Reimagining Retail · Retail

Nordstrom and retail’s growing urgency to rethink performance metrics

Last week Cowen and Co. retail analyst Oliver Chen downgraded Nordstrom shares, and the stock promptly tumbled. Among the concerns he cited were declining comparable store sales at both Nordstrom’s full-line department stores and the Rack off-price division. There’s a real risk to misunderstanding what is really going on.

One of the things were going to need to get used to, not only with Nordstrom but with many other brick-and-mortar-dominant retailers, is a new way of thinking about performance — and much of this has to do with letting go of comparable stores sales as a key indicator while fundamentally thinking differently about the role of physical stores.

We know that e-commerce is growing much faster than physical retail. That’s not changing anytime soon, if ever. But there is a huge difference between online brands stealing share from industry incumbents and sales that are transferred within channels of “omni-channel” retailers. Nordstrom is a great case in point.

It’s hard to make a case that Nordstrom has been appreciably damaged by the disruptive impact of e-commerce. It’s easy to make the case that the company has done a heck of a job responding to these changes and capturing the digital-first customer, both by developing superior online shopping capabilities and executing a well-harmonized experience across digital and physical channels.

While most of its department store brethren are losing market share, experiencing significantly compressed margins and closing stores in droves, Nordstrom has consistently driven strong overall results despite being a rather mature brand. In recent years, this has mostly played out in strong e-commerce growth and tepid physical store performance.

A world of declining traffic

Last year I posed the question “what if traffic declines last forever?” While I was intentionally being provocative, for many retailers it is far more reasonable to assume that this will be the case going forward than not. There will always be hot retail concepts that will go through a growth cycle of opening plenty of locations and experiencing strong same-store sales growth. The off-price segment is a great example of that right now. But for the most part, the shift away from brick-and-mortar to online shopping will continue unabated. And that means most retail brands, particularly those that are relatively mature, are looking at an almost impossible task of driving consistent positive same-store sales as e-commerce gains share.

So what? 

It’s one thing for physical store sales to go to an online competitor; it’s another to transfer sales to your own captive websites, as Nordstrom has been able to do (for the most part). The problem with the relentless focus on comparable store sales as a key metric is it treats the store as a discrete economic entity, which it clearly is not. This in turn drives the nonsense around closing stores as the silver bullet for fixing what ails traditional retailers. It’s certainly reasonable to assume that physical assets can be better configured to deal with changing shopper behavior and the shift to online selling. And clearly, when a retailer is losing massive share to competitors, a wholesale re-think is in order. But the idea that comparable store sales are the best indicator for a retailer’s brick-and-mortar deployment is simply no longer valid in most cases.

A new role for the store: the heart of a brand’s ecosystem

For most traditional retailers, we must stop thinking about stores as liabilities but rather as assets that, yes, in many cases need to be transformed — often radically. But we must acknowledge that from Target to Kohl’s to Sephora to Neiman Marcus and beyond, the store is typically the heart of a brand’s ecosystem. This means that for many, if not most, if the store goes away many customers’ relationships — and therefore future spending — will be compromised. It’s not brick-and-mortar or e-commerce. It’s both, together, that ultimately drive customer loyalty.

In many categories, physical locations perform key roles in the shopping journey that online simply cannot duplicate or come close to mimicking — at least with current technology. For retailers that put a premium on creating a harmonized experience across channels, e-commerce is a sales channel, but it is also a major complement to the stores, and vice versa. It is therefore not surprising to discover that many brands that have shuttered stores have seen their e-commerce get worse in the trade areas once served by a closed location.

The big move of once-online-only brands into brick-and-mortar locations reinforces the unique and important role of physical stores. Most of these brands are approaching the limits of online growth and see stores as a way to acquire customers more inexpensively, serve them in unique ways and forge more comprehensive relationships through the unique combination that digital and physical can provide. One Warby Parker customer, for example, might be completely comfortable buying a new pair of glasses online, but will turn to a brick-and-mortar location for an optician’s adjustment. Another Warby Parker customer might need to see and physically try on their first pair in a store, but will make future purchases online going forward.

The reinvention of retail demands new metrics

In light of the differing underlying economics and category dynamics faced by any given retailer, there is no one-size-fits-all metric to perfectly define success. But it should be clear that same-store sales is an increasingly irrelevant metric. As it gets harder and harder to truly credit a particular channel for a sale or its role in acquiring, growing and retaining a particular customer, the delineation of channels becomes more of a blur. Retailers (and the analysts who love them) need to evolve their measurement focus.

