Bricks & Clicks · Embrace the blur · Innovation · Retail

Will Amazon 4-Star live up to its reviews?

After learning that Amazon might open up to 3,000 Go stores by 2021, the industry was still catching its collective breath when the retail behemoth opened an entirely new format in Manhattan’s Soho neighborhood last week. Amazon 4-Star is the latest move into physical retail on the part of the once online-only retailer, joining Amazon Books and Whole Foods. If this keeps up, some might start to wonder whether the retail apocalypse narrative may not be entirely accurate (indeed, sarcasm is my superpower).

Just about anything Amazon does tends to be of keen interest and can often send shockwaves throughout the sector. Not only is the company often several steps ahead of the competition, but it possesses the culture and the spending capacity to try a lot of stuff and keep everyone on their toes, desperately trying to figure out what’s next. So at this point it’s anyone’s guess where this particular experiment could lead over time. Yet the idea behind this new concept, along with what I have observed in visiting Amazon’s growing fleet of bookstores, so far leaves me unimpressed.

The organizing principle of 4-Star seems similar to Amazon’s foray into physical book stores: edit down a vastly larger online assortment to a core of mostly “greatest hits” (best sellers, customer favorites and new & trending), add some cool technology, and layer on some of that omni-channel stuff we’ve all heard so much about. At one level, this seems eminently sensible. If we already know what the customer buys online, surely translating that to a physical store is not only the “right” product strategy, but will lead to excellent productivity. Unfortunately this left-brain driven translation from the digital world to brick and mortar can often be underwhelming. There are a few reasons for this.

Shopping online just isn’t the same as shopping in a store.

While e-commerce works well when we are on a mission, it’s not as good when we are engaged in discovery. Most websites are optimized for speed and conversion. Conversely, a really good brick-and-mortar experience can deliver an entirely different customer journey by leveraging displays, product adjacencies, sight lines to neighboring departments, in-person sales assistance, etc. Category management strategies that ultimately determine a brand’s success play out in fundamentally different ways in a physical store. The ability to see, touch and/or try on products requires that assortment strategies be tailored to the unique dynamics of a store shopping experience.

 

Optimizing our way to boring.

Best sellers, by definition, are what some comparatively mass audience has already voted on; the peak of the bell curve, not the extremes. Any student of retail knows what great merchants have done for centuries to create competitive differentiation and maximize long-term productivity—namely they curate an interesting combination of what already works along with offering up interesting items that add to the overall experience, supported by loss leaders that help spur traffic and complementary items that drive up basket size. Heavy reliance on carrying only the most popular items inevitably causes a regression to the mean, which can easily make for rather boring and/or disjointed stores.

Be careful what you wish for.

Among the many dumb things Sears has done over the years, there were two whoppers that speak to my thesis that I was also “blessed” to witness firsthand. The first happened some 15 years ago when the financial types started to have more influence than the merchants and store operators. This led to an initiative to improve our sagging financial performance where the driving logic was essentially to keep the best sellers and eliminate (or shrink) the products with below average financial performance. While mathematically that sounds appealing, back in the real world it had the effect of lowering traffic and reducing conversion as it made our stores even less customer relevant, while also ignoring the key ingredients to building profitable market-baskets and creating customer lifetime value.

The other little oopsy daisy came a year or so later when we acquired Lands’ End and were rolling out its product to hundreds of Sears stores. The Lands’ End merchants insisted that virtually all of their direct-to-consumer best sellers had to be included in the new Sears’ retail assortment. When translated to carrying a basic depth and breadth of sizes and colors the resulting offering not only didn’t make much sense in the context of other products we carried, it led to inventory levels that had no chance of being productive. But hey, what’s a few hundred million dollars of markdowns among friends?

The lesson, of course, is that a remarkable retail experience should be built from the customer’s perspective, be competitively unique and be mindful of leveraging the unique characteristics that only a physical store can deliver. Digital can be hugely important in informing the brick and mortar execution, but should not overwhelm the overall experience design..

In Amazon’s case, more times than not, it plays by a different set of rules, some of which other retailers would be wise to emulate, others that the competition can only dream about. Amazon’s 4-Star may turn out to be this generation’s Service Merchandise. More likely, however, it is the first of many iterations and merely the tip of the iceberg in a broader and more aggressive move into physical retail.

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. 

Customer Growth Strategy · Digital Disruption · Retail

Here’s what investors are missing about the Sears-Amazon partnership

Shares of Sears Holdings spiked last week on news that the beleaguered retailer had expanded its tire partnership with Amazon. Once again, the optimism — or is it outright gullibility? — of some investors astonishes me.

