Death in the middle · Embrace the blur · Retail

My 13 ‘provocative’ retail predictions for 2018: So how’d I do?

‘Tis the season for annual retail predictions and, fear not dear reader, I will be sharing mine early in the New Year. Yet amidst all the prognostication nary a modern day Nostradamus gets fact checked on how well-honed their gift of prophecy actually turns out to be. I don’t want to be that guy.

So here’s a mostly objective–and decidedly self-indulgent–assessment of my Baker’s Dozen Of Provocative Retail Predictions For 2018.

  1. Physical retail isn’t dead. Boring retail is. This phrase later turned into a Forbes piece, which became my most popular post of the year. And the phrase itself started to catch on, sometimes with attribution, sometimes not (thanks Nike!). Regardless, as 2018 unfolded it seemed increasingly obvious that the retail apocalypse narrative was bogus. Sales in brick & mortar stores are up solidly this year, thousands of stores have opened, digitally-native brands like Warby Parker and Casper are accelerating the pace of their physical presence and Target, Walmart, Best Buy and many other largely brick & mortar-centric retailers have delivered strong results.
  2. Consolidation accelerates. Precise comparisons on mergers & acquisition activity and store closings are not yet available, but by any measure the pace of merger & acquisition activity was brisk. Macy’s, Target, Amazon, Nordstrom, Albertson’s, Kroger and Walmart were among the large players that scooped up one or more earlier stage, largely tech-driven companies. As growth stalls among mature brands, we’re seeing deals like Kors acquisition of Versace take center stage. The vast over-storing of US retail is also moving closer to equilibrium as thousands of surplus real estate shutters or gets repurposed.
  3. Honey, I shrunk the store. As predicted, 2018 brought a lot more activity here. Target, Ikea and Sam’s Club, among others, got more serious about opening scaled down versions of their big stores to squeeze into urban centers. Nordstrom announced that it would expand its totally re-imagined, service-centric “micro-concept” called Local. Less interesting–and potentially more perilous–were efforts on the part of over-spaced (i.e. under-customer relevant) retailers to sub-lease parts of their stores in a vain hope to shrink to prosperity.
  4. The difference between buying and shopping takes center stage. In my view, this trend becomes more obvious by the day, particularly as e-commerce keeps gaining share of “buying” (i.e. a more mission-focused customer journey where price, speed and convenience are especially valued), yet generally struggles with “shopping” (i.e. more discovery-based and tactile journeys where a more immersive experience is desired and face-to-face sales help may be important). Strategically this may have moved to center stage for more retailers (see Amazon’s moves into physical below), but there still is a general lack of understanding and appreciation here.
  5. Amazon doubles down on brick & mortar. Amazon hasn’t gone quite as far as I expected here (yet), but in addition to making some big changes within Whole Foods (their biggest physical store bet thus far) they introduced the Amazon 4 Star concept, expanded Amazon Books and Amazon GO (while hinting at thousands more to come) and continued to experiment with other expressions of Amazon in the physical realm, like their partnership with Kohl’s.
  6. Private brands and monobrands shine. The biggest acceleration came from Amazon, as they are on their way to a stable of more than 100 private brands. Traditional retailers continued to accelerate their own brands and/or largely exclusive offerings as an antidote to Amazon. Digitally-native vertical brands continued to shine, announcing plans to open more than 800 new stores. And Nike, among other manufacturers making a big push into direct-to-consumer, debuted their amazing new NYC flagship and Nike Live.
  7. Digital and analog learn to dance. Legacy brands (think Walmart, Target, Best Buy) that finally learned to embrace the blur and deliver a more harmonized (my, ahem, superior term for what most call “omnichannel”) experience across channels demonstrated great success. Brands that were already pretty good at it (Nordstrom, Sephora) continued to perform well. The upstart digitally native vertical brands continue to kill it, as they don’t care about channels, they care about the customer and use both digital and analog tools to deliver a remarkable retail experience. It appears finally that brand are starting to accept that digital help physical and vice versa.
  8. The great bifurcation widens. And it’s death in the middle. Well positioned retailers at either end of the price/value spectrum continue to grow sales and open stores. Brands stuck in the boring middle are getting killed. This year hundreds of stores that continue to swim in a seas of sameness have shuttered. Sears filed for bankruptcy. JC Penney finds itself in very serious trouble. It’s time to pick a lane.
  9. Omnichannel is dead. Digital-first, harmonized retail rules. This is an expansion of #7 above. The smart retailers are realizing that it’s not about being everywhere, it’s about showing up in remarkable and relevant ways where it really matters in the customer journey and eliminating the discordant notes and amplifying the ‘wow’. I did make a mistake in anchoring this prediction on being “digital-first”–which I have since corrected in my keynotes and in my forthcoming book. While leveraging digital technology to enhance the customer experience can be hugely important in many cases, it’s clear that not all customer journeys start in a digital channel and that digital is not always better.
  10. Pure plays say “buh-bye.” Name a profitable brand of any size that started online and has yet to open brick & mortar stores. Yeah, there are a few, but there numbers are dwindling rapidly. In fact, brands like Warby Parker that once thought they could scale without physical stores are now opening dozens and seeing most of their growth come from their stores. Brands like Everlane that said they’d never open stores are now doing so. Brands like Wayfair are struggling to figure out how to get returns and customer acquisition costs down to remotely profitable levels without a physical presence. And don’t even get me started on Blue Apron. The era of pure-play is, for all intents and purposes, over.
  11. The returns problem is ready for its close up. Arguably, this area got even more attention than predicted. Earlier this year I revisited the issue I first referred to as the industry’s “ticking time bomb” in 2017. Multiple media outlets featured stories on how the growth of e-commerce is leading to very unfortunate outcomes within many online dominant retailers, including Amazon. In response, we are seeing more venture capital funded companies like Good Returns and ReturnRunners getting funded to scale their solutions to retailers.
  12. “Cool” technology underwhelmsDid you buy much on Alexa this year, use a “magic mirror” or experience a store through VR? Yeah, I didn’t think so. Voice commerce will be a big thing some day. Artificial intelligence and machine learning will go from basic applications and ways to eliminate costs to truly delivering a more remarkable and personalized experience. And stores will become far more immersive through the application of advanced technology. Just not this year.
  13. The search for scarcity and the quest for remarkable ramps up. Consumers have access to just about anything they want from anywhere in the world just about anytime they want it. What was scarce a decade ago–price comparisons, product reviews, product access, speedy and affordable home delivery–is now virtually ubiquitous. Yet boring and mediocre retail still abounds. What’s scarce are truly customer relevant and remarkable experiences. You used to be able to get away with being good enough. Today, not so much. The retailers that continue to struggle often find themselves stuck in the middle, trying to cost cut their way to prosperity, hoping to win a race to the bottom. Good luck with that.

