Being Remarkable · Innovation · Retail

Macy’s: After Big Earnings Whiff, Here’s What It Needs To Do

Last week Macy’s missed its revenue and earnings forecast for the first quarter, sending its shares tumbling.

While the talk of a retail apocalypse is just so much hype, the intense waves of digital disruption and shifting consumer preferences assure that the future of retail–and the impact on many large and lumbering players like Macy’s–will not be evenly distributed.

We now live in a digital-first world where the line between brick & mortar sales and e-commerce is mostly a distinction without a difference. Fellow retail analyst Doug Stephens describes this new landscape as “phygital.” But whatever you label it, the consumer’s path to purchase has changed substantially–and with it the role of the store. And, increasingly, same-store sales are a largely irrelevant metric.

Nevertheless, the continuing overall poor performance of Macy’s is concerning and underscores the problems faced by many legacy brands. To get back on track, Macy’s needs to aggressively address several fundamental problems.

  • Eschew the sea of sameness. Macy’s, like so many other retailers, picked a really bad time to be so boring. Redundant, repetitive and fundamentally uninteresting product has become the norm. If customers don’t have a compelling reason (other than price) to traffic either their website or store, Macy’s will continue to hemorrhage market share.
  • It’s the experience stupid! Having remarkable and relevant products is critically important and a necessary foundation, but it’s hardly sufficient. If Macy’s continues to provide me-too visual presentation, marketing that is indistinguishable from every other department store and lackluster customer service they will continue to make price the deciding factor for most consumers.
  • Omni-channel is dead, at least in the way many have been pursuing it. Macy’s spent a lot of time and money trying to be all things to all people. Channel ubiquity with continued mediocrity is pointless. All retailers need to think about how to best harmonize and simplify the shopping across the moments of truth that matter the most for customers. Otherwise we’re just spending a lot of money to move customers between channels, not gaining relevance, share of wallet and profits.
  • Strategically re-imagine the store and the store footprint. Analysts are going to keep pushing Macy’s to close stores. And to be sure, shrinking of both store counts and store size is probably required. But the reason this is even a talking point has much more to do with the weakness of Macy’s value proposition, not their sheer number of stores. Online helps stores and stores help online. Period. Mediocre retailers that close a lot of stores are likely starting a downward spiral from which they will never return. The key is to understand the store as the hub of an ecosystem for the brand, not an asset to be merely fine-tuned for productivity. Focus on being remarkable instead of mediocre and focus on how stores strategically drive online (and vice versa) and the store closing discussion recedes into the background.
  • Don’t start a price war. With pricing pressures from Amazon, outlet stores and all the off-price players there might be a tendency to get overly focused on pricing. But don’t forget, the problem with a price war is you might win.
  • Become a testing machine. It’s easy to blame Amazon for the troubles facing the industry. But by far the biggest reason retailers are in trouble is their abject failure to innovate. Every retailer needs an R&D budget and every retailer needs to test, fail and test again. Retailers were too scared to fail and now their failing because of it. As Seth reminds us “if failure is not an option, than neither is success.”

Of course all of this is more easily said than done, particularly as Wall Street pushes for short-term fixes and Amazon continues to lower its thin margin hammer on most sectors of retail. Yet it’s hard to escape the fact that more of the same at Macy’s will only yield more of the same.

What Macy’s needs is a lot more innovation.

What investors need is just a bit more patience.

A version of this story recently appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here.  

Being Remarkable · Innovation · Retail

Retailers picked a really bad time to be so boring

Perhaps you’ve noticed that things are pretty tough across the retail industry these days?

Competition has never been more fierce. Average unit retail prices are getting compressed, putting ever greater downward pressure on margins. Retailers and developers that overbuilt for years are at long last facing a reckoning. Radical transparency and ease of anytime, anywhere, anyway shopping are hammering those that have failed to innovate and differentiate.

Of course, not so long ago retail brands could get away peddling average products for average people. There was a time when retailers and the brands they sold held most of the cards. There was a time when rapid industry growth could smooth over patches of mediocrity. There was a time when being just a little bit interesting could win the customer’s attention and give retailers a good shot at making the sale.

That time is over. Forever.

