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

Retail reality: It’s death in the middle

I first pointed to what I called “retail’s great bifurcation”literally two years ago today. Though it wasn’t the first time that I had observed what I saw as the impending collapse of the middle. I began writing and speaking about that during 2011.

As we emerged from the financial crisis it seemed clear to me that retail brands were faced with the proverbial fork in the road. A strategy of being just about everything to everybody–of selling average products to average people in an average experience–was becoming increasingly untenable. While it’s easy to credit the “Amazon effect,” or the overall rise of e-commerce, that’s only part of the story. The fact is many factors conspired to squeeze the middle, while, for the most part, the two ends of the spectrum continue to thrive.

For years now brands that execute well on price, dominant assortments, buying efficiency and convenience are winning. Amazon, Walmart, Best Buy, Home Depot, Costco and virtually all the off-price giants and dollar stores, are driving strong growth and profits. And–I hope you are sitting down for this–despite the silly retail apocalypse narrative, they are all opening stores–in some cases lots of them. Similarly, we find many success stories at the other end of the spectrum. Most established luxury brands are experiencing strong growth, as are higher-end specialty retailers who have a tight customer focus, offer a superior experience and provide a real emotional brand connection. Think Apple, Bonobos, Nordstrom, Sephora, Ulta, Warby Parker and many more. Somehow living in the age of Amazon and digital disruption has not come remotely close to creating an existential crisis for these retailers.

Of course, the story is very different for others in the great, mostly undifferentiated, wasteland of the middle. Most of the retailers that have recently made their way to the retail graveyard or find themselves at the precipice suffer from a decided lack of relevance and remarkability. They have decent prices, but not the best price. They have some service, but nothing to get excited about. Their product assortments and presentations are drowning in a sea of sameness. The overall experience is dull, dull, dull. It’s not surprising that a quick perusal of a store closing tracker features names like Sears, J.C. Penney, Macy’s and Radio Shack; brands that staked out the moderate part of the market long ago and have failed to innovate in any material way. Most of these companies now lack the financial resources, time and organizational DNA to affect the necessary transformations. This will end badly.

While it’s tempting to blame Amazon for the deep troubles faced by mid-priced department stores, the category has been on the decline for more than two decades. Studies also show that the majority of market share lost by these players in recent years has gone to the off-price sector. To be sure, Amazon is putting pressure on most sectors of retail. Further, the rise of digital shopping has created a radical transparency that places the customer firmly in charge. In many respects what was once scarce–reliable product information, lower prices, access to products from across the country (and around the world), rapid delivery–no longer is. No customer wants to be average and today, in most instances, no customer has to be. And, for those brands that have seriously invested in deep customer insight and committed to a “treat different customers differently” strategy, there is no place for unremarkable competitors to hide. Good enough no longer is.

The bifurcation of retail is only going to become more pronounced. The fork in the road is more and more obvious. The collapse of the middle will only get worse.

It turns out it’s really bad time to be boring.

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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 keynote speaking and workshops please go here.

e-commerce · Omni-channel · The Amazon Effect

Here’s who Amazon could buy next, and why it probably won’t be Nordstrom

Since the Whole Foods deal, more than a few industry analysts and pundits have weighed in on which retailers might be on Amazon’s shopping list.

Various theories underpin the speculation. Some say Jeff Bezos wants to go deeper in certain categories, so Lululemon or Warby Parker get mentioned. Foursquare (is that still a thing?) crafted its own list from analyzing location data. The Forbes Tech Council came up with 15 possibilities. The always provocative, and generally spot-on, Scott Galloway of L2 and NYU’s Stern School of Business believes Nordstrom is the most logical choice.

Obviously no one has a crystal ball, and Amazon’s immediate next move could be more opportunistic than strategic. Given Amazon’s varied interests, there are several directions in which they could go. And clearly they have the resources to do multiple transactions, be they technology enabling, building their supply-chain capabilities out further, entering new product or service categories, or something else entirely. For my purposes, however, I’d like to focus on what makes the most sense to expand and strengthen the core of their retail operations.

