Category: Frictionless commerce

Embrace the blur · Frictionless commerce · Retail

Physical stores: Assets or liabilities?

stevenpdennisLeave a comment

Of course the obvious answer is “well, that depends.”

As the intersection of economic feasibility and consumers’ willingness to adopt new technology hit a tipping point, for retailers that had invested big bucks in the brick-and-mortar distribution of music, books and games, the answer changed rather dramatically. Today’s retail apocalypse narrative is nonsense. But it wasn’t so long ago that the tsunami of digital disruption very quickly turned the physical store network of Barnes & Nobles, Blockbuster, Borders and others into massive liabilities. While we can argue about whether any of those brands laid to waste by Amazon, Netflix et al. could have responded better (spoiler alert:the answer is “yes”), it’s hard to imagine a scenario for any of them that would have included a fleet of stores remotely resembling what was in place a decade ago.

Most of the so-called digitally native vertical brands that are disrupting retail today—think Warby Parker, Bonobos, Indochino—started with the premise that not only were physical stores unnecessary, they would soon become totally irrelevant. In fact, about six years ago, I remember asking the founder of one of these brands when they were going to open stores. He looked at me with the earnest confidence of someone who had just received a huge check with a Sand Hill Road address on it and said, “we’re never opening stores.” Clearly, at the time, he saw stores as liabilities. He wasn’t alone. Everlane’s CEO made a similar, but more public statement.

So for several years scores of startups attracted massive amounts of venture capital on the belief that profitable businesses could scale rapidly without having to invest in physical retail outlets. A key part of the investment thesis was that stores were undesirable given the high cost of real estate, inventory investment and operational support. Clearly the underlying premise was that stores were inherent liabilities. So it’s more than a little bit ironic, dontcha’ think, that my friend’s company has since opened dozens of stores, that Everlane just opened its second location (with more to follow I’m sure) and that many other once staunchly online only players are now seeing most of their future growth coming from brick-and-mortar locations.

For legacy retailers, particularly as e-commerce took off, many acted as if much of their investment in physical real estate was turning into a liability—or at least an asset to be “rationalized” or optimized. This underscores a fundamental misunderstanding of what was happening. Too many stayed steeped in channel-centric, silo-ed thinking and action. They saw e-commerce as a separate channel, with its own P&L. Because of this, they underinvested (or went way too slowly) because they couldn’t see their way clear to making the channel profitable. Before long they got the worst of both worlds: They found themselves not participating in the upside growth of online shopping while losing physical store sales to Amazon or traditional retailers that were pursuing a robust “omni-channel” strategy.

To be sure, the overbuilding of commercial real estate was going to lead to a shakeout at some point. Digital shopping growth enables many retailers to do the same (or more) business with fewer locations or smaller footprints. Yet I would argue that most of the retailers that find themselves with too many stores (or stores that are way over-spaced) rarely have a fundamental real estate problem—they have a brand problem. The retailers that consistently deliver a remarkable retail experience, regardless of channel, are closing few if any stores. In fact, brands as diverse as Apple, Lululemon, Ulta—and dozens of others—have strong brick-and-mortar growth plans.

What sets most of these winning retailers apart is that they deeply understand the unique role of a physical shopping experience in a customer’s journey and act accordingly. They know that digital drives physical and vice versa. They started breaking down the silos in their organizations years ago—or never set them up in the first place. They accept that talking about e-commerce and brick and mortar is mostly a distinction without a difference and know that it’s all just commerce. And they embrace the blur that shopping has become. They see their stores as assets. Different and evolving assets certainly, but assets all the same.

On the heels of recent strong retail earning reports (and an increase in store openings) some are starting to pivot from the narrative that physical retail is dying to one that is closer to all is now well. Both lack nuance. We can chalk up some positive momentum to the fact that a rising economic tide tends to lift all ships. We can peg some of the ebullience to Wall Street waking up to facts that were plain to see for quite some time.

