Disruption Dysfunction

iStock_000034006880LargeThe Harvard Business School may have a different answer, but here’s my definition of a Disrupter:

The guy who comes into your market and screws up your business by doing something different.

While Disruption, Disrupters and the entire Disrupt Movement have gone to the front pages of the business section the past 18 months, when you think about it, they have been constants in retailing since…well, since the first general store replaced the peddler’s cart. After all, didn’t the first generation of department stores – John Wanamaker and others – disrupt the retail world of specialty stores? Half a century later, the first discount stores of New England disrupted the department store channel, forever changing their business models. Big box category killers, superstore national chains, even Apple stores: they all disrupted what had been going on before they showed up on the scene.

Which of course brings us to today and the disrupter du jour: the Internet, of course. Perhaps it truly is the mother of all disrupters, changing the rules the way none of its predecessors ever did. Certainly, it seems that way to those of us who have no life and are consumed with the ever-changing nature of the retailing business.

But there’s disruption and then there’s disruption, and nobody can quite come to a clear agreement on which is which.

Dyson DC33 Multi Floor Upright Vacuum CleanerA Chinese Fortune, Cookie

Take the recent coverage of Alibaba – the huge Chinese online business that seems to be a combination of Amazon, Google and a Monopoly game – when it announced it was going public. Two New York Times stories couldn’t quite decide if Alibaba and its czar Jack Ma were disrupters or not. Consider this description from one of the two stories that ran on the same page on the day of the big deal:

“He (Ma) has also proved to be a serial disrupter – an outsider with a knack for creating new markets by reimaging old industries like retailing and finance.”

Contrast that with this next story: “Alibaba’s IPO filing breaks with that well-worn theme. Instead of     promising to disrupt an existing market, the Chinese e-commerce giant wants do something more straightforward, but potentially far more lucrative.”

So, disrupter or not? If the Times can’t figure it out, what chance do us mere mortals have?

Disrupters Clean House

Maybe you read Luke Williams’ 2011 book, Disrupt, which no doubt helped create the entire disruption disruption. Williams provides a classic home products example of what disruption is all about: the Swiffer mop. The basic premise with a mop is that it uses water to clean. But sometimes too much water retards the cleaning process. So what happens if you come up with something that cleans but doesn’t use water at all?

Presto, the Swiffer.

Presto, disruption.

The home furnishings business – never a hotbed for cutting-edge anything – has nonetheless had its share of disrupters…barely. Consider the Dyson vacuum cleaner. When it came out in the American market a decade ago, the average selling price of a better vac was about a hundred bucks, maybe $125. Hoover was the best-selling brand and the headlight was probably the biggest advancement in technology of the previous 20 years. James Dyson came along with a machine with advanced (though not totally original) technology, a huge advertising budget and a $400 price tag. Eighteen months later the Dyson was the number one selling machine in the business by dollars and another year or two later, it was number one in units too.

The other vacuum suppliers were not only disrupted, they were sucked dry.

A more recent poster child following the same path is the Nest thermostat. Talk about a product that virtually nobody was paying any attention to! Enter some guys who used to work for Apple with the classic Steve Jobs approach: design a gorgeous product that addresses an underserved category and, oh by the way, charge a lot of money for it. How much did Nest disrupt the home thermostat business? About three billion ways, which is how many dollars Google paid for the company this past January.

Does Domino Know?

Home disruption is also occurring on the retail side. Take a look at Domino magazine. Once the darling of the Gen X set for its irreverent takes on decorating, the publication was a Great Recession victim when owner Conde Nast shut it down in 2009 after just three years. An online version was maintained and there were some one-shots of repackaged content but it wasn’t the same. Late last year Domino Redux debuted, once again under the leadership of its original publisher Beth Brenner, now reinventing herself as chief revenue officer. As an online-only product that planned a print companion down the road, it set out to chase the holy grail of media convergence: read about products and decorating items and then buy those very same things right through the magazine. The old Domino sent you to someone to buy what it featured on its pages. Domino the sequel is cutting out the middleman.

