Amazon: Trouble in River City?

Or Wall Street’s Magical Leprechaun

Amazon Unveils Its First SmartphoneJeff Bezos does have that “Leprechaunish” look about him. Wall Street certainly bought into the fable that Mr. Bezos (symbolically toiling over his “shoe making”) would deliver a pot of gold at the end of some yet to be defined rainbow. For 17 years, the Street has believed in his magic ever since he wrote in his SEC filing in 1997: “The Company believes that it will incur substantial operating losses for the foreseeable future, and that the rate at which such losses will be incurred will increase significant from current levels.” He also stated that he wouldn’t run the company to make profits, rather he would pour investment into growing the business to “get big fast.” Wall Street took a deep breath and bought into his strategy, hook, line and sinker. The Street believed that at some unknown distant point in time, and at the end of some rainbow, the Leprechaun would magically deliver his pot of gold.

Well, talk about “substantial operating losses” (which Amazon has lived up to for these past 17 years), this recent second quarter earnings report, revealing a net loss of $126 million, takes the cake. Worse, Amazon rather flippantly, with no explanation as to why, says it will lose between $410 and $810 million in the current quarter. Pot of gold? It’s more like a pot of coal. [Read more...]

Dov Charney is a Joke: A Dirty Joke and a Business Joke

Dov Charney, Portfolio, November 1, 2008The media at large has publicly exposed enough of the “dirty” part of this “jokester” that I don’t need to pile on more. Although it might be a more titillating read to add more dirt to the pile, I’ll just sign off on his disgusting behavior during his tenure as CEO of American Apparel by saying it’s equally disgusting to me that the board didn’t kick his butt out of there a long time ago. It never ceases to amaze me that too many boards are still weak on proper governance in protecting the shareholders from the egregious, deleterious behavior of miscreant CEO’s. And American Apparel’s board seems to be one of those.

But for the moment, let’s forget about Charney’s sexual proclivities, including allegations of abuse. Many top executives have been caught with their pants down, so to speak, albeit not all as flagrantly as Charney. Many were fired, yet many others have just had their dalliances swept under the rug.
Charney’s real dirty joke is that he is a business joke of the tallest order.

A Business Joke

Reluctantly, I feel it’s necessary to acknowledge Charney’s entrepreneurial accomplishment in creating a brand that hooked up with (no pun intended) young urban consumers in a sensuously charged way. It took off and spread like wildfire. It was at that moment in time when Charney should have removed himself from running the business and hired a CEO with management, operating and leadership credentials. Entrepreneurs, by definition, are creators and most often are not capable of managing and profitably growing a business. Charney is no exception.

Not only has he proven to be an inept CEO, given the continuing decline of the business (propped up by one loan after another), his maniacal micromanagement of every aspect of the operations has decimated whatever semblance of an organization there might once have been. Worse, his “everyone reports to Dov” insanity has driven off all of the skilled executives he briefly had. One example of his warped behavior was reported in a New York Times op-ed column by Joe Nocera: “In 2007, after the company went public and he had to bring in a chief financial officer, he told The Wall Street Journal that the man he hired was a ‘complete loser,’ which of course caused the man to quit.”

Anecdotally, anonymous observers provide a disturbing picture of his dysfunctional, really whacky, abusive management style and hodge-podge approach to a retail business. Here’s one observation: “There is no retail management for the 250 or so stores. Everyone reports to Dov, from the assistant store manager in Cincinnati, to the visual display assistant. Dov conducts a meeting generally from his bedroom every week. He has every store call in. Seoul Korea calls in. Santa Barbara calls in. Berlin calls in. Lots of time differences … and languages … but the one constant is that Dov does all the talking. If business is bad in a store, it becomes a weather report by Dov: ‘Toronto, your business was terrible! it rained (or snowed, or was hot).’ …Any reason for slow business was due to the weather. And the solution was always the same: ‘Toronto, if your business doesn’t improve next week I’m coming up there and cutting off your (expletive).’

“There is no allocation department. That area is the lifeblood of specialty retail. So, instead of an algorithm for allocating, it is all Dov: ‘Send 5000 to the stores! Its gonna get cold soon so we need to send a lot of jackets to the stores!’ Product development is all done by Dov, as well. Nail polish is made in downtown LA. It is not FDA approved, and several bottles have exploded.”

