Retail

Sears’ March Toward Bankruptcy: Gradually, Then Suddenly

I get the nostalgic love for Sears.

Sears was a pioneer in catalog shopping, the creation of the department store, the boom in suburban regional malls and the advent of powerful private brands. They even sold houses through the mail. Years ago, when I was an executive at Sears, I remember sitting in focus groups and hearing some customers talk glowingly about how Sears was the only company to give them a credit card when they got out of school and how nearly everything they bought for their first home came from Sears. Kenmore. Craftsman. Diehard. All iconic.

I get the disdain for Sears too.

Consumers have suffered through years of mismanagement and, at times, what seemed like episode after episode of willful neglect. Long-term employees have seen their pride turn to embarrassment and sorrow. Investors have endured a roller coaster, with each plunge from the top growing deeper and deeper.

What I don’t get is the wishful thinking.

Despite more than a decade of steady declines in performance, despite the absence of a coherent turnaround strategy, despite the massive operating losses, some investors return to the stock like they might return to a bad love affair. In fact, since the company stated last month it had substantial doubt about its ability to survive, the stock has rallied. And some pundits continue to opine on the various ways Sears could survive as a leaner, meaner version of its storied past. Don’t be fooled.

Since Eddie Lampert still has a few things to sell to raise the mountain of cash necessary to fund ongoing operations, it’s possible he can stave off bankruptcy a bit longer. But make no mistake, the end is in sight.

It turns out that Sears is having a hard time unloading some of its few remaining significant assets, most likely because potential buyers realize their value declines along with Sears fortunes and that they might, in fact, do better in bankruptcy court.

It turns out that Sears has been quietly closing even more stores than they previously announced.

It turns out that the idea that retailers can shrink to prosperity is typically the first sign of a death spiral.

It turns out Sears has been slowly liquidating itself for years. Dead brand walking.

I’d like nothing more than to see Sears survive as a vibrant and sustainable retailer. But, sadly, all the wishful thinking in the world will not change the inevitable.

Now, whenever I think of Sears, I’m reminded of what Hemingway wrote in The Sun Also Rises. When one of the characters is asked how he went bankrupt, he replies mournfully: “Two ways. Gradually, then suddenly.”

 

 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 · e-commerce

Walmart’s E-commerce Strategy: Pure Genius Or Venture Capitalist Bailout Fund?

Some believe Walmart should be pilloried for its laggard status in e-commerce. Many of these same folks are now cheering the company’s decision to put all e-commerce under internet wunderkind Mark Lore, as well as its new aggressive strategy to acquire online brands (Jet, ModCloth, ShoeBuy, MooseJaw and–apparently any minute–Bonobos). At last, they say, the company is serious about taking on Amazon.

The contrarian view is that Walmart was right to go slow in online shopping because of how hard it is to make money, and that encouraging too much volume to shift from physical to digital channels would de-leverage brick & mortar store economics unnecessarily. Moreover, spending billions to acquire brands that seem to have little prospect of ever being cash positive may appease Wall Street, but it is throwing good money after bad. More than a few folks have also intimated that Walmart is mostly bidding against itself in these deals as the “smart money” now sees how crazy many so-called digitally-native brand valuations have become.

I tend to side with the latter camp. And, full disclosure, I’ve never understood how Jet.com could ever make any real money. I’ve also been on record for some time in my view that much of e-commerce is profit proof and that most digitally-native brands will never turn profitable. Of course, the jury is still out on most of this, but the collapse of the flash-sales market and recent big write-downs of some high-fliers should give investors pause and encourage them to see past the hype and to dig deeper.

Either way, there are a few important things to consider as Walmart’s strategy unfolds:

  • Shopping behavior is morphing dramatically. While e-commerce remains small to the total, it is growing much faster than physical store shopping. More importantly, most shopping trips start online. Any retailer that fails to have a strong digital presence and does not offer a well integrated shopping experience will be at a distinct competitive disadvantage. Walmart, like every other retailer, needs to respond to this trend aggressively even if the marginal economics aren’t always so favorable.
  • A digital-first mindset is critical. Here is where most “traditional’ brands get stuck. When a culture is rooted in the old way of doing business and holds on to product-centric thinking and siloed organizational structures, much needed innovation is thwarted and vast numbers of opportunities are missed. Arguably, the greatest value from Walmart’s new acquisition strategy is that they are injecting a new mindset into the organization and jump-starting a cultural transformation that can pay vast dividends.
  • Demographics are destiny. The core Walmart model is rapidly maturing. Walmart has never done well with more affluent consumers and they are likely not doing particularly well with acquiring increasingly important Millennial customers. One way or another, to sustain growth Walmart needs to figure this out and scale it quickly.
  • Organic growth is hard and time is not our friend. Most large companies struggle to move the needle on growth in any material way through their own internal efforts. If anything, the pace of change is accelerating. Clearly, a smart acquisition strategy is one way to address both of these challenges.
  • E-commerce valuations are mostly irrational. I have consulted to multiple investment firms and conducted due diligence on quite a few e-commerce deals–including one of the brands that Walmart acquired. In every case the prices that were being discussed at the time either proved to be ridiculously high (as evidenced by subsequent write-downs) or the company could not present a compelling roadmap to profitability. Clearly there are, and will continue to be, exceptions. But irrationality does not last forever. Bubbles eventually burst.

