Catalyzing retail brands from boring to remarkable

Our guest is Steve Dennis, a strategic advisor, keynote speaker and retail writer recognized as a top 5 global retail influencer. He has over 30 years of experience as a senior executive at two Fortune 500 retailers and as a strategy consultant, and his industry and consumer insights are regularly featured in the leading media publications. Join us as we explore customer experience, the struggling middle, and digital’s influence in retail.

Episode
11
of RETHINK Retail was recorded on
May 11, 2019
TRANSCRIPTION

Julia Raymond:

Hi, today welcome Steve Dennis. He's a strategic advisor, keynote speaker, and writer on retail innovation and the future of shopping, so naturally he's also a Forbes retail contributor and recognized as a top five global retail influencer. Prior to founding his company SageBerry Consulting, he was Chief Strategy Officer for the Neiman Marcus Group. As a Harvard MBA grad with 30-plus years of experience, he knows the ins and outs when it comes to catalyzing a brand journey from boring to remarkable. Steve, will you tell us more about yourself and what you're most passionate about in retail?

Steve Dennis:

Sure. Well, first off thanks for having me. Well you know, I have been in retail a long time. I think perhaps what's most interesting, or at least I find most useful, is I've worked in a really wide variety of product categories other than groceries, really across just about every spectrum; home appliances, apparel, handbags, shoes, etc., you name it. I've worked across a really wide range of price points. I started my career at Sears and then my last corporate gig was with Neiman Marcus, so pretty big diversity in types of customers.

And I've also managed to kind of bounce back and forth, not really by design, but I've spent a good chunk of my career really on the more analytical staff side; really analyzing competition and customers and designing strategies. But I've also run businesses. I ran about a $600 million division at Sears and had a bunch of operating roles, so I sometimes refer to myself as both kind of an architect and builder, and I think that's been helpful in terms of particularly working with consulting clients because I understand that a lot of times consultants will come up with really elegant solutions that are very hard to actually implement, so I try to leverage that in my consulting, as well as my writing and speaking.

Julia Raymond:

That makes a lot of sense, and that's a good interplay between the two. As you put it, elegant solutions aren't always easy to implement, so definitely understand that perspective. And thanks for letting us know more about your background, your work at Sears. It sounds like you've kind of run the gamut when it comes to retail. There was a recent, I think it was your keynote presentation that I was browsing through, and one thing you talked about is the struggling middle.

Steve Dennis:

Right.

Julia Raymond:

And as you put it, the middle's collapsing in regards to boring, traditional department stores, and this is really interesting because the middle's pretty large. So how can this sector overcome the hurdles that are leading to its decline, and the hurdles that you've mentioned started even before the big digital-focus retailers like Amazon came into play?

Steve Dennis:

Sure. So usually, I guess one of the things I've gotten a certain amount of notoriety on is my statement that physical retail isn't dead boring; retail is ... And what I mean by that is, number one, the retail apocalypse narrative that's been so at play for a number of years really is, I wouldn't say it's necessarily a myth, but it's very misleading. Because when you actually dive into where the stores are closing, where there are retail bankruptcies, where there are maybe not bankruptcies or massive store closings but very anemic sales and profits, it's almost all concentrated in what I call the middle market.

And by the middle market, I mean at one end of the spectrum you have more value, convenience-oriented retailers. At the other end of the spectrum, you have more premium or experiential sort of retailers. And when you really look at it, like I said it's the middle retailers where the concentration of the problems are, and I think there are a few reasons for that. One, is customers have so much access to information and choice and so forth that 10, 15 years ago you used to be able to get away with being kind of mediocre because in many cases, the customer, depending upon where they lived, didn't necessarily have a lot of choices.

Well, that whole structure has really gone away, and a lot of these retailers that were basically just kind of average are now in real trouble. So the call to action, really, is for whether it's the department store sector, which is certainly where a lot of the troubles are, but there are plenty of other retailers that aren't department stores that have had the same problem. You really need to pick a lane. You need to either decide that you're going to move much more towards value and convenience, and eliminating a lot of the friction in the buying process. Or you need to move to try to find ways to be more remarkable through experiences or service, or really honing in on particular customers.

