Defining the Value of Omnichannel Shopping

Mobile banking wallet on screen of smartphone isolated on whiteBefore investing in an omnichannel strategy, retailers need to understand the true value of this consumer shopping behavior and the opportunity it presents. A new MasterCard study suggests the right approach is to start with the customer. How does their omnichannel spending behavior differ from spending in a single channel?

Conventional wisdom suggests that retailers should invest in bolstering the omnichannel experience they offer consumers on the basis that more channels will result in increased sales. Makes sense, but merchants can either invest in an omnichannel strategy and technology because it seems like the right thing to do, or they can make informed decisions based on data that details the value to be gained from key customer segments. Imagine the following scenario: A working mother of two needs a simple dinner solution for the evening. She logs onto Pinterest for “quick kid-friendly dinner” and decides on the “Cowboy Casserole.” The list of ingredients she needs is automatically saved onto her mobile phone, and dropped into her local grocery store shopping app. She opens this app, and decides to pick up the order on her way home. She stops at the store, where her order is waiting in a cart. She notices a sale on blueberries and adds two pints to her cart. She picks up a single-serve sparkling water for her car ride home and a few magazines to wind down later. The kids love dinner and the mom has illustrated the type of behavior that merchants of all classes are moving to better serve. She is an omnichannel shopper. As such, she is highly sought after but not very well understood.

Flipping the Channel from Concept to Cash Flow

The word “omnichannel” has become as much a business goal as a buzzword in the shopper marketing and customer analytics world of 2015. In order to move from concept to profitable practice, retailers must define the value of omnichannel shopping to their enterprise as well as to customer spend. A successful omnichannel strategy does not mean simply extending a merchant’s presence from one channel to another. At its best, the omnichannel shopping experience should encourage incremental sales, enhance the customer experience and drive overall sales across online and offline stores. But first, it’s important to understand how consumer spending differs in a single channel compared to spending across multiple channels. Does the omnichannel experience actually produce more sales than a single channel? Yes, data suggests it does.

An analysis by MasterCard shows a definitive, data-driven point of view on how omnichannel spending does in fact drive overall higher spend at a merchant versus in-store or online alone. Using aggregated and anonymous MasterCard transaction data to understand spending across online and brick-and-mortar channels in US Grocery, Drug, Mass Merchandisers, Department Stores, and Specialty Retail stores, the analysis found annual spend was significantly higher in omnichannel across each of the verticals. The biggest gap, a 254% difference, was in Mass omnichannel vs. online-only spend. The largest absolute omnichannel spend was in the Grocery vertical.

One of the most important goals of the research was to identify possible tipping points of transactions that would define omnichannel shopping behavior. The MasterCard analysis found that as the number of transactions increased within a category,the annual spend per account also increased exponentially and retailers experienced a healthy and steady lift in spending. The annual increase in spend for accounts moving from four to five+ transactions was high, particularly in Grocery (+685%), Mass (332%), and Drug (301%) outlets.

The study also investigated behavior at the spending-per-transaction level. In most cases, this metric also increased. In some cases, such as in Mass, spend-per-transaction decreased by 23% when moving from four to five+ annual transactions. Despite that per-transaction decrease, the annual value of this segment remains high. There was a wide variance in spending by type of store; Grocery, Mass and Drug omnichannel, characterized by high transaction frequencies at relatively low price points (e.g., subscription or replenishment items). Department and Specialty omnichannel customers, on the other hand, do not vary their order size as much. All verticals showed different levels of omnichannel penetration.

The research also measured how omnichannel spending develops across different types of retailers. As a share of total spend, omnichannel shoppers comprise nearly one fifth of the Mass vertical and a full quarter of Department Store and Specialty Retail spending. For Grocery and Drug, it is still a very small portion of sales, and remains to be seen when and how quickly these verticals evolve.

Woman Reading Shopping List From Mobile Phone In SupermarketDetours on the Path to Purchase

Measuring omnichannel spending is simple compared to the science of encouraging it among customers. Retailers must contend with the reality of a customer’s path to purchase, which is no longer linear. It may include clicking on an email sent by a store she likes; using Instagram to crowd source opinions on which prom dress to buy, followed by a Google search for a promo code, and then completing her purchase on her smartphone or tablet long after sales associates have turned in for the night.

