The Past is Not Prologue
I feel your pain, your anxiety, your confusion. I’m just relieved it’s yours and not mine! You are in the middle of chaos, the “Wild West,” in search of the new frontier, and a future shrouded in fog. However, two things are clear. The past will be no prologue for the transformation your business must go through; and if it fails to transform, it will surely die.
The disruptive, game-changing dynamics of the Internet, all of the new retail and supply chain enabling technologies, globalization, and over-saturated markets continue to drive unlimited and instantaneous access for whatever product or service consumers desire; whenever, wherever, however and how often they so desire. The unprecedented convergence of these dynamics of commerce and a 24/7-consumer is arguably driving the greatest transformation in retailing’s history, which will require innovation and creativity; plus fundamental new strategies and systemic change in our business models to succeed into the future.
To paraphrase Charles Dickens’ opening line in his epic Tale of Two Cities, for this revolution, we are now in the most exciting of times and the most challenging of times.
It’s the most exciting because the Internet, all the enabling technologies, and globalization should facilitate faster, more efficient and effective growth in both our domestic market as well as internationally. However, it is the most challenging of times because we are right in the middle of this revolutionary transformation still figuring out how to use all of these new tools and understanding what they really mean long-term, and what future they are helping to shape. We experience chaos and anxiety daily, as technology still remains many steps ahead of our human capacity to understand and use it.
So this period is crucial for retailers and brands to identify, understand, adopt, and optimize the use of these enabling technologies to succeed going forward by creating a better experience for the customer and better businesses for the industry.
The Growth Issues
There are four major issues emerging from today’s disruptive dynamics, all of which require new strategies and systemic change in the business model.
- How to gain quicker and easier access to consumers; and how to provide quicker and easier access for consumers, both electronically and physically, preemptively — first, faster and more often than hundreds of equally compelling competitors in this over-saturated market.
- Once consumers are preemptively engaged, what is the differentiated and personalized value offering, including an experience that will win the largest share of their wallet — and will keep them coming back?
- How to identify and pursue international growth opportunities.
- How to transform the strategy and structural business model to utilize current and new technologies for a more efficient and effective pursuit of the above three issues.
The Strategic Priorities
Each of the four growth issues has strategic priorities to support transformational change.
1. “Big Data” and “Omnichannel” mastering preemptive distribution.
Both of these two rather overused terms are nonetheless relevant and driven by new technologies that are complex to understand and can be complicated to implement. The combination of big data analytics and ominchannel distribution should be understood as multiple touch points in preemptively connecting with the consumer.
In terms of big data, there are powerful analytical systems to identify each and every customer and to understand everything about them, both online and in the store. There are also new technologies that can track the consumer both outside and in the store, matching real-time behavior with transactional data. This type of information is used for precision marketing, greater personalization, and heightened interactivity with each customer in everything from cross-selling, upselling, and managing sales associates’ time and behavior, to planning assortments, pricing, layout, and presentation.
Omnichannel is more than just operating an Internet site in tandem with the store. It includes multiple distribution points. And the superior implementation of a true omnichannel strategy is that all distribution platforms must be seamlessly integrated and interchangeable for shopping, ordering and purchasing; pickup, delivery and returns. To be able to achieve this, all operational points in the entire value chain must also be seamlessly integrated and ‘un-siloed.’
The necessity for multiple distribution platforms beyond the Internet, mobile devices, and the physical store, is to be able to achieve preemptive distribution. The goal is to get to the consumer, or get the consumer to come to you, first, faster and more often than the multitudes of equal competitors, wherever, whenever, however and how often the customer desires.
Multiple distribution platforms include smaller neighborhood stores (facilitating personalization/localization); kiosks; magazines; TV; airplanes; catalogues; pop-up stores; mobile vans; and operating on other retailers’ platforms (even potential competitors). A few successful examples are Bonobos, Brooks Brothers, and Top Shop operating on Nordstrom’s platform; Sephora in JC Penney.
2. Experience trumps product, which is just the price of entry.
In over-saturated markets in which consumers have unlimited and instantaneous access to hundreds of equally compelling choices, it’s critical to create authentic experiences both online and in the store. A great example is what I call Burberry’s ‘hi-tech, hi-touch’ highly interactive experience. Their omni-channel is seamlessly integrated, both online and in the store, delivering a rich, interchangeable shopping experience: LED screens with streaming videos of fashion shows, music, storytelling, education, and more.