So it's easier said than done. I think one of the problems with department stores in particular is that strategically, they're just very poorly positioned. The market's moved away from them; they are so tied up in real estate that in many cases is not in the right malls or too big, or needs massive reinvestment that they don't have, as well as in many cases they haven't executed very well. So unfortunately for a lot of the department stores, I'm not sure there's a lot they can do to really be that much better.

Julia Raymond:

Yeah. And speaking specifically about department stores in the traditional sense, how would they decide whether to move more towards the value and convenience versus towards experience? Do they have to choose which one to really hone in on?

Steve Dennis:

Yeah, they absolutely have to choose. I think in most cases it depends a little bit where they sit on the spectrum. If you're a little bit more premium oriented like Macy's, I think it's certainly going to make more sense to continue to push a little bit more upscale and more experiential. If you're more like a J.C. Penney or a Kohl's, where you've got more overlap with, tend to send more commodity products, tend to be more price oriented, then you might need to push more to the value equation.

The real problem is being stuck in the middle, though; trying to be a little bit of everything to everybody. That's the real problem. You just can't get away with it anymore, though in the case of department stores, the decline in the department store sector has really been going on for an extended period of time. So this is not a new phenomenon, it's just really exacerbated by some of the shifts in customer behavior and technology, and online shopping and so forth.

Julia Raymond:

That makes sense because coming back to the word 'boring' though, the experience I can understand how that would alleviate some of that, the traditional boring retail. But when you're talking about adding value and convenience, is that where a good amount of digital comes into play to remove the idea of a boring retail store?

Steve Dennis:

Well the reason I picked the term 'boring,' which some people challenge, it's another way of staying it is perhaps mediocre. But the reason I picked boring is I'm really trying to get more towards the emotional response and how customers feel about the overall brand experience. So what brands really need to do is dissect the customer journey and understand where they have opportunities to remove friction or pain points, or whatever you want to call them, and where they have opportunities to really what I call amplify the 'wow;' really do something that's really, really memorable and impactful for the consumer. So, that's going to vary based upon the retailer.

Now for sure there are plenty of opportunities where digital technology can be helpful, whether that's taking friction out of the process, whether that's using AI to create a more personalized experience; I mean, there's a lot of different dimensions to that. The main thing, though, I argue though is it's really not about digital or physical. Those are really, they've converged so much that that's really not the point. The point is really to think about the customer as the channel, and then if you understand the customer journey well then you'll understand where digital's going to help you and where a more physical experience is going to help you.

And again, that's going to vary by ... it's a little hard to kind of provide a one-size-fits-all solution. It's really that customer journey mapping with that lens of eliminating friction points and amplifying the 'wow' that I think's the most helpful.

Julia Raymond:

Right, and that totally makes sense. That reminds me of the buzzword that we all love to hate nowadays, the 'phygital' that people are trying to start using through the blending.

Steve Dennis:

Well, I'm very happy and I'm not going to change now that I have never once uttered that word. It's possible that I wrote it in a mocking way. I hate it almost as much as 'omnichannel'.

Julia Raymond:

Yeah, right. Moving on to this next question because it kind of relates here, in another Forbes article you had said that legacy brands are trying to innovate; they're often injecting well intentioned experiential elements into their existing stores, you said, "serving mostly to call attention to what is broken in the rest of their business." And this is the part I really think is interesting. You said, "Or, they create a store of the future pilot that often comes across like a greatest hits of other brands' memorable moments." What did you really mean by that, because it's a really interesting take?