Is it working? It’s too early to tell. But in a world where the line between journalism and commerce is increasingly not just fuzzy but often erased, Domino is certainly out to disrupt the way things have been done in both fields.

Then there’s Crane & Canopy. Started by husband and wife Harvard Business School classmates, this disrupter is trying to turn the business of buying bedding upside down. Right now most of the things you buy to put on your bed – sheets, pillowcases, comforters, duvets, what-have-you, are made by Asian suppliers, most often in China. American importers bring the product in and sell it to retailers. It’s the way it works, whether it’s Bloomingdale’s or Family Dollar…or Amazon.

Crane & Canopy is trying something different. Working directly with Chinese factories, it is designing its own products and then selling them directly to consumers online. Its products are not sold in any stores and are only available on the company’s own site. And by streamlining the sourcing model, it controls the process virtually from start to finish while shaving some costs out of the process. Again, this is another disruption in process. Whether Crane & Canopy can do the volume necessary to sustain its model is the 64-Yuan question.

As with any good disruption, the reaction of those being disrupted is mixed. In the case of Dyson, Hoover, Eureka and all the rest of the established vacuum cleaner market, it is still struggling to catch up. They were clearly caught with their dust busters down and Dyson continues to set the pace.

Nest has certainly shaken up its temperature-controlled market segment, as evidenced by a new Honeywell thermostat now coming to market that is voice activated. But you have to doubt that Google’s checkbook is out for that item.

And neither the new Domino nor Crane & Canopy have anywhere near the scale to make House Beautiful or Bed Bath & Beyond feel threatened. At least, not yet. But I guess that’s the way disruption works. You don’t realize until it’s too late that someone has come in and screwed up your business.

Warren Shoulberg is editorial director for several Progressive Business Media publications in the home furnishings field and could currently stand a little less disruption in his life, thank-you.

Dear Doug – An Open Letter to Doug McMillon, the New President & CEO of Walmart

doug-mcmillon-in-store

By now you’ve been in the corner cubicle in beautiful downtown Bentonville for a few weeks, so congratulations on being only the fifth president in the history of Walmart. It’s a big job, running the largest retailer — hell, the largest anything — in the world and you’ve got millions of employees and billions of customers depending on you to do a good job.

No pressure, really.

But you also sit in perhaps the most revered seat in American retailing, the one once occupied by Mr. Sam himself, the man whose name is over the front door, the guy who put most of the stores in the United States out of business, and the hovering spirit who continues to both inspire and haunt everything and everybody at Walmart. But Doug, you and Sam Walton also have one other thing in common: you’re the only merchants ever to run Walmart.

And therein lies the greatest hope for a very troubled company. You see Doug, as you know better than anybody, Walmart is not quite what it seems to be. You know how certain businesses appear to be one thing and are actually another? Like movie theaters fronting as places to show films when in fact they are giant popcorn and snack emporiums? Or furniture stores appearing to be selling couches and credenzas when they are really finance companies charging usury rates that would embarrass organized crime? [Read more...]

Made Up in the USA

Made In The USAWhen Walmart announced last year it was going to launch a major push on domestically-made products—helping to fund some of the suppliers, in fact – it set off a jingoistic feeding frenzy.

All of a sudden everybody and his shopping brother was envisioning a plethora of product produced right here in the good old U.S. of A. Politicians jumped on the bandwagon, of course, visions of full employment and happy voters in their heads.

It was a wonderful story. And it would have been even more wonderful if it were actually true.

Because any discussion of wide-scale manufacturing returning to the United States needs to be put into context…and reality First off, this isn’t Walmart’s first manufacturing renaissance rodeo. Way back in the days of Mr. Sam, Made in the USA banners hung proudly in virtually every store the company owned. Many went so far as to single out exactly where the products were made, highlighting those in the immediate proximity of individual stores. [Read more...]

Hark the Herald Square Angel

macysIs there any store more associated with the holiday that Christmas has become in America than Macy’s?

After all, how many retailing corporations are the stars of their own legendary motion picture that celebrates the spirit of Christmas? And how many host their own parade that practically signals the start of the holiday shopping season?

