Amazon Acquires Sears

amazon-sears_Rd.1If you have any doubts, just wake up and think about it. It’s a win-win for both Jeff “Get Big Fast” Bezos and Eddie “Take the Money and Run” Lampert. Amazon gets roughly 2400 US stores (or “buildings”), overnight (1300 Sears, 1100 Kmart). The acquisition becomes Bezos’ answer to omnichannel and the proven revenue synergy of consumers’ ability to shop online and off; the convenience of proximity for pick up and returns; and facilitation of even greater delivery speed. So just as Walmart’s 4500 stores double as distribution centers, so would Amazon’s acquired Sears/Kmart stores.

The real estate assets would be the primary reason for Amazon’s interest in acquiring Sears Holdings. However, there are several other valuable assets and operations, which Amazon could enhance and grow.

What Eddie gets in such a sale is a potentially profitable exit strategy that many analysts, myself included, believe he is pursuing. In fact, in several of my past articles I have opined that Lampert was, indeed, managing the business into liquidation. And regarding the real estate assets, Lampert has been methodically selling, leasing (partial or in total), and/or closing Sears and Kmart locations. Indeed, he indicated not too long ago that Sears Holdings was considering shuttering its entire fleet of Kmart stores. So if he is seeking an exit, a far less painful and certainly more profitable option would be a sale to Amazon.

This could fall nicely into Bezos’ hungry little hands. Amazon might be able to cut an incredible deal, at least far less costly in time and capital, than building or leasing its own nationwide distribution centers/stores.

The financial complexities involved in such a deal are beyond my pay grade, particularly since Eddie engineered a total reorganization of the business: morphing its structure into some 30 business units; establishing the securitization of brands — “unlocking value” as Eddie called it — and other aspects that might give the dealmakers a royal headache.

However, “by the numbers” alone, it might be timely for both Bezos and Lampert to want to make the deal. When Lampert formed Sears Holdings in 2005, revenues of the combined businesses were around $50 billion with about 3500 stores. Revenues and profits have dropped steadily, to $36 billion in 2013, with a loss of about $1.4 billion last year. The stock price hit a high in 2007 at $192 per share; today, a share of Sears Holdings is hovering around $30. One analyst said if the stock drops to around $20 per share, Sears would be “one stop on the way to liquidation.”

So as Sears’ declining financial condition continues, its valuation as a potential acquisition target falls as well, making it very attractive to Amazon. Sitting in Amazon’s lengthening shadow, Eddie might assess that the “whole” is now more valuable than the sum of each of the last few remaining assets. Therefore, in my opinion, Eddie might be bailing into his lifeboat sooner rather than later, and a deal with Amazon would no doubt fill it with enough cash for him to add substantially to the pile he’s already extracted through his brilliant financial engineering.

Other Amazon “Gets”

There are other attractive assets and operations that could easily be integrated into Amazon’s model, and to which value could be added (in some areas repaired). While Kenmore appliances, Craftsman tools, and DieHard batteries have been placed into another entity and charge Sears royalties as a licensee, I’m sure Amazon would insist they come with the deal. And, those are iconic brands that can be re-energized. The e-commerce business, which Lampert invested most heavily in and strategically focused on for future growth, while only accounting for about 3% of the total business, could certainly be leveraged when plugged into Amazon’s model.

Furthermore, Amazon has mastered “Big Data” (its database is estimated to be larger than that of the Pentagon), and more importantly, they know how to use it strategically. For example, it has the ability to guide customized or “localized” assortments into each of the store locations based on local consumer preferences.

What Amazon Shouldn’t Want

However, and above all, the Sears or Kmart names are not on anyone’s “value-added” list. Sears and Kmart’s financial plunge; the physical deterioration of their stores; the fragmented and “siloed” operations; strategically chaotic merchandising and marketing strategies and ad hoc implementation, all have contributed to the decimation of the consumers’ perception of the brands. The iconic Sears brand has taken this biggest hit; it was once at the pinnacle of retailing in the 1970s even bigger than today’s behemoth Walmart.

So, in my opinion, bye, bye Sears and Kmart brands, hello Amazon, replacing those brands wherever they appear, store nameplates included. Why not? The Amazon brand name is simply more powerful today, and I suggest even more so among the younger generation, well on its way to becoming the largest consumer segment.

You say, ‘How sad!’ But, get over it. If Sears and KMart aren’t discarded in this kind of a deal, at some point in the very near future, they will end up in the trash bin of history. And “Fast Buck” Eddie “Time to Exit” Lampert will go down though the ages as the iconic financier who won more cash (way more than most people would know what to do with), but failed to succeed at what he declared was his original objective: to return Sears and Kmart to their once powerful positions as iconic American retail brands.

