Digital · Mobile · Omni-channel · Retail

Retail’s Single Biggest Disruptor. Spoiler Alert: It’s Not E-commerce

There is no question that the retail industry is under-going a tremendous amount of change. Record numbers of store closings. Legacy brands going out of business–or teetering on the brink of bankruptcy. Venture capital funded start-ups wreaking havoc upon traditional distribution models and pricing structures. Discount-oriented retailers stealing share away from once mighty department stores. And, oh yeah, then there’s Amazon.

In assessing what is driving retailers’ shifting fortunes most observers point to a single factor: the rapid growth of e-commerce. But they’d be wrong.

To be sure, online shopping has, and will continue to have, a dramatic impact on virtually every aspect of retail. One simply cannot ignore the dramatic share shift from physical stores to digital commerce, nor can we under-estimate the transformative effect of e-commerce on pricing, product availability and shopping convenience.

Yet a far more profound dynamic is at play, namely what some have termed “digital-first retail.” Digital-first retail is the growing tendency of consumers’ shopping journeys to be influenced by digital channels, regardless of where the ultimate transaction takes place. It’s obvious that this shift helps explain the success of Amazon and other e-commerce players. But when it comes to how traditional retailers need to reinvent themselves, several factors related to this phenomenon need to be better understood and, most importantly, acted upon.

The majority of physical store sales start online. Deloitte has done a great job tracking digitally influenced sales and its most recent report indicates 56% of in-store sales involved a digital device–and this will only continue to grow. Moreover, quite a few major retailers, across a spectrum of categories, have publicly commented that they are experiencing 60-70% digital influence of physical stores sales.

Digitally-influenced brick & mortar sales dwarf e-commerce. While e-commerce now accounts for (depending on the source) some 10% of all retail sales, both Forrester and Deloitte have estimated that web-influenced physical store sales are about 5X online sales.

Increasingly, mobile is the gateway. We no longer go online, we live online and smartphones are the main reason. As the penetration of mobile devices–and time spent on them–grows, mobile is becoming the front door to the retail store. Digital-first now often means mobile-first. It may not be the predominant behavior today, but it won’t be long before it is.

It’s a search driven world. Sometimes consumers turn to the web for rather mundane tasks: confirming store hours or looking up the address of a retailer’s location. Other times they are engaged in a more robust discovery process, seeking to find the best item, the best price, the best overall experience and so forth. Retailers need to position themselves to win these moments that matter (what Google calls “micro-moments.” Full disclosure: Google’s been a client of mine).

Digital-first can be (really) expensive: Part 1. Having a good transactional e-commerce site is table stakes. Becoming great at enabling a digital-first brick & mortar shopping experience is the next frontier. As customers turn to digital channels to help facilitate brick & mortar activity, be that a sale or a return, retailers need to be really good at creating a harmonious shopping experience across all relevant engagement points. This isn’t about being everything to everybody in all channels. It isn’t about integrating everything. It is about understanding the customer journey for key customer segments, rooting out the friction points and discovering points of amplification, i.e. where the experience can be made unique, intensely relevant and remarkable at scale. It’s not easy, and it’s rarely cheap to implement. It turns out, however, it’s a really bad time to be so boring.

Digital-first can be (really) expensive: Part 2. Estimates vary, but it’s clear that search (or engaging on social media) is an intrinsic part of most consumers’ shopping process. And that means that an awful lot of customer journeys intersect with Google, Amazon, Facebook or some other toll-booth operator. I say toll-booth operator because so often a brand’s ultimate success in capturing the consumer’s attention, driving traffic to a website or store and converting that traffic into sales requires paying one of these companies a fee. And that can add up. Fast. Of course the best brands generate consumer awareness and interest through word-of-mouth, not paying to interrupt the consumer’s attention. The best brands get repeat business through the inherent attractiveness of their offering, not chasing promiscuous consumers through incessant bribes. The best brands don’t engage in a race to the bottom because they are afraid they might win. This shift in who “owns” (or at least can dictate) access to the customer is profound. A strategy of attraction rather than (expensive) promotion is the far better course, but not so easily done.

While e-commerce–and Amazon in particular–is re-shaping the retail industry, having a compelling online business is necessary, not sufficient. In fact, in my humble opinion, many of the retailers that are reeling today got into trouble because they spent too much time and money focused on building their e-commerce capabilities as a stand-alone silo, to the detriment of their physical stores and without understanding the digital-first dynamic that determines overall brand success and the ultimate viability of their brick & mortar footprint.

Blaming struggling retailers’ woes on Amazon, or e-commerce more broadly, is only part of the story. Figuring out how to thrive, much less survive, in the age of digital-first disruption requires a lot more than shutting down a bunch of stores and getting better at e-commerce. A whole lot more.

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

Digital · Frictionless commerce · Mobile · Retail · Share of attention · Winning on Experience

Retail’s new front door

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

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

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

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

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

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

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

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

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

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

 

 

Innovation

Whose idea of stupid?

Since we seem to be a society that judges quickly, we often waste little time affixing all sorts of labels to all sorts of people and all sorts of situations.

That guys a loser (not to mention low energy).

We tried that before.

This will never work.

Your idea is stupid.

To be sure, there’s no shortage of dumb ideas. Yet sometimes stupid wins.

