Every Single Retail Store in the US To Close Permanently By Month’s End

In a surprise move that underscores the sweeping changes faced by the retail industry, the National Retail Federation, speaking on behalf of all of its members, announced today that every brick & mortar location of every retailer in the United States would close forever within the next few weeks. For nearly a decade “traditional” retailers have been struggling with profitability as sales shifted online and more consumers started to notice that many retailers appeared to have given up years earlier. Yet the move to close down every single store in America still came as a shock to most industry observers.

Speaking on condition of anonymity, a CEO of one major retail brand remarked “I would have thought that the fact that 90% of all shopping is still done in physical locations would have been enough to warrant keeping at least a few stores around. I guess I was wrong.” Former Texas Governor Rick Perry, who was recently named Sears’ 13th CEO in as many months, seemed surprised as well. “Wait, most shopping is still done in stores? I guess maybe we should have worked on making our stores better rather than thinking that closing them down would somehow make things better? Oops.”

Jeff Bezos, CEO of Amazon, the brand that has benefitted the most from consumers’ growing love of e-commerce, was approached for comment after delivering his keynote at the annual World Hyperbole Conference in Geneva, but would not speak to reporters. He was, however seen high-fiving Elon Musk off stage and doing what some described as a “clumsy Irish jig” upon learning the news.

Other industry veterans were more circumspect. Ryan Gozzi, a prominent Wall Street analyst who has been pushing many retail brands to shutter locations to improve profitability, commented “honestly I think this just goes too far. I always envisioned retailers would cut and cut until they had just a handful of stores that did like $15,000 per square foot, you know like Warby Parker, Bonobos and Birchbox.” When asked what he thought of today’s announcement Ron Johnson, who oversaw a failed attempt to re-invent JC Penney, looked earnestly into the interviewer’s eyes and exclaimed “Apple. Apple. Target. Apple. Target. Apple. Apple,” then added “golly that’s big news. I was only able to decrease Penney’s sales by about 40%. So signing up for destroying 100% of sales is truly transformative. Gosh I’m impressed.”

The complete shut down of all stores comes after many retailers had aggressively explored new strategies to revive their fortunes. According to multiple sources, newly appointed Macy’s CEO Jeff Gennette recently presented his Board with a bold plan to turn the storied retailer around. The strategy, developed with a team of 2nd year Wharton MBA students, was designed to transform the Macy’s culture and incorporate many of the components that have allowed so-called “digitally native” brands to grab market share away from traditional player while transferring billions of dollars from venture capitalists to consumers without anyone apparently noticing or caring.

The new plan reportedly called for the company to relocate its headquarters to a loft-building in the Pearl District of Portland where employees would receive complimentary Stumptown Coffee and Voodoo Donuts, in addition to an enhanced benefits package. Reports that corporate staff would be required to bring their dogs to work could not be independently confirmed. According to multiple sources, sales associates were to be re-named “customer service sensei’s” and the company would guarantee 15 minute delivery of any product anywhere in the continental United States for free. Initial plans also called for consumers to receive 1,500 Plenti points with every order over $50 but were dropped when research revealed that no one knew what Plenti points were.

According to insiders the plan hinged on four key elements:

  • Liberal use of the words “disruptive” and “transformative” in conversation, written communication and speeches at analyst meetings and conferences.
  • Getting on the cover of Fast Company.
  • A willingness to lose a cumulative $27 billion over the next 10 years.
  • A miracle happening in year 11.

The Board was reportedly initially intrigued, but the strategy lost support when one member pointed out that the plan was mostly just a description of Amazon’s strategy and that nothing was being done to improve the products Macy’s sold or the actual shopping experience. Ultimately a growing malaise crept over the Board despite plans to hold their Board dinner that evening at Masa. According to one long time Macy’s Director “while we were excited to dine together that night at arguably the best sushi restaurant outside of Japan, we couldn’t get past the realization that when it came to our business we had nothing. Absolutely nothing.”

While today’s announcement would seem to doom many once leading brands to the retail graveyard, some believe Walmart might come out ahead. The Bentonville, Arkansas based company recently began aggressively acquiring online-only brands in a bid to become “more customer relevant and digitally savvy.” Sean Spicer, Walmart’s newly appointed VP of Cash Incineration Initiatives, told the Wall Street Journal that the shuttering of all physical stores only validated what Walmart has been saying all along and that anyone who says otherwise is either stupid or lying. Challenged on that remark Spicer added: “Hold on, hold on, hold on. We’ve always maintained that the future of retail is selling cheap stuff that Americans need, shipping it to their house, losing money on every order and making it up on volume. If you can’t see that you haven’t been paying attention.” He then told reporters to direct any further questions to the Justice Department.

