Passion Can’t Be Found In A Spreadsheet

iStock_000021559265SmallThe distance between Vere and Portman streets in central London is 528 yards; an easy walking distance encompassing the two solitudes of retail today: stores that behave as product sheds and those that behave like retail theater. Taking center stage in the dichotomy are three stalwarts of the British department store industry: Debenhams at the start; Selfridges in the middle; and Marks & Spencer at the end. The headlines on these companies say it all:

“Debenhams shares dive…the biggest obstacle to profits comes from a higher level of discounting as the retailer struggles to attract shoppers…”

“Marks & Spencer’s recent figures show the retailer losing market share faster than any of its rivals…”

“Selfridges turnover for the year is ahead 9% while pre-tax profits rose 40%…”

But the headline I find most illuminating of all is this:

“The latest problems at Debenhams will pile pressure on its finance director, Simon Herrick, who was already seen as likely to exit the company…”

If businesses are to prosper they need customers who are engaged and willing to spend, and I can assure you the lack of interest on the part of shoppers for Debenhams isn’t because of Mr. Herrick’s finance competency. While this headline comes from an analyst, it’s indicative of a common corporate failing: too often finance departments are asked to make right in a business what it takes an entire executive team to figure out, namely how to be more meaningful to a buying public who has the freedom to spend their time and money wherever they want.

Success and Failure in Retail Neither Begins Nor Ends at the CFO’s Door

Where these stores are located is the area of Oxford and Regent streets in central London, home to one of the world’s premier retail districts. Every year 150 million shoppers put the lie to the notion that ‘stores are dead’ and many pass the windows of Debenhams, Selfridges, and Marks & Spencer. There are clearly plenty of prospective customers, but they show a declining desire to make two of those stores a destination. A simple visit to these fading retail icons and you’ll immediately understand why: bad lighting, inelegant visual merchandising, and disinterested staff in the fading stores, whereas Selfridges is famed for its excitement and dynamism. The two in trouble feature environments where dreams of fashion and style go to die; in the stand-out you’ll find experiences that draw people in record numbers who are willing to pay more, and seem to do so gladly based on the numbers. And remarkably, executives of all three can walk the floors of their competitors in five minutes and experience what makes the difference.

So it makes you wonder: can retail executives even see the experience through the eyes of a shopper? Each of these three companies has the size, financial clout, and reputation to attract the best and brightest talent. I’m sure none of them lack for MBAs and finance people, yet it would seem that common sense and instinct – the soft skills that humanize the business of retail – have been subverted by higher education when their executives can’t seem to see the solution for better performance when it’s staring them in the face.

Quality Retail Experiences Rely on Store Executives to Make Them That Way

Too often, retail leaders describe the measure of their personal success based on their vertical roles in the business: the ability to deliver faster, cheaper and to reduce costs; rarely on the need to add value back into the store environment. Their idea to develop greater customer loyalty is all too frequently based on low price. Why? Many leaders feel that to innovate and engage consumers through the experience of their environments is overshadowed by transactional cultures that view process as the end, not the means. It seems few big companies remember what it was that made them what they are. Their worlds revolve around revenue rather than value; demographic segments instead of people. And what requires good common sense becomes over-analysis of the abstract. The new silver bullet of ‘big data’ is crazy given the way so many business people use it to define their strategic priorities – what’s the point of knowing more about your customer if you’re not able to truly understand or reflect why your business should matter to them?

The opportunity for offline retail has never been greater, but retail’s existential threat is itself. Who’d choose to shop online if they could get the benefit of price as well as experience? This model starts by offering a better way by asking if what you’re presenting to the buying public actually matters. If it does you win; if it doesn’t you discount.

Amazon’s Threat Isn’t From Being Online, It’s By Being Customer Obsessed

Ironically the one business that retailers fears most is Amazon. Yet, in that company’s 2013 letter to shareholders, Jeff Bezos wrote:

“We are internally driven to improve our services, adding benefits and features, before we have to. We lower prices and increase value for customers before we have to. We invent before we have to. These investments are motivated by customer focus rather than by reaction to competition. Proactively delighting customers earns trust, which earns more business from those customers, even in new business arenas. Take a long-term view, and the interests of customers and shareholders align.”

So the company that makes every retailer question whether there’s a future for brick-and-mortar has customer delight at the core of its DNA. The same business that’s been referred to as “socialist” in its ideals by investors focused exclusively on short-term results has proven that long-term success can only come by thinking first about customers. Not surprisingly, you find a similar philosophy at the heart of the one retailer whose performance on Oxford Street outperforms the others.

