Omni-channel · Reinventing Retail · Store closings

Are mass store closings the start of an inevitable downward spiral?

At the recent inaugural ShopTalk Europe event in Copenhagen, Hudson’s Bay Company CEO Gerald Storch posited that retailers risk hastening their demise by taking an axe to their store counts. Clearly there are many factors that contribute to a brand’s march to the retail graveyard, yet there is mounting evidence that Storch’s observation is on the money. As I’ve said many times, show me a retailer that is shuttering a large number of outlets and chances are the intrinsic problem is not too many stores but that the brand is not sufficiently relevant and remarkable for the stores it has.

I first surfaced this concern more than four years ago in my post “Shrinking to prosperity: The store closing delusion” and revisited it more recently with an updated Forbes post. While in many cases store counts need to be rationalized to address the overbuilding of the past two decades and to optimize store footprints given the shift to e-commerce, with rare exception, the retailers that are closing a large number of stores are working on the wrong problem.

When physical retail still accounts for 75-90% of a category’s volume, it’s hard to understand how radical cuts in store counts help address a brand’s ability to maintain, much less grow, market share. When we know for a fact that brick & mortar locations are key to supporting a viable and growing e-commerce business (and vice versa), mothballing dozens (or even hundreds) of stores only serves to undermine a retailer’s ability to meet customers’ evolving omni-channel demands. When we recognize that it is often far cheaper to acquire and serve customers through physical stores, reducing store counts substantially can worsen a retailer’s long-term cost position. And, as Storch points out, mass store closings erode purchasing power and can send consumers a signal that a retail brand is on its way to oblivion, serving only to make matters worse.

In fact, I cannot come up with a single major retailer that has closed 20% or more of its stores and is now considered truly healthy. On the other hand, I can easily name many that went through multiple iterations of down-sizing that have either liquidated or are currently in bankruptcy proceedings–Sears Canada being the most recent example. I can also list many that seem to be in perpetual store closing mode (Sears US for one) that thus far have been spared a visit from the grim reaper yet continue to see their operating results deteriorate with little hope for resurrection. For many, sadly, it’s dead brand walking.

We should also ignore any analysis that tries to estimate the number of store closings that a retailer must undertake to get back to prior store productivity levels. First, anchoring success on past store productivity metrics is largely irrelevant as it ignores a store’s contribution to online volume growth. Minimally, we need to understand the growth and profitability of a trade area and incorporate both e-commerce and physical store performance. Nordstrom and Neiman Marcus–just to name two powerful examples–have seen their historical store productivity numbers weaken, yet they still have healthy financial performance overall. Second, any such analysis is merely a rote arithmetic exercise that erroneously assumes that massive store closings don’t have any adverse impact on e-commerce, nor make a brand less relevant and competitive in consumers’ minds nor serve to de-leverage fixed costs.

Ultimately, I don’t see a scenario where store closings will be the silver bullet that troubled retailers need to get back on track. They may be a key piece in a needed reinvention, but the critical work centers on taking the required actions to make these troubled brands sufficiently relevant and remarkable such that they can stem the share of wallet loss that got them into trouble in the first place.

Said differently, if sales are the problem, working on the cost side will never help breathe a dying retailer back to life.

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

For information on speaking gigs please go here.

Being Remarkable · Digital · Omni-channel

The End Of E-Commerce? These Days, It’s All Just Commerce

Given the continued rapid growth of online shopping, it might seem crazy to suggest that the era of e-commerce is coming to an end. Yet while we are used to talking about e-commerce as a separate thing — and isolating statistics for digital transactions versus brick-and-mortar same-store sales — it’s increasingly clear that these are becoming distinctions without much of a difference. For consumers, it’s simply “commerce,” and retailers that want to thrive, or survive, need to fully embrace a one brand, many channels strategy.

I recently attended shop.org, the annual conference historically focused on digital commerce. What struck me most (beyond the dwindling attendance) was that speakers mostly ignored online shopping as a stand-alone concept. Instead, many emphasized the importance of brick-and-mortar stores in delivering a remarkable customer experience. Moreover, the majority of technology providers in the expo offered solutions that were very much anchored in online/offline integration or leverage, not e-commerce optimization, as was true in the past. Rather than buying into the retail apocalypse narrative and seeing brick-and-mortar stores as liabilities, most were clearly in the camp of believing that stores were (wait for it) assets. Physical retail might be different, but it clearly is not dead.

