Embrace the blur · Frictionless commerce · Retail

Physical stores: Assets or liabilities?

Of course the obvious answer is “well, that depends.”

As the intersection of economic feasibility and consumers’ willingness to adopt new technology hit a tipping point, for retailers that had invested big bucks in the brick-and-mortar distribution of music, books and games, the answer changed rather dramatically. Today’s retail apocalypse narrative is nonsense. But it wasn’t so long ago that the tsunami of digital disruption very quickly turned the physical store network of Barnes & Nobles, Blockbuster, Borders and others into massive liabilities. While we can argue about whether any of those brands laid to waste by Amazon, Netflix et al. could have responded better (spoiler alert:the answer is “yes”), it’s hard to imagine a scenario for any of them that would have included a fleet of stores remotely resembling what was in place a decade ago.

Most of the so-called digitally native vertical brands that are disrupting retail today—think Warby Parker, Bonobos, Indochino—started with the premise that not only were physical stores unnecessary, they would soon become totally irrelevant. In fact, about six years ago, I remember asking the founder of one of these brands when they were going to open stores. He looked at me with the earnest confidence of someone who had just received a huge check with a Sand Hill Road address on it and said, “we’re never opening stores.” Clearly, at the time, he saw stores as liabilities. He wasn’t alone. Everlane’s CEO made a similar, but more public statement.

So for several years scores of startups attracted massive amounts of venture capital on the belief that profitable businesses could scale rapidly without having to invest in physical retail outlets. A key part of the investment thesis was that stores were undesirable given the high cost of real estate, inventory investment and operational support. Clearly the underlying premise was that stores were inherent liabilities. So it’s more than a little bit ironic, dontcha’ think, that my friend’s company has since opened dozens of stores, that Everlane just opened its second location (with more to follow I’m sure) and that many other once staunchly online only players are now seeing most of their future growth coming from brick-and-mortar locations.

For legacy retailers, particularly as e-commerce took off, many acted as if much of their investment in physical real estate was turning into a liability—or at least an asset to be “rationalized” or optimized. This underscores a fundamental misunderstanding of what was happening. Too many stayed steeped in channel-centric, silo-ed thinking and action. They saw e-commerce as a separate channel, with its own P&L. Because of this, they underinvested (or went way too slowly) because they couldn’t see their way clear to making the channel profitable. Before long they got the worst of both worlds: They found themselves not participating in the upside growth of online shopping while losing physical store sales to Amazon or traditional retailers that were pursuing a robust “omni-channel” strategy.

To be sure, the overbuilding of commercial real estate was going to lead to a shakeout at some point. Digital shopping growth enables many retailers to do the same (or more) business with fewer locations or smaller footprints. Yet I would argue that most of the retailers that find themselves with too many stores (or stores that are way over-spaced) rarely have a fundamental real estate problem—they have a brand problem. The retailers that consistently deliver a remarkable retail experience, regardless of channel, are closing few if any stores. In fact, brands as diverse as Apple, Lululemon, Ulta—and dozens of others—have strong brick-and-mortar growth plans.

What sets most of these winning retailers apart is that they deeply understand the unique role of a physical shopping experience in a customer’s journey and act accordingly. They know that digital drives physical and vice versa. They started breaking down the silos in their organizations years ago—or never set them up in the first place. They accept that talking about e-commerce and brick and mortar is mostly a distinction without a difference and know that it’s all just commerce. And they embrace the blur that shopping has become. They see their stores as assets. Different and evolving assets certainly, but assets all the same.

On the heels of recent strong retail earning reports (and an increase in store openings) some are starting to pivot from the narrative that physical retail is dying to one that is closer to all is now well. Both lack nuance. We can chalk up some positive momentum to the fact that a rising economic tide tends to lift all ships. We can peg some of the ebullience to Wall Street waking up to facts that were plain to see for quite some time.

What is most important over the longer-term, however, is to understand the root causes of why and where physical retail works and why and where it doesn’t. Whether it’s Casper, Glossier, Warby Parker, Nordstrom, Neiman Marcus, Williams-Sonoma, Sephora or many others, the formula is pretty much the same. Deeply understand the customer journey, and whether it’s a digital channel or physical channel, root out the friction and amplify the most relevant and memorable aspects of the customer experience.