What is most important over the longer-term, however, is to understand the root causes of why and where physical retail works and why and where it doesn’t. Whether it’s Casper, Glossier, Warby Parker, Nordstrom, Neiman Marcus, Williams-Sonoma, Sephora or many others, the formula is pretty much the same. Deeply understand the customer journey, and whether it’s a digital channel or physical channel, root out the friction and amplify the most relevant and memorable aspects of the customer experience.

When we do this we see the unique role a physical presence can (and often should) play in delivering something remarkable. The answer will be different depending on a brand’s customer focus and value proposition. But armed with this understanding we can design the business model (and ultimately the physical retail strategy) knowing that the channels complement each other and the desire is to harmonize them. At this point the question is not whether stores are an asset or a liability, it’s which aspects of brick and mortar’s unique advantages to lean into and leverage.

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.  

Over the next few weeks I’ll be in Dallas, Austin, Chicago, Toronto and San Antonio delivering an updated version of my keynote “A Really Bad Time To Be Boring.” For more info on my speaking and workshops go here.

e-commerce · Frictionless commerce · Retail

The de-schlepping of retail

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Millard “Mickey” Drexler, the former CEO of J. Crew Group and Gap, is many things. Shy and retiring is not among them. To be sure, Drexler’s had his ups and downs, his victories and defeats. But he’s always interesting. In my only conversation with him (by phone when I was a responsible for strategy and multi-channel marketing at the Neiman Marcus Group), he had the attention span of a gnat on a 5 Hour Energy bender. Between barking orders to his assistant, he dictated a litany of things we were doing wrong at Neiman’s that I must address STAT (wait, do I work for you?). I left the call with a long list of items to discuss with my boss, more than ready for a nap. Good times.

Drexler has been mostly off the radar since stepping down from J. Crew, yet he re-emerged in typical style at the recent Annual Retail Forum/Retail Radicals event organized by the Columbia Business School and The Robin Report. Among his many provocative comments, the one that captured my attention was what he referred to as the de-schlepping of retail. “Why schlep paper towels from the supermarket? Why schlep dog food? Why schlep a lot of things?” he asked. And he’s right. Of course lugging heavy and/or bulky items home from a store has always been a hassle, particularly if you take public transportation or live in an apartment. The more powerful change is the number of companies that have emerged to address this pain point, including Boxed, Jet and Amazon.

I (and others) have made the distinction between buying and shopping, highlighting the fact that e-commerce is rapidly gaining share in the former, where the products are more commodity-driven and where price and convenience are paramount. Shopping, on the other hand, is more experiential and tactile, and as such, pure online shopping has not gained nearly as much traction. De-schlepping, as Drexler describes it, solves a very particular sub-set of customer needs, delivering clear and obvious value. From my own experience, once I discovered the ease of buying bulky and heavy items online, I haven’t turned back. While it’s not a huge amount of purchases, I’ve made a nearly complete shift of spending in certain categories away from traditional grocery stores to Amazon and others.  It’s clear from the data that I am far from alone.

At one level this dynamic is pretty obvious. At its core it merely explains some of the fundamental reasons that online shopping is now approaching 10% of all retail sales and continuing to grow much faster than brick-and-mortar retail. What’s relatively different about the de-schlepping phenomenon, however, is both the customer value and the underlying economics for the retailer.

There are plenty of retail categories where the customer may be largely indifferent between buying in a store or online—or where they regularly split their spending between the channels, based upon their episodic need for sales help, the desire to touch and feel the product or pure impulse. This is not true when we are motivated principally by our desire for de-schlepping. Once we know what we want and have a supplier we trust, there really is no reason not to buy online as a physical store experience adds little or no discernible value.

Yet from a retailer’s perspective, it’s often rather different. Since brick and mortar is largely a fixed cost business, the marginal profitability of a big bag of dog food or 48-pack of toilet paper or a case of S. Pellegrino sparkling water (my personal favorite) is usually good, even when heavily discounted. Conversely, for the online players the economics are generally terrible, owing to the variable cost nature of direct-to-consumer sales. The precise reasons customers love the de-schlepping of retail is why e-commerce sellers generally hate it. If it’s big, bulky and heavy, it costs a lot to store, handle and ship. The logistics costs relative to the gross margin dollars generated typically make these orders unprofitable. What’s great for consumers is lousy for online retailers.

