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...]

Fashion or Fitness – What’s a Portfolio Manager To Do?

Marie-Blog-image_Rd.1Apparel is considered a discretionary purchase. Really? Most would agree we have little choice as to whether or not we purchase and wear clothing, and it’s considered ‘de rigueur’ in most social settings. The array of apparel choices is truly mind-numbing and drives a $1.7 trillion global market. Options span the most basic Gildan Activewear cotton t-shirt sold by the gross to vendors for silk-screening early in the supply chain, to non-branded apparel at Walmart, to national and specialty retail brands, all the way to the rarified luxury world of a Chanel tweed jacket priced at $10,000. There is something for everyone.

Branded apparel companies (both wholesalers and specialty retailers) such as Ralph Lauren, PVH (Calvin Klein, Tommy Hilfiger, Lacoste et al.), JCrew, and Gap differentiate themselves in the market by appealing to targeted consumer segments based on age, lifestyle, and income, as well as their interpretations of prevailing fashion trends for their demographic segment. Therein lies the rub! Fashion is fleeting and supply chains are inconsistent. Balancing the tightrope of enough fashion to be relevant, while not too trendy to incur speedy obsolescence, is the fashion merchant’s Gordian knot. Imagine doing this for two to four seasons a year! [Read more...]

Angela Ahrendts – An Apple Disruptor or One-Off Burberry Rock Star?

AhrendtsI believe former Burberry CEO, Angela Ahrendts, did in fact disrupt the traditional department store model, specifically through her seamless and spectacular integration of the Internet and technology. Indeed, when one steps into Burberry’s London flagship, it’s like stepping into a technological extravaganza, taking “high-tech, high-touch” to another level, empowering consumers and providing an awesome shopping experience. And upon entering and shopping the website, one has an identical experience, however without the 3-D physical sensation. Burberry’s website states its mission as “seamlessly blurring physical and digital worlds.” Lauded on both sides of the pond as some kind of rock star, Ahrendts caught the attention of Apple CEO Tim Cook, who lured her to head up Apple’s retail business.

Now, everybody is wondering what she’s going to be doing in her new role. And that’s no small question as she sits in the enchanted land of “the next big thing.” Apple already disrupted the world of retailing when it launched its stores under Steve Jobs in 2001. Currently, with over 400 stores worldwide, it’s still the most productive retail space in the world, in all of history, averaging over $5000 per square foot. So the first question one might ask is: why on earth would Apple want to disrupt such incredible performance? Secondly, if that is what is expected of Ms. Ahrendts, how would she disrupt it? [Read more...]

Moneyball for Retail

YG_moneyball_FINAL imageThere’s a new way to grow profits and hit it out of the park with consumers, employees and shareholders. It’s “Moneyball for Retail” – finding market inefficiencies to gain a competitive advantage.

In Major League Baseball, team owners want to win games. In retail, executives want to grow sales and profits. Both want to achieve these goals without breaking the bank, and the best-managed franchises in each have one fundamental principle in common: identify, develop, and reward the right players.

Whether baseball teams are winning or not, their ongoing costs continue to escalate. To keep the franchise operating at a high level, management needs to be aware that the most expensive players aren’t always the best fit for the team. The same holds for retail stores: operational costs are escalating regardless of store success, and executives need to schedule the right people in the right places to generate profits with the fewest additional costs.

And just as iconic baseball dynasties have come and gone, so have seemingly invincible retail giants. The survivors are the ones that continue to win. [Read more...]

Who Are the HENRYs and Why Are They Important to You?

Pam charts Rd2After a lot of retailer nail biting this past December, the Department of Commerce has reported the numbers and, all in all, the sales year didn’t turn out as badly as expected. So while we sigh with relief, nobody reading the news or talking with consumers is delusional enough to think that retail is out of the woods yet. Consumers remain extremely cautious about spending; the average US household’s income is currently $71,274, down more than $4,500 from its high in 2006 of $75,810. The reality of this extended post-recession period is that the American middle class has lost much of its spending power, leaving retailers that have traditionally targeted this customer holding the bag and needing to find new consumer segments for growth.

If the middle-income customer is scarce, the logical place for retailers to look for new customers is one step up the income ladder: the affluent, which are defined as the top 20% of US households based on income which starts at around $100,000. With nearly 125 million American households in total, the affluent segment numbers just under 25 million households. In most any spending category, the affluent top 20% account for about 40% of total consumer spending, according to the Bureau of Labor Statistics Consumer Expenditure Survey. That means the absolute spending power of the affluent household is twice as big as the average middle class spend.

Of course, all affluent households aren’t created equally in spending power either, with the top 2%, or the ultra-affluents, roughly 2.5 million households (incomes starting at about $250,000) with much more discretionary income. But between the ultras and the middle-income consumer segments, there is an often overlooked group that, quoting Rodney Dangerfield, ‘gets no respect’ – the lower-income affluents or HENRYs (High Earners Not Rich Yet). These are the new mass-market affluents with incomes $100,000 to $249,999 and they number about 22.5 million households.

Tale of the Tape –The receipt tape, that is.

Every three months my company,Unity Marketing, surveys 1,200+ affluent consumers who recently purchased any high-end or luxury goods or services in 21 different categories, including home goods such as furniture and major appliances; experiential services such as travel and dining; and personal items such as fashion, jewelry, and beauty. In that survey, data is collected about those recent purchases including how much people spent. [Read more...]

Apple’s Next Big Thing: A Tesla in its Garage?