When we do this we see the unique role a physical presence can (and often should) play in delivering something remarkable. The answer will be different depending on a brand’s customer focus and value proposition. But armed with this understanding we can design the business model (and ultimately the physical retail strategy) knowing that the channels complement each other and the desire is to harmonize them. At this point the question is not whether stores are an asset or a liability, it’s which aspects of brick and mortar’s unique advantages to lean into and leverage.

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.  

Over the next few weeks I’ll be in Dallas, Austin, Chicago, Toronto and San Antonio delivering an updated version of my keynote “A Really Bad Time To Be Boring.” For more info on my speaking and workshops go here.

Customer Experience · Reimagining Retail · Retail

Retail’s new fork in the road: Understanding ‘buying’ vs. ‘shopping’

As I pointed out in my last piece, it is all too easy to be misled by high-level statistics and narratives that paint an incomplete picture of the retail landscape. Similarly, many fail to appreciate the underlying dynamics that (increasingly) separate industry winners from the losers and that which will ultimately determine when online shopping starts to mature. Much of this, I believe, can be understood by focusing on the difference between “buying” and “shopping.”

I’m hardly the first to make this distinction. Seth Godin got me thinking about this with his 2015 post. Since then it has become more and more clear to me that delving into the differences is extremely useful in ascertaining what is next for the retail industry.

Understanding ‘Buying’

Buying is mostly transactional. More mission, than journey. More search, than discovery. Most times buying tilts toward being need-driven rather than motivated by want. At heart of buying is efficiency. When we are in buying mode we care primarily about speed, convenience and a broad, yet easy to navigate, assortment. Buying tends to be highly-value driven. When transacting digitally it must be easy to compare prices. When buying in brick & mortar stores, customers come to learn which brands consistently deliver the best value and often start their process with these favorite stores.

With this lens, it should be easy to see that e-commerce is optimized for buying. The categories that do the best online are those where there is a strong, though not necessarily exclusive, buying dynamic. Unsurprisingly, this is where Amazon has the greatest market share and growth. When it comes to being remarkable in the realm of buying, much of it is about eliminating friction in the path to efficiency, be that on price, assortment and/or convenience.

Understanding ‘Shopping’

Shopping is far more experiential. When shopping many customers fundamentally enjoy the process of exploring and discovering, whether online or in a store. Shopping can be highly social. Shopping takes more time, but the value is there in finding just the right item, the right outfit or solving a more complicated problem–like furnishing a room or completing a home improvement project. When shopping, typically the risk of making a mistake is greater, so the ability to get sales help, shop with friends, try something on, touch and feel the product, and so on, is paramount.

While a strong digital presence can greatly facilitate the shopping process, the share of online shopping is dramatically lower than online buying. Categories with strong shopping characteristics (higher-end home furnishings, fashion apparel, non-commodity grocery items like produce and meat, etc.) have very low e-commerce shares.

Apocalypse No

There really is no retail apocalypse, but certain sectors of retail are clearly being radically transformed. Much of this can be best understood by understanding the difference between buying and shopping. By far the greatest disruption is occurring where buying is being reinvented, online and offline. The first wave of massive share shift occurred in the buying of entertainment when music, books and games could be digitally downloaded. This wave was, in fact, apocalyptic to the likes of Babbage’s, Barnes & Noble, Blockbuster and Borders–and that’s just the “Bs.”

More recently, platform businesses like Alibaba and Amazon have made the buying process far more efficient in many categories, leading to major market share gains and the demise (or teetering on the brink) of many brands that could not keep pace. But let’s be clear: Amazon is not “the everything store.” It is, however, quickly becoming the anything-you-want-to-“buy” store. Absent a far greater brick & mortar presence, Amazon will continue to struggle in its quest to dominate shopping.

Innovation and growth in “buying” has occurred outside of the purely digital world. Brands such as Aldi, Lidl, Dollar General, Ross, TJX and others have re-worked and expanded their business model by delivering ever greater “buying” value. If there is a retail apocalypse, someone needs to tell these brands. They will collectively add thousands of new stores this year alone.

