Department Stores: From Complacency to Urgency

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Robin Lewis, CEO of The Robin Report kicked off the program with an opening visual of a tsunami about to wipe out the entire legacy big box and department store sectors, Lewis went on to rivet attendees with one ominous chart after another: a decade of steadily declining revenues; a drop in share of total retail sales from 10 to 2 percent; entering the third year of month over month traffic decline; deflationary pricing; and, on and on. Worse, was the devastating picture of e-commerce’s meteoric rise, with Amazon front and center, having a market value higher today than the eight largest legacy retailers, combined.

Lewis left his dark remarks for the panel to discuss. He challenged them how they will continue to, address these issues to transform their businesses to win in a future that will soon be defined by totally different structural and strategic models. Lewis said, “Let’s not waste this enormous disruption. Let’s embrace it as an enormous opportunity to fundamentally change for a successful future.”

The program was moderated by Paul Charron, retired chairman & CEO of Liz Claiborne Inc (now Kate Spade). Panelists included Mike Blandina, EVP Product & Engineering and CTO at Westfield, Danny Ryder, EVP Online Merchandising & Digital Experience at Nordstrom and John Tighe, EVP, Chief Merchant at J.C. Penney.

With the Tsunami, Comes Opportunity

Charron opened by saying, “A focus on transformative change is essential, we’ve tried incremental change for 15 years and it doesn’t work. It must be bold, decisive and transformative — think cosmic change. We must evolve in fundamental ways, right now. It is not enough to be fast. That is not a 2017, let alone a 2020 mantra. We have to do different things and new things in different ways.” Peppered throughout the panel discussion were bold and even profound observations. For example, Westfield’s Blandina said, “As I said at Shoptalk, omnichannel is dead, the consumer is the channel. We are focused on the consumer as channel and a set of technologies that cross physical and digital, such as natural language. What Amazon is doing in voice can help other retailers because voice comes to the customer and it allows you to treat the customer consistently regardless where they are.” Charron quipped, “Give me a reason to visit the store, socks on sale is not a reason.” Ryder responded with “Take a merchant strategy of great products and great assortments and combine it with a great experience that is differentiated which when combined, create an experience of discovery in the store.”

Charron was unforgiving in his comments on department stores and private label, saying, “The entire private label operation should be re-purposed. A neutron bomb should be set off in the buying offices in a number of large department store retailers. These assets are not adding value for which the consumer is willing to pay. If you aren’t putting your assets to work on things the consumer cares about in fundamentally different ways today, you are not going to be around in 2020. The world will go right past you. People aren’t working smart enough, fast enough or fundamentally different enough.” Tighe countered with “We deliver tremendous value with our private label. If you look at who’s winning in apparel, there are plenty of people winning in apparel, just in different spaces, casual and off-price. Our advantage of being able to develop private label lets us bring exclusive trend product at a great value to the consumer. There has to be a reason why it’s special and worth it, otherwise private label for its own sake doesn’t matter.”

Charron also thinks retailers need to be agent provocateurs to lead the charge. He cited the work of Vittorio Radice at Selfridges (1996-2003) and more recently at La Rinascente, where he has been CEO since 2005. Radice abhors discounting and merchandised window displays while advocating for customer service and shop-in-shops. For Radice, product is secondary and retail is foremost, a meeting place. Angela Ahrendts got that message as Apple’s successful stores are designed as gathering places.

Blandina’s earlier career was in technology companies, most recently PayPal, by way of Google. The creativity and outside-the-industry viewpoint Blandina brought to the discussion was powerful. He personified the fact that although retail is populated with sharp minds and talented people, it takes irreverence to live another day in retail: there are no sacred cows. Blandina and the Westfield Solutions folks see the retail industry from the outside in, and they see their role as reinventing the entire retail network to compete with Amazon.

The Opportunity Is Collaborating

Collaboration is key. Collaborators have a chance against Amazon as opposed to 20 retailers with 20 different technology solutions. Westfield is working with other developers, Macerich and Taubman, as well as retailers, to initiate the dialogue with shoppers on social media platforms (Facebook and WeChat) to start the engagement process. Blandina said, “Throw away the apps.” Facebook messenger is a quicker way to reach customers with less friction and an authentic conversation.

