Strategy and Operations

Five Tools to Survive the Retail Apocalypse

Zombie apocalypses are not so good.

But many would argue that retail is right in the middle of one – Patient Zero has been infected and a nasty zombie virus is about to spread at an exponential rate. This zombie virus has a name: Amazon. Amazon is about to leave years of legacy retail hubris undead and wandering aimlessly down an old dusty road in mind-numbing purgatory.

So, we need to be ready. We need to prep our safety shelters quickly with the tools necessary for survival. Here’s hope: There are five essential tools every company needs to survive.

1. Data

Data is the heart of the new flywheel of retail. Data need to be every CEO’s #1 priority. Now here’s the rub — how many current retail CEOs ever talk about data as their #1 priority? (cough) Zero. Or, at least, not many.

Legacy retail has always been about predicting trends, knowing what the consumer wants before he or she tells us. These are skills that, like a baseball scout in Moneyball, are often times incredibly subjective. Soft data.

Mickey Drexler, the former CEO for Gap, Inc. and J. Crew, was objectively the best I have ever personally seen at this subjective skill. But now even he admits that he underestimated the impact technology would have on retail.

Technology has changed the game. Small “p” products are so readily available now that the subjectivity of “picking” no longer wins the day. Data wins the day. Data tell us what trends are emerging, what is out of stock in our homes and even the colors we wear that will generate the most likes on Facebook. Data analytics have a greater probability of success than all the subjective sages we grew up with and held in such high regard.

Getting behind a data initiative isn’t easy though. There are two key efforts that all retail CEOs need to support: 1. Product Data; 2. Cloud Enabled Point-of-Sale Systems.

  • First, Product Data (big “P,” not small “p”). Product Data is the steam that powers the locomotive. It isn’t sexy. It isn’t glamorous. It is enough to drop my kids into a dead sleep in about two minutes. But it is vital.
    Every piece of information about every product, every fixture, every store schedule, and every webpage needs to be recorded. Once that happens, a brand or a Product (big “P”) can sit atop a powerful pivot table, where everything is at a retailer’s fingertips.
  • Second, cloud point-of-sale systems (henceforth referred to as POS) are the enabler. If Product Data is the steam that powers the locomotive, then cloud POS is the locomotive itself.
    Every retail experience will soon behave like a multiplayer video game. The customer will be the main player and everything around that customer will function real time, interactively, like non-player characters in the game. Each of these non-player characters will be programmed to read, react and respond to the in-the-moment needs of the main player, the customer.
    Cloud POS brings this world to life by making one’s mobile phone a remote control and data recording device for physical exploration of the world. Every interaction — whether with products, sales associates, fixtures, etc.– can be recorded, manipulated or analyzed for the customer’s benefit via cloud POS.
    Product Data and Cloud POS are the enablers of this world. If your company doesn’t have these initiatives already running with a full head of steam, your company will lose. Seriously, I’m not joking around on this one.
    Still not convinced? Amazon’s visual recognition scan technology is a great example of just how close this game world is to becoming reality. (video demo here).

2. Shedding

The dynamics of the brick-and-mortar business model — from working capital to labor productivity on down through revenue generation — just do not compute anymore. Online sales are degrading margins and fewer people are coming to physical stores.

The “why” in why you come to a physical store has changed. The “why’s” of convenience, inspiration and immediate gratification are no longer operative. The only “why’s” today are tactile, delightful experiences and the memories of being somewhere special.

So, just like a snake, retailers need to shed the skin of legacy brick and mortar and design experiences, starting from the ground up. Completely FRESH.

They need to try completely new retail ideas, under new brand umbrellas; in fact, umbrellas that have never existed before. Then they need to integrate these new ideas into their existing footprints as fast as they can. These new ideas become their fresh snakeskin.

It seems pretty straightforward, but most companies do not do this. Instead of untethering themselves from their legacy mothership operations and realizing that their already-existing footprints are large barriers to entry, they continue to languish and waste time investing in non-impactful incremental ideas that sit atop an outdated business model.

Rather than think like a startup or like a snake as the analogy suggests, retailers remain content to act like a different animal, past their-prime-peacocks, preening and strutting their already well-worn plumage like they don’t have a care in the world. This mindset already got the better of Toys R Us and it likely will get the better of others soon, too.

3. The Customer as Point of Distribution

Nike is selling on Amazon. Thrive Market is, well, thriving. BuzzFeed is making its own products. And, my personal favorite, Lavar Ball, even tried (albeit unsuccessfully) to give Nike the middle finger by taking his son Lonzo Ball’s sneakers direct to consumers on his own.

