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.

Embrace the blur · Frictionless commerce · Retail

Physical stores: Assets or liabilities?

Of course the obvious answer is “well, that depends.”

As the intersection of economic feasibility and consumers’ willingness to adopt new technology hit a tipping point, for retailers that had invested big bucks in the brick-and-mortar distribution of music, books and games, the answer changed rather dramatically. Today’s retail apocalypse narrative is nonsense. But it wasn’t so long ago that the tsunami of digital disruption very quickly turned the physical store network of Barnes & Nobles, Blockbuster, Borders and others into massive liabilities. While we can argue about whether any of those brands laid to waste by Amazon, Netflix et al. could have responded better (spoiler alert:the answer is “yes”), it’s hard to imagine a scenario for any of them that would have included a fleet of stores remotely resembling what was in place a decade ago.

Most of the so-called digitally native vertical brands that are disrupting retail today—think Warby Parker, Bonobos, Indochino—started with the premise that not only were physical stores unnecessary, they would soon become totally irrelevant. In fact, about six years ago, I remember asking the founder of one of these brands when they were going to open stores. He looked at me with the earnest confidence of someone who had just received a huge check with a Sand Hill Road address on it and said, “we’re never opening stores.” Clearly, at the time, he saw stores as liabilities. He wasn’t alone. Everlane’s CEO made a similar, but more public statement.

So for several years scores of startups attracted massive amounts of venture capital on the belief that profitable businesses could scale rapidly without having to invest in physical retail outlets. A key part of the investment thesis was that stores were undesirable given the high cost of real estate, inventory investment and operational support. Clearly the underlying premise was that stores were inherent liabilities. So it’s more than a little bit ironic, dontcha’ think, that my friend’s company has since opened dozens of stores, that Everlane just opened its second location (with more to follow I’m sure) and that many other once staunchly online only players are now seeing most of their future growth coming from brick-and-mortar locations.

For legacy retailers, particularly as e-commerce took off, many acted as if much of their investment in physical real estate was turning into a liability—or at least an asset to be “rationalized” or optimized. This underscores a fundamental misunderstanding of what was happening. Too many stayed steeped in channel-centric, silo-ed thinking and action. They saw e-commerce as a separate channel, with its own P&L. Because of this, they underinvested (or went way too slowly) because they couldn’t see their way clear to making the channel profitable. Before long they got the worst of both worlds: They found themselves not participating in the upside growth of online shopping while losing physical store sales to Amazon or traditional retailers that were pursuing a robust “omni-channel” strategy.

To be sure, the overbuilding of commercial real estate was going to lead to a shakeout at some point. Digital shopping growth enables many retailers to do the same (or more) business with fewer locations or smaller footprints. Yet I would argue that most of the retailers that find themselves with too many stores (or stores that are way over-spaced) rarely have a fundamental real estate problem—they have a brand problem. The retailers that consistently deliver a remarkable retail experience, regardless of channel, are closing few if any stores. In fact, brands as diverse as Apple, Lululemon, Ulta—and dozens of others—have strong brick-and-mortar growth plans.

What sets most of these winning retailers apart is that they deeply understand the unique role of a physical shopping experience in a customer’s journey and act accordingly. They know that digital drives physical and vice versa. They started breaking down the silos in their organizations years ago—or never set them up in the first place. They accept that talking about e-commerce and brick and mortar is mostly a distinction without a difference and know that it’s all just commerce. And they embrace the blur that shopping has become. They see their stores as assets. Different and evolving assets certainly, but assets all the same.

On the heels of recent strong retail earning reports (and an increase in store openings) some are starting to pivot from the narrative that physical retail is dying to one that is closer to all is now well. Both lack nuance. We can chalk up some positive momentum to the fact that a rising economic tide tends to lift all ships. We can peg some of the ebullience to Wall Street waking up to facts that were plain to see for quite some time.

What is most important over the longer-term, however, is to understand the root causes of why and where physical retail works and why and where it doesn’t. Whether it’s Casper, Glossier, Warby Parker, Nordstrom, Neiman Marcus, Williams-Sonoma, Sephora or many others, the formula is pretty much the same. Deeply understand the customer journey, and whether it’s a digital channel or physical channel, root out the friction and amplify the most relevant and memorable aspects of the customer experience.

