Retail's 2019 - the Stuart version

As in previous years, 2019 was a turbulent one for the retail sector as more classic names hit trouble in a fast-changing market. But there were some success stories amid the doom and gloom. Here’s my 2019 scorecard of retail omni-channel transformation in action (or inaction - delete as applicable).

The GAP

Over time, Old Navy's value creation levers, business model and customers have increasingly diverged from our specialty brands. That divergence to me is now clear. And we think the best way for each company to grow and meet the evolving needs of our customers is to allow them to pursue tailored strategies separately.

This will be looked back upon as a tipping-point year for The GAP, one way or another. The group’s three flagship brands - Old Navy, Banana Republic and GAP - once again enjoyed mixed fortunes, with the lower-end Old Navy easily outperforming its counterparts. It was still a surprise, although potentially a savvy move, when in March, GAP CEO Art Peck announced that Old Navy would be cut free from the weight of the other two brands, which would then fly under the flag of a new entity called (rather embarrassingly) NewCo. At the time, Peck was going to head up NewCo, but by the time another set of grim quarterly numbers loomed last month, he was out of The GAP completely. Peck had been a great advocate of the need for digital transformation within the retail sector. What happens next remains to play out in 2020, but it’s clearly going to be a pivotal year in one direction or another.

My take - Ouch!

Old Navy widens the gap between its omni-channel future and The GAP's legacy retail present

Lowes vs Home Depot

Our rollout is largely on track and we're realizing benefits. It's just taking a little longer than our original assumptions. We have foundational IT work streams supporting many of our strategic initiatives that will significantly enhance our ability to serve our customers in an interconnected way. Much of this IT work requires unwinding our legacy systems and that has proven to be more complex than originally anticipated.

In the US home improvement market, there are two main contenders - Lowes and Home Depot. Both have digital champions at their helms, both are engaged on massive omni-channel retail transformation programs and both ran into problems in 2019 as their corporate DIY makeovers fell behind schedule. What happened to both firms serves as a timely reminder that transformation programs are a long game, not a quick hit to paper over the cracks. And as with home DIY itself, their respective slower-than-expected progress emphasises the importance of doing the early foundational prep work and getting that right. Sort out the ancient plumbing before you start fretting about installing the new jacuzzi. Nonetheless, both firms have thought through their fix-up plans and have invested heavily in in-house skills to deliver them. 2019 might have been a year when schedules needed to be adjusted and expectations modified, but when did a major building project ever run entirely to plan?

My take - 2020 will be a year when both retailers step up delivery and the results should start to become more apparent. The slowdown of 2019 isn’t a long term concern for either party.

Bed, Bath & Beyond

Together, the Board and the management team are challenging our current value proposition and operating model to take on a more holistic approach to the transformation while also maintaining a focus on delighting our customers and delivering long term value to shareholders.

That mouthful of calorie-free word salad from Mary Winston, interim CEO at Bed, Bath & Beyond, sums up everything that’s been wrong with the retailer, whose annus horribilis in 2019 has been one of the most extreme in the industry. Her predecessor as CEO Steve Temares had spent years trying to convince the market and his shareholders that omni-channel transformation was underway and coming soon, just a little bit longer, maybe another quarter or two, yada yada yada. Something had to give and in 2019 it spectacularly did. Temares was out after investors rebelled against a “detached from reality management” and a hostile takeover was looming. By year end, Winston was talking up data analytics as a savior - well, maybe, but… - and promising that a new permanent CEO is just around the corner. That CEO is Mark Tritton, who's been brave enough to take on this hot mess of a company and has his work cut out.

My take - still no dressing on the word salad.

Marks & Spencer

When we drafted the statement and first showed it to my non-executive directors, the headline was "transformation beginning to bear fruit." And the non-execs said, ‘Not a lot of fruit in these results’.

A typical piece of candor from Archie Norman, Chairman at UK retail institution Marks & Spencer, as the firm’s omni-channel program once again failed to deliver on the promises made for it in 2019. CEO Steve Rowe emulated his colleague’s mea culpa mantra by highlighting progress followed by lack of progress - a ying for every yang. For example, online traffic in the most recent quarter was up 8% year-on-year, but it’s not traffic that’s coming direct to M&S, where search engine optimization is poor and the website is in major need of an upgrade. So all doom and gloom for another year then? Well, no, not really. The bloodletting of another round of store closures hangs over 2019 like a dark shadow, but there’s light around the corner, perhaps, and that light is called Ocado. After years of sticking its corporate head in the sand about the potential of online grocery delivery, M&S finally teamed up with online platform provider Ocado with the £750 million promise of a joint-venture that will bring M&S food to customers doors from September of next year. Yes, M&S is buying its way into the game and at a price that spooked some analysts and investors, but it’s a roll of the dice that’s taken too long to happen already. This could be the last, best chance for a firm whose decline has been painful to watch for so many years.

My take - September can’t come quick enough.

Ocado

The market is at an inflection point - now is our time…we have many opportunities to create future value…the story has only just begun.

In 2020, all things being equal, Ocado will become the UK’s largest listed tech company. That’s assuming that a decision by regulators to de-designate the firm as a grocery company is actioned, which looks pretty much inevitable as it plays to the messaging that Ocado’s management has been preaching for a long time. That said, 2019 has been a year of mixed fortunes for Ocado. The tie-up with Marks & Spencer gave the firm’s share price a welcome boost and the terms of the deal certainly benefit Ocado most obviously in the short term. But a major fire in one of its Customer Fulfilment Centers caused a lot of damage and impacted on the firm’s bottom line in 2019. On a more upbeat note, initial pilots of one hour delivery in London have proven to be a big success and 2020 should see more investment there. And as the M&S relationship takes shape, Ocado got a powerful piece of endorsement from another partner, Kroger.

