It’s time to let go of that hammer

You probably know the saying: “If all you have is a hammer, everything looks like a nail.”

This explains a lot of behavior we see with the leadership at struggling retailers.

If you came up through the merchant ranks, chances are you obsess about product–rather than the consumer–and fall woefully behind in creating a compelling omni-channel shopping experience. Today, you are desperately playing catch-up.

If the only way you know to drive revenue is through relentless price promotions, you now sit lamenting the lack of customer loyalty and your shrinking margins.

If you made your money through financial re-engineering and scorched earth expense reductions, you assume your latest investment will cost cut its way to prosperity, rather than realize that your overwhelming issue is top-line growth (I’m looking at you Eddie Lampert!).

If you drove same-store sales through price increases rather than customer and transaction growth–as the US luxury retail industry did for many years–post-recession you find yourself with too narrow a customer base to sustain profitable growth. You now are working overtime to win back customers you priced out of your brand.

All of these problems were caused by a monolithic view of strategy and a failure to gain deep insight into customer behavior. Most were preventable.

Of course, the past is history and the future is a mystery.

But there is no mystery in the failed wisdom of clinging to the past and continually wielding the hammer that got you into trouble in the first place.

Let go.

Move on.

Get some new tools.

 

 

 

It’s shrinkage Jerry!

You might be fortunate. You might be one of those retailers that is early enough in their maturity cycle to still have plenty of new markets to enter and quite a few new stores to open.

But for the majority of brick and mortar retailers it’s over. Or soon will be.

This is the era of shrinkage.

Fewer stores. Smaller stores. And a fundamentally different store experience.

The inexorable and dramatic shift to digital retail is already making some of your locations obsolete. And it’s making the space devoted to certain categories untenable.

If you don’t have a keen understanding of how these radical shifts will transform your real estate strategy, you had best get started.

If you don’t have deep insight into the omni-channel behavior of your core customers, I’d be worried. And I’d get busy.

If you don’t offer something meaningfully relevant and differentiated from what Amazon–or a host of other on-line only players can deliver–you need a dramatic re-think of your strategy.

You can take this dip in the icy cold water of reality as something to fear or a bracing wake-up call.

The former keeps you stuck.

The latter is a call to action.

 

 

 

 

 

The show must go on.

“The show doesn’t go on because it’s ready. It goes on because it’s 11:30.”

- SNL Producer Lorne Michaels (as quoted in “BossyPants”)

It’s tempting to think that with enough analysis, with more task force meetings, with a few extra iterations of that PowerPoint deck, with just… a… bit…more…time, success will be assured.

But that’s an illusion.

Success is an evolution, not an event.

Perfection is over-rated.

1.0 is better than 0.0.

What would you pull the trigger on if you knew the curtain was rising–if the proverbial train was leaving the station–whether you were ready or not?

It’s hard to step on the stage, into the harsh light and be willing to encounter the judgement of an audience.

It’s harder still to miss your chance.

 

 

 

 

 

 

The end of e-commerce

We’ve gotten pretty used to talking about e-commerce and brick & mortar retail as if they were two entirely separate things operating in parallel universes. In fact, industry commentators often treat the “on-line shopper” as some sort of new species.

Yet more and more the notion of e-commerce as a channel unto itself is collapsing. A distinction without a difference.

Yes, some on-line only businesses like Amazon will continue to thrive, and no doubt we will continue to see purely digital retailers launched. Some will carve out profitable niches.

But with few exceptions, the real action–and the biggest source of future growth–lies with omni-channel retailers, that is, those brands with a compelling presence in brick & mortar and on the web (and mobile, and social, etc.).

When the media quotes the rapid growth of e-commerce, don’t forget that much of that growth is fueled by the digital operations of traditional brick and mortar players such as Macy’s, Best Buy and Neiman Marcus.

The reasons for this are simple. Consumers think brand first, channel second. Consumers use multiple touch points on their purchase decision journey. More and more, consumers value the unique convenience of on-line shopping, but often will appreciate the unique benefits of a physical store.

Forward thinking omni-channel retailers like Nordstrom have stopped breaking out the sales of their e-commerce division and their brick and mortar stores because they accept the idea that the distinction is increasingly meaningless. More importantly, they act on this insight and have worked hard (and invested mightily) to eliminate shopping friction and make their brand available anytime, anywhere, anyway.