The same is true in the “shopping” world. Sephora, Ulta, Apple and many others that continue to offer a remarkable shopping experience are growing both online and offline. Moreover, many high profile pure-play e-commerce players have basically started to run out of customers that would approach their brands in “buying” mode and thus they needed to go seek out “shoppers” with brick & mortar locations In fact, several once stated that they would never open stores. This is because they didn’t understand how the buying vs. shopping dynamic would inevitably play out over time. It now turns out that Warby Parker, Peloton and Bonobos are seeing the majority of their incremental growth come from their physical locations.

Stuck In the Middle With You

It’s increasingly untenable to attempt to stake out a middle ground between buying and shopping. The middle is collapsing. Trying to be sort of good at serving the customer who is firmly in buying mode is like being sort of pregnant. Being boring and unremarkable for customers in shopping mode is equally foolhardy.

The Fork In The Road

Certainly not every brand or every category has a clear cut, all or nothing, buying vs. shopping pattern. But it’s critically important to understand how this plays out for each and every retailer. While the ridiculous amount of debt Toys ‘R’ Us amassed was the proximate cause of their downfall, a strategic and financial crisis was inevitable as they wrong-headedly decided to be more about buying than shopping. Many struggling brands are similarly confused. This will not end well.

The fact is retailers must choose a clear path. If a retailer wishes to grab share (or insulate themselves) from the Amazon buying tsunami than it is pretty clear what that implies. Good luck and Godspeed.

If a retailer wishes to reimagine their business model to become a more remarkable shopping experience than that is an entirely different thing.

Choose wisely. Pick a lane. Step on the gas.

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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.  

On May 2 I will be keynoting the Retail Innovation Conference in NYC, followed by Kibo’s 2018 Summit in Nashville and Retail at Google 2018 in Dublin.

Bricks and Mobile · Customer-centric · Digital · e-commerce

Physical retail: Definitely different, far from dead

From recent headlines you might assume that sales in brick & mortar stores must be falling off a cliff. You’d be wrong. Yes, e-commerce is growing at a much faster rate, but revenues in physical stores remain positive (1%-2% growth depending on the source). There is also a sense that online shopping is becoming the dominant way most people shop. In fact, even with a dramatic share shift, e-commerce still represents less than 10% of total retail sales and is expected to remain below 20% even 5 years from now.

Moreover, if physical retail is dying somebody should tell well established (and quite profitable) retailers like Aldi, Apple, Costco, TJX, Dollar General, Dollar Tree, Nordstrom, H&M, Ulta and Sephora. Collectively they’ve announced plans to open about 3,000 stores. Newer brands–think, Bonobos, Casper, Warby Parker–that were once dubbed geniuses for their “digitally native” strategy are now opening dozens of physical stores as their online-only plans proved limited and unprofitable. A little outfit from Seattle also has recently made a pretty big bet on physical retail.

So the constant media references to a “retail apocalypse” may serve as great clickbait, but they lack both accuracy and nuance. I believe we’re all better served by not painting the industry with too broad a brush and spinning false narratives.

Nevertheless, it is crystal clear that years of overbuilding, failure to innovate on the part of most traditional retailers, shifting customer preferences and market-share grabs from transformative new models that aren’t held to a traditional profit standard (mostly the little outfit in Seattle) are creating fundamentally new dynamics.  Physical retail is not going away, but digital disruption is transforming most sectors of retail profoundly. Here are a few important things to bear in mind:

Good enough no longer is. Mediocre retailers were protected for years by what was once scarce: scarcity of product and pricing information, scarcity of assortment choice, scarcity of strong local competition, scarcity of convenient ways for product delivery. Digital commerce has created anytime, anywhere, anyway access to just about everything and the weaknesses of many retailers’ business models have been laid bare. Traditional retailers’ failure to innovate over the past decade has put quite a few in an untenable position from which they will never recover. It turns out they picked a really bad time to be so boring.

E-commerce is important. Digital-first retail is more important. The rise of e-commerce is having a dramatic effect on shopping behavior but it is not the most disruptive factor in retail. What’s far more transformative is the fact that most customer journeys for transactions that ultimately occur in a brick & mortar location start in a digital channel–and increasingly that means on a mobile device. In fact, digitally-influenced physical stores sales are far greater than all of e-commerce. Many brands’ failure to understand this reality caused them to waste a lot of time and money building strong online capabilities at the expense of keeping their stores and the overall shopping experience relevant and remarkable.