Since customers typically do most of their shopping (whether online or in store) in a relatively narrow geographic region, there is a strong case to be made for seeing a trade area as the more relevant economic entity compared with a store or e-commerce in isolation. Given what was discussed earlier, and knowing that e-commerce sales tend to go up in a trade area when a brand opens a new store, we cannot ignore the inherent interdependence of the channels in retailer metrics any longer.

Spoiler alert: Many brand are already looking at performance this way internally. It’s time for Wall Street to catch up. Here’s my and Euclid’s Brent Franson’s suggestion on some other things to consider.

Of course, none of this is to say that Nordstrom doesn’t have some work to do or that its shares were not overvalued. Yet the inexorable shift to digital and the resulting difficulty in driving what gets counted as comparable store sales does not get addressed in any useful way by defaulting to store closings, leasing out excess space or hyper-focusing on misleading metrics.

Nordstrom is only the latest retailer to be misunderstood. More are sure to follow.

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.  

Just  announced: I will be keynoting the NEXT Conference in Austin, TX on September 24.

Customer Experience · Omni-channel · Reimagining Retail · Retail

These brands apparently did not get the ‘retail apocalypse’ memo

For a couple of years now pundits, analysts, journalists and various other retail observers have been advancing the “retail apocalypse” narrative. A typical story or opinion piece warns of the “death of the mall,”  points out how “e-commerce is eating the world,” and generally suggests that “traditional” retailers are toast.

Alas, facts are stubborn things, as I point out in my keynote talks and highlighted in a recent Forbes article, “Physical Retail Is Not Dead. Boring Retail Is.”

Recent reports from several high-profile–and clearly brick & mortar-dominant–retailers underscore the uselessness of broad statements about the future of physical shopping. Despite the supposed plague descending upon those poor sods who continue to open actual stores, Lululemon and Costco managed to drive double-digit comparable store increases and robust e-commerce growth. Same with Ulta, the beauty brand that is opening 100 new stores this year. If physical retail is dead, please also get the word out to TJX, Ross, Dollar General and Aldi, all of which continue to open significant numbers of new locations. Oh, and don’t forget Warby Parker, Indochino, Untuckit, Everlane, Fabletics and many other brands that started online, only to discover that physical stores are essential to their next stage of growth—and may actually be the key to their making any real money.

Alternatively, if we look at China where, frankly, much of the really cool stuff in retail is happening, it turns out shopping behemoth Alibaba is stepping up its “new retail” strategy by opening more Hema stores and making investments in various brick & mortar-centric retail concepts. I wonder if those who continue to promulgate the “death of physical retail” storyline are short the publicly-traded brands in the two biggest retail markets on the planet that continue to defy their thesis?

Of course, the real issue is the foolishness of adopting a one-size-fits-all view of a huge and complicated industry. The future will not be evenly distributed and individual retail brand’s mileage will vary—often considerably. What we know to be true is that in sectors where e-commerce penetration is higher than 40% or so—typically where the product can literally be delivered digitally, as is the case with music, books and games—most of physical retail has been wiped out. We know that in sectors where the supply of retail space greatly exceeded the sustainable demand (I’m looking at you department stores), in some cases owing to the growth of e-commerce, in other cases owing to the rise of better value propositions (off-the-mall and off-price competition), a massive consolidation is occurring. Most notably, we know that retailers that got stuck in the middle, failing either to choose to be great at price/value and convenience (what I like to call “optimized buying”) or to deliver a remarkable shopping experience, are extinct or being pushed to the brink of irrelevance.

Just as misleading and potentially dangerous as making pronouncements about a retail apocalypse are those that adopt the Alfred E. Neumann position (note to Millennials: Google it) and find solace in e-commerce being “only 10%” of all retail. The impact of digital disruption varies considerably by sector, a particular retailer’s cost structure and whether or not a given retailer has executed a well-harmonized omnichannel strategy. For every Nordstrom and Neiman Marcus that have captured a fair share of the shift to digital shopping for themselves and continue to grow overall in relatively mature markets, we have J.C. Penney and Toys ‘R’ Us that pretty much missed the boat entirely.