The economic impact of closings tens of thousands of stores and putting hundreds of thousands of people out of work remains unclear, but many were concerned it could lead to a recession. It also cast serious doubt on President Trump’s claim that ‘we would be winning so much we would get tired of winning.” Prior to today’s news a recent Gallup survey confirmed that most Americans weren’t remotely tired of winning.

Many commercial real estate investors also expressed concern that billions of square feet of vacant retail space coming on the market all at once would have a depressive effect on rents. Despite this widely shared belief, General Michael Flynn, recently named President of the Association for Commercial Real Estate Over-Capacity Denial” noted that the industry had gone through multiple down cycles over the years and that any excess supply would quickly be absorbed. “For every Home Depot or Target that closes there are plenty of Soul Cycles and expensive juice bars with that one employee awkwardly standing there to take their place” Flynn said.

 

For real stuff please follow me on Twitter and @Forbes

 

 

 

 

 

 

What if retail traffic declines last forever?

The results keep pouring in and they don’t bode well for brick & mortar retail. Across just about every sector and virtually every time period, traffic to physical stores continues to decline.

Of course, for the most part, we aren’t buying less, we are shopping differently. The obvious dominant trend is the explosion of e-commerce, and the one player accounting for the most growth is Amazon. Yet the real news for everyone else is how shoppers are diversifying the channels in which they research purchases and ultimately transact. This so-called “omni-channel” world is wreaking havoc with traditional retailers’ underlying economics and, like most things, the future will not be evenly distributed.

The vast majority of retailers have now likely entered a period where comparable store traffic will never increase again for any sustained period of time.

That’s profound. And more than a bit scary.

Drops in store traffic almost always dictate sales declines. Given that physical stores have relatively high fixed costs (rent, inventory, staffing, etc.) a material drop in revenue deleverages operating costs and profits fall disproportionately. This long-term (and increasingly widespread) trend is causing a great deleveraging across many retail segments and is the primary reason so many stores are being closed. It’s also causing brands to rethink the size and operating nature of the stores that remain or they plan to open. These shifts will prove seismic.

While there is a belief that e-commerce’s economics are superior to brick & mortar stores, that frequently is not the case, primarily owing to challenging supply chain costs, high product returns and compressed margins. As traditional retailers invest heavily in building their digital operations–and creating the much vaunted seamlessly integrated shopping experience–many are merely spending a lot of money to move sales from one channel to the other, often at lower profitability. Even brands such as Nordstrom, Neiman Marcus and, to a lesser degree, Macy’s, that are often touted as omni-channel pioneers and have industry leading online penetration, have seen profit growth stall despite massive investments.

Roughly 90% of all retail is still done in physical stores. Yet the growth of e-commerce will continue unabated and the resulting drop in store traffic is an undeniable and unrelenting force. With rare exception, there is little any retailer can do to stem this tide. One key focus must therefore be on right-sizing store counts and the remaining stores’ footprints and operating costs. But the far more important strategy is to create a remarkable customer experience across all channels that reflects how consumers shop today and the intersectionality of digital and physical channels. Ultimately the key is to maximize customer growth, loyalty and profitability irrespective of where the customer decides to transact.

The pain of store traffic declines is inevitable.

The degree of suffering from it remains optional.

 

This post originally appeared on Forbes where I recently became a contributor. You can check out more of my writing by going here.

Stop blaming Amazon for department store woes

Given Amazon’s staggering growth and willingness to lose money to grab market share it’s easy to blame them for everything that is ailing “traditional” retail overall–and the  department store sector in particular.

In fact, with announcements last week from Macy’s to Kohl’s and Sears to JC Penney that could only charitably be called “disappointing” many folks that get paid to understand this stuff reflexively jumped on the “it’s all Amazon’s fault” bandwagon. Too bad they are mostly wrong.

The fact is the department store sector has been losing consumer relevance and share for a long, long time–and certainly well before Amazon had even a detectable amount of competing product in core department store categories.

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The fact is it’s just as logical to blame off-price and warehouse club retailer growth–which is almost entirely done in physical locations, by the way–for department stores’ problems.

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The fact is that, despite other challenges along the way, Nordstrom, Saks and Neiman Marcus have maintained share by transitioning a huge amount of their brick & mortar business to their online channels and have closed only a handful of stores in the last few years. Nordstrom and Neiman Marcus now both derive some 25% of their total sales from e-commerce.

Don’t get me wrong, I’m not saying that Amazon isn’t stealing business from the major department store players. Clearly they are. And as Amazon continues to grow its apparel business they will grab more and more share.