Somewhere in this path the customer may have browsed aisles at her local department store with her friends. She may have even seen a television or mobile ad that also influenced her retailer choice and ultimate purchase decision. The retailer is tasked with maximizing touch points at each of these stops along a windy shopping path. An understanding of what’s at stake may help clarify these investment decisions.

Department Store and Specialty Retail customers are already shopping across channels, creating a significant runway for further growth. The key to unlocking growth in these verticals is building loyalty across the omnichannel, and specifically creating more touch points with those who shop between two and four times per year. The five+ transaction spenders are where the revenue growth potential lies. This segment may be best reached at multiple points of the Windier Path to Purchase, with offers that encourage them to spend more and more often.

Most Mass spending in the omnichannel appears to be for large “stock-up” shopping missions. The segment that is spending in the Mass omnichannel multiple times per year appears to be making smaller purchases per shopping mission. The Mass vertical has opportunities to increase ease of shopping and improving the omnichannel experience. Mass can also deter multiple low-value shopping missions by increasing the free shipping threshold in the e-commerce channel. Another way to convert single channel Mass customers is to message them while they are in store, using their search and purchase history from visits to the site.

Grocery and Drug spending is not taking place across channels, but is staying close to the traditional brick-and-mortar format. Spending across channels has among the highest annual spend of any of the other verticals. Auto-replenishment and delivery of household staples, such as milk or bathroom tissue, may convert single channel shopping behavior and increase transactions and dependence on the retailer.

Strategic thinking says that maximizing the customer’s value is at the heart of an omnichannel investment. Data shows that the omnichannel shopping experience is best when it makes the customer’s life a little easier. At the end of the day, isn’t that what we are all looking for?

Widening the Gap

shutterstock_192812690Having followed Gap and Gap Inc. for 25 some years, I’m intrigued with the many growth opportunities the $16+ billion company still provides. As an analyst, I’ve long applied a portfolio approach to Gap Inc.; when one brand is humming another is flubbing— and basically that’s been the case. Gap Inc. is accessible: luxury (albeit boring) at Banana; value at Old Navy; and just-plainclothes- with-a-hint-of-attitude (mostly from good marketing, not so much design) at Gap. Recent acquisitions, along with new global opportunities and a changing industry, begged another look at this behemoth. And I like what I see! [Read more...]

Luxury Needs a New Story

luxneedsnewHow Alex and Ani, Saint Laurent and STORY are doing just that

Recently, cracks have begun to show in the “same old story” that serves as the traditional luxury marketing platform. For years, for decades, and in some cases for centuries, luxury brands have been doing the “same old song and dance” for their current and prospective customers. The luxury story, which describes how brands are positioned and marketed, goes like this: exclusivity, design excellence, exceptional workmanship, top-quality materials, and aspiration for brands that one aspires to own and to show off. Things are changing.

In July, Hermes reported a slowdown of sales in its fiscal second quarter 2014. In the same month, LVMH reported first-half year sales were below expectations; and Kering, owner of the heritage Gucci brand, reported a 2.4% decline in the brand’s sale in the second quarter 2014. The only bright spot for Kering was their Saint Laurent brand … but more on that later.

While many fingers point to slackening demand in China as the culprit, American affluent consumers have undergone a dramatic mood swing regarding luxury since the recession, reflected in those disappointing results. That change in attitude is illustrated in Unity Marketing’s Luxury Consumption Index, our measure of affluent consumer confidence based upon quarterly surveys.

Every three months we survey 1,250+ affluent (i.e. people with incomes at the top 20%) luxury consumers (i.e. affluents that report buying any luxury or high-end goods or services in the preceding three-month study period) about their financial status and purchase behavior. Five key measures about their finances, spending patterns, and view of the economy overall go into the calculation of the Luxury Consumption Index, which reflects the affluent consumer confidence.

Since early 2010, the LCI has stalled, moving forward one quarter, only to retreat again the next, with no consistent upward trend in affluent consumer confidence. Rather, three times in the past four years, the LCI has slid back to near recession levels. This is what I call a mood of austerity. It’s reflected among the mass affluent HENRYs (high-earners-not-rich-yet consumers with incomes $100k-$249.9k) by trading down to less premium brands and shopping destinations. For HENRYs, austerity means spending less, plain and simple.