Facebook and Amazon were once pilloried as concepts that couldn’t possibly work. When Google started it was the 20th search engine to launch and completely lacked a revenue model. It also followed in the footsteps of several high-profile flameouts.

Tesla, Instagram and PayPal were all once seen as pretty ridiculous business models by just about everybody.

Psychologists talk about “projection”–the notion that when we feel the need to point out the failings of others it’s often rooted in our own insecurities. “If you spot it, you got it” as some like to say.

Sometimes there is stupidity in the world that needs to be called out and confronted.

But sometimes it’s better to judge slowly.

Sometimes it’s better to realize innovation frequently happens at the razor’s edge of stupidity.

And sometimes you just need to consider the source.

Being Remarkable · Customer experience · Innovation

When the shift hits the fan

Shift happens. And it’s never been more expansive and dynamic.

The shift from brick & mortar to e-commerce.

The shift from “going online” to living online.

The shift from traditional media consumption to a digital first model.

The shift from silo-ed customer experiences to harmonious ones.

The shift from highly intentional shopping to more spontaneous “micro-moments.”

The shift from isolated customer journeys to those that are deeply connected.

The shift from brands’ being in control to empowered consumers who are increasingly calling the shots and dictating their requirements.

The shift from one-size-fits-all to highly personalized interactions and marketing. The end of mass, the beginning of us.

Confronted with these profound shifts, the tendency of many organizations is to go on the defensive. Overwhelmed by the shifting tides–and afraid to take risks in a fast-moving and highly uncertain environment–they circle the wagons to fight the changes or develop plans to cope with them. But survival is not enough.

When shift happens our goal has to be to understand it, to accept it and to go through it rather than around it. We must embrace it in a desire to thrive, not simply survive.

And most importantly, we need to get out in front of it well before it hits the fan.

H/T to Seth

Frictionless commerce · Omni-channel

Focused ubiquity

It’s an omni-channel world we’re told, where consumers are shopping anytime, anywhere, anyway. Rarely separated from their smart devices, our customers are one search or one click or, very soon, one buy button away from transacting wherever they happen to be. If we aren’t a ubiquitous presence anywhere and everywhere we not only risk losing out on that sale, we are likely at the start of a sad, inexorable march to the retail graveyard.

The staunch proponents of all things omni-channel have advanced a narrative that argues that every brand needs to sell in every possible channel, that millions must be invested to become seamless and integrated (whatever that means) as fast as possible and that unless a retailer is everywhere, it really is nowhere.

At one level it’s hard to argue with the thrust of this argument. It’s also hard to ignore the fact that the most fervent omni-channel advocates have financial interests in convincing retail brands to adopt their way of thinking.

There is no question that we have seen–and continue to witness–powerful shifts in consumer behavior. More and more, the blended channel is the only channel. The moments that matter in most consumers’ decision journeys are becoming profoundly different and that requires virtually every brand to fundamentally re-think how they engage with their customers.

There is also no question that a blind quest to be seamlessly integrated in all aspects of the enterprise is mostly a license to waste money. Chasing the bright and shiny objects of social media, all things mobile or “bringing the digital experience to your store” is more often a distraction in search of a strategy. The future of omni-channel will not be evenly distributed and that means that one-size-fits-all strategies will not work.

What retail brands need is focused ubiquity. It’s great to adopt an “anytime, anywhere, anyway” rallying cry and to pray to the god of seamless integration. But once you say the right things at your Board or industry analyst meeting it’s time to drop the platitudes and make a plan.

A focused ubiquity strategy requires the following:

Adopt a “treat different customers differently” mindset. Some customers are more equal than others. Omni-channel investments need to be prioritized against a clear view of the needs and wants of your most valuable customers and prospects. If you lack sufficient customer insight, get to work on that before you throw big money and time at complicated IT projects and process re-design work.

Identify the “moments that matter.” Just as all customers aren’t equal, all customer interactions aren’t either. Relationships start, grow and stop in a myriad of ways and your mileage will vary when it comes to where the ultimate leverage is.

Understand digital’s impact on brick & mortar sales. Stop thinking about e-commerce as a sales channel and start thinking about how all digital channels drive physical stores sales (and vice versa). I’ve yet to work with a retailer who hasn’t under-estimated the interplay between digital and physical sales, and few had a good handle on the most damaging sources of customer experience friction.

Conduct a friction audit. Armed with a clearer sense of how your brand’s actions drive awareness, acquisition, growth, retention and advocacy among critical customer cohorts, understand where friction in the customer experience arises, estimate the cost of this friction and build a prioritized road-map to address the most critical elements.

Develop an amplification strategy. The friction audit mostly focuses efforts to stem customer defection and improve conversion rates. It doesn’t necessarily create long-term competitive advantage. To do that–again, armed with a clear sense of “who’s if for?”–you need to create amplification points. These elements of your value proposition are the places where your brand can be truly remarkable–remarkable in the sense of clear competitive differentiation, intense customer relevance and the willingness of your best customers to spread the word.

It often seems like human nature to try to be all things to all people, at least until we hit a point of utter exhaustion and/or the money runs out. This is the danger inherent in a “get omni-channel fast” strategy that so many retailer brands have seemed to adopt.

Adopting a focused ubiquity strategy acknowledges the anytime, anywhere, anyway world we find ourselves in. It also accepts the reality that few, if any, brands have the financial capacity or the human resources to do everything well at once.

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.