Tag: Macy’s

Retail

Retailers’ pointless pursuit of the promiscuous shopper

stevenpdennisLeave a comment

I’m not sure who said it first, but it’s certainly true that great brands don’t chase customers, they attract customers to them. But I think it goes deeper than that.

This week, as many retailers close their books for the fiscal year, those that remain stuck in the boring middle are very likely to experience weakening margins–or margins that remain materially below industry averages. And when some of the faster growing public “digitally-native” brands share their quarterly numbers, there is a good chance that their margins will be poor as well. The relentless, expensive and mostly futile pursuit of the promiscuous shopper deserves much of the blame.

By promiscuous shopper I don’t simply mean those folks that are value conscious or use technology to be sure they aren’t getting ripped off. Many people do that. What I’m referring to are those shoppers that have virtually zero propensity to remain loyal within a particular category and are constantly searching for the best deal. Clearly having too many of these customers in a retailer’s portfolio can make it impossible to grow enterprise value if they don’t spend at all without receiving a big fat discount. In some cases (as Peter Fader and Dan McCarthy’s work has illuminated) many of these customers may actually have negative marginal value. So the more a brand grows, the worse it gets. But enough about Wayfair.

Of course plenty of this is self-inflicted and hardly new. Over multiple decades the retail industry has done a great (and by “great” I mean “lousy”) job teaching customers to wait for a deal and that regular price is not only mostly meaningless but is often “the sucker price.” The long-suffering department store sector is perhaps the poster-child for this behavior, with constant promotions and the layering on of “friends & family” and private label credit card discounts. That doesn’t seem to be working out all that well. But we also have Bed, Bath & Beyond with their ubiquitous coupons, as well as plenty of other retailers offering a litany of buy 1, get 2 (or 3!) free promotions that obliterate any concept of regular price.

Despite a long-history of “promotional retail”, in recent years this chasing of the promiscuous shopper has gotten worse and now makes it imperative for retailers to get their acts together. Pricing information used to be relatively scarce (or hard to come by). Today, not so much. As the power has shifted to the customer it’s next to impossible for any retailer to get away with having uncompetitive pricing. More pernicious, though, is the heavy discounting on the part of venture capital funded “disruptive” brands. As these companies seek to maintain their growth trajectory and/or seek to be the last brand standing in a rapidly maturing segment (think flash-sales 5 years ago and subscription meal kits today), massive discounts are being thrown at new customers, many of whom will simply go back and forth from one largely interchangeable brand to the next. This will end badly.

So what’s the solution? First of all, if the underlying business model is unremarkable, a more sensible promotional strategy is necessary, but not sufficient. To be sure, JC Penney spends way too much time and energy chasing promiscuous shoppers. So does Macy’s. But their issues go beyond a lack of more sophisticated target marketing. There are always better ways to chase customers, but it’s the chasing that is the core issue.

Nevertheless, all brands need to understand both their marginal customer economics and lifetime value at a detailed level. They need to find more ways to treat different customers differently. In some cases that means stop pursuing customers that can never be profitable. But in most cases it will mean a much more finely honed and personalized set of customer-focused strategies informed by deep customer insight.

The fact is very few brands can ever “own” discount–and those retailers that try to compete with them are merely engaging in a race to the bottom. If your brand only gets love when you pay for it, aside from the not so nice metaphor, you might want to get to work on the underlying reasons.

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 was honored and humbled to move up to #5 on Vend’s 2019 Top Retail Influencer List and to be recently named a Top Retail Tech Influencer to follow on Twitter.

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

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

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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.

Digital Disruption · Radical · Retail

Gee, I thought you were in the mattress business?

stevenpdennisLeave a comment

In my current keynote, I make the observation that many retailers have gotten themselves into trouble watching the last decade or so happen to them. Primarily for this reason, No. 8 in my “Essentials of Remarkable Retail” is the need to be “Radical” and to embrace a culture of experimentation.