The higher income ultra-affluents (income $250k), and the core customers for luxury brands, feel empowered financially, yet their spending has gone undercover, toward inconspicuous consumption or put another way, “conscientious consumption.” Ultra-affluents are expressing austerity as a return to basics and simplicity. For them it isn’t about saving money, they are holding out for something truly different, authentic, and special that reflects their new values.

Affluence, American-Style

American-affluents’ mood of austerity brings challenges to many mainline, traditional luxury brands and retailers. It also opens up opportunities for other brands that tell American customers a new story giving meaning to the brand. Aligning luxury brand positioning to the American consumer mindset is critical since by any measure the US is the world’s largest luxury market. The US has the most millionaires of any country in the world, 7.1 million according to Boston Consulting Group, which is nearly three-times more than China. And the Bain/Altagamma study reports the US leads the world in luxury goods sales, estimated to reach €62.5 billion in 2013, which is more than 3.5 times the size of the next largest country, Japan.

Luxury is very much a culturally conditioned concept. One-size-fits-all luxury won’t work in the global market; it has to be adapted to the unique character of each market. American affluents in their mood of austerity are focusing their purchasing choices on value; nobody wants to pay more when they can get good stuff for less. The brand story also plays an influential role. There is so much good product out there that the story becomes the hook that justifies the purchase. The narrative or history of a product — where it comes from, why it exists, and what it means — is increasingly becoming a key driver for purchase.

Luxury expressed American style means a trend toward the practical, simple and minimalistic, as opposed to the gaudy, showy or ostentatious. Austerity doesn’t necessarily mean cheap or low cost, but it demands that brands justify their premium prices with real value.

Here are three brands that have reinterpreted luxury well.

Selling Energy from Alex and Ani

Rhode Island-based Alex and Ani has put a new spin on jewelry marketing – emphasizing the personal experience of buying and wearing its designs, rather than placing value simply on the jewelry itself. It’s luxurious not because of what it is made from, the artisanal design, or the price, but rather by how it makes the customer feel. It’s jewelry with a meaning and purpose, designed so that customers can combine it in unique ways to create a personal statement. It is jewelry enhanced with an energy boost, as the company’s logo reflects.

A pendant tied to a specific interest (sports team, zodiac sign, charity, college, sorority) or emotion (enthusiasm, confident, enlightenment, vibrant, spirit) is the basis for each piece. Pendants are attached to wired bracelets designed to stack on the arm, or to necklaces for layering. While each individual piece is very affordable (most under $50), the concept is to create a whole collection so one can ultimately wear multiples worth several hundred dollars just on one arm. Every time she puts on her collection, she tells a personal story of where she’s been, what she values, or who she is. Or he is, since the brand is unisex by design.

Alex and Ani is a made-in-America brand, but more importantly, it is very much a brand made for American consumers today.

Saint Laurent Reinvents YSL for the Next Luxury Generation

In Unity Marketing’s affluent consumer tracking study we consistently find the young affluents, those aged 24-44 years with incomes of $100,000 and above, outspend the mature affluents 45 years and older. Young affluents are in an acquisitive life stage, while the matures may already be downscaling their lifestyles.

That leaves the younger consumers, under 45 years, as the prime targets for luxury brands. Increasingly, that means catering to Millennial shoppers, born from about 1980-2000; the leading edge of the cohort (34 years) is approaching early middle age and their peak income years.

Moneyed Millennials are looking to brands and shopping experiences that capture their unique mood and spirit. That is what makes the efforts of the newly reimagined Saint Laurent brand, under the direction of GenXer Hedi Slimane, worth studying. By dropping the Yves from the brand name, but keeping Saint Laurent Paris, it connects to the brand’s past, but looks forward to the future.

Further, the Saint Laurent reinvention has an American twist. Slimane moved his design studio from Paris to LA and opened a new flagship store on Rodeo Drive. While some of the Saint Laurent fashions feature glitz and glam, there is a minimalist, back-to-basics aesthetic, especially among the menswear designs, that connects with the current mood. Slimane is honoring the YSL-edge, but telling a new story reinterpreted for today’s hipsters. Saint Laurent was rewarded for its bold moves by a 29% growth in sales growth in the second quarter 2014, while Kering sister brand Gucci declined.

