

High fulfillment costs can make many e-commerce orders profit proof. There often is not enough gross profit per order for lower-priced items to offset the cost of picking, packing and shipping. This only gets worse when items are prone to high rates of returns or exchanges. This also helps explain why many online only brands are now opening stores and seeing their marginal fulfillment costs as a percentage of sales drop markedly. Amazon, on the other hand, is continuing to see fulfillment costs go in the wrong direction, thereby setting up a major headwind to improving lackluster margins. To reach more customers, improve marginal profitability and offset certain advantages of current (Walmart, Best Buy) and important future competitors (Nordstrom, Home Depot, Walgreens, Nebraska Furniture Mart)  a significantly expanded brick & mortar presence is not nice to have, but essential.

While important, it is by no means urgent for Amazon to make an immediate big move. There is still plenty of solid growth within their core business model, including tapping into international markets. They have their hands full figuring out Amazon Go and Whole Foods. But in my mind, the long-term math leads to one inevitable conclusion. If Amazon wants to be the world’s largest retailer and significantly improve their margins a lot more physical locations are virtually certain to be a big part of that 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.  

Over the next few weeks I’ll be in Chicago (twice!), Dallas, Toronto and San Antonio delivering an updated version of my keynote “A Really Bad Time To Be Boring.” For more info on my speaking and workshops go here. 

Harmonized · Loyalty Marketing · Personal · Retail

Nordstrom ups the ante with new loyalty program

Last week Nordstrom, the U.S.-based fashion retailer, announced the launch of a new loyalty program. Despite its rather uninspired name, The Nordy Club is intended to broaden customer engagement while increasing earn rates by 50% for members paying with a Nordstrom credit card. The new program also offers more access to services and personalized offerings.

At first blush, Nordstrom seems to be emulating what brands as diverse as Neiman Marcus (Note: I worked on the InCircle redesign some 10 years ago), StarbucksUlta and others have long recognized. First, an engaging rewards program is a foundational element for gathering data and leveraging customer insight. Second, programs that have what amounts to a cash-back feature—as many do when they rely on gift cards as primary redemption vehicles—can often provide discounts more cost effectively than one-size-fits-all promotions. Third, reward points create a currency for highly targeted offers to drive specific desired outcomes for the retailer. Fourth, through the use of well designed tiers, the best loyalty programs provide “stretch” incentives that encourage customers to spend more to earn higher rewards and obtain access to unique services and experiences.

At their core, the best in breed reward programs focus on two components. First is transactional loyalty. Here the brand is simply providing a tangible value exchange for increased shopping behavior (and better access to customer data). Calling this “loyalty” is a bit misleading, as this is more akin to bribery. While this program feature incentivizes customers to increase their spending, many customers will respond because they are essentially leaving money on the table if they don’t. The more strategic program designs recognize that true loyalty is an emotion.  In this case leading programs typically use accelerated point accumulation and more experiential offerings to further engender a deeper connection to the brand. This typically includes preferential access to merchandise and events and special or enhanced services (free alterations, valet parking, etc). In this regard, Nordstrom isn’t breaking any new ground.

What does appear to be more on the leading edge, however, is how Nordstrom is leaning into at least 4 of what I call the “8 Essentials of Remarkable Retail.” And this provides the potential for meaningful competitive advantage if done right.

Harmonized. This is the idea that, regardless of how and where the customer chooses to shop, retailers must eliminate points of friction in the customer journey and deliver experiential elements that amplify relevance. In the press release, Nordstrom VP Dave Sims said “when thinking about this evolution, a guiding principle was to offer something for everyone, no matter…where they interact with us.”

Mobile. Many retailers have come to realize that customers no longer go online—they live online and their smart device is often a constant companion in the shopping journey. The new Nordy Club app looks set up to be a core component of how members will engage with the brand.

Personal. As I talk about in my current keynote, no customer wants to be average. More importantly, no customer has to be, given how the power has shifted to them. Making personalization a key aspect of the new rewards program is very responsive to what consumers want and what smart retailers need to do to be more relevant and unique.