Clay Christiensen, Gary Hamel and many others have highlighted how legacy brands often struggle to keep pace with innovation. While there are some examples of industry incumbents responding well to disruption, it is far more typical (at least in retail) for companies to get this wrong. Having been a Sears executive when, arguably, there was still a chance for a meaningful turnaround, I often point out that we did not lack the knowledge that Home Depot and Lowe’s were on a trajectory to destroy our primary competitive advantage. What we lacked was the willingness to act. Some of this was clearly linked to culture, process, risk aversion and the like. But a lot of it was tied to how we defined what business we were in. This faulty line of thinking is a mistake oft repeated.

The latest example of this phenomenon is what’s transpiring in the $29 billion mattress category. Drive around any major city and you’re likely to encounter quite a few mattress specialty stores, the most prominent being Mattress Firm with over 3,000 locations in the U.S. Department stores like Macy’s and JC Penney also have significant mattress businesses. Mattresses are sold through traditional furniture stores like Ashley or Haverty’s as well. Given the size and profitability of the industry, the pace of digital disruption and competitive intensity, you might think that a few of these players would be aggressively pursuing innovative new formats. You’d be wrong.

In a rather ironic twist, Casper, which launched as an online only brand in 2014 and has raised $240 million in venture capital funding, is set to open 200 stores while industry leader Mattress Firm appears about to file bankruptcy to facilitate mass store closings. Casper is far from the only industry insurgent. Purple, Saatva and others are all trying to carve out sizable and sustainable positions. Most will not be around in 5 years time, but they will wreak havoc in the meantime and one or two might get acquired for what is likely to be stupid money. In fact, Tuft & Needle, Casper’s primary direct competitor, just merged with mattress manufacturing behemoth Serta Simmons.

casper_stores_1.0

Given the accelerating pace of change and the investment community’s tendency to value growth over profit, it’s not easy to be certain which disruptive model will take hold and which will be exercises in setting a big pile of cash on fire. Nevertheless, if you are Folger’s and you limit the way you see your business, you miss the value created by Starbucks. If you are Blockbuster and decide you are in the business of distributing videos through physical locations, you miss Netflix. If you are Sears and you decide you are a multi-category retailer selling a whole bunch of stuff mostly through mall-based department stores, you miss the home improvement warehouse opportunity. Oh yeah, and you also miss Amazon.

Many things in life are defined (and obscured) by our lens and filters. We need not look beyond the partisan hackery of America’s current political climate to see the truth of this. Yet in the context of how we manage our brands, respond to disruption and stay one step ahead of the consumer, we should take a lesson from the world of psychology. There are three fundamental steps to unlocking the opportunity that lays beyond our fears. First, is awareness. We must deeply understand our customers, their journey and how it is evolving, as well as the competitive dynamics that are at play. Second, is acceptance. We can see something but not truly own the truth of it and all the potential implications. The third is, of course, the most important: action.

Until we find ourselves in the arena, trying stuff, seeing failure as an option, we are likely to have the next decade happen to us as well.

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 October 16th I’ll be in San Antonio delivering the opening keynote at X/SPECS . November 8th I’ll kick of the eRetailerSummit in Chicago.

For more info on my speaking and workshops go here. 

A really bad time to be boring · Innovation · Retail

Will Macy’s ignite a new era of legacy retailer innovation?

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The moderate department store sector has been struggling for some two decades; first losing share to category killers and discount mass merchants, then to off-price retailers and now, increasingly, to Amazon. Since 2008, department stores’ share of total retail has sunk from 2.8% to about 1.7%. Over 1,000 stores have been shuttered during the past few years with more sure to follow. J.C. Penney and Sears have seen their market values collapse, while Kohl’s, Dillard’s and Macy’s have significantly underperformed the market.

Recently, however, a certain ebullience has returned to the sector as financial performance has improved. Some observers now see a rebirth, while others are a bit more skeptical. It may well turn out that the past few months’ gains are more dead cat bounce than renaissance. Yet Macy’s has garnered considerable attention by stepping up its growth efforts under CEO Jeff Gennette. The first big step was announcing its Growth 50 Strategy earlier this year. Then, in just the past six weeks, two significant deals were announced. In early May, the company acquired Story, the Manhattan-based concept store, and made its founder Rachel Shechtman Macy’s new “chief brand experience officer.” And then just over a week ago Macy’s entered into a strategic alliance with b8ta, the experiential retailer and technology platform.

