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

As most U.S. department stores reported earnings recently, a certain level of ebullience took hold. Macy’sKohl’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.  


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.”  

Being Remarkable · Digital-first · Omni-channel · Retail

A baker’s dozen of provocative retail predictions for 2018

2017 was one of the most transformative years for the retail industry that I can remember. 2018 is likely to be just as wild and woolly, albeit in somewhat different ways. Here’s my attempt to go beyond the obvious and go out on the limb just a bit.

  1. Physical retail isn’t dead. Boring retail is. A lot of stores closed in 2017. Often forgotten is that a lot opened as well. Many stores will close in 2018. Many will open as well. By this time next year roughly 90% of all retail will still be done in physical stores, so please can we shut up already about the “retail apocalypse.” The train left the station years ago on products that could be better delivered digitally. What’s happened most recently has everything to do with a long over-due correction of overbuilding and the collapse of irrelevant, unremarkable retail. The seismic changes in retail have laid waste to the mediocre and those that have been treading water in a sea of sameness. Great retail brands (Apple, Costco, Ulta, Sephora, TJX, etc.) continue to thrive, despite their overwhelming reliance on brick & mortar stores. Ignore the nonsense. Eschew the boring. Chase remarkable.
  2. Consolidation accelerates. In many aspects of today’s retail world, scale is more important than ever and this will continue to drive a robust pace of mergers and acquisitions. In some cases, capacity must come out of the market to create any chance for decent profits to return. The department store space is a great example. Moreover, large, well capitalized companies will take advantage of asset “fire sales” or technology plays to complement their skills and accelerate their growth.
  3. Honey, I shrunk the store. Small is the new black in many ways. Many chains will continue to right-size their store fleets to better align with future demand. Others will reformat or relocate to smaller footprints to better address the role of online shopping. We can also expect to see more small format stores as a way to cost effectively extend customer reach and further penetrate key customer segments.
  4. The difference between buying and shopping takes center stage. Buying is task-oriented, more chore than cherished, and is typically focused on seeking out great assortments, the lowest price and maximum convenience. This is where e-commerce has made the greatest inroads. Increasingly, Amazon dominates buying. Shopping is different. It’s experiential, it’s social, tactile–and the role of physical stores is often paramount. The trouble is when retail brands don’t understand the distinction and invest their energies trying to out-Amazon Amazon in a race to the bottom. And, as Seth reminds us, the problem with the race to the bottom is you might win. Or worse, finish second.
  5. Amazon doubles down on brick & mortar. For Amazon to continue it’s hyper-growth–and eventually make some decent profits–it needs to go deeper into the world of shopping vs. buying (see above). And this means greater physical store presence, particularly in some key categories like apparel and home. In addition to opening its own stores I expect at least one major acquisition of a significant “traditional” retail brand.
  6. Private brands and monobrands shine. A key part of winning in the age of Amazon and digital disruption is finding ways to amplify points of differentiation. Most often this can be done through product and experience. With the over-distribution of many national brands and the ease of price comparison, more and more smart retailers are looking for ways to differentiate on unique product. For some–including Amazon–deepening their commitment to private brands can be a source of competitive advantage. Well positioned monobrand retailers like Uniqlo, H&M, Primark and Warby Parker also will continue to steal share from less compelling multi-brand stores.
  7. Digital and analog learn to dance. As much attention as e-commerce gets it turns out digital channels’ influence on brick & mortar shopping is far more important for most brands. In fact, many retailers report that more that 60-75% of their physical store sales are influenced by a digital channel, hence the rise of the term “digital-first” retail. Side note: anyone who has adopted this term in the last 12 months has simply informed us that they were paying no attention to what has been going on in retail for nearly a decade. Regardless, clearly in-store technology must evolve to support this rapidly evolving world. Yet as much as technology can enhance the shopping experience the role of an actual human being in making the customer experience intensely relevant and remarkable should not be forgotten. Many retailers would be wise to see sales associates as assets to invest in, not expenses to be optimized.
  8. The great bifurcation widens. And it’s death in the middle. It’s been true for some time that the future of retail will not be evenly distributedWhat became abundantly clear in 2017 is how different the results have been between the industry’s have’s and have not’s. At one end of the spectrum retailers with a strong pricing story, from dollar stores to off-price to Costco and Walmart, did well. At the other end of the spectrum, many luxury brands and well focused specialty retailers continued to thrive. Meanwhile the fortunes of Sears, Macys, JC Penney and others who failed to get out of the undifferentiated and relentlessly boring middle diverged markedly. This will end badly.
  9. Omnichannel is dead. Digital-first, harmonized retail rules. Too many retailers chased being everywhere and ended up being nowhere. The search for ubiquity led to disjointed, poorly prioritized efforts that fattened the wallets of consultants but often did little to create what most customers want and value. The point is not to be everywhere, but to be relevant and remarkable where it matters, to understand the leverage in the customer journey and to root out the friction and amplify those elements of the experience that make the most difference. Most customer journeys will start in a digital channel (and more and more this means on a mobile device) and the challenge is to make all the potentially disparate elements of the shopping experience sing together as a harmonious whole.
  10. Pure plays say “buh-bye.” With rare exception, so-called “digitally native” brands were always a bad idea. Despite venture capitalists initial enthusiasm–and Walmart’s wet kiss acquisitions–only a handful of pure-play models had any chance to scale profitably. And many arrogantly declared they’d never open stores (I’m looking at you Bonobos and Everlane) when anyone who understood the high cost of returns and customer acquisition saw a physical store strategy (or bankruptcy) as inevitable. We’ve already seen some high profile blowups and more are surely on the way (Wayfair? Every meal delivery company?). This year the shakeout will continue and it will become clear that for the brands that survive most of their future growth will be driven by brick & mortar stores not e-commerce.
  11. The returns problem is ready for its close up. Product returns were the bane of direct-to-consumer brands well before e-commerce was a thing. Lands’ End, Victoria’s Secret, Neiman Marcus and many others regularly experienced return rates in excess of 30% from their catalog divisions. When you could actually charge for delivery this was a problem, but not necessarily the achilles heel. The near ubiquity of free returns & exchanges may be a consumer bonanza, but it drives a lot of expensive behavior and makes much of e-commerce unprofitable. Customers regularly order multiple colors and/or sizes of the same item hoping that one of them will fit or be to their taste. The retailer then eats the expense of some or all of the items coming back, including handling costs and often additional merchandise markdowns (which can be especially ugly for seasonal or fashion items). The disproportionate growth of e-commerce means outsized growth and expense for retailers. It’s not sustainable. Consider yourself warned.
  12. “Cool” technology underwhelms. There is plenty of incredibly useful technology that continues to transform retail, notably around mobile, predictive analytics and the like. There is also a lot that ranges between gimmicky and not yet ready for prime time. Augmented and virtual reality? Wearables? IotT? Blockchain? Digital mirrors? Someday, maybe. 2018? Not so much.
  13. The search for scarcity and the quest for remarkable ramps up. As most things came to be available to just about anyone, anytime, anywhere, anyway, access to great product was no longer scarce. As various marketplaces, peer-to-peer review sites and various forms of social media made data about product quality, reliable alternatives and pricing universally available, information was no longer scarce. As various tools emerged to put the customer in charge, the retail brand’s advantages were diminished and the power of the channel started to evaporate. It’s really hard to get folks to pay for what is widely available for free. And it turns out the moat that protected a lot of brands has dried up and been paved over. Good enough no longer is. The brands that will not only survive, but actually thrive in 2018 and beyond, will deliver consistently and remarkably on things that are highly valued by customers, can be seen as scarce and can be made proprietary to that brand. It’s not easy, but frankly, more times than not, it’s the only choice.