Memorable. Today’s consumer is deluged with a tsunami of information and choices. To be the signal amidst all the noise, to truly command meaningful attention, all brands are challenged to become more unique, more relevant and more remarkable. A key way to do that is to create memorable experiences. It’s a bit difficult to ascertain at this point how truly unique some of the benefits will be for elite members (particularly since many of these will never be advertised), but I’m willing to bet that this program dimension will be dialed up substantially.

Of course it remains to be seen how well this new effort will work when fully deployed. Clearly Nordstrom is adding considerable cost to the program. Whether this turns out to generate a good ROI will take years to assess. Moreover, some aspects of what was just announced just bring the company to competitive parity and therefore can be viewed as largely defensive. Others may risk setting off a rewards point war. If that happens, that is a battle that customers win and investors lose.

More interesting for the long-term is how Nordstrom will evolve the harmonized, mobile, personal and memorable pieces of the program and how those will authentically resonate with the others aspects of the branded customer experience for which Nordstrom is justly well regarded. Here, much as they have done over the years staying on the leading edge of digital commerce and executing a well integrated “omnichannel” experience, Nordstrom does seem to be upping the ante and leading the way. How (or if) the competition responds will be the next thing to keep an eye on.

Note: For a far more comprehensive and insightful look at loyalty, I heartily recommend my fellow Forbes Contributor Bryan Pearson’s book The Loyalty Leap.

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.  

Over the next few weeks I’ll be in Austin, Chicago (twice!), Dallas, Toronto and San Antonio delivering an updated version of my keynote “A Really Bad Time To Be Boring.” For more info on my speaking and workshops go here. And stayed tuned for announcements on early 2019 speaking gigs and my new book.

Embrace the blur · Frictionless commerce · Retail

Physical stores: Assets or liabilities?

Of course the obvious answer is “well, that depends.”

As the intersection of economic feasibility and consumers’ willingness to adopt new technology hit a tipping point, for retailers that had invested big bucks in the brick-and-mortar distribution of music, books and games, the answer changed rather dramatically. Today’s retail apocalypse narrative is nonsense. But it wasn’t so long ago that the tsunami of digital disruption very quickly turned the physical store network of Barnes & Nobles, Blockbuster, Borders and others into massive liabilities. While we can argue about whether any of those brands laid to waste by Amazon, Netflix et al. could have responded better (spoiler alert:the answer is “yes”), it’s hard to imagine a scenario for any of them that would have included a fleet of stores remotely resembling what was in place a decade ago.

Most of the so-called digitally native vertical brands that are disrupting retail today—think Warby Parker, Bonobos, Indochino—started with the premise that not only were physical stores unnecessary, they would soon become totally irrelevant. In fact, about six years ago, I remember asking the founder of one of these brands when they were going to open stores. He looked at me with the earnest confidence of someone who had just received a huge check with a Sand Hill Road address on it and said, “we’re never opening stores.” Clearly, at the time, he saw stores as liabilities. He wasn’t alone. Everlane’s CEO made a similar, but more public statement.

So for several years scores of startups attracted massive amounts of venture capital on the belief that profitable businesses could scale rapidly without having to invest in physical retail outlets. A key part of the investment thesis was that stores were undesirable given the high cost of real estate, inventory investment and operational support. Clearly the underlying premise was that stores were inherent liabilities. So it’s more than a little bit ironic, dontcha’ think, that my friend’s company has since opened dozens of stores, that Everlane just opened its second location (with more to follow I’m sure) and that many other once staunchly online only players are now seeing most of their future growth coming from brick-and-mortar locations.

For legacy retailers, particularly as e-commerce took off, many acted as if much of their investment in physical real estate was turning into a liability—or at least an asset to be “rationalized” or optimized. This underscores a fundamental misunderstanding of what was happening. Too many stayed steeped in channel-centric, silo-ed thinking and action. They saw e-commerce as a separate channel, with its own P&L. Because of this, they underinvested (or went way too slowly) because they couldn’t see their way clear to making the channel profitable. Before long they got the worst of both worlds: They found themselves not participating in the upside growth of online shopping while losing physical store sales to Amazon or traditional retailers that were pursuing a robust “omni-channel” strategy.