Notably, Mark Lore from Walmart/Jet spoke of the need for retailers to be channel agnostic and highlighted how Walmart’s stores give the brand a distinct advantage. TechStyle CEO Adam Goldenberg showcased statistics on how Fabletic’s overall brand performance has been enhanced through the opening of stores and on how the merging of cross-channel data gives them an edge. Kohl’s spoke of the role of mobile as a constant companion in the shopper’s journey from online to offline (and vice versa). While using somewhat different language, numerous other speakers acknowledged that customers shop everywhere and the best retailers need to meet them where they are. Clearly, more and more, it’s just commerce now.

Of course, the lines have been blurring for years, and study after study shows that a well-integrated shopping experience across channels (what some call “omni-channel” and what I prefer to call “harmonized retail”) is what customers desire and what often determines a brand’s ultimate success. The increasing investments in physical stores byAmazon and other digitally native brands serve to underscore this growing reality. Those of us who are familiar with retailers’ customer data know that, typically, a brand’s best customers are those who shop and/or are heavily influenced in both digital and physical channels. We also know that opening stores drives increases in e-commerce in that store’s trade area, just as closing a store often leads to dramatic declines in online shopping. It’s all just commerce.

This realization does not negate the fact that a meaningful percentage of shopping occurs in a purely digital fashion (particularly downloading books, music and games). It does not minimize that Amazon has achieved a total share of retail rapidly approaching 5% almost entirely without a physical presence. But as we move ahead, it’s important to realize the significant contributions to what we label “e-commerce” that are derived from traditional retailers’ online divisions. It’s important to recognize that Amazon will struggle to maintain outsized growth without deepening its investment in brick and mortar. It’s critical to grasp that digitally influenced physical-stores sales far exceed sales rung up online.

And ultimately it’s essential to realize that it is rarely an online-vs.-offline battle, but a struggle that is won when we accept that it’s all just commerce and strive to bring the best of offline and online together on behalf of the customer.

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

For information on speaking gigs please go here.

Inspiration · Leadership

Nobody saw that coming

The pain and shock we experience from the worst mass-shooting in the United States is the most extreme we have ever felt. Until the next time.

We reel at how disruptive innovation is transforming our industries. Surely, we tell ourselves, the pace will slow. Yet it doesn’t.

We are amazed by the magnitude of the devastation caused by a “natural” disaster. But then the one that follows is even worse.

We are surprised when people rise up to fight against decades of systemic inequity and oppression. Haven’t we transcended to a post-racial world?

Faced with escalating and challenging situations we often tell ourselves that “nobody saw that coming” or that there was just no way to prevent this.

Of course, when we say “nobody saw that coming” most of the time what we mean is “I didn’t see it.”

And that’s because we weren’t looking.

We ignored the facts. We denied an uncomfortable reality. We were afraid to confront our fear. We lost energy when it go too hard. We decided it was someone else’s job. Spoiler alert: it’s not.

Hope isn’t a strategy. It’s not even a decent tactic.

Lying to ourselves isn’t helping. In fact, it’s making it worse.

The truth is there if we are willing to see. And much of what is happening is completely predictable.

If we really desire a different outcome, we’re going to have to do different things. The hard and uncomfortable things.

And go to the places that scare us.

 

Being Remarkable · Customer Insight · Reinventing Retail

Discount Nation, Promiscuous Shoppers And The Sucker Price

Early in 2011, I first wrote about what I called “Discount Nation.” Having worked at Sears earlier in my career I was quite familiar with highly promotional retail. But what I was noticing was the ever growing intensity of discounting. Among traditional retailers the degree and frequency of deals was escalating. More brands were layering on loyalty programs or additional percents-off if you used their private label credit card. Free shipping was virtually ubiquitous during the 2010 holiday season. Newer business models, like the growing flash-sales segment, were trumpeting 40-60% off as the core element of their value proposition.

