May 17, 2016

An Interview With Former Chief Marketing Officer Carly Hirsch

Yes, this is a fictional interview with a recently fired CMO at a large department store that is struggling to grow. If you don't like hearing the truth via storytelling, read this article from the NY Times about department stores and discounting (click here).

Kevin: Carly, your tenure at Feldman's came to an end last week.

Carly: Yes.

Kevin:  Are you doing ok?

Carly:  I'll be fine. My severance package includes twelve months of base salary and bonus.

Kevin:  Congratulations.

Carly:  I'm living the dream.

Kevin:  What went wrong?

Carly:  Our comp stores sales wobbled in 2014, and they collapsed this spring.

Kevin:  That's the outcome. What went wrong?

Carly:  I don't think anybody truly knows the answer to that question. We all have hypotheses.

Kevin:  What did your Executive Team think went wrong?

Carly:  Obviously, some people think we're struggling because we did a poor job of marketing our brand.

Kevin:  That's why you were fired.

Carly:  But the whole situation is so much more complicated than marketing.

Kevin:  Please explain.

Carly:  Retail is about community. In many ways, we depend upon the competition for customers. We all succeed when customers shop all of us at the same time. We need foot traffic to make that happen.

Kevin:  Meaning if a customer enjoys shopping at Macy's, the customer will shop at Ann Taylor just because the stores are part of the same mall-based ecosystem?

Carly:  Exactly. But we took a different path. So did our competition. That path hurt all of us.

Kevin:  What do you mean?

Carly:  In our case, we really bet on e-commerce as a commerce channel.

Kevin:  That's why they put the word "commerce" in e-commerce.

Carly:  Did you know that H&M didn't have an e-commerce division in the United States until a few years ago? It was almost like the customer didn't even care. By not having a digital focus, the H&M customer had no choice but to shop in a store. And they retail channel grew by billions by having a focus on retail.

Kevin:  Are you suggesting that Feldman's shouldn't even sell via e-commerce?

Carly:  Not at all. But there is a fundamental difference in the way Feldman's approached e-commerce, and how other brands approached digital.

Kevin:  Is there a difference between e-commerce and digital?

Carly:  A huge difference.

Kevin:  Explain.

Carly:  In our case, we invested heavily in making sure that our customer had what we called a "frictionless shopping experience". If the customer wanted to buy the item online, great. If the customer wanted to buy in stores, fine. If the customer wanted to ship an item from a store to home, great!

Kevin:  That sounds reasonable.

Carly:  Of course it sounds reasonable!

Kevin:  Was this your idea?

Carly:  Heaven's no!

Kevin:  But it sounds a bit like a marketing idea.

Carly:  It's really an operations idea.

Kevin:  Who promoted the agenda at Feldman's?

Carly:  That came from the CEO and the COO.

Kevin:  Your Chief Operations Officer?

Carly:  He brought in the Management Consultants back in 2011. He called it the "Integrations Task Force".

Kevin:  The 'ole "ITF", eh?

Carly:  He ran the team. I was recruited to be part of the team, as well as McClancy Consulting, Woodside Research, and Augury.

Kevin:  Augury is a systems integration brand.

Carly:  Yes.

Kevin:  Why so many outsiders?

Carly:  Our COO wanted to obtain a "strategic" roadmap that illustrated where the industry was going.

Kevin:  How did that work out?

Carly:  We spent eighty-seven million dollars on consulting fees and systems integration.

Kevin:  Wow.

Carly:  And sales declined.

Kevin:  Wow.

Carly:  Here's the thing. Our ITF believed that e-commerce was the future, and we had to have a response to Amazon. We decided that store integration with our website was our response. We decided that the only thing Amazon didn't have were stores. So if we could leverage our stores as virtual distribution centers, we would increase sales.

Kevin:  Did you have any research that proved this was a good idea?