It’s easy to blame Amazon for all of the industry’s woes. But it isn’t true. It’s easy to say that malls are dead. Yet many are incredibly vibrant and healthy. It’s easy to pronounce the death of physical retail. But then you have to explain the thousands of new stores that are opening and the dozens of overwhelmingly brick & mortar-centric brands that are thriving.

So if you are one of those people going on and on about the retail apocalypse please just cut it out. Your lack of perspective and nuance is not helping.

It is crystal clear, however, that many more malls and stores will close without aggressive actions to reimagine and reinvent themselves. Struggling brands desperately need to go from boring to remarkable. Struggling brands need to adopt a culture of experimentation and be willing to be retail radicals. Struggling brands need to stop the nonsense about channels and realize it’s all just commerce, and that the customer is the ultimate channel. Struggling brands need to learn to treat different customers differently. And struggling brands need to hurry. Time is not on their side.

When this all comes together, we see the positive results that are possible. When it doesn’t, there is no longer any place to hide.

Lululemon--39312-detailp

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 Friday June 15 I will be keynoting The Shopper Insights & Retail Activation Conference in Chicago.  For more on my speaking and workshops go here.

Being Remarkable · Reimagining Retail · Store closings

It’s just about time for full-on panic at J.C. Penney

It’s been a long sad slog for J.C. Penney. In 2011, after more than a decade of (at best) mediocre performance, the company brought in Ron Johnson from Apple as its new CEO. In what some saw as a bold attempt at transformation — and others saw as a misguided Hail Mary pass — retail’s latest savior changed just about everything all at once, and to put it mildly, the results were disastrous. Sales plummeted by about a third, the stock tanked, and Johnson was eventually shown the door.

Former CEO Mike Ullman returned to stabilize the rapidly deteriorating situation — which he did. Then in August 2015, Home Depot’s Marvin Ellison was brought in as the new CEO. In the more than five years since the Ron Johnson debacle, Penney’s has tried many things to claw back lost market share, improve profitability and become more relevant for a new generation. Very little of it has gained any traction. The stock, which traded around $40 when Johnson joined — and in the $20s when he left — sunk to just above $2 after a hugely disappointing quarterly earning report and the announcement that Ellison was leaving to join Lowe’s.

This is bad. Very bad. And I will be the first to admit that I am a bit surprised.

While it is clear that Penney’s is in some ways the poster child for “the collapse of the middle” that I frequently speak about, there were reasons to believe that Penney’s was well positioned to regain meaningful market share.

First, under Johnson, the company essentially fired one-third of its customers through a series of bone-headed moves. While it is difficult to win back customers in an intensely competitive market, I thought a decent subset would return once the obvious blunders were fixed. For the most part, it hasn’t happened.

Second, Sears, its most similar on-the-mall competitor, has closed hundreds of stores in the past few years — surely Penney’s would pick up a fair share. But if it has, it’s not so obvious.

Third, in addition to continuing to expand its successful Sephora in-store shops, Penney’s has added new products and services (including home appliances and mattresses) to attract new customers, drive incremental traffic and improve store productivity. So where’s the beef?

Fourth, after being a laggard in e-commerce and omni-channel, Penney’s has taken steps to elevate these capabilities. Yet the growth hasn’t followed.

Lastly, the categories in which it competes have performed pretty solidly the past few quarters. Penney’s failure to grow revenue at least 3-4% means it is losing share.

So Penney’s now finds itself in a situation where it has been engaged in years of cost cutting and store closings. There is very little gas left in that particular tank. The problem is no longer fundamentally about cost position or store footprint; it is about customer relevance and revenue. Penney’s finds itself in a situation where competitors have ceded hundreds of millions of dollars of sales through store closings, yet apparently little has migrated to its benefit. Penney’s finds itself in the middle of the best year in recent retail industry history, yet is struggles to keep pace. And now its CEO elects to leave.

It simply won’t get any easier from here.

While the seemingly imminent demise of Sears will provide incremental market share opportunities, we should not lose sight of the fact that the moderate department store sector continues to decline with no end in sight. Sales of online apparel are expected to double within the next few years, which will continue to pressure the economics of brick-and-mortar retailers that don’t execute a well-harmonized multi-channel strategy. Younger shoppers will become increasingly important to the overall fortunes of just about any retailer, and Penney’s has done little to contemporize its brand. And while Penney’s may have a few stores to close, mass store shutterings are almost certain to accelerate its decline. The best barometer of success going forward is robust trade area growth, derived from stable to slightly positive comp store sales and strong double-digit e-commerce growth.