When we do this we see the unique role a physical presence can (and often should) play in delivering something remarkable. The answer will be different depending on a brand’s customer focus and value proposition. But armed with this understanding we can design the business model (and ultimately the physical retail strategy) knowing that the channels complement each other and the desire is to harmonize them. At this point the question is not whether stores are an asset or a liability, it’s which aspects of brick and mortar’s unique advantages to lean into and leverage.

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 Dallas, Austin, Chicago, 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.

Customer Growth Strategy · Digital Disruption · Retail

Here’s what investors are missing about the Sears-Amazon partnership

Shares of Sears Holdings spiked last week on news that the beleaguered retailer had expanded its tire partnership with Amazon. Once again, the optimism — or is it outright gullibility? — of some investors astonishes me.

Over four years ago, I wrote (admittedly more than a little bit provocatively) that Sears investors would do far better with a liquidation of the company than with a perpetuation of the charade that there was any hope for a real turnaround. More recently, I opined on the 2017 Amazon-Kenmore deal, as well as the initial Amazon-Sears tire partnership announced in May. My view was that these deals do little, if anything, to stave off the inevitable for Sears. Moreover, I believe they are ultimately of greater value to Amazon.

For what it’s worth, when I wrote (and appeared on CNBC) with my “liquidate ASAP” thesis, Sears’ stock was in the low $40s. When I posted the Kenmore piece, Sears’ shares were down to about $9. My first tire article was written about three months ago when the shares had a bit of an inexplicable run-up, hitting nearly $4. On the day of the announcement SHLD was up 12%, closing at $1.24. Draw your own conclusions, but certainly don’t say that I didn’t warn you.

While on one level I appreciate the audacity of hope displayed by certain eager investors, I believe those who display ebullience in the face of these sort of deals are missing three essential things.

Dead brand walking. The overwhelming issue is that there is no plausible scenario in which Sears remains a viable national retailer. In fact, with Sears having closed hundreds of stores, with many more to follow after the holidays (if not sooner), one could argue it is no longer a real force on the national stage today. The only thing that keeps Sears afloat is Eddie Lampert and ESL’s willingness to fund a seemingly never-ending stream of massive operating losses. The idea that Sears can shrink to prosperity is ridiculous. For all intents and purposes, they are winding down the business. The particular relevance to the Amazon-Sears tire deal is that the points of distribution will continue to contract, perhaps dramatically.

Hardly moves the dial. It’s hard to see material profit contribution from this deal. First, tire installation is tiny in the scheme of Sears’ overall business. This particular offering is solely focused on customers who are willing to buy their tires online and have them shipped to a nearby Sears store so that, a couple of days later, they can have them installed. So to be meaningfully relevant to customers, first the customer has to be willing to wait. Given that a lot of the tire-replacement market is driven by an emergency (i.e., a flat tire) a big chunk of the available market is not addressable. Second, even if waiting isn’t a big deal, there are still likely to be many local competing outlets, many of which are going to be more conveniently located (particularly as Sears continues to shutter locations) and have the tire in stock, ready to install right away. Third, Sears actually stocks a lot of tires, so if you are willing to have your tires installed at Sears, it makes more sense for most people to take a step out of the process and just see if Sears has the tire in stock. In many cases it will. This is a long way of saying that the market opportunity seems quite small. When you further factor in the lower margin given Amazon’s cut, it’s hard to come up with a scenario where this moves the dial in any profound way.

Amazon’s Trojan Horse. Sears is desperate. Amazon is patient, smart and willing to try lots of stuff. Sears has few arrows left in its quiver. Amazon can use this partnership to explore the convergence between digital and physical in a large category, acquire some new customers and continue to probe potential private brand opportunities with DieHard and other Sears brands. Sears need to show Wall Street it still has some life in it. Amazon needs to learn how to get deeper into under-penetrated categories (auto and installed services) to help sustain a robust growth story. For Sears, every little bit seems to count. For Amazon, this is a rounding error even if it turns out to be a disaster. So who’s likely to be getting the better deal?

To be sure, as is true with the potential sale of Kenmore, Sears has very few decent options left. So there is nothing inherently wrong at this point in the company’s decidedly ragged history to executing this particular transaction. But the idea that this materially improves the value of the Sears brand seems just plain silly to me.

See you on the other side of $1.

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.  

Being Remarkable · Collapse of the middle · Retail

Retail earnings: The best of times, the worst of times

This is a big earnings period for retailers. As the reports roll in, it’s increasingly clear that it’s both the best of times and the worst of times for retail.