So the question isn’t whether the de-schlepping of retail is good for consumers. The question is whether it can be economically sustained as it scales. The nature of Amazon’s Prime program means a decent percentage of the e-commerce behemoth’s orders are unprofitable. The prevalence of free-shipping and deep discounts to acquire new customers means that some online-only players have many transactions that generate negative cash flow. Ultimately it comes back to the interplay of unit economics and customer lifetime value. Most customers are smart enough to go where they will get the best deal. They will “overuse” retailers (online or offline) that consistently provide customer value that is too good to be true (see also Uber, Lyft and WeWork). In Amazon’s case, it has the benefit of comparatively low customer acquisition cost, supply chain efficiency and offering such a wide array of product and services that the vast majority of customers have good lifetime value even if it has a smattering of transactions that are money losers.

For brands that offer great customer value, yet suffer from challenging delivery economics and high customer acquisition costs (Boxed, Wayfair, among others), the path forward is far less certain. Sure it’s impressive to deliver consistently strong revenue growth. Yet it turns out it’s really not all that surprising when the service offering and pricing may be too good to be true. For consumers it’s great when investors are willing to subsidize a new business model that offers real customer utility. Whether that business model is ultimately economically sustainable is another matter entirely. Time will tell. In the meantime, as long as certain brands are willing to price in such a way that I can avoid the hassle of schlepping home the biggest and bulkiest of items I regularly purchase, I’ll keep buying. I’ll let them worry about whether they can sell at a loss and make it up on volume.

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 speaking page has been updated with several new gigs. See the latest here.

Being Remarkable · Digital · e-commerce · Frictionless commerce

Retail at the precipice

stevenpdennis2 Comments

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.  

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

Omni-channel is dead. Long live omni-channel 

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“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 · Customer-centric · Digital · Frictionless commerce · Omni-channel · Winning on Experience

Stop blaming Amazon for department store woes

stevenpdennis23 Comments

Given Amazon’s staggering growth and willingness to lose money to grab market share it’s easy to blame them for everything that is ailing “traditional” retail overall–and the  department store sector in particular.

In fact, with announcements last week from Macy’s to Kohl’s and Sears to JC Penney that could only charitably be called “disappointing” many folks that get paid to understand this stuff reflexively jumped on the “it’s all Amazon’s fault” bandwagon. Too bad they are mostly wrong.

The fact is the department store sector has been losing consumer relevance and share for a long, long time–and certainly well before Amazon had even a detectable amount of competing product in core department store categories.

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The fact is it’s just as logical to blame off-price and warehouse club retailer growth–which is almost entirely done in physical locations, by the way–for department stores’ problems.

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The fact is that, despite other challenges along the way, Nordstrom, Saks and Neiman Marcus have maintained share by transitioning a huge amount of their brick & mortar business to their online channels and have closed only a handful of stores in the last few years. Nordstrom and Neiman Marcus now both derive some 25% of their total sales from e-commerce.

Don’t get me wrong, I’m not saying that Amazon isn’t stealing business from the major department store players. Clearly they are. And as Amazon continues to grow its apparel business they will grab more and more share.

But the underlying reason for department stores decades long struggle is the sector’s consistent inability to transform their customer experience, product assortments, marketing strategies and real estate to meet consumers’ evolving needs.

More recently, those brands that have been slow to embrace digital first retail are scrambling to play catch up. Those that still haven’t broken down the silos that create barriers to a frictionless shopping experience will continue to hemorrhage customers and cash.

Most importantly those that think they can out Amazon Amazon are engaged in a race to the bottom. And as Seth reminds us, the problem with a race to the bottom is that you might win.