Over four years ago, I wrote (admittedly more than a little bit provocatively) that Sears investors would do far better with a liquidation of the company than with a perpetuation of the charade that there was any hope for a real turnaround. More recently, I opined on the 2017 Amazon-Kenmore deal, as well as the initial Amazon-Sears tire partnership announced in May. My view was that these deals do little, if anything, to stave off the inevitable for Sears. Moreover, I believe they are ultimately of greater value to Amazon.

For what it’s worth, when I wrote (and appeared on CNBC) with my “liquidate ASAP” thesis, Sears’ stock was in the low $40s. When I posted the Kenmore piece, Sears’ shares were down to about $9. My first tire article was written about three months ago when the shares had a bit of an inexplicable run-up, hitting nearly $4. On the day of the announcement SHLD was up 12%, closing at $1.24. Draw your own conclusions, but certainly don’t say that I didn’t warn you.

While on one level I appreciate the audacity of hope displayed by certain eager investors, I believe those who display ebullience in the face of these sort of deals are missing three essential things.

Dead brand walking. The overwhelming issue is that there is no plausible scenario in which Sears remains a viable national retailer. In fact, with Sears having closed hundreds of stores, with many more to follow after the holidays (if not sooner), one could argue it is no longer a real force on the national stage today. The only thing that keeps Sears afloat is Eddie Lampert and ESL’s willingness to fund a seemingly never-ending stream of massive operating losses. The idea that Sears can shrink to prosperity is ridiculous. For all intents and purposes, they are winding down the business. The particular relevance to the Amazon-Sears tire deal is that the points of distribution will continue to contract, perhaps dramatically.

Hardly moves the dial. It’s hard to see material profit contribution from this deal. First, tire installation is tiny in the scheme of Sears’ overall business. This particular offering is solely focused on customers who are willing to buy their tires online and have them shipped to a nearby Sears store so that, a couple of days later, they can have them installed. So to be meaningfully relevant to customers, first the customer has to be willing to wait. Given that a lot of the tire-replacement market is driven by an emergency (i.e., a flat tire) a big chunk of the available market is not addressable. Second, even if waiting isn’t a big deal, there are still likely to be many local competing outlets, many of which are going to be more conveniently located (particularly as Sears continues to shutter locations) and have the tire in stock, ready to install right away. Third, Sears actually stocks a lot of tires, so if you are willing to have your tires installed at Sears, it makes more sense for most people to take a step out of the process and just see if Sears has the tire in stock. In many cases it will. This is a long way of saying that the market opportunity seems quite small. When you further factor in the lower margin given Amazon’s cut, it’s hard to come up with a scenario where this moves the dial in any profound way.

Amazon’s Trojan Horse. Sears is desperate. Amazon is patient, smart and willing to try lots of stuff. Sears has few arrows left in its quiver. Amazon can use this partnership to explore the convergence between digital and physical in a large category, acquire some new customers and continue to probe potential private brand opportunities with DieHard and other Sears brands. Sears need to show Wall Street it still has some life in it. Amazon needs to learn how to get deeper into under-penetrated categories (auto and installed services) to help sustain a robust growth story. For Sears, every little bit seems to count. For Amazon, this is a rounding error even if it turns out to be a disaster. So who’s likely to be getting the better deal?

To be sure, as is true with the potential sale of Kenmore, Sears has very few decent options left. So there is nothing inherently wrong at this point in the company’s decidedly ragged history to executing this particular transaction. But the idea that this materially improves the value of the Sears brand seems just plain silly to me.

See you on the other side of $1.

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.  

Being Remarkable · Collapse of the middle · Retail

Retail earnings: The best of times, the worst of times

This is a big earnings period for retailers. As the reports roll in, it’s increasingly clear that it’s both the best of times and the worst of times for retail.

While performance overall is, on average, much better than a year ago, what continues to come into sharper relief are three inescapable conclusions. First, as I have been saying for years, the idea that physical retail is dying is abject nonsense. Second, retailers that are stuck in a cycle of boring are getting crushed, and the middle is collapsing. Third, as our friends at Deloitte have recently outlined in depth, the bifurcation of retail is becoming more pronounced. The overall conclusion is that the difference between the haves and the have nots is ever more distinct.

On the first point, strong performance from multiple brick-and-mortar dominant retailers, including Target and Home Depot, underscores that stores are not only going to be around for a long time, they will continue to have the dominant share of retail in many categories for the foreseeable future.

On my second point, significant underperformance ( JC Penney ), store closings ( Sears Holdings ) and bankruptcies (Toys “R” Us) continue to be concentrated among those retailers that have failed to carve out a meaningful position toward the more value, convenience-oriented end of the spectrum or, conversely, to move in a more focused, upscale experiential strategic direction. Those that continue to swim in a sea of sameness edge ever closer to the precipice. Increasingly, it’s death in the relentlessly boring middle.

