Digital · e-commerce · Retail · Store closings

Sears must think we’re stupid or gullible. Here’s why.

Having spent my first 12 years in retail as an executive at Sears, I’ve followed the company’s trials and tribulations with more than a passing interest. And considering my last role at the once-storied brand was leading corporate strategy–where my team was mostly focused on trying to fix the mall-based department store format and making the Lands’ End acquisition work–I am far from an impartial or unknowing observer.

Arguably, I’ve taken Sears to task too many times over the years. When I left Sears in 2003 (a year before Sears and K-mart merged), I had already concluded that the once iconic brand was on a slow slide to oblivion. Combining a deteriorating, mediocre chain with a terrible one did not change my view. Over the years Eddie Lampert’s misguided leadership has been a frequent target of criticism on my blog. In 2013, I labeled Sears “The World’s Slowest Liquidation Sale” as it became abundantly clear that after nine years Lampert still had no viable turnaround plan. In 2014, I lampooned the futility of their efforts in an April Fool’s post and went on CNBC arguing that investors would be better served by a swift liquidation rather than perpetuating an increasingly delusional strategy that only served to lower asset values.

So, years later, Sears is still hanging around and Lampert is still peddling his special brand of snake oil. How is this possible?

Let’s answer the easy question first. Sears has endured longer than they deserve to because they had enough assets to unload (real estate, private brands and fungible business units) to cover the massive operating losses they’ve racked up during the past decade. The fact that Sears has very low operating costs (partially because of favorable rents, partially because Lampert has cut overhead to the bone) has extended their life. But, make no mistake, they are very close to the end of the runway.

To answer the other question we must conclude that investors are either stupid or gullible–or at least Lampert is counting on it. Before we get to the most recent nonsense, it’s worth mentioning some of the whoppers we were supposed to believe over the years:

  • That Sears and Kmart would create some magical synergy
  • That Sears’ problems could be fixed by cutting costs rather than investing in the customer experience
  • That it made sense to have merchandise categories compete internally with each other, rather than focus on the customer and external competition
  • That Sears could disinvest in stores and profitably transition much of its business online
  • That selling once enormously valuable private brands like Kenmore, Craftsman and DieHard in off-the-mall formats and Ace Hardware Stores was a sufficient antidote to the massive share loss to Home Depot, Lowe’s and Best Buy.

Today, the company continues to make a big deal about how it is a “member-driven” company, touting its “Shop Your Way” program and “ecosystem” as some sort of important differentiator and value contributor. The facts are that a) it is, at best, a mediocre loyalty program, b) customer engagement is driven almost exclusively by a high rate of discounting, c) margins have declined since its introduction and d) sales continue to slide. Referring to customers as “members” may sound good, but it connotes a strength of relationship and value that clearly does not exist. The program has always been an expensive gimmick to collect customer data. Suggesting anything else defies credulity.

In an apparent attempt to distract from the collapse of its mall-based stores, Sears Holdings also continues to announce “innovative” new store formats like an appliance & mattress store (which isn’t a new idea at all) and a DieHard Battery Center. These might be interesting formats to franchise when Sears ceases to be a significant retail operator, but the notion they will somehow be material to a turnaround is just silly.

More broadly–and most stupefyingly–Lampert continues to claim turnaround efforts are on track. This from a company that has had precisely one-quarter of positive sales growth in seven years, operating losses that continue to worsen, an acceleration in store closings and rampant departures of key executives. Moreover, the moves detailed in the most recent press release are all about financial restructuring and say nothing about actions to improve customer relevance. If Sears does not quickly and dramatically improve its performance with its customers nothing else matters. Period.

At one level, I get why Lampert apparently chooses to create the illusion that Sears can actually stay in business. He needs vendors to keep shipping product to mitigate a complete unraveling. He needs employees to keep the lights on and greet the few customers who might wander into the ever shrinking store fleet. He needs to avoid looking too desperate to dodge fire sale pricing on the few remaining assets he must unload to make it through the holiday season. And he needs creditors to give him more time to try to pull another rabbit out of his hat.

Yet, let’s be clear, to believe that Sears is somehow going to make it much longer as anything remotely resembling a national, fully operating retailer is beyond folly. I have no idea whether Lampert truly believes Sears can be saved. I hope not because that would be quite sad.

But for the rest of us, there is simply no reason to be stupid or gullible. The reality is there for all to see. A story and, most importantly, the one spinning the tale–only has power if we allow them.

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.

Digital · Retail · Store closings

It’s the end of the mall as we know it . . . and I feel fine

For those promulgating the “retail apocalypse” narrative, a key component of their Chicken Little logic is that malls are dying. Moreover, much of the blame is cast squarely upon the growth of e-commerce. While hyperbole IS the greatest thing ever, there is a lot more to the story. So let’s try to put this all in a more fact-based, clear and nuanced perspective.

First, in aggregate, regional malls–and their department store anchors–have been on the decline for more than two decades. The first wave of disruption came from the advent and national expansion of big-box category killers and discount mass merchandisers. The most recent wave of disruption has come mostly from the rise of off-price and dollar stores. So while it’s convenient to blame Amazon, the ascent of online shopping is only a small piece of the puzzle. And due to rampant over-building, a correction was sure to come anyway.

