A really bad time to be boring · Retail · Store closings

Sears: The world’s slowest liquidation sale picks up the pace

The Lampert Delusion might be a good name for a Robert Ludlum novel. Unfortunately it is more apropos of the apparent strategy Sears Holdings’ principal shareholder and CEO is employing to try to save the flailing retail chain.

Regular readers may remember that I have been calling Sears “the world’s slowest liquidation sale” since 2013 as it became clear that Lampert had no credible strategy to stop Sears and Kmart from sinking further into irrelevance–much less restoring them to meaningful profitability. Since then, nothing material has been done to get the brands back on track, and asset after asset has been unloaded to fund widening operating losses.

The good news — in one way of looking at it — is that Sears had significant fungible assets of decent value to raise cash and a more than cozy relationship with a few willing buyers. Unfortunately, in many cases, by the time Sears sells off something, it is doing so at fire-sale prices and in a manner that only further weakens its core business. Which is why my provocative post from 2014 is looking more prescient every day.

So while Lampert has been slinging strategic nonsense for over a decade, he has been able to keep Sears Holdings alive well past its expiration date. However, today’s action to close yet another bunch of stores is almost certain to accelerate Sears’ trip to the retail graveyard. Here’s why:

First, and most importantly, closing stores does precisely nothing to improve customer relevance. Neither Sears nor Kmart suffers from a “too many stores” problem. They suffer from being boring, irrelevant and poorly executed retail concepts. Tellingly, both have exited multiple markets and trade areas that lots of other similar retailers make work. There is a reason the Kohl’s or Macy’s or Home Depot down the street from the stores Sears is closing remain profitable, and it mostly comes down to customer relevance and remarkability.

Second, closing these stores does little to improve profitability. Sears lost $324 million in the first quarter on a 11.9% comparable store sales decline. You cannot possibly show me any math that suggests shuttering these stores will make a dent in those deeply disturbing statistics. Moreover, almost none of the volume lost from these closings will be made up online or in neighboring stores.

Third, as a practical matter, neither Sears nor Kmart is a national retailer anymore, and as they shed volume they deleverage or make inefficient their operating systems. As marketing moves further to digitization and personalization, national scale economics are less important, but they still matter.

The supply chain is highly dependent on scale. Continue to drop volume, and logistics costs as a percentage of revenue go up — or service must be cut, further weakening Sears’ competitive position. Sears has a lot of product that is home delivered. Take volume out of a delivery area, and costs go up or service must go down. As revenues continue to contract, vendors not only become worried about getting paid but also aren’t likely to focus product development and marketing resources on an ever-shrinking chain. It gets harder and harder for Sears to offer anything proprietary or unique in its merchandise assortments.

Fourth, a key point of differentiation for decades has been Sears’ proprietary brands, particularly Kenmore, Craftsman and Diehard. As these products get distribution elsewhere, Sears may generate some incremental cash, but it continues to give customers fewer reasons to shop in its stores or on its captive e-commerce sites.

The simple reality is this: Nothing of any consequence has been done or is being done that will materially reverse the downward trajectory of the company. Closing stores and selling off key elements of the business may slightly improve cash flow, but they further weaken Sears’ and Kmart’s value propositions. Operating losses remain huge with no end in sight. And Sears Holdings is quickly running out of things to raise significant cash.

In an ode to Hemingway, the way Sears will go bankrupt is gradually and then suddenly. Dead brand walking.

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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.  

On June 15 I will be doing a keynote at The Shopper Insights & Retail Activation Conference in Chicago.  For more on my speaking and workshops go here.

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

Choosing the race to the bottom

It turns out that most retailers that find themselves at–or edging ever closer to–the precipice have much more of a revenue problem than having expenses that are fundamentally too high. And yet so many relentlessly focus on cutting costs, often leading to a further reduction in customer service.

It turns out that when the major lever a company has to drive the top line is deep discounting, they mostly end up attracting the promiscuous shopper while simultaneously lowering the margin on the customers who once were willing to pay a higher price. Over the long-term, that math never works.

And while it may be true that retailers can often do the same amount of business with a smaller footprint, it turns out that many of brands that are closing outlets in droves don’t actually have too many stores. Instead they have a value proposition that isn’t sufficiently customer relevant for the stores they have. Shuttering locations en masse may seem like the wise move to improve profits, yet it is typically the first sign of a downward spiral.