While performance overall is, on average, much better than a year ago, what continues to come into sharper relief are three inescapable conclusions. First, as I have been saying for years, the idea that physical retail is dying is abject nonsense. Second, retailers that are stuck in a cycle of boring are getting crushed, and the middle is collapsing. Third, as our friends at Deloitte have recently outlined in depth, the bifurcation of retail is becoming more pronounced. The overall conclusion is that the difference between the haves and the have nots is ever more distinct.

On the first point, strong performance from multiple brick-and-mortar dominant retailers, including Target and Home Depot, underscores that stores are not only going to be around for a long time, they will continue to have the dominant share of retail in many categories for the foreseeable future.

On my second point, significant underperformance ( JC Penney ), store closings ( Sears Holdings ) and bankruptcies (Toys “R” Us) continue to be concentrated among those retailers that have failed to carve out a meaningful position toward the more value, convenience-oriented end of the spectrum or, conversely, to move in a more focused, upscale experiential strategic direction. Those that continue to swim in a sea of sameness edge ever closer to the precipice. Increasingly, it’s death in the relentlessly boring middle.

The great bifurcation point, of course, is related to this phenomenon. Despite the retail apocalypse narrative, solidly executing retailers at either end of the spectrum continue to perform well. Sales, profits and store openings are robust at TJX Companies , Walmart and many others that play on the value end. A similar story can be painted for the premium, service-oriented retail brands such as Nordstrom and Williams-Sonoma.

As the scorecards continue to come in, there are a few key things we should bear in mind. The most important is that better is not the same as good. While positive sales and expanding margins certainly beat the alternative, the improved performance at brands like Macy’s and Kohl’s should not reflexively make us think that all is now well. Their sales growth is more or less in line with overall category growth. So there isn’t any reason to believe they are growing relative market share, which is generally a pretty good proxy for improving customer relevance.

Second, we should expect decent earnings leverage with improved sales, given the relatively fixed cost nature of the business. It’s more important to put the margin performance in the context of “best in breed” competitors. Here, most in the gang of most improved still fall short.

Third, a rising tide tends to raise all ships. This happens to be a particularly good time for consumer spending. It’s anybody’s guess if, and how long, retail expenditures will meaningfully exceed the rate of inflation.

From a more strategic, longer-term perspective, we need to sort out what is at the core of improving outcomes. If it’s riding the wave of a particularly ebullient economic cycle, that’s wonderful but not likely sustainable. If it’s starting to realize more fully the benefits of major technology investments, asset redeployment and/or picking up share from a rash of store closings on the part of competitors, that’s also nice, but those gains are likely to plateau fairly quickly. If margin improvement comes from big cost reductions, those often are more one-time gains and may ultimately weaken a given retailer’s competitive position over time.

What really matters, of course, is that most of the gains are coming from fundamentally being more intensely relevant and remarkable than the customer’s other choices. Viewed from this lens, many retailers’ improved results are necessary but far from sufficient.

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.  

September 6th I will be in New York for the Retail Influencer Network Kick-off.  On September 19th I’ll be speaking at Total Retail Tech in Dallas. The following Monday I’m headed to Austin to do the opening keynote at the Next Conference.

Death in the middle · Retail

Eddie Lampert just can’t stop picking at Sears’ carcass

As some readers may know, I began my retail career at Sears. And these days, when folks ask how long I worked there, I typically say, “Too long.” The more accurate, less snarky answer is 12 years.

I learned a tremendous amount during my tenure and, for the most part, am proud of the work I led or was deeply involved with. I have also never regretted leaving when I did. Much of that is because I desperately needed a new challenge and to be in a place where my talents could be better leveraged. Despite quite a few twists and turns along the way, it’s all worked out just fine. Of course, another reason is that — through sheer luck — I managed to get out before Eddie Lampert decided that combining a mediocre retailer with a terrible one might be a good idea.

Anyway, I have written extensively over the years about Lampert’s horribly misguided and at times seemingly delusional leadership of the once-storied brand, and I will not recount that in any detail here. Google my name and “world’s slowest liquidation sale” or “dead brand walking” if you are desperate for that kind of entertainment. You can also see me on CNBC four years ago suggesting that the best thing for Sears shareholders would be for the company to liquidate ASAP. Oh, well.

