Macy’s can take on Amazon

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How does a traditional department store retailer like Macy’s take on and compete with the tech titan Amazon? It’s not by trying to catch-up to Amazon’s technology, distribution, and logistics. That would be futile. It is, of course, by creating a compelling experience so consumers want to spend time in stores. But that’s obvious; that’s not a strategy, it’s a requirement.

So what is it that department stores can do to gain some grip again with consumers and stakeholders? It’s not what most would find natural, and it would certainly involve a radical change in mindset.

Department stores rely on brands. Brands rely on department stores. Together they can be very good partners, but for the most part they haven’t been. Many brands, including major ones like Coach, Ralph Lauren, and Michael Kors have gravitated away from and out of the department store channel. That’s entirely due to too much promotional activity driven by the department stores that destroys a brand’s clout and kills its profitability. No consumer covets a brand that’s on sale all the time, and no brand wants to work with a retail partner that loses their money all the time.

So let’s fix that.

Retailers, and especially department stores, would benefit immensely if they focused on building healthy, fast-turning, high margin businesses for the brands they sell. As much as many brands don’t like selling to department stores, they are equally uncertain of working with and selling through Amazon. So use that. Department stores should focus on nurturing brands, not killing them and pushing them away. High-impact retailers should look to turn their consumers AND their brands into raving, raging fans.

Granted this may seem simple, but it’s quite the opposite. One of the hardest things for any legacy business or operator to do is to change mindset. It’s not easy to change teams of buyers at department stores from thinking about how to drive sales regardless of the cost to thinking about how to build high-margin, full-impact businesses that drive raving fans and brands. It’s not easy to convert consumers from “seeking discounts” to “wanting brands”. And it’s not easy to say “let me help you build your business” when you’re used to asking “what margin can you guarantee me”.

Likewise its not easy for wholesale teams and leadership to change their mindset from driving bookings with little regard for what can be consumed to focusing on building upon high-margin net sales that pay the bills and enables investment to grow and innovate. It’s not easy for them to think about their businesses at the consumer level as opposed to the account level. And it’s not easy for wholesalers to strategically plan focused, fast-turning businesses as opposed to jamming in broad assortments of stuff that stunts demand, enables markdowns, and baffles consumers.

Regardless of how difficult all this may be, it is absolutely critical for any retailer or wholesaler looking to keep itself from falling further and further down the slippery slope that’s being created by Amazon. Doing this is absolutely worth the effort. And let’s be clear, wholesale isn’t going away; that’s what doing business with Amazon is. So at the end of the day, the only thing that is truly difficult is continuing to do that which does not work.

Let’s fix this now.

 

Photo by Macy’s Backstage/facebook

 

Thinking Differently

The first step in thinking differently is finding a sense of curiosity. You can’t think different if you’re not willing to learn, and you can’t learn if you lack the curiosity to do so. Brands and retailers should stop assuming they know what customers want. They don’t. But they can have the curiosity to engage with customers and ask them. Learn what they want.

The second step to thinking differently is gaining a broad set of experiences. Leonardo da Vinci was primarily interested in science and engineering. He was a reluctant artist at best. Yet it was the experience and knowledge he gained from dissecting more than 30 bodies that allowed him to paint Mona Lisa’s smile.

As a brand or retailer, you don’t necessarily have to seek outsiders with different experiences to add value to the whole. Encourage everyone in the company to pursue a life well lived. After all, a life well lived brings a bounty of rewards to everyone. No one has done well living under a rock. Equally as important to encouraging your teams to gain outside experiences, you absolutely must seek diversity of people and thought. Mix it up. There is no room for a lack of diversity by race, gender, age, and education. Likewise mix up your teams. Design should live no more in a bubble than finance.

The third step toward thinking differently is compassion. There’s an old saying that you can’t argue with stupid. Well I have come to learn that that’s a stupid thing to say. It’s not that other people are stupid. They may not have gained the comfort or capacity to appreciate steps one and two herein. Encourage them to do so. But let them do so on their terms. More likely than not though, their curiosity and experiences have provided them a different lens by which to think differently, from you. This, by the way, is where the magic happens. It’s called collaboration.

When all of us are curious, and when all of us seek different experiences, it’s leads us to the sharing of information and knowledge. You can’t grow if you don’t learn and share. Likewise your brand can’t grow if doesn’t stimulate curiosity and collaboration among many points of view from a diverse set of people who are hungry for learning and excited for experiences.

Gross sales aren’t sales

price-discount-riskThere’s a seismic difference between gross sales and net sales for a wholesale brand. It’s called discounts and allowances.

Gross sales are fake sales. They’re not real. They don’t go into your pocket. They don’t pay bills, and they’re irrelevant. Gross sales are just shipments to retail partners who aren’t going to pay you the full value of those shipments, ever. Yet many brands continue to get this dead wrong. It’s destroying a lot of businesses.

What doesn’t sell-thru, eventually comes back. Sales teams at the brand are constantly pushed to sell more stuff to more retail partners. It’s done in an effort to drive more goods into more retail stores to ultimately try to hit what are almost always unrealistic wholesale revenue targets. Buyers at the retail partners, on the other hand, don’t mind taking the goods. Why should they? If the goods don’t sell-thru or the margins don’t meet plan, the brand picks of the tab regardless–as they should. So who’s fooling who? Does anyone really think this is a good process? If a customer doesn’t buy the product, it doesn’t become a sale. If a tree falls in a forest, and we’re not there, we won’t hear it.