We are now in a world where retailers’ private label brands can and should be offered anywhere, just like CPG products. The days of private label living solely within its retailer’s four walls are over. And by the way, do CPGs still need retailers? Maybe. But maybe not. Direct to consumer with the customer as a single point of distribution is the future. Take Weber grills. With social media and mobile app technology, every mom or dad could become a Weber sales associate, and the backyard could become a Weber sales floor. It may sound like a stretch, but it’s worth thinking about.

My favorite point-of-distribution example? When was the last time you studied the toilet paper aisle? Hopefully, never, because doing so is really lame. But lame is my name of the game. The toilet paper aisle is a hallmark of inefficiency. It takes up a large amount of selling space for a small number of SKUs, and it’s an operational headache for most retailers. But it doesn’t have to be. By thinking omnichannel and rethinking how digital touchscreen interfaces can stand in for physical displays (a more efficient and effective display solution), retail floors can be repurposed to celebrate the more meaningful tactile and social interactions. And these emerging digital interfaces could be put anywhere — in hotel lobbies, apartment buildings, on our TVs, and, dare I say it, even on Alexa – creating entirely new points of product distribution in the process.

4. Supply Chain

Supply-chain capabilities come down to one simple question: For any given point of distribution, do products need to be ready-to-ship and/or ready-to-show?
Ready-to-ship means products are packed for efficient delivery to a consumer’s doorstep. Ready-to-show means products are packed for efficient delivery only to a retailer’s floor.
Retail analyst and critic Scott Galloway and others argue that the tipping point for product category e-commerce penetration is 20 percent. Categories like electronics and toys have already hit this tipping point. Other categories, like home furnishings, are well on their way as well.

So, companies need to move quickly and start adjusting their supply chains to ship or to show based on their customers’ purchasing preferences (some categories may even require both). They need to ask questions like, “Should I start to ship products as single units or via cartons? Should I send my furniture to stores via flatpack so I can ready it for customer pick-up and for ship-from-store?” If retailers aren’t answering, yes, to these questions for product categories that have already approached 10 percent penetration, then they are likely still shipping only to show and, therefore, severely behind the eight ball.

5. New Partnerships

The final tool in the toolkit is new partnerships. I deliberately do not mean acquisitions. To the contrary, acquisitions almost made my list of 10 Signs from an Earnings Call that a Retailer Is in Trouble.
Acquisitions are the “pray to god” equivalent of getting through the zombie apocalypse. For example, Joe or Jane CEO is sitting on cash, doesn’t want to admit that he or she is over his or her head, and so he or she does the proverbial, “let’s swing my big you-know-what around and buy something,”

Because Joe or Jane CEO is powerful.

Admittedly, acquisitions can work (Amazon, Facebook, et al.), but if acquisitions are done willy-nilly, they risk destroying value in both companies, exacerbating the problems within the apocalypse.
A better plan of attack is to think outside the box and to ask questions like, “Could 1+1= 3? Could Mail Boxes Etc., KinderCare, food trucks, gyms, Craigslist, Tinder, etc. create new unexplored retail opportunities within physical spaces?”

Answer: Absolutely.

People do not have a physical place to go for Craigslist exchanges. They do not have a safe physical rendezvous to meet a Tinder date. They do not have an easy way to return their e-commerce purchases in a physical space.

These exploitable pain points are all opportunities because pain points actually lead to value creation. Ask me if I would rather be in the aspirin selling business or the vitamin-selling business, and I will answer the aspirin business every time because you can live without vitamins. You can’t live in pain.

It is time for retailers to start addressing pain with aspirin-like partnerships.

Closing

This survival toolkit list is clearly slanted towards legacy brick-and-mortar retailers, but it is also applicable to e-commerce players and CPGs looking to go direct-to-consumer. Actually, e-commerce pure plays and CPGs probably stand a higher probability of success in capitalizing on the list. They are not burdened with the debt of decades-old technical systems, operations, architecture and culture, like the legacy bricks players are. All that stands in CPG’s way is time and financing.

So, wake up brick-and-mortar retailers! It is time to get your you-know-what together, and leverage your strong capital advantages. You need to disrupt yourselves before you unwittingly give a leg up to pure plays and CPGs. Take charge and create a breeding ground for a new competitive, evolutionary marvel that is inoculated against the Amazon zombie virus and you can create something valuable that is better than anything we know in retail today.

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