Given the bifurcation of retail and the death of boring, J.C. Penney is a long way from being a remarkable and compelling retailer. Yet the positive retail cycle we are in and the likely shuttering of hundreds of directly competitive stores over the next six to 18 months will give the more-than-100-year-old brand an unprecedented opportunity to grab share. If it cannot improve its performance dramatically over the next few quarters, the issue won’t be whether a transformation is ever possible; it will be whether the once-stored retailer will even be around at any reasonable scale much longer.

And if that doesn’t incite panic, I don’t know what will.

jc-penney-store-1200xx2048-1152-0-107

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 June 15 I will be doing a keynote at The Shopper Insights & Retail Activation Conference in Chicago.  For more on my speaking and workshops go here.

Being Remarkable · Reimagining Retail · Retail

Is this the beginning of a department store renaissance? Eh, not so much.

Nearly two weeks ago Macy’s beat quarterly sales and earnings expectations and many on Wall Street promptly lost their mind. Same story with Dillard’s. Then Kohl’s followed up with a similarly surprising upside report that led some to conclude that maybe, just maybe, the long-beleaguered department store sector might be seeing a resurgence or—dare we say it out loud?—the beginning of a renaissance.

Alas, this rising ebullience seems far more driven by a mix of hope, misunderstanding and a heaping side order of denial than any compelling evidence that the tide is turning in any meaningful or sustainable way. Once again we are in real danger of confusing better with good.

To be sure, both Macy’s and Kohl’s sales and profits were much improved over last year. Yet their performance must be viewed from the perspective of both short-term factors and longer-term realities. On the clearly positive side there is solid evidence that both struggling retailers are executing better. In Macy’s case, inventory looks to be well managed (yielding fewer markdowns) and efforts to capture cost efficiencies appear to be paying dividends. A few targeted strategic initiatives, including Kohl’s partnership with Amazon, seem to be driving some incremental business.

With a bit more context, however, these results aren’t really all that stellar. And they most definitely are not yet strong indicators of any substantive turnaround. Notably, both retailers’ sales benefitted significantly from the move of a major promotional event into the quarter. Without this shift, same-store sales would have increased only about 1.7% at Macy’s, and Kohl’s would have been more or less flat (not that this metric is all that useful anymore anyway). That is neither keeping up with inflation nor maintaining pace with the overall growth of the broader categories in which they compete. The optimist might see losing market share at a slightly slower rate as a win. The realist opines that there is a lot more work to do to go from decidedly lackluster to objectively good.

The other thing to bear in mind is that J.C. Penney and Sears (and now Bon-Ton) have been leaking volume through store closings and comparable store sales declines. It’s hard to imagine that Macy’s and Kohl’s have not benefitted materially from this dynamic. While J.C. Penney’s future is increasingly uncertain, any upside from Bon-Ton will be short-lived. Sears looks to be the gift that keeps giving, though likely for only a few quarters more as I expect that Sears will close substantially all of its full-line stores within the next year. While this creates one-time market share gaining opportunities and fixed cost leverage, once the dust settles two factors will come into sharper relief.

The first is the contributions from a strong economy. Recent macro-economic factors have been generally positive for the product categories in which Macy’s and Kohl’s compete. Whether there will continue to be some wind beneath the sails of U.S. retail more broadly—and for the moderate-priced apparel, accessories and home categories in particular—remains to be seen. Clearly my crystal ball is no better than anyone else’s—and maybe worse. But my best guess is that both the economy and the jump ball for market share occasioned by department store consolidation peaks within the next few quarters.

The second factor that looms large seems to be the one Wall Street forgets. The moderate department store sector has been in decline for a long, long time. Some of this has to do with evolving customer trends. Some with stagnant income growth. Some with the rise of superior competing business models: initially category killers, then off-price and dollar stores and now, increasingly, Amazon. And some with more than a fair share of self-inflicted wounds. Regardless, the entire moderate sector, to varying degrees, is stuck in the vast, undifferentiated and boring middle. A somewhat better version of mediocre may the first step on an eventual path to greatness, but it may be just that: a first step.