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 · Retail

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

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.

Being Remarkable · Omni-channel · Reinventing Retail · Retail

My top ten Forbes posts of the year

Earlier this year I had the honor of joining Forbes as a retail contributor.

As is my tradition, I’ll publish my top ten list from my blog right after the New Year. For now, here are my most popular articles on Forbes during 2017. One thing is for sure: folks were interested in hearing me opine about Sears. I have a feeling that window is closing.

  1. Sears Must Think We’re Stupid Or Gullible: Here’s Why
  2. Sears: Is The End Finally In Sight For The World’s Slowest Liquidation Sale?
  3. Here’s Who Amazon Could Buy Next And Why It Probably Won’t Be Nordstrom
  4. The Inconvenient Truth About e-Commerce: It’s Largely Unprofitable
  5. Omnichannel Is Dead. Long live Omnichannel.
  6. Sears March Toward Bankruptcy: Gradually, Then Suddenly
  7. Sears: Dead Brand Walking
  8. Reports Of JC Penney’s Death Are Greatly Exaggerated 
  9. Luxury Retail Hits The Wall
  10. With Kenmore Deal Amazon Is A Winner. For Sears, Not So Much

And this one goes to 11: Hype-y Holidays: Black Friday And Other Nonsense

Thanks for reading and engaging this past year.

A most happy and peaceful New Year to all!



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

Retail reality: It’s death in the middle

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.


