Agility · Customer Insight · Digital · e-commerce · Innovation · Store closings

Retail’s next punch in the face

Five years ago I wrote a post entitled: “The next punch in the face”, which you can read here.  I began by quoting noted retail legend Mike Tyson who allegedly said “everybody has a plan until they get punched in the face.” My point, more or less, was that in the world we live in, we’re going to get punched. Sometimes we’ll see it coming, sometimes we won’t. But we must be prepared and we must get our organizations to be more agile.

A few years later, after a successful trip to the Metaphor Store, I decided I needed a less violent but still powerful message to underscore how innovation and transformation were rippling through the industry, sometimes casting brands against the rocks like boats in the tempest.

So it seemed easy to borrow from Jack Kornfield, one of my favorite spirituality teachers. My updated message, dripping with stolen metaphor, was to point out that once we wade into the ocean, waves are inevitable and that to cope with that reality we are all going to have to learn to surf.

So what does any of this have to do with thriving in today’s environment? Well, if one looks at what’s happening to retail today that is highly disruptive, much of it may feel like a punch when it fully hits. The waves may seem unending and often violent. But here’s where the metaphors lose power and relevance.

We should have seen it coming. At least, most of it.

Instead what we have is more slow motion car crash than retail apocalypse–despite what the pundits say.

A brand that’s been in business over 100 years suddenly has 20% or more of its total store base it needs to close immediately? How did that happen overnight?

A retailer that has tons of customer data and dozens, if not hundreds, of marketers wakes up one morning and discovers they are not ready for Millennials?

A retailer with masses of merchants, sophisticated planning software, consultants galore, misses sales and margin plans quarter after quarter? I guess they suddenly got a whole bunch of new customers they didn’t notice and know nothing about?

A CEO goes to a conference (or on CNBC) and “enlightens” the audience about how most in-store purchases are driven by digital and how a consumer that shops in multiple channels is most profitable and shopping needs to be seamless and blah, blah, blah. Sir, anyone who’s been paying attention at all has known this for years (too bad I didn’t save my presentation to the Neiman Marcus Board from 2007 to show you),

Most of the troubles afflicting major retailers, wholesale brands and the commercial real estate market have been obvious for years and their impact highly predictable. You can go look it up. I’ll wait.

If we were paying attention, if we were doing the hard, necessary work, if we were innovating, rather than just talking about innovation, if we accepted the inevitable realities of the marketplace, how could we not have acted?

Awareness.

Acceptance.

Action.

Accountability.

Rinse and Repeat.

The only real surprise is how some of these leaders still have their jobs given what lousy surfers they’ve turned out to be or how awful they were at seeing the punch coming.

Maybe they over-looked the really hard part of surfing?

Or maybe they just don’t know how to take a punch?

Either way, the next time someone says “wow, nobody saw this coming” chances are they were looking the wrong way all along or too busy riding the brake when they need to step on the gas.

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Omni-channel · Retail · Store closings

Wall Street’s Misguided (And Dangerous) Fascination With Retail Store Productivity

An unprecedented number of retail store locations are closing this year and more announcements are surely coming–though perhaps not quite as many as I suggested in my April Fool’s post.

Given the lack of innovation on the part of traditional retailers, rampant overbuilding and the disruptive nature of e-commerce, this ongoing and massive consolidation of retail space was both inevitable and overdue. Yet much of the way the investor community sees the need for even more aggressive store closings is wrong and, one could argue, pretty dangerous.

One of the more ridiculous ways Wall Street firms have tried to determine the “right” number of store closings is to calculate how many locations would need to be shuttered to return various chains to their 2006 store productivity levels. A somewhat more responsible, though still alarming, analysis comes from Cowen, which focused more on the need to more closely align retail selling space supply and demand.

The most obvious problem with this type of analysis is its focus on ratios. The fact is that many stores with below average productivity are still quite profitable, particularly department stores, given their low rent factors. So while closing a lot of locations may yield a temporary productivity boost it often has a direct and immediate negative impact on earnings, which is a far better indicator of a retailer’s health.

The bigger issue is an underlying misunderstanding of the role of brick & mortar stores in retail’s new world order. Just as “same-store” sales is an increasingly irrelevant metric, so are store productivity numbers. Yes, more stores need to close. Yes, many of the stores that remain need a major rethink with regard to their size and fundamental operations. But what many still fail to grasp is how a retailer’s store footprint drives a brand’s overall health and the success of its e-commerce operations.

A given store’s productivity can be below average and decline yet still contribute to a retailer’s overall success, particularly online. Stores serve as an important–and often low cost–channel to acquire new customers. Stores serve as showrooms that drive customers online. Stores serve as fulfillment points for e-commerce operations. Stores are billboards for a retail brand. Without a compelling store footprint, a brand’s relevance will likely decline and its e-commerce business almost certainly will falter. Stated simply, store productivity numbers, taken in isolation, no longer get at the heart of a brand’s overall performance in an omnichannel world.

While there surely is merit in closing stores that drain cash and management attention, store closings can often make a bad situation worse. Ironically–as Kevin Hillstrom from MineThatData does a great job of illustrating–closings stores to respond to e-commerce growth can actually have the opposite effect. In fact, from my experience, massive store closings often initiate (or at least signal) a coming downward spiral.

Store closings are hardly the panacea that Wall Street seems to believe. And the notion that a brand can shrink its way to prosperity is typically horribly misguided. Macy’s, J.C. Penney and a host of others need to close more stores. And Sears and Kmart just need to go away. But, as I’ve said many times before, show me a retailer that is closing a lot of stores and you’ve likely shown me a retailer that doesn’t have too many stores, but a retail brand that is no longer relevant enough for the stores it has.

The danger of closing too many stores is increasingly real. The danger that struggling retailers will continue to appease Wall Street’s thirst for taking an ax to store counts instead of working on the underlying fault in their stores seems, sadly, clear and present.

A version of this story recently appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here.