It remains to be seen whether these initiatives help relieve the epidemic of boring that struck Macy’s and its brethren years ago. Materially and fundamentally altering Macy’s stuck in the middle trajectory will take more than a couple of deals that look to affect a small percentage of its total business. The operational, experiential and product changes that are part of Growth 50 appear solid, but are far more evolutionary than revolutionary. And all of this comes against a backdrop of increasing competition from off-price retailers that are opening substantial number of stores (and aren’t yet close to mastering digital commerce), along with Amazon’s growing push into fashion.

Macy’s improved financial performance has to be put in the context of the broader market (Macy’s is barely keeping pace) and these innovation moves must be put in the context of their potential materiality (they aren’t likely to be). Still, Macy’s is to be applauded for its willingness to act and to embrace what I call a “culture of experimentation.” Given that the sector Macy’s competes in is virtually certain to keep shrinking, the only way for Macy’s to drive consistent, material profitable growth will be for them to steal significant market share. That will take more than incremental improvements or a random set of experiential pilots. These moves seem like a good, albeit limited, start.

While it’s easy to blame Amazon (and others) for the troubles that have befallen so many legacy retailers, the reality is that most of the wounds are self-inflicted. Too many of these retailers, including Macy’s, watched the last 15 or 20 years happen to them. They seemed to be believe that they could cost cut their way to prosperity and that mere tweaks to their product offering and customer experience would move the dial. Now, as many of them inch closer to the precipice, a few are acting—some rather more boldly than others.

The fact is they have no choice. The middle is collapsing under the weight of boring product, boring marketing and boring experiences. And you could not have picked a worse time to be boring. The only way out is to be dramatically more customer-relevant and to deliver a remarkable experience at scale. Being digital-first, offering a seamless customer experience, along with all the other buzzwords the pundit class likes to throw around (myself included) are fast becoming table-stakes. Necessary, but far from sufficient.

Traditional retailers are often pretty good at following others’ leads. I suspect that as Macy’s makes additional moves, many will be emulated by competitors. Yet the idea that legacy retailers will finally wake up to the need to be fundamentally more innovative seems unlikely. They mostly watched when it was clear that e-commerce was going to revolutionize shopping. They mostly stuck to channel-centric thinking and silo-ed behavior when it became clear that the customer was the channel. They mostly remained rooted in one-size-fits-all marketing strategies when it was obvious that we needed to treat different customers differently. And they continue to rely on store closings as a silver bullet, when the real problem is operating a brand that is not big enough for the stores they have.

Adding to my dire and admittedly cynical outlook is that many of the retailers that need to innovate the most still have no clue how to do it and, even if they did, lack the cash flow to make it happen. Sadly, for many, this will end badly.

For them, as the saying goes, the biggest problem is that they think they have time.

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.  For more on my speaking and workshops go here.

Being Remarkable · Reimagining Retail · Retail

Is this the beginning of a department store renaissance? Eh, not so much.

stevenpdennisLeave a comment

Nearly two weeks ago Macy’s beat quarterly sales and earnings expectations and many on Wall Street promptly lost their mind. Same story with Dillard’s. Then Kohl’s followed up with a similarly surprising upside report that led some to conclude that maybe, just maybe, the long-beleaguered department store sector might be seeing a resurgence or—dare we say it out loud?—the beginning of a renaissance.

Alas, this rising ebullience seems far more driven by a mix of hope, misunderstanding and a heaping side order of denial than any compelling evidence that the tide is turning in any meaningful or sustainable way. Once again we are in real danger of confusing better with good.

To be sure, both Macy’s and Kohl’s sales and profits were much improved over last year. Yet their performance must be viewed from the perspective of both short-term factors and longer-term realities. On the clearly positive side there is solid evidence that both struggling retailers are executing better. In Macy’s case, inventory looks to be well managed (yielding fewer markdowns) and efforts to capture cost efficiencies appear to be paying dividends. A few targeted strategic initiatives, including Kohl’s partnership with Amazon, seem to be driving some incremental business.