2018 clearly brought more and different levels of disruption. 2019 is likely to bring more of the same, despite what I suspect will be some moderation in store closings. But that’s a different post.

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.  

A really bad time to be boring · Store closings

Dead brand walking: Sears is going out with a bang

In the weird irony that is often part of retail (and life in general), Sears Holdings recently announced its first quarter of comparable sales growth in many years—and I believe only its second or third since I left the retailer in 2003! It turns out that the liquidations sales being held in the many Sears and Kmart locations that were closing during the quarter finally brought out customers in droves. Better late than never, I suppose.

Of course, the world’s slowest liquidation sale is not yet over, but it’s hard to take this dead cat bounce as a positive indication of anything substantive.

Last week also brought two other pieces of Sears news. In a classic “you broke it, maybe you want to own it” moment, the hedge fund led by Sears Chairman Eddie Lampert offered to buy the nearly dead retailer. In a statement that seems certain to guarantee Lampert’s fast track admission to the reality distortion field Hall of Fame was this gem: “Sears is an iconic fixture in American retail and we continue to believe in the company’s immense potential to evolve and operate profitably as a going concern with a new capitalization and organizational structure.” In related news, I set fire to a big pile of cash.

The other big story was that Sears cancelled the auction designed to improve upon Service.com’s $60 million “stalking horse” offer when the effort failed to generate a single additional bid. The lack of interest in this once sizable and profitable unit (which was valued at many hundreds of millions of dollars during my Sears tenure) is yet another sign of how far Sears has fallen during the past decade and how little residual value the market sees in many of its pieces.

It may turn out that Lampert and his investors will do reasonably well when all is said and done in the sad saga of Sears’ demise. I’m not smart enough to figure out exactly how all the financial engineering and picking at Sears carcass will ultimately benefit them. But two things are clear: First, during his nearly 15 years at the helm of the bad marriage that is Sears and Kmart, Lampert has never once articulated a compelling and remarkable strategy to guide the retailer. Instead, we’ve had an endless parade of nonsensical tactics, relentless cost cutting and seemingly self-interested asset stripping. In return the company has sustained well over a decade of precipitous market share declines and massive operating losses. In fact, despite operating in one of the best quarters in recent U.S. history, despite closing hundreds of “bad” locations and despite taking an axe to other operating costs, Sears still managed to lose nearly $1 billion on barely over $2.7 billion in revenue this quarter.