By now it should be obvious that trying to stake out a winning position by being a slightly better version of boring is untenable. The notion of cost cutting your way to prosperity is a fool’s errand.

Once we fully accept that selling average products to average people no longer works and that to make meaningful progress we must zero in on solving the right problem, we realize that for most of us the choice is clear–or should be.

We can choose to treat different customers differently, create intensely relevant and remarkable experiences and tell a story that deserves to be told time and time again.

Or, we can choose to join the race to the bottom.

Just remember, as Seth reminds us, “the problem with the race to the bottom is you might win.”

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A really bad time to be boring · Reimagining Retail · Retail

Physical retail is not dead. Boring retail is.

It may make for intriguing headlines, but physical retail is clearly not dead. Far from it, in fact. But, to be sure, boring, undifferentiated, irrelevant and unremarkable stores are most definitely dead, dying or moving perilously close to the edge of the precipice.

While retail is going through vast disruption causing many stores to close — and quite a few malls to undergo radical transformation or bulldozing — the reality is that, at least in the U.S., shopping in physical stores continues to grow, albeit at a far slower pace than online. An inconvenient truth to those pushing the “retail apocalypse” narrative, is that physical store openings actually grew by more than 50% year over year. Much of this is driven by the hyper-growth of dollar stores and the off-price channel, but there is also significant growth on the part of decidedly more upscale specialty stores and the move of digitally-native brands like Warby Parker and Bonobos into brick and mortar.

People also seem to forget that, according to most estimates, about 91% of all retail sales last year were still transacted in a brick-and-mortar location. And despite the anticipated continued rapid growth of online shopping, more than 80% of all retail sales will likely still be done in actual physical stores in the year 2025. Different? Absolutely. Dead? Hardly.

I have written and spoken about the bifurcation of retailand the collapse of the middle for years. While I was confident in my analysis, I had concluded much of this through intuition and connecting the dots from admittedly limited data points. Now, a brilliant new study by Deloitte entitled “The Great Retail Bifurcation” brings far greater data and rigor to help explain this growing phenomenon. Their analysis clearly shows that demographic factors — particularly the hammering that low-income people take while the rich get richer — help explain the rather divergent outcomes we see playing out in the retail industry today.

In particular, wage stagnation and the rising cost of “essentials” is driving lower income Americans to seek out lower cost, value-driven options. Rising fortunes for top earners, most notably ever greater disposable income, creates spending power for more expensive retail at the other end of the continuum. Deloitte’s data clearly shows the resulting strong bifurcation effect: Revenue, earnings and store growth at both ends of the spectrum and stagnation (or absolute decline) in the vast undifferentiated and boring middle.

Notably, if we isolate what’s going on with retailers focused on delivering convenience, operational efficiency and remarkably value-priced merchandise, along with those retailers that differentiate themselves on unique product and more remarkable experiential shopping (including great customer service, vibrant stores and digital channels that are well harmonized with their stores), you would conclude not only that physical retail isn’t dead, you could well argue it is quite healthy.

Conversely, the stores that are swimming in a sea of sameness — mediocre service, over-distributed and uninspiring merchandise, one-size-fits-all marketing, look-alike sales promotions and relentlessly dull store environments — are getting crushed. A close look at their performance as a group reveals lackluster or dismal financial performance and shrinking store fleets. For these retailers, by and large, physical retail is indeed dead or dying. But so are their overall brands.

It’s been clear for some time that the future of retail will not be evenly distributed. Those that have looked closely know that the retail apocalypse narrative is nonsense. Yet, depending on where brands sit on the spectrum, the impact of digital disruption and the age of Amazon is affecting them quite differently. For some, at least for now, it’s much ado about nothing. For others, it should be sheer, full-on panic.

These forces, along with the underlying macroeconomic factors that Deloitte illuminates in their report, bring far greater clarity to what many have been missing, leaving the savvy retail executive to conclude a few key things:

  1. Physical retail is not dead, but it’s very different
  2. The future of retail will not be evenly distributed
  3. The market is likely to continue bifurcating and, increasingly, it’s death in the middle
  4. It’s a really bad time to be boring
  5. Struggling retailers need to pick a lane
  6. If you think you are going to out-Amazon Amazon you are probably wrong
  7. Most likely you are going to have to have to choose remarkable
  8. You have to get started and you had better hurry
  9. What better time than now?

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.  

My next speaking gig is in Madrid at the World Retail Congress.  Check out the speaking tab on this site for more on my keynote speaking and workshops.