My take - the fires are out on 2019 and 2020 looks like it has a lot of promise.

Sainsbury’s

It’s clear that not all our customers are ready for a totally till-free store.

The belated realisation by UK grocery chain Sainsbury’s that customers like having a cashier behind the checkout brought smiles to many lips in 2019. The firm had boasted about how transformative to the customer experience an automated, self-service, till-free shop would be. It did indeed transform that experience - customers hated it! It was a timely reminder to all retailers that just because you have the technology to do something, that doesn’t mean that you should do it. But that minor humiliation wasn’t the biggest problem that Sainsbury’s faced in 2019 as its planned merger with ASDA hit regulatory rocks and was axed. But by year end, the firm had dusted itself off and was talking up its tech investment as a competitive differentiator in the UK’s increasingly febrile grocery sector where low-cost challengers such as Lidl and Aldi are making significant inroads. Perhaps the most significant tech gambit - and certainly one to watch closely in 2020 - was a tie-up with Google Cloud and Accenture to build out its real-time analytics capabilities.

My take - 2019 didn’t turn out as planned, but Sainsbury’s remains a prime example of a retail tech innovator and now one that has been reminded that digital transformation needs to go at the customer’s pace…

Lands End

Our goal remains to offer our product wherever, however and whenever our customer wants to shop, whether it be through our digital or physical channels. Our e-commerce channel represents over 90% of direct sales and with our strong heritage we remain committed to building upon our digital capabilities and shopping experience across our business.

One of the success stories - seemingly - of 2019 was Lands End. For the past few years, articles about the retailer have had headlines that have written themselves, about cliff edges and lack of solid ground. But this year it does look like the firm has taken several steps back from the edge with tech investment a major enabler of this (still tentative) recovery. There’s been a successful ERP rollout, a ramping up of data analytics and AI tech to get a better understanding of customer behavior and 2020 will see work underway on an Enterprise Order Management program. Whether the turnaround can continue in 2020 remains to be seen, but Lands End does exit 2019 in better condition than it came in, which in the current retail climate is an achievement in its own right. (Just stop saying ‘uni-channel’ when you mean omni-channel!)

My take - Land ahoy!

Target

Every piece of our strategy is working and it's working together.

That’s not a boast that many retail CEOs can make, but Target’s Brian Cornell can justifiably risk such public self-praise as his firm soars above all others in 2019 as a bellweather of omni-channel success - and a success that’s been built around his belief in the concept of ‘store-as-hub’ in a digital retail economy. That wasn’t a popular thesis a few years back, he points out, but it was one that has now been vindicated. Target’s quarterly numbers continued to keep Wall Street happy this year, but it’s to stats like a 31% year-on-year increase in online sales and a $5 billion digital sales run-rate that Cornell is most keen to point. And all of this current success comes from starting early, he argues, pitching a timeline of foundation work in 2016, investment planning in 2017, delivery acceleration in 2018 and ramped-up adoption in 2019. As for 2020…

My take - totally on target.

Walmart

We see the future as a frictionless experience across stores and e-commerce, but we have more work to do as customers raise their expectations, competition persists, and the omni-retail story continues to evolve.

It wasn’t the easiest of years for the world’s largest retailer. Walmart had problems internationally and at home in the US where the future direction of its e-commerce business fell into question even as the threat from Amazon’s ambitions in the grocery space ramped up. The company saw its plans to offload its UK ASDA arm to Sainsbury’s crash and burn amid regulatory rejection. It had problems with its passage to India, a major strategic priority for growth, where an increasingly protectionist government has seemed intent on putting more and more barriers in the way of foreign interlopers. At the start of the year, the domestic e-commerce business looked to be the bright spot for Walmart, but by the time the summer came around there was public dissent there too as rumors circulated of a $1 billion loss and a need for a major course correction to get the omni-channel balance between online and offline focus right. That was made particularly urgent by 2019’s shift towards a ‘need for speed’ as Walmart and Amazon competed on fulfilment and delivery options. The retailer leaves 2019 still as the global behemoth it entered the year, but the challenges it faces in 2020 have been exposed for scrutiny.

My take - 2020 needs to see Walmart taking back the agenda.

Clothing-as-a-Service - Macy’s, JC Penney, Hudson’s Bay, Banana Republic, Urban Outfitters

With the exponential growth in re-sale there is no doubt that demand for affordable luxury is at an all time high. There is an emotional thrill that comes with finding a high quality second-hand product for much less. While there are more second-hand shoppers than ever before, we will continue to test and evaluate how this resonates with our customers.

2019 saw an interesting increase in the number of fashion retailers exploring the ideas of ‘Clothing-as-a-Service’ and ‘re-commerce’ - AKA selling second hand clothes. JC Penney and Macy’s - both of whom continued to flounder in 2019 - tied up with thredUP to roll out pop-up second hand outlets inside their own stores, the theory being that bargain-hungry consumers will come in search of high-end used fashion and can then be cross-sold to for full price items. It’s not a bad theory - the 2019 Resale Report from analysts GlobalData found that re-sale has grown 21 times faster than the wider retail apparel market over the past three years. Meanwhile the idea of renting rather than owning clothes is expanding beyond the tuxedo and prom dress markets. Banana Republic is building its own rental business on a subscription digital platform from CaaStle, as is Urban Outfitters with its Nuuly initiative. Meanwhile Hudson’s Bay has taken a stake in the Clothing-as-a-Service space by essentially paying a specialist firm, Le Tote, to take its troubled Lord & Taylor brand off of its hands while securing a 25% share of the Le Tote in the process. Innovation or desperation? Time will tell.

My take - expect to hear a lot more about such alternative retail models in 2020