Second, the notion that anything can be done to save Sears in a way that remotely resembles its once iconic status is absurd, particularly as Lampert holds on to the idea that the brand can shrink its way to prosperity. Sears has never fundamentally had a cost problem. It has, for at least 20 years, had a huge customer relevance and remarkability problem. Closing more stores and shrinking and/or leasing out the ones that remain may temper losses, but it will never do anything to address the core issue which, simply stated, is having enough customers that want to buy the stuff they sell.

I am certain that over the coming months there will more stories of asset sales, store closings and largely random new program offerings designed to return Sears to its former glory. It’s all just noise, far more like the like gasps of a dying man than a glimmer of hope for any form of resurrection.

Dead brand walking.

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.  

Holiday Sales · Retail

Forget Black Friday and Cyber Monday — For most retailers, it’s really about December sales

By now hopefully folks are beginning to accept that Black Friday and Cyber Monday are mostly media events—some would say “media traps”—that actually reveal next to nothing about how the holiday season will ultimately turn out. Moreover, aside from the generally hard to get “door busters,” the best deals are often found over the next several weeks, not on the two days that generate the most hype, er, I mean, attention.

As many journalists and analysts continue to point out, as (crafty? greedy? desperate?) retailers chase market share, more and more promotions that were once exclusive to Black Friday now break days, or even weeks, before Americans shift from one form of massive consumption to another. If my inbox is any indication, many sales were not only extended over the weekend but well beyond the rather unfortunately named Cyber Monday. And the hits just keep on coming.

If we were really honest, a trait historians tell us was once valued in regular citizens and national leaders alike, overall industry and any given retailer’s performance has little to do with the two days that get all the press and almost everything to do with the month of December.

The most obvious reason is that the volume done in the 24 days leading up to the Christmas is massively greater than on either Black Friday or Cyber Monday—not to mention the six days that comprise that entire long weekend. In fact, the typical pattern is that most retailers see an appreciable dip in traffic the week or so after the Thanksgiving weekend and then volume builds to a crescendo the weekend before Christmas—with “Super Saturday,” contrary to rumor, turning out to be the biggest shopping day of the year. For online sales the pattern is a bit different, but the ubiquity of free 2-day shipping guarantees very high volume days in the week before the shipping window closes.

The second, and often neglected, reason is that the week after Christmas is, arguably, even more important than Black Friday and Cyber Monday combined. For most retailers success during what some call “X 13” (signifying volume that sometimes rivals other months of the year) is incredibly important as consumers show up in droves to buy for themselves, often using gift cards they received for Christmas or Hanukkah.

The third factor, which speaks to the criticality of December, comes down to margin. Most of the press coverage on holiday shopping speaks to traffic patterns, sales volume and “record e-commerce days.” (Spoiler alert: With online shopping growing at 15-17% year over year just about every day is going to be a record day. The only news would be if it didn’t happen.) Woefully little space is devoted to whether those increases bear any relationship to profitability.

Since the month of December can easily account for well over 25% of many retailers total volume for the year, simple math tells you it is a big driver of earnings. And because every day we move later into winter products that are geared to the season (“giftable” items most notably, but winter apparel as well) begin to lose their value, retailers get greater insight into whether they are moving these products fast enough. For consumers this means some of the best deals of the season will occur right after Christmas. For retailers, if they are agile enough, this means that as each day passes they have the opportunity to evolve promotions to meet competition, accelerate sell-through rates and try to optimize margin performance. Promotions designed for Black Friday and Cyber Monday are more guesses. Throughout December, they can start to be more finely honed.

As a writer and someone who often gets interviewed by the press for my perspective on shopping trends, I appreciate the click-bait benefits of Black Friday and Cyber Monday stories and related provocative and catchy commentary. But for years my take has been mostly “move along, nothing to see here.”  The real action is in the month of December, and, in particular every day today forward.

But I guess “Black December” isn’t quite as catchy.

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.  

 

Holiday Sales · Retail

Cyber Monday and the world’s easiest retail prediction

There are a lot of things that are hard to know about the future of retail. Predicting that Cyber Monday will set a record is not among them.

One doesn’t need a team of analysts, the latest in machine learning algorithms, IBM Watson or a Ph.D in statistics to come to this conclusion. One just needs to acknowledge that e-commerce has been growing on average about 15% year over year for the last several years.

