Being Remarkable · e-commerce · Growth · The Amazon Effect

With Kenmore Deal Amazon Is A Winner. For Sears, Not So Much.

Investors reacted quite favorably to the news that Kenmore appliances will soon be sold through Amazon. For Amazon, it’s clearly an interesting opportunity. While online sales of major appliances are currently comparatively small, being able to offer a leading brand on a semi-exclusive basis gives Amazon a jump start in a large category where they have virtually no presence. On the other hand, for Sears, it smacks of desperation.

First, some context. Way back in 2003 I was Sears’ VP of Strategy and my team was exploring options for our major private brands. Despite years of dominance in appliances and tools, our position was eroding. Our analysis clearly showed that not only would we continue to lose share (and profitability) to Home Depot, Lowe’s and Best Buy, but those declines would accelerate without dramatic action. Unfortunately, it was also clear that very little could be done within our mostly mall-based stores to respond to shifting consumer preferences and the growing store footprints of our competitors. Kenmore, Craftsman and Diehard’s deteriorating positions were fundamentally distribution problems.  And to make a long story a bit shorter, a number of recommendations were made, none of which were implemented in any significant way.

Flash forward to today, and Sears leadership in appliances and tools is gone. While in the interim some minor distribution expansion occurred, it was not material enough to offset traffic declines in Sears stores and the shuttering of hundreds of locations. More important is the fact that Kenmore and Craftsman still aren’t sold in the channels where consumers prefer to shop–and that train has left the station.

So last week’s announcement does expand distribution, but it does little, if anything, to fundamentally alter the course that Sears is on. Simply stated, making Kenmore available on Amazon will not generate enough volume to offset continuing sales declines in core Sears outlets, particularly as more store closings are surely on the horizon. Selling Kenmore on Amazon does not in any way make Sears a more relevant brand for US consumers. In fact, it will give many folks one more reason not to traffic a Sears store or sears.com.

Since 2013 I have referred to Sears as “the world’s slowest liquidation sale”, owing to Eddie Lampert’s failure to execute anything that looks remotely like a going-concern turnaround strategy, while he does yeoman’s work jettisoning valuable assets to offset massive operating losses. Earlier this year, Sears fetched $900 million by selling the Craftsman brand to Stanley Black & Decker, one of the leading manufacturers and marketers of hand and power tools. So it’s hard to imagine that Sears did not try to do a similar deal with either a manufacturer of appliances (e.g. Whirlpool or GE) or one of the now leading appliance retailers. The Kenmore partnership with Amazon appears to have far less value than the Craftsman deal, despite being done just six months later–which speaks volumes to how far Sears has fallen and for how weak Sears’ bargaining position has become.

The cash flow from the Amazon transaction will do little to mitigate Sears operating losses and downward trajectory. In fact, it seems to be mostly the best way, under desperate circumstances, to extract the remaining value of the Kenmore brand given that no high dollar suitors emerged and Sears continues its march toward oblivion. Amazon, however, is able to take advantage of fire-sale pricing and create the valuable option to have Kenmore as a potentially powerful future private brand to build its presence in the home category.

Advantage Bezos.

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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.

Growth · Retail · Winning on Experience

Assessing The Damage Of ‘The Amazon Effect’

Since I anticipate being labeled a Luddite, a Socialist and a hypocrite by some, let me acknowledge that I firmly believe that Amazon has done a lot of good for consumers by expanding choice, making shopping far more convenient and by delivering extraordinary product value. I recognize that many retailers were long overdue for a swift kick in their strategy. I also remain a very good and loyal Amazon customer. And I anticipate that the Whole Foods acquisition will ultimately result in lower prices, an enhanced shopping experience and maybe even improve the availability of more healthful food options. These are all good things.

Yet, we can’t–and shouldn’t–ignore the profound effect that Amazon is having on just about every corner of the retail world they set their sights on. Amazon is the proverbial 800-pound gorilla. Their entry into a market segment reshapes shopping dynamics, upsets the supply chain and exerts tremendous pricing and margin pressure. Books came first and we know how that played out. But, one by one, other categories followed and the dominoes continue to fall. Store closings. Bankruptcies. Once proud and dominant retailers teetering on the brink. Now you can add small “natural” grocery chains to the list of established retailers that may well get Amazon-ed (which is the most polite way to say it.)

To be fair, we should not blame department store woes on Amazon. Clearly many malls and quite a few retailers were well on their way to oblivion before Amazon cracked the $25 billion mark. And the grocery market share that Amazon will pick up with the Whole Foods acquisition is a drop in the bucket, even when combined with Amazon’s existing volume. We also know that not everything Amazon touches turns to gold (I’m guessing you are unlikely to be reading this on your Amazon Fire).

