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

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?







Why go to the store?

There are some who think that most brick & mortar stores are eventually going away and that e-commerce can have a compound annual growth rate of 15% until the end of time. To which I answer, “don’t be silly” and “of course not.”

There are many powerful reasons for physical retail locations to exist. In fact, we are already witnessing the limits of pure-play models as online only players are opening more traditional store-fronts (Warby Parker, Bonobos, Amazon and many others). Well established direct-to-consumer brands like LL Bean are doubling down on a commitment to retail store expansion. And even with the explosion of online shopping, close to 95% of transactions still take place in a traditional store.

When you take out products that can be delivered digitally (books, movies, games and the like) in most cases, for most consumers, there is value in being able to go see, try on, or touch the actual product. Having a live conversation with a well-trained sales associate can be extremely helpful. Physical stores offer a social experience that can’t be readily duplicated via the web or smart phone. And, typically, you can take the product with you, rather than having to wait.

Having said this, digitally enabled business models ARE disrupting every category and chipping away at many historical advantages of bricks & mortar. Websites often have better information than in-store sales people. Assortments can be much wider and prices are often sharper. Next day delivery may be either good enough or simply more convenient than having to drive to a mall and deal with the crowds. And we can be certain that future innovation will further eat away at traditional store advantages.

The fact is, in most instances, the future winners will be retailers that blend digital and physical offerings. They will deeply understand customers wants and desires and build a tightly integrated, highly flexible hybrid model rooted in treating different customers differently. That means a transformation, but not the elimination, of physical stores.

By contrast, the losers will be those that blindly adopt all things omni-channel.

The losers will be those traditional retailers that continue to run a bolted on and siloed e-commerce channel.

The losers will be those who fail to see the interplay between digital and physical stores and close too many doors–and turn the remaining ones into boring museums of best-sellers and “me too” products.

The losers will be those who hold on to one-size-fits-all customer and marketing strategies.

Consumers will continue going to stores for many, many years to come. Whether they will come to your store is a different question.

Small is the new stupid

With e-commerce continuing to grow far faster than brick & mortar sales–and already comprising more than 10% of many brands’ total revenues–the implication seems to be that retailers need far fewer stores and that future locations should be considerably smaller. After all, simple math tells us that with shrinking physical store sales, average productivity will decline, thereby making each remaining store less profitable. Moreover, the logic goes, it is much smarter to offer a wider range of products via the web owing to the efficiencies of centralized inventory and the like.

In fact, the folks on Wall Street seem to think that this is not only obvious, but it is the only way for retailers to be successful in this brave new omni-channel world. Be careful what you wish for.

While it is quite apparent that, in aggregate, most North American and Western European markets are over-stored, it is dangerous for an individual retailer to assume that aggressively shrinking their physical footprint is the pathway to success. For one thing, for most brands, physical stores help drive the web business–and vice versa. Closing stores and editing assortments too ruthlessly can drive down brand preference and market share, which ultimately is likely to reflect negatively on total profitability.

But the biggest challenge for most retailers and their brick & mortar strategy is how to remain relevant and remarkable in a blended channel world and how to create compelling reasons for customers to traffic their stores when so much of everything is readily available on the web, often at a lower price.

The quest to get small through the relentless pursuit of store productivity tends to drive brands to carry only their known best sellers. The victims of this strategy are the new, the interesting, the differentiated. If stores are reduced to selling only the safe bets–only average products for the average customer–then the internet becomes the best way to discover the remarkable. Alternatively, specialty stores may emerge to attack the market opportunity vacated by the bigger chains, who keep planing the edges of what they carry to “optimize the box”.

Either way, a get smaller strategy may only serve to make a brand’s brick & mortar stores all that much less interesting and accelerate an already precarious position into a downward spiral.

Surely, for some retailers, a rationalization of their store portfolio is overdue and a radical re-think of their physical store model is an urgent and important need. Sadly, for others, getting small will only turn out to be incredibly stupid.


As the channels evaporate . . .

By now, it should be readily apparent that a very large–and growing–percentage of customers bounce back and forth between digital and physical channels when shopping.

