No one can argue with the benefits of scale when it comes to retail. Large-scale retailers provide deeper assortments at lower prices than their ma-and-pa competitors. But there’s a problem with all this scaling up. Mass-scale stores have become divorced from the communities where they sit. Most big-box retail stores look like they have been dropped in place by the mothership, and show little connection to where they are. All retail should have a sense of place. Now that we’re used to all those benefits of scale, customers yearn again for the relationships they had with their stores when they were owned and operated by their neighbors. Prediction: the next big wave in brick-and-mortar retail will combine the power of scale with the benefits of old-school mom-and-pop retail relationships. This is the transformation of big-box stores to come. [Read more...]
Forget the cresting, breaking and other visible economic waves we discern on the surface of our economy — all accompanied by “cyclical” blathering of the dire necessity to create jobs and growth, and reduce debt and deficit spending.
While we blather, we’re blind. The less visible, stronger undercurrents of our dying free market capitalism that catapulted us to global economic dominance with the promise of an “American Dream” along with it, has been morphing into what I’m calling “bubble capitalism.” Some are calling it “crony capitalism,” which is equally descriptive. It’s just that bubbles are what the cronies feed off of. And it is crushing the American Dream by tipping the once-level playing field in favor of a narrowing segment of big finance and big business, aided and abetted by big government.
And let me be crystal clear. I am not whining for redistribution. I’m suggesting that if we don’t figure out a way to get back to good old democratic capitalism and its level playing field, we will have a barren wasteland in our future, albeit one that will be filled with a bunch of worthless stuff (popped bubble residue), scattered across a country that will look more and more like the third world. Think about three million empty, decaying and devalued houses following the leveraged-up mortgage crash of 2008. And what about the jobs lost, and spike in the number of people living below the poverty line?
Sorry, you want nice, you probably won’t find it in the Robin Report. We like to make wake-up calls. [Read more...]
All the recent hubbub over a certain Connecticut homemaker’s image and brand is only the tip of a major merchandising movement that is starting to consume the home furnishings field. As national brands continue to recede from the category—they are pretty much null and void in soft home categories, like sheets and towels, and hold a tenuous position at best in some smallappliance and housewares classifications—the ascendency of private and captured brands is nearing unprecedented levels.
The spectrum goes from the extreme of Kohl’s where virtually the entire home department is proprietarily branded, to stores like Target, and now Penney, where soft home is all private and hard home is mostly national brands—to ones like Macy’s and Bed Bath & Beyond where the assortments are still…well, assorted. [Read more...]
That would be the Walmart behemoth, still the one and only behemoth of its size in the world, the last I took count. At about $61 billion in annual revenues, Amazon is still a puny contender to Walmart’s nearly $500 billion. But, relatively puny as they might be, they scared the pants off Walmart several years ago when it was rumored they were about to open brick-and-mortar stores.
And although the behemoth did not heed FDR’s advice: “The only thing we have to fear is fear itself.” It was a good thing that they did not. Because if they had not feared Amazon’s rumored move, Bertrand Russell’s quote would not have been so prescient to Walmart’s management: “To conquer fear is the beginning of wisdom.”
If not solely due to a reaction to Amazon, Walmart nevertheless got wise real fast. And they got wise in how they viewed the future of retailing and their participation in it. In other words, the paradigm was shifting in Bentonville, and still is. And now it should be Amazon who is shaking in fear.
I believe the fear led to some epiphanies in the management ranks down in Bentonville. Seeing the future more clearly, I think they looked at their business model and said, “hey guys, we’ve been stuck in our paradigm of the past: a store is a store is a store.”
In fact, they were so focused on stores being stores, that a few years ago when a top executive at Walmart was asked if the rumor of Amazon opening stores was true, his reply was not a mild, “we’d be concerned,” or even “we’d view that as a serious competitive threat.” He said, “That is Walmart’s biggest fear,” with the emphasis on “is,” meaning, of course, that there was more fact than fiction smoking out of that rumor. And indeed, the drums are now beating louder in anticipation of Amazon launching brick-and-mortar stores.
So, what happened in Bentonville was epiphany #1, which caused a complete flip from playing defensive to going on the offense. From a fear of Amazon coming onto their turf with Pentagon-sized consumer data and opening showroom-like stores tailored to local consumer preferences. Walmart, rather than shaking in their boots, awakened to the understanding that they were looking at their business model the old-fashioned way and operating with old-growth strategies, accordingly.