As skeptical as I am, Walmart needs to do something big and bold. Minimally, their culture will get shaken up, likely in a very good way. Managing a portfolio of innovative brands should give them plenty of useful learning. And, in the scheme of things, a poor ROI on a few billions dollars will hardly bring them to their knees.

Yet mostly I am struck by the words of a venture capitalist who has been struggling mightily with how he was going to salvage a multi-million dollar investment in a “disruptive” online brand that has garnered gobs of good PR but is burning through cash with no end in sight.

As he reflected on Walmart’s most recently announced acquisition he told me this: “Now I wake up every day and thank God for companies like Walmart.”

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.  

Being Remarkable · Digital · e-commerce · Frictionless commerce

Retail at the precipice

Some have called it the retail apocalypse. Others refer to it the great retail meltdown. And while hyperbole is the best thing ever, these pronouncements serve as better clickbait than sound analyses. Worse, it makes it sound like every retailer is struggling and that physical retail is doomed.

Nevertheless, it’s hard to ignore the dramatic rise in store closings, job losses, bankruptcies and complete liquidations. It’s harder still to dismiss the wave of disruption that is shaking most traditional retailers to their core. The overbuilding of space is finally catching up to most sectors. The radical shift of spending online is creating a great deleveraging of physical retail. Consumer preferences are tilting to more experience, less stuff and a growing reluctance to pay full-price or spend conspicuously. Most damaging, the majority of “old school” retailers have not made innovation a priority and are now forced to play catch up at precisely the time they lack the cash to do so. And, sadly, for some retailers, it is too late.

Much of retail now finds itself at a precipice, a crossroads, the proverbial tipping point. In many cases, the decisions that will get made in the months ahead will make or break a scary number of major brands. Let’s look at four things that retailers that find themselves at or approaching the precipice need to focus upon and get right.

Should I stay or should I go? 

Major retailers have already announced nearly 3,000 store closings since the beginning of the year and more are on the way. But, to paraphrase Mark Twain, reports of physical retail’s death are greatly exaggerated. With some 90% of all retail still done in brick-and-mortar locations, physical retail needs to be different but it is not going away. There is great pressure on retailers to take an ax to their store counts, but this must be done judiciously. Careful rationalization of both store counts and remaining store footprints can enhance retailer relevance and profitability. But there is a real danger of closing too many stores. Deep analysis of network effects and cross-channel shopping behavior is needed to get this right.

The fault in our stores. 

With the rise of e-commerce and the over-storing of America, consolidation was inevitable. Despite most retailers’ best efforts, highly disruptive business models like Amazon were certain to gobble up share. But much of what ails retail is self-inflicted and most of what is causing heartache today could be seen coming for more than a decade. Retailer’s organizational silos get in the way of delivering an experience that is unified across channels and touch points. Traditional players’ reluctance to move away from one-size-fits-all marketing strategies fail to make the shopping experience more personalized. Retailer’s focus on efficiency rather than effectiveness stands in the way of a more simplified shopping experience and one that is more localized. And most brand’s risk aversion leads to a sea of sameness rather than an experience that is amplified in its relevance and remarkability.

Winning the moments that matter.

Since the vast majority of shopping journeys now begin online, which often means on a mobile device, a brand needs to be both present and impactful in what Google calls micro-moments (full disclosure: Google has been a client of mine) and what I have come to call “marketing’s new power of now.” Having a great product and cool advertising is necessary, but far from sufficient in a digital-first world where the first battle to win is the war for attention. If retailers don’t show up consistently in the moments that matter with an intensely relevant, remarkable and actionable offering, it’s likely game over.

Failure IS an option.

I headed up strategy at two Fortune 500 size retailers and in both assignments I tried to convince the CEO to establish an innovation process and to create an R&D budget. In both cases we said we wanted to be more innovative and in both cases we ultimately did nothing to meaningfully foster innovation. In fact, during one attempt to pitch a new idea to one of these CEO’s he said to me: “Steve I’m supportive of what you are trying to do but we need to this in such a way that we can’t fail.” At that point I was reminded of what Seth Godin says: “If failure is not an option, then neither is success.” I was also reminded it was time to update my resume. Spoiler alert: both retailers got into trouble due to their lack of innovation. Since becoming a consultant, writer and speaker on innovation I’ve seen how very few established retailers have taken innovation seriously. They are all paying a big price for that right now.

Retail isn’t getting any easier. In fact, one could argue that the pace of change is accelerating. And few of the issues plaguing retail are easily solved. But a few things seem certain. Defending the status quo is a recipe for disaster. If you believe you can shrink your way to prosperity, think again. Innovate or die. Your mileage may vary.

In today’s harsh retail world, a fair amount of pain is probably inevitable. The degree of suffering remains optional.

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.  

EdgePrecipiceOPSEC

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.  

Inspiration · Leadership

We over me

The other day President Trump talked about how “my military” was successful in carrying out a bombing run.

