Customer-centric · Digital · e-commerce · Retail

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

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

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

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

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

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

 A version of this story recently appeared at Forbes, where I am a retail contributor. You can check out more of my posts here.  
Digital · Retail · Winning on Experience

What if retail traffic declines last forever?

The results keep pouring in and they don’t bode well for brick & mortar retail. Across just about every sector and virtually every time period, traffic to physical stores continues to decline.

Of course, for the most part, we aren’t buying less, we are shopping differently. The obvious dominant trend is the explosion of e-commerce, and the one player accounting for the most growth is Amazon. Yet the real news for everyone else is how shoppers are diversifying the channels in which they research purchases and ultimately transact. This so-called “omni-channel” world is wreaking havoc with traditional retailers’ underlying economics and, like most things, the future will not be evenly distributed.

The vast majority of retailers have now likely entered a period where comparable store traffic will never increase again for any sustained period of time.

That’s profound. And more than a bit scary.

Drops in store traffic almost always dictate sales declines. Given that physical stores have relatively high fixed costs (rent, inventory, staffing, etc.) a material drop in revenue deleverages operating costs and profits fall disproportionately. This long-term (and increasingly widespread) trend is causing a great deleveraging across many retail segments and is the primary reason so many stores are being closed. It’s also causing brands to rethink the size and operating nature of the stores that remain or they plan to open. These shifts will prove seismic.

While there is a belief that e-commerce’s economics are superior to brick & mortar stores, that frequently is not the case, primarily owing to challenging supply chain costs, high product returns and compressed margins. As traditional retailers invest heavily in building their digital operations–and creating the much vaunted seamlessly integrated shopping experience–many are merely spending a lot of money to move sales from one channel to the other, often at lower profitability. Even brands such as Nordstrom, Neiman Marcus and, to a lesser degree, Macy’s, that are often touted as omni-channel pioneers and have industry leading online penetration, have seen profit growth stall despite massive investments.

Roughly 90% of all retail is still done in physical stores. Yet the growth of e-commerce will continue unabated and the resulting drop in store traffic is an undeniable and unrelenting force. With rare exception, there is little any retailer can do to stem this tide. One key focus must therefore be on right-sizing store counts and the remaining stores’ footprints and operating costs. But the far more important strategy is to create a remarkable customer experience across all channels that reflects how consumers shop today and the intersectionality of digital and physical channels. Ultimately the key is to maximize customer growth, loyalty and profitability irrespective of where the customer decides to transact.

The pain of store traffic declines is inevitable.

The degree of suffering from it remains optional.

 

This post originally appeared on Forbes where I recently became a contributor. You can check out more of my writing by going here.

Luxury · Retail

Kors is the latest retail highflier to get its wings clipped

Add once soaring–and seemingly invincible–Michael Kors to the list of retail brands to disappoint the market.

Last week Kors, the “accessible luxury” fashion brand that has grown from a niche player to a multi-billion dollar global juggernaut in under a decade, reported earnings that actually slightly beat expectations. Yet a miss on sales and lowered guidance sent the stock cratering.

At first blush, the overall sales weakness should not have surprised anyone. Kors has pulled back significantly on its wholesale distribution while simultaneously reducing promotional activity. An increase in that sector would have taken a miracle. But what was shocking was a rather precipitous 6.4% drop in comparable stores sales and a nearly 23% decline in licensing revenue.

It’s tempting to see the problems at Kors as brand specific, self inflicted and temporary as the brand realigns its pricing and distribution strategy. But I believe they underscore several broader and more vexing industry issues.

For several quarters now we’ve witnessed a panoply of once mighty high-end brands falter. The luxury department store industry’s big stall is now well into its second year. Saks has reported several quarters of disappointing comps. Neiman Marcus, saddled with high debt and weakening sales, had its debt rating downgraded last week. Nordstrom’s industry leading full-line store performance has become tepid at best. And all of this comes amidst a surging stock market and improving consumer confidence.

To be sure, the strong dollar and weak oil market has a material dampening effect. But even if that were to reverse–which seems rather unlikely anytime soon–the industry is still plagued by increasingly unfavorable demographics, lack of innovation, over capacity and growing consumer willingness to “trade down” to less expensive substitutes. Until these companies find ways to drive traffic increases, attract meaningful numbers of new customers and drive revenues through transaction growth instead of merely raising prices, we can expect a continued string of disappointments from most, if not all, of these brands.

And it just might take a major shakeout to restore the industry to its glory days.

A version of this post originally appeared @Forbes where I recently become a contributor. You can check out my latest work here.

Being Remarkable · Customer-centric · Digital · Frictionless commerce · Omni-channel · Winning on Experience

Stop blaming Amazon for department store woes

Given Amazon’s staggering growth and willingness to lose money to grab market share it’s easy to blame them for everything that is ailing “traditional” retail overall–and the  department store sector in particular.

In fact, with announcements last week from Macy’s to Kohl’s and Sears to JC Penney that could only charitably be called “disappointing” many folks that get paid to understand this stuff reflexively jumped on the “it’s all Amazon’s fault” bandwagon. Too bad they are mostly wrong.

The fact is the department store sector has been losing consumer relevance and share for a long, long time–and certainly well before Amazon had even a detectable amount of competing product in core department store categories.

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The fact is it’s just as logical to blame off-price and warehouse club retailer growth–which is almost entirely done in physical locations, by the way–for department stores’ problems.

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The fact is that, despite other challenges along the way, Nordstrom, Saks and Neiman Marcus have maintained share by transitioning a huge amount of their brick & mortar business to their online channels and have closed only a handful of stores in the last few years. Nordstrom and Neiman Marcus now both derive some 25% of their total sales from e-commerce.

