Embrace the blur · Harmonized · Retail

The stores strike back

Amidst all the retail apocalypse nonsense it turns out that physical retail isn’t dead after all.  Last year some 3,000 new stores were opened and physical retail continued to have positive growth in most major global markets. One of my 14 predictions for retail in 2019 is the notion that, despite the presumed death of physical retail, quite a few major brands are seeing a renaissance of sorts. In fact, stores are striking back against being made obsolete by online shopping in many different and important ways.

Amidst all the retail apocalypse nonsense it turns out that physical retail isn’t dead after all.  Last year some 3,000 new stores were opened and physical retail continued to have positive growth in most major global markets. One of my 14 predictions for retail in 2019 is the notion that, despite the presumed death of physical retail, quite a few major brands are seeing a renaissance of sorts. In fact, stores are striking back against being made obsolete by online shopping in many different and important ways.

A couple of years ago legacy retailers like Walmart, Best Buy, Target and Home Depot were often seen as laggards, soon to be made progressively more irrelevant by Amazon and others. Yet it turns out, to paraphrase noted retail strategist Mark Twain, reports of their death were greatly exaggerated.

A couple of years ago, beyond Amazon’s disruptive impact, the future was often thought to be concentrated in the large number of venture capital funded “digitally-native vertical brands” that could scale to massive value creation by avoiding pesky and asset intensive stores.  Yet, in a rather ironic twist, a large cohort of the once firmly “we’ll only grow online because physical retail is going the way of the dinosaurs” upstarts will collectively open more than 800 brick-and-mortar locations this year. Most are now experiencing most of their growth from good old fashioned stores.

A couple of years ago, many analysts and “futurists” saw e-commerce getting to 50% share within a decade and questioned why anyone would invest in physical stores. But facts are stubborn things, and it’s clear we aren’t remotely on a glide-path to online getting to even 30%. Moreover, rather traditional retailers as diverse at TJX, Sephora, Ulta and Dollar General are openings dozens upon dozens of stores. We also have retailers like Tractor Supply and AtHome becoming large, growing and incredibly successful brands with an overwhelming focus on brick-and-mortar locations.

So how do we explain all this?

Not every customer is like you. You personally may love the ultra-convenience of e-commerce and hate going to stores. Good for you. But there is a reason 89% of all retail is still done in brick-and-mortar locations. Every retailer needs to respect the differences among consumers and their key purchasing drivers across different occasions. Repeat after me: treat different customers differently.

Brick and mortar trumps e-commerce in many respects. Shopping in physical stores is more emotional, social and connected. Shopping in physical stores allows customers to try stuff on, understand the real look of a given product and get a clearer sense of value. Shopping in physical stores offers immediate gratification. Shopping in physical stores makes it easier (usually) to put more complex solutions together, like a home project or assembling an outfit. It’s a digital-first world. Until it’s not.

E-commerce is often pretty unprofitable. It’s great that investors are willing to subsidize the poor profitability of many disruptive concepts, from Uber to WeWork to Amazon to Wayfair. It won’t last forever and many sophisticated companies are starting to lean into the lower cost acquisition and/or distribution costs of physical locations vs. direct-to-consumer. Accordingly their investment decisions and pricing are starting to reflect the underlying economic realities.

There is a big difference between buying and shopping. If you are on a largely search-based mission, item-focused and care mostly about price and convenience, e-commerce works really well.  Hence Amazon’s strong relative share in these “buying” occasions. You might even get all wild and crazy and use Alexa. But if you are more engaged in discovery, something more emotional and want a more holistic experience, then you are “shopping” and a physical store-centric (albeit digitally enabled) path is often your best bet.

Assets or liabilities? A brand that fundamentally sees their stores as liabilities typically seeks to optimize them–and a cycle of cost cutting and store closings begins, typically initiating a downward spiral.  If a brand see their stores as assets, they work on improving e-commerce and digital enablement capabilities and lean into making the stores more relevant. Contrast Sears strategy with Target’s. Sears disinvested in stores and will soon be gone. Target shifted many things about its store strategy and simultaneously upped its digital game, while plowing billions into store upgrades and omni-channel capabilities. So have Walmart, Home Depot and Best Buy. Nordstrom has continued its decade long strategy of doing so. It’s paying off.

