The Year That Was - the Stuart version
- Summary:
- A tough year for some in the retail sector, but progress on the omni-channel journey for others.
(1) Walmart
We’re confident in our strategy to transform the company, and we continue to be guided by four key objectives: make every day easier for busy families, change how we work, deliver results and operate with discipline and be the most trusted retailer..
Why? When we think of omni-channel transformation success stories, Walmart is normally front of mind when citing examples. But early on in 2018, the US’s biggest retailer hit a bump in the road as investors got a bad case of Amazon-panic, resulting in the sharpest daily drop in the firm’s share price in 30 years. But for CEO Doug McMillon, it was a case of ‘keep calm and carry on’ with the vision articulated above. McMillon also talked up the idea of “frictionless shopping” within five years and making a compelling case for Walmart’s status as an “innovation company”. Along the way there was an ambitious, if not ideally-timed push into India with the acquisition of a majority holding in Flipkart, a gambit that will play out in 2019 and beyond and provide one of the main weapons in the ongoing battle against Amazon.
Walmart boss – “frictionless” shopping within 5 years. (If Amazon doesn’t deliver first…)
Walmart as “innovation company” – the CEO perspective on retail digital transformation
Walmart’s passage to India – the timing isn’t great, but the opportunity is
(2) Target
A few years ago, we started shipping digital orders from our back rooms. We started small and we worked out the kinks. We focused on getting orders to our guests with greater efficiency, reducing inventory across our network and dramatically accelerating delivery times. But that was just the start.
Why? A theme we returned to time and again across 2018 was the shift towards “loving the store” again after years when so-called legacy retailers seemed hellbent on shedding their real estate in a bid to somehow ‘be’ Amazon. But now that Amazon itself is opening stores, the realisation has manifested itself that the real trick to be pulled off is to strike the optimal balance between online and offline, with a changed role for the stores. That was seen at Target throughout 2018, with planning for online fulfilment of orders over the Black Friday weekend being talked up from early on in the year. There was much work being done behind the scenes on data analytics as well with Target pitched as one of Domo’s flagship use cases. But as with Walmart, investors showed up their short-termism, growing impatient with the pace of a multi-year omni-channel transformation. That’s something that’s not unique to Target and unfortunately a theme that we’ll inevitably pick up on in 2019.
‘Loving the store’ puts digital transformation at Target aiming for a CyberMonday bullseye this year
Target aims for a Happy Holidays with digital fulfilment to the fore
Domopalooza 2018 – Target gives a progress report on their data-driven transformation
Target keeps on track for omni-channel transformation, even if Wall St is impatient
(3) Marks & Spencer
Digital is fundamental to a business that’s going to change for a future where we believe that just to hold market share, we need to have a third of our business online within the next 5 years. I’m pleased with some of the basic improvements we’ve had on the web platform in the last six months. We’ve improved our page speeds on the product loads by about a second. Our [web] photography, particularly on women’s wear, has become more inspirational. We’ve moved our order cut off from 8pm to 10pm for next day delivery [for Click and Collect]. And we’re piloting as one of the first retailers to do Shoppable Instagram. But this doesn’t make us best in class, not by a long way.
Why? That’s what you call understatement, to say the least, from Marks & Spencer CEO Steve Rowe. M&S is a UK retail institution and it’s a basket case when it comes to omni-channel transformation. It’s a retailer whose bogged-down processes meant it takes “12 weeks to pull together a prawn sandwich which would then be sold in stores that were built prior to World War II”. A store rationalization - closures in other words - is now underway and Rowe is talking up a belated focus on digital. But will the firm be given the time to pull off a turnaround? When Chairman Archie Norman admits that “our middle name is ‘false dawn’”, then can M&S really expect investors to believe that things will somehow come good? That said, away from the bloodied balance sheet, the most interesting development on the tech front was an alliance with Microsoft around AI in retail which is a big investment in future thinking. But then again, when M&S can’t find a way to make online grocery delivery work for it, there may be more urgent basic issues to fix first.
M&S CEO – we need more tech, but we still don’t need to do online grocery
Digital direction at last or another false dawn for M&S?
M&S teams up with Microsoft for AI retail gambit
(4) House of Fraser
The retail industry is undergoing fundamental change and House of Fraser urgently needs to adapt to this fast-changing landscape in order to give it a future and allow it to thrive. Our legacy store estate has created an unsustainable cost base, which without restructuring, presents an existential threat to the business.