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Customer-centric · Digital · Frictionless commerce · Innovation · Omni-channel · Retail · Share of attention · Winning on Experience

My top blog posts of 2016

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As has become an annual tradition–and despite my nearly six month hiatus–I present my most popular blog posts from this year.

  1.  I am the captain now
  2.  A few inconvenient truths about e-commerce
  3.  Sears: The one thing that could have saved them
  4.  Quitting is underrated
  5.  Umm, so why aren’t your sales better?
  6.  Pure play e-commerce’s fantastic (and unsustainable) wealth transfer
  7.  The struggles of the flying trapeze artist
  8.  The new retail ecosystem: NRF edition
  9.  Retail’s big reset
  10.  I’m going to build and wall and get Amazon to pay for it

And here are a few more that didn’t put up huge numbers, but are personal favorites.

  1. Just about everything is noise
  2. Retail’s museums of disappointment
  3. Don’t bite the hook
  4. The magical mystery powers of gratitude
  5. Put your ass where your hearts wants to be

As I wrap up my seventh year writing this blog I am incredibly grateful for your attention, support and feedback.

Best wishes for a safe, happy and prosperous New Year!

And if you get a chance check out my other blog “I got here as fast as I could.”

Being Remarkable · Customer Growth Strategy · Customer-centric · Frictionless commerce · Multi-channel · Omni-channel · Retail

Umm, so then why aren’t your sales better?

stevenpdennis5 Comments

You’ve probably heard quite a few retailers proclaim some version of “customers who shop across our multiple channels spend 2, 3, 4, even 6 times, that of our average customer.”

When I worked at Sears that is what we saw and that is what we said. Years later, when I headed up strategy and multichannel marketing for the Neiman Marcus Group, that was what our data showed and that is what we told the world. As “omni-channel” has become the clarion call of retail during the past several years, dozens of brands have employed this observation as a primary rationale for substantial investments in beefing up digital commerce and investing in cross channel integration.

But it raises an interesting question.

If it’s true that multichannel customers spend a whole lot more and all these companies have become much better at omni-channel, why aren’t their sales better?  In fact, why is it that most of the retailers who have made such statements–and invested heavily in seamless commerce–are barely able to eek out a positive sales increase?

Something doesn’t seem to add up. So what exactly is going on here?

The main thing to understand is the fallacy that becoming omni-channel somehow magically creates higher spending customers. A retailer’s best customers are almost always higher frequency shoppers who, obviously, happen to trust the brand more than the average person. When alternate, more convenient ways to shop emerge, they are most likely to try them first and, because they shop more frequently, it’s more likely that they will distribute their spending across multiple channels. Best customers become multichannel, not the other way around.

If it were true that traditional retailers are creating a lot more high spending customers by virtue of being more multichannel, the only way the math works is that they must at the same time be losing lots of other customers and/or doing a horrible job of attracting new customers–which somewhat undermines the whole omni-channel thesis. It’s also rather easy to do this customer analysis. I long for the day when I see this sort of discussion actually occur at an investor presentation or on an earnings call.

There WAS a time when being really good at digital commerce and making shopping across channels more seamless was a way for traditional retailers to acquire new customers, to grow share of wallet and to create a real point of competitive differentiation. Nordstrom is a great example of a company that benefitted from this strategy during the past decade, but is now starting to struggle to get newer investments to pay off as the playing field gets leveled.

So-called “omni-channel” excellence is quickly becoming the price of entry in nearly every category. Most investment in better e-commerce–or omni-channel functionality like “buy online pick-up in store”–is defensive; that is, if a brand doesn’t do it they risk losing share. But it’s harder and harder to make the claim that it’s going to grow top-line sales faster than the competition.

Retailers that find themselves playing catch up are primarily spending money to drive existing business from the physical channel to the web. That’s responsive to customer wants and needs, but it’s rarely accretive to earnings. It’s also a major reason we don’t see overall sales getting any better at Macy’s, Sears, Dick’s Sporting Goods and whole host of other brands that have invested mightily in all things omni-channel.