A really bad time to be boring · Death in the middle · Reimagining Retail · Retail

Better is not the same as good for department stores stuck in the middle

As most U.S. department stores reported earnings recently, a certain level of ebullience took hold. Macy’sKohl’s and even Dillard’s, for crying out loud, beat Wall Street expectations, sending their respective shares higher. J.C. Penney, which has failed to gain any real traction despite Sears’ flagging fortunes, continued to disappoint, suggesting that I probably need to revisit my somewhat hopeful perspective from last year. And in the otherworldliness that is the stock market, Nordstrom — the only department store with a truly distinctive value proposition and objectively good results — traded down on its failure to live up to expectations.

Given how beaten down the moderate department store sector has been, a strong quarter or two might seem like cause for celebration–or at least guarded optimism. I beg to differ.

First, we need to remember that the improved performance comes mostly against a backdrop of easy comparisons, an unusually strong holiday season and tight inventory management. There is also likely some material (largely one-time) benefit from the significant number of competitive store closings and aggressive cost reduction programs that most have put in place.

Second, and more importantly, we cannot escape the fact that mid-priced department stores in the U.S. (and frankly, much of the developed world) all continue to suffer from an epidemic of boring. Boring assortments. Boring presentation. Boring real estate. Boring marketing. Boring customer service. And on and on. For the most part, they are all swimming in a sea of sameness at a time when the market continues to bifurcate and it’s increasingly clear that, for many players, it’s death in the middle. It’s nice that some are doing a bit better, but as I pointed out last summer, we should not confuse better with good.

To actually be good — and to offer investors a chance for sustained equity appreciation — a lot more has to happen. And while being less bad may be necessary, it is far from sufficient. Most critically, all of the major players still need to amplify their points of differentiation on virtually all elements of the shopping experience. It’s comparatively simple to close cash-draining stores, root out cost inefficiencies and tweak assortments. It’s another thing entirely to address the fundamental reasons that department stores have been ceding market share to the off-price, value-oriented, fast-fashion and more focused specialty players for more than a decade. And now with apparel and home goods increasingly in Amazon’s growth crosshairs, there has never been a more urgent need to not only to embrace radical improvement, but to really step on the gas.

Without a complete re-imagination of the department store sector — and frankly who even knows what that could actually look like — near-term improvements only pause the segment’s long-term secular decline.

It’s unclear how much the eventual demise of Sears and the inevitable closing of additional locations on the part of other players will benefit those still left standing. It’s unclear whether the current up-cycle in consumer spending will be maintained for more than another quarter or two. What is crystal clear, however, is that incremental improvement in margin and comparable sales growth rates merely a point or two above inflation never makes any of these mid-priced department stores objectively good.

Ultimately, without radical change, it all comes down to clawing back a bit of market share and squeezing out a bit more efficiency in what continues to be a slowly sinking sector riddled with mediocrity. Boring, but true.

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.  

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NOTE: March 19 – 21st I’ll be in Las Vegas for ShopTalk, where I will be moderating a panel on new store design as well as doing a Tweetchat on “Shifting eCommerce Trends & Technologies.”  

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

Upcoming webinar: “Omni-channel is dead. Long live omni-channel.”

Please join me next Wednesday February 14th at 1pm US Eastern for a free 30 minute webinar on the future of omni-channel retailing. I’ll be joined by Rob Poratti from IBM Watson Commerce. You can pre-register here.

In other news, I’ll be heading to Melbourne, Australia at the end of the month for InsideRetailLive.

I’ve also recently added two new keynote speaking gigs, both in Chicago. I’ll be sharing thoughts from my forthcoming book “A Really Bad Time To Be Boring: Reinventing Retail In The Age Of Amazon.”

June 13-15   Shopper Insights & Activation Conference 

November 7-9   eRetailer Summit

For more on my speaking and workshops go here.

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

Retail 2018: Now Comes The Real Reckoning

There is some dispute over whether more stores opened during 2017 than were closed. IHL says yes. Fung Retail Tech says no. Mostly I say “who cares”?

Either way, it’s clear that the retail landscape is changing rapidly, causing some retailers to prune their store counts, shutter locations en masse or liquidate entirely. What’s unfortunate–and not the least bit useful–is the tendency to declare that physical retail is dying and that we are going through some sort of “retail apocalypse.” The facts clearly do not support this notion. Similarly devoid of substance and nuance is the proclamation that e-commerce is eating the world and that virtually all “traditional” retailers are falling victim to the “Amazon Effect.”