Since then it’s only gotten worse. The fastest growing segments of physical retail are off-price and dollar stores. Free shipping of online orders, once reserved for special promotional periods and often limited to higher order values, is fast becoming a basic consumer expectation. Minimum order sizes are falling and free returns & exchanges are becoming increasingly common. Rich discounts to incentivize trial now range from the sublime to the ridiculous (I’m looking at you Blue Apron). At any given time, it seems like virtually everything is on sale.

It’s easy to credit the transparency of the internet, cite the rise of digitally-native disruptive business models or simply blame the Amazon Effect for the erosion of any semblance of price integrity. And to be sure these are all contributors. But the reality is that it’s been a decades long process of retailers turning most of us into promiscuous shoppers. Regular price did not become the “sucker price” just in the last few years.

Some of this was inevitable; yet much is self-inflicted. Retailers could have chosen to focus on deep customer insight to deliver more relevant personalization. They could have invested in product innovation. They could have seen their physical stores as assets to leverage in creating a more harmonious and remarkable customer experience, rather than as liabilities to cost reduce and shutter.

We know that the relentless downward pressure on pricing only squeezes margins for all but the most cost efficient. As a result, many retailers find themselves standing at a precipice. The rather rosy forecasts for holiday spending are small comfort as it is clear that profits are another matter entirely and the harsh reality is that the future will not be evenly distributed. Living in Discount Nation may be great for consumers but it is disastrous for all too many retail brands that have failed to reinvent themselves and will be lucky to limp their way into 2018.

While it is too late for some, many brands still have a choice: engage in a discounting fueled race to the bottom or seek to do what is unique, intensely customer relevant and truly remarkable, where price is not the determining factor in the customer’s decision.

As they saying goes, choose wisely. And remember to hurry.

download

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

For information on speaking gigs please go here.

Inspiration · Leadership

On building trust

Hemingway said that “the best way to find out if you can trust somebody is to trust them.”

That doesn’t mean you give the car keys to a 12 year old, let a drunk pilot fly the plane or promote an incompetent person to a position where their predictable mistakes could do great damage.

But it does mean that when we are dealing with a functional adult we often need to get out of the way of their responsible risk taking and allow them the space for their growth. We need to give them a chance, observe what happens and decide if it works for us. And we have to get comfortable with the reality that it might not.

Ultimately, deep, real and enduring trust is earned,

Trust requires consistency.

Trust builds over time.

Trust creates connection.

Yet if our fear or desire for control prevents us from giving another person the opportunity they need to explore, mature and, yes, make some mistakes, we’ll never get to see who they really are.

The hard part is that trust demands vulnerability and a willingness to let go out the outcome.

If the relationship is important enough it’s always worth it.

shutterstock_trust-in-virtual-teams-620x250

Inspiration · Leadership

Eventually we’ll see it (or maybe not)

How many times have you witnessed (either as an observer or employee) organizations embark on a path that almost certainly will end in disaster, yet they forge ahead anyway? How can they be so wrong-headed we wonder?

How often have you watched as a friend or loved one engaged in seemingly destructive behavior, but the one involved in the situation seems blissfully unaware? Why is it that they can’t see it as clearly as we do?

Undoubtedly, there are situations where the bullet’s already been fired, it’s simply that the full impact is yet to be felt.

Other times, when we feel certain we know the inevitable outcome, the truth is we have no idea what’s going to happen but we manage our fear by gripping ever more firmly to the steering wheel.

Frequently, at least in my own personal experience, we’re more worried about what’s going on externally that we avoid focusing on what is ours to own.

It turns out, over time, the truth is undefeated. And as Pema Chodron reminds us, “fear is a natural reaction to moving closer to the truth.”

We can hope that the groups or individuals we care about will come to see it our way. And it’s simple: they will or they won’t. Or maybe we will come to see things differently. And there too, either we will or we won’t.

The only thing we can do to improve the odds of getting to the right actions is to become aware of our truth and the work that is ours to do–and then go do it.

Let go of everything else.

