The End Of E-Commerce? These Days, It’s All Just Commerce

Given the continued rapid growth of online shopping, it might seem crazy to suggest that the era of e-commerce is coming to an end. Yet while we are used to talking about e-commerce as a separate thing — and isolating statistics for digital transactions versus brick-and-mortar same-store sales — it’s increasingly clear that these are becoming distinctions without much of a difference. For consumers, it’s simply “commerce,” and retailers that want to thrive, or survive, need to fully embrace a one brand, many channels strategy.

I recently attended shop.org, the annual conference historically focused on digital commerce. What struck me most (beyond the dwindling attendance) was that speakers mostly ignored online shopping as a stand-alone concept. Instead, many emphasized the importance of brick-and-mortar stores in delivering a remarkable customer experience. Moreover, the majority of technology providers in the expo offered solutions that were very much anchored in online/offline integration or leverage, not e-commerce optimization, as was true in the past. Rather than buying into the retail apocalypse narrative and seeing brick-and-mortar stores as liabilities, most were clearly in the camp of believing that stores were (wait for it) assets. Physical retail might be different, but it clearly is not dead.

Notably, Mark Lore from Walmart/Jet spoke of the need for retailers to be channel agnostic and highlighted how Walmart’s stores give the brand a distinct advantage. TechStyle CEO Adam Goldenberg showcased statistics on how Fabletic’s overall brand performance has been enhanced through the opening of stores and on how the merging of cross-channel data gives them an edge. Kohl’s spoke of the role of mobile as a constant companion in the shopper’s journey from online to offline (and vice versa). While using somewhat different language, numerous other speakers acknowledged that customers shop everywhere and the best retailers need to meet them where they are. Clearly, more and more, it’s just commerce now.

Of course, the lines have been blurring for years, and study after study shows that a well-integrated shopping experience across channels (what some call “omni-channel” and what I prefer to call “harmonized retail”) is what customers desire and what often determines a brand’s ultimate success. The increasing investments in physical stores byAmazon and other digitally native brands serve to underscore this growing reality. Those of us who are familiar with retailers’ customer data know that, typically, a brand’s best customers are those who shop and/or are heavily influenced in both digital and physical channels. We also know that opening stores drives increases in e-commerce in that store’s trade area, just as closing a store often leads to dramatic declines in online shopping. It’s all just commerce.

This realization does not negate the fact that a meaningful percentage of shopping occurs in a purely digital fashion (particularly downloading books, music and games). It does not minimize that Amazon has achieved a total share of retail rapidly approaching 5% almost entirely without a physical presence. But as we move ahead, it’s important to realize the significant contributions to what we label “e-commerce” that are derived from traditional retailers’ online divisions. It’s important to recognize that Amazon will struggle to maintain outsized growth without deepening its investment in brick and mortar. It’s critical to grasp that digitally influenced physical-stores sales far exceed sales rung up online.

And ultimately it’s essential to realize that it is rarely an online-vs.-offline battle, but a struggle that is won when we accept that it’s all just commerce and strive to bring the best of offline and online together on behalf of the customer.

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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For many retailers it’s later than they think

There is a lot we know about what innovative companies do–and way too much to go into here. But it’s readily apparent that most traditional retailers have ignored a great deal of it and are paying the price right now.

While no one has the gift of prophecy–and most would likely agree that few could have imagined the degree and speed of disruption we are experiencing–there are plenty of things that should have been obvious years ago to anyone paying attention. Here are just a few that were being actively discussed at the retailers I worked with at least five year ago and, in some cases, over a decade ago:

  • Physical retail space was being overbuilt and a consolidation needed to occur
  • Customers who shopped in multiple channels were far more valuable than single channel shoppers
  • Emphasizing the growth of e-commerce without tight integration with the overall brand experience would have unintended negative consequences
  • Shopping influence of digital channels was critical to physical store success, and vice versa
  • Data, organization and process silos needed to be busted to provide an integrated (I like to call it “harmonized”) experience
  • High rates of returns and high customer acquisition costs would make most pure-play brands profit proof and unsustainable
  • You can’t out-Amazon, Amazon and the middle is collapsing. The focus needs to be on remarkable, scalable, “ownable” experiences, not engaging in a race to the bottom
  • More innovation and experimentation is essential to stay ahead of the curve and best manage risk
  • A premium needed to be placed on deeper customer insight and on translating that insight into more personalized offerings and experiences.