Steve Dennis:

Well, a couple of things. And of course, you know you have to start somewhere, and I've written about this so I'm not saying something I haven't said before. But for example, some of the things that Macy's is doing, particularly with the roll out of the Story concept within a number of their stores, the Story concept is interesting and it's very well executed from the visual standpoint. Whether it will work or not as a standalone idea, I'm not sure. But the stores that I've seen it in, it's so different than the rest of Macy's visual merchandising that it really calls attention to the things that aren't so great at Macy's.

And so like I say, you have to start somewhere. That's not to say that it's a bad idea for Macy's to do story, and it remains to be seen whether it will work. But particularly when you're a multi-lined department store or you're selling a lot of different kinds of products to a lot of different kind of customers, the whole store has to work. So I think injecting these sort of one-off ideas are nice, but it really just suggests that there's a lot more work to do for these stores to be truly remarkable.

The flip side of that which is a thing...I'm old enough to have been involved with many of these 'store of the future' sort of ideas; that phrase has been out there for quite a long time. I don't know where it originally started, but I certainly was familiar with it when I was working at Sears in the '90s. A lot of times what happens is the strategy teams or whoever comes up with this, consultants or what have you, go out and they look at all the kind of cool things that winning retailers are doing, and then they bring them back and they try to do a little bit of everything all at the same time. That's what I mean by 'greatest hits'.

It's like well, we'll take one from column A and one from column B, and hope that it all hangs together. And a lot of times it doesn't, and a lot of times you might be able to pull that off in a couple of pilot stores. But if you've got a big chain, you don't necessarily have the financial resources to roll it out. So you just need to be careful that the things that you're doing are really, truly memorable for the customer and they sort of hang together as part of the whole brand experience, because eventually it's going to come across as disjointed and/or it won't be scalable.

Julia Raymond:

That makes sense; so cohesion playing a big role and scalability.

Steve Dennis:

Yeah, absolutely.

Julia Raymond:

Well talking about just kind of the experience that customers have when they go into the stores, like a Macy's that has the big Story platform, I've seen a lot of different stats around this but there was one that said one in three consumers would walk away from a brand even if they love it after a single bad experience. So how important are the front line in the future store, and how can retailers empower them in driving positive experiences?

Steve Dennis:

I think the idea of the front line is getting redefined, because again, I think it's really a bit of the collapse of the middle and this bifurcation phenomenon, where when you're more on a value and convenience side, I wouldn't say store associates are unimportant, but they're becoming less important as technology comes into play, and as ... I forget who originally said it; I think maybe Mindy Grossman from HSM, but this idea that for many customers a retailer is only as good as that customer's last great experience. In other words, if they've seen a really good checkout or easy returns or whatever at another retailer, they sort of expect you to be able to do that as well, so it puts a lot of pressure again on this notion of being really remarkable.

So I think when you're talking about more efficient buying activity on the part of the customer, there's going to be more and more technology brought to bear whether that's self-service checkout, or an Amazon Go sort of phenomenon, or things you can do on your mobile phone. And sales associates in that role or in that situation are a little bit more just to deal with issues that may come up, or just to be sort of a friendly smiling face.

When you're more at the other end of the spectrum, particularly for more high end stores, I think one of the main reasons that people go to physical stores is to be able to get help from a sales associate; try things on; understand the quality; maybe put an outfit together. Or if they're redoing their home, be able to put a decorating solution together. So I think it's going to be even more important for that customer experience to pay off, and in many cases for sales associates to be a big part of that equation.

I think the challenge is, what I've seen a lot in my own personal experience, perhaps yours as well, is so many customers come into a store now having done a lot of research. And they're either ready to buy, or they're very focused in their question, and it's often hard for sales associates to be as knowledgeable about all the possible situations they might encounter with a given customer. So I think that really puts pressure on retailers to provide better training to sales associates, in many cases provide technology that enables the sales associate to kind of meet the customer where they are; just quite a bit different than the way old sales associate customer interaction would be say even seven or eight years ago.

Julia Raymond:

Yeah, and I really like your perception there, just kind of putting, if were to put ourselves in the shoes of someone that's a Macy's employee or a Home Depot employee, and someone comes in and asks about the specific thing they researched, and they might not have that information as readily available in their brain as the person who just looked it up, so that makes a lot of sense then. Do you think the burden is on retailers to provide better information to their employees that they can access more easily?