 

 

Being Remarkable · Small is the new black

Small is the new black: Nordstrom ‘micro-concept’ edition

Last week Nordstrom announced it will open its first “Nordstrom Local” in West Hollywood, California. The new venture is noteworthy on several dimensions. First, at 3,000 square feet, the pilot concept is dramatically smaller than a typical Nordstrom full-line department store. Second, it won’t stock any of the items that Nordy’s is best known for, such as shoes, clothing, cosmetics and accessories. Third, the focus will be on services: tailoring, manicures, style advice and cocktails.

Nordstrom joins a growing number of brands shrinking their footprints and once online only brands delving into the physical realm with small box stores. Of course, the reasons for the big guys going small and the little online brands getting into brick and mortar vary. The downsizing of traditional formats is often driven by a typically vain attempt to optimize productivity. With more business being done online the thought is that less square footage is needed to take care of the customer. The problem is that shrinking to prosperity rarely works.

Another big driver of smaller formats being promulgated by major retailers is the desire to get closer to the customer. Smaller versions of traditional format stores like Target’s urban concept allow the company to open many new more convenient locations at acceptable economics.

Most interesting–and probably the leading indicator of what’s to come–are the new brick-and-mortar “micro-concepts” that are designed from a customer point of view and rooted in the understanding of the interplay of online and offline. In announcing the Nordstrom Local test Nordstrom’s co-president Eric Nordstrom says it best: “There aren’t store customers or online customers—there are just customers who are more empowered than ever to shop on their terms.” What Nordstrom has understood for a long time–and what helps explain much of their success during the past decade–is that physical stores drive online and online drives stores. Ultimately, the retail brands that win create a highly remarkable and relevant experience that meets the customer where they are.

Digitally native brands that move into physical retail apply this thinking as well. While brands such as Bonobos, Warby Parker and many others initially believed they could build successful enterprises without pesky brick-and-mortar locations, they’ve come to realize that not only do many customers prefer to shop in actual stores, but also that physical locations bring many important economic advantages. The beauty of these brands starting with a blank sheet of paper when it comes to designing stores is that they can pick the best locations and create a highly experiential and remarkable shopping experience that leverages the best of online and offline into a more relevant and harmonious whole.

Clearly, the jury is still out on most of what’s in market today. Whether the movement of pure-play brands into physical retail will pan out remains to be seen as virtually all of these brands are hemorrhaging cash and reports of high sales productivity out of a few choice locations do not necessarily indicate profitable scalability. Nascent micro-concepts like Bodega are far from proven winners. And with Nordstrom Local it will clearly take some time to know whether it turns out to be a noble experiment or something that can be rolled out to a substantial number of locations.

While we are early in the move to micro-concepts I expect to see three things happen over the next year or two. First, is a dramatic uptick in new concept testing from both start-ups and traditional players. Small enables greater customer reach. Small makes more interesting site locations possible. Small lowers breakeven sales volumes. Small blends the best of online and offline. Second, will be the dramatic expansion of a few powerful formats where dozens, if not hundreds, of locations can be opened. Lastly, we are also likely to see some big flame-outs, particularly among the online only players that never had a viable business model in the first place.

Regardless of how this all ultimately plays out, from where I sit, Nordstrom is to be applauded for their willingness to take risks and to experiment. Many more retailers would be wise to follow their example.

Nordstrom Local Storefront

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

For information on speaking gigs please go here.

Inspiration · Leadership

Mistakes oft repeated

Paolo Coelho suggests “a mistake repeated more than once is a decision.” And he’s definitely on to something.

Of course, sometimes mistakes are an intentional part of our path toward learning, innovation, growth. That’s called experimentation–and if failure is not an option then neither is success.

On the other hand, when we repeat destructive–or just plain foolish–behaviors, it’s often our unconscious habits taking over. The key here is mindful awareness and realizing that our fear doesn’t have to rule the roost. We always have a choice.

I like what Portia Nelson has to say about this in her “Autobiography In Five Short Chapters”

Chapter One

I walk down the street.

There is a deep hole in the sidewalk.

I fall in.

I am lost . . . I am helpless.

It isn’t my fault . . .

It takes forever to find a way out.

Chapter Two

I walk down the same street.

There is a deep hole in the sidewalk.

I pretend I don’t see it.

I fall in again.

I can’t believe I am in this same place.

But it isn’t my fault.

It still takes a long time to get out.