So, as Christmas 2013 starts to fade from our consciousness, it seems only appropriate to unwrap a modest ode to Macy’s, specifically for their holiday home merchandising strategy and more generally to the overall management of the store and its position at, or near, the top of the American retailing pyramid.

That we are even doing this is rather remarkable when you think about it. It wasn’t that long ago that many retail observers were pontificating on the end of the great American department store as we knew it. As a business model, the channel was bloated with overhead; geographically-poor locations in declining regional malls; and competitively disadvantaged compared to its big-box discount and superstore brethren. [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.

Opening the Door on Target’s new Threshold

Robin_Report_Sep2013_stock4Perhaps the Dayton family should have come up with another name for its discount department store start-up back in 1962 if it wasn’t prepared for the inevitable – and as-it-turns-out endless – questions raised by retail observers, competitors, suppliers and, oh yes, customers, about whether the store was on Target, had missed the Target, or otherwise was involved in some Target-related activity.

Be that as it may, those are valid questions to ask, more so than ever when it comes to the country’s second-biggest general merchandise retailer’s home furnishings offerings and its new marquee program called Threshold. Officially rolled-out this past spring after some soft teases over the prior months, Threshold is the single-largest private label program Target has ever introduced, and is no doubt being counted on to carry much of the merchandising load for the retailer in the months and years ahead. [Read more...]

The Home Run

photo-11 Don’t look now, but Wall Street is actually loving home furnishings retailers…finally.

Many of the stock prices of pure-play public retailing corporations that specialize in selling home furnishings —Bed Bath & Beyond, Home Depot, Pier One, Williams Sonoma, Ethan Allen—are at, or near, their recent historical highs.

Restoration Hardware, which went public only last winter after years of struggling to right itself financially, has nearly doubled in price in six months and

people are lining up for the company’s next stock offering. Even the recent poster boy of retailing disaster and disarray, JC Penney (née JCP) has seen its stock run up over the past two months by almost a third. And it’s not been on the departure of retail savant Ron Johnson or the return of Magic Mike Ullman, but on the speculative success of the re-launch of the store’s home department.

All of which begs the question: What’s up with that?

OK, first take the recent run-up in home store share prices in the context of the overall stock market. The Dow has been breaking records on a regular basis for much of the past year. Even as the overall economy continues to slowly recover and unemployment remains a huge drag on consumer spending, Wall Street is riding high as the place where people with money…well, put their money. [Read more...]

JC Brigadoon

Michael-Graves-Design-at-jcp3-photo-credit-jcp1Run, do not walk, to the nearest JC Penney store and go see the new home store. It is perhaps the best merchandised, most beautifully displayed and freshest home furnishings department retailing has seen since the first Macy’s Cellar in San Francisco more than 30 years ago.

And like the mythical Scottish town Brigadoon that appears suddenly and then disappeared not to be seen again for decades, the lifespan of this Penney home department will be short…very short. You see, Ron Johnson delivered exactly what he promised. The home area is breathtaking and unlike virtually anything else in any other store in the country.

Unfortunately, he also delivered exactly what his critics promised. The home re-do will likely be a financial disaster, with shockingly horrible sales and profitability, even in the context of the store’s performance over the past 18 months. [Read more...]

Thinking Beyond the Box

250px-Incredible_UniverseThe Incredible Universe was…well, pretty incredible. There was no store like it ever before – and there’s not likely to be one like it ever again.

For those of you who have gone through retail remembrance reprogramming, a quick history lesson: During the 1990s, which in hindsight represented the full-tilt zenith of big box retailing, superstore chains were exploding. Be it home improvement, home furnishings, computers or consumer electronics, big boxes were multiplying at geometric proportions.

And the biggest box of them all was Incredible Universe, which was a dramatic new retail platform from the folks who ran some of the smallest boxes out there, Radio Shack. Current management at the time – who can remember back that far – decided to out-box everyone else out there and go for broke. The first Incredible Universe opened just off Old Country Road in Westbury on New York’s Long Island, which with the exception of Paramus, New Jersey and Schaumburg, Illinois, is about the most concentrated retail location in the country.