Lift the veil from a quarter or two of slightly above average performance and the drivers of broader share losses (and related widespread shuttering of stores) continue unabated. Off-price and dollar stores, which in recent years have accounted for the biggest drain on Macy’s, Kohl’s et al., are opening up hundreds of new stores at the same time they are starting to turn up their digital game. Amazon is becoming a bigger factor everyday—and it has yet to make a big push into physical stores. Even if any of the leading department stores miraculously became more innovative and customer relevant they would continue to face significant headwinds. Bottom line: show me someone who believes that a transformation of mid-priced department stores is possible in the foreseeable future and you’ve probably clued me into who has been providing Eddie Lampert with his strategic consulting advice.

As the middle continues to collapse, it is now completely a market-share game. The near-term good news is that Macy’s and Kohl’s competition has made it relatively easy to grab some share. The near-term good news is that a generally healthy economy tends to raise the tide for all. The near-term good news is that Macy’s and Kohl’s operating discipline allows them to convert relatively small sales increases into nice incremental profit opportunities.

The bad news is neither one of them goes from incrementally better to demonstrably good until they make much more substantive and fundamental strategic changes that move them from mostly boring to truly remarkable. Neither brand has spelled out what that looks like in any compelling fashion. And once designed, getting there from here is no small task. Until then, it is way too early to declare victory.

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 June 15 I will be doing a keynote at The Shopper Insights & Retail Activation Conference in Chicago. Contact me for a special discount. For more on my speaking and workshops go here.

Customer Experience · Reimagining Retail · Retail

Retail’s new fork in the road: Understanding ‘buying’ vs. ‘shopping’

As I pointed out in my last piece, it is all too easy to be misled by high-level statistics and narratives that paint an incomplete picture of the retail landscape. Similarly, many fail to appreciate the underlying dynamics that (increasingly) separate industry winners from the losers and that which will ultimately determine when online shopping starts to mature. Much of this, I believe, can be understood by focusing on the difference between “buying” and “shopping.”

I’m hardly the first to make this distinction. Seth Godin got me thinking about this with his 2015 post. Since then it has become more and more clear to me that delving into the differences is extremely useful in ascertaining what is next for the retail industry.

Understanding ‘Buying’

Buying is mostly transactional. More mission, than journey. More search, than discovery. Most times buying tilts toward being need-driven rather than motivated by want. At heart of buying is efficiency. When we are in buying mode we care primarily about speed, convenience and a broad, yet easy to navigate, assortment. Buying tends to be highly-value driven. When transacting digitally it must be easy to compare prices. When buying in brick & mortar stores, customers come to learn which brands consistently deliver the best value and often start their process with these favorite stores.

With this lens, it should be easy to see that e-commerce is optimized for buying. The categories that do the best online are those where there is a strong, though not necessarily exclusive, buying dynamic. Unsurprisingly, this is where Amazon has the greatest market share and growth. When it comes to being remarkable in the realm of buying, much of it is about eliminating friction in the path to efficiency, be that on price, assortment and/or convenience.

Understanding ‘Shopping’

Shopping is far more experiential. When shopping many customers fundamentally enjoy the process of exploring and discovering, whether online or in a store. Shopping can be highly social. Shopping takes more time, but the value is there in finding just the right item, the right outfit or solving a more complicated problem–like furnishing a room or completing a home improvement project. When shopping, typically the risk of making a mistake is greater, so the ability to get sales help, shop with friends, try something on, touch and feel the product, and so on, is paramount.

While a strong digital presence can greatly facilitate the shopping process, the share of online shopping is dramatically lower than online buying. Categories with strong shopping characteristics (higher-end home furnishings, fashion apparel, non-commodity grocery items like produce and meat, etc.) have very low e-commerce shares.

Apocalypse No

There really is no retail apocalypse, but certain sectors of retail are clearly being radically transformed. Much of this can be best understood by understanding the difference between buying and shopping. By far the greatest disruption is occurring where buying is being reinvented, online and offline. The first wave of massive share shift occurred in the buying of entertainment when music, books and games could be digitally downloaded. This wave was, in fact, apocalyptic to the likes of Babbage’s, Barnes & Noble, Blockbuster and Borders–and that’s just the “Bs.”

More recently, platform businesses like Alibaba and Amazon have made the buying process far more efficient in many categories, leading to major market share gains and the demise (or teetering on the brink) of many brands that could not keep pace. But let’s be clear: Amazon is not “the everything store.” It is, however, quickly becoming the anything-you-want-to-“buy” store. Absent a far greater brick & mortar presence, Amazon will continue to struggle in its quest to dominate shopping.

