Being Remarkable · Customer-centric · Growth · Innovation

The drip method of irrelevance

At first, the shift is almost imperceptible.

With quarterly earnings expectations to hit, we tell ourselves we can easily save a few bucks by automating some of our customer service functions. Or perhaps it’s through simplifying our organizational structure or eliminating “non-essential” positions. Better yet, let’s close some “unproductive” stores.

And obviously technology enables us to take away a bit of decision-making from the front-line staff. After all, human beings are notoriously misled by their own intuition. And whoever got fired for praying to the God of Efficiency?

And running all those different marketing campaigns adds a lot of complexity. It would be much easier to boil things down to just the major stuff that we know moves the dial.

And our product line is just too diverse. Sure it’s interesting to have something fresh and innovative, but doesn’t that just increase the risk of slowing down inventory turnover and increasing markdowns? Safe is smart right?

Of course, over time, the top-line stops growing and the only way we know how to drive profits is through cost-cutting.

Over time, we’re proud of our low average talk times, yet customers can’t speak to a human being and our Net Promoter Scores continue their inexorable decline.

Over time, our one-size-fits-all marketing is, at best, indistinguishable from the competition and, at worst, a dim signal amidst all the noise.

Over time, the sad reality is that all we sell is average products for average people and there’s no reason to pick us over the guy with the lowest price.

Sears, RadioShack and a host of others that are on a long inevitable march to the retail graveyard didn’t get trumped by a disruptive competitor that emerged out of nowhere. An oppressive government didn’t regulate them out of business. They weren’t crippled by a series of specious lawsuits or hobbled by natural disasters.

Usually the brands that become irrelevant have made hundreds of seemingly small decisions, over many years, that prioritized the short-term ahead of the long-term, the numbers instead of the customer, mass rather than personal, safe not remarkable.

And once they are gone, once their fate is sealed and their previously storied histories are part of the record, we’ll look back and realize it happened gradually, then suddenly.

Being Remarkable · Growth · Innovation · Retail

The problem with saying “no”

During the past 25 years Sears had at least three opportunities to transform itself by entering the home improvement warehouse business (I worked on two of them). This was probably the only way Sears was going to ultimately survive and unlock the value of its franchise Kenmore and Craftsman brands. Each time the answer was “no.”

When I headed up strategy at the Neiman Marcus Group (2004-08), we evaluated building a leadership position in omni-channel by consolidating our disparate inventory systems, we recommended moving from a channel centric marketing organization to a customer and brand focused one, we proposed aggressively expanding our off-price format and, having understood the share lost to competitors like Nordstrom, we analyzed improvements to our merchandising and service models to become a bit more accessible. Ultimately we said “no” to moving ahead on all of these. Years later, these strategies were ultimately resurrected. But the opportunity to establish and extend a leadership position may have been lost.

Obviously there are plenty of times when either the smart or moral thing to do is to say ‘no.” Obviously it’s easy to look back and say “I told you so.”

Yet systemically, most organizations are set up to reward the status quo (often cost containment and driving incremental improvement) and punish the well intended experiment. So it’s easy to say “yes” to the historically tried and true and “no” to just about everything else.

Of course we don’t have to look very hard to come up with brands that have been struggling for many, many years (Sears, JC Penney, Radio Shack) or have completely imploded (Borders, Blockbuster, etc.). All of these said “no’ to any number of potentially game-changing strategies along the way. Care to hazard a guess at how many long-term Board Members of these perennial laggards and outright losers got pushed out for saying grace over a series of crippling “no’s”? How many CEO’s had their compensation whacked for never missing an opportunity to miss an opportunity?

In a world where change is coming at us faster and faster, we need to be challenged just as much on what we are saying ‘no” to as we are on what gets a “yes.”

And If you think there is always time to fix the wrong “no” decision, you might want to think again.

Being Remarkable · Omni-channel · Retail · Strategy · Winning on Experience

Everywhere. And nowhere.

You’ve probably read the admonishments. You must be everywhere your customer is: online, bricks & mortar, mobile, Facebook, Twitter, Pinterest and on and on.

You’re told the future is now and that future is all about allowing the consumer to shop anytime, anywhere, anyway.

You’re urged to create a seamless experience across all channels and touch-points.

And much of this is valid. If you don’t meet your customer where she is (and is headed), you’re very likely to be yesterday’s news (RIP Radio Shack). More and more, the consumer IS everywhere and channel hop is becoming the norm.

But for those who think that all they need is a little omni-channel pixie dust and a side order of frictionless commerce, think again.

In the rush to embrace all things digital, integrated and omni-channel, far too many brands have lost sight of the need to be relevant and remarkable. Most of the capabilities that industry white papers wax eloquent about–and consultants relentlessly peddle–are merely the new table-stakes. And, quite frankly, your mileage will vary. Perhaps a lot.

Sears has made huge investments to create powerful digital and integrated commerce capabilities. In fact, they are regularly recognized for their leadership position in many aspects of what industry pundits describe as the holy grail of everywhere commerce. So how’s that working out? Oh yeah, they forgot to sell stuff people want in the way people want it. This is certain to end badly.

