Leadership · Luxury · Retail

Competing with yourself

One of the biggest mistakes companies make strategically is failing to compete with themselves.

The only reason Sears is no longer the leader in the retail home improvement industry–and now on a slow slide into oblivion–was their unwillingness to build or buy an off-the-mall response to Home Depot when they had the chance. Having personally participated in 2 separate strategic studies in the early and mid 1990’s, I can tell you that the big hang up in making the plunge was leadership’s fear of sales diversion from the “core” mall-based department stores.

Whoops.

So it was refreshing yesterday to see Nordstrom’s acquisition of HauteLook, one of the leading flash-sales sites.

The luxury/fashion off-price market has exploded in the past 3 years with upstarts like HauteLook, GiltGroupe, RueLaLa, et al creating a $1 billion+ (and growing) sub-segment through daily online sales. And it’s clear that a lot of that business has come at the expense of traditional players like Nordstrom, Neiman Marcus and Saks.

It remains to be seen whether the price Nordstrom paid was sensible. And time will tell how well they will be able to leverage their capabilities and customer database to accelerate HauteLook’s growth and profitability. But one thing is clear. The other industry incumbents have been slow to react–or have responded with utterly unremarkable tactics–and have let many start-up companies steal market share and attract new customers in a space they could have easily dominated.

Retailers are pretty good at firing people when they don’t make their seasonal sales plan or manage their budgets well. When they let hundreds of millions of dollars of potential shareholder value slip through their hands by failing to act on business that is rightfully theirs, you rarely hear a peep.

That needs to change.

And you need to be willing to compete with yourself. Last time I checked you don’t any credit for your competition’s sales.

 

7 thoughts on “Competing with yourself

  1. Steven –

    I love your blog work. And generally agree.

    But not today. I’m going to offer two alternate points of view…

    On today’s post… My agency specializes in retail tools & hardware. Truth is that Sears remains seriously active in the tool category.

    While they never chose to pursue the full service DIY box store approach, they are one of the “big 3” in tools & hardware. It’s quite a jump down to the other retailers.

    Perhaps they could have chosen to pursue the rest of the home/DIY category. But I think it was wise for Sears as a company that they didn’t.

    So I agree with your point – but they’re not the best example.

    Earlier in the week… You posted about how aggressively retailers should be pursuing mobile. I’m don’t agree. The things that overwhelmingly sway consumers are (a) better merchandising and (b) staff. Those investments are the big dogs that return sweetest profit.

    Also internet % of retailer sales is growing no higher than 8% in the next few years. From what I see, I think this confirms the high value the mass audience places on the human/physical store presence. So mobile must become a seamless assistance to the human & physical presence.

    So, yes, retailers should be toying with mobile. There’s just not much profit potential from it right now.

    Keep up the good work!

    …Doug Garnett
    dsgarnett.wordpress.com

    1. Doug,

      I appreciate your comments, but I really don’t get your argument.

      Yes, it is true that Sears is still one of the big 3 in tools, however what you may not realize was that in the late 80’s and early 90’s Sears was overwhelmingly the #1 market share leader in tools, enjoying 40%+ market share in many lines. Sears was also far and away #1 in major appliances, paint and floor covering. Sears market valuation greatly exceeded Home Depot and Lowe’s for many years, largely on the strength of its proprietary home brands (Craftsman, Kenmore and Weatherbeater). In a nut shell, Sears was THE destination for home improvement some 20 years ago.

      Today Sears is now barely in the paint and carpet business, has seen the value of its Craftsman brand tank and has lost significant share in major home appliances. The 20-25 year shift in share from Sears (and local hardware stores) to Home Depot and Lowe’s has been seismic and today’s Sears market valuation reflects their failure to keep pace.

      As for mobile, that obviously still needs to be played out and you are certainly right that there is not much profit it in it today. That will be a very different story within the next year or two.

      1. Appreciate your thoughts and numbers. But, I don’t think it’s quite the clear picture you paint.

        I disagree most in the tool arena. You’re quite dismissive of The Craftsman brand. Truth is that it retains considerable strength – we hear about it consistently in consumer research. In fact, they’ve added quite a bit of power tool value to a brand that for years was solely about hand tools.

        Your point about paint, floor covering, and appliances is valid. I’m not sure that Sears had a legitimate chance to take that business – because the fundamental business model of Home Depot is so dramatically different.

        Of course, we’re looking waaaaay back. So it’s impossible to know either way for certain.

        But when I look for company’s that should compete with themselves, I think there’s a huge range of possibilities where it’s intriguing to ponder “what if they competed with their own lines” – Sony, Time Magazine, and many more.

        …Doug

  2. Unfortunately for traditional retailers, I think they are doomed to lose their positions to online retailers in the long run.

    As more and more people migrate online to do their shopping…

    Of course, you can’t take away the “tangible” aspects of traditional shopping, but man, online retailers are getting there very quickly…

    No traditional shopper is able to compete with the combination of prices, quality, and SELECTION that online retailers offer.

    1. Liu –

      From what I can see, traditional retailers aren’t the least bit threatened by online – except primarily in categories where variety dominates (like video, books, games, …) or where the product margins are so narrow that retailers can offer no human advantage (like computers). The internet doesn’t offer a whole lot of consumer value: variety (as in variety of books or variety of prices), information, privacy (leading to porn).

      In the other traditional channel values it drops. Takes too long to receive. I can’t feel/touch the product. No person to explain it to me…

      The latest numbers from Forrester (who always exaggerates the online possibilities) show that a retailer online revenue will grow only from 6% to 8% between 2009 and 2014.

      Given that the theme of the late 1990’s was that “retail is going away”, those numbers are ridiculously low.

      Personally, I appreciate how fundamentally human it is to go to the store. And when it’s right to buy on the web, I love that approach, too.

      But nothing suggests that humanity is actually changing (despite all the current hype about it).

      …Doug

  3. Doug

    “No people to explain it to me”? If I want to know about something, I go online, not to the store where the salesperson doesn’t know much (there are exceptions – Home Depot has some experts in plumbing and electrical etc).

    What I as a consumer find myself doing more and more is combining online research with physical evaluation – the point of purchase will be based on how quickly I need it, and the price, availability of size/colour and whether I like being in the particular store.

    Often I’ll see something in a store, get interested, and then go home to do further research. Once I have my information I can safely purchase online without visiting the store again.

    Traditional retailers need to figure out how to combat this or they will be dis-intermediated.

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