Omni-channel · Reinventing Retail · Store closings

Are mass store closings the start of an inevitable downward spiral?

At the recent inaugural ShopTalk Europe event in Copenhagen, Hudson’s Bay Company CEO Gerald Storch posited that retailers risk hastening their demise by taking an axe to their store counts. Clearly there are many factors that contribute to a brand’s march to the retail graveyard, yet there is mounting evidence that Storch’s observation is on the money. As I’ve said many times, show me a retailer that is shuttering a large number of outlets and chances are the intrinsic problem is not too many stores but that the brand is not sufficiently relevant and remarkable for the stores it has.

I first surfaced this concern more than four years ago in my post “Shrinking to prosperity: The store closing delusion” and revisited it more recently with an updated Forbes post. While in many cases store counts need to be rationalized to address the overbuilding of the past two decades and to optimize store footprints given the shift to e-commerce, with rare exception, the retailers that are closing a large number of stores are working on the wrong problem.

When physical retail still accounts for 75-90% of a category’s volume, it’s hard to understand how radical cuts in store counts help address a brand’s ability to maintain, much less grow, market share. When we know for a fact that brick & mortar locations are key to supporting a viable and growing e-commerce business (and vice versa), mothballing dozens (or even hundreds) of stores only serves to undermine a retailer’s ability to meet customers’ evolving omni-channel demands. When we recognize that it is often far cheaper to acquire and serve customers through physical stores, reducing store counts substantially can worsen a retailer’s long-term cost position. And, as Storch points out, mass store closings erode purchasing power and can send consumers a signal that a retail brand is on its way to oblivion, serving only to make matters worse.

In fact, I cannot come up with a single major retailer that has closed 20% or more of its stores and is now considered truly healthy. On the other hand, I can easily name many that went through multiple iterations of down-sizing that have either liquidated or are currently in bankruptcy proceedings–Sears Canada being the most recent example. I can also list many that seem to be in perpetual store closing mode (Sears US for one) that thus far have been spared a visit from the grim reaper yet continue to see their operating results deteriorate with little hope for resurrection. For many, sadly, it’s dead brand walking.

We should also ignore any analysis that tries to estimate the number of store closings that a retailer must undertake to get back to prior store productivity levels. First, anchoring success on past store productivity metrics is largely irrelevant as it ignores a store’s contribution to online volume growth. Minimally, we need to understand the growth and profitability of a trade area and incorporate both e-commerce and physical store performance. Nordstrom and Neiman Marcus–just to name two powerful examples–have seen their historical store productivity numbers weaken, yet they still have healthy financial performance overall. Second, any such analysis is merely a rote arithmetic exercise that erroneously assumes that massive store closings don’t have any adverse impact on e-commerce, nor make a brand less relevant and competitive in consumers’ minds nor serve to de-leverage fixed costs.

Ultimately, I don’t see a scenario where store closings will be the silver bullet that troubled retailers need to get back on track. They may be a key piece in a needed reinvention, but the critical work centers on taking the required actions to make these troubled brands sufficiently relevant and remarkable such that they can stem the share of wallet loss that got them into trouble in the first place.

Said differently, if sales are the problem, working on the cost side will never help breathe a dying retailer back to life.

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

For information on speaking gigs please go here.

Being Remarkable · Customer Insight · Reinventing Retail

Discount Nation, Promiscuous Shoppers And The Sucker Price

Early in 2011, I first wrote about what I called “Discount Nation.” Having worked at Sears earlier in my career I was quite familiar with highly promotional retail. But what I was noticing was the ever growing intensity of discounting. Among traditional retailers the degree and frequency of deals was escalating. More brands were layering on loyalty programs or additional percents-off if you used their private label credit card. Free shipping was virtually ubiquitous during the 2010 holiday season. Newer business models, like the growing flash-sales segment, were trumpeting 40-60% off as the core element of their value proposition.

Since then it’s only gotten worse. The fastest growing segments of physical retail are off-price and dollar stores. Free shipping of online orders, once reserved for special promotional periods and often limited to higher order values, is fast becoming a basic consumer expectation. Minimum order sizes are falling and free returns & exchanges are becoming increasingly common. Rich discounts to incentivize trial now range from the sublime to the ridiculous (I’m looking at you Blue Apron). At any given time, it seems like virtually everything is on sale.

It’s easy to credit the transparency of the internet, cite the rise of digitally-native disruptive business models or simply blame the Amazon Effect for the erosion of any semblance of price integrity. And to be sure these are all contributors. But the reality is that it’s been a decades long process of retailers turning most of us into promiscuous shoppers. Regular price did not become the “sucker price” just in the last few years.