Now the customer is very much in charge. Now largely stagnant markets require brands to steal share to have any chance of material top line growth. Now much of retail is drowning in a sea of sameness. Now the consumer is overwhelmed by choices and the battle for share of attention is only won by the weird, the intensely relevant, the remarkable.

And yet….

And yet when entrepreneurs chased force multiplication effectiveness, many legacy brands chose to focus on incremental efficiency gains. While innovative start-ups took risks, the big retailers mostly hunkered down. As a wave of profound change was rippling through the industry, many just decided to watch and study and analyze. But mostly watch. When venture capital was piling into the bold and interesting, much of mainstream retail remained decidedly dull.

There is no shortage of unique, impactful and useful innovations that have emerged from the new age of digital disruption. It’s just that so little of it has come from traditional retailers. At precisely the time that so many retailers desperately need innovation, their cupboards are woefully bare. Confronted by me-too marketing, look-a-like stores, repetitive products and shoddy customer experiences, so many once-proud brands still have next to nothing new, differentiated and exciting to offer.

Today you can take the name off the door and Staples, Office Depot and Office Max are virtually indistinguishable. Same for Macy’s and Dillard’s, Lowe’s and Home Depot. And on and on.

The danger of death by years of inaction, thousands of tiny compromises and clinging to the false notion that a company can shrink to prosperity is now very real. Half measures have availed them nothing. Taking so few risks has turned out to be the riskiest thing retailers could have possibly chosen.

In fact, it’s hard to imagine a worse time to be so boring.

And, ironically, many of these retailers are about to experience a lot of excitement. Just not the fun kind.

Now isn’t that special?

A version of this story recently appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here.  

Being Remarkable · Digital · e-commerce · Frictionless commerce

Retail at the precipice

Some have called it the retail apocalypse. Others refer to it the great retail meltdown. And while hyperbole is the best thing ever, these pronouncements serve as better clickbait than sound analyses. Worse, it makes it sound like every retailer is struggling and that physical retail is doomed.

Nevertheless, it’s hard to ignore the dramatic rise in store closings, job losses, bankruptcies and complete liquidations. It’s harder still to dismiss the wave of disruption that is shaking most traditional retailers to their core. The overbuilding of space is finally catching up to most sectors. The radical shift of spending online is creating a great deleveraging of physical retail. Consumer preferences are tilting to more experience, less stuff and a growing reluctance to pay full-price or spend conspicuously. Most damaging, the majority of “old school” retailers have not made innovation a priority and are now forced to play catch up at precisely the time they lack the cash to do so. And, sadly, for some retailers, it is too late.

Much of retail now finds itself at a precipice, a crossroads, the proverbial tipping point. In many cases, the decisions that will get made in the months ahead will make or break a scary number of major brands. Let’s look at four things that retailers that find themselves at or approaching the precipice need to focus upon and get right.

Should I stay or should I go? 

Major retailers have already announced nearly 3,000 store closings since the beginning of the year and more are on the way. But, to paraphrase Mark Twain, reports of physical retail’s death are greatly exaggerated. With some 90% of all retail still done in brick-and-mortar locations, physical retail needs to be different but it is not going away. There is great pressure on retailers to take an ax to their store counts, but this must be done judiciously. Careful rationalization of both store counts and remaining store footprints can enhance retailer relevance and profitability. But there is a real danger of closing too many stores. Deep analysis of network effects and cross-channel shopping behavior is needed to get this right.

The fault in our stores. 

With the rise of e-commerce and the over-storing of America, consolidation was inevitable. Despite most retailers’ best efforts, highly disruptive business models like Amazon were certain to gobble up share. But much of what ails retail is self-inflicted and most of what is causing heartache today could be seen coming for more than a decade. Retailer’s organizational silos get in the way of delivering an experience that is unified across channels and touch points. Traditional players’ reluctance to move away from one-size-fits-all marketing strategies fail to make the shopping experience more personalized. Retailer’s focus on efficiency rather than effectiveness stands in the way of a more simplified shopping experience and one that is more localized. And most brand’s risk aversion leads to a sea of sameness rather than an experience that is amplified in its relevance and remarkability.

Winning the moments that matter.

