The Great Department Store Meltdown? Or a Bumpy Transformation?

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\"\"It’s happening. And even though the chatter about traditional retailing’s disruption has been going on for several years, it’s like all of a sudden, OMG, it’s upon us. Is it the great department store meltdown, as Macy’s, Kohl’s, Sears and others announce store closings and massive layoffs? Or is it just an orderly and measured rebalancing of the business model, which includes less physical traffic as it moves online?

No it is not orderly and measured. It simply couldn’t be. It’s messy, uncertain and dangerous. And it’s not just the rebalancing of traffic online. This period could be analogous to early 1900s buggy manufacturers predicting, and then evolving into the world of the automobile. Yes, we all felt the tremors of the retail seismic shift even before the Great Recession. Macy’s, Bloomingdale’s, Kohl’s, JC Penney, Nordstrom, Neiman Marcus, Saks, Walmart, Target and many other legacy retailers began to react to the shifts. The transitions have been varied, with various degrees of success. But all retailers have been investing heavily in perfecting the omnichannel model, in re-imagining a new, more contemporary shopping environment in line with a younger, digital savvy consumer culture. They’ve been innovating, testing, bringing in new product categories, even outside traditional retail brands, both compatible and some even competitive.They’ve flirted with the concession model (leasing space); some already implementing it. And they have been systematically cutting costs and closing stores in a more discrete manner, compared to these recent dramatic announcements.

And yet, quarter in and quarter out, retailers have all struggled to find any inkling of robust growth. The tremors and the struggle to stay alive just seem to get worse.
Exacerbating the struggle for growth, while making huge investments in change, is the continual growth of the imbalance of too much supply and too little demand. So while all of the positive moves are supposed to attract more traffic, thus sales, the supply/demand conundrum is a force of its own, generating and spreading more stuff across a marketplace with tepid demand.

This, of course, forces the counter-productive path of least resistance: price promoting and discounting of all types — including the opening of outlet and off-price stores. The insane “race to the bottom” (first coined in The Robin Report) not only adds to the over-supply, it accelerates price deflation and devaluation of the nameplate brands.

And yet, the conundrum continues. Discounting is necessary just to stay afloat. Well, as whomever originally said it, the definition of being insane is when you continue to do the same thing over and over again, expecting a different result.

The $64,000 question is: Will retailers transform their models to become the must-go-to awesome communities (my buzzword for social gathering places) before their cost-cutting, discounting and devaluation melts them down and shoves them out of business?

Take the Bumpy Road, Faster

Let’s be frank: this messy, dangerous, painful period is due to the damn internet, Amazon, millennials, too many stores, too much discounting, opening outlet and off-price stores, bad weather … and blah, blah, blah — all of the above plus more.

And it’s because of the damn antiquated model itself. The department store, as defined over a century ago, and as it still occupies our mental paradigm, is yesterday’s fish wrap. Kaput. Last century’s big box full of stuff. And for those retailers who continue to be stuck in that paradigm — in the box — and keep trying to put new stuff into it, cheaper, even more often, and displayed more creatively, this won’t be enough. They will continue to be caught in the meltdown.

Most of the leaders of traditional retail models, both big and small, actually do understand today’s market dynamics and they are moving as quickly as they can to perfect an omnichannel model. They are also, and more importantly, re-imagining and transforming their buildings into places where people want to go to for socializing (community), entertainment, food, education, a conversation over a cup of coffee…for whatever. And mostly not for the stuff.

In fact, I wrote an article for the January print edition of The Robin Report titled: Macy’s, “Imagining What Could Be There.” This was a quote from CEO Terry Lundgren referring to Macy’s “out of the box” strategy to address 50 owned and ground-leased stores and associated real estate and property in malls not owned by major mall owners. His vision is to essentially imagine how that space might be turned into mixed lifestyle villages. As he said, “We’ll look at the land first and imagine what could be there.”

That’s great. But Macy’s and all retail leaders must move faster and more deliberately.

Maybe the focus on short-term growth and profitability has to be put on hold and redirected toward creating an authentic, sustainable community. Maybe the solution is get out of yesterday’s mental paradigm of operating a store (which stores stuff), and replace it with operating on a platform that re-imagines the physical space and what it could contain to make it a place that people actually want to go to, over and over.

That shift must be job number-one for every retailer, big and small.

Just to emphasize the point, it is not just about losing traffic to the internet that’s bringing traditional retailers down, because we know from research that the majority of consumers, even among millennials, still prefer shopping in the physical world. However these customers love more intimate, personalized, sometimes educational, exclusive-feeling and experiential places to go to. And when these consumers have a co-created experience where they proactively participate with the host of the experience — a sales associate (a human being) — it drives customer addiction and the desire to keep coming back more often, to spend more time and money. I know you’re sick of hearing about Apple and their “geniuses” engaging and educating the consumer, or Lululemon’s yoga classes and the community they provide, but they are quick and easy examples to understand. They are communities of co-creation, as is Starbuck’s.

Think about this. Amazon obsesses over “the last mile,” a distribution strategy of achieving a cheaper and quicker final delivery to the consumer. That is the final “link” in their incredible distribution model. As I’ve said before, the “last mile” in the physical retailers’ value chain, and the final and most important link is the sales associate. They can co-create and personalize the experience with the consumer. Nordstrom always comes up as the poster child for engaging and personalizing the “client’s” experience. But even they know it can always be improved.
This also suggests that the big box and department store models would benefit by transforming their space into leased boutiques, shops, restaurants, coffee shops, and so forth to become “streets” of shops. Their community would be a village of shops that are run by their owners, who are the experts of their brand or whatever it is they are selling. The experts can spend time with customers, educating them, conversing, entertaining, and co-creating a wonderful experience.

This can be the traditional retailer’s enormous advantage over Amazon and all the internet players. The legacy brands have a head start, and they should not waste it while Amazon and the digital others start opening physical shops.

As business strategist Kate Newlin so brilliantly wrote, we all have powerful and memorable personal experiences. I can confirm this with my own experiences. My local butcher knows me by first name, chats with me, tells me about the best cuts of meat and why his source is the best. I taste a sampler of a new cheese he’s bringing in to the shop. I know most of the other customers. It’s a community, as is my wine shop, the owner of which tells me all about a new vineyard in Sonoma and why I should try their cabernet. I know I am paying a lot more for being so engaged, and I do not care.

If that doesn’t send a message, I don’t know what will.

This is the future of retail. I’ve already said it too often and in too many different ways, at the risk of readers becoming inured to it. But I will risk it again. The future is the “long tail” of an infinite number of finite market niches and shops.

And these finite niches can exist in a village, a community under the brand name of Macy’s, Bloomingdale’s, Kohl’s, JC Penney, Nordstrom, Neiman Marcus, Saks, Walmart, Target, and on and on. They can also build smaller, personalized communities in neighborhoods across the country. The future is in not just about conducting a transaction, but rather about establishing a meaningful connection.

Please don’t just imagine this. Just do it — quickly.



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