What IS occurring at the macro-level is three-fold. First, the irrational expansion of retail space during the past two decades is finally correcting itself. Second, as retailers better understand the physical requirements to support a world where online is a significant and growing sales channel, many are optimizing their footprints to better align space with demand. Third, and far more important, is that retail brands that failed to innovate and create a meaningfully relevant and remarkable value proposition are rapidly going the way of the horse-drawn carriage.

A look at either the IHL or the FRT data reveals precisely the same picture. Lots of physical stores are being opened on the part of brands that have a winning formula, both in the value sector (think TJX, Aldi, Costco, Dollar General) and at the other end of the spectrum (think Nordstrom, Sephora, Ulta). Overwhelmingly, the retailers that are closing large number of stores are those that have operated in the vast undifferentiated middle. And it’s becoming increasingly clear that it’s death in the middle.

Physical retail is not dead. Boring retail is.

I believe the majority of over-capacity from excessive building has now been dealt with (or will be as retailers do typical post-holiday store closings). I believe most sophisticated retailers have a clear understanding of the go-forward physical requirements to best support a harmonized (what some prefer to call “omni-channel”) strategy.  They get the critical role that physical stores play in supporting the online business and vice versa. This implies that retailers that have fundamentally sound value propositions won’t be closing very many stores this year. And the best positioned brands will defy the bogus retail apocalypse narrative and continue opening stores–in some cases large numbers of them.

The flip side is that retailers with unremarkable concepts will continue their march toward oblivion. Some will hang around longer than they should–I’m looking at you Sears–because they have assets to sell off to raise cash, all the while delaying the inevitable. Store closings are a panacea, not a fix.

Similarly, many pure-play online brands with unsustainable economics will either figure out a viable bricks & clicks strategy (e.g. Warby Parker), get acquired by the digitally-native brand bail out fund known as Walmart or go ‘buh ‘bye having burned through both their cash and all the greater fools.

For me, last year was a large scale, inevitable pruning away of the brush. Now in 2018, with the obvious losers having been closed in 2017, we get to see far more clearly the brands that truly have longevity, be they omni-channel” or pure-plays.

Now we get to witness the real reckoning.

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.

 

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

Where in the world is Steve?

I’ll be traveling quite a bit over the next few months attending major industry conferences and (often) delivering my latest keynote “A Really Bad Time To Be Boring: Reinventing Retail In The Age Of Amazon.”

January 14-16  New York  NRF’s Big Show
February 6  Boston  MITX e-Commerce Summit
February 13 Dallas  FEI Dallas
February 28  Melbourne, Australia  Inside Retail Live
March 18-21  Las Vegas  ShopTalk
April 17-19  Madrid, Spain  World Retail Congress
May 1-2  New York  Retail Innovation Conference

Additional dates will be announced shortly.

If I’m in your town I hope we’ll get a chance to connect.

 I’m doing a webinar on February 14 “Omnichannel Is Dead. Long Live Omnichannel.”
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A really bad time to be boring · Retail

Department Store Shares Are Up. Your Hopes Shouldn’t Be.

Amidst reports that holiday spending was up nearly 4.9%, some optimism about the American moderate department store sector has started to creep back in. In fact, right after these reports shares of Macys, Dillards, Kohls and JC Penney spiked. It’s all a bit baffling.

On the one hand, if I were a betting person, I expect that these brands will report decent, maybe even objectively good, numbers this quarter. Consumer confidence is strong, the stock market is up and many regular folks (mistakenly) believe that their income will be up materially on the heels of the new tax bill. From a retailer perspective, the burst of cold weather bodes well for sales of seasonal items. Tighter inventories, store closings and other expense reductions should lead to year-over-year profit improvements.

On the other hand, none of this fundamentally changes the relative competitive positions of these retailers. And that means until several other things change, the overall outlook for the sector remains pretty gloomy.

As I pointed out several months ago, at least two major things must happen before any optimism about the prospects of any of the middle market department store brands is warranted.

First, there is still too much capacity chasing a shrinking pie of spending. While it may turn out that these chains picked up a bit of market share over the holidays, the sector remains in overall decline and any blip in consumer spending ebullience isn’t very likely to continue into 2018. More store closings need to occur to get supply better in line with sustained demand. As Sears sinks into oblivion, and the remaining big four close additional locations early next year, there is some hope for the future. For now though, capacity remains out of whack.