Another anonymous comment: “Dov’s favorite lines to his employees: ‘I’m gonna make you bleed. I’m gonna break you in half. You’re a fraud.’”  It is all Dov, all the time. There is no one else running the store.

Another blatant example of abusive behavior towards his employees, and one for which Charney is being sued, was reported in a recent Bloomberg Businessweek article: “In November 2012, Michael Bumblis, a store manager in Malibu, had accused Charney of rubbing dirt in his face because Charney was displeased with the store’s condition and performance. Bumblis’s lawyer, Ilan Heimanson, says he informed the company of evidence of the confrontation beyond the accounts of witnesses. The stores had security cameras, and Bumblis had access to the video. Among the details in the complaint was a phone call Charney had supposedly made to Bumblis about his store’s poor sales. ‘Get your f-?-?-ing s-?-?- together, fag. Where is your f-?-?-ing creativity? Get some f-?-?-ing girls in bikinis to stand on PCH [Pacific Coast Highway] and have them wave a f-?-?-ing American flag. Are you a fag? Do you not want to see girls in bikinis? Are you banging that girl you were with in Vegas? What’s her name?’ American Apparel’s lawyer said in a filing that Bumblis was a poor-performing employee who was dismissed and that his story is ‘entirely contrived or wildly exaggerated.’

The article went on to say: “That case could bring other complications. Heimanson asked a Los Angeles court to try the case rather than send it to confidential arbitration, as American Apparel requires in all such matters. The judge ruled that the documents all American Apparel employees have to sign are ‘unconscionable,’ according to legal filings. The agreements forbid workers from filing claims against the company, talking about the company, or sharing any information about the personal life of the CEO. If they do, they risk being sued for $1 million. The company is appealing the ruling. If it stands, ‘we’ll be able to shine sunlight on the backroom dealings of American Apparel and Dov Charney,’ says Heimanson.”

The Unravelling

Following its IPO in 2007, Charney put his ambitions on steroids along with his chaotic, micro-managing behavior. This combination of a publicly traded company being run by an overzealous entrepreneur with zero management skills with a looming recession was bound to become a train wreck. A tipping point likely came in 2009 when an immigration audit forced him to lay off over half of his illegal factory workers. The subsequent disruptions to the business while replacement workers were hired and trained just exacerbated the declining business.

Between 2009 and 2013, the business consistently hemorrhaged money in addition to taking on costly debt, ballooning from under $100 million to around $250 million. In the last three fiscal years, American Apparel lost $270 million and its stock traded for under 50 cents earlier this year, down from $15 at the end of 2007.

In 2011, Lion Capital, one of American Apparel’s major lenders and a Charney supporter at the time, urged Charney to hire an experienced C-level apparel executive to stabilize the business, reorganize the infrastructure and operating functions, and to strategically put the business on a profitable growth trajectory.

Obviously in an attempt to protect their interests and ward off a potential disaster, Lion Capital reached out to Marty Staff, former successful CEO of JA Apparel (owner of the Joseph Abboud brand) and previously, CEO of Hugo Boss. In my opinion, Staff was precisely what Charney needed to turn the business around.

It was a doomed relationship from the start. First of all, Charney gave Staff the title of President of Business Development. And as I wrote in an article for The Robin Report upon Staff’s departure after only six months on the job, (American Apparel: A Last Chance Lost) that title didn’t even imply operating authority. Charney just continued to micromanage every part of the business, and Staff got frustrated and left. This is not unlike the turnover of many other capable operating executives who wouldn’t put up with the tumultuous and chaotic working environment where it was impossible for them to develop and implement sound strategies for achieving growth.

I also wrote in that October, 2011 article: “Quite frankly, it amazes me that as CEO of a publicly owned company, given American Apparel’s financial condition and his questionable and storied behavior, Charney still has a job.”

Indeed, Staff was a “last chance lost” as American Apparel continues its downward spiral.

Enter The Money Guys

Now the money guys are circling. Lion Capital is demanding payment of its $10 million loan at 20% interest. Following his ouster by the Board, Charney requested New York investment firm Standard General to do a financial deal, which he hopes will be a mechanism to reinsert himself back into the business. And I guess Standard General believes there’s still a viable business that if turned around, could end up being a smart investment.
Standard General’s deal with Charney provides an immediate infusion of $25 million to shore up American Apparel’s financial mess, including repayment of the Lion Capital loan. Charney gets to keep a 43% share in the company but relinquishes his ownership control to Standard General. His fate for returning in any capacity to American Apparel, including reinstatement to the Board, is pending an investigation into his conduct and alleged wrongdoings. The deal also includes a commitment to continue manufacturing the apparel in the US, which has been a strong marketing position for the brand from its inception. The Board will be recast and, amazingly, Charney will be a paid consultant during the investigation period.