Since the vast majority of shopping journeys now begin online, which often means on a mobile device, a brand needs to be both present and impactful in what Google calls micro-moments (full disclosure: Google has been a client of mine) and what I have come to call “marketing’s new power of now.” Having a great product and cool advertising is necessary, but far from sufficient in a digital-first world where the first battle to win is the war for attention. If retailers don’t show up consistently in the moments that matter with an intensely relevant, remarkable and actionable offering, it’s likely game over.

Failure IS an option.

I headed up strategy at two Fortune 500 size retailers and in both assignments I tried to convince the CEO to establish an innovation process and to create an R&D budget. In both cases we said we wanted to be more innovative and in both cases we ultimately did nothing to meaningfully foster innovation. In fact, during one attempt to pitch a new idea to one of these CEO’s he said to me: “Steve I’m supportive of what you are trying to do but we need to this in such a way that we can’t fail.” At that point I was reminded of what Seth Godin says: “If failure is not an option, then neither is success.” I was also reminded it was time to update my resume. Spoiler alert: both retailers got into trouble due to their lack of innovation. Since becoming a consultant, writer and speaker on innovation I’ve seen how very few established retailers have taken innovation seriously. They are all paying a big price for that right now.

Retail isn’t getting any easier. In fact, one could argue that the pace of change is accelerating. And few of the issues plaguing retail are easily solved. But a few things seem certain. Defending the status quo is a recipe for disaster. If you believe you can shrink your way to prosperity, think again. Innovate or die. Your mileage may vary.

In today’s harsh retail world, a fair amount of pain is probably inevitable. The degree of suffering remains optional.

A version of this story recently appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here.  

EdgePrecipiceOPSEC

Being Remarkable · Innovation · Leadership

Yeah, but what if we don’t?

All too often we can find ourselves ruled by fear, both subtle and profound. Faced with going out on a limb, being vulnerable, trying something entirely new, it’s easy for The Resistance to take over, for the lizard brain to kick in, for us to tell ourselves the time isn’t right or that we aren’t quite ready.

For many us, it’s not the least bit difficult to imagine the embarrassment, pain or all manner of calamities that might result from exposing our ideas to the world, starting our own new business, choosing to be the one to stand up to injustice, aggressively pushing our organizations to innovate or embarking on just about any endeavor that is fraught with risk.

I’m reminded of what Mark Twain supposedly said: “there has been much tragedy in my life, some of which actually happened.”

It turns out we humans seem to be rather good at naming and feeling the risk of doing something, but maybe not so good at seeing the reward. We ask ourselves the “what if we do?” question and then frequently talk ourselves into stopping, waiting or hoping someone else will act instead.

Yet when it comes to pondering the work that matters perhaps a better question would be “what if we don’t?”

If we don’t innovate, our organization or business might not only stagnate, it might cease to exist entirely.

If we don’t speak up against hate, we enable injustice to spread unchallenged.

If we don’t vote, we get leaders that are at best clueless; at worst dangerous.

If we don’t act to unleash our potential, our desire, our creativity we, to paraphrase Thoreau, can easily fall into the trap of living lives of quiet desperation and go to our graves with the song still in us.

Too often we think the risk is in acting, when it is precisely the opposite.

Too often we believe we have more time, when in fact it’s much later than we think.

Too often we find ourselves asking the wrong question entirely.

 

 

Being Remarkable · Customer experience · Digital · e-commerce · Frictionless commerce · Omni-channel

Omni-channel is dead. Long live omni-channel 

“Omni-channel” has been one of retail’s favorite buzzwords for years now. At last week’s excellent ShopTalk conference, several speakers challenged the relevance of omni-channel. This conversation is long overdue.

The shift from a “multichannel” strategy–being active in multiple channels such as physical stores, catalogs and e-commerce–to omni-channel, suggested some form of profound change. It created a veritable cottage industry in related buzzphrases like “seamless integration,” “frictionless commerce” and “being channel agnostic.” To be honest, I’ve been known to throw some of these terms around in blog posts and keynote talks with reckless abandon.