Steve Dennis:

Yeah, I think so. I mean, and this is a little bit too black and white, but I think either you have to ... Some of the traditional ways of serving customers are better probably blown up. If you can't be helpful to the customer on their journey, then you need to get out of the way and remove the friction points. And in some cases, that may be self-service rather than trying to put a sales associate as kind of a barrier to sales.

In other cases I think it's both more training; in some cases that would be technical knowledge; in other cases, it might be more of a consultative sale where the sales associates ... Consumers left to their own devices in many cases can figure things out for themselves. In other cases, they may not fully appreciate the value of a more expensive product or a different product or whatever it might be, so in that case you need a sales associate that's got the consultative sales orientation, so teaching them those skills or hiring for that in the first place.

But I think a big piece of it, because so many customer journeys in physical stores are somehow or other digitally enabled, whether that means the customer did a lot of research online before they came into the store, or they're showing up with their mobile device and checking stuff out as they're in the store, you've really got to be able to provide the sales associate with some sort of technology, which is probably some sort of smart device, to be able to kind of match up to the consumer in that moment and ideally provide some value added services that the consumer can't do for themselves.

An example of that would be the customer's shopping for let's say shoes, and the retailer doesn't have them in stock. Then the sales associate should be able to instantly check availability online or in another store and be able to say to that customer, "We don't have it here, but I can get it for you, deliver it to your home or office later today or tomorrow at no cost." That sort of thing, which is a behind the scenes thing that a retailer can do that keeps the customer from just walking out of the store and then going shopping somewhere else.

Julia Raymond:

Right. You said later today, which is ... it's funny because just the shipping times and expectations are becoming so short.

Steve Dennis:

It's great for the consumer. It's creating some real economic issues for a lot of retailers because doing ... It seems like the stakes keep being raised on delivery times and mostly that adds costs, and it's not clear from most retailers that that'll necessarily be paid for by more sales. It's becoming more of an expectation, and the economics of that are really challenging. But we'll see.

Julia Raymond:

Yeah, and just the geography makes it a challenge in a lot of places, which sometimes consumers might not think about that immediately. But for retailers to offer the logistics and support, the same shipping as Amazon or any of the other big competitors is definitely a big challenge.

So moving on a little bit, and you don't have to call out any retailers if you want to stay away from that, but are there any that you think are worth mentioning on this podcast that are rising stars in customer experience that are really successfully creating those remarkable experiences that you talk about, and treating different customers differently?

Steve Dennis:

Sure. I think a lot of the so-called digitally native vertical brands; Warby Parker, Casper, Bonobos, a lot of those brands have had a lot of success because, number one, I think they have ... well, they have several advantages because they started online. They were really, really focused on what they needed to do to steal market share from traditional companies. So in many cases, that's been a really unique product and/or a really good customer experience and an unusually good value, those sorts of things.

Now as they've, virtually all of them are moving really aggressively into opening their stores, I think what's really interesting is because they started online, they've already got kind of this orientation of leveraging customer data to better understand how to serve customers and personalize the experience, and they've also not gotten caught up in this kind of siloed mentality that a lot of physical or a lot of traditional retailers have of eCommerce is one channel and the store is another channel. They really built their brand from the perspective that the customer is the channel, and the customer is going to decide how they want to be served. And so that, I think, has created a much more remarkable experience in regardless of how the customer wants to shop.

So I think most of those brands that are getting to a pretty good size and growing rapidly are great examples in almost all cases. But there's some traditional retailers or legacy retailers, whatever you want them, that are doing this as well. I think Sephora has been around for quite some time; they've really invested very heavily in better cross-channel integration, more personalized experience. They've already got quite a lot of unique products, so I definitely think there are, to use the cliché, old dogs that can learn new tricks.