It’s all one thing. Brands that are physical store dominant see their brick-and-mortar locations as the hub of a shopping ecosystem. They don’t get hung up on a phony battle between e-commerce and stores. The customer is the channel. Online drives stores and vice versa. Their mission is to leverage the best of each customer touchpoint, eliminate the friction, harmonize the experience and amplify the “wows.” Rinse and repeat.

Sure, there is plenty of doom and gloom in the retail industry. And the collapse of the boring middle is real–and not about to go away.

Yet there is plenty of hope as well for those that do the work, reimagine the opportunities and are willing to act decisively.

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

On February 25th I will be doing the opening keynote at Retail ’19 in Melbourne, Australia, followed the next week by ShopTalk in Las Vegas where I will be moderating an expert panel and participating in other events.

Harmonized · Innovation · Remarkable Retail

NRF’s Big Show: Addressing the knowing-doing gap

Just about every year for the past 25 or so, I make the trek to New York to rub shoulders (quite literally) with nearly 40,000 of my closest friends (not literally) during the National Retail Federation’s “Big Show.” It’s always a great opportunity to connect with the industry’s movers and shakers, see the latest in retail technology, hear from established and up-and-coming brand leaders and put one’s claustrophobia to the test.

In past years I’ve written a synthesis of my key takeaways from the event. But this year I’d like to focus on just one theme, partially because there are many excellent summaries already published–like this one from the NRF, this post from fellow contributor Chris Walton or this one from Forrester’s Brendan Witcher. The more substantive reason, however, is to address what many of us may already know yet have a hard time admitting: armed with all this knowledge we will leave the Big Apple behind, go back to our jobs and precisely nothing of any import will change.

The sad and frustrating fact is that I have attended the Big Show (and many other retail events) long enough to hear many of the same things repeated over and over again only to return a year later aghast, realizing that so few brands have acted upon what is increasingly obvious, important and, all too often, dire.

Every year, for the better part of a decade, we have heard speakers talk about how the the channels are blurring, how we are moving to a mobile-first customer journey, how important it is to root out friction in the customer experience, how data must be leveraged to provide a more personalized experience and on and on. And every year my guess is many in the audience return to hear a re-packaged version of the same prognostications having taken little or no action in the intervening time.

As one small example, I sat in on presentation where the speaker shared the “insight” that customers who shop in more than one channel are “better” customers. Aside from confusing correlation with causality–and aside from having shared this type of analysis myself at two different retailers in 2003 and 2006 respectively–some version of this alleged wisdom nugget has been trotted out at many a conference for quite some time. So if this is new knowledge to anyone in the audience it merely proves that they haven’t been paying much attention. But in the absence of a time machine, the real questions we are left with are: so what? and now what?

Over 3 days, and now for multiple years running, we’re told “the customer is back” or that physical retail isn’t dead or that we shouldn’t worry because e-commerce is “only” 10% of all retail. While this may be true in the abstract, the one thing we know for sure is that no one brand experiences any of these trends in the aggregate or in the same way. For some retailers, the customers they’ve been chasing are never coming back, their stores are in fact dead or dying and they may be experiencing a much bigger migration to digital commerce with attendant devastating consequences. Your mileage WILL vary and these platitudes are neither very useful nor very comforting.

What we must do instead is to take this big picture knowledge and translate it into strategies that matter for our unique situation. And then we must take action: by launching innovative experiments, by refining what has potential and scaling it fast, by killing quickly what isn’t working. Rinse and repeat.

Showing up is a start, but merely sitting in the audience consuming information doesn’t count for much.

Taking amazing notes or writing pithy summaries can be helpful, but without doing anything with it it’s mostly a waste of energy.

And enthusiasm is great, but the cheerleaders never win the game.

If the knowledge doesn’t translate into useful and meaningful action a visit to NRF is merely a vacation. And a chilly and expensive one at that.

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.  

I was honored and humbled to move up to #5 on Vend’s 2019 Top Retail Influencer List and to be recently named a Top Retail Tech Influencer to follow on Twitter.