Carly:  We tortured our numbers until they screamed out that this was a good idea. Woodside Research repeatedly cited a study that Augury commissioned, suggesting that the customer wanted a seamless shopping experience. McClancy said their client base was also heading in this direction. We listened to Woodside, McClancy, and Augury. They had competitive data.

Kevin:  How many people were in the Woodside Research survey?

Carly:  Four hundred.

Kevin:  Out of more than one-hundred million households in the country?

Carly:  Correct.

Kevin:  How many customers purchased from your brand in the past year?

Carly:  Ten million.

Kevin:  So how do you end up trusting the voice of four hundred individuals who may or may not have purchased from your brand over ten million customers who truly purchase from your brand?

Carly:  You've been in the meetings.

Kevin:  Yes.

Carly:  A task force made up of Executives and External Partners wanted to pick a path that aligned with where the industry was headed.

Kevin:  Is it possible that Woodside Research, McClancy Consulting, and Augury were leading the industry down a path that benefited Woodside Research, McClancy Consulting, and Augury?

Carly:  Certainly. But this isn't on them. This is on our Executive Team.

Kevin:  Why?

Carly:  Because we couldn't think six steps ahead of ourselves.

Kevin:  What does that mean?

Carly:  This goes back to what I was saying earlier. We leveraged e-commerce when we should have leveraged digital. By leveraging e-commerce, we pulled customers out of our stores.

Kevin:  Ok.

Carly:  At the time we pulled customers out of the stores to interact via e-commerce, our competition did the same thing. As a result, we literally emptied out the mall.

Kevin:  You didn't empty out a mall.

Carly:  All it takes is a 20% traffic drop, across the board, to crush the ecosystem. All of us grew e-commerce. All of us purposely encouraged customers to not visit the store and to instead purchase online. And it worked! Today, our share of e-commerce has never been bigger, and our in-store traffic has never been worse. Now take a major competitor. If they execute the same strategy, then they drive less traffic into the store, and that means there is less traffic for us as well. It's a feedback loop that hurts all of us. We purposely limited our customer acquisition audience. It takes a few years for the feedback loop to accelerate.

Kevin:  Interesting.

Carly:  It's the dynamics of the feedback loop that nobody anticipated. Nobody could see that five steps down the road, we'd make e-commerce so appealing that customers would actually shop via e-commerce and not visit the store.

Kevin:  Did you see it coming?

Carly:  No.

Kevin:  When did you notice that something was wrong?

Carly:  2014. In-store traffic declined. Website traffic began to plateau. Comp store sales flattened, and if you subtracted out e-commerce sales, comp store sales were in decline. And yet, when we measured how our best customers were performing, we noticed that their spend was flat. 

Kevin:  What did that mean to you?

Carly:  It meant that infrequent customers and potential new customers had given up on us.

Kevin:  How did you know they had given up on you?

Carly:  Those customers would only purchase merchandise when we had sale periods. You could see counts of customers move up and down in proportion to the level of discounting we did. Our best customers purchased regardless of discounting strategy. And our best customers were the ones that leveraged our frictionless/seamless shopping strategy. Not the infrequent customers, that's for sure.

Kevin:  How did you respond to this information?

Carly:  I shared the data with our Executive Team, repeatedly.

Kevin:  And how did that go over?

Carly:  Not so well. Our CEO said that the industry was moving in this direction, and that McClancy / Woodside Research / Augury all agreed, so it had to be a marketing problem.

Kevin:  The seeds of your demise were sewn two years ago?

Carly:  Absolutely. Our COO said I had no idea how to communicate benefits, our CEO said I had no idea how to communicate aspiration. Our Chief Merchandising Officer said that I was attracting the wrong customer to her merchandising strategies. Our Creative Director said that I needed to advertise more. I actually agreed with her on that one. Our Human Resources Executive said employees could not understand why we were integrating e-commerce with stores when we should be employing a digital strategy. Our own employees said they shopped differently than the path we were executing.