Before sorting through who’s likely to be right and who’s got it wrong (spoiler alert: Scott), let’s briefly think about the motivating factors for such an acquisition. From where I sit, several things are critical:

  • Materiality. Amazon is a huge, rapidly growing company. To make a difference, they have to buy a company that either is already substantial or greatly accelerates their ability to penetrate large categories. This is precisely where Whole Foods fit in.
  • Fundamentally Experiential. There is an important distinction between buying and shopping. As my friend Seth reminds us, shopping is an experience, distinct from buying, which is task-oriented and largely centered on price, speed and convenience. Amazon already dominates buying. Shopping? Not so much.
  • Bricks And Clicks. It’s hard to imagine Amazon not ultimately dominating any category where a large percentage of actual purchasing occurs online. Where they need help is when the physical experience is essential to share of wallet among the most valuable customer segments. They’ve already made their bet in one such category (groceries). Fashion, home furnishings and home improvement are three obvious major segments where they are under-developed and where a major stake in physical locations would be enormously beneficial to gaining significant market share.
  • Strong Marginal Economics. We know that Amazon barely makes money in retail. What’s not as well appreciated is the inconvenient truth that much of the rest of e-commerce is unprofitable. Some of this has to do with venture-capital-funded pure-plays that have demonstrated a great ability to set cash on fire. But unsustainable customer acquisition costs and high rates of product returns make many aspects of online selling profit-proof. An acquisition that allows Amazon access to high-value customers it would otherwise be challenged to steal away from the competition and one that would mitigate what is rumored to be an already vexing issue with product returns could be powerfully accretive to earnings over the long term. Most notably this points to apparel, but home furnishings also scores well here.

So pulling this all together, here’s my list of probable 2018 acquisition targets, the basic rationale and a brief word on why some seemingly logical candidates probably won’t happen.

Not Nordstrom, Saks or Neiman Marcus

Scott Galloway is right that Nordstrom (and to a lesser degree Saks and Neiman Marcus) has precisely the characteristics that fit with Amazon’s aspirations and in many ways mirror the rationale behind the Whole Foods acquisition. Yet unlike Whole Foods, a huge barrier to overcome is vendor support. Having been an executive at Neiman Marcus, I understand the critical contribution to a luxury retailer’s enterprise value derived from the distribution of iconic fashion brands, as well as the obsessive (but entirely logical) control these same brands exert over distribution. Many of the brands that are key differentiators for luxury department stores have been laggards in digital presence, as well as actually selling online. Most tightly manage their distribution among specific Nordstrom, Saks and Neiman Marcus locations. If Nordstrom or the others were to be acquired by Amazon, I firmly believe many top vendors would bolt, choosing to further leverage their own expanding direct-to-consumer capabilities and doubling down with a competing retail partner, fundamentally sinking the value of the acquisition. While Amazon might try to assure these brands that they would not be distributed on Amazon, I think the fear, rational or otherwise, would be too great.

Macy’s, Kohl’s or J.C. Penney 

Amazon has its sights set on expanding apparel, accessories and home but is facing some headwinds owing to a relative paucity of national fashion brands, likely lower-than-average profitability (mostly due to high returns) and a lack of a physical store presence. Acquiring one of these chains would bring billions of dollars in immediate incremental revenues, improved marginal economics and a national footprint of physical stores to leverage for all sorts of purposes. All are (arguably) available at fire-sale prices. Strategically, Macy’s makes the most sense to me, both because of their more upscale and fashion-forward product assortment (which includes Bloomingdale’s) and because of their comparatively strong home business. But J.C. Penney would be a steal given their market cap of just over $1 billion, compared with Macy’s and Kohl’s, which are both north of $8 billion at present.

Lowe’s

The vast majority of the home improvement category is impossible to penetrate from a pure online presence. Lowe’s offers a strong value proposition, dramatic incremental revenues, already strong omni-channel capabilities, and a vast national network of stores. The only potential issue is its valuation, which at some $70 billion is hardly cheap, but is dramatically less than Home Depot’s.