The great bifurcation point, of course, is related to this phenomenon. Despite the retail apocalypse narrative, solidly executing retailers at either end of the spectrum continue to perform well. Sales, profits and store openings are robust at TJX Companies , Walmart and many others that play on the value end. A similar story can be painted for the premium, service-oriented retail brands such as Nordstrom and Williams-Sonoma.

As the scorecards continue to come in, there are a few key things we should bear in mind. The most important is that better is not the same as good. While positive sales and expanding margins certainly beat the alternative, the improved performance at brands like Macy’s and Kohl’s should not reflexively make us think that all is now well. Their sales growth is more or less in line with overall category growth. So there isn’t any reason to believe they are growing relative market share, which is generally a pretty good proxy for improving customer relevance.

Second, we should expect decent earnings leverage with improved sales, given the relatively fixed cost nature of the business. It’s more important to put the margin performance in the context of “best in breed” competitors. Here, most in the gang of most improved still fall short.

Third, a rising tide tends to raise all ships. This happens to be a particularly good time for consumer spending. It’s anybody’s guess if, and how long, retail expenditures will meaningfully exceed the rate of inflation.

From a more strategic, longer-term perspective, we need to sort out what is at the core of improving outcomes. If it’s riding the wave of a particularly ebullient economic cycle, that’s wonderful but not likely sustainable. If it’s starting to realize more fully the benefits of major technology investments, asset redeployment and/or picking up share from a rash of store closings on the part of competitors, that’s also nice, but those gains are likely to plateau fairly quickly. If margin improvement comes from big cost reductions, those often are more one-time gains and may ultimately weaken a given retailer’s competitive position over time.

What really matters, of course, is that most of the gains are coming from fundamentally being more intensely relevant and remarkable than the customer’s other choices. Viewed from this lens, many retailers’ improved results are necessary but far from sufficient.

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.  

September 6th I will be in New York for the Retail Influencer Network Kick-off.  On September 19th I’ll be speaking at Total Retail Tech in Dallas. The following Monday I’m headed to Austin to do the opening keynote at the Next Conference.

Death in the middle · Retail

Eddie Lampert just can’t stop picking at Sears’ carcass

As some readers may know, I began my retail career at Sears. And these days, when folks ask how long I worked there, I typically say, “Too long.” The more accurate, less snarky answer is 12 years.

I learned a tremendous amount during my tenure and, for the most part, am proud of the work I led or was deeply involved with. I have also never regretted leaving when I did. Much of that is because I desperately needed a new challenge and to be in a place where my talents could be better leveraged. Despite quite a few twists and turns along the way, it’s all worked out just fine. Of course, another reason is that — through sheer luck — I managed to get out before Eddie Lampert decided that combining a mediocre retailer with a terrible one might be a good idea.

Anyway, I have written extensively over the years about Lampert’s horribly misguided and at times seemingly delusional leadership of the once-storied brand, and I will not recount that in any detail here. Google my name and “world’s slowest liquidation sale” or “dead brand walking” if you are desperate for that kind of entertainment. You can also see me on CNBC four years ago suggesting that the best thing for Sears shareholders would be for the company to liquidate ASAP. Oh, well.

So when it comes to Lampert, it’s safe to say I’m not a fan. I will point out in all fairness that, largely with the benefit of 20/20 hindsight, I have come to believe that no one could have prevented Sears from sinking into irrelevance once certain opportunities were missed many years ago. While there were unquestionably many chances over the past decade for Sears to do a much better job for its customers, associates, retirees and investors, it was always likely to end badly. Now, sadly, it is just a matter of time before Sears joins others in the retail graveyard, as evidenced by yet another round of stores closing this past week.

When the history of Sears demise is written, many leaders will rightly be taken to task for their lack of strategic insight, their unwillingness to take risk, their hiring of the wrong people and so on. Yet it’s safe to say that Lampert will stand alone in using his other interests (principally ESL Holdings) to stave off the inevitable by both loaning money to Sears and scooping up many of its remaining fungible assets. Now I will leave it to far more adept minds to determine if ultimately this multi-year complex web of financial engineering turns out to be brilliant for Lampert and his fellow ESL investors. Perhaps Crazy Eddie is indeed crazy like a fox?

What really galls me, though, and strikes me as worthy of a fast-track entry into the Chutzpah Hall of Fame, is how Lampert, through his totally inept leadership of Sears Holdings, drives down the value of the company’s assets only to pick them up at ostensibly bargain-bin prices. The latest example of this is ESL’s offer to buy the Kenmore brand for $400 million.