Regardless of how one feels about the merits of taking military action, or which side of the aisle you happen to sit on politically, it’s hard to imagine a leader who deserves less credit for the strength and skills of the US armed forces. It’s also shocking in its failure to recognize who foots the bill. Criticism was deservedly fast and furious.

Contrast that with superstar golfer Jordan Spieth (who, by the way, is nearly 50 years younger than Trump). It’s rare for Spieth to not say “we” when talking about his play. In fact, the times when he tends to use “I” or “me” are when he hasn’t played particularly well. In a sport which is highly individualistic, he is quick to credit his team; to value the we over me.

Of course, we drive every day on roads we didn’t pave.

We sit in offices we didn’t build.

We use an internet we didn’t design and don’t maintain.

Almost of all us eat food we neither planted, nor tended,  nor picked, nor hauled to the store.

It’s easy to be selfish, to value the me over we.

And often harder to give credit where credit is due.

Harder still, it seems, to be grateful for all all we have whether we deserve it or worked for it or had it fall into our laps by luck or some measure of grace.

 

 

Customer-centric · Digital · e-commerce · Retail

‘Same-store sales’ is retail’s increasingly irrelevant metric

The retail industry has used “same-store sales” (or “comparable store sales”) as a key indicator of a retailer’s health for decades. From where I sit, its usefulness is rapidly fading, if not bordering on irrelevance.

While it remains to be seen whether retail traffic declines will last forever, most traditional retailers will struggle to grow physical store sales in the face of the significant and inexorable shift to online shopping. With few exceptions, so-called “omnichannel” retailers are experiencing flat to slightly down brick-and-mortar revenues while their e-commerce business continues to grow 10-20%. The mostly moribund department store sector points to this new reality. While overall revenues are basically going nowhere, online sales now account for over 30% of total revenue at Neiman Marcus, over 20% at Nordstrom and Saks, and some 18% at Macy’s (according to eMarketer), with the percentage growing every quarter.

What we do know, and what’s important to grasp and appreciate, is that physical stores are critical drivers of e-commerce success–and vice versa. For most retailers, a brick-and-mortar location sits at the heart of a brand’s ecosystem for a given trade area. Any retailer with a decent level of channel integration employs stores to acquire new customers, to serve, buy online, pickup in store orders (and returns) and to convert shoppers that start their shopping online but need to touch, feel or try on a product before buying. The decision of “digitally native” brands like Amazon, Bonobos, Warby Parker and others to open stores underscores this fact. Conversely, legacy retailers must be careful to avoid closing too many stores or they risk damaging the overall brand, slowing e-commerce growth and accelerating a downward spiral.

Customers shop brands, not channels or touchpoints. A robust one brand, many channels strategy requires management teams to understand precisely how the various marketing, experience and transactional channels interact to make a more relevant and remarkable whole. With this understanding, same-store sales performance may still have some utility, but “same trade area” performance–which accounts for all sales regardless of purchase channel within the influence area of a store–becomes a far more interesting and useful metric. Critically, it also provides the basis for understanding the drivers of customer segment level performance at a more granular and actionable level.

Rapidly declining same-store sales performance may suggest the need for aggressive action, including shuttering stores. Unquestionably, the great de-leveraging of retail store economics is cause for real concern. But without a broader view of how digital commerce and the in-store shopping experience work together, an obsession with same-store sales performance will inevitably lead to some very dumb decisions indeed.

 A version of this story recently appeared at Forbes, where I am a retail contributor. You can check out more of my posts here.  
Being Remarkable · Innovation · Leadership

Yeah, but what if we don’t?

All too often we can find ourselves ruled by fear, both subtle and profound. Faced with going out on a limb, being vulnerable, trying something entirely new, it’s easy for The Resistance to take over, for the lizard brain to kick in, for us to tell ourselves the time isn’t right or that we aren’t quite ready.

For many us, it’s not the least bit difficult to imagine the embarrassment, pain or all manner of calamities that might result from exposing our ideas to the world, starting our own new business, choosing to be the one to stand up to injustice, aggressively pushing our organizations to innovate or embarking on just about any endeavor that is fraught with risk.

I’m reminded of what Mark Twain supposedly said: “there has been much tragedy in my life, some of which actually happened.”

It turns out we humans seem to be rather good at naming and feeling the risk of doing something, but maybe not so good at seeing the reward. We ask ourselves the “what if we do?” question and then frequently talk ourselves into stopping, waiting or hoping someone else will act instead.

Yet when it comes to pondering the work that matters perhaps a better question would be “what if we don’t?”

If we don’t innovate, our organization or business might not only stagnate, it might cease to exist entirely.

If we don’t speak up against hate, we enable injustice to spread unchallenged.

If we don’t vote, we get leaders that are at best clueless; at worst dangerous.

If we don’t act to unleash our potential, our desire, our creativity we, to paraphrase Thoreau, can easily fall into the trap of living lives of quiet desperation and go to our graves with the song still in us.

Too often we think the risk is in acting, when it is precisely the opposite.

Too often we believe we have more time, when in fact it’s much later than we think.

Too often we find ourselves asking the wrong question entirely.