Remarkable Retail. Steve Dennis

more diverse and targeted. There were variations at one end of the value spectrum (off-price, outlet stores, dollar stores, warehouse clubs) as well as the other (Neiman Marcus, Bloomingdale’s, all manner of high-end designer boutiques). Niche players in organic grocery, cosmetics, fashion, and home furnishings became more plentiful and joined the common tenant mix in power centers and lifestyle malls across the country. Home shopping (Home Shopping Network and QVC) became a phenomenon.

      Most of these started to take a big bite out of the once-dominant regional mall-based department stores. In particular, the growth of fast-fashion and off-price retail stole significant share from moderate department stores during the decade, as did the emergence of off-the-mall home stores like Bed Bath & Beyond and Linens ’n Things and beauty-focused concepts like Ulta and Sephora, among others.

      As we approached the new century, forces were gathering that would lead to profound and unprecedented disruption. Jeff Bezos, Steve Jobs, and a cadre of venture capitalists started to see how technology could completely change the face of retail. While the initial wave led to some really dumb and unsustainable business models (anybody remember Pets.com?), large companies such as Nordstrom and Williams-Sonoma saw the potential and began investing in e-commerce and digital technology. Amazon began diversifying away from its original books-and-music offerings. Intrepid investors began getting excited about a second wave of online shopping businesses.

       Assume the Brace Position

      Retail has always been dynamic, but what’s transpired during the past decade is particularly astounding. What will happen during the next five years will shake many brands to their core.

      Take a look at the top ten retailers by decade in the chart below and it’s easy to see why Walmart CEO Doug McMillon is said to keep a copy of this with him on his phone to help remind him of how quickly retailer fortunes can change.

      Figure 1.1 Top Ten Retailers by Decade

      Image: Becky Quick/CNBC¹

      The rising wave of e-commerce now represents 10 to 20 percent of all shopping in most major countries and is generally growing four to five times as fast as physical sales. Amazon has become the most valuable retailer in the world and continues to grow at impressive and scary rates. Digital channels influence well over half of all physical store transactions in nearly every category. Once-iconic retailers—some more than a century old—are dead, dying, or in serious trouble. Dozens of so-called DNVBs are gobbling up market share and putting pressure on industry-wide margins. More and more products can be delivered to your door in less than two hours. In a growing number of new stores (most notably Amazon Go) you don’t even need to check out. And retail is just beginning to scratch the surface of artificial intelligence, virtual reality, robotics, the Internet of Things, and many other emergent technologies.

      To say this is a frightening and confusing time for all but the most successful companies is probably an understatement. In fact, one survey of retail CEOs found that fully one-third of them feared that their company could be out of business within the next three years.²

      You say you want a revolution? Congratulations, we’ve got one. Big time.

       Unrecognizable

      You might have been working in retail for a decade or more but, paraphrasing Forrester Research’s Brendan Witcher, only the last few years count.³ Why? Because the revolution is here, and the years before that represent the end of the last era, not the beginning of this one. Because so much of what was useful and important in the past not only doesn’t serve us very well right now but in many cases may even lead us down the completely wrong path.

      “We cannot solve our problems with the same level of thinking that created them.”

      —Albert Einstein

      A mere 25 years ago, Amazon was a tiny start-up selling only books over the internet from a warehouse in Seattle. Today they are a retail behemoth, growing rapidly and establishing large positions in most developed and developing countries and virtually every product category of any size. Similarly, Alibaba, the disruptive Chinese shopping platform, and Mercado Libre, South America’s leading online marketplace, are just over twenty years old. Flipkart, the top online brand based in India, went live just in 2007.

      Remember, too, that the iPhone was first launched in 2007, and that smartphones have only become ubiquitous in the last few years. Cashier-less check out, voice commerce, “buy online, pick up in store” (BOPIS), “buy online, return in store” (BORIS), and many other technologies and practices that are likely to be commonplace within a few years still have low penetration in many major markets throughout the world.

      For most brands it is next to impossible to know what will be important and disruptive in five years’ time. Indeed, shift happens. It’s just happening faster and faster all the time.

       The Bullet’s Already Been Fired

      The bullets that killed RadioShack, Sports Authority, KB Toys, Sharper Image, and many others were fired long before their respective downward spirals of cost cutting and store closings began. They weren’t legislated out of existence. Consumer behavior didn’t change overnight. The superior brands that stole their market share and won over their formerly loyal customers mostly did it over a number of years.

      And while it may make for a catchy headline, Amazon didn’t kill any of them all by itself.

      The notion that disruption comes out of nowhere, catching once-powerful companies unaware, is rarely true. What’s far more common is that new brands catch fire slowly, consumer behavior shifts over many years, and most technologies take a while to grab a meaningful foothold.

      If you work for a brand that is in trouble today, the forces most likely have been building for quite some time, and the underlying issue is this: leadership didn’t notice. Or maybe they were aware, but they didn’t accept that profound change was needed. Or maybe they knew what was coming, but they failed to act with urgency and decisiveness. Regardless, right now there is a pretty good chance a bullet is headed your way.

      I have long been fascinated by management’s capacity to get stuck, the many ways executives craft a narrative in a vain attempt to avoid change, the stories they buy into as they hope to keep above the fray. Far too often, the power of denial seems endemic to individuals and organizations alike. Believe me, I’ve been part of such teams myself.

      Go back to the ’80s and ’90s and recall how a slew of successful retailers mostly did nothing while The Home Depot, Best Buy, and a host of innovative discount mass merchandisers and category killers moved across the country, opening new stores and evolving their concepts to completely redefine industry segments. Somehow it took many years for the old regimes to realize what was going on and how much market share was being shed. For many, any acceptance and action came far too late (RIP Caldor, Montgomery Ward, among many others).

      Witness how the digital delivery of books, music, and other forms of entertainment came into prominence while Blockbuster, Borders, and Barnes & Noble spent years doing nothing of any consequence. Two of them are now gone and one is holding on for dear life.

      Similarly, Starbucks’s revolution of the coffee business hardly occurred overnight. But if you were a brand manager at Folgers or Maxwell House, you were apparently caught unaware.

      Consider how consumer behavior has been shifting strongly toward online shopping and the utilization of shopping data through digital channels for well over a decade. Yet many companies are seemingly just now waking up to this profound change.

      Lastly, examine how the elite players of the luxury industry have largely resisted embracing e-commerce—and most things digital—believing that somehow they were immune to the inexorable forces of consumer desires and preferences. Yet while they sat around and mostly watched, Neiman Marcus, my former employer, grew their online sales to more than 30 percent of their total business.

      More often than we care