Why? Returning to the ‘loving the store’ meme, House of Fraser’s woes this year were popularly attributed to two main factors - a cumbersome real estate network and the wicked Amazon moving in. The need for that omni-channel balance is a lesson that does seem to have been learned, albeit insanely late in the day, with a store closure program put in place. The ‘blame Amazon’ lesson on the other hand doesn’t seem to be, with House of Fraser management ludicrously talking about “hammering Amazon” in a pointless outpouring of bravado. It’s hard to have much faith in this 170 year old UK retail institution having much time left to pull off a turnaround.
Amazon isn’t to blame for the fall of the House of Fraser in an omni-channel retail age
House of Fraser needs to do more than just “hammer” Amazon in a Shopper First Retailing world
(5) Sears
Today is a day that will live in retail infamy. That a storied retailer, once at the pinnacle of the industry, should collapse in such a shabby state of disarray is both terrible and scandalous in equal measure. However, it is not surprising because this is a destination that Sears has been headed towards for many years, with virtually no serious attempt having ever been made to change the trajectory.
Why? That brutal assessment of the collapse of Sears into bankruptcy protection is one that I can’t argue with. It’s the most glaring example from 2018 of the price that ‘legacy’ retailers have to pay when they rest on their brands and fail to invest in digital transformation. As I noted at the time,:
Once upon a time, Sears was, in its own words, “Where America Shops”. The problem is, where America shops now is Amazon and Walmart and Target, not Sears. It’s a crippled brand and it’s difficult to see how that damage can be fixed at this stage.
But while it’s tempting to chalk this up as just another retail victim of Amazonian voracity, Sears has to take a lot of the blame for its own troubles. There’s been a singular lack of investment in data and analytics to understand the customer, for example. Once, Sears was an icon of stability and Americana. It had a brand loyalty that should have provided buried treasure galore when it comes to customer engagement, but never did.
‘Where America Shops’ isn’t Sears – US retail’s biggest omni-channel casualty to date
(6) Lands End
It’s still early days, but what we have seen so far is that best sellers online are best sellers in stores. Things that are key items online that do extremely well there also do well in stores. We do see, because the stores are a tighter footprint and we don’t carry everything in our full range in our stores, that we have a little bit higher penetration with our kiosk sales. So customers will come in and they may want something that’s not in the store or maybe we don’t have a size and they buy it online and that penetration has been increasing a lot more with newer stores than with some of the existing stores that we’ve had.
Why? The collapse of Sears will have long-term knock-on effects on the wider retail sector in 2019, but for Lands End it was a collapse that had been planned for as the latter had been heavily dependent on its presence within the former’s outlets. Extrication from that situation has been underway for a while and Lands End finds itself in the interesting, if not exactly enviable position, of now growing its own real estate network at a time when so many others are cutting back on their own. That said, the puns around land’s end and cliff edges go on as the firm’s omni-channel transformation remained sluggish at best across 2018, albeit with a last minute glimpse of hope prior to the Holidays season. One to watch in 2019 to see if the fragile signs of some kind of turnaround prove to be long lasting.
Lands End goes over the cliff as omni-channel progress remains sluggish
The ‘test-and-learn’ approach to digital transformation at “heritage brand” Lands End
Lands End on firmer ground, but omni-channel challenges remain tough as exit from Sears continues
(7) Debenhams
A year ago, we unveiled an exciting and ambitious new strategy, which was designed to put Debenhams in a position to succeed in the retail industry undergoing profound change. A year on, the change has been more rapid and more profound that anyone expected. This means we must accelerate the pace of change in our business.
Why? In 2017 I accused UK retail institution Debenhams of ‘dad dancing’ around digital. Nothing in 2018 changed my opinion. In fact, Debenhams moves into 2019 in a worse position than it entered 2018. There’s talk now of being “a leader in Social Shopping. Shopping as a fun leisure activity, enjoyed with friends or family, shared on social media and wrapped in a mobile experience”. That’s a nice enough soundbite, but (a) what it means in reality isn’t entirely clear and (b) if it does become clear, how will Debenhams put it into practical action? There’s so much to be pessimistic about - a pre-tax loss of £492 million on revenues of £2.9 billion, a collapse driven by one-off charges, including circa £80 million on legacy IT write-offs. That’s the worst set of numbers in the firm’s 240 year history. There’s a lot riding on the shoulders of CEO Sergio Bucher, drafted in from Amazon, in 2019.