The Story Behind STORY

Made in USA, as with Alex and Ani, is a very popular story today among affluents. Luxury with an American-twist is reflected by Saint Laurent, and then there is the STORY store itself. Located in on 10th Avenue in New York City, STORY is a store that, as described on the company’s website “takes the point of view of a magazine, changes like a gallery and sells things like a store.” It is fun, innovative and quirky.

Every four to six weeks, the store is completely made over with new fixtures, displays and merchandise, all that that tell a special story. A recent STORY exhibition is called Style Tech, which features brands like CuteCircuit — fashion that fuses LED lights into fabric technology or Ringly — interfacing jewelry with a smartphone to alert the wearer to an incoming call or text message. At STORY, merchandising becomes multidimensional – good quality and outstanding value combined with a compelling story that justifies the product’s existence.

Luxury brands Have to Tell a New Story

The idea of consumer aspiration for luxury brands– that people buy out of hope or ambition – is dead. The truly affluent don’t need status symbols; quite the contrary, today they are going stealth. They need to be inspired to pay a premium for luxury. And inspiration comes from a strong value proposition with an equally strong story hook. The smart marketers also recognize that each succeeding generation craves brands and shopping experiences that reflect their own special tastes and interests.

The question is whether you are ready to transform your brand through the hard work it takes to articulate authentically your story for today’s and tomorrow’s American luxury consumers. Believe me, they sure don’t want the “same old story” and the “same old song and dance.”

The Forecast: Share Wars For Rest of 2014

RL_Blog_9-10-14Forget about all of the holiday projections soon to be bandied about by the legions of economists, analysts, pundits, experts and faux experts. This is the one you can take to the bank, and it comes from none other than Macy’s CEO Terry Lundgren. Crisply, clearly and without hesitation, he nailed it at his presentation at the Goldman Sachs Annual Retail Conference.

“The rebound that we were all expecting in this year hasn’t happened. The consumer has not bounced back with the confidence that we were all looking for. And so the performance I think we had in the second quarter, and we expect to have in the second half, is going to be a continuation of what we’ve been able to do over the last several years — and that is to capture market share and get the most out of the consumers that are in our stores.”

In other words, folks, there will be no overall market growth this holiday season; only share wars in which the great retailers will steal share from the not-so-great, resulting in a zero-sum game. So, here you have it, The Robin Report official holiday projection: Zero Percent Growth. [Read more...]

Stalking the Cyberazzi

iStock_000027023380SmallDo you ever get the ominous feeling you’re being watched or followed? Well, you are!

They know what you’re doing and where you are at any given time; what you eat; the car you drive; ailments you have and whether you’re pregnant; divorced; trying to lose weight; cheating on your spouse at some sleazy motel; or the color of the upholstery in your Lear Jet.

They know every predilection, quirk and fetish you thought were buried deep in the recesses of your private life. You are fair game and their job is to create a dossier on you from cradle to grave.

Disturbing isn’t it? But this is the shadowy world of the data broker, companies that track every aspect of people’s lives and lifestyles. They are the keepers of a Pandora’s box of consumer data and it’s there for anyone to open—for a price! [Read more...]

Private Brand Primer: Five Things Not to Do When Launching a Signature Fragrance

Stocksy_txp33ce1e73JS7000_Small_35808Launching a signature fragrance is both exceptionally difficult and wonderfully exciting. It is also daunting and exhilarating. A fragrance launch is many things, but what it is not, is rocket science.

While both involve an attempt to blast off and to reach the stratosphere, the similarities end there. For example, typically no one’s life is at risk because of a fragrance launch. That being said, a promotion or even careers have been in the balance because of such a launch. Also, while there are many complex calculations that are part of a fragrance launch related to the formulations – the financial projections and logistics – none of this math even borders on aeronautical engineering or requires physics. Furthermore, a fragrance launch does not require you to deal with immutable laws of nature ­­– such as the laws of gravity or inertia.

However, having been responsible for putting numerous cologne and perfume products on the launching pad over the last several years, I have observed a few basic patterns and have acquired quite a bit of empirical data, albeit mostly anecdotal, about how to launch a signature fragrance. So here goes… [Read more...]