But the underlying reason for department stores decades long struggle is the sector’s consistent inability to transform their customer experience, product assortments, marketing strategies and real estate to meet consumers’ evolving needs.

More recently, those brands that have been slow to embrace digital first retail are scrambling to play catch up. Those that still haven’t broken down the silos that create barriers to a frictionless shopping experience will continue to hemorrhage customers and cash.

Most importantly those that think they can out Amazon Amazon are engaged in a race to the bottom. And as Seth reminds us, the problem with a race to the bottom is that you might win.

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My top blog posts of 2016

As has become an annual tradition–and despite my nearly six month hiatus–I present my most popular blog posts from this year.

  1.  I am the captain now
  2.  A few inconvenient truths about e-commerce
  3.  Sears: The one thing that could have saved them
  4.  Quitting is underrated
  5.  Umm, so why aren’t your sales better?
  6.  Pure play e-commerce’s fantastic (and unsustainable) wealth transfer
  7.  The struggles of the flying trapeze artist
  8.  The new retail ecosystem: NRF edition
  9.  Retail’s big reset
  10.  I’m going to build and wall and get Amazon to pay for it

And here are a few more that didn’t put up huge numbers, but are personal favorites.

  1. Just about everything is noise
  2. Retail’s museums of disappointment
  3. Don’t bite the hook
  4. The magical mystery powers of gratitude
  5. Put your ass where your hearts wants to be

As I wrap up my seventh year writing this blog I am incredibly grateful for your attention, support and feedback.

Best wishes for a safe, happy and prosperous New Year!

And if you get a chance check out my other blog “I got here as fast as I could.”

I’m going to build a wall and I’m going to get Amazon to pay for it

As I sift through recent retailer earnings reports and reflect on the various (largely excellent) sessions I’ve attended at the inaugural ShopTalk conference in Las Vegas, it’s impossible to ignore the elephant in the room. That elephant is, of course, named Amazon.

Story after story–presenters and panelists alike–are quick to remind us of Amazon’s tremendous growth, the staggeringly large percentage of online revenue they account for and the dampening effect their strategy has on pricing, store traffic and other measures of competitiveness.

Apparently it sucks to be us.

So unless we want to totally ignore this harsh reality, we have a couple of decisions to make.

The first is to decide whether we will accept it and focus instead on the things we can change. From where I sit, I see way too many brands knee-deep in denial and choosing a path that involves a lot of whining. Ugh, so much whining.

The second decision is whether we will try to out-Amazon Amazon. There is plenty of advice on how to counter the Amazon effect. Most of it is terrible.

It’s terrible because it suggests that retailers with higher costs than Amazon can possibly win a price war. It’s terrible because it pre-supposes that merely offering free shipping or “buy online pick-up in store” is enough to counter Amazon’s dominance in product assortment and delivery convenience. It’s terrible because it’s based on a hope that Amazon will follow the same profit and investment calculations that long-established retailers do. It’s terrible because even if some of these efforts manage to gain some traction it presumes Amazon won’t respond aggressively or find some other way to grab market share in their areas of focus.

So, in virtually all cases, the decision to take on Amazon directly is a decision to lose. It’s a decision to invest a lot of time, resources and energy in the vain hope that it will work for you and hurt them. It’s a decision to set a pile of money on fire.

The only decision then is to double down on (or lean into) those things that make your brand more relevant, more remarkable, more sustainable and more profitable.

For retailers that still garner most of their sales from their physical stores that means appreciating and nurturing the unique advantages of brick & mortar locations: personal service, product presentation, merchandise curation, social experiences, instant gratification and the like. It’s about complementing the in-store experience with a well integrated online offering. It’s about understanding how digital (and, increasingly, mobile in particular) is the new front-door for your brand and working to make that experience as compelling and customer-centric as possible.

It is possible that your business may shrink in the process? It is. Is it possible that you will get a lot of heat on why you aren’t taking on Amazon more directly? Of course. It’s also possible you will be a hell of a lot more profitable than the path you are currently on. You also stand a far better chance of being in a business a few years from now.

You aren’t going to build a wall and get Amazon to pay for it.

 

 

 

 

Retail’s new front door

In a “brick & mortar first” world, retailer’s embraced the old adage: location, location, location.

Once the site was determined, a lot of time and money went into the design of the store–with a particular emphasis on making it as strong a magnet for consumer traffic as budget and inspiration would allow. Then the visual and marketing teams went to work, creating attractive window displays and generating eye-catching promotional signage, all with the goal of capturing the customer’s attention as she walked or drove by. If these marketing strategies worked, they would lure her across the threshold and the retailer would have a chance at a sale.