Still it’s hard to underestimate the magnitude of the Amazon effect. E-commerce represents about 10% of all U.S. retail and Amazon is by far the largest player, with an estimated share of 43%. Last year, Amazon accounted for 53% of all the incremental growth of online shopping, which means they are only growing their dominance. To underscore how much Amazon has infiltrated the shopping zeitgeist, one study indicates that more than half of all product searches start on Amazon.

It’s also hard to underestimate the fundamentally different rules Amazon plays by. First and foremost, Amazon isn’t required by its investors to make any real money. In fact, despite being in business more than 20 years, Amazon only recently surpassed Kroger and Priceline (not the sexiest of retailers) in total annual profits.

As a core strategy to gobble up market share, Amazon (or more accurately its shareholders) provides huge subsidies to its delivery operation. According to one analysis, Amazon lost $7.2 billion on shipping costs last year alone. While this is clearly great for consumers, it puts many retailers in the untenable position of choosing between ceding market share to Amazon or lowering their prices to uneconomic and unsustainable levels. Most have chosen the latter strategy and are paying the price. The fallout is far from over.

It’s hard to argue against innovation. It’s hard to argue against greater choice, more convenience and lower prices. And clearly, long-term investors in Amazon have few arguments, while those that have hung in with Macy’s, JC Penney and the like are licking their wounds.

Maybe Amazon can sell all this stuff at a loss and make it up on volume. Maybe once they help put many, many retailers out of business and play a big role in the “rationalization” of commercial real estate, Amazon will continue to reduce prices, rather than exploit their emerging monopoly-like power. Maybe we’ll all be happy with fewer choices in retail brands. Maybe Amazon’s dominance will encourage a new wave of different and more interesting retail models to counter-act the homogenization of retail we are in the midst of.

Maybe.

On the other hand, perhaps we should all be careful what we wish for. Perhaps we should consider that the problem with a race to the bottom is that we might win.

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.

Growth · Retail · Store closings

Shrinking To Prosperity: Can Store Closings Save Struggling Retailers?

It seems as if major store closing announcements are becoming a nearly daily occurrence. Earlier this week Michael Kors, the once high flying accessible luxury brand, announced it would close at least 100 stores over the next two years. They now join the ranks of Payless Shoes, Macy’s, JC Penney and a host of other major players that have recently decided to shutter a significant percentage of their store fleet.

In fact, some retailers are closing all of their stores hoping to thrive as an online only retailer. Bebe, Guess, Wet Seal and The Limited have all chosen to go this route–and it seems like both Sears and Radio Shack are headed there as well; they just haven’t made it official. In any event, if you want follow the action along at home my friends at Fung Global Retail maintain a store closing tracker.

While its clear that more and more struggling retailers are embracing a strategy to get much smaller, this ultimately begs the question whether it’s really possible to shrink your way to greatness.

Take a moment to make a list of brands (don’t worry, I’ll wait) that have intentionally walked away from a significant percentage of their revenue and been successful over the long-term. I’m not talking about conglomerates that have jettisoned under-performers in their portfolio or companies that have exited specific lines of business with challenging profitability. I’m talking about brands that have willingly stopped doing business in major geographies and/or with large numbers of core customers. It’s not easy it?

The truth is that it is far easier to name brands that closed stores merely as an intermediate step on their way to oblivion. Think Blockbuster and Borders (or Bradlee’s for you old timers). And that’s just the B’s. The retail graveyard is chock-a-block with once mighty merchants that spent years closing stores only to eventually succumb to the inevitable.

I have maintained for some time that when retailers start to close a lot of stores the issue is rarely that they have fundamentally too many outlets. Rather it’s that their value proposition is not sufficiently relevant and remarkable for the locations they have. We know that the notion that physical retail is dead is just silly. We know that plenty of “traditional” retailers are opening stores. Ulta, Sephora, Dollar General, Costco come readily to mind. We know that the hottest brands in retail–from giants like Amazon to specialty players like Warby Parker and Bonobo’s– are opening stores. We know that in most cases the economics of physical stores are superior to e-commerce. We know that the combination of digital AND physical is most often what customers want and what yields the best results. We know that it is virtually always the case that when retailers close stores their e-commerce revenues in the vacated trade area go down.

Clearly, on balance, there are too many stores. And for most retailers the size, configuration, operations and many fundamental aspects of the in-store experience must be changed, in some cases radically. Often the “need” to close stores is borne of desperation, propelled by multiple years of management neglect and failure to innovate. Often, as a practical matter, there is no choice, because there is no way to make up for the sins of the past in the here and now. While I cannot definitively say that mass store closings indicate the beginning of a downward spiral, I would definitely reject that notion that they are a panacea. And we absolutely shouldn’t conclude that such moves suggest a sustainable long-term strategy.