My Advice: Dump Charney

My final perspective amidst the cacophony of the media storm around this dirty business and dirty joke is one of disgust. Lion Capital and Standard General as well as all other funding sources that have thrown money down this cesspool ought to have their heads examined. I’ve been around long enough to know that most investors, no matter how deeply they analyze companies, don’t have a clue as to how businesses are run. The “numbers, the numbers, the “numbers” is their war cry. At the end of the day, it’s not about making a better America, about creating real value, or about improving the economy. It’s about making money.

Okay so be it. We live in a capitalistic economy. But from day one when Dov Charney luckily hit on a hot idea, all anybody with any common sense had to conclude was that it was not ever a question of whether American Apparel would collapse under his ineptness. It was only a question of when.
And now that the end is near, it’s equally incredible to me that Charney is being kept on on as a consultant, or even as janitor, as he so flippantly suggested to the press. Whatever his capacity, he has demonstrated from American Apparel’s opening day that he is not only an abusive micromanager, but also incapable of sustaining profitable growth.

Regardless of the outcome of the current investigation, if the American Apparel brand has any chance of being turned around, I advise the Board: Open your eyes and dump Dov Charney. Now.

The Coming Crash of Michael Kors…Take it To The Bank

MK_Blog_graphic-01Michael Kors, the brand, is becoming ubiquitous, and that’s the kiss of death for trendy fashion brands, particularly those positioned in the up-market younger consumer sectors. Its distribution is racing towards ubiquity, wholesale and retail (online, its own stores, outlet stores and internationally). Even worse, a rocket-propelled accelerant to ubiquity is its expansion into multiple product categories and sub-brands, so they can compete at all price points. Some would argue all of those segments will simply end up competing with each other, thus cannibalizing the top end of the spectrum. [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.

Malls are the New Anchors…

Robin_Mall_blog_finalAnd the Internet is not the Only Culprit

A lot has been written and spoken recently about dying malls, my participation included. Well, here’s another one. In the middle of this protracted conversation, I discovered an interesting irony. As originally defined, the term, “mall anchor,” is now an oxymoron. Major retailers defined by mall and shopping center owners as “anchors” for their ability to generate traffic, now feel as though they are literally anchored to the mall, not able to cut loose as its Titanic-like host is going under. So the term “mall anchor” has now converged figuratively and literally.

With the exception of a hundred or so A malls, the B, C, and D malls are learning the hard way what they should have anticipated and acted upon a decade ago. Instead of the heavy dependence on their anchors for generating traffic and profitable growth, mall developers should have realized that nothing stays the same forever. As the Internet loomed larger by the minute, it didn’t require a rocket scientist to predict that technology would drive a fundamental transformation across the entire industry and threaten to the very existence of retailing, as we knew it.

With every mall and store in the world resting comfortably in consumers’ pockets or in their living rooms, who needs to spend the time and effort to actually go to, and shop through the mall when they can let their fingers do the walking and can shop virtually for an unlimited selection in a matter of minutes? All while sipping coffee.

Had mall owners foreseen the devastating plunge in traffic and the waning drawing power of their anchors, they would have proactively collaborated with their tenants to come up with a strategic transformation to unshackle from the anchor model. However, they didn’t. Therefore anchor positions have become an albatross around the necks of both successful retail anchors who now want a more compelling location, and the failing anchor stores who just want to get the hell out.

The Internet is Not the Only Culprit

While the Internet, rocket-fueled by the smartphone, has been the big disrupter, many malls have become irrelevant aided and abetted by three other major drivers:

1. Millennials Are Replacing Boomers as the Largest Consumer Segment

Aging Boomers, the largest consumer group ever, are retiring or starting to die off. And those among the living are downsizing, trading big homes for smaller ones, or renting in urban areas where they find more freedom in less burdensome and maintenance free apartment living. They just don’t need or want more stuff. “Stuff” expenditures for this group are now being transferred to purchasing experiential travel, leisure, and entertainment, as well as health and wellness. The Great Recession has changed shopping behavior, and whatever lesser amounts Boomers are still spending on stuff is being spent more online as opposed to a fatiguing and annoying trip to the local mall.