So when it comes to Lampert, it’s safe to say I’m not a fan. I will point out in all fairness that, largely with the benefit of 20/20 hindsight, I have come to believe that no one could have prevented Sears from sinking into irrelevance once certain opportunities were missed many years ago. While there were unquestionably many chances over the past decade for Sears to do a much better job for its customers, associates, retirees and investors, it was always likely to end badly. Now, sadly, it is just a matter of time before Sears joins others in the retail graveyard, as evidenced by yet another round of stores closing this past week.

When the history of Sears demise is written, many leaders will rightly be taken to task for their lack of strategic insight, their unwillingness to take risk, their hiring of the wrong people and so on. Yet it’s safe to say that Lampert will stand alone in using his other interests (principally ESL Holdings) to stave off the inevitable by both loaning money to Sears and scooping up many of its remaining fungible assets. Now I will leave it to far more adept minds to determine if ultimately this multi-year complex web of financial engineering turns out to be brilliant for Lampert and his fellow ESL investors. Perhaps Crazy Eddie is indeed crazy like a fox?

What really galls me, though, and strikes me as worthy of a fast-track entry into the Chutzpah Hall of Fame, is how Lampert, through his totally inept leadership of Sears Holdings, drives down the value of the company’s assets only to pick them up at ostensibly bargain-bin prices. The latest example of this is ESL’s offer to buy the Kenmore brand for $400 million.

When I left Sears late in 2003 (the year before the Sears and Kmart merger), we had valued Kenmore well in excess of $2 billion, and Sears’ major appliance market share was north of 40%. Today, Sears’ leadership position has totally fallen apart. Today, the trends are relentlessly negative. Today, after two years of searching, ESL may now be the only plausible buyer.

To be clear, I’m not suggesting any intentional manipulation or malfeasance on the part of Lampert and/or ESL. Yet if I were the owner of a great house on a beautiful piece of property, I might be more than a bit suspicious of the buyout offer I just got from the guy who burned it down.

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.  

September 6th I will be in New York for the Retail Influencer Network Kick-off.  On September 19th I’ll be speaking at Total Retail Tech in Dallas. The following Monday I’m headed to Austin to do the opening keynote at the Next Conference.

Retail · The Amazon Effect · Voice commerce

Sorry, Alexa: Voice shopping is still mostly hype

Voice-activated shopping—and Amazon’s anticipated dominance of the platform via Alexa-enabled devices—has been touted as one of the next big things in retail. In fact, a simple Google search with any combination of the relevant keywords reveals a large number of bold predictions about the revolutionary nature of the technology. Go ahead and give it a try. I’ll wait.

So, given the large number of pundits, publications and consultancies reveling in the future thrill of a world dominated by voice-driven shopping, should we believe the hype? Well, as it turns out, maybe not so much. At least not yet.

In a report released last week by The Information, it appears that only about 2% of Alexa owners have ever used the device for shopping. Even more startling is the finding that of those that had bought via voice, a mere 10% did so again. As you probably know, repeat purchase rates are often a good indication of customer delight and can provide valuable insight into future sales momentum. So, if true, this doesn’t bode well for rapid adoption.

To be fair, a study by Narvar suggests higher adoption rates and considerable customer interest. Amazon has also disputed the numbers in the report, responding that “millions of customers use Alexa to shop.” Of course, when you do the math, given the installed base of Alexa devices, that’s not definitive proof that purchase incidence is a whole lot greater than 2%. Whether the actual data reveals a considerably different picture or Amazon is simply obfuscating a disappointing outlook is anyone’s guess. And just because momentum might be relatively slow right now doesn’t mean the rate won’t pick up considerably as the technology improves and consumers become more familiar. But I’d be cautious. Here’s why.

First, there is an aspect of the technology that is solving a problem I’m guessing relatively few customers have. Shopping on Amazon (and most other sites) via a mobile device, laptop or desktop is pretty easy, fast and well optimized. At the margin, in some instances, Alexa can save a little time and solve an immediate need. But it’s not like it’s a step function in improved convenience.

Second, voice-activated commerce, at least as it’s currently delivered, can involve significant experiential comprises. While I have not seen specific data, my own personal and industry experience suggests that visual cues are central to many purchases, and the ability to see options—and navigate through them—is highly useful for many purchase occasions. In these situations “regular” online shopping is clearly superior.