Today, it’s rapidly becoming a “digital first” retail world. More retailers are reporting that the majority of customers start their consumer decision journey online. More and more brands are discovering that a very high (and growing) percentage of new customer acquisition is occurring through a digital channel, not a physical one. And when we say “digital”, it’s increasingly likely we mean some sort of smart mobile device. The power of the traditional store front is waning.

In the vast majority of categories, brick & mortar is not going away. As I like to say, physical retail will be different, not dead. In many cases, stores will remain critical to generating sales, but their role in acquiring a new customer, generating repeat business or building on-going customer engagement and loyalty is diminishing–and, in many cases, quite rapidly.

Right now, for many brands, for many consumers, for many shopping occasions, retail’s new front door is a smart mobile device.

So if your brand’s mobile experience isn’t compelling, the odds of capturing a new customer aren’t that great. If the mobile experience doesn’t help reduce friction for an existing customer (in or out of a store), good luck getting that repeat business. If the mobile experience doesn’t position your brand well in those key decision points that my friends at Google call “micro-moments”,  there’s a pretty good chance you aren’t making that sale.

Embracing the notion that mobile is becoming your brand’s new front door can be profound.

It forces process redesign and budget re-allocation. It requires breaking down the silos that exist in the channel-centric thinking, organization and metrics that persist in so many retailers. It causes us to admit that if we don’t win in a digital channel it barely matters where our stores are located, how good they look, what products we carry or whether we’ve got great salespeople. Heresy, some might say.

It’s apparent that there are quite a few retailers that get this new reality and are acting accordingly–and often boldly. For them, the precise end-game is anything but clear, the path is hardly smooth, but they are in the arena, taking risks, investing where they need to be.

Yet far too many others are merely treading water or paying lip service to this new world order. Sadly they are crippled by legacy thinking and systems, burdened by a store-first culture, unwilling to let go of the past, even when it’s obvious it’s not working. Unless they pivot soon and decisively it’s fairly certain that this will end badly.

 

 

Attraction, not promotion (redux)

If you are familiar with 12-step recovery programs you know about the Eleventh Tradition of Alcoholics Anonymous, which goes as follows: “Our public relations policy is based on attraction rather than promotion.”

The obvious reason for this practice is that 12 Step programs have the anonymity of their attendees at their core. Moreover, AA–and its spin-off programs–reject self-seeking as a personal value. But it goes deeper.

Most people do not wish to sold to. If I have to hit you over the head again and again with my message, perhaps you are not open to receiving it. Or maybe what I’m selling just isn’t for you. Shouting louder and more often, or pitching all sorts of enticements, may be an intelligent, short-term way to drive a first visit, but all too often it’s a sign of desperation or lack of inspiration.

12 Step programs were among the first programs to go viral. They gained momentum through word of mouth and blossomed into powerful tribes as more and more struggling addicts learned about and came to embrace a recovery lifestyle. No TV. No radio. No sexy print campaigns. No gift cards. No ‘3 suits for the price of 1’. When it works it’s largely because those seeking relief want what others in the program have.

In the business world, it’s easy to see some parallels. Successful brands like Nordstrom, Apple and Neiman Marcus run very few promotional events and have little “on sale” most days of the year. And, it turns out, they sell a very large percentage of their products at full price and have low advertising to sales ratios. Customers are attracted to these brands because of the differentiated customer experience, well curated and unique merchandise and many, many stories of highly satisfied customers. Net Promoter Scores are high.

Contrast this with Macy’s, Sears and a veritable clown car of other retailers who inundate us with TV commercials, a mountain of circulars and endless promotions and discounts. Full-price selling is almost non-existent. How many of these brands’ shoppers go because it is truly their favorite place to shop? How many rave about their experience to their friends? Unsurprisingly, marketing costs are high, margins are low and revenues are stagnant or declining.

Migrating to a strategy rooted in attraction vs. promotion does not suit every brand, nor is it an easy, risk-free journey. Yet, I have to wonder how many brands even take the time to examine these fundamentally different approaches?

How many are intentional about their choices to go down one path vs. the other? How many want to win by authentically working to persuade their best prospects to say “I’ll have what she’s having” instead of beating the dead horse of relentless sales promotion and being stuck in a race to the bottom.

Maybe you can win on price for a little while. Maybe you can out shout the other guys for a bit. Maybe, just maybe, if you can coerce a few more suckers, er, I mean customers, to give you a try, you can make this quarter’s sales plan.

And sure we didn’t make any money, but we’re investing in the future, right?

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