On one level, I get the attention paid to retailers’ quarterly reports. So when Macy’s missed on sales expectations and cut its full-year profit outlook recently, it wasn’t surprising that many analysts glommed on to how it was the iconic retailer’s first same-store sales decline in seven quarters, or to CEO Jeff Gennette’s lame weather-related excuses.
Yet whether we are talking about Macy’s, JC Penney or a host of other retailers that are struggling, it remains shocking to me how low performance expectations have become and how common it is to default to store closings as a key part of any turnaround plan. We need to reframe our thinking.
First, we should remember that same-store sales growth is no longer an especially good indicator of long-term retailer success. Second, chances are that any retailer that is not posting at least 3% overall (all channel) sales growth is shedding market share. Long-term market share loss is pretty well correlated with weakening customer relevance.
These brands will not cost-cut or store-close their way to prosperity. The many incremental improvements that are being put in place may be worthwhile individually, but collectively they are still mostly lipstick on the pig. A slightly better version of mediocre will not save a failing business model. And Macy’s is failing.
When we step back from a quarterly or even full-year perspective, Macy’s and most of its department store brethren have been losing market share for a very long time (and by the way, despite the common narrative, blaming Amazon is wildly inaccurate). Instead of working on becoming more customer relevant and remarkable, for the most part, they all watched the last 20 years of changing customer dynamics and digital disruption happen to them and instead chose to focus on driving efficiency.
It’s basically an exercise in arithmetic to realize there are limits to cost cutting. It should also be obvious that reducing expenses and closing stores rarely help a retailer gain market share and/or share of wallet. If customer relevance and competitive differentiation decline, sales are sure to follow. When we take a longer view, this has been the story of Macy’s for quite some time—despite the huge gift given to them by Sears’ slow march into oblivion (aka “the world’s slowest liquidation sale”).
Macy’s (and still newish CEO Jeff Gennette) should absolutely get credit for being more willing to try things than many legacy retailers and for investing significant dollars into reinvention (my fellow Forbes Contributor Chris Walton offers his own excellent–and more detailed–assessment of each of those major efforts here). And to be sure, Macy’s is faced with many structural and macroeconomic issues that are extremely difficult to address and largely out of their control. Sadly, it’s quite possible that even with a bolder set of initiatives, they have neither the time nor the capital to go from also-ran to truly remarkable.
There are three things I believe are certain—and none bode well for any retailer stuck in the boring middle.
The first is that while store closings may be necessary to improve cash flow, they don’t solve the customer relevance problem that plagues struggling retailers.
Second, the pace of change (and the rising tide of customer expectation) is accelerating. If a retailer could not respond meaningfully and quickly to past disruption that was more linear than exponential, they will have little or no idea what to do in the brave new world we are entering. And to paraphrase Cervantes, the problem is they think they have time.
Third, and most importantly, the bar for meaningfully winning back customer share of wallet is much, much higher today than a mere decade ago. The power has now shifted overwhelmingly to the customer. The battle for customer attention is intense, and without delivering something truly memorable, many times we might as well not exist. Access to products—and information about them—is no longer scarce, but wildly abundant. We live in a world where the customer can shop anytime, anyway and anywhere they have a smart device with them, and if a brand doesn’t show up in remarkable ways in those shopping moments that matter, opportunity is lost—perhaps forever.
Cost cutting, store closings and delivering a slightly better version of mediocre may slow the rate of descent. But it doesn’t change the fact that you are still heading for a crash.
A version of this post recently appeared at Forbes, where I am a senior contributor.
My first book–“REMARKABLE RETAIL: How to Win & Keep Customers in the Age of Digital Disruption”–will be released early next year.