By now, it’s obvious that the exploding usage of mobile devices is blurring the distinction between e-commerce and bricks & mortar.

By now, we should understand that, in fact, it’s only retailers that talk about channels. You never hear customers speak in that way.

And yet…

And yet, we obsess over same-same stores sales, rather than same-market or same-customer segment performance.

We close under-performing stores in a quest to boost profitability, only to discover that we’ve often made matters worse.

We organize our teams, metrics and incentives around sales channels instead of customers, and wonder why we struggle with consumer relevance and engagement.

As the channels evaporate in the minds of our customers, the only two questions for us are: do we accept this reality and are we ready to act accordingly?

Oh, and one more: just what the heck are we waiting for?



Different, not dead: The future of brick & mortar retail

“Reports of my death have been greatly exaggerated.” 

Mark Twain*

Media reports highlight the dramatic shift of spending from traditional stores to e-commerce. Industry analysts and pundits predict the demise of brands with substantial investments in retail real estate. We live in an increasingly virtual world, they say, and those with deep roots in the physical realm are starting to look more and more like dinosaurs.

The transformation of shopping fueled by all things digital is profound with no signs of deceleration. The crazy little thing called the internet is changing virtually (pun intended) everything. But anyone who thinks that brick and mortar stores are going away has it wrong. Here’s why.

Brick and mortar retail can enhance the value proposition. Physical retail offers many important advantages–the ability to see and try on products, instant gratification, face-to-face customer service, social interaction and so on–that digital selling cannot readily replicate.

Purchase events matter. There is a reason that e-commerce penetration in many product categories remains low. Where the risk of buying online is perceived as high (apparel, many big ticket items), direct-to-consumer shares remain in the single digits. Brands like Zappo’s have innovated in customer service to overcome some of e-commerce’s limitations, but long-term growth potential is modest. In fact, e-commerce darlings like Bonobos, Nasty Gal and Warby Parker have begun to broaden their reach–and address flattening growth–by opening physical stores. Plenty of products–particularly perishables and low-priced items–also have underlying economic reasons why direct selling volume will remain constrained.

Consumer segments matter. Great customer intimate brands embrace the notion of treating different customers differently. When you do this, you understand the different needs, wants and behaviors of varied customer types. Depending on the product and the particular consumer, the purchase journey may begin and end at a physical store. For others, they will never set foot in a brick & mortar location. Others will research online and buy in store. You get the idea. Your mission is to understand the role your physical locations play in being intensely relevant and remarkable for the customers you need to attract, retain and grow. Then build out and customize the experience accordingly.

The blended channel is the only channel. Stop thinking channels and start thinking about a consistent, integrated customer experience for your brand. Other than products and experiences that can be delivered completely digitally, the majority of retail purchases are influenced by both the digital and physical realms. More and more data is emerging to confirm this. Your mileage will vary, but silo-ed thinking, organizations, incentives and metrics confuse, rather than illuminate.

Frictionless commerce is essential. Let’s be blunt: there’s more heat than light in the discussion of omni-channel capabilities. Strategically, the key is to hone in on how to be differentiated, relevant and remarkable for the customers you wish to serve. And then you must root out the sources of friction in your customer experience. With more consumers going back and forth between digital and physical channels in their decision journey, if you don’t make it easy to do business with you chances are there is a competitor who is ready to pounce.

Mobile adds value to physical retail. When e-commerce was either sitting at your home or office surfing the web, the distinction between digital and brick & mortar really meant something. Now with consumers untethered and having increasingly powerful devices with them 24/7, mobile becomes the great integrator–and makes the distinction between e-commerce and brick & mortar less relevant all the time.

Seismic changes ARE impacting retail. With the exception of companies in the early stages of maturity, most retailers need fewer stores and many of the stores they have will need to be smaller. But assuming that physical retail is going away any time soon is just plain wrong. The tendency to isolate e-commerce and brick & mortar performance is equally misguided.