To be sure, the overbuilding of commercial real estate was going to lead to a shakeout at some point. Digital shopping growth enables many retailers to do the same (or more) business with fewer locations or smaller footprints. Yet I would argue that most of the retailers that find themselves with too many stores (or stores that are way over-spaced) rarely have a fundamental real estate problem—they have a brand problem. The retailers that consistently deliver a remarkable retail experience, regardless of channel, are closing few if any stores. In fact, brands as diverse as Apple, Lululemon, Ulta—and dozens of others—have strong brick-and-mortar growth plans.

What sets most of these winning retailers apart is that they deeply understand the unique role of a physical shopping experience in a customer’s journey and act accordingly. They know that digital drives physical and vice versa. They started breaking down the silos in their organizations years ago—or never set them up in the first place. They accept that talking about e-commerce and brick and mortar is mostly a distinction without a difference and know that it’s all just commerce. And they embrace the blur that shopping has become. They see their stores as assets. Different and evolving assets certainly, but assets all the same.

On the heels of recent strong retail earning reports (and an increase in store openings) some are starting to pivot from the narrative that physical retail is dying to one that is closer to all is now well. Both lack nuance. We can chalk up some positive momentum to the fact that a rising economic tide tends to lift all ships. We can peg some of the ebullience to Wall Street waking up to facts that were plain to see for quite some time.

What is most important over the longer-term, however, is to understand the root causes of why and where physical retail works and why and where it doesn’t. Whether it’s Casper, Glossier, Warby Parker, Nordstrom, Neiman Marcus, Williams-Sonoma, Sephora or many others, the formula is pretty much the same. Deeply understand the customer journey, and whether it’s a digital channel or physical channel, root out the friction and amplify the most relevant and memorable aspects of the customer experience.

When we do this we see the unique role a physical presence can (and often should) play in delivering something remarkable. The answer will be different depending on a brand’s customer focus and value proposition. But armed with this understanding we can design the business model (and ultimately the physical retail strategy) knowing that the channels complement each other and the desire is to harmonize them. At this point the question is not whether stores are an asset or a liability, it’s which aspects of brick and mortar’s unique advantages to lean into and leverage.

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.  

Over the next few weeks I’ll be in Dallas, Austin, Chicago, Toronto and San Antonio delivering an updated version of my keynote “A Really Bad Time To Be Boring.” For more info on my speaking and workshops go here.

Customer Growth Strategy · Digital Disruption · Retail

Here’s what investors are missing about the Sears-Amazon partnership

Shares of Sears Holdings spiked last week on news that the beleaguered retailer had expanded its tire partnership with Amazon. Once again, the optimism — or is it outright gullibility? — of some investors astonishes me.

Over four years ago, I wrote (admittedly more than a little bit provocatively) that Sears investors would do far better with a liquidation of the company than with a perpetuation of the charade that there was any hope for a real turnaround. More recently, I opined on the 2017 Amazon-Kenmore deal, as well as the initial Amazon-Sears tire partnership announced in May. My view was that these deals do little, if anything, to stave off the inevitable for Sears. Moreover, I believe they are ultimately of greater value to Amazon.

For what it’s worth, when I wrote (and appeared on CNBC) with my “liquidate ASAP” thesis, Sears’ stock was in the low $40s. When I posted the Kenmore piece, Sears’ shares were down to about $9. My first tire article was written about three months ago when the shares had a bit of an inexplicable run-up, hitting nearly $4. On the day of the announcement SHLD was up 12%, closing at $1.24. Draw your own conclusions, but certainly don’t say that I didn’t warn you.

While on one level I appreciate the audacity of hope displayed by certain eager investors, I believe those who display ebullience in the face of these sort of deals are missing three essential things.

Dead brand walking. The overwhelming issue is that there is no plausible scenario in which Sears remains a viable national retailer. In fact, with Sears having closed hundreds of stores, with many more to follow after the holidays (if not sooner), one could argue it is no longer a real force on the national stage today. The only thing that keeps Sears afloat is Eddie Lampert and ESL’s willingness to fund a seemingly never-ending stream of massive operating losses. The idea that Sears can shrink to prosperity is ridiculous. For all intents and purposes, they are winding down the business. The particular relevance to the Amazon-Sears tire deal is that the points of distribution will continue to contract, perhaps dramatically.