So while I have not seen a precise breakout, I’m willing to guess that e-commerce set a record just about every day this year–and has done so for many years. It’s been true for the Saturday before Christmas, for Thanksgiving, for Black Friday last year and the year before that and the year before that. And it will be true for this Thursday and next Wednesday. And I’m willing to bet it will be true in 2019 as well.

Whether the specific increase on any given day will vary much from the longer-term trend will largely be a function of the intensity of promotional offers, consumer confidence and the vagaries of weather (which can affect folks’ willingness to go to a store as well as whether seasonal merchandise does unusually well or not). Given this–and without the benefit of any sophisticated tools–my guess is Cyber Monday sales will be up around 20%.  Check in with me tomorrow to see how I did.

Of course whether I or anyone else is mostly right or mostly wrong means just about nothing. There is no news value in the predictions and there is very little strategic import in the actual outcome. Retailers have already ordered their merchandise for the holiday season. A good chunk of staffing and marketing is already decided upon. For the most part, the retailers with winning digital value propositions will run increases better than the averages and the losers will cede relative share. We knew that going into today and we will know it tomorrow.

So the news is not in whether the industry numbers increased 17% or 27%. The news is not in any given retailer’s decision to offer 2 day free shipping or take their discount up to 25% over last year’s 20%. You don’t have to be a retail savant to decide to give margin away. Anyone can engage in a race to the bottom. The sad fact is you can be a pretty boring retailer and still post a decent sales increase on Cyber Monday if you are desperate enough.

No the real news concerns those retailers that are doing what it takes to be more remarkable day in and day out. That aren’t chasing their tails seducing the promiscuous customer. That aren’t continuing to swim in a sea of sameness where the only thing they can do to move the top-line is to give stuff away.

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.  

Since the article originally appeared the Cyber Monday specific numbers are in. Sales were up 19.3%. How sales and profits will turn out. Well who knows?

 

Holiday Sales · Retail

The mass hysteria we call ‘Black Friday’

I will admit that I have been more than a little Grinch-like about both Black Friday and its unfortunately named cousin “Cyber Monday” for some time. While it’s an exaggeration to say it’s all much ado about nothing, there are a few inconvenient truths about Black Friday that are worth remembering.

It’s not the biggest shopping day of the year. That will be December 22nd. I promise.

The deals are rarely all that good. Certainly many of the so-called “door busters” offer real savings, but bear in mind the best promotions usually have limited quantities and represent a minute percentage of any given brand’s offering. For the rest of the store discounts are typically better as we approach Christmas or, even more so, in the week after.

It’s less and less important every year. As online shopping continues to grow (my guess is an increase of ~ 16% this holiday season) the brick and mortar contribution piece is contracting. More importantly, in the last several years, many retailers offer discounts in advance of the actual day, and then extend those discounts over the weekend. And of course a lot of retailers are now open on Thanksgiving. This all serves to spread out consumer spending over the days before and after the actual Black Friday.

A great Black Friday (or Cyber Monday) is largely meaningless. Despite all the attention and craziness, for most retailers, less than 5% of total November/December sales occur on Black Friday. Given the heavy discounts the contribution to seasonal gross profits is even less.  Studies over the past decade have also shown that Black Friday success has little correlation with overall holiday performance. So move along, nothing to see here.

It’s far more cultural phenomenon, than useful shopping event. Does it make sense for retailers to extend their shopping hours, incur greater hassle and take a margin hit just to drive sales to this one day? Is it rational for so many consumers to get up super early, wait in massive lines and deal with throngs of people to get the exact same stuff you can get ordering from the comfort of your home only to have it show up hassle free at your home or office a couple of days later? No, we do it because we’ve always done it and because of the self-reinforcing media trap.

Isn’t it ironic? On Thursday, in the US at least, most of us are all grateful and thankful and reflective. On Friday, we push through the tryptophan and carb loading hangover and turn into weapons of massive consumption.

Please don’t tell anybody but one of my dirty little secrets is that despite my alleged “retail influencer” status I haven’t stepped inside a retail store or mall on a Black Friday in many years. It’s caused more than a few people to say “what kind of retail analyst are you anyway?”

My answer is always the same: The sane and serene kind.

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.  

I’m honored to have been named one of the top 5 retail voices on LinkedIn.  Thanks to all of you that continue to follow and share my work.

