December 07, 2014

All Sorts Of Retail Trouble - What Is Your Solution?

On Thursday, I visited Alderwood Mall, north of Seattle.


"Up to 70% off the Entire Store" would have been shocking just two years ago ... had it been offered the week/month after Christmas. We've come to expect deep discounts right after Christmas.

As you can see, the mall wasn't exactly stuffed full with shoppers carrying branded credit cards capable of earning quadruple points.

Those who were in the mall were treated to a veritable plethora of assorted discounts and promotions.

And Macy's was not shy about their weekend plans:

Here's something for you to consider ... if your business is healthy, you do not sell everything in the store at 50% to 75% off on the first weekend of December. This only happens during a retail meltdown. And remember, many of you love Macy's, many of you love their omnichannel strategy. If the omnichannel strategy was so effective, as most of you suggest, then why take 50% to 75% off? Do you take 50% to 75% off when your business is succeeding? Ask Apple.

And what about gas prices? You're paying a $1 a gallon less for gas. Retail sales are horrible, and customers have more money to spend than last year. Where are those dollars going?


Think this mall is suffering? Well, it depends where you shop. Here's the view from my table at P.F. Chang's ... and guess what? No discounting. You don't need to discount when the place is nearly full. Lots and lots of profit to be had. And they were turning tables at a blistering pace.

Meanwhile, back in retail, inventory is not turning, though some stores were not completely desperate ... this store had a sale banner way in the back (and by the way, this brand grew to billions in US retail sales without so much as an e-commerce website until mid-2013 ... supporting a branding/merchandising thesis as the secret to success).

How did we get here?
  • We told the customer for a decade, for a decade, to not drive to a store, but to instead sit at home and click. The customer listened. Click click click click while sitting in a chair. Hundreds of thousands of messages, folks. We needed to tell the customer to get in the car and drive to the store. This is the outcome of letting the digital folks control the message.
  • Today, we tell the customer to click on multiple devices. The customer listened. More clicking, less action.
  • We broke pricing integrity during The Great Recession, and have accelerated the catastrophe ever since. Market share now trumps profit (and cash).
  • We taught the customer to not purchase in October/November - through hundreds of thousands of messages, we taught the customer to wait until Black Friday / Cyber Monday.
  • Then, we broke the "big weekend" promise, by offering great deals after Cyber Monday, thereby destroying whatever integrity existed in a fake holiday created by a trade organization that seems to be doing their best to bankrupt their members.
  • For the customers who were trained to sit at home, we further accelerated our demise by promising to ship merchandise on orders right up until a few days before Christmas. From a customer service standpoint, this is fantastic. From a customer behavioral standpoint, this is a catastrophe.
  • In other words, we trained the customer to sit at home and wait for the best deal - even if it comes on December 20. The customer trusts that merchandise will arrive in a few days, and holds $$ until December 20. The money that used to go to retail stores now goes to Verizon, Apple, Samsung, and Comcast.
  • We respond by offering bigger discounts earlier ... November 1 in many cases in 2014 ... in an effort to "lure" the customer back into a store before Black Friday. This trains the customer to wait even longer, thinking that bigger discounts will be coming on Black Friday / Cyber Monday (and they did), thereby destroying gross margins in early November, margins that would have been harvested at full price in prior years.
  • By mis-managing inventory levels, we had to more heavily clear merchandise in the December 26 - January 15 timeframe (through 2013). This created even bigger discounts after Christmas.
  • We pushed gift cards upon the customer. Good idea from a customer service standpoint. A catastrophic idea from a customer behavior standpoint.
  • Now, the customer buys a gift card on December 20 ... gives it to a customer on December 25 ... and that customer uses the gift card to purchase merchandise at deep clearance-centric discounts. We pushed profitable demand out of pre-Christmas into liquidation demand post-Christmas.
  • By focusing the business so heavily on December, we moved demand out of all other months, into December. What used to be highly profitable demand all year becomes margin-less demand in December, hurting the profit and loss statement.
  • As we all know, December customers typically have lower lifetime value than everybody else. So, we transitioned our customer base into December activity that assures lower future value, assuring bigger discounts the following year when customers do not shop at the rates we anticipated, accelerating the discounting problem even more.
This never-ending cycle will manifest itself via the closing of the bottom third of the retail portfolio. Profit is being crushed, and when that happens, the weakest stores will become so unprofitable that they will be closed.

Worse, we've trained the customer to never enter a store. We trained the customer to sit at home and click right up to December 20 (unless we demand that the customer shop via a discount after abandoning a shopping cart - that happen online, not helpful to in-store traffic). Those who did act in-store were treated to between 25% and 70% off. Why would these customers ever pay full price again?

That's what the data tells me. I get to analyze a lot of data. Not survey data of 3,398 likely shoppers who are "confident" that they would spend more with omnichannel business models, but data from billions of purchase transactions from real customers at real companies. I have proof that we've done this to ourselves ... a hundred best practices all interacting with each other, yielding bad practices now labeled "omnichannel".

Maybe you disagree with me. 

If you disagree, send me an email ( or leave a comment. Offer your hypothesis. Show all of us the data that gives your hypothesis credibility. Offer your solution (my solution is pricing integrity, fair inventory buys, great merchandise, and great service, retraining a customer to get into a vehicle and visit a store ... I know ... terribly boring). 

I will publish the best responses.

Here's your chance to offer folks a path out of the woods. Leave a comment / send an email message to me. How would you fix the spiral we're in?