Kevin:  You've mentioned this e-commerce vs. digital topic a few times. What does this mean?

Carly:  Look at what the fast fashion folks do. They don't care about e-commerce like we do. They care about selling.

Kevin:  Isn't e-commerce about selling?

Carly:  E-commerce selling is about safety, about knowing you are going to get something. Digital selling in fast fashion is all about getting you into a store to buy something that may not be available if you do not visit the store right now.

Kevin:  Those are two very different marketing propositions.

Carly:  And that's what happens when you let outsiders fuse marketing strategy with operations. It is terribly hard to convince a customer to buy a boring product online because the product will be available. It is easy to demand a customer visit a store because an item may not be available by the end of the day. That is what I mean by drawing a distinction between e-commerce and digital. A digital strategy creates urgency, and allows the customer to spread the word for you at minimal cost. Merchandise and Operations are critical, no doubt about it, and in fast fashion Merchandise and Operations are the same thing. Both are needed to achieve 50x inventory turns.

Kevin: Interesting.

Carly:  So we have two competing marketing strategies. An e-commerce strategy requires integration of products and channels, and it requires safe merchandise that the customer knows will be available online. A digital strategy puts merchandise at the center of the ecosystem. The product may not be available, and that urgency sets off a frenzy of digital communications that cost the brand nothing but fuel customer acquisition growth. The e-commerce strategy is all about safety.

Kevin:  But you were the Marketing Executive. Wasn't it your job to make sure that your strategy was digital and exciting? Is it not your job to convince stubborn Executives to do what is right for the business?

Carly:  I was one voice. The ITF had the COO, myself, and three vendor reps. I should have done better, yes, but I was one voice out of five, and the other four voices aligned with each other.

Kevin:  But you clearly communicated your point of view, right

Carly:  Over and over.  I really wasn't allowed to market my brand to my customer. I was asked to market a strategic direction to a subset of customers who aligned with the strategic direction. As a result, new customers fell off of a cliff, store sales declined, and the rest of the industry followed us because it sounded like we were doing the right things. We all lost customers as a result.

Kevin:  Did anybody notice that the customer wanted safety in 2011 and scarcity in 2016?

Carly:  Not really. But that is an interesting insight. By the time we spent nearly one-hundred million dollars building an infrastructure that supported the same item in every channel, a safe plan, the customer demanded scarcity. We couldn't have anticipated that the customer wanted items to be sold out. We couldn't have anticipated that the customer wanted unique experiences that other customers couldn't achieve. We built the exact opposite platform, it took us five years, and by the time we built the platform, the world changed. What a mistake.

Kevin:  You got that right.

Carly:  Nobody will talk about this stuff, you know.

Kevin:  Your CEO and CFO routinely touted your integrated strategies in your annual reports and investor conference calls.

Carly:  Wall St. loved what we were doing. They said our strategy made sense, and as long as we didn't pay down debt and instead took the proceeds of our strategy to buy back stock, they'd help prop up our stock price.

Kevin:  How does Wall St. view your results today?

Carly:  They said we missed the fast fashion movement. They said we couldn't see the future because of a wall of discounts and promotions stacked up between us and the customer.

Kevin:  Why so many discounts and promotions?

Carly:  We weren't meeting our sales plans across channels, so we had to liquidate, we had no choice. You cannot have inventory sitting there, rotting. But eventually, we built a customer file that would only respond when we had discounts and promotions.

Kevin:  So your integrated strategy across channels became fused with discounts and promotions?

Carly:  Correct. The whole thing was essentially the same strategy. Have the same boring products in all channels, make it easy for the customer to buy the same boring products in all channels, encourage the customer to never visit the store, and then make sure that the discounts and promotions were appealing to the discount/promo customer who would only buy when discounts and promotions were available. By never meeting our sales plans, we always had to increase discounts and promotions. The feedback loop just accelerated and accelerated.