Innovation and growth in “buying” has occurred outside of the purely digital world. Brands such as Aldi, Lidl, Dollar General, Ross, TJX and others have re-worked and expanded their business model by delivering ever greater “buying” value. If there is a retail apocalypse, someone needs to tell these brands. They will collectively add thousands of new stores this year alone.

The same is true in the “shopping” world. Sephora, Ulta, Apple and many others that continue to offer a remarkable shopping experience are growing both online and offline. Moreover, many high profile pure-play e-commerce players have basically started to run out of customers that would approach their brands in “buying” mode and thus they needed to go seek out “shoppers” with brick & mortar locations In fact, several once stated that they would never open stores. This is because they didn’t understand how the buying vs. shopping dynamic would inevitably play out over time. It now turns out that Warby Parker, Peloton and Bonobos are seeing the majority of their incremental growth come from their physical locations.

Stuck In the Middle With You

It’s increasingly untenable to attempt to stake out a middle ground between buying and shopping. The middle is collapsing. Trying to be sort of good at serving the customer who is firmly in buying mode is like being sort of pregnant. Being boring and unremarkable for customers in shopping mode is equally foolhardy.

The Fork In The Road

Certainly not every brand or every category has a clear cut, all or nothing, buying vs. shopping pattern. But it’s critically important to understand how this plays out for each and every retailer. While the ridiculous amount of debt Toys ‘R’ Us amassed was the proximate cause of their downfall, a strategic and financial crisis was inevitable as they wrong-headedly decided to be more about buying than shopping. Many struggling brands are similarly confused. This will not end well.

The fact is retailers must choose a clear path. If a retailer wishes to grab share (or insulate themselves) from the Amazon buying tsunami than it is pretty clear what that implies. Good luck and Godspeed.

If a retailer wishes to reimagine their business model to become a more remarkable shopping experience than that is an entirely different thing.

Choose wisely. Pick a lane. Step on the gas.

1_QuRLUayP_QTC125wU2ibfQ

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 May 2 I will be keynoting the Retail Innovation Conference in NYC, followed by Kibo’s 2018 Summit in Nashville and Retail at Google 2018 in Dublin.

Innovation · Reimagining Retail · Retail

ShopTalk 2018: Lessons in hope, reality and denial

What struck me the most thematically — aside from how much better ShopTalk has become than the NRF’s “Big Show” — was that the talks, panels and hallway discussions tended to fall into one of three buckets.

Hope

Despite the often relentlessly negative retail narrative in the mainstream media, there was a hopeful tone. As everyone should realize by now, the future of retail will not be evenly distributed — yet at the conference there was solid optimism. I attribute some of this to (generally) improving retail trends. I think there was also a sense that some of the more gut-wrenching changes — particularly mass store closings and major bankruptcies — were starting to ebb. Through direct conversations, as well as social media response, I also found quite a lot of alignment (or was it relief?) on my “Physical Retail Is Not Dead. Boring Retail Is” post, which was published on Day 2 of the show (and I referenced at the outset of the panel I moderated).

Another key driver of the emerging hopefulness was the traction some heretofore pie-in-the-sky technologies were beginning to exhibit. Numerous presenters, panelists and exhibitors showcased newly far more pragmatic applications of voice-activated commerce, artificial intelligence/machine learning and augmented or virtual reality. Personalization now finally seems ready for its closeup. Ultimately the devil is in the details — and a given retailer’s mileage will certainly vary — but there was plenty of meat to chew on for those committed to transforming the customer journey and being willing to embrace a culture of experimentation. (Pro top: That should be every retailer).

Reality

In multiple sessions greater light was shone on some undeniable realities. Whether one sees these as inconvenient truths, blinding flashes of the obvious or somewhere in between, several important things were hard to escape. Chief among them were:

  • The digital-first customer journey. In the vast majority of cases, regardless of where the ultimate transaction is made, most customer journeys start in a digital channel–and more and more, that means on a mobile device.
  • The customer is the channel. All the talk about digital channels versus physical stores is mostly a distinction without a difference. It’s all just commerce and silos belong on farms.
  • The middle is collapsing. Just prior to ShopTalk Deloitte released an excellent study on the bifurcation of retail, which they showcased in a session. The study not only dispels the myth of the retail apocalypse but delves into the causes and conditions of the growth at the tail ends of the market and the reason why I have long suggested that it’s becoming death in the middle. The reality is retailers have to pick a lane and strive to become remarkable on either the price/value/convenience end of the spectrum or strive to make the shopping experience more intensely relevant and remarkable.