With a bit more context, however, these results aren’t really all that stellar. And they most definitely are not yet strong indicators of any substantive turnaround. Notably, both retailers’ sales benefitted significantly from the move of a major promotional event into the quarter. Without this shift, same-store sales would have increased only about 1.7% at Macy’s, and Kohl’s would have been more or less flat (not that this metric is all that useful anymore anyway). That is neither keeping up with inflation nor maintaining pace with the overall growth of the broader categories in which they compete. The optimist might see losing market share at a slightly slower rate as a win. The realist opines that there is a lot more work to do to go from decidedly lackluster to objectively good.

The other thing to bear in mind is that J.C. Penney and Sears (and now Bon-Ton) have been leaking volume through store closings and comparable store sales declines. It’s hard to imagine that Macy’s and Kohl’s have not benefitted materially from this dynamic. While J.C. Penney’s future is increasingly uncertain, any upside from Bon-Ton will be short-lived. Sears looks to be the gift that keeps giving, though likely for only a few quarters more as I expect that Sears will close substantially all of its full-line stores within the next year. While this creates one-time market share gaining opportunities and fixed cost leverage, once the dust settles two factors will come into sharper relief.

The first is the contributions from a strong economy. Recent macro-economic factors have been generally positive for the product categories in which Macy’s and Kohl’s compete. Whether there will continue to be some wind beneath the sails of U.S. retail more broadly—and for the moderate-priced apparel, accessories and home categories in particular—remains to be seen. Clearly my crystal ball is no better than anyone else’s—and maybe worse. But my best guess is that both the economy and the jump ball for market share occasioned by department store consolidation peaks within the next few quarters.

The second factor that looms large seems to be the one Wall Street forgets. The moderate department store sector has been in decline for a long, long time. Some of this has to do with evolving customer trends. Some with stagnant income growth. Some with the rise of superior competing business models: initially category killers, then off-price and dollar stores and now, increasingly, Amazon. And some with more than a fair share of self-inflicted wounds. Regardless, the entire moderate sector, to varying degrees, is stuck in the vast, undifferentiated and boring middle. A somewhat better version of mediocre may the first step on an eventual path to greatness, but it may be just that: a first step.

Lift the veil from a quarter or two of slightly above average performance and the drivers of broader share losses (and related widespread shuttering of stores) continue unabated. Off-price and dollar stores, which in recent years have accounted for the biggest drain on Macy’s, Kohl’s et al., are opening up hundreds of new stores at the same time they are starting to turn up their digital game. Amazon is becoming a bigger factor everyday—and it has yet to make a big push into physical stores. Even if any of the leading department stores miraculously became more innovative and customer relevant they would continue to face significant headwinds. Bottom line: show me someone who believes that a transformation of mid-priced department stores is possible in the foreseeable future and you’ve probably clued me into who has been providing Eddie Lampert with his strategic consulting advice.

As the middle continues to collapse, it is now completely a market-share game. The near-term good news is that Macy’s and Kohl’s competition has made it relatively easy to grab some share. The near-term good news is that a generally healthy economy tends to raise the tide for all. The near-term good news is that Macy’s and Kohl’s operating discipline allows them to convert relatively small sales increases into nice incremental profit opportunities.

The bad news is neither one of them goes from incrementally better to demonstrably good until they make much more substantive and fundamental strategic changes that move them from mostly boring to truly remarkable. Neither brand has spelled out what that looks like in any compelling fashion. And once designed, getting there from here is no small task. Until then, it is way too early to declare victory.

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 June 15 I will be doing a keynote at The Shopper Insights & Retail Activation Conference in Chicago. Contact me for a special discount. For more on my speaking and workshops go here.

e-commerce · Retail · The Amazon Effect

Is Amazon finally getting serious about retail profitability?

stevenpdennis1 Comment

There seems little doubt that Amazon.com AMZN -0.27% is crushing it and Macy’s is flailing. So who has the best profitability? Well, it’s not even close.

Macy’s operating margin is just over 6%. In recently reporting what was widely seen as a blowout quarter, Amazon is just now approaching a whopping 2% in its non-Amazon Web Services business. By just about any comparison, in most categories, Amazon’s margin performance appears to be anywhere from lousy to lackluster, despite its vast capabilities and more than 20 years of working hard at most of it.