The winning technology for the store of 2020 will be based on cooperation among a network of retailers and shopping centers whereby they share data (within privacy laws), use machine learning and reduce friction points for the consumer. According to Blandina, engaging consumers where they are digitally and offline, using location based technology to find them, and communicate with them with appropriate instant offers while they are in the shopping centers can be pivotal. The tech chase doesn’t end there with a strategy for follow-up and touching them again when they are home.

Blandina posited that natural language will replace touchscreens as the primary consumer interface within the next 10 years. Retailers can leverage Amazon’s learnings with Alexa and Apple’s with Siri. For example, with machine learning and natural language, Google’s home assistant will know your sizes preferences and loyalty programs, find your desired merchandise wherever you happen to be, and have it delivered within hours. And the power of this technology geometrically expands when retailers collaborate, much as they do in a brick-and-mortar setting with shared services, only now it’s with shared data.

Just How Important is the Store?

No one has really figured out how to sell apparel online, yet! According to Ryder, 80 percent of Nordstrom shoppers already know what they are looking for, having researched it online. These two platforms are inextricably woven together for the consumer on her journey, along with mobile and soon voice, the P&L should reflect that. Nordstrom is a destination for brands, exclusive brands, national brands and covetable brands. Their stores are assets — they are not just legacy. However, the aha moment was when Ryder revealed that Nordstrom’s e-commerce is more profitable than its brick-and-mortar stores.

The real magic is when product and experience unite in an unforgettable moment. These shopping experiences are the stuff retail dreams are made of and they need incredible store associates to make it happen. Ryder acknowledged that, revealing that a few years ago he was a store manager for two weeks and it was the “most humbling experience.” His vision of the future includes better compensation at the store level where store employees are creating wonderful experiences, and providing the right tech tools that aren’t a threat, but an enabler to better productivity.

Nordstrom has invested heavily in technology and will continue to do so, budgeting $1.4 billion through 2021. The company is highly regarded by investors and its shares trade at a premium to other department stores despite the more than 50 percent contraction in its retail EBIT margin to 4.9 percent since 2010. The June 8 announcement that Nordstrom is exploring taking itself private speaks volumes to the difficulties of today’s investor short-termism. You cannot grow a profitable business by making quarterly earnings projections, not to mention the amount of time senior management spends talking with investors instead of running the business.

What’s so interesting is the retail (stock market) rally and the tech sell-off that accompanied recent retail announcements.  On the same day, Hudson Bay Company announced they were eliminating approximately 2,000 middle management positions to increase speed and focus on an all-channel model combining on and off line. Investors and stakeholders know retailers have been playing it safe for too long. A new day is dawning and it full of opportunity and risk.

Retailers Not Working Fast Enough, Smart Enough or Fundamentally Different Enough

Tighe spoke about the J.C. Penney customer who comes to the store to be inspired by product and by private label exclusives that offer fashion and value. The J.C. Penney brand tells a story of great value by focusing on private label, shortening fashion product timelines 40 percent so that when the product is in the store it is trend right and well positioned against great national brands. Tighe sees J.C. Penney’s evolution in taking advantage of reduced competition with store closings as well as opportunities in home, where they are refreshing the assortment and expanding into new categories, including appliances. Beauty remains a winning strategy with more Sephoras and beauty services.

Online isn’t as profitable as brick and mortar at J.C. Penney, according to Tighe. This is no great surprise given the price points and shipping costs. The store touches 79 percent of all J.C. Penney transactions and they have a flourishing BOPIS business as the J.C. Penney customer prefers picking up in store.

J.C. Penney is on its third turnaround since Tighe joined the company 15 years ago and he spoke about finding a balance as many at the 115-year old company are resistant to change.  Charron referenced a Harvard Business Review article about transformational leaders and how important an outsider perspective is to success, free from yesterday’s winning formula and to explore new approaches. Outsider type leaders can be the agents of change retail so sorely needs. If we don’t find them, I’m afraid this tsunami will be followed by another more dramatic wave when Alibaba arrives on U.S. shores.

The key take-away from all of it was that retail leaders and mid-level management now understand that incremental change will not resolve retail’s woes.  Bigger risk taking is necessary to stay in the retail game. The Robin Report and its readers have seen the writing on the wall for years, and retailers are finally taking actions they never thought of 12 months ago.



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