Debenhams pays the price for “nebulous” digital retail thinking
Does Debenhams have time to escape the retail apocalypse with digital drive?
(8) Lowe’s Stores
So what happened? Well, simply stated, the company shifted its focus and lost its way. We undertook initiatives that did not add value to our core retail business. We exited national brands in pursuit of better margins, which dramatically hurt our Pro business. In addition, we lost expertise in store operations and in merchandising. And we failed to keep up with advancements in e-commerce, IT and supply chain.
Why? The above was the brutally frank assessment of the laggardly state of Lowe’s Stores from its new CEO Marvin Ellison, making the most of being in the honeymoon phase to be able to play up the shortcomings of the previous regime. There’s no doubt however that his summing-up has validity and that’s bad news when there’s a $900 billion a year market to compete in. Ellison’s spent the past few months putting in place a new team, including CIO Seemantini Godbole, most recently Senior Vice President, Digital and Marketing Technology at Target. There are ambitious plans to splash out on tech - $550 million between now and 2021 - and, in an interesting development, a stated intent to bring IT in-house with a massive skills recruitment drive and to build rather than buy the necessary applications and systems. It’s a major gambit on the part of Ellison and one of the most exciting omni-channel transformation programs to track in 2019 and beyond.
Lowe’s CIO hits the nail on the head with $550 million DIY project – that’s Do-IT-Yourself
What Marvin did next – omni-channel transformation at Lowe’s Stores
(9) The GAP
We have pulled together, as we built some pretty significant analytics capabilities here, and data science capabilities, a view of the customer longitudinally that we’ve never really had before. That is across brands, across channels, across categories and divisions. We have a much better sense of, as an example, what’s the first purchase that brings a man into Old Navy? What’s the time you have to bring him back in, in order to begin engaging him and maximizing his value as a customer? What’s the value of a customer…10x that is rather than a single brand, single-channel customer, a multi-brand, multi-channel customer?
We are able to start pointing our investment dollars from the standpoint of our marketing spend much more surgically at those customer value profiles. It is a level of precision that we are continuing to develop in customer acquisition, customer activation and purchase frequency. It is a level of precision that we have not ever had as a company and it is super exciting to continue to push down this path.
Why? I previously suggested that Art Peck, CEO of GAP, had a touch of the Rodney Dangerfields about him when he complained that the firm didn’t get the respect it deserved when it came to digital. That was a theme that was returned to in 2018 as Peck talked up GAP’s claim to be a “digital innovator”, pointing to the firm’s San Francisco HQ’s proximity to Silicon Valley. He pointed to some genuinely impressive backroom investments in data science and analytics. But then on the other hand this is a global retailer that in 2018 is still only piloting Buy Online, Pick-up In Store. It’s that dichotomy that leads to tracking GAP’s omni-channel transformation efforts ultimately a frustrating experience.
“Digital innovator” GAP looks to data science to drive customers across retail channels
GAP CEO sees his retail assets as digital, data and real-world stores
(10) Retail renaissance
As they work toward success in the retail renaissance, brands must think beyond product as a differentiator and become more granular in how they identify and satisfy customer wants and needs. To stand out from the pack that offers mediocre experiences, brands must offer frictionless engagement across marketing, commerce, and service touch points, from the showroom floor to the call center to how they operate their supply chain and fulfil orders. Consumer experience involves the entire value chain — including the battleground of the last mile.
Why? The recurring meme across 2018 in retail is that the sector is going to hell in a handcart as the Big Bad - Amazon - gobbles up market share and shuts down the local high street or shopping mall. There’s some validity in this, albeit with a lot of qualification, but is it really all bad news? Some research from Deloitte Digital/Salesforce early in 2018 suggested that there is an alternative reading, if the necessary effort is made to update retail operating models for a new era of shopping. The theme was picked up elsewhere at various trade shows across the year. That said, as 2018 closed, the headlines were once again about the ‘death of the High Street’, something that will undoubtedly roll out in 2019 as well. Whether the lessons of the likes of Sears have been learned remains to be seen. For our part, diginomica will be tracking developments throughout 2019, flagging up the winners and analysing the losers.
Retail apocalypse or retail renaissance? Depends on how you go about it…
NRF 2018 live – retail apocalypse? No. Data problems and store/online convergence? Yes.