So forget e-commerce and brick & mortar. Stop with the separate P&L’s, non-sensical incentives and channel-centric customer analysis.

Put the customer at the center of everything you do, and build from there. Rinse and repeat.

 

 

 

 

 

When the last 15 years happens to you

If you are in retail, the last 15 years or so have brought enormous change. Let me call out a few profound shifts:

• Winning business model bifurcation: Price and dominant assortments at one end (Wal-mart, Amazon); remarkable experience and assortment curation/product differentiation on the other (Nordstrom, Louis Vuitton). The result is death in the middle.
• Digital retail: What started as an electronic catalog is now not only a high growth channel approaching 10% of many categories’ sales–and much higher if the product can be delivered digitally–but an increasingly important medium for promotion, interaction, customer reviews, price checking, etc.
• The constantly connected–and inter-connected–consumer.  As more and more consumers are armed with powerful mobile devices the notion of anytime, anywhere, anyway retail has become a reality–and expectation. Social networking, product review sites and pricing apps are creating greater and greater information transparency. The brand is no longer in charge. The consumer is.
• The omni-channel blur. Most of your customers will engage with multiple touch points in their decision journeys. As mobile commerce grows–and it becomes easier for consumers to seamlessly move between various applications to gather product information, check prices, confirm inventory availability, get product reviews and the like–the notion of distinct channels breaks down. It’s a frictionless, compelling experience that matters, not making each of your channels better. New ways of consumer engagement, new ways of organizing your business, new ways of measuring and incentivizing become mandatory. Silos belong on farms.

While it is true that remarkable new business models sometimes emerge quickly and unexpectedly, most winning concepts that have gobbled up market share from industry incumbents did not come out of nowhere.

Amazon launched in 1995. The off-the mall and specialty formats that have made life difficult for the Sears’ and JC Penney’s of the world have been important competitors since the late 1990′s. Anybody paying any attention to customer data during the last 10 years has known that the so-called “multi-channel” customer outspends a single channel customer by a factor of 3-4 times.

With the benefit of 20/20 hindsight it’s clear that many Boards and many retail executives were asleep at the wheel. They failed to gain sufficient awareness of the competition and seek truly actionable customer insight. They failed to accept what was happening. And of course they failed to act. And now it’s too late.

So here’s the new reality. While many of the companies I mentioned–and countless more I’m sure you can offer up–had some 15 years to see what was happening and make the necessary changes, chances are you will have less time. A lot less time.

So I guess the question is: what are you going to do to make sure the next 5 years don’t happen to you?

 

Why wasn’t Jeff Bezos on your Board?

Ultimately a company’s success is determined by a sound strategy that is well executed by strong leadership and a passionate, highly capable team.

But don’t underestimate the role of the Board of Directors in distinguishing winners and losers.

If your business is established but struggling, you need a remarkable Board to help guide craft a re-imagined and remarkable turnaround strategy. If you are a rapidly growing brand, you need a Board that can challenge your growth assumptions and navigate make or break scaling issues.

Every Board should have outside members who are well versed on the critical strategic issues that face that company. Every Board should have several members who are willing to aggressively challenge the status quo and are willing to walk if they feel they are not heard.

The unfortunate reality for many companies is that the outside members of their Board of Directors fall short on both dimensions.

When I made my first strategy presentation to the Sears Board in 2002 I was certainly impressed by the distinguished careers of the outside directors sitting around the conference table.

But how many had any relevant experience with a retail brand turnaround or repositioning? How many had a solid understanding of the emerging impact of e-commerce? How many understood the fashion sensibilities of the mid-market female shopper? How many knew how to leverage customer data to fine tune a marketing strategy? How many had experience crafting a value proposition that could fight and win against increasingly strong price competition? How many grasped the intricacies of delineating and executing an assortment strategy that would differentiate us from both on and off-the-mall competition? How many had experience developing relevancy with the younger customer that we so coveted?

That answer was precisely zero.

Look at Sears’ Board today. Different players, same result.

Sears, of course, is just one depressing example, but you don’t have to look far to find many more. Just for fun, go check out J.C. Penney’s current Board.

We will never know how different things might have been if Jeff Bezos or Kevin Ryan or Tony Hsieh or any other similar forward thinking executive had been on Sears’ Board at any time during the last 10 years. And adding a Board member from a sexy, innovative company certainly does not guarantee success.