One particularly disturbing trend is rising shipping and fulfillment costs. With Amazon’s massive scale, you might think this would be a growing source of profit leverage. You’d be wrong. Logistics costs continue to rise faster than revenues.

This is not terribly surprising. The structure of Amazon’s Prime program (which recently surpassed 100 million members) essentially encourages customers to overuse “free” shipping for frequent small orders—which generally have low (or non-existent) profits. Amazon also continues to aggressively push same-day delivery, which, at current scale, has terrible marginal economics.

Amazon’s growing success in apparel may be great for the top line, but returns and exchanges tend to be much higher than average, pushing supply chain costs further in the wrong direction.

Before anyone quibbles with my high-level analysis, I will state that I know the company has been making substantial investments for the long term. I realize that there are many instances where Amazon could make more money but it continues to prioritize market share gains over decent (or any) near-term returns. And I understand that Wall Street clearly values growth over profits. Yet against this backdrop, it does seem as if there is a subtle shift in focus.

Given the significant headwinds from growing logistic costs, the fact that profits improved dramatically suggests that both product margins and non-logistics operating costs are starting to be leveraged in more powerful ways. Moreover, in what some see as a risky move—but I see fundamentally as an acknowledgement of customer loyalty, pricing power and a growing need to offset spiraling delivery costs—Amazon is raising the price of Prime membership by $20. Despite customer protestations, I am willing to bet that Amazon comes out way ahead on this move.

Another sign of Amazon’s seriousness toward pursuing profitability is its growing investment in private brands. Amazon already has more than 70 proprietary brands, and more are sure to follow. Done right, increasing the mix of its own brands can further drive market share gains by offering strong additional value to its customers and drive gross margins higher. Expect to hear more about the significant contributions these new brands are making within the next few quarters.

When it comes to buying versus shopping, Amazon holds more and more of the cards. More than 50% of all online product searches start at Amazon. Amazon is fast closing in on owning nearly 50% of the U.S. e-commerce market and is racking up significant share in many global markets. Prime membership tends to lock consumers into a virtuous shopping cycle where, at the margin, Amazon becomes the default choice for a growing basket of stuff. As Amazon gets deeper into physical stores (organically or through another major acquisition), even the “shopping” side starts to come more seriously into view—much of which should actually help expand margins. And personally I think Amazon has yet to take anywhere close to full advantage of its powerful customer data and insight assets.

Given the complexity of its operations—and the overlapping cycle of major investments in the next wave of growth—it’s often hard to discern the underlying dynamics of Amazon’s retail operations in any given quarter. Yet a few things seem clear.

First, Amazon likely never gets to decent operating margins without addressing the supply chain cost issue. Second, private brands will soon become a more important part of the story. Third, in the not too distant future, a more aggressive brick-and-mortar strategy is likely needed to continue to drive outsized growth. Lastly, Amazon still has a lot of levers to pull to leverage its data and take advantage of its growing customer loyalty. For the most part, improved profitability can likely come at a time and date of Amazon’s own choosing.

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 17 I will be keynoting Kibo’s 2018 Summit in Nashville, followed the next week by Retail at Google 2018 in Dublin.

Innovation · Retail · Winning on Experience

Macy’s acquires Story: Game changer or much ado about nothing?

stevenpdennisLeave a comment

Last week Macy’s announced it had acquired Story, a New York-based concept store, and appointed founder Rachel Shechtman to be its new “brand experience officer.” And, for the most part, enthusiastic gushing ensued. Let’s simmer down, people.

As I regularly write and speak on retailers’ need to innovate and embrace a culture of experimentation, I would be a complete hypocrite if I failed to applaud Macy’s (and newish CEO Jeff Gennette’s) willingness to take bold steps. Yet before we jump on the silver-bullet train we might wish to consider a few important points.

Is Story Successful Beyond Generating PR?

There is no question that Story is cool and innovative. There is no question that Story has punched way above its weight when it comes to generating industry and media attention. And the notion of “store as media” is an intriguing one that is appropriately starting to change the way brands must think about their brick & mortar experience.

