Winning on Experience

Every Single Retail Store in the US To Close Permanently By Month’s End

In a surprise move that underscores the sweeping changes faced by the retail industry, the National Retail Federation, speaking on behalf of all of its members, announced today that every brick & mortar location of every retailer in the United States would close forever within the next few weeks. For nearly a decade “traditional” retailers have been struggling with profitability as sales shifted online and more consumers started to notice that many retailers appeared to have given up years earlier. Yet the move to close down every single store in America still came as a shock to most industry observers.

Speaking on condition of anonymity, a CEO of one major retail brand remarked “I would have thought that the fact that 90% of all shopping is still done in physical locations would have been enough to warrant keeping at least a few stores around. I guess I was wrong.” Former Texas Governor Rick Perry, who was recently named Sears’ 13th CEO in as many months, seemed surprised as well. “Wait, most shopping is still done in stores? I guess maybe we should have worked on making our stores better rather than thinking that closing them down would somehow make things better? Oops.”

Jeff Bezos, CEO of Amazon, the brand that has benefitted the most from consumers’ growing love of e-commerce, was approached for comment after delivering his keynote at the annual World Hyperbole Conference in Geneva, but would not speak to reporters. He was, however seen high-fiving Elon Musk off stage and doing what some described as a “clumsy Irish jig” upon learning the news.

Other industry veterans were more circumspect. Ryan Gozzi, a prominent Wall Street analyst who has been pushing many retail brands to shutter locations to improve profitability, commented “honestly I think this just goes too far. I always envisioned retailers would cut and cut until they had just a handful of stores that did like $15,000 per square foot, you know like Warby Parker, Bonobos and Birchbox.” When asked what he thought of today’s announcement Ron Johnson, who oversaw a failed attempt to re-invent JC Penney, looked earnestly into the interviewer’s eyes and exclaimed “Apple. Apple. Target. Apple. Target. Apple. Apple,” then added “golly that’s big news. I was only able to decrease Penney’s sales by about 40%. So signing up for destroying 100% of sales is truly transformative. Gosh I’m impressed.”

The complete shut down of all stores comes after many retailers had aggressively explored new strategies to revive their fortunes. According to multiple sources, newly appointed Macy’s CEO Jeff Gennette recently presented his Board with a bold plan to turn the storied retailer around. The strategy, developed with a team of 2nd year Wharton MBA students, was designed to transform the Macy’s culture and incorporate many of the components that have allowed so-called “digitally native” brands to grab market share away from traditional player while transferring billions of dollars from venture capitalists to consumers without anyone apparently noticing or caring.

The new plan reportedly called for the company to relocate its headquarters to a loft-building in the Pearl District of Portland where employees would receive complimentary Stumptown Coffee and Voodoo Donuts, in addition to an enhanced benefits package. Reports that corporate staff would be required to bring their dogs to work could not be independently confirmed. According to multiple sources, sales associates were to be re-named “customer service sensei’s” and the company would guarantee 15 minute delivery of any product anywhere in the continental United States for free. Initial plans also called for consumers to receive 1,500 Plenti points with every order over $50 but were dropped when research revealed that no one knew what Plenti points were.

According to insiders the plan hinged on four key elements:

  • Liberal use of the words “disruptive” and “transformative” in conversation, written communication and speeches at analyst meetings and conferences.
  • Getting on the cover of Fast Company.
  • A willingness to lose a cumulative $27 billion over the next 10 years.
  • A miracle happening in year 11.

The Board was reportedly initially intrigued, but the strategy lost support when one member pointed out that the plan was mostly just a description of Amazon’s strategy and that nothing was being done to improve the products Macy’s sold or the actual shopping experience. Ultimately a growing malaise crept over the Board despite plans to hold their Board dinner that evening at Masa. According to one long time Macy’s Director “while we were excited to dine together that night at arguably the best sushi restaurant outside of Japan, we couldn’t get past the realization that when it came to our business we had nothing. Absolutely nothing.”