Traditional brick-and-mortar retailers have a competitive advantage over today’s pure e-commerce retailers when it comes to creating compelling experiences. First, they are able to compete on dual platforms, online and in-store. Secondly, they can create a 3-dimensional, hi-touch, personalized, addictive in-store experience that pure e-commerce retailers simply cannot provide. Research reveals that consumers who shop both online and in store spend two to three times as much as a shopper who only shops one distribution point. More and better experiences and more time spent shopping equals more sales and more repeat visits.
Finally, integral to building experiences that satisfy consumers’ desire for more new product, more often, (eg. fast fashion), retailers and brands must continue to shrink their product development cycles.
3. International expansion, an ultimate imperative.
The Internet and technology actually facilitated and hastened globalization, essentially integrating the entire planet, providing universal access for everybody to everything, anywhere, all the time. Thus, it also spawned a ‘one-world consumer’ so to speak, with similar interests and desires wherever they may be. Additionally, as the slow-to-no-growth, over-saturated US market continues to intensify the ‘share wars’ environment, in which growth is achieved painfully at best, international expansion becomes both an imperative and an opportunity.
Globalization therefore, transcends reference in the popular cultural conversation and actually provides significant international growth opportunities. Retailers and brands must first identify the global markets that best match the positioning of their brands with consumers in those markets, and then develop the most effective business models for competing in each of those countries. The few successful global retailers have learned that they may think globally, but operate locally, sensitive to the customs, mores and traditions of overseas markets.
We’ve all tracked Walmart’s forays into various countries throughout Europe and Asia, only to retreat due to its failure to align with cultural mores, local regulations and/or preferences in shopping behavior, products, and more. Having learned in ‘real time’ the concept of ‘think globally, act locally’ Walmart rebooted and continues to pursue international markets of opportunity, maintaining its ranking as the largest retailer in the world.
Mono-branded specialty retailers such as Coach, Gap, A&F, The North Face, J. Crew, Calvin Klein, and many others, have several competitive advantages for global expansion. First of all, these brands appreciate a high level of popular awareness throughout the developed and emerging countries, including Europe, Asia, and the Americas. Managing one brand in stores of 3500 to 5000 square feet, facilitates tight control over maintaining the integrity and positioning of the brand vs. the multi-branded department store model. The model provides much greater consumer responsiveness and flexibility, for product assortments, layout, presentation, and building a compelling experience, including a smaller more engaging environment.
Department stores and the ‘big box’ models, such as Bloomingdale’s, Saks, Nordstroms, Home Depot, and Target are in various stages of international expansion. However, given the multi-branded component of their model, launching into foreign countries is more complicated, as touched on reviewing Walmart’s speed bumps. However, these brands are also desired by consumers worldwide. Therefore, it behooves these models to accelerate the development of their global growth strategies.
4. Maximum control of the value chain.
None of the above three strategies is optimally achievable without having primary control over all operations in the value chain, whether it be wholesale brands integrating forward and becoming retailers; retailers pursuing more private and/or exclusive brands; or department stores rolling out private branded specialty chains, just to name a few. And it is crucial that retailers and brands have maximum control over the three parts of the chain that touch the consumer:
- Researching and mining information to learn consumers’ expectations and desires
- Control over the development and creation of the value
- Control of product, service and experience at the point of sale
Charting the Future
As I said, it’s both the most exciting and challenging of times for retailing. It is a transformative do-or-die period. It’s chaotic, foggy, complex, and will require your best leadership, best and brightest and most creative and innovative minds, as well as a tenacious spirit to ultimately harness the enormous power of technology and global integration which is shaping the future we are searching for, and for which the past is not a prologue.
A glimpse of the partial result of this pursuit is a bridge between the complexity of our operating systems to the human condition – giving people positive experiences and meaningful products and services, and improving the quality of life for both consumers and employees. I’ve often said that this transformation will ultimately render retailing and wholesaling extinct.
Looking forward, whomever (if it is a person), or whatever (if it is a business), creates a product, service or idea, they will manage and control such creation all the way through to consumption — because they will be able to. We call this ‘direct to consumer’ in today’s jargon; I call it “the future.” For lack of a current sound-byte term, I rename this phenomenon ‘holistic engagement’ between creator and consumer.
Think deeply about it.
Here’s to 2014 and beyond!