Retail · The 8 Essentials of Remarkable Retail

Nordstrom: No good deeds go unpunished

Nordstrom–not only one of my favorite places to shop but also a brand I regularly feature in my keynotes on remarkable retail–recently reported strong quarterly operating performance and raised its outlook. So, naturally the stock promptly got whacked–and continues to be caught up in the market downdraft. To be sure, a non-recurring $72MM charge related to credit card billing errors does not inspire confidence. But unless this unexpected earnings hit suggests some underlying management issue it indicates nothing about the go-forward health of the business which, from where I sit, looks rather healthy.

It IS a confusing time for shares of most retailers. I’m not talking about JC Penney, Sears or legions of others hopelessly stuck in the boring middle. I’m referring to companies that are not only competitively well positioned but have also recently reported solid sales and earnings. Despite a strong consumer outlook, everyone from Amazon to Walmart to Macy’s to Home Depot to Target seems to be falling out of favor. Some of this is surely part of the broader market correction and lingering tariff concerns. But much of it is more than a bit mystifying.

In Nordstrom’s case, I remain bullish. The company is showing signs of maturity and is hardly immune from the competitive pressures brought on by industry over-building and digital disruption. Barring a wholly new and unexpected major growth initiative, the accessible luxury retailer has few new locations to open and already has a very well developed e-commerce and off-price business. Yet they seem to be executing well on most of my 8 Essentials of Remarkable Retail and that bodes well for the future. Let’s take a closer look.

  1. Digitally-enabled. For more than a decade Nordstrom has not only been building out best-in-class e-commerce capabilities (online sales now account for 30% of total company revenues!), but architecting its customer experience to reflect that the majority of physical stores sales start in a digital channel. Nordstrom complements its already excellent in-store customer service by arming many sales associated with tablets or other mobile devices.
  2. Human-centered. Being “customer-centric” sounds good, but most efforts fall short largely because brands do not actually incorporate empathetic design-thinking into just about everything they do. Nordstrom, like their neighbors up the street, are much closer to customer-obsessed than virtually all of their competition.
  3. Harmonized. This is my reframe of the over-used term “omni-channel.” But unlike the way many retailers have approached all things omni, it’s not about being everywhere, it’s showing up remarkably where it matters. And it’s realizing that customers don’t care about channels and it’s all just commerce. The key is to execute a one brand, many channels strategy where discordant notes in the customer experience are rooted out and the major areas of experiential delight are amplified. Nordstrom scores well on all key dimensions here–and has for some time. Nordstrom was a first mover in deploying buy online pick-up in store (BOPIS) and continues to elevate its capabilities by dedicating (and expanding) in-store service desks, among other points of seamless integration.
  4. Personal. With a newly improved loyalty program, private label credit card business and high e-commerce penetration, Nordstrom has a massive amount of customer data to make everything it does more intensely customer relevant. Its targeted marketing efforts are good and getting better and it has identified implementing “personalization at scale” as a strategic priority. Fine-tuning its one-to-one marketing efforts, introducing more customized products and experiences and further leveraging its personal shopping program represent additional upside opportunities.
  5. Mobile. Recognizing that a smart device is an increasingly common (and important) companion in most customers’s shopping journeys, Nordstrom has been building out its capabilities, including acquiring two leading edge tech companies earlier this year. Its increasingly sophisticated and useful app has helped earn the brand a top ratingin 2018 Gartner L2’s Digital IQ rankings.
  6. Connected. While there are opportunities to participate more actively in the sharing economy, Nordstrom’s overall social game is strong, earning it the leading US department store rating from BrandWatch.
  7. Memorable. While its department store brethren are swimming in a sea of sameness, Nordstrom excels on delivering unique and relevant customer service and product. It continues to strengthen its merchandise game by offering a well-curated range of price points across multiple formats. This offering is increasingly differentiated–either because the brands are exclusive to Nordstrom or are in limited distribution. Nordstrom’s plan to up the penetration of “preferred”, “emerging” and “owned” brands strengthens the brand’s uniqueness and should provide improved margin opportunities.
  8. Radical. Nordstrom is not quite Amazon-like in its commitment to a culture of experimentation and willingness to fail forward, but they have placed some pretty big equity bets in fast-growing brands like HauteLook, Bonobos and Trunk Club (whoops), in addition to being one of the first traditional retailers to launch an innovation lab (since absorbed back into the company). They are constantly trying new things online and in-store. Most interesting are their new Local concepts  Unlike some competitors who are trying smaller format stores mostly by editing out products and/or whole categories, Local is a completely re-conceptualized format emphasizing services and convenience. These stores have the potential to be materially additive to market share on a trade-area by trade-area basis.