Physical and digital work in concert. A retail brand’s strong digital presence drives brick & mortar sales and vice versa. When different media and transactional channels work in harmony, the brand is more relevant. When any aspect is unremarkable or creates friction, the brand suffers. Too often, traditional retailers treat digital and physical retail as two distinct entities when most customers are, as some like to say, “phygital.”  Moreover, with the exception of products that can literally be delivered digitally (books, games, music), there is rarely any inherent reason why the rise of e-commerce should make a substantial number of physical stores completely irrelevant. Retailers that are closing a lot of stores most often have a business model problem, not a “too many stores” problem.

The future will not be evenly distributed. Clearly, there are brands and retail categories that are being “Amazon-ed.”  There are also sectors that have been in long-term decline (department stores and many regional malls), whose troubles have little to do with what’s transpired most recently. Still others have remained largely immune from the disruptive forces that are hitting others so hard. Off-price chains, warehouse clubs, dollar stores and gas stations all come to mind. Grocery shopping has also seen little impact, though that’s likely to change. It’s also important to note that some forces that are shaping the industry have little to do with e-commerce vs. physical stores shopping or the notion that Amazon is eating the world. Many sectors are being hit by a fundamental change in shopping behavior (a shift to experiences away from stuff, a tendency to trade down to lower price points) that has nothing to do with how spending is being reallocated away from brick & mortar to online. Your mileage may vary.

To be sure, a degree of panic is appropriate in some circles. It’s obvious that many retailers spent more time defending the status quo and burying their heads in the sand during the past decade than they did understanding the consumer and being committed to innovation. Some retailers need to adapt. Some need to transform the customer experience fundamentally. Others just need to go away. Most need to take bold and decisive action to stay relevant and remarkable in a very different and constantly evolving world.

The big question is whether they will act while they still have time.

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 · Winning on Experience

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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Being Remarkable · Brand Marketing

Confusing the offering with the story

We’re typically pretty good at laying out the features and benefits; at explaining all the reasons why our product offering is superior to the competition’s and why it makes perfect sense that you should choose us.

Unfortunately when the consumer is overwhelmed by choice, when it’s hard to get them to even notice us–much less take the time to do the rationale calculation we are depending on–and when all too often price can be the default tie-breaker, all that focus on defining and hyping our offering may not benefit us very much at all.

If you think Apple wins because of its superiority in a head to head features comparison, think again.

If you believe folks pay a huge premium for a Louis Vuitton handbag because of the demonstrably superior raw materials, fabrication and stitching, I’d beg to differ.

The idea that the $250 cream or scent being hawked at the cosmetics counters at your favorite fancy department store “works” meaningfully better than what’s readily available at your local drug store is pure folly.

Unless it’s all about price, people buy the story before they buy the product. We get in trouble when we don’t understand the differences and the priority.

Being Remarkable · Customer Growth Strategy · Innovation · Omni-channel

Your mileage will vary

We’re told to pray to the god of omni-channel retail and all will be well. Yet after diving into a world of complexity and huge cash outlays, sales and profits remain lackluster.

We’re advised to study best practices and creatively “steal” the ones that resonate the most. Yet, despite reading all the books and hiring the leading consultants, our customer experience remains far from Apple’s and our culture feels like the anti-Zappos. And nobody’s working a 4 hour work week, I can tell you that!

We’ve built a sexy app. We’ve started an Innovation Lab. We go to all the best conferences. We even know to call it “South By” like the cool kids. We’re on every imaginable social media channel. We chant “seamless customer experience” at our staff meetings, for crying out loud! Why aren’t things going better?

Sadly, even if you do a great job importing what’s working for others, chances are you’re merely keeping pace. Necessary, not sufficient.

Assuming that what works for one brand and their unique customer set is readily transferable to your situation is not almost always wrong, it can be incredibly dangerous.

As the power shifts irretrievably to consumers, as their options for information, access and choice compound exponentially, as it gets harder and harder to command share of attention, your job is not to simply import what’s worked elsewhere and propagate “me-too” solutions.

No, your job is to deeply understand your unique situation, to embrace a treat different customers differently philosophy and to craft an intensely relevant and powerfully remarkable experience.

As tempting as it is to buy the sexiest car in the lot, equipped with the latest technology and anticipate the rush of exhilaration as you step on the gas, the fact is your mileage will vary–perhaps, a lot. The sooner we accept that the better.