I have no idea what percentage of retailers were aware and accepted these emerging truths. I do know that very few acted on them. I do know that very few retail brands have anything that looks like a robust innovation process. I do know that the notion of an R&D budget and having a senior executive responsible for driving innovation is absent at the vast majority of top retailers.

If I told you I was going to successfully run a marathon next year without doing any training you would tell me that I was crazy and wouldn’t be surprised in the least if I failed miserably. Yet apparently most Boards and CEO’s thought that somehow all this innovation would magically appear without a strategy and the resources to make it happen. Hope is not a strategy and counting on a time machine to go back and fix things doesn’t seem all that workable either. It’s easy to blame Amazon for the problems of most retailers, but that would be wrong. Most of the wounds are self-inflicted.

For quite a few retailers the bullet has already been fired, it’s just that the full impact has not been realized yet. Unfortunately they are in a dive from which they will never recover. Dead brand walking.

Others stand at the precipice, where their fate is not yet sealed, but the pressures to radically transform grow stronger by the day. The answer will not be to try to out-Amazon Amazon, to finish second in a race to the bottom. The answer lies in striving to be more intensely relevant and remarkable, to get out of the stands and into the arena, to understand that it is far more risky to hold on to the status quo than to embrace radical experimentation and transformation.

As the Chinese proverb says “the best time to plant a tree was 20 years ago. The second best time is today.”

plant-a-tree-today

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.

Physical retail: Definitely different, far from dead

From recent headlines you might assume that sales in brick & mortar stores must be falling off a cliff. You’d be wrong. Yes, e-commerce is growing at a much faster rate, but revenues in physical stores remain positive (1%-2% growth depending on the source). There is also a sense that online shopping is becoming the dominant way most people shop. In fact, even with a dramatic share shift, e-commerce still represents less than 10% of total retail sales and is expected to remain below 20% even 5 years from now.

Moreover, if physical retail is dying somebody should tell well established (and quite profitable) retailers like Aldi, Apple, Costco, TJX, Dollar General, Dollar Tree, Nordstrom, H&M, Ulta and Sephora. Collectively they’ve announced plans to open about 3,000 stores. Newer brands–think, Bonobos, Casper, Warby Parker–that were once dubbed geniuses for their “digitally native” strategy are now opening dozens of physical stores as their online-only plans proved limited and unprofitable. A little outfit from Seattle also has recently made a pretty big bet on physical retail.

So the constant media references to a “retail apocalypse” may serve as great clickbait, but they lack both accuracy and nuance. I believe we’re all better served by not painting the industry with too broad a brush and spinning false narratives.

Nevertheless, it is crystal clear that years of overbuilding, failure to innovate on the part of most traditional retailers, shifting customer preferences and market-share grabs from transformative new models that aren’t held to a traditional profit standard (mostly the little outfit in Seattle) are creating fundamentally new dynamics.  Physical retail is not going away, but digital disruption is transforming most sectors of retail profoundly. Here are a few important things to bear in mind:

Good enough no longer is. Mediocre retailers were protected for years by what was once scarce: scarcity of product and pricing information, scarcity of assortment choice, scarcity of strong local competition, scarcity of convenient ways for product delivery. Digital commerce has created anytime, anywhere, anyway access to just about everything and the weaknesses of many retailers’ business models have been laid bare. Traditional retailers’ failure to innovate over the past decade has put quite a few in an untenable position from which they will never recover. It turns out they picked a really bad time to be so boring.

E-commerce is important. Digital-first retail is more important. The rise of e-commerce is having a dramatic effect on shopping behavior but it is not the most disruptive factor in retail. What’s far more transformative is the fact that most customer journeys for transactions that ultimately occur in a brick & mortar location start in a digital channel–and increasingly that means on a mobile device. In fact, digitally-influenced physical stores sales are far greater than all of e-commerce. Many brands’ failure to understand this reality caused them to waste a lot of time and money building strong online capabilities at the expense of keeping their stores and the overall shopping experience relevant and remarkable.