The Weston family that owns Selfridges is the second largest luxury retailer in the world with holdings that include Brown Thomas in Ireland, de Bijenkorf in the Netherlands, Fortnum & Mason and Primark in the UK, and Holt Renfrew in Canada.

Their retail philosophy, expressed by Alannah Weston, the Selfridge group’s Vice Chair, is that there’s a lot more to the experience of their stores than just shopping. Her vision is to be the destination for exceptional experiences and believes that with such an enormous space the bounds of creativity have to be limitless. In a recent interview she explained that, “In an all-access shopping culture, remaining relevant is essential because you can buy anything at the airport shop, so why come to a department store?”

Weston’s advice for success is that you’ve got to have passion, “If you don’t believe it, you won’t do it well.” It’s simple: you’ve got to matter to your stakeholders if you’re to succeed. And while there’s little passion to be found in a spreadsheet, you may just find it in yourself by walking the shop floor, listening to customers, hearing what really matters, and by attempting to build back into your business that one thing which you can take true pride in. If you do a walkabout, invite your colleagues along – retail is a team sport.

Is Joe Fresh Still Fresh Enough?

IMG_2103I heard good things about Joe Fresh from a friend a couple of years ago, so I visited the Madison Avenue store, which initially opened in October, 2011 as a pop-up. It was a bright, fun place in a convenient neighborhood location. I bought a cotton V-neck cardigan in orange, Joe Fresh’s signature color, for about $19. I returned several times to buy Christmas gifts that season. Joe Fresh seemed a good resource for low priced, colorful, clean looking, basics. A poorer woman’s JCrew, perhaps a bit younger, certainly much, much cheaper — decent enough quality for the price, with a teeny bit of a contemporary edge. Joe Fresh has a much narrower, more classic and basic-focused assortment than H&M, with equally low prices, and is a refreshing, lower priced alternative to the now muddy Gap.

In 2004, Loblaw’s, Canada’s largest retailer with 1000 corporate and franchised stores, serving 14 million customers weekly, reached out to Joe Mimram, the co-founder, of Club Monaco, to create a clothing line to be sold in Loblaw’s supermarkets. Loblaw’s had extensive and successful experience with private brands, including President’s Choice, the maker of the Decadent Chocolate Chip Cookie, the number-one selling cookie in Canada. But those cookies were not enough to meet the threat of Walmart’s ever expanding Canadian Supercenters. And so, a well priced, well designed clothing line for Loblaw’s made sense. Joe Fresh was launched with women’s apparel in 40 Loblaw stores in 2006 and exceeded sales expectations. Today, Joe Fresh is sold in 340 Loblaw’s stores and includes women, children and men’s clothing, shoes, accessories, cosmetics, bath and body. In 2010, Loblaw’s launched the first Joe Fresh stand-alone store in Vancouver, and there are now 16 in Canada. [Read more...]

Will it Be Made in America?

FINAL image_Anastasia‘Made in America’ is quite the hot topic right now, grabbing up headlines left and right; from the backlash about Ralph Lauren’s 2012 Olympic uniforms (the company quickly learned its lesson—the 2014 ones were made in the US) to retail beast Walmart’s declaration to increase its purchase of American-made goods by $50 billion during the next 10 years. It’s a hopeful story—fostering patriotism while supporting the return of jobs to US soil.

There are those who say that domestic manufacturing is simply not feasible at certain price points, while others have found a significant shortage of skilled workers as a blocking point. Despite these obstacles, will apparel manufacturing sprout again in the US?

Our take is yes.

Companies are manufacturing clothing in the US today and have been for a long time. Take Martin Greenfield Clothiers, for example. The menswear company offers fine, hand-crafted tailored clothing including made-to-measure suits and tuxedos, made 100 percent by hand in its Brooklyn, New York factory. The company’s customers aren’t too shabby either—Presidents, Ambassadors, major motion pictures, the list goes on.

You may be saying, well of course a company that produces such high-end garments can charge a premium and not worry about paying extra for production. And we agree. But many companies are finding success producing in the US at all different price points. In fact, according to a recent study by Boston Consulting Group on the shift in global manufacturing, China’s manufacturing cost advantage over the US has shrunk to less than five percent, while Mexico currently has lower manufacturing costs than China. This shift highlights how American companies can now consider their home turf as a viable manufacturing option, keeping production closer to the end consumer.