The Epiphany and Newfound Wisdom
Walmart awakened to the fact that a store isn’t a store, and likewise, a website isn’t just a website. These are not two distinct and discreet businesses. And more than just seeing its business as an “omnichannel,” that over-worked buzzword, Walmart, in my opinion, cleared the fuzz from their vision and saw their business as being a direct-to-consumer distributor of goods and services.
When viewed as such, they can envision and create all kinds of virtual and real distribution channels and platforms, including smaller neighborhood stores and even potentially operating on competitors’ platforms. All, of course, must be responsive to wherever, whenever, however and how often the consumer wants to purchase. So, Walmart then assesses their enormous global enterprise of some 4500 stores and redefines them as distribution centers (as Macy’s and other enlightened retailers have done) where online purchased goods can be picked up or returned. Additionally, Walmart is still a physical shopping destination, while Amazon has zero stores. And to cite the now well-known fact that shoppers who shop both online and off spend 50% more than those who shop only one channel, just adds a synergy weapon that Amazon lacks.
Viewed through this new lens, those guys in Arkansas have themselves a big chuckle, as they talk about puny little Amazon (no longer the specter of death) scurrying around placing distribution “lockers” in Staples, Rite Aid and others. Furthermore, Walmart realizes that its online sales of about $9 billion is less than 2% of its total business. And while in absolute numbers, that ranks them second only to Amazon online (in its channel) with its size leverage, including 4500 distribution centers (and stores) to Amazon’s roughly 100 (and zero stores), it also means their opportunity to quickly ramp up, or to “get bigger than Amazon, faster” to use Bezos’ mantra, is enormous. Should Amazon now be afraid of losing their dominance online?
That said, Bezos calls the start of every day, “Day 1.” He’s truly a genius and if, as predicted in my past article, Amazon launches stores (more as localized “showroom” experiences) and assaults the behemoth in every neighborhood and on the global playing field, the guys in Arkansas will likely stop chuckling. As pointed out in that article, Amazon’s growth since 2006 was a blistering 300% (while Walmart grew 21% during the same period).
My question at the time, as it is now: “So, how long does it take a $69 billion business, growing at a 300% pace every five years, to reach $500 billion in sales?” You do the math. Answer: it’s about eight years. And, if they synergize the ecommerce business with stores, it might even be sooner.
So, welcome to the heavyweight championship of the world. In one corner, we have the reigning and current champion, the “Behemoth from Bentonville.” In the other is the smaller and lighter, but feisty and fast, “Amazing Amazon Apocalypse,” who claims to float like a butterfly and sting like a bee. Ladies and gentlemen, place your bets.
Quitting the country is the easy part. Now, what about all that infrastructure?
Chronicle of a Failure Foretold
Years from now, MBA students will be puzzling over how Tesco, the British food retailer, could have stumbled so badly in its venture in the United States.
Well, more than stumbled. As I predicted more than a year ago in a news feature in the Robin Report, Tesco has called it quits in the U.S., just five years now after entering the country. Tesco racked up a horrendous record: it managed to open about 200 stores in this county, most in California, plus a few in Arizona and Nevada. It burned through well in excess of $3 billion counting startup costs and cumulative losses during its time in this country. At no time did Tesco turn even a modest profit with its Fresh & Easy stores, as they were dubbed.
That dismal outcome stands in ugly contrast to its stated ambitions. Tesco predicted it would have many hundreds of stores in the U.S. by now. It envisioned a quick leap to the East Coast with fill-ins elsewhere yielding a network of 10,000 stores.
The reality of the situation has cost the career of Tim Mason, Tesco’s U.S, chief officer. When Tesco announced in December it was quitting this country, it also said Mason would immediately leave the company. Mason was a 30-year veteran of the company and at one time was seen as the next chief executive officer of all of Tesco. Mason gave it a good shot. He moved to California from Britain with his wife, Fiona, and three of their seven children to direct the fledgling Fresh & Easy empire. Fiona took up golf to wile away the hours while Mason toiled. To the good for Mason, he left with a huge buyout and an astoundingly generous pension.
Tesco now faces the challenge of how to withdraw from the U.S. without abandoning its assets here entirely. [Read more...]
There’s a certain irony in the fact that the world’s very first category killer was also the first of its big-box ilk to be severely challenged and nearly decimated by the even bigger-box mass merchants…and now may also be leading the way once again in learning how to co-exist and maybe even thrive in a world dominated by discounters and onliners.