Physical and digital work in concert. A retail brand’s strong digital presence drives brick & mortar sales and vice versa. When different media and transactional channels work in harmony, the brand is more relevant. When any aspect is unremarkable or creates friction, the brand suffers. Too often, traditional retailers treat digital and physical retail as two distinct entities when most customers are, as some like to say, “phygital.”  Moreover, with the exception of products that can literally be delivered digitally (books, games, music), there is rarely any inherent reason why the rise of e-commerce should make a substantial number of physical stores completely irrelevant. Retailers that are closing a lot of stores most often have a business model problem, not a “too many stores” problem.

The future will not be evenly distributed. Clearly, there are brands and retail categories that are being “Amazon-ed.”  There are also sectors that have been in long-term decline (department stores and many regional malls), whose troubles have little to do with what’s transpired most recently. Still others have remained largely immune from the disruptive forces that are hitting others so hard. Off-price chains, warehouse clubs, dollar stores and gas stations all come to mind. Grocery shopping has also seen little impact, though that’s likely to change. It’s also important to note that some forces that are shaping the industry have little to do with e-commerce vs. physical stores shopping or the notion that Amazon is eating the world. Many sectors are being hit by a fundamental change in shopping behavior (a shift to experiences away from stuff, a tendency to trade down to lower price points) that has nothing to do with how spending is being reallocated away from brick & mortar to online. Your mileage may vary.

To be sure, a degree of panic is appropriate in some circles. It’s obvious that many retailers spent more time defending the status quo and burying their heads in the sand during the past decade than they did understanding the consumer and being committed to innovation. Some retailers need to adapt. Some need to transform the customer experience fundamentally. Others just need to go away. Most need to take bold and decisive action to stay relevant and remarkable in a very different and constantly evolving world.

The big question is whether they will act while they still have time.

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.

Sears must think we’re stupid or gullible. Here’s why.

Having spent my first 12 years in retail as an executive at Sears, I’ve followed the company’s trials and tribulations with more than a passing interest. And considering my last role at the once-storied brand was leading corporate strategy–where my team was mostly focused on trying to fix the mall-based department store format and making the Lands’ End acquisition work–I am far from an impartial or unknowing observer.

Arguably, I’ve taken Sears to task too many times over the years. When I left Sears in 2003 (a year before Sears and K-mart merged), I had already concluded that the once iconic brand was on a slow slide to oblivion. Combining a deteriorating, mediocre chain with a terrible one did not change my view. Over the years Eddie Lampert’s misguided leadership has been a frequent target of criticism on my blog. In 2013, I labeled Sears “The World’s Slowest Liquidation Sale” as it became abundantly clear that after nine years Lampert still had no viable turnaround plan. In 2014, I lampooned the futility of their efforts in an April Fool’s post and went on CNBC arguing that investors would be better served by a swift liquidation rather than perpetuating an increasingly delusional strategy that only served to lower asset values.

So, years later, Sears is still hanging around and Lampert is still peddling his special brand of snake oil. How is this possible?

Let’s answer the easy question first. Sears has endured longer than they deserve to because they had enough assets to unload (real estate, private brands and fungible business units) to cover the massive operating losses they’ve racked up during the past decade. The fact that Sears has very low operating costs (partially because of favorable rents, partially because Lampert has cut overhead to the bone) has extended their life. But, make no mistake, they are very close to the end of the runway.

To answer the other question we must conclude that investors are either stupid or gullible–or at least Lampert is counting on it. Before we get to the most recent nonsense, it’s worth mentioning some of the whoppers we were supposed to believe over the years:

  • That Sears and Kmart would create some magical synergy
  • That Sears’ problems could be fixed by cutting costs rather than investing in the customer experience
  • That it made sense to have merchandise categories compete internally with each other, rather than focus on the customer and external competition
  • That Sears could disinvest in stores and profitably transition much of its business online
  • That selling once enormously valuable private brands like Kenmore, Craftsman and DieHard in off-the-mall formats and Ace Hardware Stores was a sufficient antidote to the massive share loss to Home Depot, Lowe’s and Best Buy.

Today, the company continues to make a big deal about how it is a “member-driven” company, touting its “Shop Your Way” program and “ecosystem” as some sort of important differentiator and value contributor. The facts are that a) it is, at best, a mediocre loyalty program, b) customer engagement is driven almost exclusively by a high rate of discounting, c) margins have declined since its introduction and d) sales continue to slide. Referring to customers as “members” may sound good, but it connotes a strength of relationship and value that clearly does not exist. The program has always been an expensive gimmick to collect customer data. Suggesting anything else defies credulity.