While today’s announcement would seem to doom many once leading brands to the retail graveyard, some believe Walmart might come out ahead. The Bentonville, Arkansas based company recently began aggressively acquiring online-only brands in a bid to become “more customer relevant and digitally savvy.” Sean Spicer, Walmart’s newly appointed VP of Cash Incineration Initiatives, told the Wall Street Journal that the shuttering of all physical stores only validated what Walmart has been saying all along and that anyone who says otherwise is either stupid or lying. Challenged on that remark Spicer added: “Hold on, hold on, hold on. We’ve always maintained that the future of retail is selling cheap stuff that Americans need, shipping it to their house, losing money on every order and making it up on volume. If you can’t see that you haven’t been paying attention.” He then told reporters to direct any further questions to the Justice Department.

The economic impact of closings tens of thousands of stores and putting hundreds of thousands of people out of work remains unclear, but many were concerned it could lead to a recession. It also cast serious doubt on President Trump’s claim that ‘we would be winning so much we would get tired of winning.” Prior to today’s news a recent Gallup survey confirmed that most Americans weren’t remotely tired of winning.

Many commercial real estate investors also expressed concern that billions of square feet of vacant retail space coming on the market all at once would have a depressive effect on rents. Despite this widely shared belief, General Michael Flynn, recently named President of the Association for Commercial Real Estate Over-Capacity Denial” noted that the industry had gone through multiple down cycles over the years and that any excess supply would quickly be absorbed. “For every Home Depot or Target that closes there are plenty of Soul Cycles and expensive juice bars with that one employee awkwardly standing there to take their place” Flynn said.

 

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

The fault in our stores

Last week Target became the latest retailer to report weak earnings and shrinking physical store sales. They certainly won’t be the last.

As more retail brands disappoint on both the top and bottom lines–and announce scores of store closings–many may conclude that brick-and-mortar retail is going they way of the horse-drawn carriage. Unfortunately this ignores the fact that roughly 90% of all retail is still done in actual stores. It doesn’t recognize that many retailers–from upstarts like Warby Parker and Bonobos, to established brands such as TJMaxx and Dollar General–are opening hundreds of new locations. It also fails to acknowledge the many important benefits of in-store shopping and that study after study shows that most consumers still prefer shopping in a store (including millennials!)

Brick-and-mortar retail is very different, but not dead. Still, most retailers will, regardless of any actions they take, continue to cede share to digital channels, whether it’s their own or those of disruptive competitors. To make the best of a challenging situation, retailers need a laser-like focus on increasing their piece of a shrinking pie, while optimizing their remaining investment in physical locations. And here we must deal with the reality that aside from the inevitable forces shaping retail’s future, there are many addressable faults in retailers’ stores. Here are a few of the most pervasive issues.

The Sea Of Sameness

Traditionalists often opine that it all about product, but that’s just silly. Experiences and overall solutions often trump simply offering the best sweater or coffee maker. Nevertheless, too many stores are drowning in a sea of sameness–in product, presentation and experience. The redundancy in assortments is readily apparent from any stroll through most malls. The racks, tables and signage employed by most retailers are largely indistinguishable from each other. And when was the last time there was anything memorable about the service you received from a sales associate at any of these struggling retailers?

One Brand, Many Channels

Too many stores still operate as independent entities, rather than an integral piece of a one brand, many channels customer strategy. Most customer journeys that result in a physical store visit start online. Many customers research in store only to consummate the transaction in a digital channel. The lines between digital and physical channels are increasingly blurred, often distinctions without a difference. Silos belong on farms.

Speed Bumps On The Way To Purchase

How often is the product we wish to buy out of stock? How difficult is it to find a store associate when we are ready to checkout? Can I order online and pick up in a store? If a store doesn’t have my size or the color I want can I easily get it shipped to my home quick and for free? Most of the struggling retailers have obvious and long-standing friction points in their customer experience. When in doubt about where to prioritize operational efforts, smoothing out the speed bumps is usually a decent place to start.