Yet five years or so into this journey, it’s increasingly obvious that omni-channel isn’t all it’s cracked up to be. Many of the retailers at the forefront of omni-channel evangelism–Macy’s being the most glaring example–have only delivered quarter after quarter of disappointing performance. Many struggling retailers have problems that go far beyond merely drinking the omni-channel Kool-Aid. But the fascination with, and massive investment in, all things omni, have in many cases made matters far worse. A recalibration is needed. Perhaps the term needs to be buried.

The first problem is that retailers have been chasing ubiquity when they need to be chasing relevance and differentiation. Clearly, customers are engaging in more channels as part of their shopping journeys and retailers must respond accordingly. But in trying to be everywhere many brands have ended up being nowhere when it comes to a compelling offering. Undifferentiated product, less than remarkable customer service and uncompetitive pricing aren’t helped by extending their reach.

The second problem stems from investing in e-commerce and digital marketing with insufficient focus and prioritization. The majority of retail purchases in virtually all categories start online and, despite conventional wisdom, digitally influenced physical store sales are far bigger than online sales. Many traditional retailers made their e-commerce offering better while underinvesting in their physical stores, seeming to forget that the lion’s share of shopping is still done in brick & mortar locations. Not every aspect of e-commerce or embracing a “digital-first” strategy is important.

The third problem is that a lot of e-commerce remains unprofitable and many digitally-based customer acquisition strategies are uneconomic. The future of omni-channel will not be evenly distributed. Retailers need to have a well-sequenced roadmap of digital marketing and channel integration initiatives rooted in a deep understanding of customer behavior and underlying economics. Too much of what has been done thus far has been more shotgun, rather than laser-sighted rifle, in its approach, and the generally poor results illustrate this quite dramatically.

The fourth problem is somehow thinking that customers care about channels. Customers care about experiences, about solutions, about shopping with ease and simplicity. At the risk of advocating yet another buzzphrase, “unified commerce” is far more descriptive of what needs to happen than “omni-channel.” “All channels” never suggested a meaningful consumer benefit. And it never will.

Of course, engaging in semantic arguments doesn’t ultimately accomplish very much. But neither does continuing to plow mindlessly ahead, chasing a once bright and shiny object that is rapidly losing its luster.

A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts here.

Being Remarkable · Luxury · Retail

Luxury retail hits the wall

For a long time, the conventional wisdom has been that the luxury market was largely impervious to the ups and down of the economy. Yet recent results suggest otherwise and even with an improving macro-economic picture and booming stock market, most U.S.-based luxury retail brands continue to struggle.

A little over a week ago, reports surfaced that Neiman Marcus was looking to restructure its debt after a series of disappointing quarters. While Neiman Marcus faces unique challenges owing to high leverage from its 2013 buyout and a botched systems implementation, they are also being hit by a general malaise affecting the sector. HBC’s Saks Fifth Avenue division revenues have stalled during the past year. Nordstrom, which was once a shining star in the retail pantheon, has seen five straight quarters of declines in its full-line stores. Tiffany and Kors are among other brands facing similar declines. So what’s going on here?

The most common explanations for faltering performance have been the strong dollar’s impact on foreign tourism and a weak oil market. To be sure, these factors have not been helpful. But the problems in the luxury market go deeper, particularly among the department store players. Even an improvement in foreign tourism or the oil market are unlikely to return the sector to its former glory. Here’s why:

  • Little new customer growth. Other than through e-commerce, luxury retailers have had a tough time with customer acquisition for many years. With e-commerce maturing–and most recent reported gains merely channel shift–unfavorable demographics (see below) and very few new store openings, luxury brands are struggling to replace the customers they are losing.
  • Little or no transaction growth. While not widely appreciated, most of the comparable store growth in luxury retail has come through prices increases, not growth in transactions. To change this dynamic companies need to appeal to a wider range of customers and that’s proven difficult to execute in an intensely competitive environment. Brands must be also be careful not to dilute their brand relevance and differentiation in an attempt to cast a wider net.
  • Unfavorable demographics. Affluent baby boomers have propped up the sector for more than a decade. But as customers get older they tend to spend less overall, and quite a bit less on luxury in particular. Baby boomers are slowly but surely aging out of the segment. Gen X is a smaller cohort and there is little evidence they will spend as much as the boomers. Over the longer term, millennials will need to make up for the boomers who, to put it bluntly, will be dying off. Most studies suggest millennials will be more price-sensitive and less status conscious then then the cohorts ahead of them. This is a major long-term headwind.
  • Growing competition. Strict control over distribution largely insulates the luxury market from intense price competition and having to go head-to-head with Amazon. Nevertheless, full-price luxury is increasingly being cannibalized by retailers’ own growing off-price divisions. Luxury brand manufacturers are also aggressively investing in their own direct-to-consumer efforts by improving their e-commerce operations and continuing to open their own stores. Luxury websites like Net-a-Porter are gaining share of a no longer expanding pie.
  • Shifts in spending. Affluent consumers continue to value experiences and services over things–and are allocating their spending accordingly. Perhaps this multi-year trend will start to reverse itself. Perhaps.
  • The omni-channel migration dilemma. Luxury retailers are spending mightily on all things omni-channel, as they must to remain competitive. But it’s incredibly expensive to create a more integrated customer experience. The better a retailer becomes at this, the more business shifts from physical stores to digital. Most often this is not accretive to earnings as brick & mortar economics get deleveraged and online shopping is plagued by high returns and expensive logistics.
  • Looming over-capacity. While the luxury sector does not face the pressure to close stores that the broader market does, stagnant sales and a continued shift to digital channels will start to put more and more pressure on full-line store economics. Moreover, there is growing evidence that the high-end off-price sector is approaching saturation. The rationale for a Saks and Neiman merger may start to make more sense and some pruning of locations seems inevitable.

Notwithstanding the capital structure issues Neiman Marcus must deal with, the luxury market does not face nearly the same immediate challenges that many parts of retail must address. Nevertheless, there is mounting evidence that the sector’s struggles go beyond foreign currency woes and the vagaries of the oil market.

Profound change is coming to luxury as well and most of the headwinds simply aren’t going away.

A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts here.

Being Remarkable · Digital · Omni-channel · Personalization · Retail

The fault in our stores

Last week Target became the latest retailer to report weak earnings and shrinking physical store sales. They certainly won’t be the last.

As more retail brands disappoint on both the top and bottom lines–and announce scores of store closings–many may conclude that brick-and-mortar retail is going they way of the horse-drawn carriage. Unfortunately this ignores the fact that roughly 90% of all retail is still done in actual stores. It doesn’t recognize that many retailers–from upstarts like Warby Parker and Bonobos, to established brands such as TJMaxx and Dollar General–are opening hundreds of new locations. It also fails to acknowledge the many important benefits of in-store shopping and that study after study shows that most consumers still prefer shopping in a store (including millennials!)

Brick-and-mortar retail is very different, but not dead. Still, most retailers will, regardless of any actions they take, continue to cede share to digital channels, whether it’s their own or those of disruptive competitors. To make the best of a challenging situation, retailers need a laser-like focus on increasing their piece of a shrinking pie, while optimizing their remaining investment in physical locations. And here we must deal with the reality that aside from the inevitable forces shaping retail’s future, there are many addressable faults in retailers’ stores. Here are a few of the most pervasive issues.

The Sea Of Sameness

Traditionalists often opine that it all about product, but that’s just silly. Experiences and overall solutions often trump simply offering the best sweater or coffee maker. Nevertheless, too many stores are drowning in a sea of sameness–in product, presentation and experience. The redundancy in assortments is readily apparent from any stroll through most malls. The racks, tables and signage employed by most retailers are largely indistinguishable from each other. And when was the last time there was anything memorable about the service you received from a sales associate at any of these struggling retailers?

One Brand, Many Channels

Too many stores still operate as independent entities, rather than an integral piece of a one brand, many channels customer strategy. Most customer journeys that result in a physical store visit start online. Many customers research in store only to consummate the transaction in a digital channel. The lines between digital and physical channels are increasingly blurred, often distinctions without a difference. Silos belong on farms.

Speed Bumps On The Way To Purchase

How often is the product we wish to buy out of stock? How difficult is it to find a store associate when we are ready to checkout? Can I order online and pick up in a store? If a store doesn’t have my size or the color I want can I easily get it shipped to my home quick and for free? Most of the struggling retailers have obvious and long-standing friction points in their customer experience. When in doubt about where to prioritize operational efforts, smoothing out the speed bumps is usually a decent place to start.