Third, as Scott Galloway from New York University and L2 humorously illuminated, Alexa does not always present most of the available product options and, shockingly, might have a bit of a bias towards Amazon’s own private brands. While it would take a large study to really understand how prevalent this pattern is, it strikes me that voice-activated shopping can work quite well when you know exactly what you want and aren’t especially open to considering alternatives. In all the other situations (which might well be the vast majority), it’s far from clear it’s meeting consumers’ needs in a highly relevant, compelling and unbiased manner.

Fourth is the trust factor, which extends beyond voice-activated commerce in particular to the general adoption and use of Alexa and similar devices. Some of the things I’ve mentioned already speak to the trust of shoppers getting the experiential outcome they desire. The other aspect is whether some of the suspicions about how these devices invade privacy get adequately addressed over time. Stories like the one about a woman’s conversation being recorded by Alexa and then being sent to a random contact don’t exactly inspire confidence. Whether these concerns are all that profound and whether a significant number of customers remain cautious about using such devices remains to be seen. Certainly the technology will continue to evolve, if only because of Amazon and Google’s massive commitment to their adoption.

As I don’t possess a working crystal ball, I’m reluctant to predict that voice-activated commerce won’t someday be retail’s next big thing. Right now, however, it seems much more of a cool technology still in search of addressing a real customer need at scale.

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.  

e-commerce · Frictionless commerce · Retail

The de-schlepping of retail

Millard “Mickey” Drexler, the former CEO of J. Crew Group and Gap, is many things. Shy and retiring is not among them. To be sure, Drexler’s had his ups and downs, his victories and defeats. But he’s always interesting. In my only conversation with him (by phone when I was a responsible for strategy and multi-channel marketing at the Neiman Marcus Group), he had the attention span of a gnat on a 5 Hour Energy bender. Between barking orders to his assistant, he dictated a litany of things we were doing wrong at Neiman’s that I must address STAT (wait, do I work for you?). I left the call with a long list of items to discuss with my boss, more than ready for a nap. Good times.

Drexler has been mostly off the radar since stepping down from J. Crew, yet he re-emerged in typical style at the recent Annual Retail Forum/Retail Radicals event organized by the Columbia Business School and The Robin Report. Among his many provocative comments, the one that captured my attention was what he referred to as the de-schlepping of retail. “Why schlep paper towels from the supermarket? Why schlep dog food? Why schlep a lot of things?” he asked. And he’s right. Of course lugging heavy and/or bulky items home from a store has always been a hassle, particularly if you take public transportation or live in an apartment. The more powerful change is the number of companies that have emerged to address this pain point, including Boxed, Jet and Amazon.

I (and others) have made the distinction between buying and shopping, highlighting the fact that e-commerce is rapidly gaining share in the former, where the products are more commodity-driven and where price and convenience are paramount. Shopping, on the other hand, is more experiential and tactile, and as such, pure online shopping has not gained nearly as much traction. De-schlepping, as Drexler describes it, solves a very particular sub-set of customer needs, delivering clear and obvious value. From my own experience, once I discovered the ease of buying bulky and heavy items online, I haven’t turned back. While it’s not a huge amount of purchases, I’ve made a nearly complete shift of spending in certain categories away from traditional grocery stores to Amazon and others.  It’s clear from the data that I am far from alone.

At one level this dynamic is pretty obvious. At its core it merely explains some of the fundamental reasons that online shopping is now approaching 10% of all retail sales and continuing to grow much faster than brick-and-mortar retail. What’s relatively different about the de-schlepping phenomenon, however, is both the customer value and the underlying economics for the retailer.

There are plenty of retail categories where the customer may be largely indifferent between buying in a store or online—or where they regularly split their spending between the channels, based upon their episodic need for sales help, the desire to touch and feel the product or pure impulse. This is not true when we are motivated principally by our desire for de-schlepping. Once we know what we want and have a supplier we trust, there really is no reason not to buy online as a physical store experience adds little or no discernible value.

Yet from a retailer’s perspective, it’s often rather different. Since brick and mortar is largely a fixed cost business, the marginal profitability of a big bag of dog food or 48-pack of toilet paper or a case of S. Pellegrino sparkling water (my personal favorite) is usually good, even when heavily discounted. Conversely, for the online players the economics are generally terrible, owing to the variable cost nature of direct-to-consumer sales. The precise reasons customers love the de-schlepping of retail is why e-commerce sellers generally hate it. If it’s big, bulky and heavy, it costs a lot to store, handle and ship. The logistics costs relative to the gross margin dollars generated typically make these orders unprofitable. What’s great for consumers is lousy for online retailers.

