For over the last five years, since I wrote “Last Retailer Standing Relevant Leadership Relevant Brand”, I have often been interviewed and quoted in the media about the plight of retailers, their strategies, operational plans and the leaders who run the organizations. I also have a unique perspective because I have sat in the corner room and have had responsibility for growing and building retail brands.
A few months ago, I began writing a new book on Disruptive Innovation. I had one fundamental question, what will it take for an old economy business to transition into the new economy? The result, an incredible amount of insights.
The news on the retail front has quite simply been not good. Retailers are closing or filing for bankruptcy protection. I thought I would try to add some context to the conversation given this year alone beginning with the more recent news of Toys R Us, Sears Canada, Gymboree and Payless shoes just to name a few large retail chains who are looking to save themselves from extinction.
While writing my second book I came up with a symbol to define four attributes, I call them “A4”. Very simply these are the four attributes that I believe fuels consumer confidence in choosing to shop more online than they do from brick and mortar.
Before I get into the detail of what the A4 attributes are consider this. Many organizations have embraced some form of transformational strategies and initiatives to turn around the course of their business. According to a number of statistics at least 70% of them will fail. That means that even if a retailer emerges from bankruptcy protection the likelihood that they will recover from their previous challenges with a new plan is around 30%. In addition, once a brand has had the public relations nightmare of announcing that they have filed for bankruptcy protection, stalking horses and consumers are waiting for the fire sale. There is a great deal of damage control that must take place to redeem consumer confidence in these brands, which makes recovery an even more challenging task.
These four attributes are the reason why online retailers are winning and offline retailers are failing in spite of the fact that they could win this war if they wanted to. More on that another time.
The internet has made shopping so much easier and accessible. Why does anyone need to shop at a physical store? In a short period of time online retailers have been able to secure payment methods, improve their quality, sources of supply, logistics and include brand names in their assortment of merchandise. This is because manufacturers are running out of chains to physically sell to. Ultimately shopping has become more convenient for consumers with product comparison, browsing and ordering. Online shopping has given consumers access to a wider range of products and services that brick and mortar cannot deliver, especially with the way they operate today.
Today online retailers can crawl the web and search out the lowest competitive price for similar products and adjust their pricing immediately. Interestingly although a brick and mortar retailers can spend a great deal of money on search engine optimization and digital marketing to gain footing on the list of websites, none of these efforts have led to enough sales to counter act the decline in their stores. Here’s why? No matter what anyone might say about selling online when it comes to the consumer decision making process it is about price for the best available product that meets their needs. When you couple that with access (convenience), which also includes free shipping, brick and mortar begins to lose. Many manufacturers who sell identical products to physical stores are selling it for less online. Consumers no longer have to conduct their own price matching. Brick and Mortar retailers need to find themselves at one price strategy online and offline if they want to compete.
The Attentive attribute is really about “customer experience”. There are millions of dollars being spent by retailers and other consumer companies on customer experience. Here’s the problem; most retailers have nailed it down to a few basics;
- Greet the customer
- Point out sections of the store
- Identify items on sale
- Offer to help the customer shop
The key to having a successful customer experience lies in creating an in house branded customer experience. If it’s not that your retail operations will be the same as everyone else’s following the four basics above.
Customers want a better and more personalized experience if they are going to pay you more for the same or similar product that is online.
My Own Customer Experience Offline and Online
Last year I was looking to buy a pair of winter boots and I was in a high-end department store. I stood in the shoe department with the boot in my hands, $385 for them, and I was looking for assistance. There were two sales associates and three other customers. After a couple of minutes I left went home, got online and looked up the brand of boots. Interestingly their site had the same boots for $165 less. Great! I opened an account and put the boots in the cart. I was distracted and forgot about completing the transaction that evening. The next morning I received an email from the company offering me a further discount to complete the transaction. Now the boots were $190 less, almost 50% off. As it turned out I bought an additional pair of footwear, my total cost $325 including taxes and free shipping! That was a great customer experience. I bought a brand and I got it and more at a far better price, no human interaction required.
Here’s the argument, how can an algorithm provide a more satisfying assistance and experience than an in store human experience? Simple answer, when the brick and mortar experience is weak or just covering the basics it doesn’t justify a higher price.
Welcome to the new order of shopping!
The point is that unless brick and mortar retailers are willing to unleash their employees to close the sale and provide guidelines for them to do this effectively in store, they will continue to succumb to online competitors.
The final attribute is about culture. I find that most brick and mortar retailers are too slow in adapting and in this fast changing and unpredictable business climate why are they not improving their culture? The problem is their culture is also positioned in the old economy. This isn’t about the age of the leaders that run the business. It is about the ability of the leadership of the organization to show a great deal of courage and recreate their culture to one that has the willingness and ability to accept change.
We all know that change is not easy, however an organization must learn to become adaptive before it embraces any kind of transformational changes. This is why reinventions and revitalization initiatives, to name a few, never reach their full potential.
To create an adaptive culture CEO’s need to be more like emergency room doctors who have only one job; stabilize, diagnose and provide the patient with treatment. Once that is done you can get on the path to recovery. If you try to run before you can walk again, the outcome will not be good. That is why 70% of transformation initiatives fail!
Can an old economy retailer enter the new economy? It all depends on how committed they are to change and their willingness to see through a major cultural change, without that first in place, all other initiatives are ill spent efforts.
George Minakakis is the CEO of Inception Retail Group. Having led multiple retail chains domestically and internationally as a Country General Manager and Chief Executive Officer in Canada, USA, China and Hong Kong. He is also frequently interviewed by the media for his leadership experience and insights on the consumer sector.