Kevin:  But again, you were the Marketing Executive. It was your job to prevent this from happening, wasn't it?

Carly:  I don't think you stop an industry-wide movement. Movements garner momentum. Ask Bernie Sanders or Donald Trump. Ask Macy's. Or Nordstrom, JCP, or Kohl's. A plethora of specialty retailers. We all followed the same playbook. Now we're all struggling.

Kevin:  But other companies, retailers for goodness sake, are not struggling.

Carly:  Those who fused limited product availability with weekly inventory turns and digital evangelism of the brand did pretty well. That's the lesson of the past five years. Retail has to be exciting, and risky, and entertaining, and scarce. We chose safe and boring. All the money we spent aligning e-commerce with stores could have been spent on merchandising brilliance. We simply cannot conceive a world where inventory turns are 50x per year. We were thrilled to move up from 6x to 7x, it took a herculean effort just to make that happen.

Kevin:  Some say this is an issue where traditional retail failed to adapt to customers under the age of thirty-five. Do you agree?

Carly:  Not really. This is a customer acquisition issue and a traffic issue. We didn't appeal to customers who were not core customers, be it those under thirty-five years old or Baby Boomers. And by shifting traffic out of stores to e-commerce, we took excitement out of the mall. Both issues are our fault. Our choice of strategy locked-out younger customers. Now it's easy to see what happened. But when the decisions were being made, nobody said, "let's ignore customers under the age of thirty-five". It just turned out that customers under the age of thirty-five hated our strategy, further fueling the feedback loop.

Kevin:  So that's what happened. What does a traditional retailer like Feldman's do next?

Carly:  I don't care. I don't work there anymore.

Kevin:  But they didn't fire the Merchandising Executive?

Carly:  No.

Kevin:  And they didn't fire the Operations Executive?

Carly:  No.

Kevin:  And McClancy and Augury and Woodside Research are all still on retainer, correct?

Carly:  They're coming in next week for a strategic session, called "Reimagination 2021".

Kevin:  And the CEO who endorsed the strategy is still in place, correct?

Carly:  Correct.

Kevin:  So how does a retail brand fix a problem that is perceived to be a marketing problem, but is quite honestly a merchandising and operations and digital and entertainment problem?

Carly:  All problems are solved when sales decline enough to create an emergency or the brand goes bankrupt. Look at JCP - it took a 30% sales drop for somebody to say "enough". Then they went back to what they always did, and are surprised that sales are now in decline once again? Things obviously are not yet bad enough for them.

Kevin:  You don't think things will change?

Carly:  Things will change when things get bad enough.

Kevin:  And you don't think things are bad enough?

Carly:  Not even close.

Kevin:  Unless you are a Marketing Executive.

Carly:  It's easy to fire the Marketing Executive. It's hard to acknowledge that you picked an integrated channels path when the customer picked a fast fashion path fueled by low prices and product scarcity and a thrilling experience. Nobody wants to be wrong.

Kevin:  But sales are truth.

Carly:  They sure are.

Kevin:  Do you think the industry has the capacity to listen to the customer and change accordingly?

Carly:  Absolutely. Department stores were declared dead in the late 1990s. Ten years later, department stores were booming. Department stores will figure out how to stay alive, and of course, some won't and they'll be gone. This is the way retail works. But if there is one thing I'd like readers to take from this discussion, it is this ... e-commerce is not the solution ... getting customers into a store for an exciting experience, an experience that is so positive that existing customers help spread the word and then draw in new customers, that's the solution. Marketing professionals are well equipped to capitalize on this trend.

Kevin:  What is next for Carly Hirsch?

Carly:  Marketers always land on their feet. We're like cats, we have nine lives. Each life lasts a few years, and we move on.

Kevin:  Carly, thanks for taking time to have a discussion about retail. My readers appreciate your feedback.

1 comment:

  1. I really enjoy these conversational type posts Kevin.


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