Embrace the blur · Harmonized · Retail

Retail’s ‘halo effect’: New stores boost a brand’s website traffic by 37%, study finds

One of the recurring themes in my consulting, writing and speaking is that the distinction between online and physical shopping is increasingly a distinction without a difference. The key for most brands is to deploy a well harmonized, one brand, many channels strategy and to embrace the blur. Central to this notion is realizing that a physical store often serves as the hub of a brand’s ecosystem and that brick-and-mortar stores help drive e-commerce sales—and vice versa. While I’ve come to believe this through many years of direct experience, a just released study from the International Council of Shopping Centers sheds a lot more light on the subject.

One of the key findings in the report—which is based on a sample of more than 800 retailers and 4,000 consumers—is the so-called “halo effect.” It turns out that when a retailer opens a new store, on average, that brand’s website traffic increases by 37%, relative share of web traffic goes up by 27% and the retailer’s overall brand image is enhanced. This impact is even more pronounced for newer, digitally native vertical brands. Conversely, when a retailer closes a store, web traffic typically takes a big hit.

None of this is all that surprising. Established brands that started as mail order only but eventually expanded into their own stores—think Williams-Sonoma, REI, J. Crew—have recognized and benefitted from this insight for decades. For any retailer, but especially for direct-t0-consumer brands, a physical presence serves as marketing for the brand whether the customer ultimately chooses to transact physically or online. Brick-and-mortar stores also offer the opportunity for consumers to demo or try on products, talk to a salesperson and/or get a better sense for the price/value relationship, all of which improve conversion. Importantly, particularly for newer brands trying to profitably scale, customer acquisition costs can be lower in a physical store and product returns are typically lower—often dramatically.

While it’s taken the industry a while to understand the powerful symbiotic role that exists between a compelling physical and digital presence, the evidence keeps building. One clear sign is that digitally native brands, many of which have already opened dozens of stores, have plans to open more than 850 physical locations in the coming years. Warby Parker was one of the first disruptive retailers to understand the complementarity of digital and physical shopping. The pioneering eyewear brand will soon have more than 100 brick-and-mortar locations and already derives more than half its revenues from its physical stores.

We’re also seeing what some refer to as the “billboarding” of retail or, as retail futurist Doug Stephens refers to it, viewing stores as media. In these instances physical locations serve primarily to promote a brand rather than sell products in store. B8ta and Story are good examples of this. As this phenomenon expands, retail will require new metrics as traditional measures of sales productivity and same store sales become less relevant.

Understanding the critical relationship between a brand’s physical and digital presence is also essential to store closings and/or store downsizing decisions. Viewed from a channel-centric lens, many retailers will convince themselves that they need many fewer stores and that the stores they keep (or they intend to open) can be meaningfully smaller as more business moves online. Yet viewed from a holistic customer perspective it’s easy to see how this siloed thinking can backfire. Recognizing this, a number of retail CEOs have wisely resisted Wall Street’s pressure to close more stores because they understand how damaging such a move could be.

I’m hardly the first person to challenge the retail apocalypse narrative or to suggest that physical retail is definitely different, but far from dead. And the collapse of the middle continues to push retailers to become more intensely customer relevant. The move away from mediocre and boring requires making physical stores more unique and memorable. Yet without understanding the interplay between the customers’ digital and physical experience, how this gets executed can be quite different. The more a brand understands the overall customer journey and the role that all elements of the experience play—digital and analog—the better prepared they are to become remarkable.

Regardless, one thing is quite clear. The death of the physical store is greatly exaggerated.

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.  

November 8th I’ll kick of the eRetailerSummit in Chicago. For more info on my speaking and workshops go here. 

Harmonized · Loyalty Marketing · Personal · Retail

Nordstrom ups the ante with new loyalty program

Last week Nordstrom, the U.S.-based fashion retailer, announced the launch of a new loyalty program. Despite its rather uninspired name, The Nordy Club is intended to broaden customer engagement while increasing earn rates by 50% for members paying with a Nordstrom credit card. The new program also offers more access to services and personalized offerings.