Brand names like Ralph Lauren, Club Monaco, Frye and Brooks Brothers are now producing a percentage of their pieces on home turf as well. Designers like Nanette Lepore are outspoken on the topic; she organizes Save the Garment Center rallies and is vocal with lawmakers in Washington to support the American fashion industry.

America’s Research Group found that approximately 75 percent of consumers would pay more for American-made goods, up from 50 percent in 2010. Thus, people are seeing this as a business opportunity, evident by the rise of startups dedicated to US manufacturing. Look at American Giant, a direct-to-consumer apparel company that makes high-quality, affordable basics, including hoodies, t-shirts and sweatpants. After a December 2012 Slate article declared the company’s best-selling sweatshirt as the “greatest hoodie ever made,” there was a months-long waiting list. American Giant pledges to never outsource jobs overseas.

An important element to consider is the fact that this ‘repatriation’ movement isn’t unique to the US. There is also a push for ‘Made in Britain.’ British companies were dealing with the same challenges—wage increases in China, higher transportation costs, hard to control supply chains; there was also a wave of patriotism following the Olympics and the Jubilee. Many companies have been able to spark an onshoring resurgence, with Mulberry, Marks & Spencer, Topshop, Christopher Nieper and John Smedley being just a few examples.

The moral of the story is: if other higher wage countries are successfully moving toward domestic production, there’s no reason the US can’t follow suit.

We may end up eating crow because of our stance on this topic as only time will tell.

 

Fabric Substitution Needles Home Textile Shoppers

Preference for Cotton Remains Paramount

Click to See Chart Full-Sized

Click to See Chart Full-Sized

Housing starts and existing home sales are not only good economic indicators, but they are also strong predicators of future growth in other areas like home textiles. As the turnaround in the housing market gains steam, the home textiles market benefits – but consumers are increasingly paying higher prices for lower quality and less cotton-rich items, and they are not satisfied.

Textile World recently reported that housing starts could increase by as much as 15 to 20% over the course of 2014, despite the harsh winter, leading to potentially brisk business for the home textiles sector. While January building permits were 5.4% below the December rate, they were still 2.4% above the January 2013 estimate, according to the Department of Commerce, hinting at an upswing in the industry that could carry over to home textiles.

Cotton remains the favored fiber for home textiles like bedding and sheets; more than eight in 10 (81%) consumers prefer their sheeting to be made from cotton and cotton blends, and 75% of consumers prefer their bedding to be made from cotton and cotton blends, according to the Cotton Incorporated Lifestyle Monitor™ Survey. But that’s not always evident at retail. [Read more...]

Don’t Overestimate or Misunderstand “Disruption”

DISRUPTIVE-INNOVATION_rdRemember the phrase “innovate or die?” Well, it died. Taking its place today is “disrupt or die.”

Disrupt this, disrupt that. We’re in the throes of it. As I write, another disruptive concept is being born. And if you don’t see it coming and don’t adopt or adapt to it, you may get mowed down in its path. In fact, the true winners are disrupting and transforming themselves before an outside disrupter gets to them. The chic label of disruption aside, I would argue that innovation and disruption could be synonymous in their commercial results.

It’s all happening fast, faster, and like a pinwheel, and still accelerating in a whirling blur. It’s a new liftoff every day, rocket-fueled by venture capitalists that have invested close to $30 billion in 2013, a 7% increase over 2012. So if you’re in the game, don’t find yourself standing still on the launch pad. Get a blast on it.

The perpetrators of much of this disruption are 20- and 30-somethings, many of them now nearly-overnight billionaires. And by the way, do you remember the term “burn rate,” before the dot.com crash (how much cash one would burn through in a month)? It was the measure of success. Now the badge of honor is the “round of funding” one is on. I guess in the end, it’s pretty much the same thing. Just ask veterans Jeff Bezos, the Google boys, and Mark Zuckerberg — and new darlings, Brian Acton and Jan Koum

So What is Disruption?

One handy definition of these disrupters comes from us — our columnist for The Robin Report, Warren Shoulberg. In our upcoming print issue Warren says a disrupter is “the guy who comes into your market and screws up your business by doing something different.” That works for me.

However, “doing something different,” can “screw” up your business or market in three different ways. Furthermore, most of the disruption or innovation we see today is due to the technology era, including the Internet, providing the new tools for disruption. Note I said “tools,” precisely because that’s all they are — tools to facilitate innovative or disruptive ideas.

And this technology era is now in its third retail iteration: first, its boost to efficiency and speed from factory floor to the warehouse; second, from the warehouse to the store; and, now, in its final iteration, with the smartphone as its accelerant. The Internet and technology are driving the part of the value chain that connects with the consumer with incredible, fundamentally game-changing and disruptive new ways that also empower them with unlimited and instantaneous access to whatever, wherever, whenever and however, their little hearts desire.