Touch Screens: Innovation or Distraction?

electronic-superhighway-namjunepaikOur visual language continues to evolve faster than our spoken or written word. That evolution sits at the confluence of disruptive everything; from the viability of broadcast media to the science of visual merchandising. It also circumscribes a generational shift in how and where we access information.

If our screen owning habits are changing, how has that affected our screen watching habits in retail and other places outside our home? Ten years ago, our measurement data suggested that a television-based image attracted twice the number of eyeballs as a static paper-based image. Remember the video walls in stores and shopping malls that were some weird commercial rendition of a Nam Jung Paik art installation? It was brilliant the first, and maybe also the second time you saw it, but eye-straining thereafter.

[Read more...]

Luxury Retail: Turning Affluent Austerity into Retail Prosperity

lux_retailI got a call earlier this month from a freelance reporter who follows my beat – research on the affluent consumers and the luxury market. As she walked through the Time Warner Center on Columbus Circle on her way to the subway at midday, she found the halls and high-end boutiques unexpectedly empty. The only store seeming to do any business was Whole Foods. She wanted to know, “What’s up?”

I shared a similar experience visiting the Tysons Galleria, in McLean, Virginia, located in one of the nation’s highest-income counties. Walking through the mall on a weeknight, there was a remarkable lack of customers. The most active shop in the whole place that evening was the Starbucks café. [Read more...]

Small Retailers Face Huge Technology Gap

Restaurant ownerTalk about proof points. In the April issue of The Robin Report, Gary Kearns from MasterCard wrote about the level of technology needed for retailers to create and maintain one-to-one relationships with consumers. “Few retailers today have the sophistication, systems and savvy to create a mutually rewarding relationship with [key consumers],” he wrote. A new MasterCard survey illustrates that point and details a huge capabilities gap between large and small retailers. That gap must be addressed if smaller retailers will have a chance to compete in a data-rich world.

The survey comes from MasterCard’s Global Insights team and is detailed in its recent Merchant Scope report. MasterCard conducted qualitative and quantitative interviews in Canada, Germany, South Africa and Brazil to identify the attitudes, opportunities and obstacles that are driving small business technology use.

The 90/20 eCommerce Equation

While most of the findings varied by vertical and country, a few numbers jumped out. The first: Nearly 90 percent of small to mid-sized merchants have an online presence, but only 20 percent have an eCommerce website. They lack the technology to accept payments online. That is a significant number, regardless of how big your store count or balance sheet.

It’s significant because the concept of financial inclusion is not limited to certain consumer groups in developing economies. Inclusion is about retailers, too. The retailer who cannot sell online is missing opportunities for themselves, but is also underserving consumers. Mega-retailing has had its share of consumer advantages in terms of price and service. But the overall health of retailing also depends on smaller regional chains, local favorite boutiques and rural multi-purpose stores.

Part of the responsibility falls on the data and payment technology communities. Small merchants need their help in understanding and meeting the evolving expectations of more informed and digitally connected consumers. These expectations center on convenience, an innovative shopping experience and personalized customer support. In the current data-driven retail environment, the consumer shopping experience starts long before entering a store, and includes the ability for the merchant to be present in different devices and channels. Advances in technology – including payments – have often presented an opportunity for small businesses to level the playing field. But, as consumers take advantage of mobile technology and real-time information, businesses of all sizes find themselves needing to create an “always on,” omnichannel presence or mobile app offering instantaneous rewards that attract new and repeat customers.

Barriers to Technology Adoption

The second set of numbers that jumped out from the study concerned barriers. The two clearest barriers to adopting technology, according to the report, were cost (46 percent) and know-how (31 percent). Here, small merchants need to prioritize resources for marketing. When examining what can be spent on digital marketing, they need to address key questions to help determine if an investment is worth it. Is this the key to improv-ing the customer experience? Do you understand how to use sales data to effectively build marketing propositions? Are you losing out on sales because you are not sure how to identify your best customers? What can you invest in now to make this pay off and run your business better?

Now let’s look at the ability to generate customer data. Here the capability of small merchants also needs to be improved. The Merchant Scope report shows that merchants find point-of-sale (POS) devices in large measure work as a transaction terminal. Half of the respondents globally indicated satisfaction with the payments acceptance experience. Nevertheless, MasterCard’s research indicates that the data passing through POS systems are under-utilized. They are leveraged for the authorization of transactions, but not as a potential window into insights on their customers. Today’s consumers are increasingly driven to shop by intelligent offers – perceived value over price and customized messaging. Consumers don’t just want to receive discounts; they want to be offered discounts on the products they care about. Developing ways to collect and use consumer purchase behavior data, in line with prevailing data laws, to offer them the things they really need depends on effectively utilizing the data flowing through the POS.

