Ulta and Sephora keep defying the ‘retail apocalypse’

It seems like more and more brands didn’t get the ‘retail apocalypse’ memo. As many in the media shout “bring out your dead,” it turns out quite a few major retailers keep cruising along despite being heavily invested in  physical stores.

Sephora, which already has more than 1,100 locations (free-standing and within JC Penney stores), recently announced plans to open 35 new stores this year. As part of LVMH, the beauty retailer’s details are not broken out, but its continued strength in both physical and digital channels is often highlighted in its parent company’s reports.

On the heels of Sephora’s news Ulta Beauty’s shares climbed as the retailer beat on earnings and announced stellar same-store sales growth of 9.4%. The company expects to open roughly 75 new stores each of the next three years.

So amidst all the doom and gloom, what exactly is going on here? We know that the pockets of strength in brick-and-mortar dominant retail are not isolated to the beauty category. In fact, the majority of the 2,400 new stores already announced for the United States this year are in other sectors. So at one level many of the doomsayer pundits simply have their facts wrong. Physical retail continues to grow. Malls aren’t all going away. Thousands of brick-and-mortar stores will open for years to come. The real issue is that the difference between the have’s and have not’s is widening, and merely being good enough no longer is.

As we should know by now, talking about averages and making sweeping statements about entire industries is, at best, misleading and often next to useless. While physical retail is growing far more slowly than online shopping, that does not automatically spell doom for brands that are deeply invested in actual stores as Ulta, Sephora and dozens of others continue to prove. So what allows these brands to thrive?

Below I highlight a few areas that map against some of my 8 Essentials of Remarkable Retail.

1. Eschew the boring middle. Most of the retailers that are in trouble are stuck in the middle, neither offering strong value and convenience, nor offering anything unique and truly experiential. Ulta and Sephora knew they could not out Amazon Amazon, so they chose to be more remarkable in other ways.

2. Harmonize shopping. Both brands have embraced the blur between digital and physical channels and have worked hard to root out the friction in the customer journey. More importantly, they “amplify the wow” by providing value-added services, including mobile apps that customers truly love (both brands have 4.9 ratings).

3. Become digitally-enabled and human-centered. Ulta and Sephora are both leaders in using digital marketing channels and leveraging technology to be more effective and efficient. Yet they also know that people buy from people and do a great job of balancing technology and customer service delivered by good old sales associates.

4. Get personal. Increasingly brands that treat different customers differently are standing out. Ulta has begun leveraging its loyalty program data to enhance the relevance of their targeted offerings. Sephora has long been a leader in personalization, particularly with features built in to its industry leading app.

5. Deliver a memorable experience. Both brands do a good job demonstrating that you don’t have to be ultra high-end to be remarkable. But you do have to be intensely customer relevant, offer unique products and services (see Ulta’s Kylie Jenner partnership), provide a distinctive environment and execute flawlessly.

Physical retail isn’t dead. But it certainly is—and will continue to be—very different. For brands that seek to embark on a journey from boring to remarkable there is plenty of nonsense to ignore. But there are also many excellent examples of retailers that could have been crushed by Amazon or the other forces of digital disruption and instead have not only survived, but are doing quite well.

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.  

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.