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.

Holiday Sales · Marketing · Retail

With Cyber Monday behind us, the real holiday shopping season begins

As I wrote last week, the noise around Black Friday and Cyber Monday is mostly a bunch of hype. Both days represent a relatively small percentage of total holiday sales, and are even less important when you consider their contributions to profits given the amount of discounting that occurs. Moreover, there is little evidence that a “good” Black Friday and/or Cyber Monday has anything to do with whether a particular retailer will have a successful quarter or not. It also turns out that many folks take advantage of the past week’s hot deals to buy for themselves, not for Christmas or Hanukkah gifts.

The fact is the overwhelming majority of holiday season revenue for virtually every retailer will occur over the next four weeks, not during the past few days. And, if history is any indication, there will be at least two shopping days ahead that will comfortably exceed Black Friday’s sales numbers. We can also expect that the weekend of December 15 will surpass Cyber Monday’s volume.

We should also not get overly excited by the year-over-year online shopping growth numbers. Merely extrapolating the trend would suggest that e-commerce would grow somewhere in the vicinity of 15%-17%, and that’s exactly what happened. To be sure, the overall shift away from physical store shopping is profound, but nothing unexpected is happening, at least thus far, when it comes to this particular holiday season.

Now that we’ve moved beyond the two hype-iest days of the retail year, let’s bear in mind that there are still 23 shopping days left between now and Christmas and a lot can still happen. We should also remember that the week after Christmas is very important, where big volumes are posted, gift cards are redeemed, returns are processed and the trajectory for seasonal clearance starts to be set.

The good news seems to be that many retailers’ report that their inventories are in solid shape in light of conservative buying patterns. While this suggests deals might not be quite as sharp for consumers as past holidays, the industry might actually have a chance to realize decent gross margins. Of course, some sectors–I’m looking at you department stores!–are in a fierce battle for market share. Several chains, including Sears and Bon-Ton Stores, are facing existential crises, where a bad quarter could lead to their liquidation (or, minimally, additional massive store closings). In these situations we should expect promotional intensity to remain high.

But for now everyone just take a deep breath. Mentally place the stories about Black Friday and Cyber Monday in the “interesting, but not very illuminating” section of your brain and strap in. This next week will likely be the calm before the storm and then things will really start to ramp up. And, for sure, far more will be revealed in the weeks ahead then we learned this past long weekend.

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 speaking gigs please go here.

Innovation · Inspiration · Leadership

The price of waiting

It’s typically not difficult to calculate the cost of starting something, of moving ahead, of taking the plunge.

Perhaps it’s a new IT project or a marketing test. Possibly it’s a decision to try a pilot concept or invest in a promising technology. Or maybe we’re considering taking the next big step in a hopeful personal relationship.

When we have to ante up additional time, write that big check, invest more emotional commitment, the price tag often seems pretty obvious.

Yet what we get wrong (or dramatically underestimate) are the consequences of our hesitation. We lean on the desire for better data and convince ourselves we need more time to weigh or explore our options. We become a slave to the pull of our perfectionism. We tell ourselves the time is just not quite right to act.

Ultimately, what keeps us stuck, what causes us to not pull the trigger, is our fear of getting it wrong, of looking stupid, of being judged, of fully experiencing and feeling our vulnerability.

It’s not hard to see how waiting too long to innovate has been the death knell for many companies. Think Blockbuster, Netflix, RadioShack and (soon) Sears. They paid (or are paying) the ultimate price for waiting.

My guess is that with whatever organizations you’ve been involved in you can readily point to opportunities that were missed because moving ahead was deemed too risky, when just the opposite proved to be true.

And maybe we’ve let real love and connection allude us for similar reasons.

Indeed, sometimes the waiting IS the hardest part.

Alas, other times it’s all too easy.

And we realize how high the price is when it’s all too late.



Consolidation · Reinventing Retail · Store closings

Sears: Dead brand walking

Recently Sears Holdings made several interesting announcements. First, it declared it was closing 63 more stores, in a continued false notion that it can shrink itself to prosperity. This is in addition to the 358 Sears and Kmarts already shuttered in 2017. Then it issued a press release detailing steps it’s taking to improve its financial structure, wherein it included operating results for the quarter. Despite over a decade of strategic restructuring, huge investments in its membership program and digital capabilities, closing hundreds of its worst locations–not to mention massive store closings on the part of many of its direct competitors–the company expected to report comparable store sales declines of 15.3% for the quarter and a loss of at least $525 million. Yikes!

Following all this, in what is likely to win the award for the most obvious prediction by a Wall Street investment analyst in modern history, Bill Dreher of Susquehanna opined that “Sears may never be profitable again.”