Over three years ago I posited that retailers were delusional if they thought that store closings would be their salvation. Today, as the pace of these closings accelerate, I still fundamentally reject the notion that more than a handful of brands can shrink their way to greatness. I hope I’m wrong.

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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 · Growth · Retail

Slow motion crises

In the world of retail it’s pretty rare that brands get into trouble over night–much less over a matter of months or even years.

What will turn out to be the deathblow for Sears started with Walmart in the 1980’s, and was followed by Home Depot, Lowes and Best Buy chipping away at Sears core tools and appliance business as these insurgents opened new stores and improved their offerings over many, many years.

The ability to deliver books, music and other forms of entertainment digitally (or shipped directly to the consumer) just didn’t pop up one day. Blockbuster, Borders and Barnes & Noble had years to respond. They just didn’t in any especially powerful way.

Starbucks initiated its rapid store growth more than 20 years ago. And the broader reinvention of the retail coffee business by local independents, along with forays by Keurig, Nespresso and others, is hardly a recent phenomenon. Yet it’s hard to point to anything particularly innovative that industry leaders Folger’s and Maxwell House have done during this extended period, despite their brands continuing to lose sales and relevance.

As Macy’s, JC Penney, Dillards and other traditional department store players garner lots of negative press about their current struggles, we should remember that the department store sector has lost relative market share for more than two decades. Their problems are not simply a function of the growth of e-commerce. And even if they were, the best in class players were investing heavily in e-commerce–think Neiman Marcus and Nordstrom–more than 15 years ago.

Crises created by unforeseen events are one thing. Slow motion crises only reveal that we took our eyes off the ball, were too afraid to act or both.

The way to avoid a retail slow motion crisis is as follows:

  • Understand where customer value is being created on a go forward basis
  • Dissect your most valuable customer segments to understand where your brand is vulnerable and where you have potential leverage
  • Figure out where you can compete by modifying your core business and where you need to innovate outside of your core
  • Don’t be afraid to compete with yourself
  • Consider acquistions as way to build new capabilities quickly
  • Embrace a culture of experimentation
  • Spend more time doing, than studying.

 

 

 

 

Growth · Luxury · Omni-channel · Retail

The bullet’s already been fired 

I’m fascinated by our capacity to get stuck, the many ways we craft a narrative in a vain attempt to avoid change, the stories we buy into as we hope to keep above the fray. Far too often, the power of denial seems endemic to individuals and organizations alike.

Go back to the 80’s and 90’s and ponder how a slew of successful retailers mostly did nothing while Walmart, Home Depot, Best Buy–and a host of innovative discount mass merchandisers and category killers–moved across the country opening new stores and evolving their concepts to completely redefine industry segments. Somehow it took many years for the old regime to realize what was going on and how much market share was being shed. For many, any acceptance and action came far too late (RIP, Caldor, Montgomery Ward, et al).

Witness how digital delivery of books, music and other forms of entertainment came into prominence while Blockbuster, Borders and Barnes & Noble spent years mostly doing nothing of any consequence. Two of them are now gone and one is holding on for dear life.

Starbucks revolution of the coffee business hardly occurred overnight. But if you were the brand manager of Folger’s or Maxwell House you apparently were caught unawares.

Consider how consumer behavior has been shifting strongly toward online shopping and the utilization of shopping data through digital channels for well over a decade. Yet many companies are seemingly just now waking up to this reality. And by the way, Amazon didn’t just spring out of nowhere. They will celebrate their 22nd anniversary this summer.

And lastly, examine how the elite players of the luxury industry have largely resisted embracing e-commerce–and most things digital–believing that somehow they were immune to the inexorable forces of consumer desires and preferences. Apparently they failed to notice, as just one example, Neiman Marcus’ rise to having 30% of their sales come from online and more than 60% of physical store sales now being influenced by digital channels.

More often than we care to admit, the bullet’s been fired, it just hasn’t hit us yet.

The good news is that while the pace of change is increasing in retail, we have a lot more time to react than we do in a gunfight.

The bad news is that the impact can be just as deadly if we are not prepared.

 

 

Customer Growth Strategy · Engagement · Growth · Innovation

The upside of denial

Is there any?

If your experience is anything like mine, you know how seductive denial can be. Denial is the temptress that helps us avoid pain. Denial keeps us in our comfort zone like a warm bath at the end of a long day. Denial creates the sense that defending the status quo is working or that we can go around our problems rather than through them.

But mostly it creates an illusion of safety when the reality is anything but. It works incredibly well–until it doesn’t.

Denial is cunning and baffling. It’s the monster lurking beneath the surface, hiding in the closet and buried in the chatter of our monkey mind.