As we dissect customer behavior, as we understand the new competitive reality, as we wake up to the fact that most retailers are spending a lot of money to shift sales from one side of the ledger to the other, it’s clear that omni-channel is no panacea and that many of the promises of vendors, consultants and assorted gurus were no more than pipe dreams.

Yes, chances are you need a compelling digital presence. Yes, you had better get good at mobile fast. Yes, you need to assure a frictionless experience across channels. Yes, your data will probably show that customers who shop in multiple channels spend more than your average shopper. But so what?

If you’ve invested heavily in omni-channel and your sales, profits and net promoter scores are not moving up, could it be your working on the wrong problem?

 

 

 

 

 

 

Frictionless commerce · Omni-channel · Retail

A few inconvenient truths about e-commerce

stevenpdennis4 Comments

It’s easy to feel like e-commerce is eating the world. It’s not.

While there can be no question of e-commerce’s continued growing importance and its often disruptive nature–particularly in categories like books and music–I’m both amused and amazed at the lack of perspective many in the industry often seem to have. So here are what I believe to be a few important, albeit at times inconvenient, truths.

Physical retail will continue to dominate. Estimates vary, but brick & mortar retail still accounts for over 90% of all sales. While e-commerce will continue to grow, physical stores will be different but not dead.

Pure-play retail is dying. Scott lays this out better than I can, but once you back Amazon out of the equation, it’s becoming ever more obvious that aside from (perhaps) a few niche exceptions, e-commerce only business models are unsustainable owing primarily to uneconomic customer acquisition costs and overly expensive logistics.

A great deal of e-commerce growth is channel shift among traditional brands. Overall growth of e-commerce will be greater than 10% for the foreseeable future, but much of this comes from major retail brands (e.g. Macy’s, Nordstrom, Walmart) transferring business from their physical stores to their improving digital channels.

Much of e-commerce remains unprofitable and economically unsustainable. Let’s remember that Amazon has never consistently demonstrated an ability to make money outside of its web service business. Let’s remember that virtually none of the massively funded pure-plays has ever turned a profit. Let’s remember that traditional brands are spending mightily to improve their omni-channel capabilities while being lucky to achieve flat overall sales. Let’s remember that many retailers experience such high returns and supply chain costs that a large percentage of e-commerce transactions are profit proof. Let’s remember that just about every omni-channel retailer has had to cut prices and offer free-shipping to try to keep pace with upstart competitors who are subsidized by often irrational investment.

Of course even while accepting these truths, many brands find themselves in a real bind. As long as investors are willing to irrationally fund certain companies, consumers are the big beneficiaries and traditionally funded brands are either forced to respond to remain competitive or get pummeled in the markets by not playing the game, however self-destructive.

The good news is that reality is slowly creeping into the market. Some bubbles have burst–witness the recent deflation of the once ridiculously hyped flash-sales market. Perhaps even today’s hammering of Amazon’s stock suggests investors’ patience is beginning to wane. But it’s difficult to predict and count on the vicissitudes of either the public or venture capital markets. But there are a few things to do right now.

First, don’t blindly pursue all things omni-channel. With consumer demands and expectations changing no brand can possibly remain idle. But a disciplined approach to investing is essential. Conducting a friction audit is a great way to uncover and to prioritize the areas of leverage and greatest near-term ROI.

Second, understand marginal unit economics. Averages aren’t very helpful, yet many companies rely on them for decision-making all the time.  At any kind of basic scale, e-commerce is mostly a variable cost business. Brick and mortar is mostly a fixed cost one. If you don’t understand the differences–and the interplay–you’re going to do something dumb. Don’t be that guy or gal.

Lastly, go deep on the customer insight and customer profitability analysis. It’s one thing to have a few unprofitable transactions within a mix of purchases for a customer that has overall great lifetime value. It’s another to have your customer portfolio laden with high cost-to-serve, low margin, low average transaction value customers who return stuff all the time. Do the math. Don’t chase your tail. Rinse and repeat.