And then I guess the retailer that is sort of in between in terms of size but growing rapidly, I often talk about Canada Goose, the luxury outerwear brand. Not only do they have really great product and really elaborate beautiful stores, but they're doing some cool things with their dressing rooms where it's basically a walk-in freezer where you get to experience the product in real-world conditions to understand the value of how well the product works. And to me, that's a great example when you talk about experiential retail; what does that even mean anymore. I think all retail's experiential, but to me the best experiences are the ones that are very customer relevant, authentic from the standpoint that they have a lot to do with what the product is about; it's not just some gimmicky thing to try to get more likes or more posts on Instagram. And it really helps the customer understand the value of buying from the brand, so that's kind of a specific example for Canada Goose, but I think the best retailers are really ... that's what they're doing pretty consistently.

Julia Raymond:

I like those examples and definitely agree. It does bring me to another point that's really related, because you talked before about digital influence and how it varies widely by retail category. And obviously, some of the brands we just mentioned like Warby Parker's or the Away's of the world, they started and were digital first. So how can that mindset be a trap, because you mentioned that sometimes there's a risk there?

Steve Dennis:

I used to talk about digital first as being one of the key things that brands should think about, and I really think I was wrong about it, or at least I was overplaying that. I think the problem, a couple problems with thinking about being digital first is, and maybe I'm too much wrapped up in the semantics, but there are plenty of times where customer journeys aren't digital first. While it tends that the majority of customer journeys that end up in a physical store start online, it's certainly not all of them.

In fact, you know one of the reasons why digitally-native vertical brands are opening so many stores is that they're discovering that it's really a great way to acquire customers because there still are plenty of customers that like going to a store, particularly if it's a product that is a little bit more premium priced or is something that you need to try on, or really see in person to be able to tell the quality and the fit, and get advice and all that kind of stuff. So I think just digital first can be a trap because plenty of customer journeys start in a physical channel. Also, there's plenty of cases where a physical experience is much better than a digital experience.

Now if you're just trying, I sometimes make the distinction between buying versus shopping; buying being something that's really more mission focused and about efficiency, and shopping which tends to be more higher priced stuff but not always, but shopping where you're really actually doing a discovery process, and you want to learn about product, and touch and feel it often, and stores are pretty good at that in most cases. And so if your orientation as a brand is we're going to try to be digital first, then I think in many cases you're actually missing opportunities to be remarkable because the physical assets you have can actually be incredibly valuable, whether that's the sales associates, or the experiences you're offering in the store, or what have you.

Julia Raymond:

So they could be missing some pretty substantial opportunities for customer acquisition if they continue with a digital first mindset, and in a lot of cases it sounds like.

Steve Dennis:

Well, customer acquisition but also customer delight. I think the internet's obviously wonderful in many cases and has radically changed how retail works, but it's still better at efficiency rather than effectiveness. It's pretty ironic that these digitally native vertical brands, many of which said they would never open stores, are actually not only opening dozens if not hundreds of stores, they're actually seeing most of their growth come from physical stores.

So they started with the digital first mindset, and there are aspects of starting with the digital first mindset as I alluded to earlier that are incredibly helpful and give them so real advantages over legacy retailers, but I think that really hit the wall in many cases as to how far they can get with that mindset. So the bottom line is humans are still pretty important in the equation. And it's great what algorithms can do and what robots can potentially do, but it's not the be all, end all for sure.

Julia Raymond:

Yeah, I can see that. And do you think there's a psychology maybe a little bit behind a Canada Goose offering freezers where you can test out the rugged jacket and see if it's going to be right for you in extreme weather, that you would be more likely just because you've been probably helped by a really expert personnel, and in that way you wouldn't go back home and look up the product, and try to get something with similar specs.

Steve Dennis:

I think so. My experiences has been there are, and this really is one of the reasons why you have to really delve deep into customer segmentation and customer insight, there are always going to be some customers who will, I guess it's not so popular anymore, but a few years ago we used talk about the 'showrooming phenomenon'. You go into the store and you take advantage of that retailer's investment in displays, and product, and inventory, and sales associates, and then you just go home and buy it at the cheapest price. So yeah, I think there's always that risk.