At first blush, Nordstrom seems to be emulating what brands as diverse as Neiman Marcus (Note: I worked on the InCircle redesign some 10 years ago), StarbucksUlta and others have long recognized. First, an engaging rewards program is a foundational element for gathering data and leveraging customer insight. Second, programs that have what amounts to a cash-back feature—as many do when they rely on gift cards as primary redemption vehicles—can often provide discounts more cost effectively than one-size-fits-all promotions. Third, reward points create a currency for highly targeted offers to drive specific desired outcomes for the retailer. Fourth, through the use of well designed tiers, the best loyalty programs provide “stretch” incentives that encourage customers to spend more to earn higher rewards and obtain access to unique services and experiences.

At their core, the best in breed reward programs focus on two components. First is transactional loyalty. Here the brand is simply providing a tangible value exchange for increased shopping behavior (and better access to customer data). Calling this “loyalty” is a bit misleading, as this is more akin to bribery. While this program feature incentivizes customers to increase their spending, many customers will respond because they are essentially leaving money on the table if they don’t. The more strategic program designs recognize that true loyalty is an emotion.  In this case leading programs typically use accelerated point accumulation and more experiential offerings to further engender a deeper connection to the brand. This typically includes preferential access to merchandise and events and special or enhanced services (free alterations, valet parking, etc). In this regard, Nordstrom isn’t breaking any new ground.

What does appear to be more on the leading edge, however, is how Nordstrom is leaning into at least 4 of what I call the “8 Essentials of Remarkable Retail.” And this provides the potential for meaningful competitive advantage if done right.

Harmonized. This is the idea that, regardless of how and where the customer chooses to shop, retailers must eliminate points of friction in the customer journey and deliver experiential elements that amplify relevance. In the press release, Nordstrom VP Dave Sims said “when thinking about this evolution, a guiding principle was to offer something for everyone, no matter…where they interact with us.”

Mobile. Many retailers have come to realize that customers no longer go online—they live online and their smart device is often a constant companion in the shopping journey. The new Nordy Club app looks set up to be a core component of how members will engage with the brand.

Personal. As I talk about in my current keynote, no customer wants to be average. More importantly, no customer has to be, given how the power has shifted to them. Making personalization a key aspect of the new rewards program is very responsive to what consumers want and what smart retailers need to do to be more relevant and unique.

Memorable. Today’s consumer is deluged with a tsunami of information and choices. To be the signal amidst all the noise, to truly command meaningful attention, all brands are challenged to become more unique, more relevant and more remarkable. A key way to do that is to create memorable experiences. It’s a bit difficult to ascertain at this point how truly unique some of the benefits will be for elite members (particularly since many of these will never be advertised), but I’m willing to bet that this program dimension will be dialed up substantially.

Of course it remains to be seen how well this new effort will work when fully deployed. Clearly Nordstrom is adding considerable cost to the program. Whether this turns out to generate a good ROI will take years to assess. Moreover, some aspects of what was just announced just bring the company to competitive parity and therefore can be viewed as largely defensive. Others may risk setting off a rewards point war. If that happens, that is a battle that customers win and investors lose.

More interesting for the long-term is how Nordstrom will evolve the harmonized, mobile, personal and memorable pieces of the program and how those will authentically resonate with the others aspects of the branded customer experience for which Nordstrom is justly well regarded. Here, much as they have done over the years staying on the leading edge of digital commerce and executing a well integrated “omnichannel” experience, Nordstrom does seem to be upping the ante and leading the way. How (or if) the competition responds will be the next thing to keep an eye on.

Note: For a far more comprehensive and insightful look at loyalty, I heartily recommend my fellow Forbes Contributor Bryan Pearson’s book The Loyalty Leap.

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 Austin, Chicago (twice!), Dallas, 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. And stayed tuned for announcements on early 2019 speaking gigs and my new book.