Hardly moves the dial. It’s hard to see material profit contribution from this deal. First, tire installation is tiny in the scheme of Sears’ overall business. This particular offering is solely focused on customers who are willing to buy their tires online and have them shipped to a nearby Sears store so that, a couple of days later, they can have them installed. So to be meaningfully relevant to customers, first the customer has to be willing to wait. Given that a lot of the tire-replacement market is driven by an emergency (i.e., a flat tire) a big chunk of the available market is not addressable. Second, even if waiting isn’t a big deal, there are still likely to be many local competing outlets, many of which are going to be more conveniently located (particularly as Sears continues to shutter locations) and have the tire in stock, ready to install right away. Third, Sears actually stocks a lot of tires, so if you are willing to have your tires installed at Sears, it makes more sense for most people to take a step out of the process and just see if Sears has the tire in stock. In many cases it will. This is a long way of saying that the market opportunity seems quite small. When you further factor in the lower margin given Amazon’s cut, it’s hard to come up with a scenario where this moves the dial in any profound way.

Amazon’s Trojan Horse. Sears is desperate. Amazon is patient, smart and willing to try lots of stuff. Sears has few arrows left in its quiver. Amazon can use this partnership to explore the convergence between digital and physical in a large category, acquire some new customers and continue to probe potential private brand opportunities with DieHard and other Sears brands. Sears need to show Wall Street it still has some life in it. Amazon needs to learn how to get deeper into under-penetrated categories (auto and installed services) to help sustain a robust growth story. For Sears, every little bit seems to count. For Amazon, this is a rounding error even if it turns out to be a disaster. So who’s likely to be getting the better deal?

To be sure, as is true with the potential sale of Kenmore, Sears has very few decent options left. So there is nothing inherently wrong at this point in the company’s decidedly ragged history to executing this particular transaction. But the idea that this materially improves the value of the Sears brand seems just plain silly to me.

See you on the other side of $1.

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.  

Being Remarkable · Collapse of the middle · Retail

Retail earnings: The best of times, the worst of times

This is a big earnings period for retailers. As the reports roll in, it’s increasingly clear that it’s both the best of times and the worst of times for retail.

While performance overall is, on average, much better than a year ago, what continues to come into sharper relief are three inescapable conclusions. First, as I have been saying for years, the idea that physical retail is dying is abject nonsense. Second, retailers that are stuck in a cycle of boring are getting crushed, and the middle is collapsing. Third, as our friends at Deloitte have recently outlined in depth, the bifurcation of retail is becoming more pronounced. The overall conclusion is that the difference between the haves and the have nots is ever more distinct.

On the first point, strong performance from multiple brick-and-mortar dominant retailers, including Target and Home Depot, underscores that stores are not only going to be around for a long time, they will continue to have the dominant share of retail in many categories for the foreseeable future.

On my second point, significant underperformance ( JC Penney ), store closings ( Sears Holdings ) and bankruptcies (Toys “R” Us) continue to be concentrated among those retailers that have failed to carve out a meaningful position toward the more value, convenience-oriented end of the spectrum or, conversely, to move in a more focused, upscale experiential strategic direction. Those that continue to swim in a sea of sameness edge ever closer to the precipice. Increasingly, it’s death in the relentlessly boring middle.

The great bifurcation point, of course, is related to this phenomenon. Despite the retail apocalypse narrative, solidly executing retailers at either end of the spectrum continue to perform well. Sales, profits and store openings are robust at TJX Companies , Walmart and many others that play on the value end. A similar story can be painted for the premium, service-oriented retail brands such as Nordstrom and Williams-Sonoma.

As the scorecards continue to come in, there are a few key things we should bear in mind. The most important is that better is not the same as good. While positive sales and expanding margins certainly beat the alternative, the improved performance at brands like Macy’s and Kohl’s should not reflexively make us think that all is now well. Their sales growth is more or less in line with overall category growth. So there isn’t any reason to believe they are growing relative market share, which is generally a pretty good proxy for improving customer relevance.