Where’s The Wow?

As Amazon makes it easier and easier to buy just about anything from them, retailers must give their customers a tangible reason to traffic their stores and whip out their wallets once there. Good enough no longer is. Brands must dig deep to provide something truly scarce, relevant and remarkable. Much of the hype around in-store innovations is just that. For example, Neiman Marcus’ Memory Mirrors are cool, but any notion that they will transform traffic patterns, conversion rates or average ticket size on a grander scale is fantasy. Much of what is being tested is necessary, but hardly sufficient. The brands that are gaining share (and, by the way, opening stores) have transformed the entire customer experience, not merely taken a piecemeal approach to innovation.

Treat Different Customers Differently

In an era where there was relative scarcity of product, shopping channels and information, one-size-fits all strategies worked. But now the customer is clearly in charge, and he or she can often tailor their experience to their particular wants and needs. Retailers need to employ advanced analytical techniques and other technologies to make marketing and the overall customer experience much more personalized, and to allow for greater and greater customization. More and more art and intuition are giving way to science and precision.

Physical retail is losing share to e-commerce at the rate of about 110 basis points per year. While that is not terribly significant in the aggregate, this erosion will not be evenly distributed and the deleveraging of physical store economics will prove devastating to many slow to react retailers. This seemingly inexorable shift is causing many retailers to reflexively throw up their hands and choose to disinvest in physical retail. The result, as we’ve seen in spades, is that many stores are becoming boring warehouses of only the bestselling, most average product, presented in stale environments with nary a sales associate in sight.

The fault in our stores are legion. But adopting an attitude that stores are fundamentally problems to be tolerated–or eliminated–rather than assets to be leveraged and improved, makes the outcome inevitable and will, I fear, eventually seal the fate of many once great retailers.

PurpleCow

A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts here.

Being Remarkable · Customer Growth Strategy

JC Penney: The good, the bad and the ugly.

J.C. Penney recently announced its fourth quarter earnings as well as plans to shutter as many as 140 stores. To say the least, the announcement was a decidedly mixed bag.

On the good–or at least improving–side, earnings were a bit better than anticipated. Moreover, Penney’s comparable stores sales fell “only” 0.7%, materially better than their direct competitors, indicating some growth in relative market share. The company also continues to experience double-digit e-commerce growth with some 75% of online orders “touching” a physical store. While the picture is incomplete, this at least suggests that they are gaining much needed traction on their omnichannel initiatives. The retailer will continue to roll-out appliances, positioning them well for growth as Sears implodes and HHGregg appears headed for bankruptcy. And Penney’s should gain share in other key categories as Sears, Macy’s and others close stores and continue to struggle.

Given the huge revenue drop during the Ron Johnson era, the bad news continues to be that despite all the merchandising and operating improvements during the past three years, regaining material market share is proving nearly impossible. Moreover, the small amount of share that has been clawed back has come at high rates of couponing and promotional activity. Penney’s can never become a profitable retailer merely by closing a bunch of stores and maintaining an unprofitable level of discounting. Until Penney’s proves it can drive positive same store sales and a sustainable margin rate the turnaround remains teetering on the brink of life support.

The ugly centers on the increasingly dire picture these announcements paint for “traditional” department stores. Everything we have seen of late from the moderate department store players indicates that the sector’s decades long decline is not only accelerating but is reaching the tipping point where consolidation, store rationalization and fundamental business model restructuring must occur at a much faster and more dramatic pace. There is no scenario in which the available market these retailers compete for does not continue to shrink, thereby eviscerating the underlying economics of hundreds of physical locations. Pruning costs, rolling-out new merchandising strategies, offering “buy-on-line, pick-up-in-store”–and all the other turn-out plans outlined in the press releases–are all likely worthwhile. But they are not remotely close to sufficient.

With all the store closings already in the works–and more certain to follow–it will take some time for the dust to settle. The potential for a major acquisition or two may further cloud the picture this year. The only thing we know for sure is that the “profit pool” for the sector continues to contract and it’s very likely that one or more players won’t be around by this time next year. Until one or more of the remaining brands can demonstrate both improving margins and sustained comparable stores sales the sector starts to look one where no one can earn a decent return.