Harmonized · Omni-channel · Retail

Many retailers still need a ‘Chief Silo-busting Officer’

For the last five years or so much of retail has been obsessed with becoming “omni-channel.” As I pointed out in Forbes piece last year, this ambition sounds good, but is often ill-defined and poorly focused. The point is not to be everywhere, but to eliminate friction and be remarkable and relevant in the places along the customer journey where it really matters. It’s why, as one of my 7 Steps to Remarkable Retail, I encourage brands to design and execute a “harmonized” shopping experience. Harmonized retail requires the important aspects of the customer’s journey to sing beautifully together, regardless of touchpoint or channel, completely devoid of discordant notes. It also requires that we let go of the dualistic notion of e-commerce and physical retail. In most cases, it’s all just commerce and the customer is ultimately the channel.

Beyond the semantics of “omni-channel,” “harmonized,” “unified” or “frictionless” commerce, it turns out that when brands garner deep customer insight around the shopping experience it’s not all that hard to figure out which pain points to eliminate and which product or experiential elements to amplify. Unfortunately many retailers have not even gotten all that far, as this recent eMarketer reportilluminates. That’s likely to end badly.

Yet even armed with this insight and a well articulated roadmap, many well intended “customer-centric” efforts fail. The primary culprit is usually the deeply ingrained silo-ed behavior endemic to many retailers’ operations. Most brick and mortar dominant retailers have developed intensely product-centric cultures where the merchandise (and merchant) is king. And if they had a catalog business it was run largely independently of the physical stores division. As e-commerce became a thing, it was typically bolted onto the existing mail order division (e.g. JC Penney, Neiman Marcus). For companies that needed to get into the direct-to-consumer world anew, the so-called dot-com business was often established as a completely separate entity, typically located away from the core business (in Sears’ case, for example, in a different part of its sprawling campus; in Walmart’s case, on the other side of the country). Either way, channel-centric silos were put in place or reinforced.

While there may have been initial merit to allowing the e-commerce business to get speed and traction absent the interference of the mother ship, over time the result is that executing against a well harmonized experience is fundamentally hindered by silos: silo-ed customer data. Silo-ed inventory. Silo-ed supply chains. Silo-ed metrics. Silo-ed incentives and compensation schemes.

As it turns out, most customer journeys that end up in a physical store transaction start in a digital channel. It turns out that some of the best enterprise customers get acquired in a physical store but then end up doing the bulk of their shopping online. In fact, it turns out that over the past 15 years, for every retailer where I have seen the actual data, customers that shop in multiple channels are the most profitable and loyal customers. And it turns out that customers don’t care about channels. Retailers that continue to organize, measure, pay and execute their operations as if this weren’t true are, unsurprisingly, falling further and further behind.

As others have pointed out, digitally-native brands that have moved into physical retail have largely avoided the silo issue, and therefore are often perceived as having an advantage over legacy retailers. Conceptually they do have an edge: partially because they did not have a culture to undo, partially because they had better customer data from the outset and partially because their technical infrastructure was built with a digital-first orientation. It’s also important that they decided to add stores because many now understand the amplification power of physical and digital convergence.

But let’s be clear. You don’t have to be some new disruptive brand like Warby Parker or Indochino to get this, act on it and perform well. Williams-Sonoma, Sur La Table, REI and a number of other decades-old retail brands never established the silos in the first place as they moved from direct-to-consumer into multi-channel. Nordstrom operated in a more silo-ed way in the early days of e-commerce. Yet more than a decade ago, they made the decision to break down the silos and began implementing process and technology changes necessary to lead in customer-centric, channel-agnostic, harmonized retail. As far as I can tell, they are the only multi-line mall-based retailer to gain meaningful share during the past decade. Coincidence? I don’t think so.

Now it’s true that plenty of retailers have put senior executives in charge of “omni-channel.” Others have named chief digital, chief customer or chief experience officers. Good for them. Necessary perhaps, but hardly sufficient if those executive don’t have the authority to break down the silos and drive the major cultural, process and technology changes that delivering on a harmonized retail experience demands.

The fact is that to survive, much less thrive, under-performing retailers need a “chief silo-busting officer.” And until the CEO sees that as his or her job, fully supported by the Board, all the talk about omni-channel, customer-centricity or a seamless shopping experience is really just that. Talk.

Silos belong on farms.

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.