So the question isn’t whether the de-schlepping of retail is good for consumers. The question is whether it can be economically sustained as it scales. The nature of Amazon’s Prime program means a decent percentage of the e-commerce behemoth’s orders are unprofitable. The prevalence of free-shipping and deep discounts to acquire new customers means that some online-only players have many transactions that generate negative cash flow. Ultimately it comes back to the interplay of unit economics and customer lifetime value. Most customers are smart enough to go where they will get the best deal. They will “overuse” retailers (online or offline) that consistently provide customer value that is too good to be true (see also Uber, Lyft and WeWork). In Amazon’s case, it has the benefit of comparatively low customer acquisition cost, supply chain efficiency and offering such a wide array of product and services that the vast majority of customers have good lifetime value even if it has a smattering of transactions that are money losers.

For brands that offer great customer value, yet suffer from challenging delivery economics and high customer acquisition costs (Boxed, Wayfair, among others), the path forward is far less certain. Sure it’s impressive to deliver consistently strong revenue growth. Yet it turns out it’s really not all that surprising when the service offering and pricing may be too good to be true. For consumers it’s great when investors are willing to subsidize a new business model that offers real customer utility. Whether that business model is ultimately economically sustainable is another matter entirely. Time will tell. In the meantime, as long as certain brands are willing to price in such a way that I can avoid the hassle of schlepping home the biggest and bulkiest of items I regularly purchase, I’ll keep buying. I’ll let them worry about whether they can sell at a loss and make it up on volume.

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 speaking page has been updated with several new gigs. See the latest here.

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

JC Penney goes back to the future, but it’s likely too little, too late

At one level, the announcement that JC Penney was going to stop wooing younger customers in favor of focusing on baby boomer moms seems to make a lot of sense.

During the devastating Ron Johnson era, Penney’s was practically driven out of business by trying to execute what I call the customer trapeze way too quickly while simultaneously doing a number of other bone-headed things. In a bid to “contemporize” the brand, Johnson dropped many (it turns out profitable) lines that were deemed old and stodgy in favor of more fashion-forward assortments aimed at attracting younger customers. And sales promptly fell off a cliff. The more-than-a-century-old retailer has been trying to dig itself out of this hole ever since.

In the intervening five years, Penney’s has tried a more balanced approach. Yet despite adding back some customers’ preferred brands, launching new products and services, retooling many aspects of its go-to-market strategy and having hundreds of its competitors’ doors close, the retailer has failed to build any sustained momentum. As I wrote a couple of months back, clearly Penney’s needs to try something new, and unquestionably it needs to do it with great urgency. Unfortunately, this latest gambit is very unlikely to work.

The most obvious problem with a return to focusing on middle-age moms is that it is essentially the strategy Penney’s was executing against before Ron Johnson showed up. And while Johnson set the house on fire, Penney’s was far from lighting things up during the years leading up to the failed “transformation.” In fact, growth and profits had stalled, and the stock was selling at less than half its historical high.

So as Penney’s goes back to the future, the one thing we know for sure is that the market it was trying to succeed in almost a decade ago is now considerably smaller and quite different. On-the-mall, moderate apparel and home stores have been steadily losing share to off-price/value-oriented off-the-mall competitors for many years. More recently, Amazon and other online players have set their sights on the segment as well — and most department stores are struggling mightily to keep pace. By going back to its old customer focus in a market that has shrunk considerably, Penney’s would have to gain more market share than it was able to do when things were far less competitive. That strikes me as a very tall order.

Even under the assumption that a more tightly focused customer strategy has merits, Penney has plenty of other hurdles to overcome. Like most retail brands stuck in the boring middle, it continues to swim in a sea of sameness, with repetitive products, me-too promotions, mediocre service and mostly uninspiring stores. Going deeper on a particular customer segment may provide some incremental upside in the short term, but it is hardly sufficient to make it materially more relevant and remarkable.

The retail formula for growth is, at one level, simple. Target a big enough audience. Increase traffic. Increase conversion. Increase average spending. Increase frequency. Rinse and repeat.

Doubling down on any one customer cohort may hold the promise of performing materially better on one or more of these factors. But given how the particular part of the market Penney’s is returning to has contracted, one has to make some pretty incredible assumptions to believe it can possibly drive meaningful and enduring profitable growth.

