June 23, 2010

Fetzer's Footwear: Competition

Today, I am meeting Lauren Fetzer, the CEO of Fetzer's Footwear, to put crab pots in the ocean. The Dungeness Crab that are just off the coast of Madrona Island in Northwest Washington are among the most delicious you'll ever find.

I walk up to Ms. Fetzer, who is listening to tunes on her iPod Touch.

Kevin: "What are you listening to?"

Lauren: "Said I Loved You, But I Lied by Michael Bolton. Don't ask about my opinion of men."

Kevin: "Alright".

Lauren: "Hop in the boat, we're dropping off crab pots this morning."

Kevin: "It's 10:00am, you're not at work."

Lauren: "I work fifteen hours a day, seven days a week. If I want to drop a few crab pots in the ocean at 10:00am, I'll do it. And my employees can do it, too. They aren't slaves. You have to have a life. This isn't that Human Resources pap about work/life balance where you get to have three weeks of paid time off in exchange for forty-nine weeks of servitude. You can go do something at 10:00 in the morning."

Lauren fires up the boat, and we're on our way, patrolling the northern coast of Madrona Island, dropping crab pots in the ocean.

Lauren: "How do you compete with Zappos?"

Kevin: "Why do you ask?"

Lauren: "Our Executive team grapples with this issue every day. Zappos has a better selection of branded shoes than we do. They deliver shoes faster than we do. They use their scale to generate four cents of profit on every dollar, whereas our scale prevents us from leveraging that business model. So, ultimately, we can't compete with them, they've already won."

Kevin: "You sound defeated."

Lauren: "Quite honestly, it is the opposite. I think your job as a leader is to acknowledge what the competition does well, and then ask yourself if you can compete with the competition. If you can't compete with them, then you work around your competition instead of blowing straight through them. You probably watched 'Enemy of the State', where the Gene Hackman character talks about the advantages of being small. He talks about not challenging a large competitor at what they do best, you harass the large competitor by doing what you do best when you are small."

Kevin: "You have proprietary product, right?"

Lauren: "And that is a starting point. Our proprietary products sell 45% better than our branded products sell. You can't buy our proprietary products on the Zappos website. This is the problem with branded product. Eventually, somebody aggregates enough branded product that they become the resource, and when they are the resource, customers gravitate toward it, and customers talk about it. That's a swirl that Fetzer's Footwear cannot compete with. So why would I ever want to compete with that? We will carefully analyze what is selling in the branded world, and then create products that our customers have to have."

Kevin: "What about your stores?"

Lauren: "Well, we're experiencing the demise of the Mom and Pop store, aren't we? Again, how does the Mom and Pop store fight with the aggregation of branded product? It can't. So the only way we can survive is by having some branded product to complement our proprietary product. And then, the secret is to tell a story about our proprietary product that is so compelling, so unique, so persuasive that customers have no choice but to share our story for us."

Kevin: "That sounds risky."

Lauren: "Well that's life, Kevin. Should I go the conservative route and just let the business bleed a slow and painful death? Because that's what will happen if you compete with the monsters. If you were a department store, you'd never try to compete with Macy's or Penney, that's a recipe for disaster. You have to do something different, right?"

Kevin: "Seems like it."

Lauren: "So when you look ahead, and you put a five year plan out there, your marketing team and your merchandising team must have a compelling story to tell, one that causes the customer to be willing to purchase merchandise at a healthy gross margin. Apple has a story to tell, well, actually, their customers tell the story for Apple. Zappos technically lets customers tell the Zappos story, with employees facilitating the discussion. Amazon doesn't have a story, they have scale and price and availability. Best Buy doesn't have a story, they have scale and price and availability. Starbucks doesn't have a story, they have scale and price and availability."

Kevin: "How do you tell the story?"

Lauren: "I like the way Crutchfield tells a story. Their people appear to be more knowledgeable than anybody else, to me that's their story."

Kevin: "So you can do that via Social Media?"

Lauren: "Oh please. What a waste. Be honest, Kevin, do you want to be friends with that goofy Burger King clown figure from the TV commercials? Do you want to be friends on Facebook with that goon? Nobody, I repeat nobody, wants to be friends with a brand. You provide great customer service via Social Media, and then other people in Social Media talk about you. That's how you do it, Kevin, you don't create a bunch of campaigns to grow friend counts. Social Media is fool's gold as promoted by Social Media experts. You don't sell stuff by 'joining the conversation'."

Kevin: "So how do you sell stuff via Social Media?"

Lauren: "You don't. You just have to be excellent, and you have to tell a compelling story, one that people want to share via Social Media. I think you do that, you compete, by having your merchandising team craft the story. Your merchandising team must truly believe in the product, and must be absolutely compelled to share their passion with everybody on the planet. When you do that, and you do it well, and your marketing team is 100% behind the merchandising team, that's when you have success. Over the next five years, that's where we will find our way to growth. We have to have a vision for telling a merchandising story, and we have to have unique product at a healthy gross margin coupled with great customer service. That's the only way we are going to compete with Zappos online and with folks like Nordstrom in stores. You can't compete on price and assortment."

Kevin: "Ok."

Lauren: "You do this with your consulting. You don't consult on optimizing conversion rates, or in the catalog world, you don't figure out how to create a better co-op. You tell a unique story and you offer products that aren't available anywhere else and you let other people spread your story."

Kevin: "Gotcha."

Lauren: "Now let's go pick up yesterday's crab pots and have some lunch!"

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