Amazon, a little-known brand just a decade ago, is becoming the new American icon. Maybe acquiring these two fading American icons is a more dignified way to put them to rest than the blunt harshness of liquidation.

Walmart Can Crush Amazon

walmart-amazon-pac-man_rd.3I described Amazon a while ago, as “PacMan,” gobbling up everything in sight, including big chunks out of Walmart. Well, that’s about to change. Walmart can literally crush Amazon. Or at least it can put a lid on Jeff Bezos’ mantra: “get bigger faster.” Bezos will have to begin quantifying just what getting “big, bigger and faster” means. And it will also be the moment we’ve all been waiting for when Amazon will have to start turning a profit. At this juncture, yes, Amazon, the great disruptor, has created a new retail playing field, that they alone have been dominating.

But Walmart is finally rediscovering and reinventing the part of its DNA that disrupted the industry and created a unique new playing field half a century ago, which it alone dominated and grew to its near- $500 billion in annual sales (Amazon is pushing for $90 billion). Walmart is rediscovering its once-revered distribution genius, not just as an incremental update and improvement, but rather to reinvent it altogether. And I predict it will reinvent itself by “leapfrogging” over Amazon’s model (which still has miles to go), and will redefine what getting bigger, faster really means. Talk about a breathtaking spectacle. What does a gargantuan $500 billion, 10,000-store (worldwide – about 4500 in the US) company look like getting bigger, faster? [Read more...]

Women’s Underwear is Difficult

Playtex_graphic-01A Brief History and Consumer Perspective

Women’s underwear, its euphemistic pseudonym ‘intimate apparel,’ or its more sophisticated sister, ‘lingerie,’ is difficult in so many ways. For all of us women consumers, it is a necessity; a purchase that must be made and replenished regularly. And, trust me, as a consumer who has been buying her own underwear for more years than I’d like to count, it is not always an easy, satisfying, fun, or self validating purchase.

Underwear is a category of apparel that gets us down to the bare bones of ourselves. Our bodies. Our comfort. Our sense of self. Our sex appeal. Our underpinning. The foundation for all of our clothes. Women’s underwear has been marketed to us for generations reflecting deep-seated emotions and attitudes about ourselves, our roles, and our history as women. From long before the time women discarded their bras in the late 1960s as a symbol of second-wave feminism, bras have had a history of women’s emancipation and independence. In 1873, writer and activist, Elizabeth Stuart Phelps, wrote: “Burn up the corsets! … No, nor do you save the whalebones; you will never need whalebones again. Make a bonfire of the cruel steels that have lorded it over your thorax and abdomens for so many years and heave a sigh of relief, for your emancipation I assure you, from this moment has begun…” [Read more...]

Technology Doesn’t Change People, People Do

speed kills_FinalPardon me for using the “guns don’t kill people” metaphor. But people are now using the incredible power of technology and the Internet in ways that are disruptively changing our entire culture: some of it awesomely positive, but some of it ominously negative. The myriad of positive effects is accelerating on a daily basis, immediately recognizable as providing “better, easier, quicker, more convenient, more sustainable, more experiential” and on and on. Yet, in my opinion, there is a darker side that threatens to alter our culture in a very negative way.

Today, humans are born with a mouse in one hand and a smartphone in the other. “Digital” is the ‘D’ in our DNA. That is to say that as we evolve generationally, the importance and utility in our lives of newspapers, books, libraries, movie theaters, concert halls, designers and on and on, become irrelevant. Exaggerating a little bit, but you are getting my drift; and we are, indeed, participating in this cultural evolution whether we want to or not. [Read more...]

Robin Lewis on CBS Sunday Morning

Check out the complete article “A dying breed: The American Shopping Mall” on the CBS Sunday Morning web site >>

The Great Retail Demassification

deadmall2The Death and Diminishment of Malls and Other Big Footprints

We are on the edge of the Great Retail Demassification. Prior to the “great disruptor” (that would be the Internet), and before the marketplace became ridiculously over-stored and over-stuffed, consumers were well served by massive regional malls (currently numbering about 1200), in which retailers located their stores and to which consumers travelled enthusiastically. To steal a line from the movie, “Field of Dreams,” retail growth strategy during the pre-digital era could truly be based on nothing more than “build it and they will come.” And they did. Fast forward: consumers have every retail store in the world resting comfortably in their pockets, just a key-tap away, wherever they are and whenever they choose to shop for exactly what they want. Why, then, would anyone spend the time and money to travel to, and shop through the malls; or for that matter, any large, impersonal, traditional retailer? [Read more...]