A Furniture Play

Home furnishings is a huge category where physical store presence is essential to gaining market share and mitigating the high cost of returns. But it is also highly fragmented, so the play here is less clear as no existing player provides a broad growth platform. Wayfair, the online leader, brings solid incremental revenue and would likely benefit from Amazon’s supply chain strengths. But without a strong physical presence their growth is limited. Crate & Barrel, Ethan & Allen, Restoration Hardware, Williams-Sonoma and a host of others are all sizable businesses, but each has a relatively narrow point of view. My guess is Amazon will do something here — potentially even multiple deals — but a big move in furniture will likely not be their first priority in 2018.

As I reflect on this list (as well as a host of other possibilities), I am struck by three things.

First, despite all the hype about e-commerce eating the world, the fact remains that some 90% of all retail is done in physical stores, and that is because of the intrinsic value of certain aspects of the shopping experience. For Amazon to sustain its high rate of growth, a far greater physical presence is not a nice “to do” but a “have to do.”

Second, the battle between Amazon and Walmart is heating up. While they approach the blurring of the lines between physical and digital from different places, some of their needs are similar, which could well lead to some overlapping acquisition targets. That should prove interesting.

Lastly, the business of making predictions is inherently risky, particularly in such a public forum. So at the risk of stating the obvious, I might well be wrong. It wouldn’t be the first time, and it surely won’t be the last.

But why not go out on a limb? I hear that’s where the fruit is.

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 keynote speaking and workshops please go here.

Innovation · Inspiration · Life Lessons

Misteaks were made

Our culture tends to reward perfectionism. Never say die, never fail, never let them see you sweat, be all you can be. And so on.

I’ve worked with–and for–a lot of perfectionists. Some of my best friends are perfectionists. I might have even fallen in love with a perfectionist or two. And, in the spirit of full disclosure, I’ve had my own bouts with setting impossibly high standards for myself and then falling short time and time again. Let the self flagellation begin!

It’s a trap.

In fact, more and more research suggests that perfectionism actually hampers success, while being a major contributor to depression, anxiety and even suicide.

Unfortunately, the growth of social media only exacerbates the situation and sets us up for a ridiculous game of comparison as our “friends” share all the fabulous things they are doing, all the great relationships they are in (“best boyfriend ever!”) and all the wonderful food they are enjoying (“nom”).

All these crazy comparisons only make us crazy. When we stop worrying about what others will think we are truly free to embrace being ourselves, warts and all.

Our fear of looking stupid or vulnerable hinders the possibility for intimacy. Letting go of our desire for control and certainty paves the way for real connection.

And it’s precisely our unwillingness to fail that is the biggest barrier to innovation (of all kinds) and personal growth. As Seth reminds us, “if failure is not option, neither is success.”

Fear of failure, of making a mistake, keeps us stuck in so many ways.

Perfectionism is a curse. Imperfection yields many gifts.

What do you say? Let’s go make some mistakes.

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A version of this post originally appeared on my purpose-driven blog I Got Here As Fast As I Could.

Innovation · Inspiration · Leadership · Life Lessons

Predictable crises

When someone we care about fails to admit they have a serious problem and fails to do the work to remedy it, are we shocked when they eventually experience the consequences of their addictive or dysfunctional behavior?

Are we surprised one little bit when a brand facing stiff competition and highly disruptive forces finds itself struggling to stay in business because it never bothered to get serious about innovation?

Is it at all astonishing that deficits mount or poverty persists or bridges collapse when politicians lack the courage to address the root causes and constantly kick the can down the road?

In The Sun Also Rises one of Hemingway’s characters famously answered the question of how he went bankrupt by saying: “Two ways. Gradually, then suddenly.”

If we are honest, many of us see the wall we’re going to crash into long before we feel the impact. But fear keeps us stuck in inaction and false hope.