In an apparent attempt to distract from the collapse of its mall-based stores, Sears Holdings also continues to announce “innovative” new store formats like an appliance & mattress store (which isn’t a new idea at all) and a DieHard Battery Center. These might be interesting formats to franchise when Sears ceases to be a significant retail operator, but the notion they will somehow be material to a turnaround is just silly.

More broadly–and most stupefyingly–Lampert continues to claim turnaround efforts are on track. This from a company that has had precisely one-quarter of positive sales growth in seven years, operating losses that continue to worsen, an acceleration in store closings and rampant departures of key executives. Moreover, the moves detailed in the most recent press release are all about financial restructuring and say nothing about actions to improve customer relevance. If Sears does not quickly and dramatically improve its performance with its customers nothing else matters. Period.

At one level, I get why Lampert apparently chooses to create the illusion that Sears can actually stay in business. He needs vendors to keep shipping product to mitigate a complete unraveling. He needs employees to keep the lights on and greet the few customers who might wander into the ever shrinking store fleet. He needs to avoid looking too desperate to dodge fire sale pricing on the few remaining assets he must unload to make it through the holiday season. And he needs creditors to give him more time to try to pull another rabbit out of his hat.

Yet, let’s be clear, to believe that Sears is somehow going to make it much longer as anything remotely resembling a national, fully operating retailer is beyond folly. I have no idea whether Lampert truly believes Sears can be saved. I hope not because that would be quite sad.

But for the rest of us, there is simply no reason to be stupid or gullible. The reality is there for all to see. A story and, most importantly, the one spinning the tale–only has power if we allow them.

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.

It’s the end of the mall as we know it . . . and I feel fine

For those promulgating the “retail apocalypse” narrative, a key component of their Chicken Little logic is that malls are dying. Moreover, much of the blame is cast squarely upon the growth of e-commerce. While hyperbole IS the greatest thing ever, there is a lot more to the story. So let’s try to put this all in a more fact-based, clear and nuanced perspective.

First, in aggregate, regional malls–and their department store anchors–have been on the decline for more than two decades. The first wave of disruption came from the advent and national expansion of big-box category killers and discount mass merchandisers. The most recent wave of disruption has come mostly from the rise of off-price and dollar stores. So while it’s convenient to blame Amazon, the ascent of online shopping is only a small piece of the puzzle. And due to rampant over-building, a correction was sure to come anyway.

Second, many dying malls are being killed by other malls. As growing retailers situate new stores in growing suburban areas with favorable demographics, we often witness a shift in an area’s “retail center of gravity.” A mall that was built in the 60’s or 70’s may lose relevance as more and more retailers locate closer to where a greater density of high spending shoppers now reside or work. In many instances, a new mall with more desirable tenants has been built during the past decade to capture those sales.

Third, many malls are actually doing very well.  The nation’s so-called “A” malls represent about 20% of locations, but generate about 75% of total mall volume. With few exceptions, these 270 or so malls have stellar (and growing) productivity and very low vacancy rates. Relatively few of these malls are being impacted by the closing of anchor tenants. And specialty store vacancies are typically snapped up quickly.

Fourth, while the closing of department stores is hitting “B” and “C” malls disproportionately hard, it’s not all bad news for mall owners. Sears has been a dead brand walking for more than a decade. Many JC Penney and Macy’s locations have been chronic under-performers for years. As long as these albatross tenants continue operating, the mall operator receives paltry rent from big chunks of their leasable space while generating little incremental traffic. So in reality the loss of poorly performing retailers is often creating new, more profitable opportunities. One scenario is a transformation of tenant mix, often a dramatic shift to more entertainment venues and/or professional office use.  Sometimes, non-traditional retail tenants (think Dick’s Sporting Goods or Target) become anchors. Yet another is a complete re-purposing of the entire center to more lucrative multi-use development.

This is not to say that some malls won’t die a painful death, never to return from the ashes. But the apocalyptic vision painted by some is far from accurate. Most higher-end malls will continue to thrive with an approach that looks rather familiar. Many others will evolve to be quite different, but will remain far from hurting, much less dead. Others will be radically transformed to something with a vastly higher and better use.

Either way, with few exceptions, investors, customers and employees are going to be just fine.

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.