Don’t get me wrong, I’m not saying that Amazon isn’t stealing business from the major department store players. Clearly they are. And as Amazon continues to grow its apparel business they will grab more and more share.

But the underlying reason for department stores decades long struggle is the sector’s consistent inability to transform their customer experience, product assortments, marketing strategies and real estate to meet consumers’ evolving needs.

More recently, those brands that have been slow to embrace digital first retail are scrambling to play catch up. Those that still haven’t broken down the silos that create barriers to a frictionless shopping experience will continue to hemorrhage customers and cash.

Most importantly those that think they can out Amazon Amazon are engaged in a race to the bottom. And as Seth reminds us, the problem with a race to the bottom is that you might win.

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Being Remarkable · Customer Growth Strategy · Omni-channel · Retail · Share of attention

The store closing panacea

There has been a strong and growing narrative that the single smartest thing a struggling retailer can do is to close stores and, in some cases, a lot of them. I first touched on this nearly three years ago in my post “Shrinking to prosperity: The store closing delusion.”

There is no question that, in aggregate, the United States has too much retail space. There is no question that, in concept, the growth of e-commerce can allow an omni-channel retailer to serve some trade areas more profitably without a store and some trade areas with a smaller box. The key is to understand “some” and that starts with understanding why a given brand is under-performing in the first place. The other key is to understand the role that brick & mortar locations play in driving e-commerce–and vice versa.

In most cases, as recent events are bearing out more and more, store closings make an already irrelevant retailer less relevant. And frequently much less profitable as well.

Nearly 90% of traditional retail is still done in physical stores. In five years it will still be about 85%. The math is not that complicated.

Make it harder to get to a store OR make returns in a store OR order online and pick up in a store OR go to a store to research potential purchases OR learn about the brand, etc. and a retailer is almost certain to lose way more business (and margin dollars) to a competitor’s physical store in the vacated trade area than the brand “rationalizing” its store count will ever be able to make up through its website. This is why JC Penney, Home Depot and Lowes should write Eddie Lampert thank you notes pretty much every day.

Moreover, the symbiotic nature of digital and physical channels should not be ignored, yet often is. Several retailers–Sears is perhaps the best example–made the assumption that by investing in digital at the expense of physical stores they could more profitability serve their customer base over the long-term. As it turns out (and as more retailers are learning), e-commerce is often less profitable at the margin than brick & mortar operations and that when you close stores you actually make it more difficult for your e-commerce business to thrive. Oops.

Any retailer in trouble should absolutely analyze whether closing and/or “right-sizing” stores will be accretive to cash-flow. But that analysis MUST include the impact on long-term competitiveness and digital channel sales in the affected store’s trade area. Thinking you are helping when in fact you are merely initiating a downward spiral is a pretty big mistake to make.

Any analyst pushing for store closings and footprint down-sizing should be mindful that it is almost never the case that a struggling retailer’s ills are because they have too many stores or that the stores they have are fundamentally too large. Rather, it is because their brand relevance is not big enough for the channels, both physical and digital, that they have. Be careful what you wish for.

Show me a retail brand that is remarkable and relevant enough to command the share of attention that drives share of market and I’m virtually certain their executives are not spending a second on down-sizing. In fact, most are opening physical stores (e.g Nordstrom, Warby Parker, Amazon, TJX) and, in many cases, a bunch of them.

Show me a retail brand that is consumed with store closings and expense reduction and there is a pretty good chance they are a dead brand walking.

 

Thanks to those who have encouraged me along my path as I took a six month break from writing this blog. During my sabbatical I started a new blog on waking up to a life of love, purpose and passion at any age, which can be found at http://www.IGotHereAsFastAsICould.blog.

Being Remarkable · Growth · Retail

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.

 

 

 

 

Being Remarkable · Customer Growth Strategy · Customer-centric · Omni-channel · Retail · Share of attention · Strategy · Uncategorized

Retail’s big reset

It’s been happening for a few years now, but the pace is accelerating.

Retailers waking up to the reality of a slow or no growth world.

Retailers beginning to understand that if you don’t garner share of attention, you have little or no shot at share of wallet.

Retailers starting to comprehend that it’s not about the silos of e-commerce, catalogs, social, mobile and physical stores. It’s about one brand, many channels.

Retailers seeing that it’s not only a digital first world, increasingly it’s a mobile first world.

Retailers coming to terms with having too many stores, and being confronted with the cold hard facts that the ones that should remain are often too large and, more importantly, too boring.

Retailers recognizing that continuing to offer up average products for average people is a recipe for either long-term mediocrity or inevitable bankruptcy.

Retailers realizing that most of their e-commerce growth is now coming from channel shift and that much of their “omni-channel” investments are proving unprofitable.

When historically strong brands like Nordstrom and Neiman Marcus start taking a big whack at their corporate staffs and pulling back on capital investments, it’s hard to argue that this is just about low oil prices and weak foreign tourist traffic.

The big reset is upon us.

Some get it. But too many clearly don’t.

Change is happening faster and faster. Disruption is now just part of the ecosystem.

If you believe, as I do, that we are in for an extended period of muted consumer spending, that we are way over-stored in most major markets and that the power has shifted irretrievably to the consumer, then business as usual–and relentless, but vague promises to become “omni-channel”–will not cut it.

The discipline of the market will be harsh. Good enough no longer is.

If you aren’t worried, chances are you should be.

And if you aren’t in a hurry, you might want to pick up the pace.