Second, we should expect decent earnings leverage with improved sales, given the relatively fixed cost nature of the business. It’s more important to put the margin performance in the context of “best in breed” competitors. Here, most in the gang of most improved still fall short.

Third, a rising tide tends to raise all ships. This happens to be a particularly good time for consumer spending. It’s anybody’s guess if, and how long, retail expenditures will meaningfully exceed the rate of inflation.

From a more strategic, longer-term perspective, we need to sort out what is at the core of improving outcomes. If it’s riding the wave of a particularly ebullient economic cycle, that’s wonderful but not likely sustainable. If it’s starting to realize more fully the benefits of major technology investments, asset redeployment and/or picking up share from a rash of store closings on the part of competitors, that’s also nice, but those gains are likely to plateau fairly quickly. If margin improvement comes from big cost reductions, those often are more one-time gains and may ultimately weaken a given retailer’s competitive position over time.

What really matters, of course, is that most of the gains are coming from fundamentally being more intensely relevant and remarkable than the customer’s other choices. Viewed from this lens, many retailers’ improved results are necessary but far from sufficient.

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.  

September 6th I will be in New York for the Retail Influencer Network Kick-off.  On September 19th I’ll be speaking at Total Retail Tech in Dallas. The following Monday I’m headed to Austin to do the opening keynote at the Next Conference.

Death in the middle · Retail

Eddie Lampert just can’t stop picking at Sears’ carcass

As some readers may know, I began my retail career at Sears. And these days, when folks ask how long I worked there, I typically say, “Too long.” The more accurate, less snarky answer is 12 years.

I learned a tremendous amount during my tenure and, for the most part, am proud of the work I led or was deeply involved with. I have also never regretted leaving when I did. Much of that is because I desperately needed a new challenge and to be in a place where my talents could be better leveraged. Despite quite a few twists and turns along the way, it’s all worked out just fine. Of course, another reason is that — through sheer luck — I managed to get out before Eddie Lampert decided that combining a mediocre retailer with a terrible one might be a good idea.

Anyway, I have written extensively over the years about Lampert’s horribly misguided and at times seemingly delusional leadership of the once-storied brand, and I will not recount that in any detail here. Google my name and “world’s slowest liquidation sale” or “dead brand walking” if you are desperate for that kind of entertainment. You can also see me on CNBC four years ago suggesting that the best thing for Sears shareholders would be for the company to liquidate ASAP. Oh, well.

So when it comes to Lampert, it’s safe to say I’m not a fan. I will point out in all fairness that, largely with the benefit of 20/20 hindsight, I have come to believe that no one could have prevented Sears from sinking into irrelevance once certain opportunities were missed many years ago. While there were unquestionably many chances over the past decade for Sears to do a much better job for its customers, associates, retirees and investors, it was always likely to end badly. Now, sadly, it is just a matter of time before Sears joins others in the retail graveyard, as evidenced by yet another round of stores closing this past week.

When the history of Sears demise is written, many leaders will rightly be taken to task for their lack of strategic insight, their unwillingness to take risk, their hiring of the wrong people and so on. Yet it’s safe to say that Lampert will stand alone in using his other interests (principally ESL Holdings) to stave off the inevitable by both loaning money to Sears and scooping up many of its remaining fungible assets. Now I will leave it to far more adept minds to determine if ultimately this multi-year complex web of financial engineering turns out to be brilliant for Lampert and his fellow ESL investors. Perhaps Crazy Eddie is indeed crazy like a fox?

What really galls me, though, and strikes me as worthy of a fast-track entry into the Chutzpah Hall of Fame, is how Lampert, through his totally inept leadership of Sears Holdings, drives down the value of the company’s assets only to pick them up at ostensibly bargain-bin prices. The latest example of this is ESL’s offer to buy the Kenmore brand for $400 million.

When I left Sears late in 2003 (the year before the Sears and Kmart merger), we had valued Kenmore well in excess of $2 billion, and Sears’ major appliance market share was north of 40%. Today, Sears’ leadership position has totally fallen apart. Today, the trends are relentlessly negative. Today, after two years of searching, ESL may now be the only plausible buyer.

