Retail As a Falling Knife
Sam Zell recently described retail as a "falling knife" that hasn't hit bottom yet. I have to say I agree.
More like a failing knife, however. What do I mean? Simply, most retail has failed consumers.
How so?
By succumbing to any number of turnaround artists, new debt structures, and advancing real estate commitments as the answer to flagging growth.
By stubbornly resisting the shift to digital - it will be a priority "next year” - 20 years into the eCommerce revolution.
By insisting on ever-increasing promotions as the only way to attract consumers.
By not seeing the brand promise through their consumers' eyes.
By denying the essence of the brand that consumers recognize.
By not recognizing that human talent is the key to any transformation. Without it, it's just a press release.
By not embracing "bet the company" thinking, instead of relegating any transformational initiative to the corporate development office.
"Not at the bottom" in terms of the share losses to online is how he characterizes it. This is why I laugh a little at all the predictions of which failing nationwide retailer Amazon will buy next. As if Amazon needs to strap a boat anchor to its leg to accelerate its growth. Not a winning formula.
Gerry Marrone had a LOT to say in response to my initial LinkedIn post. I’m sharing our conversation in parts here:
I have to say - there is a lot of opinion on here - but I don't see anyone who has actually had a career in retail. Amazing how easy it is to have such strong opinions looking in from the outside. I'd like to challenge you on a couple of your points: You state "most" retail has failed - in your opinion who hasn't failed? Many retailers have not "stubbornly resisted the shift to digital," are there any you see have done it successfully? Speaking of digital, pre-COVID online sales were still at around 19% - meaning a whopping $0.81 of every $1 is spent at Brick and Mortar - all you are doing is exacerbating the headlines of the death of retail without merit. "Not seeing the brand promise through their consumers eyes" - can you elaborate on that? What is "brand promise" of most national retailers - Macy's, Dick's, Walmart, Target, etc.? I'd challenge that many retailers are delivering on that - since for the most part they are a house of brands, not a brand house.
My response? If you look at all the reason, it's often not "retail" in particular that's failed (by that I mean the stores). In fact, probably half my reasons only have to do with investors, Boards, and management! I wouldn't write about this if it wasn't such a common pattern of brands and management teams that fail to invest in digital initiatives and/or keep them siloed. Nordstrom, Target, and Walmart are still all standouts. Macy's problem is they are in the mid-market and failed to adapt to consumer trends. Sometimes, it's not that you aren't delivering on their brand promise, it's that their previous promise isn't as relevant as it was 15 years ago - see Bed, Bath and Beyond for example. All this to say - each of those reasons don't apply to every retailer. No one said retail was dying. I said it hasn't hit bottom. And it hasn't, as a rule.
I asked Gerry what his view is of retail today. Here’s his response:
Pre-COVID I think we were seeing a shift continuing from B&M to online - but at a controllable and predictable pace. There were certainly categories that were more accelerated (apparel). There were retailers in bad situations - mostly of their own doing - slow to progress, over inventoried, over-stored, in way too much debt and they were on the brink - but somehow could always count on getting their hands on more cash. Post-COVID the over-extended, slow to move retailers are being punished, and they deserve it. B&M retail needs to learn to change and adapt at a much faster pace than before. But in the end, when we move past COVID I believe retail will be just fine. COVID has also exposed some of the real problems with e-commerce. I don't see a world in my lifetime where B&M doesn't see 60% or more of sales.
This conversation then descended into a bit of generational fist-shaking, but with great points raised by multiple contributors. Thanks for keeping it civil and lively!
I want to highlight another question that came up in the comments section, though. Andrew Bethel kind of floored me with this:
“Maybe retail itself is dying in favor of DTC business models. Why do I need a retailer if I can buy from the manufacturer directly? Retail makes goods less profitable for manufacturers and more expensive for consumers. Where is the value proposition for retail in that kind of scenario?”
Andrew Teal seconded this thought, adding “…it used to be the retailer's sales force was the ‘expert opinion’ that the consumer relied upon to make a decision. That's really no longer the case - often I know more about what I want to buy than the person selling it - so the retailer in the middle has less value for me. There are so many other avenues other than a person in store to explain to me how something works or best use scenarios.”
Where’s the head-exploding emoji when you need it? This brings us, circuitously, back to my original question: what is the real consumer value proposition?