Tesla_Apple_Rev1To borrow from Ted Levitt’s thesis on “marketing myopia,” Apple is not in the digital “iDevice” business, and Tesla is not in the automobile business. They are both in the technology business; or better yet, in the technology disruption business – or, even better than that, one might say they are in the “Internet of things” business. Take your pick. But for sure, they are in the same visionary tech space. Once Tim Cook and Elon Musk realize this more expansive definition of the businesses they are in (and, I have to believe they have probably already figured this out), the scope of industries, products and services they can pursue for growth is almost limitless.

And once the realization sets in, an “aha” moment should not be far behind. I’m talking about the uber “aha” as the most ingenious acquisition of this young century: Apple acquiring Tesla. It’s significant to point out that part of Mr. Cook’s vision for Apple is his publicly stated intent to break into other product categories. The strategic logic of such an acquisition and the resulting synergy for these two technology giants is, in my opinion, obvious. [Read more...]

Globalization and Democratization Impact Fashion, Too

Chanel: Runway - Paris Fashion Week Womenswear Fall/Winter 2014-2015Just as globalization and information combined to create what Thomas Friedman aptly coined the ‘flat world,’ these transformational forces are driving the democratization of luxury. Exclusivity has been replaced with near mass availability, anywhere and anytime.  Technology and social media are potent forces in spreading the word and creating awareness that can turn into desire and demand — and ultimately sales and profits. But these new tools also undermine a core tenet of luxury: uniqueness or rareness.  When luxury becomes ubiquitous, it migrates out of an exclusive arena into the everyday, everywhere streets of fashion.  So, while opportunistic luxury brands can reap the benefits of democratization, without nimble brand management, they risk the underbelly of crass commercialism, which is guaranteed to destroy luxury’s allure.

Chanel’s Super Market

In Chanel’s fall 2014 fashion show at the Grand Palais (March 4, 2014) in Paris, Karl Lagerfeld playfully took the idea of luxury’s democratization to the extreme. Instead of transporting the viewer (those in attendance as well as the world of voyeurs watching from afar, thanks to YouTube and chanel.com) to the rarified world of haute couture, a lifestyle few women are able to participate in, Karl brought us to a world we know all too well, the big-box grocery section. He outfitted the interior of the Grand Palais into a tongue-in-cheek Chanel Super Market, replete with Chanel-branded corn flakes and dishwashing detergent. Models adorned with Chanel’s iconic pearls and tweeds wore that most democratic of footwear, sneakers. Everything in the Chanel Super Market was marked up a totally undemocratic price; in fact the signage conveyed +20%, +30%, +50%. Was Karl snickering at our mass consumption of luxury icons and the fact that Chanel has nearly doubled handbag prices in the past five years? Ha Ha — not! [Read more...]

You Have 7 Minutes To Create Value For Your Shopper

What Are You Doing About It?

I recently met with the head of marketing for a major UK broadcaster whose career had previously included senior roles in shopper marketing and innovation with P&G and PepsiCo. His path had taken him from working with major grocery retail groups on improving visibility and driving product sales for his brands, to finding ways to create distance between his side and the retailer’s own private label. With a move into broadcast I asked whether he felt he’d leapt from the frying pan of a hyper-competitive consumer product world into the fire of the media industry where advertising is increasingly seen as a secondary investment for brands.

His response was that their challenges were essentially the same: both have diminished roles due to changes in consumer preference and new competition; and neither yet had a clear roadmap for changing the models the industries have been built on.

The More Things Change, The More They Stay the Same

What led us here can be found in a simple review of history: in the 1950s brands were king. Consumers had newfound wealth, a desire to fill their homes with goods, and they weren’t yet jaded. In 80s-America, a TV spot that ran on three networks would reach 80% of consumers, stimulate interest, and drive sales. Retail was simply the only fulfillment channel. In the book, Absolute Value, authors Itamar Simonson and Emanuel Rosen argue that the rise of brands was in response to an information-poor environment; brands served as a proxy for quality. But in the 90s this all changed when Tim Berners-Lee created the early version of the Internet and suddenly the consumer could look under the hood, hear from others, get the straight story – this was the beginning of retail’s great tectonic shift. And today, according to Nielsen, almost 90% of consumers with smartphones use them to price check after making in-store product comparisons. [Read more...]

Mike Gould on Leadership

MIke-Gould-FINAL-IMAGEWhat makes a great leader? The topic, by all accounts is very close to Mike Gould’s heart, “It is the single most important thing any of us do, regardless of what we do.”

Mike Gould, one of the most accomplished leaders in all of retail, recently retired as CEO from Bloomingdale’s after a 23-year career. He spoke to a group of industry executives, FIT students and faculty on April 8th at a meeting of the Retail Marketing Society in NYC.

During his wide-ranging talk, he emphasized, “At the end of the day, what people remember are the opportunities you gave them to grow and to become more than they thought they could be; not the numbers that mesmerize our daily lives.”

How does Mike lead? He stressed that people come first; nurturing their growth and providing opportunities are the mark of a good leader. [Read more...]

Women’s Underwear is Difficult

Playtex_graphic-01A Brief History and Consumer Perspective

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

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

Three Dirty Little Secrets

Alexander Mcqueen London, Old Bond Street, London, W1, United Kingdom Architect:  Pentagram Alexander Mcqueen, Showroom, Pentagram, London, 2002, Overall View Of ShowroomGlobalShop, the retail design expo, had its three-day extravaganza in Las Vegas the middle of March. Like Euroshop, its continental counterpart, it is a gathering of brick-and-mortar assets: flooring and mannequin companies; fixture and signage manufacturers; point-of-purchase display companies … and more. There are receptions, cocktail parties and lunches, and lots of meetings to imbibe in adult beverages. VMSD and Design:Retail, the two trade magazines covering the industry, put aside their differences and celebrated the occasion enthusiastically. Still, however happy the gathering was, it is hard to avoid the dark clouds looming on the horizon. [Read more...]