Moreover, I would argue that no retailer can sustain itself over the long term without a powerful customer acquisition strategy. And here demographics are hardly JC Penney’s friend. A decade ago Penney’s was struggling partially because it had not done a good job of attracting new, younger customers. It’s no different today as Millennials are sure to become a more significant potential source of volume.

To survive, much less thrive, Penney’s must learn to walk and chew gum at the same time. It must avoid, as Jim Collins likes to say, “the tyranny of the or” in favor of “the genius of the and.” A portfolio approach to customer acquisition, growth and retention is at the heart of any good strategy, and Penney’s must find ways to both leverage its historical core and attract the next generation of customers.

Plenty of retailers have suffered from casting too wide a net and ending up not being relevant and remarkable to any group of consumers in particular. Yet brands can cast too narrow a net as well. My fear is that this is exactly what Penney’s is electing to do. From where I sit, it simply cannot afford any more strategic missteps.

180517180219-jcpenney-store-front

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 speaking page has been updated with several new gigs. See the latest here.

e-commerce · Retail

Amazon Prime Day: Don’t fall for the hype

It would be hard to calculate the crazy amount of media and analyst time spent anticipating, covering and then trying to dissect the implications of this year’s Amazon Prime Day event. In fact, each year it seems like the breathless coverage moves closer and closer to the media frenzy that surrounds Black Friday. It’s mostly a complete waste of time.

Here’s the thing: Going into this year’s Prime Day, there were a few outcomes we could easily predict. First, it was going to be a record day. Second, knowing virtually nothing, you could reasonably guess that the year-over-year growth was going to be materially higher than the general trajectory Amazon has been on this year. Why? Well that’s what happened each of the last several years, and that’s what almost always happens when any brand intensifies promotions around a particular event. Third, Amazon was going to distort efforts toward the strategic areas it’s focused on building (i.e., voice-activated commerce, its private brands and generally anything that reinforces why everyone on the planet should be a Prime member). Why? C’mon, you can answer that question for yourself. Fourth, major competitors were going to dial up their efforts to protect marketshare. Why? Because that’s what retailers always do, whether it’s rational or not.

The last major thing we knew going into Prime Day is that, post-event, Amazon was not going to share anything especially useful or specific about its actual category or financial performance.

And, yes, that’s precisely what happened. Apparently my crystal ball remains in good working order.

So here we are looking back at the event, reading, watching or listening to folks like me — and hopefully some real journalists from time to time — trying to make sense of it all, which leaves me inclined to ask three questions. First, did we learn anything substantive that we didn’t already know beforehand? Second, more specifically, does any of the information gleaned from Prime Day help us make a more accurate prediction about what’s next? Third, if you work at a retailer (or supplier), now that are you armed with any incremental and actionable knowledge gained, are you going to do anything different in the future?

Now here’s where I need to briefly make the comparison to Black Friday. Since I’ve worked in retail, which is now more than 25 years, Black Friday has become a bigger and bigger deal, both in terms of the media attention it garners and the time and energy most retailers put against it. And the two things that have become clear over time is that most of what happens on Black Friday is completely predictable in advance and that actual performance on Black Friday is a poor indicator of how the industry will do that overall holiday season and how any given retailer’s results will turn out. In other words, it’s mostly much ado about nothing.

So with regard to my first two questions, I’m struck by how Prime Day is becoming more and more like Black Friday — and, for that matter, the unfortunately named Cyber Monday. Sure, they will be huge volume days. Sure, they will rack up bigger numbers than last year. But did we really learn anything that we didn’t already know, other than it turns out Amazon’s website also crashes from time to time?

Which brings me to a follow-on to the third question I posed: As a retail leader (or someone who provides services to the industry), regardless of whether you actually gained any new knowledge and insight this week, what is it you are actually doing to fight and win in the age of Amazon?

From where I sit, many of us (myself included) spend way too much time watching things happen, rehashing things we already know and staying stuck in judgement and critique.

Don’t fall for the hype. Don’t get sucked into the media vortex. It may feel like it’s useful to watch the talking heads on CNBC. You might feel like you are learning something poring over various articles and newsletters. But it’s a distraction and a trap. Most of us already know what we need to do.

The hard part isn’t the analysis. The hard part is the doing.

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 October 3 I’ll be doing a keynote at the ICSC Canadian Convention in Toronto. Hope to see you there.

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.