 

Digital · Frictionless commerce · Mobile · Retail · Share of attention · Winning on Experience

Retail’s new front door

stevenpdennis6 Comments

In a “brick & mortar first” world, retailer’s embraced the old adage: location, location, location.

Once the site was determined, a lot of time and money went into the design of the store–with a particular emphasis on making it as strong a magnet for consumer traffic as budget and inspiration would allow. Then the visual and marketing teams went to work, creating attractive window displays and generating eye-catching promotional signage, all with the goal of capturing the customer’s attention as she walked or drove by. If these marketing strategies worked, they would lure her across the threshold and the retailer would have a chance at a sale.

Today, it’s rapidly becoming a “digital first” retail world. More retailers are reporting that the majority of customers start their consumer decision journey online. More and more brands are discovering that a very high (and growing) percentage of new customer acquisition is occurring through a digital channel, not a physical one. And when we say “digital”, it’s increasingly likely we mean some sort of smart mobile device. The power of the traditional store front is waning.

In the vast majority of categories, brick & mortar is not going away. As I like to say, physical retail will be different, not dead. In many cases, stores will remain critical to generating sales, but their role in acquiring a new customer, generating repeat business or building on-going customer engagement and loyalty is diminishing–and, in many cases, quite rapidly.

Right now, for many brands, for many consumers, for many shopping occasions, retail’s new front door is a smart mobile device.

So if your brand’s mobile experience isn’t compelling, the odds of capturing a new customer aren’t that great. If the mobile experience doesn’t help reduce friction for an existing customer (in or out of a store), good luck getting that repeat business. If the mobile experience doesn’t position your brand well in those key decision points that my friends at Google call “micro-moments”,  there’s a pretty good chance you aren’t making that sale.

Embracing the notion that mobile is becoming your brand’s new front door can be profound.

It forces process redesign and budget re-allocation. It requires breaking down the silos that exist in the channel-centric thinking, organization and metrics that persist in so many retailers. It causes us to admit that if we don’t win in a digital channel it barely matters where our stores are located, how good they look, what products we carry or whether we’ve got great salespeople. Heresy, some might say.

It’s apparent that there are quite a few retailers that get this new reality and are acting accordingly–and often boldly. For them, the precise end-game is anything but clear, the path is hardly smooth, but they are in the arena, taking risks, investing where they need to be.

Yet far too many others are merely treading water or paying lip service to this new world order. Sadly they are crippled by legacy thinking and systems, burdened by a store-first culture, unwilling to let go of the past, even when it’s obvious it’s not working. Unless they pivot soon and decisively it’s fairly certain that this will end badly.

 

 

Being Remarkable · Customer Growth Strategy · Customer-centric · Frictionless commerce · Omni-channel · Personalization

Retail’s great bifurcation

stevenpdennis9 Comments

It’s not that malls are dying. In fact, many malls are not only surviving, quite a few are thriving.

Despite all the doomsayers, physical retail is not facing extinction. Not only are many retailers opening significant numbers of profitable locations, many of the most highly valued and rapidly growing pure-play online brands are opening brick & mortar locations. These new units are among the most productive of any specialty retail sites anywhere.

Department stores aren’t going away any time soon either, despite the constant buzz of consternation from Wall Street. Several major players are successfully reinventing themselves.

What IS happening is a great bifurcation. The proverbial fork in the road. The increasingly clear emergence of “have’s” and “have not’s. And the looming death in the middle.

“Class A” malls and the also-rans.

Retailers that have a well articulated target consumer and seamlessly meet those customers needs anytime, anywhere, anyway, versus stores drowning in a sea of sameness, offering disjointed service and peddling average products to average people.

Brands that either go big, efficient and cheap or intimate and remarkable, versus those that get stuck in the middle or are trapped in an inevitable race to the bottom.

There are obvious choices to be made. The chasm is widening. The poles are becoming more extreme.

Yet many of us remain stuck. Many brands keep straddling the line.We fail to choose because a bold commitment seems risky, when in fact it is our inaction that is the riskiest decision of all.

Pick a lane. Start driving.

And you might want to step on the gas.

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