So, what are the three levels of disruptive intensity that are meant to “screw up” your business or market?

First is an incremental innovation, which some would argue is not really a disruption. Lululemon, Whole Foods, and Gilt Groupe, in my opinion, are incremental innovations. They are easily knocked off, which we have seen happening more than once. How long it takes to “copycat” the model varies. But while they are dominating the new space, they have first-mover pricing power, until of course, competition enters and that power gets leveled.

The second and third disruptive levels consist of fundamental innovations, either changing the game, or creating a whole new game. These disrupters are not easily copied. Starbuck’s changed the coffee shop model and consumers’ behavior along with it. Facebook created a whole new game, as did Twitter. Uber is changing the taxi model as Amazon changed the game of distribution. Since they are all ultimately able to be duplicated by other clever entrepreneurs, only time will tell if these icons will have the sustainable dominance to have created a whole new game in which new competitors may enter later, but will never share the number-one space.

Speed rules in this disruption game. Why do you think Jeff Bezos’ mantra from “Day One” as he called it, has been “get big fast,” and he has built on that mantra every year to get big faster. And we all know he has a complicit Wall Street behind him, willing to go along with his top line “get bigger faster” mantra at the expense of making nothing on the bottom line.

I believe a lot of the disrupters in tech world, many with truly unbelievable valuations, are benefiting from an Amazon-like growth strategy — to say nothing of round after round of insatiable funding. The challenges are enormous for last century’s business models to adopt and adapt technology and the Internet as tools to disrupt themselves to achieve the new century’s measures of success, all without Wall Street’s complicity.

However, if a business sees “disruption” coming their way, they can avoid being “screwed up,” or worse, decimated, by acting fast and embracing whatever the disruption is that’s headed for their space. Furthermore, in many cases, “disruptees” may very well gain a competitive advantage by adopting disruptive concepts that fit their models and leveraging these innovations to their already powerful brand and customer base. And watch out! They have the potential to turn around and disrupt the original disruptor. And so it goes in the never-ending spiral of disruptive innovation.

At the end of the day, if we are not creating new today, we will be gone tomorrow.

The “Great Disruption”

Finally, the “Great Disruption” is yet to come. At some point along the way, retail and wholesale models will cease to exist (along with their increasingly irrelevant terms), as technology will enable goods and services to be seamlessly and instantaneously transferred from creator to consumer. And in another wave of disruption, creator and consumer may just be the same person.

Reading Consumer Behavior in a Tentative Time

Sarah_ Spendin_Rd1The global economy has entered a period of transition. After the high hopes so many had pinned on the rise of the BRIC nations — Brazil, Russia, India and China — and other emerging economies, their seemingly inexorable ascent has proved all too exorable, with global demand for raw materials slackening and internal economic indicators demonstrating a cooling in overall economic growth.

But there are other factors making for the creation of a climate of transition — and, to a certain degree, of uncertainty. The existence of both exogenous and endogenous forces, not least of which are the seeming return of great power geopolitics in Eurasia and the South China Sea, the discovery and exploitation of new energy sources within the U.S. — thus creating a new source of instability in the Mideast — and the continuing struggle to make an integrated Eurozone a reality — all contribute to the atmosphere of watchful waiting. [Read more...]

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...]

The Breakfast Champion Goes Down for the Count

BreakfastWhat Happens When an Entire Consumer Segment Suddenly Loses Interest in a Brand or Product Category?

Ugly results happen, that’s what. Just take a look at Abercrombie & Fitch, the retailer of upscale apparel to teens. Over the space of a year or so, teens have been abandoning A&F in droves as the retailer lost its design edge and cash-strapped teens found cheaper and more fashion-forward alternatives at other retailers. Maybe also, teens now self define status more by the mobiles they carry than the jeans they wear.

That’s powered sharp declines in A&F’s same-store sales, its net sales volume, and the fortunes of Michael Jeffries, its autocratic and gaff-prone chairman and chief executive — or to be more precise, its former chairman who is now chief executive only.

What that retailer experienced in a comparatively short period of time has been happening in slow motion in the food industry for a long time. For a decade or more, a huge consumer segment shifted away from a core supermarket category: breakfast. And the component of the breakfast category that’s taking the biggest hit is its former champion, cold cereal.

Let’s take a look at what’s going on. [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...]

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...]

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...]