Slow motion crises

In the world of retail it’s pretty rare that brands get into trouble over night–much less over a matter of months or even years.

What will turn out to be the deathblow for Sears started with Walmart in the 1980’s, and was followed by Home Depot, Lowes and Best Buy chipping away at Sears core tools and appliance business as these insurgents opened new stores and improved their offerings over many, many years.

The ability to deliver books, music and other forms of entertainment digitally (or shipped directly to the consumer) just didn’t pop up one day. Blockbuster, Borders and Barnes & Noble had years to respond. They just didn’t in any especially powerful way.

Starbucks initiated its rapid store growth more than 20 years ago. And the broader reinvention of the retail coffee business by local independents, along with forays by Keurig, Nespresso and others, is hardly a recent phenomenon. Yet it’s hard to point to anything particularly innovative that industry leaders Folger’s and Maxwell House have done during this extended period, despite their brands continuing to lose sales and relevance.

As Macy’s, JC Penney, Dillards and other traditional department store players garner lots of negative press about their current struggles, we should remember that the department store sector has lost relative market share for more than two decades. Their problems are not simply a function of the growth of e-commerce. And even if they were, the best in class players were investing heavily in e-commerce–think Neiman Marcus and Nordstrom–more than 15 years ago.

Crises created by unforeseen events are one thing. Slow motion crises only reveal that we took our eyes off the ball, were too afraid to act or both.

The way to avoid a retail slow motion crisis is as follows:

  • Understand where customer value is being created on a go forward basis
  • Dissect your most valuable customer segments to understand where your brand is vulnerable and where you have potential leverage
  • Figure out where you can compete by modifying your core business and where you need to innovate outside of your core
  • Don’t be afraid to compete with yourself
  • Consider acquistions as way to build new capabilities quickly
  • Embrace a culture of experimentation
  • Spend more time doing, than studying.

 

 

 

 

All about that base?

When politicians start a campaign one of the first questions they ask is how they can appeal to the base. Mainstream candidates lock into the usual suspects for rally turnout and fund-raising. The reformers struggle for voter attention and ways to tap into the key PAC’s and the Koch’s and Soros’ of the world.

Traditional brand marketers usually start here as well. We focus on more and better ways of activating existing consumers where the investment to acquire them is sunk and where we already know that they like us and buy often. It seems like a perfectly logical place to concentrate our efforts.

Except where those cohorts are aging out of maintaining their spending. Think Sears.

Except where their needs have shifted and we are no longer their brand or store of choice. Think Barnes & Noble.

Except where a new disruptive model has come along and is doing things we can’t while gobbling up our core customers’ share of wallet. Think Warby Parker and LensCrafters.

Except where we are not replenishing defectors or downward migrators with enough new profitable customers. Think JC Penney.

Good customer analysis always starts with the base. Better customer analysis is focused on a deep understanding of the leverage and limitations inherent in our core segments and yields the insight required to know where to go next and how urgent and powerful any shifts need to be.

It’s all about that base, until it isn’t.

 

 

Blaming the hole

None of the top 10 retail profit leaders in 1970 remain on the list today, and only half are still around at all.

Leading brands like Best Buy and Barnes & Noble, that just a few years ago were building stores as fast as good sites could be found, are dramatically shrinking their store base and scrambling to re-imagine the customer experience.

Smart phones and tablets, that barely existed 5 years ago, are putting unprecedented power in the hands of consumers and blurring the lines between the physical and digital worlds.

More and more people are finding that what worked for them in the past isn’t getting the job done today. Sometimes painfully so.

That feeling of being a round peg in a square hole isn’t going away. Call it the “New Normal” or whatever you want, but it’s here to stay.

You can scream that this isn’t fair, or you can accept that there is no such thing as fairness. There is simply reality.

You can hang on to the illusion that you can control the way the universe unfolds, or you can get to work on the things that matter than you can actually affect.

You can stop blaming the hole.

Holes are going to change in size and number and complexity. New holes will emerge all the time. And probably at a faster rate than ever imagined.

But let’s be clear. If you find yourself being a round peg in a square hole, it’s the peg that’s the problem.

 

The endless aisle and the world’s smallest parking lot

When I was in business school, one of the major consulting firms was notorious for asking interviewees the question: “what if energy were free?”  The short answer, of course, is “just about everything.” But the point of the question was to see if candidates could understand what a driving factor energy costs were in most businesses and consumers lives and whether the interviewees could quickly sort out the profound implications of no longer having that constraint.

I’ve been in retail about 20 years and for most of that time physical space has been the huge driving factor and constraint.

Retailers spend millions of dollars investing in stores and filling their shelves with millions of dollars in inventory. A lot of time and energy goes into visual merchandising and store display standards. Companies invest in planning and allocation software to optimize precious retail selling space and flow merchandise through their supply chains. You worry about things like “parking ratios” (the number of spaces you need per thousand of square feet).

And all along, Wall Street keeps you obsessively focused on comparable store sales growth, productivity per square foot and growth in square footage.

What would be different if most, if not all, of that did not matter anymore?

For more and more consumers, digital marketing and e-commerce has made the aisles endless and physical display meaningless. And the store is always open. Their parking lot is their desk chair, their couch, the smart phone or tablet in their hand. And your physical store is starting to look more and more like a showroom.

It won’t be long before most established retailers won’t be able to economically add any more net physical square footage. And if you are Barnes & Noble, the Gap, Sears or Best Buy, congratulations. You are already there.

If you are a multi-channel retailer where more than 10% of your sales are done through e-commerce and that channel is growing at double-digit rates, focusing on comparable store sales growth is becoming increasingly irrelevant. Comparable customer segment growth is far more meaningful.

If you have a lot of capital invested in physical stores and a large and growing percentage of your customers engage with your brand digitally before coming to your store, chances are you need a radical re-think about how you will drive brick and mortar productivity in an increasingly omni-channel world.

In a world of endless aisles and the anytime, anywhere, anyway consumer, just about everything is different. Or soon will be.

So the question is: are you?