Sunday, August 20, 2017

Wow! Fire Sale! Retailers in "Panic Mode"

This week, Edward Stack, CEO of Dick’s Sporting Goods, announced that retailers are in “panic mode”:  "There's a lot of people right now ... in retail and in this industry in panic mode. They seem to be in panic mode with how they're pricing, and we think it's going to continue to be promotional, and at times irrational, going forward," Stack said.

His approach to this situation: "We're not particularly happy that we're in it, but we think we are ... one of the few that are very well-positioned to come out of the other side very strong and continue to be the leaders in this industry," 

So his answer is to be more promotional than, or at least as promotional as, the other guys. Who are the “other guys?” Amazon and Walmart? In Jim Cramer of CNBC’s words, “the dark star?”

Maybe. Traditional retailers like Dick’s and Macy’s are looking at not only declining sales, but plummeting market cap. Macy’s market cap shrunk from $24.11Billion 2 years ago to $5.935Billion today. In the same time frame, Dick’s decreased from $5.62Billion to $2.98Billion; Target from $52.45Billion to $30.40Billion. You knew this, but Amazon increased from $240.03Billion to $459.11Billion, and Walmart from $197.46Billion to $240.71Billion. (CNBC)

Ouch. The panic mode is not surprising. The question is, what can be done about the situation they find themselves in other than lower prices, which further lowers sales volume and margin: Will lower prices do anything more than bring in customers who know the store is in panic mode? Will temporary reductions promote customer loyalty? What is the target strategy for emerging from panic time?

The last is the real question. What Mr. Stack is saying is understandable as a survival move, but what comes next? None of these retailers can do this forever. Become a discounter? Price is a no-win area to compete in as someone can always be lower than you. Unless a pricing strategy in terms of value is where you live. And unless the shopping experience stimulates people to visit the store repeatedly, not just when you are madly promoting, giving product away gets you nothing but more losses.

So I would like to learn from Mr. Stack and other CEOs in this situation, what are you doing to prepare for the light at the end of this tunnel? How do you leverage current loss-making promotions for future profitable, sustainable success? In the old days of retail, as a Federated (A&S, RIP) buyer, we took aggressive markdowns to clear out the slow selling merchandise, opening financial and store space for the new items which we worked very hard to find; those which would sell out at regular price. The more times we were right, the better our sales and profit.

One key mark of the merchant prince of those days was the ratio between hits and misses. Then as now, successful merchandising is a combination of price, excitement, and value perception.

Really, then, the road map to success in the world of retail is no different than it was 40 or 50 years ago: Find something customers will get excited about, every day. We scoured the market to find those items, and racked our brains as to how to present an exciting retail experience on our sales floors. Should it be any different today? No.

Who will lead us to the promised land? Where are the “merchant princes” that produced an exciting shopping experience which led these now-in-dire-straits retailers to growth years ago?

Cramer says retail is a two horse race now-Walmart and Amazon. I don’t agree. In fact, with the current traditional retail leaders vacating space in the customer’s mind and pocketbook, it is a fantastic opportunity for a new breed of retailer to take the castle. There is no way everyone is going to shop at Walmart and Amazon only, or buy 100% of their needs online. Have you been in a Walmart Supercenter lately? Way too big, too confusing, and quality is still as questionable as it always was.

So who will take the castle space vacated by the traditional retailers? It will be what I call the Category Killers (further on that- the sequel to this article-coming soon). For example: in fashion-Inditex just opened its 94th market. In food-Lidl opened its first stores in Virginia, North and South Carolina June 15 of this year, and I can’t wait until one comes to my neighborhood. Is this totally about price? Not at all-it is about value and a simplified, FUN shopping experience.

I don’t believe for a second that the traditional retailers cannot play in this ballpark. Here’s my point: Even with their severely shrunk market cap, they still have the financial capability to make major changes-if they have the mindset, the leadership and the merchant power to do so. First, decide it is time to make the needed changes. Then-Simplify. Shrink and narrow the product offering. Reorganize your sales floors to reflect the new assortment-in a simple, attractive way. Get customers excited about something other than today’s discount. Maybe open category killer stores-not discount stores.

Since we haven’t heard about their future plans for stability and growth, I can’t say what they have and have not figured out. I hope they are passionately inspired to make the needed changes.

“Panic mode”-brings to mind a burning building. Hope the courage and cunning can be found to put out the fire and bring back stability.

This is truly an exciting time in retail.

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