In a business setting, denial allows us to trumpet our booming customer acquisition statistics, while ignoring the other engagement metrics that are falling apart. It causes us to crow about our rapidly growing e-commerce business, while the reality is that it’s entirely channel shift. It’s the glowing press release, the clever Powerpoint, the rah-rah company-wide meeting or the slick investor presentation that contains all the right buzz-words, when everyone else knows it’s the proverbial lipstick on the pig.

Denial kept Sears from ever really dealing with Home Depot and Lowe’s. It kept Blockbuster and Borders from confronting digital. And on and on.

Too often denial feels like our friend, when in fact it is every inch our enemy.

As David Pell humorously reminds us: “Among the dinosaurs, there were many asteroid deniers.”

Customer Growth Strategy · Growth · Loyalty Marketing

The world’s best growth hack

We spend so much time, energy and money searching for new customers. Yet, in case you haven’t noticed, in many cases acquisition costs are rising–often substantially–and often to the point where these efforts are cash negative.

Once we’ve acquired a new customer, we hit them with an never-ending stream of emails, free shipping offers and the like to increase shopping frequency or build order value. Unfortunately, if you actually do the math, a lot of these tactics are unprofitable or unsustainable.

We chase new store openings, product line extensions and the latest bright and shiny item like Donald Trump looking for the next person to insult. To what end?

Sadly, when it comes to the search for growth, far too many brands are doing it wrong. For most relatively mature companies, the best growth hack is retention.

If you don’t know your churn rate and how many dollars you lost to lapsed customers last year, go find out.

If you don’t know the reasons why they left, I suggest you get focused and get busy.

If you don’t whether they were worth saving in the first place, sounds like you have some work to do. The good news is the work is well worth doing.

And, going forward, make sure you distinguish between a hack and the hackneyed.

Being Remarkable · Brand Marketing · Growth

A place to buy things

What do your customers really think of you?

Do they have a compelling story to tell about your brand? Have they had experiences that deeply resonate with them? Do they proactively advocate on your behalf? Can they easily justify the premium they choose to pay? Would they give you another chance if you screwed up?

Or, when it comes down to it, in their minds and hearts, you’re merely a place to buy things?

And when there’s a slightly better price–or a marginally more convenient option–they jump at the opportunity, without a trace of regret.

Growth · Innovation · Leadership · Omni-channel

Pure unicorn dust

Do you know companies that say they are all about growth and innovation, yet completely lack any semblance of a process or a modicum of dedicated funding and resources to support these efforts? Do they even possess a culture that not only celebrates taking risk, but that actually knows how to fail better?

Have you heard brands’ espouse a commitment to omni-channel and seamless integration that still operate with silo-ed organizations, silo-ed customer data, silo-ed systems and channel-driven, rather than customer-focused, metrics?

Perhaps you have a friend or a loved one who say they are full of love and compassion and who constantly speaks of making big changes in their life, but has yet to put any of it into practice?

When was the last time something worth doing spontaneously emerged at your organization? When the last time a major transformation happened without an all-in commitment from leadership and a willingness to take on the status quo? When was the last time you’ve made a big change in your life merely through talking about it?

Intentions are great. Concrete plans are better. But the work that matters is in the doing, in taking the plunge, in taking head-on the things that scare us, in making a ruckus.

Yes, it might not work. Sure, you could look stupid or reckless. And, there is a pretty good chance you’re going to piss some people off along your journey. That’s probably a clue that you’re on the right track.

Get out of the stands and into the arena. Anything else is just really good imagination.

Being Remarkable · Brand Marketing · Customer experience · Growth

On average, you’re out of business

Walk through most shopping malls today and much of what you’ll encounter looks pretty similar. Average products for average people. Undifferentiated sale banners screaming at us from storefront windows. Copy cat promotional signs atop virtually identical racks. A sea of sameness.

Go online and not much is different. Navigation and shopping carts across most websites feel quite familiar. Take the logo off the site and you’d be hard-pressed to identify the brand. In our quest to improve conversion and cart abandonment rates we most often choose what we know works–the “best in breed.”

Our physical and virtual mailboxes are chock-a-block with one-size-fits-all marketing messages employing tried and true, but mostly tired, techniques. And much of it touts discount, not relevance.

When we’re afraid to take risks, when we seek efficient rather than remarkable, when we mostly mimic known best practices, our tendency is to regress toward the mean. And slowly but surely, we shave off the interesting and polish the customer experience until it feels safe, but is often utterly boring.

When scarcity of choice and access existed–and brands were in control–it wasn’t terribly difficult to get away with being average.

But as the power continues to shift to the consumer, as she has an endless aisle of choices and access to almost anything imaginable 24/7, average is no longer safe. In fact, it’s precisely the opposite.

Imitation may be flattering, but in the battle for the share of attention that ultimately drives long-term success, well, not so much.