Regardless of the merchant’s size and geography, the most cited challenges (on average 41 percent of merchant respondents) revolve around identifying new customers. More than 32 percent cited Internet marketing and promotion, and 28 percent cited offering loyalty benefits to customers. Today, as more and more data is generated about customers’ shopping behaviors and preferences, there’s an opportunity to use that data to tail customer experiences, working with existing laws on data usage. Smaller merchants are starting to see the challenge and look for competitive solutions.

Leveling the Playing Field

Improving this situation requires a mind shift. Consider technology in the context of how it is integrated. Buildings blocks like eCommerce and effective new digital marketing will be greatly improved when technology is integrated. The sales data that comes through a well-developed eCommerce and invent-ory system is the fuel for developing strategies of product promotion and how to offer customers the goods and services they want most.

The rise of the mega-retailer has changed everything about the competitive environment for merchants of all sizes. Large, vertically integrated merchants have revolutionized supply-chain and inventory management, taking technology in those areas to a level that enables them to cut pricing and improve the customer experience. They have exploded across continents, with technology channels creating the “omnichannel” reality of global shopping. According to information published by the National Retail Federation, the top 250 retailers control $4.3 trillion in revenue; 63 percent of them are global. They have leveraged their scale and technology resources to present customers with a unitary, integrated shopping experience that inexorably is moving to an individually customized marketing model. That model has effectively upended the traditional merchant/consumer relationship, empowering the consumer to the point where customer experience and online agility are increasingly important as growth drivers for top global online retailers.

When it comes to leveraging technology, the picture for the mega-retailer is much clearer. But for small and medium-sized merchants, it’s still murky. The ability of large, often global merchants to dominate retailing creates an arena where small to medium-sized merchants may feel they cannot compete. The ability of large merchants to integrate technology both on the macro level outlined above, as well as in-store, presents a daunting competitive environment for small and midsized merchants.

The gap in technology resources between global retailers and smaller-scale merchants is glaring, and can be closed with the coordination and participation of banks, governments, and technology providers, as well as merchants. The downside of not addressing these gaps is that smaller retailers will fall further behind in becoming better engines for economic growth. The upside is huge.

Q/A with William P. Lauder

William_Lauder-1We sat down with William P. Lauder, Chairman of The Estée Lauder Companies, the $10 billion global beauty juggernaut, and talked about the evolving retail landscape, the importance of knowing your consumer and the opportunities and challenges of globalization.

Robin: William, we’re living in what we believe is the biggest transformation of the industry in the history of retailing, and therefore in wholesaling and branding as well. Some CEOs are saying it feels like the Wild West. Others feel like they are living in the chaos of technology that is far ahead of our capabilities to totally understand and use it.

And here is The Estée Lauder Companies, the undisputed leader in their space, right in the middle of it all. You served as CEO from 2004-2009, when you transitioned to your current role as Executive Chairman. During these ten years, the business has nearly doubled. So, I know you’re really smart, but is there also a bit of luck working here as well?

William: When I first joined this company in 1986, I perceived that my mission was to gain the experience to do what we needed to help the company be at the forefront of prestige aspirational beauty around the world. In 1996, more than half of our business was in North America. Now more than half our business is outside of North America. Emerging markets like China and Russia were very important, and we had a low share of market in those countries as well as in Europe, the UK and elsewhere. So, we saw a greater global opportunity where the pie was expanding, as opposed to our huge share of the US pie, which was static. [Read more...]

Go Disrupt Yourself!

Panel logosSo Says a Disruptive Seminar Panel

Please don’t take offense. “Go disrupt yourself” is not a euphemism for that other, often used R-rated suggestion. This is a serious directive for so-called disrupters themselves, as well as for all businesses operating traditional models who incorrectly believe disruption is defined only by fundamentally new models or game-changing concepts. Today’s disrupters are typically spun out of the thin air of “Siliconville,” which often define them as tech-driven and Internet enabled.