Denial

Sprinkled among the upbeat mood and growing acceptance of the new world order were moments of shocking denial or abject cluelessness. Most disturbing (or just plain sad) was when presenters would say something as if it were deep insight or some critically important new piece of strategic information. Instead they by and large only confirmed the degree to which they had been asleep at the wheel for the past decade. I won’t name names, but at least one retailer that presented will likely need a miracle on 34th Street to go from boring to truly remarkable.

Yes, brands are still important. Yes, multi-channel shoppers spend more than single channel shoppers. Yes, mobile is an important part of the customer journey. Yes, your e-commerce sales will go up in the trade area where you decide to open a store (newsflash: brands that started in catalog sales have known this for decades). Yes, when you close stores your e-commerce sales are likely to go down. All of this and more has been known for years to those who pay attention, do the work and are willing to act on their insight.

Stepping back, in total, there was a lot of great information and insight to be gleaned. I spoke with dozens of folks who had dozens of substantive follow-up actions that resulted from content sessions, one-on-one meeting or what started as purely social interactions. The key to all of this, of course, is to go from information to insight to action.

For legacy brands that are struggling — or newer brands that need to stay relevant over the long term — I remind them of a Chinese proverb: “The best time to plant a tree was 20 years ago. The second best time is today.”

 

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 next speaking gig is in Madrid at the World Retail Congress.  Check out the speaking tab on this site for more on my keynote speaking and workshops.

A really bad time to be boring · Reimagining Retail · Retail

Physical retail is not dead. Boring retail is.

It may make for intriguing headlines, but physical retail is clearly not dead. Far from it, in fact. But, to be sure, boring, undifferentiated, irrelevant and unremarkable stores are most definitely dead, dying or moving perilously close to the edge of the precipice.

While retail is going through vast disruption causing many stores to close — and quite a few malls to undergo radical transformation or bulldozing — the reality is that, at least in the U.S., shopping in physical stores continues to grow, albeit at a far slower pace than online. An inconvenient truth to those pushing the “retail apocalypse” narrative, is that physical store openings actually grew by more than 50% year over year. Much of this is driven by the hyper-growth of dollar stores and the off-price channel, but there is also significant growth on the part of decidedly more upscale specialty stores and the move of digitally-native brands like Warby Parker and Bonobos into brick and mortar.

People also seem to forget that, according to most estimates, about 91% of all retail sales last year were still transacted in a brick-and-mortar location. And despite the anticipated continued rapid growth of online shopping, more than 80% of all retail sales will likely still be done in actual physical stores in the year 2025. Different? Absolutely. Dead? Hardly.

I have written and spoken about the bifurcation of retailand the collapse of the middle for years. While I was confident in my analysis, I had concluded much of this through intuition and connecting the dots from admittedly limited data points. Now, a brilliant new study by Deloitte entitled “The Great Retail Bifurcation” brings far greater data and rigor to help explain this growing phenomenon. Their analysis clearly shows that demographic factors — particularly the hammering that low-income people take while the rich get richer — help explain the rather divergent outcomes we see playing out in the retail industry today.

In particular, wage stagnation and the rising cost of “essentials” is driving lower income Americans to seek out lower cost, value-driven options. Rising fortunes for top earners, most notably ever greater disposable income, creates spending power for more expensive retail at the other end of the continuum. Deloitte’s data clearly shows the resulting strong bifurcation effect: Revenue, earnings and store growth at both ends of the spectrum and stagnation (or absolute decline) in the vast undifferentiated and boring middle.

Notably, if we isolate what’s going on with retailers focused on delivering convenience, operational efficiency and remarkably value-priced merchandise, along with those retailers that differentiate themselves on unique product and more remarkable experiential shopping (including great customer service, vibrant stores and digital channels that are well harmonized with their stores), you would conclude not only that physical retail isn’t dead, you could well argue it is quite healthy.

Conversely, the stores that are swimming in a sea of sameness — mediocre service, over-distributed and uninspiring merchandise, one-size-fits-all marketing, look-alike sales promotions and relentlessly dull store environments — are getting crushed. A close look at their performance as a group reveals lackluster or dismal financial performance and shrinking store fleets. For these retailers, by and large, physical retail is indeed dead or dying. But so are their overall brands.