As mentioned at the outset, Nordstrom is a comparatively mature brand with limited major growth pathways. But to view the company from the lens that is weighing on most “traditional” retailers does not appreciate the degree to which the company has outstanding real estate (~95% of full-line stores are in “A” malls), one of the few materially profitable and superbly-integrated digital businesses, strong customer loyalty and important differentiators in customer service and merchandise offerings. Moreover, most of its out-sized capital investments (including expansion into Canada and NYC) will soon be behind it.

Nordstrom will never have the upside that Amazon (or even TJX) has. But it is one of the best positioned, well-executed retailers on the planet. I don’t expect that to change any time soon.

Maybe it’s time for a little bit more respect?

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.  

I’m honored to have been named one of the top 5 retail voices on LinkedIn.  Thanks to all of you that continue to follow and share my work.

A really bad time to be boring · Retail · Store closings

The critical question for struggling retailers: Too much store or not enough brand?

I suspect hardly anyone is surprised when an ailing retailer announces plans to shutter locations en masse. Across the last several years we’ve seen dozens of once mighty chains close hundreds of stores in hopes of staving off a trip to the retail graveyard.

Last week, having already closed some 120 stores in a bid to shrink to prosperity, Macy’s announced that it plans to eventually reduce the size of many of its under-performing stores. These “neighborhood stores” (four of which are currently being tested) will also undergo merchandising and service changes. In a Wall Street Journal article discussing the new strategy I was quoted as saying ““If you’ve got too much space, it means your brand isn’t resonating. It’s not a real estate problem, it’s a brand problem.” And while that quotation was a bit out of context and not meant specific to the viability of Macy’s new strategy, I do think it’s critical for retailers to be sure they are working on the right problem. From my experience, more times than not, a massive retrenchment of brick & mortar space is most often an indication of poor customer relevance, not bad real estate.

Of course, this does not mean retailers should not prune store locations and/or look to resize current (or planned future) locations. Clearly real estate decisions, be they specific location or size of footprint, need to reflect today’s consumer and competitive situation. And we know that the United States is, on average, significantly over-stored. We know that some retailers went a bit wild and crazy with store expansion plans in an era of cheap money. We know that the growth of e-commerce can often cause a radical rethink of physical asset deployment. Some store closings and some optimization of space is inevitable for most retailers.

If a consolidation of a retailer’s real estate portfolio, along with a robust digital strategy, results in a more remarkable customer experience that, in turn, leads to growing customer value then the strategy may well be sound. But this is rarely the case. Usually the shrinking to prosperity strategy is driven by a lack of physical store sales productivity which has been caused by losing market share to competitors with a better value proposition. So–at least in theory–you can improve productivity metrics by reducing the denominator. But that presumes that sales (the numerator) are at least stable. And the track record on that is poor. Show me a list of retailers that have cut their square footage massively in recent years and you’ve pretty much got a list of bankrupt or nearly bankrupt brands.

A lot of times Amazon–or e-commerce in general–is cited as the reason that retailers need a lot less square footage. Unfortunately this argument doesn’t hold up all that well. In turns out there are plenty of “traditional” retailers that have winning value propositions that are doing little if anything to the size of their stores. In fact many are opening stores. This is because their value proposition is unique, highly relevant, remarkable and well-harmonized across channels. I very much doubt Apple, Sephora, Costco, Nike, TJX, Neiman Marcus, Nordstrom, among many others, will be announcing major contractions of their physical space anytime soon because their brands are more than big enough for their real estate.

Of course, the impact of e-commerce and shifting consumer preferences affect different categories quite differently, so there is no one size fits all prescription when it comes to any given retailers situation. Having said that, it always gives me pause when a brand that (allegedly) serves a large audience and derives most of its sales from brick & mortar locations discovers it must shut down a store in an otherwise well performing mall or in a trade area that has oodles of other “national” retailers that are not struggling in the least. Again, this suggests the problem is with the brand, not the location.

For Macy’s in particular, their neighborhood store strategy may well turn out to be value enhancing. Time will tell. But in some ways it is akin to admitting defeat in those trade areas unless other aspects of their overall digital strategy lead to meaningful market share growth.

When retailers get into trouble the easy thing to do is cut costs. Most struggling retailers have the expense optimization hammer and are always looking for the next nail. What’s harder, but ultimately far more important, is to become truly customer-obsessed and to invest behind being more remarkable than the competition. Until that happens, whether we are talking about Sears, JC Penney, Dillard’s, Kohl’s, Macy’s or any other brand that remains largely stuck in the boring middle, shrinking is not going to be the answer.