When I left Sears late in 2003 (the year before the Sears and Kmart merger), we had valued Kenmore well in excess of $2 billion, and Sears’ major appliance market share was north of 40%. Today, Sears’ leadership position has totally fallen apart. Today, the trends are relentlessly negative. Today, after two years of searching, ESL may now be the only plausible buyer.

To be clear, I’m not suggesting any intentional manipulation or malfeasance on the part of Lampert and/or ESL. Yet if I were the owner of a great house on a beautiful piece of property, I might be more than a bit suspicious of the buyout offer I just got from the guy who burned it down.

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.  

September 6th I will be in New York for the Retail Influencer Network Kick-off.  On September 19th I’ll be speaking at Total Retail Tech in Dallas. The following Monday I’m headed to Austin to do the opening keynote at the Next Conference.

Being Remarkable · Reimagining Retail · Store closings

It’s just about time for full-on panic at J.C. Penney

It’s been a long sad slog for J.C. Penney. In 2011, after more than a decade of (at best) mediocre performance, the company brought in Ron Johnson from Apple as its new CEO. In what some saw as a bold attempt at transformation — and others saw as a misguided Hail Mary pass — retail’s latest savior changed just about everything all at once, and to put it mildly, the results were disastrous. Sales plummeted by about a third, the stock tanked, and Johnson was eventually shown the door.

Former CEO Mike Ullman returned to stabilize the rapidly deteriorating situation — which he did. Then in August 2015, Home Depot’s Marvin Ellison was brought in as the new CEO. In the more than five years since the Ron Johnson debacle, Penney’s has tried many things to claw back lost market share, improve profitability and become more relevant for a new generation. Very little of it has gained any traction. The stock, which traded around $40 when Johnson joined — and in the $20s when he left — sunk to just above $2 after a hugely disappointing quarterly earning report and the announcement that Ellison was leaving to join Lowe’s.

This is bad. Very bad. And I will be the first to admit that I am a bit surprised.

While it is clear that Penney’s is in some ways the poster child for “the collapse of the middle” that I frequently speak about, there were reasons to believe that Penney’s was well positioned to regain meaningful market share.

First, under Johnson, the company essentially fired one-third of its customers through a series of bone-headed moves. While it is difficult to win back customers in an intensely competitive market, I thought a decent subset would return once the obvious blunders were fixed. For the most part, it hasn’t happened.

Second, Sears, its most similar on-the-mall competitor, has closed hundreds of stores in the past few years — surely Penney’s would pick up a fair share. But if it has, it’s not so obvious.

Third, in addition to continuing to expand its successful Sephora in-store shops, Penney’s has added new products and services (including home appliances and mattresses) to attract new customers, drive incremental traffic and improve store productivity. So where’s the beef?

Fourth, after being a laggard in e-commerce and omni-channel, Penney’s has taken steps to elevate these capabilities. Yet the growth hasn’t followed.

Lastly, the categories in which it competes have performed pretty solidly the past few quarters. Penney’s failure to grow revenue at least 3-4% means it is losing share.

So Penney’s now finds itself in a situation where it has been engaged in years of cost cutting and store closings. There is very little gas left in that particular tank. The problem is no longer fundamentally about cost position or store footprint; it is about customer relevance and revenue. Penney’s finds itself in a situation where competitors have ceded hundreds of millions of dollars of sales through store closings, yet apparently little has migrated to its benefit. Penney’s finds itself in the middle of the best year in recent retail industry history, yet is struggles to keep pace. And now its CEO elects to leave.

It simply won’t get any easier from here.

While the seemingly imminent demise of Sears will provide incremental market share opportunities, we should not lose sight of the fact that the moderate department store sector continues to decline with no end in sight. Sales of online apparel are expected to double within the next few years, which will continue to pressure the economics of brick-and-mortar retailers that don’t execute a well-harmonized multi-channel strategy. Younger shoppers will become increasingly important to the overall fortunes of just about any retailer, and Penney’s has done little to contemporize its brand. And while Penney’s may have a few stores to close, mass store shutterings are almost certain to accelerate its decline. The best barometer of success going forward is robust trade area growth, derived from stable to slightly positive comp store sales and strong double-digit e-commerce growth.

Given the bifurcation of retail and the death of boring, J.C. Penney is a long way from being a remarkable and compelling retailer. Yet the positive retail cycle we are in and the likely shuttering of hundreds of directly competitive stores over the next six to 18 months will give the more-than-100-year-old brand an unprecedented opportunity to grab share. If it cannot improve its performance dramatically over the next few quarters, the issue won’t be whether a transformation is ever possible; it will be whether the once-stored retailer will even be around at any reasonable scale much longer.

And if that doesn’t incite panic, I don’t know what will.

jc-penney-store-1200xx2048-1152-0-107

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.  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.

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.

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.  

bridges_down_01

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!

Top.Ten_