To be clear, I’m not suggesting any intentional manipulation or malfeasance on the part of Lampert and/or ESL. Yet if I were the owner of a great house on a beautiful piece of property, I might be more than a bit suspicious of the buyout offer I just got from the guy who burned it down.

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.  

September 6th I will be in New York for the Retail Influencer Network Kick-off.  On September 19th I’ll be speaking at Total Retail Tech in Dallas. The following Monday I’m headed to Austin to do the opening keynote at the Next Conference.

Retail · The Amazon Effect · Voice commerce

Sorry, Alexa: Voice shopping is still mostly hype

Voice-activated shopping—and Amazon’s anticipated dominance of the platform via Alexa-enabled devices—has been touted as one of the next big things in retail. In fact, a simple Google search with any combination of the relevant keywords reveals a large number of bold predictions about the revolutionary nature of the technology. Go ahead and give it a try. I’ll wait.

So, given the large number of pundits, publications and consultancies reveling in the future thrill of a world dominated by voice-driven shopping, should we believe the hype? Well, as it turns out, maybe not so much. At least not yet.

In a report released last week by The Information, it appears that only about 2% of Alexa owners have ever used the device for shopping. Even more startling is the finding that of those that had bought via voice, a mere 10% did so again. As you probably know, repeat purchase rates are often a good indication of customer delight and can provide valuable insight into future sales momentum. So, if true, this doesn’t bode well for rapid adoption.

To be fair, a study by Narvar suggests higher adoption rates and considerable customer interest. Amazon has also disputed the numbers in the report, responding that “millions of customers use Alexa to shop.” Of course, when you do the math, given the installed base of Alexa devices, that’s not definitive proof that purchase incidence is a whole lot greater than 2%. Whether the actual data reveals a considerably different picture or Amazon is simply obfuscating a disappointing outlook is anyone’s guess. And just because momentum might be relatively slow right now doesn’t mean the rate won’t pick up considerably as the technology improves and consumers become more familiar. But I’d be cautious. Here’s why.

First, there is an aspect of the technology that is solving a problem I’m guessing relatively few customers have. Shopping on Amazon (and most other sites) via a mobile device, laptop or desktop is pretty easy, fast and well optimized. At the margin, in some instances, Alexa can save a little time and solve an immediate need. But it’s not like it’s a step function in improved convenience.

Second, voice-activated commerce, at least as it’s currently delivered, can involve significant experiential comprises. While I have not seen specific data, my own personal and industry experience suggests that visual cues are central to many purchases, and the ability to see options—and navigate through them—is highly useful for many purchase occasions. In these situations “regular” online shopping is clearly superior.

Third, as Scott Galloway from New York University and L2 humorously illuminated, Alexa does not always present most of the available product options and, shockingly, might have a bit of a bias towards Amazon’s own private brands. While it would take a large study to really understand how prevalent this pattern is, it strikes me that voice-activated shopping can work quite well when you know exactly what you want and aren’t especially open to considering alternatives. In all the other situations (which might well be the vast majority), it’s far from clear it’s meeting consumers’ needs in a highly relevant, compelling and unbiased manner.

Fourth is the trust factor, which extends beyond voice-activated commerce in particular to the general adoption and use of Alexa and similar devices. Some of the things I’ve mentioned already speak to the trust of shoppers getting the experiential outcome they desire. The other aspect is whether some of the suspicions about how these devices invade privacy get adequately addressed over time. Stories like the one about a woman’s conversation being recorded by Alexa and then being sent to a random contact don’t exactly inspire confidence. Whether these concerns are all that profound and whether a significant number of customers remain cautious about using such devices remains to be seen. Certainly the technology will continue to evolve, if only because of Amazon and Google’s massive commitment to their adoption.

As I don’t possess a working crystal ball, I’m reluctant to predict that voice-activated commerce won’t someday be retail’s next big thing. Right now, however, it seems much more of a cool technology still in search of addressing a real customer need at scale.

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.