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.  

I’m honored to have been named one of the top 5 retail voices on LinkedIn.  Thanks to all of you that continue to follow and share my work.

e-commerce · Embrace the blur · Retail

Pure-play e-commerce’s scaling woes continue

Just a couple of years ago the conventional wisdom was that e-commerce was going to wreak havoc with every aspect of physical retail. This “e-commerce will eat the world” hypothesis continues to drive the “retail apocalypse” nonsense. It has even caused some normally level-headed analysts (and some maybe not so much) to suggest that brick & mortar stores will cease to exist within 10 – 20 years. I’ll take the over on that bet.

As it turns out lots of folks still like to shop in stores, including–and I hope you are sitting down for this–millennials! It also turns out that many retail categories do not lend themselves to high (or even meaningful) online shopping penetration. But there is another reason that e-commerce is not going to get to 100%, much less 40%, market share any time soon: the economic are often terrible. And while Amazon is leveraging its massive scale and expertise to improve its anemic profit margins, for some high profile disruptive brands the profit challenges are only getting worse.

Earlier this year I wrote about pure-play e-commerce’s scaling problems calling attention to what I saw as the increasingly questionable economics of Wayfair, Stitch Fix and Blue Apron, among others. Quite a few folks challenged my conclusions, much as the excellent work by Peter Fader and Dan McCarthy on similar topics has attracted its share of critics. Aside from being called a Luddite and being told to do some anatomically impossible things, it was suggested that I failed to appreciate how these brands would soon realize the fruits of their massive investments in technology, customer acquisition and “brand” and start to make it rain (okay that’s my wording not theirs).

As luck would have it, we now have some updated facts (author’s note: historians believe data and objective truth were once important to drawing conclusions on any particular object of discourse). Wayfair reported its quarterly earnings just last week and, once again, sales were way up. And once again losses widened. They are now deep into what I refer to as their ruh-roh moment as customer acquisition costs have grown to a staggering $196. They are fast becoming the poster child for profitless prosperity (though I imagine Uber and WeWork might get jealous of that appellation).

Luxury marketplace Farfetch just went public, so we now have visibility into their economics. Their story is much like Wayfair’s. Booming sales, worsening profits and less than stellar marginal customer acquisition economics. Zalando, the Germany based online business, is also public and their latest earnings show great sales growth and deteriorating profits as well. Revolve has filed for an IPO and its financials reveal strong sales growth, little movement on profitability and some truly scary stats on high rates of returns. Coincidence, or an underlying business model issue?

The picture at Stitch Fix and Blue Apron is a bit murkier, but still points to the difficulty in scaling online only businesses. Stitch Fix continues to enjoy solid growth and is marginally profitable, but its growth trajectory is slowing markedly. For Blue Apron, they just reported another terrible quarter. The stock has cratered this year as the meal-kit brand attempts to rein in spiraling costs has resulted in significant customer defections and worsening customer acquisition. And this speaks to an underlying dilemma. These brands could stop investing in customers that have little or no chance of every being profitable, but then their sales growth would go from wow to tepid.

To be fair, there are a few online only brands that are scaling successfully. YNAP, which was acquired by Richemont earlier this year, is a case in point. The luxury e-tailer formed by the merger of Yoox and Net-a-porter is solidly profitable and continues to grow nicely, albeit now barely above the industry’s overall e-commerce growth rate. With much higher than average order size and customer lifetime value they are largely immune from the factors that hamstring or sink other pure-plays (high marginal fulfillment and customer acquisition costs).

As the majority of pure-play brands are private, we don’t much about their profitability. But anecdotally we know that some of the most high profile disruptive brands continue to post big losses. We know that several that were burning tons of cash were bailed out by Walmart. We know that one of the first things HBC’s new CEO did was sell off Gilt. Most importantly, we know that just about every digitally native brand is now opening physical stores. We also know that many of these brands are now seeing the majority of their marginal growth come from their brick & mortar locations. And we can suspect that when many of them leave the ranks of pure-plays their marginal economics get better–often dramatically so.

I will not be so bold as to say there will be no such thing as a profitable online only brand of any real size in a few years time. I am, however, confident that we will see several notable collapses within the next 12-18 months and that the real action in digital commerce will continue to be in the blurring of the lines between channels, not the growth of e-commerce at the expense of brick & mortar.

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.  

I’m honored to have been named one of the top 5 retail voices on LinkedIn.  Thanks to all of you that continue to follow and share my work.