On the other hand, Amazon has managed to become a retail industry behemoth, crushing competitors in its wake and continuing to gobble up market share, all without physical stores and, in many cases, putting forth a pretty lackluster mobile and social presence. Their lack of “omni” doesn’t seem to be slowing them down too much.

As I’ve pointed out before, the future of omni-channel will not be even distributed. For those brands that rush eagerly into the “everywhere retail” world without a clear view of the customers they wish to serve and how they wish to serve them in a relevant and remarkable way, don’t be surprised when you don’t get the ROI you hoped for.

It’s quite possible to be everywhere and nowhere at the same time.

Growth · Innovation · Leadership · Retail

Overplaying our hand

We’re told to hyper-focus on our core customers. After all, doesn’t most of our profit come from a small group of loyalists and “heavy-users”?

We’re admonished to double-down on our highest ROI marketing strategies. Surely if a moderate amount of email or direct mail or re-targeting is working, more must be even better, right?

And exhortations to find our strengths, exploit our core competencies and “stick to our knitting” are central to many best sellers and legendary Harvard Business Review articles

Lather, rinse and repeat.

And this all makes a lot of sense. Until it doesn’t.

The past few years have brought us dozens, if not hundreds, of brands that have gone away–think Blockbuster, Borders and, very shortly, Radio Shack–largely through adhering to these notions.  Still others sit on the brink of irrelevance–I’m looking at you Sears and Blackberry–because they pushed a singular way of thinking well past its expiration date and, sadly, the point of no return.

Even far stronger and far better managed brands fall into the trap of overplaying their hands. Neiman Marcus (my former employer)–along with many other luxury brands–have had to re-work their strategies because they became overly reliant on a narrow set of highly profitable customers and failed to acquire and retain other important and emerging cohorts.

It’s all too easy to become distracted by peripheral issues or to stray into areas where we have few useful capabilities. We always must be mindful of where the customer gives us–or where we can readily earn–permission to go.

But in a world that is changing ever faster, and where new competitors can often launch highly disruptive business models in short order, what got us to where we are isn’t likely to get us to where we need to be.

 

 

Retail · Winning on Experience

Zombie retailers

As we enter the home-stretch of the holiday shopping season, the winners and losers grow more obvious by the day.

Also increasingly obvious is a sub-category of retail brands that can best be labeled “zombies.”  This sad lot includes brands that may appear to be alive, but for all intents and purposes are already dead. Radio Shack and Sears find themselves at the top of this list, but they are hardly alone.

The retail graveyard is filled with well-known and formerly sizable brands that once had customers beating a path to their doors. Borders, Linens & Things, Blockbuster, CompUSA, just to name a few, have all disappeared in recent years. Coldwater Creek and Delia’s are two once successful companies that have initiated liquidation procedures just in the last six months. The new year will surely bring a raft of store closings and bankruptcy filings.

Much more recently founded pure-play e-commerce sites aren’t immune from this phenomenon either. Many once seemingly promising ventures have gone under or seen their valuations pummeled (I’m looking at you Fab.com and Ideel). Many more are struggling mightily to find a pathway to profitability and are starting to see their venture capital sugar daddies lose patience. As it turns out, selling at a loss and trying to make it up on volume doesn’t work on the internet either. Their “zombie-ness” may not yet be apparent, but it’s there.

The seismic changes affecting the entire retail world are so profound and, in many cases, have come on so quickly, that it has been impossible for even the leaders to respond effectively. Yet, the brands that have gone under, and those that are not far behind, have all made a few common mistakes:

  • They either lacked deep customer insight or were unwilling to act on what that insight told them
  • They were afraid to compete with themselves by aggressively embracing (organically or through acquisitions) new formats and concepts that were gobbling up market share
  • They became overly focused on cost-cutting and store closings as the path to prosperity rather than doubling-down on customer engagement and growth
  • They protected their older, core customers while failing to acquire a sufficient number of new customers
  • They often chased revenue without an eye on profitability
  • They didn’t realize that customers buy experiences and solutions, not just the products that comprise them.

I suspect that when the post-mortem is done on next year’s zombies that transcend to the great beyond our autopsy will reveal similar patterns.

Clearly–and sadly–many retail brands are now beyond repair. For those that are struggling but still have hope, the real question is how many of these very familiar mistakes they will keep making.

 

 

 

Being Remarkable · Brand Marketing · Customer-centric · Omni-channel · Retail

Omni-channel’s migration dilemma

The shift in retail to a more omni-channel world is dramatic and profound. And since the term “omni-channel” gets thrown around a lot–often vaguely or carelessly–let me be clear about what I mean: more and more customers are becoming engaged in utilizing multiple channels–stores, mobile, online, social networks and the like–to explore, research and transact.

One important implication of this phenomenon is that many consumers are becoming what I call “blended channel” customers; sometimes choosing to transact in physical stores, sometimes buying online. And they commonly use multiple sources to aid in the decision journey, regardless of where their ultimate transaction may be recorded.