Where’s The Wow?

As Amazon makes it easier and easier to buy just about anything from them, retailers must give their customers a tangible reason to traffic their stores and whip out their wallets once there. Good enough no longer is. Brands must dig deep to provide something truly scarce, relevant and remarkable. Much of the hype around in-store innovations is just that. For example, Neiman Marcus’ Memory Mirrors are cool, but any notion that they will transform traffic patterns, conversion rates or average ticket size on a grander scale is fantasy. Much of what is being tested is necessary, but hardly sufficient. The brands that are gaining share (and, by the way, opening stores) have transformed the entire customer experience, not merely taken a piecemeal approach to innovation.

Treat Different Customers Differently

In an era where there was relative scarcity of product, shopping channels and information, one-size-fits all strategies worked. But now the customer is clearly in charge, and he or she can often tailor their experience to their particular wants and needs. Retailers need to employ advanced analytical techniques and other technologies to make marketing and the overall customer experience much more personalized, and to allow for greater and greater customization. More and more art and intuition are giving way to science and precision.

Physical retail is losing share to e-commerce at the rate of about 110 basis points per year. While that is not terribly significant in the aggregate, this erosion will not be evenly distributed and the deleveraging of physical store economics will prove devastating to many slow to react retailers. This seemingly inexorable shift is causing many retailers to reflexively throw up their hands and choose to disinvest in physical retail. The result, as we’ve seen in spades, is that many stores are becoming boring warehouses of only the bestselling, most average product, presented in stale environments with nary a sales associate in sight.

The fault in our stores are legion. But adopting an attitude that stores are fundamentally problems to be tolerated–or eliminated–rather than assets to be leveraged and improved, makes the outcome inevitable and will, I fear, eventually seal the fate of many once great retailers.

PurpleCow

A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts here.

Being Remarkable · Customer Experiece · Customer Growth Strategy · Frictionless commerce · Holiday Sales · Omni-channel · Winning on Experience

Omni-channel’s migration dilemma: Holiday edition

Last year I wrote a post about what I called retail’s “omni-channel migration dilemma” wherein I observed that while the deployment of so-called omni-channel strategies–i.e. making it easier for consumers to shop anytime, anywhere, anyway–improves the customer experience immensely, the outcomes for most retailers were, thus far, not quite so wonderful.

At the heart of this argument were three core points:

  • With few exceptions, omni-channel retailers’ total revenues remain essentially flat, meaning that robust growth online is mostly cannabilizing brick & mortar sales;
  • In many cases, the profitability of e-commerce is actually worse than a physical store sale. This is particularly true for lower transaction value players like Walmart and Target.
  • In their quest to become “all things omni-channel”, retailers are investing enormous sums–and in some cases–getting distracted from arguably higher value-added activities.

You don’t have to be a math whiz to understand that spending a lot of money to end up–if you’re lucky–with basically the same total revenue at a lower margin is not exactly a genius strategy. But this is where we find Macy’s and many other retailers right now.

The omni-channel frenzy around the holiday shopping season only shines a harsher light on the issue. By launching sales earlier and earlier, by pushing deep discount events like Cyber Monday and by offering free shipping pretty much throughout the season, the tilt toward online sales is exacerbated and margins continue to shrink. Consumers win through great deals. And retailers lose, as overall sales are likely to go absolutely nowhere.

Now some have argued that omni-channel is ruining retail. They are wrong. They’re wrong not only because it is pointless to fight reality, but also because efforts that are fundamentally rooted in the desire to improve the customer experience are rarely misguided. The key is not to confuse necessary with sufficient, nor “the what” with “the how.”

So we should not get distracted by analysts who try to extrapolate one or two days of sales as part of some trend.