Second, many dying malls are being killed by other malls. As growing retailers situate new stores in growing suburban areas with favorable demographics, we often witness a shift in an area’s “retail center of gravity.” A mall that was built in the 60’s or 70’s may lose relevance as more and more retailers locate closer to where a greater density of high spending shoppers now reside or work. In many instances, a new mall with more desirable tenants has been built during the past decade to capture those sales.

Third, many malls are actually doing very well.  The nation’s so-called “A” malls represent about 20% of locations, but generate about 75% of total mall volume. With few exceptions, these 270 or so malls have stellar (and growing) productivity and very low vacancy rates. Relatively few of these malls are being impacted by the closing of anchor tenants. And specialty store vacancies are typically snapped up quickly.

Fourth, while the closing of department stores is hitting “B” and “C” malls disproportionately hard, it’s not all bad news for mall owners. Sears has been a dead brand walking for more than a decade. Many JC Penney and Macy’s locations have been chronic under-performers for years. As long as these albatross tenants continue operating, the mall operator receives paltry rent from big chunks of their leasable space while generating little incremental traffic. So in reality the loss of poorly performing retailers is often creating new, more profitable opportunities. One scenario is a transformation of tenant mix, often a dramatic shift to more entertainment venues and/or professional office use.  Sometimes, non-traditional retail tenants (think Dick’s Sporting Goods or Target) become anchors. Yet another is a complete re-purposing of the entire center to more lucrative multi-use development.

This is not to say that some malls won’t die a painful death, never to return from the ashes. But the apocalyptic vision painted by some is far from accurate. Most higher-end malls will continue to thrive with an approach that looks rather familiar. Many others will evolve to be quite different, but will remain far from hurting, much less dead. Others will be radically transformed to something with a vastly higher and better use.

Either way, with few exceptions, investors, customers and employees are going to be just fine.

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.

Growth · Retail · Store closings

Shrinking To Prosperity: Can Store Closings Save Struggling Retailers?

It seems as if major store closing announcements are becoming a nearly daily occurrence. Earlier this week Michael Kors, the once high flying accessible luxury brand, announced it would close at least 100 stores over the next two years. They now join the ranks of Payless Shoes, Macy’s, JC Penney and a host of other major players that have recently decided to shutter a significant percentage of their store fleet.

In fact, some retailers are closing all of their stores hoping to thrive as an online only retailer. Bebe, Guess, Wet Seal and The Limited have all chosen to go this route–and it seems like both Sears and Radio Shack are headed there as well; they just haven’t made it official. In any event, if you want follow the action along at home my friends at Fung Global Retail maintain a store closing tracker.

While its clear that more and more struggling retailers are embracing a strategy to get much smaller, this ultimately begs the question whether it’s really possible to shrink your way to greatness.

Take a moment to make a list of brands (don’t worry, I’ll wait) that have intentionally walked away from a significant percentage of their revenue and been successful over the long-term. I’m not talking about conglomerates that have jettisoned under-performers in their portfolio or companies that have exited specific lines of business with challenging profitability. I’m talking about brands that have willingly stopped doing business in major geographies and/or with large numbers of core customers. It’s not easy it?

The truth is that it is far easier to name brands that closed stores merely as an intermediate step on their way to oblivion. Think Blockbuster and Borders (or Bradlee’s for you old timers). And that’s just the B’s. The retail graveyard is chock-a-block with once mighty merchants that spent years closing stores only to eventually succumb to the inevitable.

I have maintained for some time that when retailers start to close a lot of stores the issue is rarely that they have fundamentally too many outlets. Rather it’s that their value proposition is not sufficiently relevant and remarkable for the locations they have. We know that the notion that physical retail is dead is just silly. We know that plenty of “traditional” retailers are opening stores. Ulta, Sephora, Dollar General, Costco come readily to mind. We know that the hottest brands in retail–from giants like Amazon to specialty players like Warby Parker and Bonobo’s– are opening stores. We know that in most cases the economics of physical stores are superior to e-commerce. We know that the combination of digital AND physical is most often what customers want and what yields the best results. We know that it is virtually always the case that when retailers close stores their e-commerce revenues in the vacated trade area go down.

Clearly, on balance, there are too many stores. And for most retailers the size, configuration, operations and many fundamental aspects of the in-store experience must be changed, in some cases radically. Often the “need” to close stores is borne of desperation, propelled by multiple years of management neglect and failure to innovate. Often, as a practical matter, there is no choice, because there is no way to make up for the sins of the past in the here and now. While I cannot definitively say that mass store closings indicate the beginning of a downward spiral, I would definitely reject that notion that they are a panacea. And we absolutely shouldn’t conclude that such moves suggest a sustainable long-term strategy.

Over three years ago I posited that retailers were delusional if they thought that store closings would be their salvation. Today, as the pace of these closings accelerate, I still fundamentally reject the notion that more than a handful of brands can shrink their way to greatness. I hope I’m wrong.

michael-kors-closing-stores

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.

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? That didn’t 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.