More importantly, the major moderate department stores have picked a really bad time to be boring. They remain stuck in the vast, largely undifferentiated middle, drowning in a sea of sameness. And, unfortunately, it’s death in the middle. These major chains all have considerable work to do to create a more harmonious shopping experience, to up there game on personalization and to find places in both their assortment strategies and customer experience to be more relevant and remarkable. They remain overly attached to competing on price, when fundamentally that is deciding to compete in a race to the bottom which–spoiler alert–they will never win.

The notion that department stores are fundamentally doomed is just as silly as the retail apocalypse narrative. So too is the idea that Amazon is solely to blame for department store woes. Yet the structural reasons for the declining state of the sector remain intact. The only way any of these brands deserve stock appreciation is for more rationalization to occur (which is inevitable) and for them to truly embrace more innovation and to have the courage to become more intensely relevant and remarkable.

Then again, there is always the hope they get bought out by Amazon.

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.

A really bad time to be boring · Reinventing Retail

2017’s most popular blog posts

As is my tradition, here’s my annual recap of my 2017 posts that got the most traffic. Once again my April Fool’s Day one easily grabs the top position .

  1. Every single retail store in the US to close permanently by month’s end
  2. Stop blaming Amazon for department store woes
  3. Retail’s single biggest disruptor. Spoiler alert: It’s not e-commerce
  4. Retail’s great deleveraging
  5. Retail’s next punch in the face
  6. Department stores aren’t going away, but 3 big things still need to happen
  7. Going private: Here comes Amazon’s next wave of dismantling and disruption
  8. The future of retail will not be evenly distributed
  9. The store closing panacea
  10. The retail apocalypse and the urgent quest for the remarkable

For my most popular articles on Forbes during 2017 go here.

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

Holiday 2017: The fault in our stores

By all accounts this holiday shopping season looks to be pretty solid overall–perhaps the best since 2010. Aggregate sales will likely be up between 3.5% and 4.0%. E-commerce year-over-year growth will come in around 17%. Retailers’ inventories seem to be generally in good shape, which should allow most to deliver strong gross margin performance. And despite the silly retail apocalypse narrative, I’ll even venture to say that sales in physical stores will show a slight increase.

Of course a given retailer’s mileage will vary; often considerably. The future of retail will not be evenly distributed. As we’ve seen in recent years, the fortunes of the have’s and have not’s continue to diverge. For more and more retail brands it’s death in the middle.

While we can be certain that the coming weeks will be filled with stories dissecting this season’s winners and losers, the truth is we already know the outcome. The retailers that consistently offer a relevant and remarkable value proposition–and execute well against it–are growing, making good money and (hold on to your hat) opening stores–sometimes a lot of them. We see this across a spectrum of price points. Off-price retail, warehouse clubs and dollar stores doing well; great, typically higher-end, specialty stores gaining share and delivering solid profits.

The simplistic notion that physical retail is going away is clearly flat out wrong. The continuing rise of Amazon does not spell doom for all of retail. The rapid growth of e-commerce hardly represents the death knell for traditional brick & mortar stores. For every Sears, Radio Shack and Borders, there is a Best Buy, Walmart or Nordstrom. The failed (and failing) retailers are the ones that did not innovate, that thought the physical store and e-commerce were the channels, when the customer was the channel all along. Somehow they believed they could cost cut their way to prosperity instead of evolving to where the customer was moving. Lower costs and drastic pruning of store locations mean precisely nothing if when the dust settles you are still drowning in a sea of sameness.

Physical retail is not dying. Boring retail is.

The fault is not with stores, it’s with stores that are irrelevant and unremarkable.

The fault in our stores lies in seeking to be everywhere and ending up being nowhere. The fault in our stores lies in aiming to be everything to everybody and being mostly “meh” to just about everyone. The fault in our stores emanates from retailers failing to understand the customer journey and committing to ruthlessly rooting out friction points and amplifying the experiences that really matter along that journey. The fault in our stores rests in retailers unwillingness to experiment and take prudent risks.

The shift of power to the consumer is not going away. What was once scarce rarely is anymore. Most customer journeys will start in a digital channel. Seamless integration across channels is now table-stakes. Good enough no longer is. Today’s basis for competition is being redefined, often radically.

As it turns out it’s an especially bad time to be boring.

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.