This not-so-clear concept of self-disruption was one of the major points that I filtered out of the spirited panel discussion at the recent Robin Report and Fashion Group International forum, “Disrupters vs. Disruptees.” And I believe with some elaboration, the conversation is highly instructive for both upstarts and traditional businesses.

The forum presented a panel of “Disruptive” CEO’s including Warby Parker (Neil Blumenthal), Rent the Runway (Jennifer Hyman), and Shapeways 3D printers (Peter Weijmarhausen). These new kids on the block had a robust discussion with the “Disruptee” CEOs of HSNi (Mindy Grossman) and The Ascena Retail Group (David Jaffe), whose portfolio consists of Lane Bryant, Dress Barn, Catherine’s Justice’s and Maurice’s. Paul Charron, former CEO of Liz Claiborne and Chairman of Campbell Soup was our moderator. Yours truly set the tone with an overview of the principles and perils of disruption.

2014_Retail_Disrupters_012Upon reflection, it occurs to me that since most of the au courant disruptive new business models are really just new marketing concepts made possible by the tools of technology and the Internet — they can be knocked off in a nanosecond. Both Steve Jobs and Jeff Bezos understood this from day one at Apple and Amazon. Their mantras, “the next big thing” and “get big fast,” respectively, were loud and clear marching orders for self-disruption, day in and day out. Whether breakthrough new products from Apple, or entirely new marketplaces from Amazon, implicit to their vision is to preempt copycats by becoming so big, so fast, that knock-off artists would find it nearly impossible to catch up.

Self-disruption and rapid preemptive growth require two ingredients: perpetual innovation into new product or market spaces and huge capital investments to fuel such growth. While these two legendary examples of continuing marketplace disruption are obvious by their success, it was largely due to the tenacity and audacity of their visionary leaders as “first-movers” who leveraged technology and the Internet to catapult their product and marketing ideas into dominant positions.

Many early movers later, we are now witnessing a deluge of innovative ideas (some more disruptive than others), still facilitated by technology and the Internet. In fact, many of them, including Warby Parker and Rent The Runway, were launched on the Internet.

2014_Retail_Disrupters_021The continuing challenge of all disrupters is to be the de facto, sustainable solution with new product innovation and distribution. They will need to continue to dominate market share from competitors. And the hugest threat of all is that the giant traditional companies can easily copy these upstarts and have the financial clout to steal and own the space.

With the ease of entry into this technological and Internet-based space, another challenge facing these “later movers,” so to speak, is that their fundamental value propositions are easy to copy. For Warby Parker, the model is making and selling trendy eyewear online (and now in stores) for low prices. Their charitable program donating glasses to kids in need hits spot-on with Millennials’ sense of social justice. The fundamental proposition for Rent The Runway is renting apparel, and they have found themselves in the dry cleaning business along the way to ensure that their quick turnaround rentals are guaranteed clean. In Warby Parker’s brilliantly conceived, innovative eyewear space, there are now several copycats: Classic Specs; Eyebobs; Lookmatic; Mezzmer; and Made Eyewear — offering frames, sunglasses and readers. Likewise, the world that Rent The Runway launched has some wannabes, including Lending Luxury, Girl Meets Dress (in the UKL, and Wish Want Wear.

2014_Retail_Disrupters_050It’s important to note that while these may be copies of the core value proposition of Warby Parker and Rent The Runway, they are not necessarily marketing the model and delivering it in precisely the same way. How these models are executed of course, will determine their success or failure. Nevertheless, the copycats did enter the same space pioneered by these two initial disrupters. Such is the compliment and challenge of innovators.

Shapeways, while not the creator of 3D printing technology (earliest versions launched in the 1980s), they also face a different challenge. Shapeways 3D printing is on an industrial scale (unlike MakerBot home 3D printing) and is still in pursuit of a scaled-up market to serve. They are ahead of their time in the sense that the potential of 3D printing to disintermediate the accessories business, for example, is still nascent.

A major point to be made is that the three Disrupter panelists are faced with the almost daily challenge of stealing market share in their categories and sustaining growth. They must also understand the concept of self-disruption as envisioned by two of the most powerful disrupters of our time: Jobs and Bezos. They must be relentless in churning out the “next big thing” and to “get big fast” (now more difficult among a sea of knock-offs). Each of these young CEOs seem determined to do so.