And then it’s time to begin the hard, uncomfortable work.

Being Remarkable · Growth · Innovation · Leadership

But first you have to believe

I’m all for market studies. And consumer research. And fact-based analysis. I’ve rarely met a 2 x 2 matrix I didn’t like.

I’m all for laying out reasonable hypotheses and putting together a sound testing plan. If I’m honest, I’m pretty solidly in the  “in God we trust, all others must bring data” camp.

But for me there’s no getting around this pesky little slice of reality. More times than not, the truly innovative, the remarkable, the profoundly game-changing, emerges not from an abundance of analysis and left-brain thinking, but from an intuitive commitment to a bold new idea.

More than a decade ago the folks at Nordstrom didn’t have an iron-clad, ROI supported business case when they made the big leap into investing behind channel integration. They believed that putting the customer at the center of what you do is ultimately going to work out.

Steve Jobs eschewed logic and conventional wisdom to pursue Apple’s strategy of “insanely great” products. He believed that leading with design and focusing on ease of use creates breakthrough innovation and customer utility.

Just about every successful entrepreneur adopts a strong and abiding belief in her product or service in the face of facts and history that suggest that, at best, they are wasting their time and money and, at worst, they are simply nuts.

On the other side–with clients and in organizations where I’ve been a leader–a lack of belief that getting closer to the customer is generally a good idea or that it’s okay to fail has resulted in an unwillingness to invest in innovation. Any meaningful action was predicated on a tight business case and, when that was lacking, it was easier to do nothing than to take a chance. All these brands are now struggling to catch up.

Obviously commitment to a belief is not, in and of itself, sufficient. Execution always matters. And there are certainly plenty of strongly held beliefs that are wildly misguided or morally reprehensible.

Yet, when I embrace the notion that just about every great idea starts with a belief not a compelling set of facts–or that often some people see things way before my logical brain can-the field of possibilities expands.

And I believe that sounds like a pretty good thing.

 

 

Being Remarkable · Branding · Marketing · Retail · Winning on Experience

No pottery, no barn, no crates, no barrels

Is Crate & Barrel a good name for an upscale home furnishings store?

Does it bother you that Pottery Barn has no pottery for sale and that their stores look nothing like a barn?

In my experience, one of the most frustrating experiences one can have in business is to go through a naming exercise for a new product or service.

I worked on developing a new specialty store concept several years ago and during the search for its name, our CEO came into my office virtually every day to either throw out some idea he came up with the night before (“what if we call it ‘Cool Stuff’?”) or to get my reaction to some existing store name that baffled him (“what’s up with Banana Republic?”).

Of course the issue is that so often we become obsessed with the name, rather than focusing our attention on building a brand. A name without a relevant, differentiated and compelling set of experiences, delivered consistently, over time, risks becoming just a meaningless description.

Now, experts in branding will tell you that there are qualities that make for better names–things like being unique, memorable, easy to pronounce, evocative, supportive of your positioning and the like. And, I certainly recommend that you incorporate this advice into your naming process. By now it’s clear that BlackBerry was a better choice than sticking with the product’s original more literal name PocketLink.

So go spend some time on finding a “good” name. But spend far more time and effort on creating and executing a great brand.

And if you need some inspiration, go do a Google search on your Apple.

 

 

 

 

 

Brand Marketing · Customer-centric · Omni-channel

Incongruous

Earlier this week I needed to call Apple support to get help with my iCloud account.  I was bounced to three different customer service folks over an hour or so before I finally got to Craig (who ultimately did a great job of handling my issues).

Most of the hour plus that I was on the phone I was on hold and had to listen to loud, tinny and static-filled bad 90’s music (I know that’s redundant).

I was struck by how incongruous this all was.  Apple stands for an easy customer experience, yet they could not manage to come close to being “one and done” in resolving my customer service issue.  Apple is the paragon of innovation, yet their hold music sound quality was an abomination.  Apple stands for hip and cool, yet their music offering was anything but.

Apple is hardly alone in delivering an incongruent brand experience.  As the distinctions blur between channels and touch-points, far too many brands still fail to create a seamlessly integrated experience regardless of how the customer chooses to engage and shop.

In a world of ever-expanding choices–where, increasingly, the consumer holds most of the power–your brand is only as good as your weakest link.

Incongruous may make you superfluous.