But lest anyone forget, Story launched in 2011 and has never expanded to another city, much less another location in the New York area. It’s pretty difficult to make the argument that Story has the potential to “reinvent retail” on any significant scale when after more than six years the number of customers it has validated its impact upon is teeny tiny. Every other truly interesting “disruptive” concept I can think of that launched around the same time (or even later) has attracted significant investment capital and is well into their expansion plans. So, to be blunt, there is far more evidence to suggest that Story is a way cool Manhattan phenomenon than there is to suggest it has any real ability to be relevant to Macy’s customers—and ultimately material to Macy’s strategy.

Do You Know How Much Macy’s Paid? 

No, I didn’t think so. So how can you say it’s a genius deal? I happen to own a pretty nice car. But if you were willing to pay me $100,000 for it you would be the opposite of a genius. Perhaps Macy’s paid less than it would cost to hire Shechtman as a consultant for a couple of years, in which case that sounds like a bargain. Maybe it paid millions for something it could have done itself years ago, in which case that sounds more dumb and desperate. Maybe we should say “who cares?” as regardless it’s probably chump change to a huge company like Macy’s. In any event, we just don’t know. So please hold your applause.

Macy’s Problems Run Deep

Macy’s has two huge and fundamental problems to address. First, it sits in a sector that has been in decades-long secular decline—and there is no reason to think that will change anytime soon. In fact, as Amazon and the off-price sector continues to expand aggressively in Macy’s core categories, it could easily get worse. Second, while Macy’s does a bit better than most of its department store brethren, it is still part of the epidemic of boring, struggling to carve out a sustainably relevant and remarkable position. It has a lot of expensive, risky and time-consuming work to do on both the customer-facing experiential parts of their business and their technological infrastructure. This all comes at a time when the company’s profits have stalled. That’s a very tall order and no one strategic initiative is likely to make a dent.

Does This Deal Fundamentally Change The Macy’s Story?

While Walmart paid silly amounts of money for Jet.com, Bonobos, et al., it now seems clear that the injection of “digitally native” senior talent has helped take the moribund retailer to an important new level. It also earned them some street cred. So acquisitions like Story can certainly contribute to an enterprise well beyond their straight discounted cash flows.

While some have referenced Macy’s earlier deal to buy Bluemercury as an analog, my guess is that if Story is to make a real difference it will be more similar to Nordstrom’s acquisition of Jeffrey over a decade ago. As that played out, it was founder Jeffrey Kalinsky’s impact on Nordstrom’s overall fashion strategy that was the source of value rather than the expansion of his eponymous stores.

The key in this situation will be whether Macy’s gives Shechtman the latitude to impact the trajectory of Macy’s brand to any material degree or whether the culture will eat her up and spit her out. And even if she gets that latitude, it is no easy task for even the most talented and experienced executive to make a big difference within an insular culture. There are far more examples of experiments that have gone awry than have worked out. We will have a far better idea about this critical dimension a year from now. Regardless, it won’t be easy.

The Opposite Is Risky

To be sure, retailers like Macy’s got into trouble because they mostly watched the last 20 years happen to them. Consciously or not, they acted as if deciding to embrace innovation was risky when, as it turns out, their reluctance to take chances was the riskiest thing they (and so many others) could have possibly done. The simple fact is, as Seth Godin reminds us, “if failure is not an option than neither is success.” The key is not to avoid failure, it’s to fail better.

Macy’s, like all those risking “death in the middle,” are desperately in need of a transformation. And that unequivocally means placing multiple bets in the hope of creating a vastly different future. Viewed from this lens, the acquisition of Story—and giving Shechtman a chance to impact the Macy’s culture and brand—is likely a pretty decent bet. As it’s highly unlikely to materially change Macy’s overall fortunes all by itself, it needs to be the first of many such wagers.

_story-01

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 17 I will be keynoting Kibo’s 2018 Summit in Nashville, followed the next week by Retail at Google 2018 in Dublin.