So while Sears apparently has a few folks willing to believe something good might still happen, the company continues to execute what I have long called “the world’s slowest liquidation sale.” In fact, Sears continues to act as if we’re all either gullible or stupid. Or perhaps both.

Despite growing signs of its imminent demise–or at least a complete collapse into a holding company with a small and decidedly mixed bag of residual assets–Sears Holdings CEO Eddie Lampert continues to put lipstick on the pig. A couple of weeks ago he took the Wall Street Journal to task for a rather harsh story by posting a retort on the company’s blog, in which he once again neglects to discuss anything that would meaningfully improve customer relevance, but goes to great lengths to highlight moves that are clearing perpetuating, if not accelerating, declining performance. And in what may be the surest sign that the company’s beleaguered CEO has no capacity for irony, the day after the company shared its horrible quarterly performance Sears announced it was opening two (count ’em two!) small format appliance & mattress stores.

The news at Sears went from bad to sad a long time ago. As I have recounted before, back in 2003 when I was part of the senior team working on trying to fix the department store business, it was abundantly clear that Sears’ concentration of assets (particularly for its home business) in regional malls was a significant and growing liability. It was also apparent that Sears had much more of a revenue problem that a cost problem. As we sit here fourteen years later, average store sales productivity has declined in virtually every quarter since I moved on from the outhouse to the penthouse (Neiman Marcus Group) and beyond. The major appliance and home improvement businesses, which once were incredibly profitable, are largely decimated. Years of cost cutting have made Sears’ stores an embarrassment. Market share continues to plummet.

In the spirit of full disclosure, our team did not come up with a compelling plan to turn around Sears, so for me it has always been an open question whether anybody could have saved them. I was certainly neither smart enough, nor powerful enough, to make it happen. But I have always hoped Lampert and team would figure it out.

In any event, at this point any notion that Sears can be saved in any way remotely resembling a major national retail brand is the pinnacle of wishful thinking. Yet some people still seem to hold out hope. It’s time to let that go.

Dead brand walking.


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 speaking gigs please go here.

Being Remarkable · Reinventing Retail · Store closings

Department stores aren’t going away, but 3 big things still need to happen

It’s been a long, slow slide for department stores. Starting some two decades ago, the major chains began leaking share to the big-box, off-the-mall players. Just as that started to stabilize somewhat, Amazon and other e-commerce pure-plays began chipping away at the sector’s once dominant position in apparel, accessories and home products. Most recently, in addition to the ongoing threat from online shopping, off-price chains have benefitted from a growing legacy of major chain mediocrity.

Unsurprisingly, investors have treated the sector like the plague. The market values of Macy’s, J.C. Penney, Sears, Dillard’s and Kohl’s have all plummeted. Even Nordstrom, which has performed relatively well, has seen its market value halved in the past couple of years. Just this past week J.C. Penney saw its shares, which were already off some 80% since 2013, plunge further after a surprise earnings warning. In addition, Sycamore looks to be picking at the carcass of Bon-Ton Stores and Lord & Taylor is selling its iconic Manhattan flagship to WeWork. And on and on.

For many, this unrelenting parade of bad news leads them to believe that department stores are toast. But just as the retail apocalypse narrative is nonsense, so is the notion that department stores are going away. I am willing to go out on a limb to say that a decade from now there will still be hundreds of large, multi-category brick-and-mortar stores operating in the United States and throughout the world. But despite this conviction, things are virtually certain to get worse before they get better and three major things must happen before any sort of equilibrium can be reached and decent profits can return.

Major space rationalization/consolidation. The overall retail industry is still reeling from decades of overbuilding, as well as the abject failure of most department store anchors to innovate to stay remotely relevant and remarkable. While the idea that major chains can shrink to prosperity is fundamentally misguided, it’s clear that a) most chains still have too many stores, b) the stores they have are, on average, larger than they need and c) there is no compelling reason for Sears, Kmart, Bon-Ton (and perhaps a few others) to exist at all. Many dozens, if not hundreds, of locations are certain to be whacked after the holiday season. And despite the liquidation sales that will put pressure on earnings in the first half of the calendar year, there is actually a real chance for year-over-year margin improvement by the time the holiday season rolls around this time next year.