Millennials, who are replacing the Boomers to become the largest consumer segment (projected to account for about 30% of all retail sales by 2020), are also shaping a different lifestyle. Currently about 80% of the US population lives in urban areas. That number is growing due to Millennials preference for urban living, further influenced by the fact that many cannot afford to buy a home. Some are burdened with paying down school loans, and many of them still struggling to find decent paying jobs commensurate with their college-grad degrees. So renting an apartment is more often than not, their only choice.

Other lifestyle characteristics of this generation do not bode well for the future of massive suburban malls and shopping centers. Less is more for Millennials, and quality of lifestyle is desirable over big quantities of everything. Smaller, intimate and interesting environments trump giant stores and massive choice. High-tech and even higher-touch experiences are requisites. Ostentation is eschewed for the understated. Special-just-for-me, highly personalized brands beat out over-exposed badges of luxury. And social gathering places don’t always need physical spaces. But when they do, these places are not going to be impersonal, mega-scaled shopping centers.

Millennials are shopping differently, largely due to the fact that they were born into, and are using the full empowerment of the Internet and technology. They continue to accelerate their use of the Internet, fueling its double-digit growth rates. Therefore the shopping mall, unless it has a compelling enough reason for these young people to hang out, is being replaced by local grass-roots gathering places where the Next Gen can be with their friends to shop as well as work on their personal projects assisted by their smartphones and MacBook Airs. Mall-based teen specialty brands are struggling because they haven’t changed their models and store designs accordingly.

On the other hand, if Millennial shoppers do seek a more mall-type experience, they prefer clusters of smaller, freestanding stores in local neighborhoods or in mixed-use “village lifestyle centers.” These new public plazas offer a more compelling social and community experience, with streets of shops, outdoor cafes, restaurants, movie theatres, bakeries, and the like. Developers are keyed into this seismic shift, as many of these villages are designed with offices or apartments located above the shops.

2. Cash-Strained, Lower Income Consumers

The rich are getting richer. The A malls that largely cater to them will likely survive, although, they too, must elevate the shopping experience. However, many of the B, C and D malls catering to lower income consumers, many of whom are getting poorer, will either close altogether or be repurposed as walk-in medical clinics, health and wellness centers, video game complexes, movie theatres, etc. These cash strained consumers are reducing the number of visits to the mall to save on gas. At the same time, the dollar stores opened thousands of small, freestanding stores in lower income neighborhoods, more accessible and convenient for these paycheck-to-paycheck shoppers. Furthermore, Amazon offering rock bottom prices on just about everything, has stolen huge share of market from all the brick-and-mortar discounters serving this segment.

To throw more fuel on the fire that’s burning up mall traffic, both Walmart and Target are fighting back to regain some of their market share moving away from the mall and accelerating their small-store neighborhood strategies to compete with the dollar and convenience stores. The big-box guys are also aggressively increasing their omnichannel capabilities to better compete with Amazon.

Two other culprits are JC Penney and Sears. They are anchor tenants in roughly half of the mainstream US malls. The tale of these two retailers is not a happy one. JCP is struggling to right its ship after losing roughly a third of its business, which will require them to close many of those mall locations. Sear’s tale is one of a slow and painful death (in my opinion), which means they will ultimately close or sell the locations they own. Whatever small amount of traffic these former giants are still generating for the malls will continue to decline.

3. Outlet Malls On Fire

As retailers from luxury to mainstream continue in the value race to the bottom, in which price has become the weapon of choice, outlet stores are actually just another ruse to discount. Since the overhead for running these operations is much lower than full-line stores, the opportunity for faster and more profitable growth is intoxicating for all retailers who have been drastically slashing prices in their full-line stores, thus decimating margins.
Saks Off Fifth, Nordstrom Rack, Bloomingdale’s The Outlet Store, and Neiman-Marcus Last Call are all aggressively opening new outlet stores while they have few, if any new full-line openings planned. Even mainstream Macy’s is opening an outlet, and will probably find that it’s a highly-effective distribution channel for new growth. Just by example, upscale Coach generates 70% of total revenues from their outlet stores. Chico’s, Gap, even J Crew, are all opening more outlet stores, along with many others.

Of course, the elephant in the room is how this type of discounting is going to have on the credibility of the brands over the long term.

What’s an Anchor to Do?