It’s been clear for some time that the future of retail will not be evenly distributed. Those that have looked closely know that the retail apocalypse narrative is nonsense. Yet, depending on where brands sit on the spectrum, the impact of digital disruption and the age of Amazon is affecting them quite differently. For some, at least for now, it’s much ado about nothing. For others, it should be sheer, full-on panic.

These forces, along with the underlying macroeconomic factors that Deloitte illuminates in their report, bring far greater clarity to what many have been missing, leaving the savvy retail executive to conclude a few key things:

  1. Physical retail is not dead, but it’s very different
  2. The future of retail will not be evenly distributed
  3. The market is likely to continue bifurcating and, increasingly, it’s death in the middle
  4. It’s a really bad time to be boring
  5. Struggling retailers need to pick a lane
  6. If you think you are going to out-Amazon Amazon you are probably wrong
  7. Most likely you are going to have to have to choose remarkable
  8. You have to get started and you had better hurry
  9. What better time than now?

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 next speaking gig is in Madrid at the World Retail Congress.  Check out the speaking tab on this site for more on my keynote speaking and workshops.

A really bad time to be boring · Death in the middle · Reimagining Retail · Retail

Better is not the same as good for department stores stuck in the middle

As most U.S. department stores reported earnings recently, a certain level of ebullience took hold. Macy’sKohl’s and even Dillard’s, for crying out loud, beat Wall Street expectations, sending their respective shares higher. J.C. Penney, which has failed to gain any real traction despite Sears’ flagging fortunes, continued to disappoint, suggesting that I probably need to revisit my somewhat hopeful perspective from last year. And in the otherworldliness that is the stock market, Nordstrom — the only department store with a truly distinctive value proposition and objectively good results — traded down on its failure to live up to expectations.

Given how beaten down the moderate department store sector has been, a strong quarter or two might seem like cause for celebration–or at least guarded optimism. I beg to differ.

First, we need to remember that the improved performance comes mostly against a backdrop of easy comparisons, an unusually strong holiday season and tight inventory management. There is also likely some material (largely one-time) benefit from the significant number of competitive store closings and aggressive cost reduction programs that most have put in place.

Second, and more importantly, we cannot escape the fact that mid-priced department stores in the U.S. (and frankly, much of the developed world) all continue to suffer from an epidemic of boring. Boring assortments. Boring presentation. Boring real estate. Boring marketing. Boring customer service. And on and on. For the most part, they are all swimming in a sea of sameness at a time when the market continues to bifurcate and it’s increasingly clear that, for many players, it’s death in the middle. It’s nice that some are doing a bit better, but as I pointed out last summer, we should not confuse better with good.

To actually be good — and to offer investors a chance for sustained equity appreciation — a lot more has to happen. And while being less bad may be necessary, it is far from sufficient. Most critically, all of the major players still need to amplify their points of differentiation on virtually all elements of the shopping experience. It’s comparatively simple to close cash-draining stores, root out cost inefficiencies and tweak assortments. It’s another thing entirely to address the fundamental reasons that department stores have been ceding market share to the off-price, value-oriented, fast-fashion and more focused specialty players for more than a decade. And now with apparel and home goods increasingly in Amazon’s growth crosshairs, there has never been a more urgent need to not only to embrace radical improvement, but to really step on the gas.

Without a complete re-imagination of the department store sector — and frankly who even knows what that could actually look like — near-term improvements only pause the segment’s long-term secular decline.

It’s unclear how much the eventual demise of Sears and the inevitable closing of additional locations on the part of other players will benefit those still left standing. It’s unclear whether the current up-cycle in consumer spending will be maintained for more than another quarter or two. What is crystal clear, however, is that incremental improvement in margin and comparable sales growth rates merely a point or two above inflation never makes any of these mid-priced department stores objectively good.

Ultimately, without radical change, it all comes down to clawing back a bit of market share and squeezing out a bit more efficiency in what continues to be a slowly sinking sector riddled with mediocrity. Boring, but true.

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.  

bridges_down_01

NOTE: March 19 – 21st I’ll be in Las Vegas for ShopTalk, where I will be moderating a panel on new store design as well as doing a Tweetchat on “Shifting eCommerce Trends & Technologies.”