Welcome to the world of “channel hop”

Remember the good old days of the purchase funnel?

Marketing channels were few and pretty straightforward–TV, Radio, Print, Direct Mail, Billboards–and you were in control of your message. Most consumers went about their decision journey in a linear fashion. The cost of gathering information was high.

Today, media channels have exploded. You are rarely in control of your message. The amount of information is, for all practical purposes, infinite. And often cheap. And available 24/7 virtually anywhere your potential customer happens to be with their mobile device.

More importantly, consumers can readily hop from one channel to the next. In your store one second, checking in to FourSquare the next, using their mobile device to scour product reviews seconds later. Moments later deciding to buy from Amazon because they don’t like your price.

Or maybe they get your catalog and that encourages them to go to your website to check your assortment and then call your customer service center to ask some questions. Ultimately they go back to the web to order and pick it up at your store.

Sticking to your channel or product-centric ways in the world of channel hopping is a recipe for disaster.

Embracing channel hop and creating a frictionless experience across all your touch-points does not guarantee success, but at least keeps you in the game.

The obvious obviousness of omni-channel

Sitting in sessions at last month’s NRF annual conference I might have thought a drinking game had launched where you would down a shot every time someone said “omni-channel” or uttered the phrase “seamless integration.”

Speaker after speaker–as well as subsequent press coverage–rattled off buzz-phrases, statistics and factoids regarding multi-channel consumer behavior as if this were some big new discovery or insight.

All this proved was one inescapable fact. There are two types of retailers in this world: those that have been paying attention and those that haven’t.

If you’ve been paying attention all of this has been obvious for years. If not, you are suddenly awakening to the cold harsh reality that you are behind. Perhaps way behind.

Any brand that has taken the time to understand consumer behavior already knows that consumers think brand first, and channel second. Any retailer that analyzes their customer data understands how digital commerce influences brick and mortar sales–and vice versa. Any company that has been willing to look, appreciates the large degree of cross-channel behavior that has been evident (and growing) for years.

It’s been more than 5 years since retailers like JC Penney, Sears and Neiman Marcus stated publicly that customers that purchase in 2 or more channels outspend single channel customers by a factor of 3 to 4X. In 2006–nearly six years ago!–my team did an analysis that showed that more than 50% of Neiman Marcus’ total sales (and a higher percent of profit) came from customers that purchased in multiple channels within a 12 month period.

The proliferation of robust mobile devices–smart phones and tablets–add more touch-points, new functionality and serve to further blur the lines between channels, while creating the need for more frictionless integration.

There is a big difference between a new reality emerging and your becoming aware of a reality that is already there.  And it’s dangerous to be confused about that.

Obviously.

 

A beautiful library with one book in it

“Meanwhile, my father and his pals were stuck in their overalls and hard-skinned hands, trapped in a way of life that seemed to me like a beautiful library with one book in it. I did not want to read that book over and over again forever.”

- Roland Merullo, Breakfast with Buddha

All too often, our ego protection system causes us to seek out more stuff we don’t need and engage in more activity that produces little or nothing.

We covet that new handbag or fancy car or Architectural Digest worthy home to wrap us in a veneer that shows the world that we are doing quite well, thank you.

We tweet about the Kardashians’ latest adventures, post pictures of today’s amazing outfit and share that we are “so excited” to do whatever it is we happen to be doing, just so everyone can stay current on how truly fabulous we are.

We go back to the well over and over to all those things that have worked for us in the past, only to become angry and blame the rest of the world when they no longer produce the desired results. And all the while we work desperately to make sure no one realizes how much we are drowning in our own insecurity.

Taste great, less filling becomes looks great, not at all fulfilling.

And we wonder why we feel stuck.

I wonder what would happen if we all cared a bit less about looking good and relaxed our grip on the past.

I wonder what would happen if just for a day we abstained from any “hey look at me” activity and spent just a bit more time listening and connecting from a position of compassion and generosity.

I wonder what would happen if we added a few more books to our library and didn’t care whether anyone else knew.

What better time than now?

 

 

 

 

The useless middleman

An awful lot of companies are in the business of re-selling other people’s stuff. They are middlemen.

Department stores, grocers, the little bike shop on Main Street–all middlemen.

The rapid rise of digital commerce has rendered quite a few middleman models useless. Gone (or going) are video stores, book stores and physical re-sellers of DVD’s, CD’s and games.

Nearly universal price transparency is turning higher cost physical stores (Best Buy) into showrooms for more convenient, lower cost middlemen (Amazon).

Powerful manufacturer brands are by-passing multi-brand retailers to aggressively open their own stores and websites to sell directly to consumers–think Apple, Louis Vuitton, Michael Kors–thereby cutting out the middleman.

Before the rise of digital commerce–and more efficient direct to consumer business models–neither the consumer nor the product or service creator had much choice. The middleman provided the only practical way to connect brands and consumers. Today? Eh, not so much.

When you occupy a position in between consumers and the products and services they want, the one thing we know for sure is that you add costs–tangible and otherwise. The key question: are you doing something valuable enough to be rewarded by either a price premium and/or enough volume to justify your costs?

In some cases middlemen are going away. In most cases, more useful models come to dominate the increasingly useless: Orbitz and Travelocity crush the traditional travel agent, iTunes makes physical stores irrelevant.

Deep insight into how your customer sees your brand’s utility in their value equation is a great way to understand whether you are truly useful or in the early stages of decay.

Every once in a while some radical innovation comes out of left field to quickly and irreversibly make a once compelling business model useless. Most of the time, it happens more slowly and sneakily.

Either way–for you to stay useful–you need to get to where the customer is going (or will be led) before somebody else does.

I’d hurry if I were you.

 

 

 

 

 

 

 

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.