Liars lie. Gravity always wins. And few problems unaddressed magically fix themselves.

The best time to start was likely years ago. The second best time is now.

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Holiday Sales · Marketing · Retail

With Cyber Monday behind us, the real holiday shopping season begins

As I wrote last week, the noise around Black Friday and Cyber Monday is mostly a bunch of hype. Both days represent a relatively small percentage of total holiday sales, and are even less important when you consider their contributions to profits given the amount of discounting that occurs. Moreover, there is little evidence that a “good” Black Friday and/or Cyber Monday has anything to do with whether a particular retailer will have a successful quarter or not. It also turns out that many folks take advantage of the past week’s hot deals to buy for themselves, not for Christmas or Hanukkah gifts.

The fact is the overwhelming majority of holiday season revenue for virtually every retailer will occur over the next four weeks, not during the past few days. And, if history is any indication, there will be at least two shopping days ahead that will comfortably exceed Black Friday’s sales numbers. We can also expect that the weekend of December 15 will surpass Cyber Monday’s volume.

We should also not get overly excited by the year-over-year online shopping growth numbers. Merely extrapolating the trend would suggest that e-commerce would grow somewhere in the vicinity of 15%-17%, and that’s exactly what happened. To be sure, the overall shift away from physical store shopping is profound, but nothing unexpected is happening, at least thus far, when it comes to this particular holiday season.

Now that we’ve moved beyond the two hype-iest days of the retail year, let’s bear in mind that there are still 23 shopping days left between now and Christmas and a lot can still happen. We should also remember that the week after Christmas is very important, where big volumes are posted, gift cards are redeemed, returns are processed and the trajectory for seasonal clearance starts to be set.

The good news seems to be that many retailers’ report that their inventories are in solid shape in light of conservative buying patterns. While this suggests deals might not be quite as sharp for consumers as past holidays, the industry might actually have a chance to realize decent gross margins. Of course, some sectors–I’m looking at you department stores!–are in a fierce battle for market share. Several chains, including Sears and Bon-Ton Stores, are facing existential crises, where a bad quarter could lead to their liquidation (or, minimally, additional massive store closings). In these situations we should expect promotional intensity to remain high.

But for now everyone just take a deep breath. Mentally place the stories about Black Friday and Cyber Monday in the “interesting, but not very illuminating” section of your brain and strap in. This next week will likely be the calm before the storm and then things will really start to ramp up. And, for sure, far more will be revealed in the weeks ahead then we learned this past long weekend.

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.

Innovation · Inspiration · Leadership

The price of waiting

It’s typically not difficult to calculate the cost of starting something, of moving ahead, of taking the plunge.

Perhaps it’s a new IT project or a marketing test. Possibly it’s a decision to try a pilot concept or invest in a promising technology. Or maybe we’re considering taking the next big step in a hopeful personal relationship.

When we have to ante up additional time, write that big check, invest more emotional commitment, the price tag often seems pretty obvious.

Yet what we get wrong (or dramatically underestimate) are the consequences of our hesitation. We lean on the desire for better data and convince ourselves we need more time to weigh or explore our options. We become a slave to the pull of our perfectionism. We tell ourselves the time is just not quite right to act.

Ultimately, what keeps us stuck, what causes us to not pull the trigger, is our fear of getting it wrong, of looking stupid, of being judged, of fully experiencing and feeling our vulnerability.

It’s not hard to see how waiting too long to innovate has been the death knell for many companies. Think Blockbuster, Netflix, RadioShack and (soon) Sears. They paid (or are paying) the ultimate price for waiting.

My guess is that with whatever organizations you’ve been involved in you can readily point to opportunities that were missed because moving ahead was deemed too risky, when just the opposite proved to be true.

And maybe we’ve let real love and connection allude us for similar reasons.

Indeed, sometimes the waiting IS the hardest part.

Alas, other times it’s all too easy.

And we realize how high the price is when it’s all too late.

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Innovation · Leadership · Life Lessons

Whataboutery

Lately it seems like some people are all about whataboutism.