And we should bear in mind that online sales for most omni-channel retailers remain far less than 10% of their total business. So even healthy e-commerce growth is not likely to offset seemingly small declines in physical stores sales. You don’t have to trust me on this. Do the math.

But mostly we should remember that the story is not about all things omni-channel, nor what happens on Black Friday, Cyber Monday or the few weeks that comprise the holiday shopping season.

It IS about which retailers are breaking through the sea of sameness with remarkable product AND a remarkable experience. It is about which retailers are eliminating friction for the consumers that matter the most in the places that matter most. It is about which retailers are eschewing one-size-fits-all strategies in favor of a “treat different customers differently” philosophy. It is about retailers that know where to focus and how to properly sequence their omni-channel initiatives, not blindly chase everything some consultant has pitched them.

Clearly, the future of omni-channel will not be evenly distributed.

Don’t be blinded by the hype.

Customer Growth Strategy · Innovation

Small is the new interesting

It’s been at least 20 years now that most value creation in retail has been driven by big. Big stores–both physical and digital. Big assortments. Big advertising.

Walmart and Target. Home Depot and Lowes. Amazon and eBay. Best Buy, Ikea, Office Depot and on and on. Superstores, category killers and the “endless aisle” online guys have won big (heh, heh) on scale, efficiency and low prices.

There’s a lot to be said for pushing the frontiers of big. When your goal is to be the “we have everything store” your marching orders are pretty clear. When you have to be the winner in a price war, your focus is obvious.

The problem is that big has its limits. And a closer examination of many “winning” retailers’ strategies reveals that big is losing momentum.

It turns out that a strategy of big eventually faces diminishing returns. It turns out that most of the winners of the past decade or so are running out of new stores to build. It turns out that many of the mass promotions that drive incremental business lose money. It turns out that for most of these brands e-commerce growth is unprofitable. But mostly it turns out that big is boring. And consumers are starting to notice.

There’s no question that big is here to stay. There’s little doubt that for many consumers–and a vast number of purchase occasions–the quest for dominant product selection, convenience and great prices will remain paramount. But that doesn’t mean that’s where the future opportunities lie or that your strategy shouldn’t shift.

Shift happens. And it’s a shift away from mass marketing to becoming more personalized. Away from overwhelming assortments to editing and curation. Away from products that everybody has to items and experiences that the consumer creates. Away from the seemingly inevitable regression towards the mean to a deliberate choice to eschew the obvious and explore the edges.

Many brands will have a hard time breaking out of the pursuit of big. They are too vested in building scale, too scared of Wall St.’s reaction to a strategy pivot, too addicted to mass advertising.

Of course, therein lies our opportunity. Maybe it’s time to embrace small while the rest of those guys continue to flog big.

back-to-the-1970s-lets-get-small

Uncategorized

Sears: The world’s slowest liquidation sale

“I see dead people…they only see what they want to see.  They don’t know they’re dead.”

– Cole Sear in The Sixth Sense

There probably was a time when Eddie Lampert honestly believed that Sears and Kmart could be resurrected as competitive retailers. But the concept of putting together a mediocre (and declining) department store, with an also-ran to Walmart and Target, was failed from the start.

In the intervening nine (!!!) years, Lampert has never once articulated a strategy for fundamentally improving the value proposition of either brand that made any sense.

On the contrary, he organized product and business unit teams into “competing” merchandise categories despite overwhelming evidence that consumers wanted more integration, not less. He required that every individual product earn a competitive ROI when every winning retailer on the planet understood the notion of category management and market-basket profitability. He starved both nameplates of capital when each was already woefully behind best-in-class competitors. He cut expenses to the bone when it was clear that both Sears and K-mart had a revenue problem, not a cost problem. He closed dozens of stores, further exacerbating both brands’ lack of critical mass in many markets.