Chapter Three

I walk down the same street.

There is a deep hole in the sidewalk.

I see it there.

I still fall . . . it’s a habit . . . but,

My eyes are open.

I know where I am.

It is my fault.

I get out immediately.

Chapter Four

I walk down the same street.

There is a deep hole in the sidewalk.

I walk around it.

Chapter Five

I walk down another street.

Being Remarkable · Reinventing Retail · Store closings

The Retail Apocalypse And The Urgent Quest For Remarkable

Some love the “retail apocalypse” narrative. It’s great clickbait, makes for captivating keynote speeches and gives consultants a hook to peddle complicated strategic frameworks. Alas, it’s mostly nonsense. Physical retail is definitely different, but it’s far from dead. The fact is plenty of new stores are opening, many traditional retailers and — I hope you are sitting down — even quite a few malls are doing great. Brick-and-mortar retail sales are likely to be up this year, just as they were last year.

Some retailers love hearing this alternative narrative because they think it means they will be okay, that they don’t have to change, that there is some storm they just have to ride out. Unfortunately, that is not only nonsense, it is dangerous nonsense. While physical retail is not dead, virtually every aspect of retail is changing dramatically, as this excellent pieceby Doug Stephens points out. While I believe Doug overstates a few things, his underlying premise is on the money. Almost everything has to change and the key thing to understand is that the future of retail will not be evenly distributed. Stated simply: yes, some brands will do well. But many others will struggle mightily, others will be eviscerated and quite a few are dead already, they just don’t know it.

Physical retail is not going away but unremarkable retail is getting hammered. The brands that relied on good enough are learning the hard way that good enough no longer is. The mediocre brands that were protected by scarcity of information, distribution and access are getting blown apart as the customer can now get the same product anytime, anywhere, anyway — and often for less money. The brands that tried to stake out a place in the vast wasteland between cheap and special are losing as retail becomes more bifurcated and it’s increasingly clear that it’s death in the middle.

By now, a few things should be abundantly clear:

Just because physical retail isn’t dead doesn’t mean you don’t have to change.

On average, more than 80% of retail will still be done in physical stores in 2025. Unfortunately, you can’t pay your bills with averages and your mileage will vary. The way the migration of sales away from physical stores to online will affect your competitive situation and marginal economics can have devastating consequences. Even small shifts can require the need for radical reinvention.

Stop blaming Amazon.

hile there is no question of Amazon’s dramatic and growing impact upon the retail ecosystem, most of the retail industry’s problems today have nothing to do with Amazon. Overbuilding, excessive discounting, boring product, unremarkable experiences and a fundamental lack of innovation are the main reasons that most retailers are struggling today.

It’s not just about e-commerce. 

The most disruptive force in retail is not e-commerce but the fact that most customer journeys start in a digital channel. In fact, digitally-influenced brick-and-mortar sales dwarf online sales.

You can’t out-Amazon Amazon. 

Pop quiz: Are you Walmart or Target? No? Okay, then stop trying to out-price, out-assort and out-convenience Amazon. To paraphrase Seth Godin: the problem with a race to the bottom is you might win.

Choose remarkable. 

Unless you are on the short list of brands that can be just about everything to everybody (and actually make money) your task is to get hyperfocused on a set of consumers for whom you can be intensely relevant and remarkable at scale. That likely means being far more experiential and blending the best of online and offline in a compelling and harmonized way.

Be prepared to blow stuff up. 

Remarkable is easier said than done. And most retailers suffer from bringing a knife to a gun fight when it comes to innovation. Much of what got us any level of success in the past isn’t going to work in the age of digital disruption. New thinking, new processes, new technology, new metrics and new people are table-stakes on the path to retail reinvention.

Hurry.

As the Chinese proverbs says, “the best time to plant a tree was 20 years ago. The second best time is now.” Chances are you’re already behind and it’s far later than you think. The only choice then is to get started. Now. And go fast. Fail fast. Rinse and repeat.

The big problem is we think we have time.

purple cow

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

For information on speaking gigs please go here.