If you happen to be a retailer “anchoring” dying malls, you need to determine how you can get the heck out of there without paying huge penalties. Then craft a new, smaller neighborhood store strategy that can be freestanding or as a part of one of the new lifestyle “villages” mentioned earlier.

And if you’re one of the dying mall owners, you have to figure out how to repurpose your space or simply close it down entirely. If you do, please take it down with the wrecking ball. These abandoned malls with their piles of cracking cement, broken windows, and huge empty parking lots, are horrible blights that devalue the whole area.

Repurposing examples abound. A laundry list of ideas: walk-in medical clinics, health and wellness centers, video game complexes, bigger Cineplex theaters with more Imax screens, university extension schools, 3D printing centers, gun ranges, aquariums, gyms, go-cart tracks, maker faires, community theatres, bowling alleys, day-care facilities, indoor parks, community centers and churches. And a huge opportunity; conversions to ethnic, culturally thematic malls such as the Fiesta Mall in Atlanta, totally focusing on Latino customers and all of the things they enjoy as they spend the day shopping with their families.

So the message to the anchor-store mall owners or anchor-retailers, un-anchor yourselves and embrace the revolution. Disrupt yourselves and “bite the bullet” on whatever financial hit you must take to change your business model. Quickly. As they say, “sink or swim.”

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.

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...]

Amazing Macy’s

Robin-Macys-illo_Rd5Not Just a Miracle – Not Just a Department Store

While JC Penney, Kohl’s and Target struggle to regain their “mojo,” or better put, to save their butts, Macy’s seems to be mojo-fueled and on a trajectory to be the last man standing. Or, are they simply stealing sales away from their befuddled competitors? The answer is a mixture of both.

The Macy’s on 34th Street today, is no miracle, nor are its recent positive (albeit aligned with a weak economy) financial results. It’s just the result of the strategic vision and methodical, complex tactical implementation of CEO Terry Lundgren and his five-star team. The store is a shopper’s delight, an audio-visual stimulating experience, one special event after another, “Black Friday,” and Christmas energy every day. Their many exclusive brands are showcased in a boutique-like shopping environment, and it’s obvious that Macy’s has evolved its brands and experience for the Millennial generation, soon to be the primary consumer segment. Over time, I expect Macy’s will spread the miracle across most of their roughly 800 doors.

Department Stores’ Last Man Standing or a Different Model?

If not “the last man standing” among department stores (an apt reference to Gary Cooper in the classic film, High Noon), Macy’s clearly created a differentiated national brand that they dominate. In a retail industry that I expect will struggle for growth between 2% to 3%, at best, for years to come, in which discounting is the weapon of necessity (Macy’s included), Macy’s is outpacing the pack with its “My Macy’s” localization strategy and ongoing pursuit of a seamlessly integrated omnichannel; plus “Magic Macy’s” elevated consumer service (including new augmented reality technology), as well as its continual focus on the “experience.”

In fact, I wish they would stop calling their business model a department store. I believe that sometime in the not too distant future the terms “wholesale” and “retail” will cease to exist as relics of the past, defining business models that are ceasing to exist. And, the classic “department store” definition will become irrelevant as well.

In the second edition, of our updated book, The New Rules of Retail, (due to be released in August), we redefine retailing into three sectors: “Omni-Brand to Consumer,” Commoditization,” and “Liquidation.” The Omni-Brand to Consumer sector is best positioned strategically for maximum competitive advantage and profitable growth.

The business models in this sector are destination brands, not nameplates. These brands are highly differentiated, including unique, mentally indelible experiences. Ultimately the brand is the creator of the largest percentage of all products and services sold (if not, they exercise dominant control). These brands will then control the distribution of its goods, including the experience, on all relevant distribution platforms, seamlessly integrated, from creation to consumption.

As Macy’s continues to evolve, in my opinion, they will begin to look like the poster child of this newly defined Omni-Brand to Consumer sector.

The Future is Now

I refer back to some quotes from an article I wrote for The Robin Report in 2011 to give context to Macy’s evolution. At the time, Lundgren commented that the massive $400 million expansion and restoration that Macy’s was undergoing, would create “a modern, customer-centric shopping experience” to reflect “how a new generation of customers prefers to shop.” His next statement was the one that really caught my attention. He said, “In many cases, product will be organized by lifestyle to help customers create looks and build wardrobes across categories.”