As just one high profile example, when the President of the United States is challenged on wrongdoing in his administration, his immediate response is to bring up the Clintons. Mention “alleged” sexual predatory behavior on his part (or fellow Republicans) and the knee jerk reaction is to shift the attention to the misdeeds of members of the opposition party. And so on.

If there were a Nobel Prize for chutzpah there’s little doubt who’d win.

Of course, The Donald is hardly alone. The parade of statements that start with some variation of “yeah, but what about?” often appears unending. And in the spirit of full disclosure, I will admit that I’ve engaged in some Ph.D. level deflection myself. You can definitely find at least one person who can give give you chapter and verse on my ninja-like avoidance skills.

It turns out it’s hard for many of us to own our stuff.

But, deep down, anyone with the emotional IQ a notch above a salamander knows that just because someone else might have engaged in similar bad behavior does not make our misdeeds okay. At all. Not one little bit.

While we may feel good about our self-righteous quest to point out the hypocrisy of others (thank you for your service!) what we are doing is merely taking the focus away from that for which we are ultimately responsible.

What about focusing on our own stuff for just a bit?

What about letting the Universe sort out the rest?

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e-commerce · Holiday Sales · Retail

Hype-y holidays: ‘Black Friday’ and other nonsense

Brace yourself. The media hype around Black Friday and Cyber Monday is now at a fevered pitch. Don’t fall prey to the nonsense.

But you can rest assured that as we emerge from a tryptophan-induced haze Friday morning and turn on just about any news outlet you will witness some hapless reporter standing in a mall–or outside a (insert well-known national retailer name here)–opining about whether various “indicators” (number of people in line at store opening, whether shoppers are carrying full shopping bags and so on) bode well for retailers’ fortunes. Alas, Black Friday has always been far more media trap than sign o’ the times. There are several reasons for this.

Black Friday is not the biggest shopping day of the year.

The Saturday before Christmas and the day after are often the highest volume. In fact, if recent history is any indication, several days right before Christmas will likely rival Black Friday’s sales numbers. So while it’s an important day, it’s hardly a huge contributor to overall holiday season sales.

Black Friday revenues are on the decline.

As online shopping continues to grow, the relative share of total holiday sales done in stores on Black Friday is decreasing markedly. A recent survey suggests another down year. With some stores opening on Thanksgiving Day–and more and more Black Friday deals breaking early–revenues are being spread out over more days, rather than concentrated on the traditional “holiday” of massive consumption. Our friends at Amazon even launched their deals 50 days early this year.

For consumers, it’s mostly a con.

Study after study shows that, with few exceptions (mostly the heavily promoted, limited quantity “doorbusters”), the deals just aren’t that good. In fact, prices tend to be better in December or during traditional clearance periods.

The customer experience is terrible.

With overflowing parking lots, teeming throngs, long checkout lines and, in some cases, a need to camp out hours before the doors open to have a chance of scoring an actual great deal, shopping on Black Friday is the ultimate soul-crushing hassle. Apparently, some people thrive on this sort of thing. I hope they get the help they need. Oh, and many of the deals are recycled anyway.

Black Friday success (or failure) is meaningless.

With all the attention Black Friday gets you might think that a given retailer’s performance would be highly correlated with how its overall season will turn out. You’d be wrong. Over the years, many folks have tried to determine this correlation and haven’t found it. One study even found a somewhat negative relationship. So move along. Nothing to see here.

What about profits? 

While we’ll have to wait to see how Black Friday and Cyber Monday turn out, we can be fairly certain that it won’t be particularly profitable. This year’s retail industry exercise in group-think will have the predictable effect of compressing product margins and driving up operating costs all in the name of defending market share.

Of course with many retailers running scared or even fearful of their continued existence, few have the discipline to approach the season with any kind of restraint, promotional or otherwise.

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 · Life Lessons

Heads you win

As we celebrate Thanksgiving in the United States, many of us will engage in some practice, formal or otherwise, to name that for which we are grateful. Our health, our families, a roof over our head, the delicious food we are about to eat, and so on. You know the drill.