2014_Retail_Disrupters_059Have We Over-Glamorized Marketing 101?

Now step back for a second and reflect on these business concepts. Are today’s winning principles any different than they have ever been? You innovate and come up with a new product or service or retail concept that targets a segment of consumers who need or want your offering and the way in which you provide it. You then brand the business and invest heavily in marketing it for growth. And you keep innovating new ideas into your model to continually add value to keep your existing customer loyal and to entice new customers.

Today the only difference and change from the past are the full-on advancements of technology, the Internet, and the all-enabling smartphone. However, they are simply tools to achieve a greater understanding of, and connection with, consumers and provide more efficient and effective marketing and distribution. These tools are only as useful as the human minds that envision their optimal capabilities for their specific business models: Jobs, Bezos and hopefully our three Disrupter panelists leading the perpetual stream of new upstarts.

So are the Traditional Giant Brands and Retailers “Chopped Liver?”

In closing, I’m sorry to have to break it to many of these young upstarts that while they may be disruptive in the way they are using the new tools, those same tools are available to the 800- pound gorilla brands and retailers that are already big, some in fact, enormous. And as traditional retailers wake up one morning to understand how to use those same tools, they won’t be disrupters, they will be serial destructors.

And of course our other two panelists were anything but “chopped liver,” comfortably reinventing self-disruption, perfecting and maximizing the use of the technology and Internet tools, and reframing their business models. HSNi and the Ascena Retail Group are both multi-billion dollar businesses that got huge over time and are now envisioning how to get bigger faster by seamlessly integrating their enormously complex business models with the Internet and all of the advanced operating and information technologies available. And guess what? They don’t have to lurch from one round of funding to another.

Talk about self-disruption. Mindy Grossman commented: “In the past eight years we have disrupted our business model at least four times. We created a culture where risk-taking is encouraged and failing fast is encouraged too.” HSNi has an advanced innovation group tasked with finding the next big thing., They disrupt the status quo and innovate reflecting changes in consumer behavior, tasked with primarily raising whatever bar necessary to provide a boundary-less shopping experience, wherever, whenever and however the consumer wants it.

David Jaffe, with about 4000 stores under five nameplates, is also using the new tools to seamlessly integrate the omnichannel concept and to provide shopping interchangeability both online and off. He closed by saying: “We believe the convenience and sociability of shopping gives us a head start over the Internet startups.”

Indeed, there is great truth in that statement as Warby Parker, Rent The Runway and many other e-commerce startups are now opening physical stores. Apple, of course, understood the synergy long ago.

So, the great news for all of commerce is the tsunami of young entrepreneurs who understand how to use the new technologies and the Internet to create disruptive and innovative ways to engage and delight consumers and to integrate operational systems to more efficiently and effectively market and distribute their value.

The challenge and tough news for these entrepreneurs is three-fold: first, self-disrupt with a continual innovation process; second, build a management and operational infrastructure for sustainable growth; and, finally, invest heavily to “get big fast.”

A final ironic twist may very well be that while the young upstarts, as well as Amazon, Apple and others disrupt the market with innovative ways to use the new tools, the world of billion dollar legacy brands and big retailers may end up being the real copycats. And if I were Warby Parker, I would not want Luxottica as a copycat. If I were Amazon, I would not want Walmart knocking me off.

It could all end badly, more like a knock-out.

Your Local Fruit Stand is a Bellwether

IMG_0139On the corner of 7th Avenue and 12th Street in Manhattan is a fruit and vegetable cart. Others just like it are scattered across New York City. They tend to be run by hardworking immigrants willing to stand up all day and put up with whatever weather comes their way. I’ve passed this stand thousands of times as I walk to and from work. Last fall, I stopped for the first time noticing that the same blueberries and blackberries that have now become my breakfast staples were cheaper than in the grocery store down the street; the same box and brand, but 25% less.

In retrospect, it makes perfect sense since my grocery store pays more in rent than the street vendor does. It wasn’t just that the berries were cheaper; when I actually compared the other fruit and vegetable prices, everything else was too. I started buying avocados, eggplant, onions and melons. Not only was it cheaper, but it was more convenient. Yes the selection was narrow, but it met my needs. The vendor was friendly, and his name was Ali. [Read more...]