What a long strange trip it’s been.
But Toys”R”Us should be very grateful it is not dead, and the tale of Toys is largely instructional for the entire channel of distribution known as ‘super specialty retailing.’ Toys was there for the channel’s glory days, nearly succumbed to the merchandising maladies that took down many of its box brethren, and has experienced a retail resurrection that—if not quite a miracle—worthy of store sainthood is nevertheless remarkable in its own right. None of this could have been even remotely predicted back in1948 on Washington DC’s 18th Street NW when a post-war entrepre-neur named Charlie Lazarus opened a baby furniture store called Children’s Supermart. As big stores go, it wasn’t much. But back then, it seemed to be the right store for the right time as newly formed post-War families started booming out babies and needed a place to buy all the paraphernalia—cribs, strollers, whatever—that came with the territory. [Read more...]
In its most recent fiscal year it scored $36.1 in sales volume, driven by a widely diverse portfolio of assets. Those assets include a large-scale wholesale business plus many retail stores ranging from small chains of to large-scale retail chains and a hard-discount chain. In all, Supervalu has more than 2,400 stores.
Supervalu’s asset diversity evolved, for the most part, over a period of cautious and self-financed growth spanning its 135-year history. The company is based in Minneapolis, but operates from distribution centers in nearly 30 states, effectively blanketing much of the nation.
But there are big problems under the surface. When Supervalu is brought into sharp focus, it starts to look troubling. Clarity reveals it to be currently heavily laden with unaccustomed debt and its profitability long sinking and now vanishing.
It gets worse. Its competitive positioning is melting away and its corporate-management team is in fast-turn mode. Supervalu stock is trading near the $2-mark, except for an occasional upward spike driven by buyout rumors. Earlier this year, its stock sold for about $8; five years ago it approached $45. [Read more...]
Over seven years ago I met with Ian McGarrigle, founder and Chairman of the World Retail Congress, when he was launching it. I said something like, “…Ian, I don’t think the world needs another conference.”
Today, in my opinion, the world cannot do without this conference. And, I’m happily “eating crow” by saying if you missed the 2012 WRC in London last week, you missed something really big, important and relevant for the unprecedented changes that are coursing through the world of retailing today.
Throughout the conference, the themes centered on the fact that the “all-powerful, omnipotent consumer” is beyond question today, even in emerging countries. And, at the end of the day, to win the consumer’s dollar in an over-competed world, it’s still all about the obvious: product; brand; and, service. However, the world of retailing and its relationship with consumers has been flipped on its head, making the “obvious” success factors just the price of entry to achieve competitive parity. And, one of the major “take-aways” for me during the three days was the fact that retail leaders from around the world now seem to understand why it’s been “flipped on its head” (the drivers), and how to embrace and capitalize on it as an opportunity.
The Internet and its contiguous technologies are its drivers, resulting in the globalization of both the “front” and “back” ends of retailers’ value chains, as well as how they pursue and build relationships with consumers. And, the first and most fundamental paradigm that has shifted, the biggest “change in the game” so to speak, is the “playing field.” The “field” used to have the store in the center (of town) and the consumer went to the store; now, the consumer is in the center (period), and the “store” must go to them, both physically and electronically, or provide a compelling enough reason (beyond just price) for them to want to come to the store. [Read more...]
Just the $9.5 billion largest and most diversified apparel company on earth.
Have you ever tried to skateboard down Mt. Everest in Vans sneakers? Don’t.Or, did you ever try to hike across the Sahara desert with The North Face mountain climbing gear? Ha! Ha! And when did you last try to “hang ten” wearing Timberland hiking boots? You know, I could imagine some Malibu-surfing “stoner” trying that. How about competing in the jumping event in the Hampton Classic hunter/jumper horse Show wearing Wrangler jeans or drinking Champagne at New York’s International Debutante Ball in Lee Jeans? They’d throw you out.
These are just five of “who” VF is. Just five of their 30-plus brands, which happen to be contributing $1 billion each to VF’s $9.5 billion coffers. That translates to about 50% of their business.
Then, of course, you could be equally ridiculous on a safari across the Serengeti wearing a Nautica sailing jacket, or taming a bull in a “rodeo ride-off” wearing a pair of 7 For All Mankind jeans. Okay, enough. I just wanted to get your attention.