This is mostly an exercise in naming “the what” of our gratitude, and recognizes little of “the why” or “the how.”

Clearly plenty of folks have worked hard to achieve levels of wealth, connection and safety that millions cannot even fathom; some of us overcoming childhood trauma, poverty, illness or other very challenging circumstances. That is to be acknowledged and admired.

Yet it also true that the sheer serendipity of our birth can play a significant role, and working hard may have rather little to do with whether on this day we experience abundance or scarcity or somewhere in between. This is what Warren Buffett refers to as the “Ovarian Lottery.”

Heads you win. Tails I lose. Or vice versa.

The fact is that the zip code or particular family situation we just happened to be born into is often a huge determinant of our future. In the United States inequality begins in the womb. So as Barry Switzer famously said, if we were born on third base we shouldn’t go through life thinking we hit a triple.

As I sit down for our Thanksgiving meal, I am extremely grateful. But I am also humbled and filled with compassion. Yes, I worked hard, but I also got lucky. Very, very lucky.

Consolidation · Reinventing Retail · Store closings

Sears: Dead brand walking

Recently Sears Holdings made several interesting announcements. First, it declared it was closing 63 more stores, in a continued false notion that it can shrink itself to prosperity. This is in addition to the 358 Sears and Kmarts already shuttered in 2017. Then it issued a press release detailing steps it’s taking to improve its financial structure, wherein it included operating results for the quarter. Despite over a decade of strategic restructuring, huge investments in its membership program and digital capabilities, closing hundreds of its worst locations–not to mention massive store closings on the part of many of its direct competitors–the company expected to report comparable store sales declines of 15.3% for the quarter and a loss of at least $525 million. Yikes!

Following all this, in what is likely to win the award for the most obvious prediction by a Wall Street investment analyst in modern history, Bill Dreher of Susquehanna opined that “Sears may never be profitable again.”

So while Sears apparently has a few folks willing to believe something good might still happen, the company continues to execute what I have long called “the world’s slowest liquidation sale.” In fact, Sears continues to act as if we’re all either gullible or stupid. Or perhaps both.

Despite growing signs of its imminent demise–or at least a complete collapse into a holding company with a small and decidedly mixed bag of residual assets–Sears Holdings CEO Eddie Lampert continues to put lipstick on the pig. A couple of weeks ago he took the Wall Street Journal to task for a rather harsh story by posting a retort on the company’s blog, in which he once again neglects to discuss anything that would meaningfully improve customer relevance, but goes to great lengths to highlight moves that are clearing perpetuating, if not accelerating, declining performance. And in what may be the surest sign that the company’s beleaguered CEO has no capacity for irony, the day after the company shared its horrible quarterly performance Sears announced it was opening two (count ’em two!) small format appliance & mattress stores.

The news at Sears went from bad to sad a long time ago. As I have recounted before, back in 2003 when I was part of the senior team working on trying to fix the department store business, it was abundantly clear that Sears’ concentration of assets (particularly for its home business) in regional malls was a significant and growing liability. It was also apparent that Sears had much more of a revenue problem that a cost problem. As we sit here fourteen years later, average store sales productivity has declined in virtually every quarter since I moved on from the outhouse to the penthouse (Neiman Marcus Group) and beyond. The major appliance and home improvement businesses, which once were incredibly profitable, are largely decimated. Years of cost cutting have made Sears’ stores an embarrassment. Market share continues to plummet.

In the spirit of full disclosure, our team did not come up with a compelling plan to turn around Sears, so for me it has always been an open question whether anybody could have saved them. I was certainly neither smart enough, nor powerful enough, to make it happen. But I have always hoped Lampert and team would figure it out.

In any event, at this point any notion that Sears can be saved in any way remotely resembling a major national retail brand is the pinnacle of wishful thinking. Yet some people still seem to hold out hope. It’s time to let that go.

Dead brand walking.

 

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.