Water Sales Swirl Brands Down the Drain

waterbottleIs water washing full-price mega brands down the drain? Well, maybe so, given that major bottlers have lost consumer credibility to the degree that they can’t market product under their own brand names.

But let’s start at the beginning. As has been postulated in the Robin Report lately, harbingers of the “death of mega brands” are on the horizon. Chief among them is the slippage of Tide laundry detergent at the previously unassailable “high performance, high price” end of the category.

How so? Procter & Gamble is poised to introduce “Tide Simply Clear” detergent. Simply put, it’s a Tide entry into the lower-price end of the market. It’s reminiscent of P&G’s introduction of Charmin Basics and Bounty Basics a few years ago as an off-price version of its high-end paper products.

These price moves are intended to fend off the increasing popularity of off-price products that consumers perceive as performing just as well, or well enough, in product categories that aren’t edible. Increasingly, many consumers now see no reason to pay full price. [Read more...]

A Changing of the Guard: An Interview with Tim Greenhalgh, New Chairman of Fitch

Robert-Hocking_final-imageThe last 20 years have been a time of incredible upheaval in the retail order. So with the recent announcement of a new chairman at retail design agency Fitch, I was curious to hear the perspective of an agency that’s spent four decades designing retail experiences for many of the world’s leading brands.

Tim Greenhalgh’s title is Chairman and Chief Creative Officer. Having someone with a creative background at the top of the organisation says a lot and, as Tim sees it, his role is fundamentally about fueling the culture of creativity within the business. One thing is clear: despite the uncertainty facing consumers and retailers, he’s still incredibly bullish on where the world’s going.

In Tim’s words:

“Figuring out retail isn’t easy; where do you pin the tail on the donkey? There are lots of consultancies but our job is to bring creativity to the business problem of our clients and some of the most interesting brands we meet have creative leadership in the C-suite. [Read more...]

Sex Sells

L Brands Deep Dive

I recently attended L Brands half-day investor meeting, where management presented its long-term strategy. While the absolute priority remains growing the North American business, in fact doubling it, L Brands hopes to sustain significant international growth. Finally, Les Wexner who has a place in the halls of retailing as one of the best specialty retail operators, has succumbed to the lure of international markets. vs_under

What positions L Brand apart from its competitive specialty apparel retail set is that it’s not in the apparel business and it’s not in the fashion business. L Brands competes in lingerie and beauty, two product categories that are staples (non-discretionary relatively low price points; and high emotional content (based on fabulous storytelling) for Victoria’s Secret (“VS”), Pink, La Senza and Bath & Body Works.

To quote Les Wexner’s opening comment “I think our year will be good, perhaps very good, unless Washington completely mucks everything up.” Unfortunately, as each day passes the likelihood of a muck-up is more and more real. That said, Les and his team control the controllables with a tight rein on all points of brand interaction with the consumer and employs a partnership/franchise model with a small number of world-class partners to expand beyond North America. This translates into L Brands retaining control or “owning” assortment, pricing, promotions, store design and real estate approval, while franchise partners make the capital investments, and supply the local real estate and retail selling organization skill sets. [Read more...]

Made in USA: Myth or Reality?

American FlagOn a recent afternoon I was stopped in the mall by a foreign tourist looking for American gifts to take back home. All the clothing and accessories in the stores were made elsewhere, she said, so they weren’t really American.

U.S. consumers are starting to feel the same way. Groups with names like Made in the USA Foundation and Buy American are launching advertising and social media initiatives to encourage Americans to buy domestically made goods. They’re reacting to a groundswell of sentiment that blames the sluggish job market on imported consumer products. Large companies are reportedly looking at their product lines to see whether even a little domestic sourcing is feasible. Several fashion startups are touting the fact that their stuff is made in the USA, and in some cases even successfully using crowdfunding to get their businesses off the ground. [Read more...]

Down by the River…Amazon Style

Basic RGBThe next time you’re cruising the Internet, type in this URL:

Relentless.com

Surprise!

You’ve arrived at Amazon, courtesy of one of the early working names for the site that Jeff Bezos was considering way back when people were still referring to this thing as the information-superhighway. Just as it’s been a very long time since you’ve heard anybody use that term, Amazon has evolved over the past two decades as the dominant online retailer, much to the embarrassment of the rest of American retailing, which should be ashamed of how they let Bezos and company kick their e-butts.