Of late, he’s been pushing two ridiculous notions. The first is the idea that Sears is becoming a “membership” company. Please. This is mostly a transparent customer data grab. The value proposition of “Shop Your Way” is weak and the idea that being a member conveys any real sense of brand loyalty, engagement or fundamental profitability would be laughable if the whole endeavor weren’t so sad.

Crazy Eddie’s other big idea is transforming Sears into an “integrated digital platform.” For this to work you have to believe that Sears can compete effectively with Amazon–not to mention a whole host of leading multi-channel retailers–or that you can somehow win in an omni-channel world with a crappy, declining and shrinking brick and mortar base. Both defy basic logic.

Whether Lampert is delusional or not remains irrelevant. Whether by design or desperation, Sears has been liquidating for years.

Sears can certainly create liquidity for a bit longer by continuing to off load assets. But any realistic hope that Sears can pull out of this dive has, sadly, long since passed.

Dead brand walking.

 

 

Fashion · Holiday Sales · Innovation · Leadership · Luxury

Neiman Marcus & Target: A glorious failure

“Ever tried. Ever failed. No matter. Try again. Fail again. Fail better.”

–  Samuel Beckett

If you pay attention to this sort of thing, you know that several months back Neiman Marcus and Target made a big splash when they announced a partnership to jointly market a limited collection of fashion items for the holidays. This announcement was followed by a lot of PR hoopla and a high-profile television and social media advertising campaign.

And guess what? It was a bust.

The product offering failed to generate the sales frenzy that past designer collaborations from Tar-zhay have, and the merchandise has been marked down 50 – 70%. The media are now out with their post-mortem bashings, many taking the “I knew it was a bad idea all along” route.

Having previously led strategy and corporate marketing at Neiman Marcus for several years, I’ve gotten plenty of questions about my take on the strategy and its execution (NOTE: full disclosure, I remain a Neiman’s investor). Frankly, I think much of the criticism misses the mark entirely.

Clearly, a lot of the execution was messed up. Prices were generally too high, designer brands were extended too broadly and some of the product was just plain goofy: a $50 Rag & Bone boys’ sweater? That was never a good idea.

Big picture, however, the concept was fundamentally good for both Target and Neiman’s. Target is well-known for enhancing its fashion cred with such partnerships; so for them, this was a no-brainer. If they made any money on it, all the better. But the real value is in brand enhancement.

For Neiman Marcus, the strategic value may be less obvious but, in essence, their foray into “mass-tige” is no different from Karl Lagerfeld or Jimmy Choo doing their special offerings at H&M. The goal is to generate buzz and expose their brands to a demographic that they need to cultivate for the long-term. Forging a longer-term and/or more broad partnership would be dumb. But experiments, such as what was tried here, can be shrewd moves indeed.

Which brings me to my last point. What gratifies me the most is that Neiman’s actually tried something bold and, arguably, counter-intuitive. Neiman Marcus’ last CEO–and my former boss–Burt Tansky was a brilliant merchant and remains a luxury and fashion industry icon–and rightly so. But he was hardly a risk-taker and fundamentally not wired to say ‘yes’ to strategic innovation. Kudos to Karen Katz and her team for being willing to push the envelope.

It’s so very easy to label something a failure after the fact and to castigate management for its ineptitude. The far easier path for leaders of course is to never try. You rarely get criticized for the things you didn’t do.

It’s a terrible strategy to eliminate the possibility of failure. Great companies and great leaders are not characterized by an absence of failure.

Without trying, there is no growth. Without failure, there is no learning. The key is to fail better.

So was the Neiman Marcus and Target partnership a failure? In the immediate-term, definitely. But the overall grade from where I sit is “Incomplete.”

If the lesson Neiman Marcus takes away from this project–and it is a project, not a strategy–is to pull back on innovation, to stop experimenting, than it will be a huge waste of time and resources. If it strengthens their resolve, if they apply their learning to improve the process of innovation, than it will be the most glorious of failures.