A really bad time to be boring · Death in the middle · Reimagining Retail · Retail

Better is not the same as good for department stores stuck in the middle

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As most U.S. department stores reported earnings recently, a certain level of ebullience took hold. Macy’s, Kohl’s and even Dillard’s, for crying out loud, beat Wall Street expectations, sending their respective shares higher. J.C. Penney, which has failed to gain any real traction despite Sears’ flagging fortunes, continued to disappoint, suggesting that I probably need to revisit my somewhat hopeful perspective from last year. And in the otherworldliness that is the stock market, Nordstrom — the only department store with a truly distinctive value proposition and objectively good results — traded down on its failure to live up to expectations.

Given how beaten down the moderate department store sector has been, a strong quarter or two might seem like cause for celebration–or at least guarded optimism. I beg to differ.

First, we need to remember that the improved performance comes mostly against a backdrop of easy comparisons, an unusually strong holiday season and tight inventory management. There is also likely some material (largely one-time) benefit from the significant number of competitive store closings and aggressive cost reduction programs that most have put in place.

Second, and more importantly, we cannot escape the fact that mid-priced department stores in the U.S. (and frankly, much of the developed world) all continue to suffer from an epidemic of boring. Boring assortments. Boring presentation. Boring real estate. Boring marketing. Boring customer service. And on and on. For the most part, they are all swimming in a sea of sameness at a time when the market continues to bifurcate and it’s increasingly clear that, for many players, it’s death in the middle. It’s nice that some are doing a bit better, but as I pointed out last summer, we should not confuse better with good.

To actually be good — and to offer investors a chance for sustained equity appreciation — a lot more has to happen. And while being less bad may be necessary, it is far from sufficient. Most critically, all of the major players still need to amplify their points of differentiation on virtually all elements of the shopping experience. It’s comparatively simple to close cash-draining stores, root out cost inefficiencies and tweak assortments. It’s another thing entirely to address the fundamental reasons that department stores have been ceding market share to the off-price, value-oriented, fast-fashion and more focused specialty players for more than a decade. And now with apparel and home goods increasingly in Amazon’s growth crosshairs, there has never been a more urgent need to not only to embrace radical improvement, but to really step on the gas.

Without a complete re-imagination of the department store sector — and frankly who even knows what that could actually look like — near-term improvements only pause the segment’s long-term secular decline.

It’s unclear how much the eventual demise of Sears and the inevitable closing of additional locations on the part of other players will benefit those still left standing. It’s unclear whether the current up-cycle in consumer spending will be maintained for more than another quarter or two. What is crystal clear, however, is that incremental improvement in margin and comparable sales growth rates merely a point or two above inflation never makes any of these mid-priced department stores objectively good.

Ultimately, without radical change, it all comes down to clawing back a bit of market share and squeezing out a bit more efficiency in what continues to be a slowly sinking sector riddled with mediocrity. Boring, but true.

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.  

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NOTE: March 19 – 21st I’ll be in Las Vegas for ShopTalk, where I will be moderating a panel on new store design as well as doing a Tweetchat on “Shifting eCommerce Trends & Technologies.”  

A really bad time to be boring · Retail

Department Store Shares Are Up. Your Hopes Shouldn’t Be.

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Amidst reports that holiday spending was up nearly 4.9%, some optimism about the American moderate department store sector has started to creep back in. In fact, right after these reports shares of Macys, Dillards, Kohls and JC Penney spiked. It’s all a bit baffling.

On the one hand, if I were a betting person, I expect that these brands will report decent, maybe even objectively good, numbers this quarter. Consumer confidence is strong, the stock market is up and many regular folks (mistakenly) believe that their income will be up materially on the heels of the new tax bill. From a retailer perspective, the burst of cold weather bodes well for sales of seasonal items. Tighter inventories, store closings and other expense reductions should lead to year-over-year profit improvements.

On the other hand, none of this fundamentally changes the relative competitive positions of these retailers. And that means until several other things change, the overall outlook for the sector remains pretty gloomy.

As I pointed out several months ago, at least two major things must happen before any optimism about the prospects of any of the middle market department store brands is warranted.

First, there is still too much capacity chasing a shrinking pie of spending. While it may turn out that these chains picked up a bit of market share over the holidays, the sector remains in overall decline and any blip in consumer spending ebullience isn’t very likely to continue into 2018. More store closings need to occur to get supply better in line with sustained demand. As Sears sinks into oblivion, and the remaining big four close additional locations early next year, there is some hope for the future. For now though, capacity remains out of whack.