As many wise and learned observers — not the least of whom is the namesake of this noble enterprise, my friend Robin Lewis — have noted, Amazon is far from done in changing the rules of how Americans buy stuff and its continued lack of profitability should be of little concern for the long-term viability of its business model. If most people are coming to realize the enormous impact Amazon is having on the business-to-consumer relationship, it is perhaps less well known how the company is also significantly changing the business-to-business model. It is every bit as radical a transformation.

Three Distribution Revolutions

You can make the case that there have been three major revolutions in the history of supply chain management in American retailing…the Wells Fargo Wagon not withstanding. The first took place in the 1920s when retailers first started to take ownership of their suppliers. Certainly Sears was in the forefront of that movement, owning major stakes in many companies, including ones that eventually became Kellwood and Whirlpool after being cut loose. Sears wasn’t the only retailer to go this route. The famous Fieldcrest towel began life as the house brand for one Chicago department store by the name of Marshall Field.

The second major revolution in how suppliers dealt with retailers came into its own in the 1980s with three initials: EDI. Electronic Data Interchange was championed by Walmart (then still porting the hyphenated Wal-Mart nomenclature). Orders were transmittedelectronically from the store to the supplier, eliminating the infamous order pad that had been the backbone of the ordering process since the days of the general store. With it came unprecedented access to data all up and down the food chain. Suddenly vendors could see what was selling and where and could anticipate their next orders. This transparency trickled down to other retail operations but nobody did it better than Walmart… and many vendors will tell you that’s still the case today. The third revolution in the supply chain came with the institutionalization of the product sourcing process from China. American suppliers were practically on the next plane to Beijing after Richard Nixon in 1972, but it was very much a haphazard process for many years until The Gap turned to a small Hong Kong trading company called Li & Fung to manage its supply chain process in China.

That model of course became THE model, still in use by virtually every company that sources product from Asia. All of these developments have several things in common. Each was initiated by a dominant retailer looking for a more efficient model. Each took place in a time when the scale of business was being significantly ramped up allowing for these greater economies of scale to be effective. And each gave the early adapters a tremendous competitive advantage that often took others decades to catch up.

If you’re starting to think that those conditions exist again in American retailing, you may be related to Bezos… except that as with many things, he’s way ahead of the rest of us.

And Now, the Fourth Revolution

Amazon has created the next great revolution in B2B supply chain management and it is part of the reason why no other retailer will ever catch up with them in the field of e-tailing. Quite simply, Amazon allows a vendor multiple ways to sell consumers under a system that in the parlance of today can only called distribution-neutral. It is this reason as much as its facing to shoppers that makes Amazon invincible.

There are slight twists and turns to all of these distribution models, but put them all together and one thing is unbelievably clear: Amazon is business generations ahead of the rest of retailing in managing the process of getting goods from the seller to the buyer. Walmart and others can talk about using their stores as distribution points and many stores trump the ability of consumers to place orders online and pick it up in their physical stores. These are valiant attempts to compete but they are so far out of their e-league compared to how Amazon manages the process. As with the other revolutions in the supply chain, it will take other retailers decades to catch up and by then it will be too late, the next revolution will already be here.

Relentless doesn’t even begin to describe it.

Consider all the ways vendors can put their products through the Amazon pipeline:

#1. Amazon Owns and Sells
This is the conventional supplier-retailer model where the store orders goods, takes ownership of the inventory and sells it to the consumer. A vendor gets their wholesale price and is then out of the rest of the transaction.

#2 Vendor Owns and Amazon Sells
Suppliers retain ownership of inventory at their facility until Amazon sells the product. The fulfillment of the order is done by the supplier under the auspices of Amazon, which takes a cut of the sale, generally between 15 and 20 percent.

#3 Vendor Owns, Amazon Sells and Fullfills
Again, the supplier retains ownership of inventory until the sale is made but now the product is physically stored at an Amazon distribution facility. This allows for the fast delivery that is a cornerstone of the Amazon strategy yet Amazon never actually owns the goods, adding to their profit margins. Again, Amazon’s cut is 15 to 20 percent but it also charges some fees for processing the actual order. The trade has come to call this model FBA, or Fulfilled by Amazon.

#4 Vendor Owns and Sells, Amazon Fulfills
Similar model except that the vendor is identified on Amazon as the seller through its own storefront. Amazon is still fulfilling and taking its cut but the supplier is getting some identity with the consumer. Goods can be kept at a supplier DC or by Amazon.