I think the key, particularly for physical retail but I would say it's largely the same for most of online, is what are you doing that's truly memorable and irreplaceable? If all you're doing is selling average product and you've sort of defined your business as being all about price, or maybe all about convenience at a decent price, then you're always going to risk being essentially out-Amazoned by Amazon. Trying to ... this is why I say when you pick a lane, most cases you're not going to pick the value-oriented lane because so many retailers will find themselves going directly up against Amazon and Walmart, and maybe a few others that just have enormous scale and basically it becomes about price, and you're engaged in a race to the bottom which you know you're eventually going to lose. So I think the real key is to build on those memorable and remarkable aspects that is very difficult or another competitor to replace.

So using the Canada Goose example, first of all, there aren't a lot of places that you can buy Canada Goose. It's very limited distribution, and even though it's very expensive, they've built a lot of things around it, around the product to convince people that it's worth it, which is what the best luxury brands do. And so, it's not so easy for somebody else just to knock off ... I mean, it's not hard to knock off the look of that brand and sell it for one-fourth the price, but it's not Canada Goose; it's a knockoff of Canada Goose. And that's where I think the best brands have really built sort of a moat or a fort around their brands by having a lot of pieces work together well.

Julia Raymond:

Right, having a strong brand that offers quality, and like you said, remarkable and memorable experiences, that probably plays in a little bit to like the 80-20 rule, too, just focusing on those customers that are loyal and dedicated to the brand because they know the quality.

Steve Dennis:

Sure, yeah. And that's, I think it is a challenge for some of these more unique brands, whether they're a luxury brand or Canada Goose, or I think we'll see over time even some of these digitally native vertical brands that have got some good growth, it'll be interesting to see how they scale that business because at a certain point to get to certain volume, you often have to kind of dilute, or the tendency is to try to water down or dilute what made you special in the first place, and then you risk alienating those customers that have loved you all these years and have been willing to pay a price if you take it too mainstream. It's isn't easy to do and a lot of brands certainly have stumbled trying to grow past, beyond a certain point.

Julia Raymond:

Well do you think we'll see more in terms of digital first brands opening their own stores, or more acquisitions from the huge, like Unilever's of the world?

Steve Dennis:

Well, probably some of both. I think you know if you're a more traditional company and you're getting disrupted by some of these brands, then certainly you're going to take a look at potentially acquiring them to be able to control your destiny a little bit better. It's a little bit of a side point, which is probably a separate podcast.

Some of the valuations for these brands are very hard to justify, so I think one of the barriers to some bigger companies acquiring some of these companies is they just can't get their heads around here's this brand that's worth a billion plus and looks like they're going to lose tens of millions of dollars for the foreseeable future. Sometimes you can't put your head around that, but I absolutely think we'll see more of these digitally native vertical brands continue to open stores because ... there are a bunch of reasons.

Steve Dennis:

One is, depending upon the product, it's just a good way to acquire incremental customers. Trying to acquire customers online for most of them has become incredibly expensive. You see some really crazy customer acquisition costs in some of these companies that are starting to go public or are public, and that's really just kind of fundamentally where the growth's going to be. Whether they can scale profitably, there aren't still at this point many examples of these brands that are nicely profitable at any real scale. So the jury is really still out, and I think it'll take probably another two or three years before we'll really have a good picture of which of these brands can actually sustain their growth.

Julia Raymond:

Yeah, that's a good point. I could see the trouble with the valuation there, so I really enjoyed your perspective on that. I've really enjoyed your insights in joining the podcast today, Steve.

Steve Dennis:

Thank you.

Julia Raymond:

And I hope we'll keep in touch.

Steve Dennis:

Absolutely. Thanks for having me on. Take care.

Julia Raymond:

You, too. Bye.

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