But if a Board is supposed to guide the future strategic direction of the company, you might want to have a few people who know what they are talking about when it comes to issues that truly matter. And they also need to be willing to get in the CEO’s face when necessary.

As an employee, you should expect it. As an investor,  you should demand it.

 

 

 

My top 10 blog posts of 2011

#1  “Crazy Eddie and Sears’ Hail Mary Pass.” http://bit.ly/e0p88l.

#2  “The end of same store sales.” bit.ly/vlUXVO.

#3  “Luxury’s back! Uh, not so fast.” bit.ly/rFrgNj.

#4  “Let’s get small.” bit.ly/mT63sD.

#5  “Get over it. Get used to it. Get on with it.” bit.ly/dFn1wf.

#6  “The showroom of death.” bit.ly/tJPfoZ

#7  “Me-tail.” bit.ly/rfBu1B

#8  “Zip it, your generation is showing.” bit.ly/e77Cs4

#9  “Playing not to lose.” bit.ly/sjOTQN

#10  “The endless aisle and the world’s smallest parking lot.” bit.ly/ryxv3C

The end of “same store sales”

For many years corporate leaders and industry analysts have made “comp” or “same store sales” their go to metric for the health of a retailer.

It’s time for a re-think.

For any retailer that is building out robust omni-channel capabilities, the lines between digital and brick & mortar are increasingly blurred. More and more, the web influences retail sales and stores help drive e-commerce business.

If a customer makes a purchase on their mobile device while at–or shortly after visiting–your store, is that a physical store sale or an e-commerce transaction? If a store sales associate finds a product from the on-line assortment to save a sale, which channel should get credit?

Customers shop brands, not channels or touch-points. Any marketing that builds your brand, drives customer engagement and activates a sale, helps all channels. Your job is to stop obsessing about channel attribution and make your customer experience as frictionless as possible.

If you do not know what percentage of what you call e-commerce sales comes from customers who are close to one of your physical stores, you need to get busy. And if you do not know what percentage of your customer base makes a purchase from two or more of your channels (stores, web, catalog) in a year, you will want to add that to your priority to-do list. FYI, at the last retailer I worked for, both of these numbers were north of 50%!

Once armed with this insight you will see why “comparable trade area sales” and “comparable customer segment sales” are something to start tracking. [And if you are an industry analyst, it's time to start asking the companies you follow how they are doing on these increasingly important metrics.]

Don’t forget, silos belong on farms.

When bad personalization happens to good people

In a slow growth world your primary source of profitable top-line growth is going to come from winning market share. Increasingly that means not only having a winning product or service, but delivering a customer experience that is powerfully relevant and personalized.

Leveraging customer insight to move closer to a one-to-one relationship should be on any brand’s short list of priorities.

But you need to get it right.

I remember many years ago when I was in college I decided to live in the Theta Chi house on campus for the summer. One day I got a letter addressed to “Mr. Theta Chi.” Part of the copy read something like “you and all the little Chi’s will have hours of family fun with our new product.” Nice try.

Just this morning I got an e-mail from a purportedly “luxury” travel service touting their great personal attention and highly customized services. I’m willing to believe they are good people who serve their clients well. But when the e-mail started out “Dear Mr. Sageberry” they instantly undermine their brand promise.

It’s not easy to make “Me-tail” happen. The potential returns are enormous. But you must do the work.

The opposite is what’s risky

In a recent interview with the Harvard Business Review new JC Penney CEO Ron Johnson was asked whether it wasn’t a pretty risky proposition to completely re-invent a department store?

His answer was clear, concise and spot on: “The opposite is what’s risky.”

Years ago, when I was at Sears, we had many debates about how risky it was to take our dominant tools and appliance franchises “off the mall.” Mainly we were concerned about how such a bold strategy would cannibalize our core mall-based department store business. Now, more than a decade later, virtually all the value that’s been created in the retail tool and appliance industry has been captured by Home Depot, Lowe’s and others that responded better to shifting customer desires. And the core business we tried to protect now seems headed inexorably toward extinction.

Whether you study Blockbuster or Borders–or myriad other brands that fell hard from lofty perches–you don’t have to be much of a business historian to see how industry incumbents consistently get the risk equation wrong. And by the time their platform is fully on fire, it’s far too late to recover.

Defend the status quo and you’re likely to be the proverbial frog slowly boiling to death.

Challenge the status quo, walk through your fear and at least you give yourself a chance to survive and thrive.