#5 Vendor Sells a Third Party, Amazon Fullfills
Yet another variation, the supplier sells its goods to another entity, sometimes an actual retailer, sometimes an online storefront. That seller then shows up on Amazon beyond the control of the supplier. This is often the case when products turn up on Amazon — often at a screwy price — despite the denials from suppliers that they are selling Amazon directly. In the old days, this used to be called transshipping. And while the tendency might be to think of this being smaller stores employing this strategy, you’ll often see online giants like Sears or Wayfair on Amazon, further muddying up the distribution picture.

Warren Shoulberg is editorial director of several Progressive Business Media business publications for the home furnishings industry. He made his first Amazon purchase in 1997 and hasn’t stopped since.

Something New, in the Right Hue, That Fits, Too!

iStock_000019764536MediumIn our most recent article, we discussed the newest trend in retail — going hybrid. The reality of the marketplace makes having control over the value chain a necessity for fashion brands, retailers and manufacturers; and this has evolved into what we call the hybrid business model. Today we’ll expand on how retailers can stand out from the crowd and develop a competitive advantage by using elements such as fashion design, newness and fit to support their overarching brand strategy.

Design

In an oversaturated marketplace, compelling designs in the storefront window are the key to enticing shoppers. I look no further than a recent shopping trip, when I was strolling past C. Wonder. This little yellow polka dot dress was calling my name. Seriously, calling my name. I couldn’t have lived with myself if I left it behind on the rack. This is precisely the type of personal response every retailer strives to create.

Examples of companies excelling at the design game are plentiful. Take, for instance, Canadian superstar, Lululemon. This retailer has successfully taken on vertical integration, gaining control across the design, marketing, distribution and retail stages of the value chain. I never thought I would pay $100 for a pair of yoga pants. But guess what? I’m not afraid to admit, I live in those things. What is the key here? A great, consistent design that is always flattering and made of high performance, feel-good fabric that lasts for years. Lululemon is a high-energy, experiential brand that is delivering on its promise through great design.

iStock_000020512898MediumNewness

Newness is also important. Fashion has to make you want to buy something new and the companies that are able to consistently deliver fresh products to the marketplace are the ones distancing themselves from the competition. Even timeless pieces like the Little Black Dress are constantly being reinvented to remain modern. According to global management consulting firm Kurt Salmon, newness impacts the bottom line. The firm calculated that for every week saved within the product development cycle, the realized margin improves by 25 base points. Think about Asos, which introduces 1500 new lines per week, creating a new shopping experience each time a customer logs on. Even traditionally conservative Nordstrom has forayed into fast fashion with its Savvy Collection and the expanding partnership with Top Shop. By changing up merchandise almost daily, Nordstrom is hoping customers will connect more often; online or in person. After all, if a customer thinks she may miss out on something desirable, she most certainly will be back again and again. The element of newness is also evident in the fast growing concept of pop-up retailing. Pop-up stores offer up the appeal of exclusivity, newness and the element of surprise. Even San Francisco-based startup company Storefront has made a business out of connecting companies with short-term retail space.

iStock_000016752905MediumFit

Now we turn to what customers often deem as one of the most important criteria when making a purchase decision —fit. Kurt Salmon revealed that 85% of consumers will buy a particular brand because of the way it fits. Who knew such a short, three-letter word could mean so much? Some companies are building fit into the very essence of their business model.

Take for instance the personal styling service Stitch Fix. According to its website, the company’s founder is “passionate about helping women achieve everyday confidence.” Using an algorithm that takes into account a woman’s measurements, budget and other data, Stitch Fix delivers a hand-picked selection of pieces aimed at flattering your body and matching your style preferences. And don’t worry men, there are options for you too. J. Hilburn is a menswear brand all about fit. Based on home-visits by stylists, the company uses measurements to deliver custom-made clothing. The strategy is paying off — during 2012, the custom retailer doubled its yearly revenue and expects continued growth this year.

We’ve seen many great examples of companies carving out their niche in the marketplace through fashion design, newness and fit. Ensuring these elements align with your brand will help protect against the continual mark-down strategy that has plagued so many. But the question remains — how can companies do this effectively and still reach the market at the right time, the right quality levels and the right price point?

The answer: technology. Today’s marketplace offers technology for anything you could possibly imagine and, luckily for the fashion industry, there are solutions that get to the heart of your every day challenges. Advanced design software enables designers to better share, communicate and collaborate while producing technically correct and cost-feasible designs. Product development software with the latest 3D technology reduces costly samples while improving style, fit and end product quality. The list goes on and on.

Technology can provide visibility across the entire supply chain, ensuring companies move quickly and efficiently. In our next installment, we’ll focus in on this technology and explain how it all works. Stay tuned!