Retail

Are private brands key to beating Amazon?

As Amazon continues to steal significant market share in most product categories, many retailers find themselves on their heels desperately seeking an antidote to the online behemoth’s growing dominance. Investing in the long tail, improving web site performance and reducing shipping time and pricing are tactics being pursued to neutralize the threat. More recently, though, quite a few retailers are upping their private brand game.

Store “owned” brands are hardly new. More than a century ago leading department stores began selling products under their own labels. In the decades that followed retailer exclusive offerings expanded, with most positioned as low price alternatives to more expensive national brands. Things even got pushed to the extreme during the generic product craze of the early 80’s, which readers of a certain age will undoubtedly remember–and some of us have tried to forget.

Over time, however, some companies augmented their strategy by creating brands that were meant to be distinctive in their own right and no longer positioned at the low end of a retailer’s product portfolio. This is really the key distinction between a private label–which has little consumer recognition and loyalty–and a private brand.  Historically Sears was probably the most successful with this approach, launching brands like Kenmore, Craftsman, Weatherbeater and DieHard, all of which garnered significant national market share. Supermarkets also got on this bandwagon as did most other major department stores like Macy’s, Bloomingdales and Nordstrom. In more recent years, Costco and Trader Joe’s have experienced tremendous success with their own private brands.

Given their lower cost structure versus comparable national brands, a robust private brand offers the opportunity to materially improve gross margins. Yet being consistently good at delivering compelling product requires significant investment in design and sourcing talent. When done right, private brands offer more differentiated assortments and better profits. Done poorly, a retailer’s merchandising strategy can quickly lose competitive relevance and markdowns can become excessive, as Kohl’s discovered a few years back.

So the underlying rationale for a sound private brand strategy is clear. What’s newer, however, for some major retailers is using private brands to help “Amazon-proof” their assortments. Here the benefit is clear as well. If a brand can only be found at one retailer, then it’s impossible to price shop for a better deal for that product at Amazon–or any other retailer for that matter. Obviously consumers can still try to comparison shop for a similar product but the trade-offs are harder to understand.

For these reasons brands as diverse as TargetSaks Off 5thJC Penney and Tractor Supply Company continue to strengthen their owned brand game. Nordstrom is increasingly emphasizing “strategic brands”–which include both private brands and semi-exclusive or limited distribution brands–as a core part of its growth and margin expansion strategy. Brandless, a relatively new website that recently raised $240 million in venture capital earlier this year, pretends not to be a brand while building a rich portfolio of proprietary products all under the same, er, name. Whatever you call it, strategically it’s a different variation of the same theme.

Unsurprisingly Amazon is not standing still. A year ago I predicted that Amazon would significantly increase its commitment to private branding and that definitely appears to be the case. Today Amazon offers more than 80 of its own brands and just this week the company launched two new home decor brands. Some estimates suggest Amazon private brands revenues will be reach $7.5 billion this year. In addition to its growing portfolio, Amazon has the traffic and the data to position its own brands ahead of other brands it carries, as CNBC recently examined. That’s a gift that will keep on giving.

It seems that we are in the early days of the private brand wars. Regardless, it’s extremely likely that private brands will continue gaining relative share in many categories for the foreseeable future. Whether all the investment behind them will meaningfully slow down the Amazon juggernaut is a lot less obvious.

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 events, including New York, Las Vegas and a return to Melbourne, Australia.

Inspiration · Leadership · Life Lessons

It always comes down to turnout

As the US goes to the polls today, it really doesn’t matter whether one identifies as a Democrat, Republican, Libertarian or whatever. Whether we prefer Beto or Ted, Andrew or Rod, Stacey or Brian means precisely nothing if we don’t go vote.

It turns out that our strongly held beliefs and eloquently worded arguments on social media are just so much you-know-what if we never get out of the stands and into the arena.

It turns out that even with something as mundane as our shopping intentions, if we don’t traffic the retailer’s store or website the retailer has no chance of selling us anything. No traffic, no sale.

It turns out that in the face of devastating tragedy all of our expressions of “thoughts and prayers” do rather little to change the underlying factors that led to the event in the first place.

It turns out that when someone is suffering, sending a card or flowers is nice, but it’s our showing up for them–in compassion, vulnerability and authenticity–that truly matters.

I’m not at all sure that, as the saying goes, 80% of life is showing up. But I am rather certain that it’s impossible to make a real difference if our thoughts and beliefs never turn into action.

As it turns out, it’s always been about turnout. And those that care show up.

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