A true commitment to be more focused, more innovative and more remarkable. It turns out department stores, like every other struggling retail brand, picked a really bad time to be so boring. It turns out that deferred innovation is even more crippling than deferred maintenance. It turns out that trying to be everything to just about everybody means being mostly irrelevant to a lot of folks. Given the certain continuing contraction of the sector, the only hope for remaining brands is to gain significant amounts of market share. And that only happens to any material degree by embracing intense customer-centricity to become more relevant to a tighter customer set and by consistently executing a far more remarkable experience than the competition. Continued flogging of me-too products, one-size fits all advertising, boring presentation and chasing the promiscuous shopper through promotion on top of promotion won’t cut it. Period. Full stop. The hard part is that most of the flailing brands are woefully far behind, lack a culture of innovation and simply don’t have the cash to do what it will take to right the ship.

Amazon needs to place its bet. It’s clear that Amazon has its sights set on being a much bigger player in apparel, accessories and home products. And it’s hard to see how Amazon gets speed, adds the necessary volume and addresses the vexing returns/supply chain issues without a major physical presence in the moderate and higher-end softlines arena. For that reason, I’m also willing to go out on a limb and predict that Amazon will buy a major department store player in 2018. And just as its acquisition of Whole Foods is transformative for the grocery industry, so too will be a much deeper brick-and-mortar (and omnichannel) presence in the department store sector. In fact, it’s hard to underestimate how a big move by Amazon here will reshape just about every imaginable facet.

While 2017 has brought more than its fair share of department store news–and we’re hardly finished–I see 2018 as being chock-a-block with not only profound news but likely representing the year when the future of the sector will become far more clear. Stay tuned.


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 speaking gigs please go here.

Omni-channel · Reinventing Retail · Store closings

Are mass store closings the start of an inevitable downward spiral?

At the recent inaugural ShopTalk Europe event in Copenhagen, Hudson’s Bay Company CEO Gerald Storch posited that retailers risk hastening their demise by taking an axe to their store counts. Clearly there are many factors that contribute to a brand’s march to the retail graveyard, yet there is mounting evidence that Storch’s observation is on the money. As I’ve said many times, show me a retailer that is shuttering a large number of outlets and chances are the intrinsic problem is not too many stores but that the brand is not sufficiently relevant and remarkable for the stores it has.

I first surfaced this concern more than four years ago in my post “Shrinking to prosperity: The store closing delusion” and revisited it more recently with an updated Forbes post. While in many cases store counts need to be rationalized to address the overbuilding of the past two decades and to optimize store footprints given the shift to e-commerce, with rare exception, the retailers that are closing a large number of stores are working on the wrong problem.

When physical retail still accounts for 75-90% of a category’s volume, it’s hard to understand how radical cuts in store counts help address a brand’s ability to maintain, much less grow, market share. When we know for a fact that brick & mortar locations are key to supporting a viable and growing e-commerce business (and vice versa), mothballing dozens (or even hundreds) of stores only serves to undermine a retailer’s ability to meet customers’ evolving omni-channel demands. When we recognize that it is often far cheaper to acquire and serve customers through physical stores, reducing store counts substantially can worsen a retailer’s long-term cost position. And, as Storch points out, mass store closings erode purchasing power and can send consumers a signal that a retail brand is on its way to oblivion, serving only to make matters worse.

In fact, I cannot come up with a single major retailer that has closed 20% or more of its stores and is now considered truly healthy. On the other hand, I can easily name many that went through multiple iterations of down-sizing that have either liquidated or are currently in bankruptcy proceedings–Sears Canada being the most recent example. I can also list many that seem to be in perpetual store closing mode (Sears US for one) that thus far have been spared a visit from the grim reaper yet continue to see their operating results deteriorate with little hope for resurrection. For many, sadly, it’s dead brand walking.

We should also ignore any analysis that tries to estimate the number of store closings that a retailer must undertake to get back to prior store productivity levels. First, anchoring success on past store productivity metrics is largely irrelevant as it ignores a store’s contribution to online volume growth. Minimally, we need to understand the growth and profitability of a trade area and incorporate both e-commerce and physical store performance. Nordstrom and Neiman Marcus–just to name two powerful examples–have seen their historical store productivity numbers weaken, yet they still have healthy financial performance overall. Second, any such analysis is merely a rote arithmetic exercise that erroneously assumes that massive store closings don’t have any adverse impact on e-commerce, nor make a brand less relevant and competitive in consumers’ minds nor serve to de-leverage fixed costs.

Ultimately, I don’t see a scenario where store closings will be the silver bullet that troubled retailers need to get back on track. They may be a key piece in a needed reinvention, but the critical work centers on taking the required actions to make these troubled brands sufficiently relevant and remarkable such that they can stem the share of wallet loss that got them into trouble in the first place.

Said differently, if sales are the problem, working on the cost side will never help breathe a dying retailer back to life.

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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