The store was well over 150,000-square feet, if memory serves me well, and featured just about every conceivable product with a plug that existed at the time. And considering this was well before iWhatevers, that was a whole lot of TVs, stereos and toasters. Every shopper got a personal identity card that promised all sorts of digital delights. There were salespeople in snappy uniforms as far as the eye could see. It truly was incredible.

It was also way, way too much. Shoppers were overwhelmed and they ended up underbuying. The Universe as we knew it soon failed to exist.

Fast forward a couple of retail generations to today’s reigning – by process of elimination, it has to be noted – big box player in consumer electronics retailing: Best Buy. We’re not here to go through all of Best Buy’s problems. Frankly, the Robin Report website doesn’t have that much bandwidth. But among the leading issues the retailer faces is that its physical stores are just too big. Talk to anybody who follows retailing and they’ll tell you that the problems of too many stores in the country is only matched by the problem of too-big stores.

And Best Buy has got it the worst. Unlike a Home Depot or a Lowes, which need those tens of thousands of square feet of space for tools and aluminum siding, Best Buy has more space than it knows what to do with. Let’s face it, nobody has bought a CD or DVD in a store since the Bush administration. So, as Best Buy was on the leading edge of the big box movement it may also be in the forefront of the next trend in superstore retailing: Not-So-Big Boxes.
Yes, the DIY twins need that floor space, but does Bed Bath & Beyond or Staples or Office Max require stores that large? What about giant furniture stores like Rooms To Go or Raymour & Flanigan? And does it end there? What about off-pricers like the MarMaxx group? What about supermarket? And ultimately, what about the biggest big boxes of them all, Walmart and Target?

If, as some people predict, anywhere from 30% to 50% of general merchandise sales will eventually be done online, does that mean we are in the final stages of Big Box retailing? Does it mean that, in the end, the big box will be outdone by the small carton?

Warren Shoulberg is editorial director for several Sandow Media home furnishings business publications and is glad he was there for the big box era.

Private Labels, Public Nuisances, and Captured Moments

rr_3-13_private_labelAll 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...]

The Penney Dividend

jc_penney-01There’s a billion dollars of home business missing; anybody have a clue where it went?

One thing is clear: Over the past 12 months, the new JC Penney/The Penney Co./JCP/Whatever has lost about $1 billion in home furnishings sales as it transforms itself into…well, into what it’s not.

Quantum mathematics was never my specialty, but a rough crunching of the numbers shows JCP overall sales off about 24% for the past four quarters since Ron Johnson came to town, and if you figure about a quarter of the retailer’s business is in home, that works out to a drop of about an even billion. That’s a pretty fair square amount.

So, where did it go? While the tendency might be to round up the usual suspects and dole it out accordingly, the fundamental things don’t seem to apply in this case. Certainly, the big winner has been Macy’s. Often located at the other end of the big bad mall from JCP, it has been the beneficiary of a department store diaspora the likes of which we haven’t seen in quite some time. All of the coupon-clipping, one-day-sale-tripping tired-and-poor are parking their cars near the big red star and buying up a storm. Macy’s is clearly enjoying a big home run. [Read more...]

Innovation in Home Products…It Ain’t Just Fitted Sheets

Drum Roll Please, Ladies and Gentlemen.

Announcing the three greatest moments of innovation in the history of home furnishings products:

3. Furniture manufacturers, trying to reduce their cost of upholstering with expensive craftsmen and detailed stitching and sewing techniques, invent the staple gun as a way to attach fabric to frame.

2. Small appliance makers, seeking to differentiate their blenders and give them the perception of more power, employ a Spinal Tap-esque technique and increase the markings on the speed indicator of their machines from “10” to “11.”

1. Producers of bed sheets, responding to a customer base that wants to cut corners on making hospital corners, run elastic around the edge of their product and create the fitted sheet.

OK, so innovation has not been the strong suit of the home furnishings industry. Outside of the consumer electronics segment of the home business—and let’s face it, the CE guys don’t consider themselves on the same planet, much less the same industry as companies that make furniture and housewares and home textiles—the industry’s track record when it comes to creating innovative products is pretty dismal. [Read more...]