But, hey, with these brands and the whole lineup of VF’s other brands (see chart 1), who knows about, or needs a VF? No wonder VF is often flying stealth, under the radar of most consumers. But, there is a very important group of people who totally know about the VF Corporation: our friends on Wall Street and investors worldwide. And VF has sure been keeping them very happy. [Read more...]
In a World of Unprecedented Change
“A World of Unprecedented Change” is really an understatement, without a deeper understanding of the powerful dynamics driving such change and the fundamentally new retail models the change will lead to. To begin, one must understand that it’s the best of times and it’s the worst of times, to borrow a phrase from A Tale of Two Cities by Charles Dickens.
Well, not really the worst of times. But, we do have worldwide economic issues that are certainly having a negative impact on consumers’ discretionary spending and therefore, retailing. And, even in the emerging countries their growth it slowing. Another component of the negative headwinds, so to speak, and more so in the developed countries, yet also ramping up in the emerging economies, is the phenomenon of overcapacity: too many stores; too much stuff; competitive congestion. However you want to describe it, this market environment results in the necessity for retailers to win share of market from competitors to grow, or what I like to call “share wars.” Such a fiercely competitive marketplace has also accelerated the rise of the “all-powerful” consumer and their raising the bar on what it takes to satisfy their shopping and purchasing desires.
The final headwind, to stick with the metaphor, is the fundamental disruption across all industries brought on by the Internet and all of its contiguous technologies. Yes, it is disruptive, game-changing, paradigm-breaking or however one chooses to label it. However, this headwind is also why we are living in the best of times. Because, out of its disruption will come both destruction and creation. Yes, it’s providing fundamentally new and innovative change to the retail game, or without which, one will lose the game altogether.
So, it is the best of times for those retailers who shift their focus away from the myopic short term tactical battle against sluggish economic headwinds, and day to day battles for share. Rather, they need to embrace the “best of times,” its technologies and our truly “flat,” integrated world, and strategically disrupt their businesses to create new and innovative models. [Read more...]
During the 1980s I had the pleasure of working in VF Corporation’s headquarters alongside its futureleaders. And, while the business grew from $634 million in 1980 to $2.6 billion at the end of the decade, and from a portfolio of three brands to 12 brands entering the decade of the 90s, the three most powerful competitive assets coming out of that period were:
- Their obsessive focus on consumers and the development of the processes for identifying them (for each and every one of their now over-30 brands); for understanding them and their desires, down to a “gnats eyelash;” and for responding to those desires when, where, how, and how often their customers desire them. And, this process is continuous.
- The decentralized, “portfolio” organization of its model: providing each brand the autonomy necessary to run its own “front end” of the business; maintaining the brand’s DNA connection with its consumers; managing all of its innovation, product development and marketing. Those functions that can create a synergy, providing leverage for each of the individual brands, such as finance, research, sourcing, and all of the “back-end” supply chain activities, are centralized and operated corporately.
- The development of the processes for linking every activity in the value chain to each and every consumer (the linking of #1 and #2 above). Essentially, VF has a never-ending value chain, fully integrated, virtuous cycle, starting with the consumer (their DNA’s, what, when, where, how and how often their desires), pausing at point of consumption, the information from which triggers the cycle to start all over again.
These are the assets that, in my opinion, both propelled its growth and provided CEO Mackey McDonald (during the 90s), and current CEO, Eric Wiseman, with the platform to fundamentally transform the VF Corporation from a single-product branded wholesale business (e.g. jeans and intimate apparel), manufacturing domestically in its own plants, to a lifestyle brand management business that markets its brands through select retail distribution, including its own stores and online sites, around the world, and outsources its manufacturing globally as well.
These are the underpinnings, the foundation of the biggest, and in my opinion, the best apparel company in the world. It is also why they will continue to raise their own bar. See my article and Q&A for how they intend to do so.
Also in this issue, a revealing look at Eddie Lampert’s dubious strategy to transform Sears and Kmart for 21st Century survival; why Target and Amazon are locked in a real vs. virtual Hungry Games challenge; how the back-to-school selling season has accelerated starting in August; and why going beyond discounts and deals delivers a better promotional strategy. And there’s more! Find out why we’re headed for a privacy revolution which could change the Internet playing field.
All in all, the Robin Report continues to bring you insights from the inside out, with provocative, revealing and opinionated reports from the best in the business.
Have a great read.