Net sales are real sales. They are the dollars that go into your pocket. They pay for the products you made, the talent you pay, the marketing you do, the technology you should have, and the experiences you must create. When net sales are aligned with what’s sold-thru, gross margins skyrocket. Gross margin is the money left after the goods you made are paid for. The more crap you make, the more $$ you pay. And the more $$ you pay for the goods you made to do the sales you didn’t do, the less you keep to use for those valued employees, that useful technology you could have, and those experiences you should create.

You don’t need $100 worth of goods to do $10 worth of sales. Nothing about that is reasonable. Wholesalers need to manage their channels RADICALLY better if they want to be successful. Incremental change to this effort is useless. Lower gross sales does not mean less net sales. That’s a complete and total fallacy for 99% of the wholesale brands in the fashion industry today. Quite the contrary–lower gross sales translates into higher net sales with stronger gross margins.

Focusing on net sales with high gross margins is the HABIT of high-impact brands. Driving gross sales is at odds with that effort.

Customers matter, sales don’t.

Sometimes it’s good to step back and consider who’s fooling who. Brands that look to drive sales do themselves no good in the long run. It’s like saying I want to be rich. We all know that many who are rich are poor on happy.

A better way to think about building a brand is to build a base of fans who love your work. Dollars are merely a symptom of fans liking your products, message, conversation, and attentiveness.

Build fans and covet them greatly.

Customer Mindedness

“No one cares how much you know, until they know how much you care about them.” –Theodore Roosevelt

If your brand is aiming to become more customer-centric, you might want to work on becoming customer-minded first—there is a difference. The former means you think ABOUT customers. The latter means you behave LIKE a customer. How does your customer see you? Are you speaking with them or talking at them? Most people don’t like to be talked at. We enjoy conversation. Dialogue. Laughter, charm, and wit… Consumers want to know that the people and brands they associate with have some interest in them.

A great place to look is your Instagram feed. Are your images of your fans? Are you speaking to them or at them? If you were the consumer, would you stand in line at Starbucks and enjoy looking at your brand’s posts while waiting for your order? Do your posts show that you care about your customer? Or do your posts show pictures of things you make and do that you think your customers may actually give two shits about? Do you care about your customers or do you care what your customers think you?

Remember, no one cares what you do or make unless they know that you care about them first.

Fear vs Fun

camera crewManagers enable fear. In some cases it’s intentional, but more often than not it’s completely unintentional. Enabling fear is often a condition that happens when people and teams are focused on extrinsic values like targets, bonuses, and promotions. Focusing on things that are often out of our control creates bad habits and frustrating work conditions. Worse of all, fear is what keeps people from growing and learning. It’s fear that prevents us from sticking our necks out and doing big things. Its fear that keeps us from walking down untrodden paths to find new destinations or opportunities. I’m a lot more comfortable walking the streets of NYC then the deep trails of Colorado. But fear doesn’t stop me from loading my backpack and hitting the those trails–usually.

Leaders instill fun. They do intentionally and consciously the opposite of what managers do unintentionally and unconsciously. Leaders create environments for growth and experimentation by focusing on intrinsic values like purpose, mastery, and autonomy. Daniel Pink discusses this in his book called Drive, which I encourage you to read. Fun allows people do and try things that may or may not be normal. It’s what helps people get out of their boxes and try new things. It’s what makes people look at the unknown and try it. And it’s what bonds us into community and a culture rather than enemy and foe. Fun is a good thing. Have some.

Fun doesn’t mean you’re always laughing though–let’s be clear about that. I have fun doing CrossFit, but believe me there’s not much laughing going on when you’re pushing through a WOD (workout of the day). I bet many of the people working with Elon Musk at Tesla and SpaceX would consider what they’re doing fun despite the fact that Mr Musk is extremely difficult and highly demanding. In fact if you go on Quora.com and ask “what’s it like working with Elon Musk,” you’ll find roughly that answer. People working with Elon feel a sense of purpose. They are doing things to change the world for the better. They certainly have mastery because Elon is known for seeking out the best and brightest across trades, craft, and skills. I’d also bet they feel a strong sense of autonomy. If Elon were driven by targets, he would have given up after the third failed rocket attempt at SpaceX.

What is autonomy? Autonomy means you’re self-governed and self-determined. It doesn’t mean you have flex-time–that’s not autonomous. It also doesn’t mean you don’t have to show up–in fact it’s the quite the contrary. Autonomy means that when you show up you’re there, you’re into it, and you’re all in. It means you “show up” a lot. Autonomy means you’re driven by results and you’re excited to make shit happen. People who have autonomy don’t fill seats or waste time for the sake of being at work and getting paid. The truth is you can get a lot more done showing up for 4 hours a day 4 times a week then by wasting time 12 hours a day 5 days a week.

Have fun. Be fun. And more importantly–be a leader, not a manager.

No more markdowns

Delta_V_Earth_Moon_Mars (1)Engineers build things to solve problems. They filter through effects to find causes so problems can be solved and lives can be happier. More importantly engineers speak up when they see something that’s deeply broken. We should all be engineers.

If an engineer’s mindset were applied to the fashion industry, there wouldn’t be markdowns. Markdowns are waste. If we looked at the core causes that create markdowns, the root cause would be too much product for too few customers. We don’t need enough fuel to get to Saturn, if we’re only going to Mars. An engineer’s mindset would look to eliminate waste, not create it.

Markdowns are a solvable problem. Let’s fix it.