Some of this was inevitable; yet much is self-inflicted. Retailers could have chosen to focus on deep customer insight to deliver more relevant personalization. They could have invested in product innovation. They could have seen their physical stores as assets to leverage in creating a more harmonious and remarkable customer experience, rather than as liabilities to cost reduce and shutter.

We know that the relentless downward pressure on pricing only squeezes margins for all but the most cost efficient. As a result, many retailers find themselves standing at a precipice. The rather rosy forecasts for holiday spending are small comfort as it is clear that profits are another matter entirely and the harsh reality is that the future will not be evenly distributed. Living in Discount Nation may be great for consumers but it is disastrous for all too many retail brands that have failed to reinvent themselves and will be lucky to limp their way into 2018.

While it is too late for some, many brands still have a choice: engage in a discounting fueled race to the bottom or seek to do what is unique, intensely customer relevant and truly remarkable, where price is not the determining factor in the customer’s decision.

As they saying goes, choose wisely. And remember to hurry.

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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

For information on speaking gigs please go here.

Being Remarkable · Reinventing Retail · Store closings

The Retail Apocalypse And The Urgent Quest For Remarkable

Some love the “retail apocalypse” narrative. It’s great clickbait, makes for captivating keynote speeches and gives consultants a hook to peddle complicated strategic frameworks. Alas, it’s mostly nonsense. Physical retail is definitely different, but it’s far from dead. The fact is plenty of new stores are opening, many traditional retailers and — I hope you are sitting down — even quite a few malls are doing great. Brick-and-mortar retail sales are likely to be up this year, just as they were last year.

Some retailers love hearing this alternative narrative because they think it means they will be okay, that they don’t have to change, that there is some storm they just have to ride out. Unfortunately, that is not only nonsense, it is dangerous nonsense. While physical retail is not dead, virtually every aspect of retail is changing dramatically, as this excellent pieceby Doug Stephens points out. While I believe Doug overstates a few things, his underlying premise is on the money. Almost everything has to change and the key thing to understand is that the future of retail will not be evenly distributed. Stated simply: yes, some brands will do well. But many others will struggle mightily, others will be eviscerated and quite a few are dead already, they just don’t know it.

Physical retail is not going away but unremarkable retail is getting hammered. The brands that relied on good enough are learning the hard way that good enough no longer is. The mediocre brands that were protected by scarcity of information, distribution and access are getting blown apart as the customer can now get the same product anytime, anywhere, anyway — and often for less money. The brands that tried to stake out a place in the vast wasteland between cheap and special are losing as retail becomes more bifurcated and it’s increasingly clear that it’s death in the middle.

By now, a few things should be abundantly clear:

Just because physical retail isn’t dead doesn’t mean you don’t have to change.

On average, more than 80% of retail will still be done in physical stores in 2025. Unfortunately, you can’t pay your bills with averages and your mileage will vary. The way the migration of sales away from physical stores to online will affect your competitive situation and marginal economics can have devastating consequences. Even small shifts can require the need for radical reinvention.

Stop blaming Amazon.

hile there is no question of Amazon’s dramatic and growing impact upon the retail ecosystem, most of the retail industry’s problems today have nothing to do with Amazon. Overbuilding, excessive discounting, boring product, unremarkable experiences and a fundamental lack of innovation are the main reasons that most retailers are struggling today.

It’s not just about e-commerce. 

The most disruptive force in retail is not e-commerce but the fact that most customer journeys start in a digital channel. In fact, digitally-influenced brick-and-mortar sales dwarf online sales.

You can’t out-Amazon Amazon. 

Pop quiz: Are you Walmart or Target? No? Okay, then stop trying to out-price, out-assort and out-convenience Amazon. To paraphrase Seth Godin: the problem with a race to the bottom is you might win.

Choose remarkable. 

Unless you are on the short list of brands that can be just about everything to everybody (and actually make money) your task is to get hyperfocused on a set of consumers for whom you can be intensely relevant and remarkable at scale. That likely means being far more experiential and blending the best of online and offline in a compelling and harmonized way.

Be prepared to blow stuff up. 

Remarkable is easier said than done. And most retailers suffer from bringing a knife to a gun fight when it comes to innovation. Much of what got us any level of success in the past isn’t going to work in the age of digital disruption. New thinking, new processes, new technology, new metrics and new people are table-stakes on the path to retail reinvention.

Hurry.

As the Chinese proverbs says, “the best time to plant a tree was 20 years ago. The second best time is now.” Chances are you’re already behind and it’s far later than you think. The only choice then is to get started. Now. And go fast. Fail fast. Rinse and repeat.

The big problem is we think we have time.

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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

For information on speaking gigs please go here.