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.

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.

Fashion industry leaders need more data intelligence

DataScientistJobDescriptionsSo many companies talk about how they are becoming more and more data driven. While I think that’s a good thing, I also think it could also be a very dangerous thing.

Being driven by something is much different than being intelligent about something. A person or company that is data intelligent is very different than a person or company that is data driven. Being driven means you are propelled by something. It’s not enough to say we use data to propel us forward. Using the right data with the wrong conclusion can be as detrimental as using the wrong data, or no data, at anytime.

Being intelligent, on the other hand, means you have a high mental capacity for something. It’s a process brought about by good judgement and sound thought. Driven is compulsion whereas intelligence is skill. Let’s work to make sure the fashion industry becomes data intelligent.

 

Know your customer.

Understand who your customer is and what they want from you. If you’re a brand and sell your products to other retailers, you need to know what their customers bought of your products. It’s completely irrelevant what you sold to the retailer. Likewise forward bookings, or orders from your retail partners, are useless. Just because you sold it to them, doesn’t mean you’ll sell it to me. If you want to build a brand that customers love, look only at what they’ve bought from you. If they didn’t buy it, they didn’t want it. That could be a function of the right product at the wrong time, or the wrong product at anytime. Your job is to figure out what your customers wanted and then make sure they can get more LIKE it at the right time in the future.