Their loyalty is to the brand, not a channel.The pressure, therefore, is on retailers to become more channel-agnostic, break down their operational silos and create a frictionless experience across channels if they hope to win over this growing cohort.

So, at one level, it’s easy to understand the retail industry’s frantic quest for so-called omni-channel excellence. But the success from omni-channel will not be evenly distributed–and for reasons that go beyond a given company’s willingness to invest or their capability to execute well.

What many leaders and analysts fail to appreciate is that as customers migrate even a small portion of their purchasing from physical stores to digital channels, a number of important dynamics come into play, and a huge dilemma may emerge.

It’s important to understand that the transaction economics of physical stores and direct-to-consumer (D2C) are quite different. Brick and mortar is mostly a fixed cost business characterized by lots of capital tied up in real estate and the supply chain, married with some relatively high costs just to stay open and staff the store during typical open hours. By contrast, above a basic scale, D2C is highly variable. In most cases, it costs more or less the same to take an order, process it, pick it out of central inventory, pack it up and ship it, regardless of whether the item is priced at $15 or $150. Generally speaking, the higher the average order size, the greater the profitability. If you sell cheap stuff on-line–particularly if you can’t recover your shipping costs from the consumer–good luck making any money.

So if the variable economics of the digital channel are superior to brick and mortar–everything else being equal–the more customers become omni-channel in their behavior, the better a brand’s economics become. This is one of the reasons you’ve seen brands with higher average order sizes (e.g. Nordstrom, Neiman Marcus) investing aggressively in building out their e-commerce capabilities for over a decade.

If the marginal economics of the digital channel are worse than bricks & mortar AND the brand is growing slowly or not all, a real dilemma emerges. On the one hand, changing consumer preferences essentially demand investments in omni-channel capabilities. And this is no cheap date. Yet as customers migrate from stores to online, the overall economics deteriorate in the aggregate. Worse still, a dramatic shift away from physical stores to e-commerce will make many stores questionable economic propositions. Yet, closing those stores may cause the loss of some or all of a blended channel customer’s business. It’s easy to see this as the start of a downward spiral (I’m looking at you RadioShack).

From a consumer’s point of view, the deployment and improvement of omni-channel capabilities is a bonanza. From a retailer’s point of view, the rush to all things omni-channel–without a clear understanding of the underlying economics, the different behaviors by different customer segments and how physical channels interact with digital channels to deliver a remarkable total customer experience –can lead to some very serious mistakes.

 

Note: For an insightful and data rich discussion of many of these issues, I wholeheartedly recommend Kevin Hillstrom’s blog: http://blog.minethatdata.com/

Growth · Retail

Shrinking to prosperity: The store closing delusion

Yesterday Radio Shack announced it’s closing 1,100 stores, nearly 20% of their total. Earlier this year, JC Penney took the axe to 33 units, amidst a rising call of analysts pushing for more aggressive real estate pruning. Sears has closed some 300 units across the last 3 years, including recent decisions to shutter its downtown Chicago and Seattle “flagships.”

For those pushing a shrinking to prosperity agenda, the rationale is that eliminating the weakest units in the portfolio improves overall productivity. Well, yes, that’s just math. Unfortunately you don’t make money on ratios.

They also claim that with the growth in e-commerce fewer stores are needed. While there is an element of truth to this, it ignores the vital inter-relationship between physical stores and digital channels. For the vast majority of multi-channel retailers the web drives store traffic and stores drive e-commerce. Close stores and you hurt your e-commerce business because your brand become less accessible, and therefore less relevant.

Now don’t get me wrong. If a company is hemorrhaging cash and the data show that a given location cannot be made cash positive quickly (including the effect on the digital business, net of closing costs), it needs to go. Marginal economics 101. And certainly with shifting populations, rapidly evolving consumer behaviors and changes in real estate conditions, there is always going to be a steady stream of real estate rationalization.

Yet the heart of the matter for all the retailers at the center of the store closing debate is this: their value proposition is not working. Unless you shift your business model to becoming more destination driven–or somehow more regionally focused–closing a bunch of stores is likely to make things worse in the aggregate. You lose economies of scale and scope. You become less convenient to your target consumers. Your brand visibility declines.

Brick and mortar retail is not dying. But it certainly is becoming different. Yet it’s not hard to find many examples of winning brands that continue to open plenty of stores (e.g. Walgreen’s, Michael Kors). In fact, in the face of all this talk about mass store closings, formerly e-commerce only players like Warby Parker and Bonobo’s are now opening physical locations. I guess they must be really stupid.

I cannot recall a single retailer that engaged in large-scale store closings in the last decade that is thriving today. Actually every one I can think of is either gone or gasping for breath.

For Radio Shack and Sears, the hacking of their store count signals that they don’t have a viable strategy to survive and that their store closings are more rooted in desperation and the desire to keep the wolf from their door. For Penney’s, if they are able to craft (and execute) a value proposition that fights and wins in the middle market–no easy task–chances are they can support more stores, not fewer. If they announce plans to cut more than 10% of their units, it’s likely the beginning of their slide into oblivion, not a sensible bit of financial engineering.