And maybe no one gets out of here alive.

A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts here.

Being Remarkable · Customer Growth Strategy

Relevance-light models are now retail’s big problem

So-called “asset-light” business models, where a company has relatively few capital assets compared to the overall size of its operations, have drawn increasing attention (and investor dollars) in recent years. Think Airbnb, Uber, Snap and many other essentially digital-only brands. The concept isn’t new. Brand licensing and many hotel management and franchise-based businesses have employed this formula for years.

In fact, the initial appeal of e-commerce was centered on the notion that a profitable business could be built without expensive physical stores loaded up with gobs of inventory. Then people started to learn that even with relatively little capital tied up in brick & mortar, both online-only brands and the e-commerce divisions of omni-channel retailers still have a hard time making money.

Recently, more and more traditional retailers have been drinking the asset-light Kool-Aid. Sears Holdings CEO Eddie Lampert has been jettisoning real estate and investing heavily in e-commerce while largely ignoring physical stores. Macy’s, HBC and other department and specialty stores have been closing and/or spinning off real estate assets galore. JCPenney is among a number of retailers that are bringing in outside entities to run parts of their business, effectively reducing the risk of a heavy commitment to physical space and inventory.

Clearly some of these moves may make sense as either savvy financial engineering strategies or targeted product/service offerings. Well, not for Sears, but perhaps for others.

Yet as we seek to understand what’s behind the headline grabbing announcements–with many more certain to come–we should grasp one key concept. The fundamental problem at Sears, Penney’s, Macy’s, Kohl’s, Dillard’s and a host of other long suffering retail brands is not that they have too many assets. The driving issue is that they have too little relevance for the assets they possess. In fact, we need look no further than last week’s strong earnings announcements from Home Depot and Walmart to see that retail companies can have enormous physical assets and still remain relevant.

Unfortunately, more times than not, focusing attention on driving down assets (the denominator of a success equation) instead of improving customer relevance (the numerator) only helps the investor math for a short time. This is not to say that store closings are not needed. But the evidence is clear that plenty of asset-heavy retailers have figured out how to make money without embracing the store closing panacea.

Leaders and Boards of struggling retailers may think they are pursuing a smart asset-light strategy. My fear is that most of them are only deepening their commitment to a relevance-light model. And that’s likely to end badly.

 

A version of this post appeared @Forbes where I have recently become a retail contributor. To see more click here.

Being Remarkable · Customer Growth Strategy · Leadership · Omni-channel

Working on the wrong problem

When we see a brand struggling–or we find ourselves working within a flailing or failing organization–the first order of business should be clear. We need to understand the root causes. Once we’ve become keenly aware of what’s driving our problem–and accepted the reality of the situation–we are then ready to move into developing and launching a course of action.

So if the path is clear and obvious, why do so many retailers–and scores of other types of organizations, for that matter–get it so very wrong, so very often?

We regularly see retail brands hyper-focused on cost reductions when by far the bigger issue is lack of revenue growth (I’m looking at you Sears).

We see brands falling prey to the store closing delusion when often it turns out that closing stores en masse only makes matters worse.

We see brands blindly chasing the holy grail of all things omni-channel when, in most cases, they are merely spending millions of dollars to transfer sales from one pocket to the other–often at a lower margin.

We brands engaging in price wars they can never possibly win or without regard to the possibility that their customers aren’t even interested in the lowest price.

We see brands chasing average, the lowest common denominator, the one-size-fits-all solution because it seems safe. Yet it is precisely the most risky thing they could do.

Far too often we fail to pierce the veil of denial.

Far too often we fall victim to conventional wisdom, what we’ve always done or what we think Wall Street wants.

Far too often we ascribe wisdom to shrewd salespeople or charismatic and clever charlatans.

Far too often we fail to do the work, to ask for help, to dig deep to understand what’s really going on.

We can work really hard. We can focus our energies and those of our teams we great alacrity and intensity. We can pile on the data, build persuasive arguments and rock a really slick PowerPoint presentation. We can tell ourselves a story that convinces us we must be right.

But if we aren’t working on the right problem that’s all a colossal waste of time.