More importantly, the major moderate department stores have picked a really bad time to be boring. They remain stuck in the vast, largely undifferentiated middle, drowning in a sea of sameness. And, unfortunately, it’s death in the middle. These major chains all have considerable work to do to create a more harmonious shopping experience, to up there game on personalization and to find places in both their assortment strategies and customer experience to be more relevant and remarkable. They remain overly attached to competing on price, when fundamentally that is deciding to compete in a race to the bottom which–spoiler alert–they will never win.

The notion that department stores are fundamentally doomed is just as silly as the retail apocalypse narrative. So too is the idea that Amazon is solely to blame for department store woes. Yet the structural reasons for the declining state of the sector remain intact. The only way any of these brands deserve stock appreciation is for more rationalization to occur (which is inevitable) and for them to truly embrace more innovation and to have the courage to become more intensely relevant and remarkable.

Then again, there is always the hope they get bought out by Amazon.

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.  For information on keynote speaking and workshops please go here.

A really bad time to be boring · Being Remarkable · Reinventing Retail

Retail reality: It’s death in the middle

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I first pointed to what I called “retail’s great bifurcation”literally two years ago today. Though it wasn’t the first time that I had observed what I saw as the impending collapse of the middle. I began writing and speaking about that during 2011.

As we emerged from the financial crisis it seemed clear to me that retail brands were faced with the proverbial fork in the road. A strategy of being just about everything to everybody–of selling average products to average people in an average experience–was becoming increasingly untenable. While it’s easy to credit the “Amazon effect,” or the overall rise of e-commerce, that’s only part of the story. The fact is many factors conspired to squeeze the middle, while, for the most part, the two ends of the spectrum continue to thrive.

For years now brands that execute well on price, dominant assortments, buying efficiency and convenience are winning. Amazon, Walmart, Best Buy, Home Depot, Costco and virtually all the off-price giants and dollar stores, are driving strong growth and profits. And–I hope you are sitting down for this–despite the silly retail apocalypse narrative, they are all opening stores–in some cases lots of them. Similarly, we find many success stories at the other end of the spectrum. Most established luxury brands are experiencing strong growth, as are higher-end specialty retailers who have a tight customer focus, offer a superior experience and provide a real emotional brand connection. Think Apple, Bonobos, Nordstrom, Sephora, Ulta, Warby Parker and many more. Somehow living in the age of Amazon and digital disruption has not come remotely close to creating an existential crisis for these retailers.

Of course, the story is very different for others in the great, mostly undifferentiated, wasteland of the middle. Most of the retailers that have recently made their way to the retail graveyard or find themselves at the precipice suffer from a decided lack of relevance and remarkability. They have decent prices, but not the best price. They have some service, but nothing to get excited about. Their product assortments and presentations are drowning in a sea of sameness. The overall experience is dull, dull, dull. It’s not surprising that a quick perusal of a store closing tracker features names like Sears, J.C. Penney, Macy’s and Radio Shack; brands that staked out the moderate part of the market long ago and have failed to innovate in any material way. Most of these companies now lack the financial resources, time and organizational DNA to affect the necessary transformations. This will end badly.

While it’s tempting to blame Amazon for the deep troubles faced by mid-priced department stores, the category has been on the decline for more than two decades. Studies also show that the majority of market share lost by these players in recent years has gone to the off-price sector. To be sure, Amazon is putting pressure on most sectors of retail. Further, the rise of digital shopping has created a radical transparency that places the customer firmly in charge. In many respects what was once scarce–reliable product information, lower prices, access to products from across the country (and around the world), rapid delivery–no longer is. No customer wants to be average and today, in most instances, no customer has to be. And, for those brands that have seriously invested in deep customer insight and committed to a “treat different customers differently” strategy, there is no place for unremarkable competitors to hide. Good enough no longer is.

The bifurcation of retail is only going to become more pronounced. The fork in the road is more and more obvious. The collapse of the middle will only get worse.

It turns out it’s really bad time to be boring.

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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.  For information on keynote speaking and workshops please go here.