The significance of that last statement might have gone unnoticed by many. But Lundgren’s commitment to this lifestyle aspect of the shopping experience could well have been the first “shot across the bow” of the branded apparel specialty chains, most of which have used this same strategy to steal apparel share from department stores.

I have long speculated that if the big stores could begin to organize their products and services around lifestyle it could actually provide them a huge competitive advantage, because they already trump the branded specialists with the breadth of their selection. This merchandising reorganization speaks to an easier, more convenient shopping experience without having to traverse the maze of departments and floors.

Finally, I could not sign off in that article without offering up what could be the severest blow to the branded specialists, which would be department stores rolling out their private or exclusive brands as branded specialty chains. While Macy’s did so with their Aeropostale brand several years ago without great success, I believe it was simply ahead of its time.

How About Macy’s Mini-Mall?

So what might brand-Macy’s look like fully evolved? As I said back in 2011, Macy’s would resemble more of an enclosed mini-mall, full of go-to events, cafes, restaurants, and a collection of small, branded lifestyle shops that would be leased and run by the brand, which by the way, Mr. Lundgren was recently quoted in WWD declaring he’s “all in” and “I’m a believer” in the leased shop concept. Macy’s, the brand, would be the destination, with a mini-mall full of experiences so compelling that consumers would leave the Internet or any other store that just sells stuff.

One thing I am sure of is that even though many of Macy’s initiatives will result in echoes of its origins as a kind of a grand palace, the future is now for the department store sector. Macy’s is certainly providing a roadmap for transforming the department store into a more relevant 21st century model, defined by us as the Omni-Brand to Consumer model.

And, at the end of the day, they can call the model whatever they want, as long as consumers connect with it the moment they hear it.

How about, well … Macy’s?

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...]

Social Networks – Flipping Traditional Marketing on its Head

FINAL-image-for-Robin-Article-to-run-5-7

Attention all: You are no longer in control of your marketing messages.

How many times, and in how many ways, have we declared that today’s consumer has total power over all of commerce? Hundreds? Thousands? I don’t know, but certainly enough that if there are any of our readers who still don’t get it, they need a brain transplant.

Just as retail, wholesale and service business models are being driven by consumers’ shifting desires, these same dynamics are driving an equally fundamental transformation in the communications, advertising and media industries.

Permission-Based Marketing

Reflecting consumer behavioral shifts, technological advances continue to expand an infinite number of distribution platforms for communications, products and services that can literally follow, and access, individual consumers 24/7. Unfortunately for marketers, technological innovations have allowed consumers to block what they don’t want entering their “personal spaces;” and also enable people to invite or grant permission to precisely what they do welcome. [Read more...]

Millennials: Double Trouble for Retail

Robin Millenials_FINAL imageFor those of you out there who think the Millennials are the “next big thing” for your business, think again. They may not be as big as you had hoped. And for the likes of the three “As,” (A&F, American Eagle Outfitters and Aeropostale), and others who primarily target this cohort, you better start strategically repositioning your brands and your messaging to adapt to the “double trouble” of dying malls (which used to be huge teen hangout destinations) and Millennial shopping behavior, which is shop-until-you-drop…but don’t buy.

As I pointed out in my recent article The Great Retail Demassification, there are several reasons mall traffic is suffering, directly impacting store traffic, particularly in the B and C malls:

  • Every store in the world is literally in Millennials’ pockets; they can hang out with their friends, sip lattes and shop online – all at the same time. So why spend all the time and effort traveling to, and traipsing through, big, old, largely boring malls with a limited number of cool stores that don’t offer any great experience in the first place? [Read more...]

Amazon Acquires Sears

amazon-sears_Rd.1If you have any doubts, just wake up and think about it. It’s a win-win for both Jeff “Get Big Fast” Bezos and Eddie “Take the Money and Run” Lampert. Amazon gets roughly 2400 US stores (or “buildings”), overnight (1300 Sears, 1100 Kmart). The acquisition becomes Bezos’ answer to omnichannel and the proven revenue synergy of consumers’ ability to shop online and off; the convenience of proximity for pick up and returns; and facilitation of even greater delivery speed. So just as Walmart’s 4500 stores double as distribution centers, so would Amazon’s acquired Sears/Kmart stores.

The real estate assets would be the primary reason for Amazon’s interest in acquiring Sears Holdings. However, there are several other valuable assets and operations, which Amazon could enhance and grow. [Read more...]