Customer Growth Strategy · e-commerce · Marketing · Retail

Unsustainable Customer Acquisition Costs Make Much Of Ecommerce Profit Proof

As much attention as both the growth and disruptive nature of e-commerce receives, few observers seem realize that often the economics of selling online are terrible (what I often refer to as “the inconvenient truth about e-commerce”). The fact is only a handful of venture capital funded “pure-plays” have (or will ever) make money and most are now embarked on a capital intensive foray into physical retail that even Alanis Morissette would find deeply ironic. Amazon, which accounts for about 45% of all US e-commerce,  has amassed cumulative losses in the billions, and even after more than 20 years still operates at below average industry margins. And while I have yet to see a comprehensive breakout, it’s clear that the e-commerce divisions of many major omni-channel retailers run at a loss–or at margins far below their brick & mortar operations.

So why is this?

Last month I wrote a post pointing out how high rates of returns, coupled with the growing prevalence of free shipping “both ways”, makes certain online product categories virtually profit proof. While the impact of this factor tends to be isolated to categories with relatively low order values and a high incidence of returns or exchanges (e.g. much of apparel), a different dynamic has wider ranging implications and profit killing power. I’m referring to the increasingly high cost of acquiring (and retaining) customers online.

Investors have been lured (some might say “suckered”) into supporting “digitally-native” brands because of what they believed to be the lower cost, easily scaled, nature of e-commerce. Seeing how quickly Gilt, Warby Parker, Bonobos and others went from nothing to multi-million dollars brands, encouraged venture capital money to pour in. What many failed to understand were the diseconomies of scale in customer acquisition. As it turns out, many online brands attract their first tranche of customers relatively inexpensively, through word of mouth or other low cost strategies. Where things start to get ugly is when these brands have to get more aggressive about finding new and somewhat different customers. Here three important factors come into play:

  • Marketing costs start to escalate. As brands seeking growth need to reach a broader audiencethey typically start to pay more and more to Facebook, Google and others to grab the customer’s attention and force their way into the customer’s consideration set. Early on customers were acquired for next to nothing; now acquisition costs can easily exceed more than $100 per customer.
  • More promotion, less attraction. As the business grows, the next tranches of customers often need more incentive to give the brand a try, so gross margin on these incremental sales comes at a lower rate. It’s also the case that typically these customers get “trained” to expect a discount for future purchases, making them inherently less profitable then the initial core customers for the brand.
  • Questionable (or lousy) lifetime value. It’s almost always the case that customers that are acquired as the brand scales have lower incremental lifetime value, both because on average they spend less and because they are inherently more difficult to retain. It’s becoming increasingly common for fast growing online dominant brands to have large numbers of customers that are projected to have negative lifetime value.

So it’s easy to see how an online only brand can look good at the outset, only to have the profit picture deteriorate despite growing revenues. The marginal cost of customer acquisition starts to creep up and the average lifetime value of the newly acquired customer starts to go down, often precipitously. Accordingly it’s not uncommon for some of the sexiest, fastest growing brands to have many customers that are not only unprofitable, but have little or no chance of being positive contributors ever.

While it’s not the only reason, this challenging dynamic explains in large part the collapse of valuations in the flash-sales market in total, as well as several major flameouts like One Kings Lane. It also helps explain why so many pure-plays are investing heavily in physical locations. To be sure, opening stores attracts new customers that are reticent to buy online. But another key factor is that customers can often be acquired in a store more cheaply than they can be by paying Facebook or Google.

Slowly but surely the world is starting to wake up to this phenomenon. The nonsense that is the meal-kit business model is finally getting the scrutiny it deserves as people start to question whether Blue Apron is a viable business if it spends $400 to acquire new customers. Spoiler alert: the answer is “no.” Increasingly, many “sophisticated” investors are backing off the high valuations that digitally-native brands are seeking to fuel the next stage of their growth, leaving these companies to thank their lucky stars that Walmart seems to relish its role as a VC bailout fund. More folks are starting to realize that physical retail is definitely different, but far from dead. And, in another bit of irony, some even are starting to see that many traditional brands (think Best Buy, Nordstrom, Home Depot and others) are actually well positioned to benefit from their stores and improving omni-channel capabilities.

It may take some time, but eventually the underlying economics tell the tale.

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

For information on speaking gigs please go here.