If It’s a Race to the Bottom, Then Who Really Wins?

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\"TheTo put it mildly, the current retail climate, both meteorogically and financially, has to be one of the most dynamic we’ve ever seen. The forces of nature, distribution, and global conflict have created a new consumer behavior without historical precedent.

Seventh Avenue these days looks like it’s returning from the dentist but without the benefit of Novocain. And to make it worse, it knows it has to go back tomorrow and do it all over again. Like the HBO series “The Leftovers,” the consumer seems to keep disappearing.

Blockbuster Vs. Door-Buster

There is nothing traditional about American retail anymore. Nimble international retailers are grabbing market share, and powerful online companies are taking people out of the malls. That’s where all “The Leftovers” have gone: to the other side.

Add to this a weak Euro, a rapidly warming climate that is costing the industry hundreds of millions of dollars in lost sales and traffic, and the realization that the situation in the Middle East is not just contained to that region. All of these issues in collusion have the makings of a Hollywood blockbuster rather than a door-buster for U.S. shopkeepers.

I’m not saying the world is ending. I actually see it as a new world just beginning. Canadians (which I am) are an endlessly positive people, even if we say “sorry” too often. We are practical and resourceful, which is why we invented ice to play hockey on…or so I was told.

It is a stressful moment to be sure, but my definition of stress is that it is the anticipation of uncertainty. The only way to relieve stress is to be certain of your goal. We can’t control the circumstances of the world, but we can control how we respond to, and manage ourselves in the face of those circumstances.

Emotional Gross Margin

Coined by the fearless leader and editor of “The Robin Report,” Robin Lewis, “The race to the bottom” is now the perfect catchall phrase for the dynamic we see at play now. (Full disclosure: I have valued Robin’s work for over 25 years, and think he is a complete visionary.)

The phrase not only refers to a price proposition, but also to the value proposition that I call “emotional gross margin” or EGM. EGM is the intangible value when you appeal to a consumer in ways beyond the product value. When you dilute your EGM, all you have left is a commodity. And everyone has commodities. The reality today is that we have created an experience for the consumer that is contributing to the dilution of an emotional gross margin. The diminishment of this so-important value proposition is creating an unending cycle that feeds on itself, further diluting the emotional connection.

You can now buy clothing for less than you pay for pizza at Dominos. The commoditization of apparel has finally hit its stride. Clothing is now the new fast food. And we digest it just as fast, or even faster.

At the same time, the consumer is smart enough to know that the price tag on a garment is simply a placeholder for an inevitable discount. By price promoting in this way, we have created an environment that has no end game and is jeopardizing our customers’ trust in our brands, it’s a game of chicken and we always blink.

High, Low, High, Low It’s Off To Work We Go

Of the top 10 retailers in the world (and not just apparel), none are devoted to maintaining a constant high-low promotional cadence — except when there is a legitimate seasonal motivation to do so. There is a growing market share of brands that offer consistently low prices; the wave increases every week, and will continue to do so.

Honesty has always been the best policy, and this is the perfect moment to re-group and assess what our emotional and financial values really are. If you want to be a low-priced brand, then own it and be proud of it. It’s impossible to stand for value and race to the bottom at the same time.

50% Off Doesn’t Necessarily Mean 50% More

The new price-decrease reality for the apparel industry is that growth may only be in unit sales and not in revenue. Population growth (in emerging economies) may make up for some of the revenue losses, but at the end of the day the deflationary challenge that we all face is going to catch up with us.

Grey Thursday/Black November

It’s not that people aren’t spending money; they’re just spending it in new ways. They are buying experiences: restaurants, travel, home goods and electronics, of course, are all doing well.  For many, watching content on any of our screens is a shared experience. Ditto shopping together online. The screen, regardless of its size, is our new digital fireplace.

Let’s face it, shopping for clothes while being hit on the head by a falling 70” HDTV on Grey Thursday (as I call Thanksgiving) doesn’t sound fun. And now we have Black November given the length of the promotions. But rather than being surrounded by 5,000 people falling over each other, wouldn’t you rather be lying in bed watching “Love Actually”? And you get to have Hugh Grant all to yourself.

Sales Per-Square-Pixel

It\’s no secret that Amazon is the digital bull in the brick-and-mortar china shop. Their sales per-square-pixel are increasing dramatically every year. Jeff Bezos completely disrupted the book publishing industry, and he is on his way to do it in apparel. Amazon is projected to be the largest clothing retailer in the U.S. in 2017. But keep in mind that the Internet still only accounts for under 10 percent of retail sales, so off-line retail still has first mover advantage to create a compelling environment for the customer who still likes to get physical.

Primark’s’ rollout of eight stores in the Northeast and then nationwide over the next 12 months presages another dramatic shift in the race to the bottom, which may actually be the finish line. With prices 40 percent lower than H&M, Primark is a market maker rather than market player. It\’s clear the consumer is responding. Buy offering the lowest prices and contemporary styling; Primark has become the largest seller of apparel in the United Kingdom within a very short period of time.

Apple Stores never put their products on sale, and they have the highest sales per-square-foot in the world. Apple is the world’s most valuable brand, and its cult followers believe it’s the most loved. The EGM of Apple is through the roof, and although it’s more expensive than other similar products, people around the world still line up overnight for their product launches.

In the Blink of a Dinosaur’s Eye

Things change. What we once took for granted is challenged. The speed of change through the power of technology is breathtaking. But we are a very adaptive species. In the blink of a dinosaur’s eye, new businesses are disrupting established industries, unlocking new value streams that were hidden right under our noses.

In five years, Uber has become the largest transportation company in the world, and they don’t own one vehicle. Airbnb has 2,000,000 properties in its database, and doesn’t own any of them.

Innovation is critical to growth, and innovation creates growth. This synergy is often forgotten, yet is a critical component to any company’s success. But growth doesn’t necessarily mean using more resources; it’s better allocation of them. The growth of Airbnb has been achieved by using resources already in place. Google doesn’t create content, it simply organizes it efficiently. It’s the ultimate sharing economy.

New York to Space in an Hour

I recently launched a line of bow ties with Bill Nye (yes, the Science Guy). Throughout our numerous conversations on the challenges of climate change he uses a reference that always sticks in my mind.

Try this out. If there were a highway to space, and you drove a car on that highway at 60 mph, you would be in space in an hour, and the edge of our breathable air in only five minutes. Think about the distance to the outer edge of our atmosphere as the equivalent of halfway to the Hamptons from New York. The breathable atmosphere is the distance from Central Park to Wall Street.

We live under a very thin canopy with limited resources that we need to use wisely and carefully. Unending growth is not sustainable and neither are the resources we have to accomplish it.

At the end of what has been a tumultuous year, as we look forward to 2016, let’s take a pause and really examine the best use of the resources we have and how we can use those to their maximum advantage, for ourselves, and our consumers. Before we put everything on sale again, let’s think first about the emotional value of our brands and how we can maximize it.

As the saying goes, you can’t put a price on happiness. And if happiness has no price, then it can’t be marked down. So let’s take the signs down and reinvent how to make people smile again.

The race is on.



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