Amazon and a handful of best-in-class e-commerce companies will continue to thrive. And new pure play digital models will undoubtedly emerge to captivate consumers and gobble up share.

But there is plenty of business to be done in physical stores. Less, but still plenty. And most of the growth in what is counted as e-commerce is not a shift to online-only brands, but rather to brands that have cohesive omni-channel strategies. Think Nordstrom and Macy’s so far. For them, stores are assets, not liabilities. But the way brick and mortar retail drives consumer engagement and loyalty is morphing quickly.

These emerging winners follow a simple but compelling formula:

More focused.

More differentiated.

More relevant.

More remarkable.

More personalized.

More integrated.

See you in the blur.


* This isn’t, apparently, the actual quotation, but one that has become part of his folklore.

Omni-channel: Fix it in the mix

I’m just back from the intimate little affair known as the National Retail Federation’s “Big Show.” Of course if you’ve ever been, you know that it is, in fact, far from intimate. The multi-day extravaganza in New York’s Javits–from the Hebrew, meaning “non-existent mobile connectivity”–Center features thousands of attendees, hundreds of exhibitors and buzz-words aplenty.

In many sessions, barely a minute could go by without a speaker uttering “omni-channel” this or “omni-channel” that. Yet the attentive listener would quickly conclude that not only was there often more heat emitted than light shed, there was also a fair amount of out-and-out hooey and semantic mumbo-jumbo.

Let’s get a few things straight, shall we?

First, omni-channel is no different from what many leading retailers have been investing in for years: the vision of a customer-centric, anytime, anywhere, anyway, seamless experience across channels and touch-points. Call it “channel-agnosticity”, “frictionless commerce” or “multi-channel integration”, it’s all more or less the same. Customers don’t care what you call it, they care what you do with it.

Second, the point is not to simply add more channels. The “omni” part of “omni-channel” is about being intensely relevant in all the channels your customers care about and making the experience frictionless for her as goes through her decision journey. I heard one executive say they were the best omni-channel retailer because they sold in more channels than anyone else. That’s very misguided thinking.

Third, participating in, or being pretty good within, all the channels that your customers employ is not enough, nor is having a decent experience across all channels for your average customer.

Winning in omni-channel is all about the mix. The mix of customers you serve. The mix of products and services you offer. The mix of media employed to drive engagement and loyalty. The mix of channels where consumers can learn and transact. And so on.

To be sure, there are some foundational ingredients of winning in this evolving omni-channel world. Possessing a single view of the customer and the ability to uniquely identify, track and reach individual customers regardless of where and how they engage with you is critical. Without breaking down organizational silos (and the culture, incentives and metrics associated with them) you won’t get very far on your transformation. Making your entire brand’s inventory available to the customer at all points of sale (supported by easy, channel of choice returns) is rapidly becoming the price of entry.

Yet without the capabilities and commitment to treat different customer differently, your omni-channel strategy risks being an also-ran.

Many of the NRF’s Big Show presenters and vendors were pushing ingredients. Ingredients are essential, as is a good recipe. But the customer wants the finished product. And it’s the mix, that perfect blend, that really makes something special.

Fix it in the mix.

My Top Ten Blog Posts of 2013

As I take a break until the end of the year, here’s a recap of my top 2013 blog posts, in order of popularity.

1.   Neiman Marcus & Target: A glorious failure.

2.   JC Penney: Trouble on the home front.

3.   Math is hard, for JC Penney.

4.   Sears: The world’s slowest liquidation sale.

5.   JC Penney: Gloat edition.

6.   The multi-channel customer is your best customer. Duh.

7.   No pottery, no barn, no crates, no barrels.

8.   The world’s first omni-channel executive.

9.   Blaming the hole.

10. Silos belong on farms (redux). 

On a special note, my most viewed post of the year was actually from 2010. Fail better got a huge boost from being featured in Seth Godin’s Krypton course. Thanks Seth!

Thanks as well to everyone for reading my blog, challenging it, promoting it and just simply paying attention to my ramblings. It means a lot.

May you and those closest to you enjoy a wonderful holiday season.  Namaste.