THE JOURNEY YO REMARKABLE RETAIL

Steve helps organizations understand and respond to retail disruption by creating customer-centric, memorable and profitable growth strategies.

Gap, J. Crew, Hudson’s Bay and the Unrelenting Collapse of the Middle

It finally seems that most people have caught up to the fact that reports of retail’s death are greatly exaggerated. There is no retail apocalypse. Software is not eating retail. Brick-and-mortar stores are not going away. Traditional retailers are not all doomed. And Mexico is never paying for that wall.

In the United States it’s a virtual certainty that this year will end with physical stores sales not only being up year over year (again) but also, according to eMarketer, contributing more incremental sales growth than e-commerce. Despite all the doom and gloom stories, thousands of new stores will open, many coming from digitally-native brands that one eschewed a physical presence. Quite a few traditional retailers have seen a renaissance of sorts. Moreover brick-and-mortar stores’ role in driving online shopping is increasingly important and well documented.

If you are, for whatever reason, keen on news that tilts cataclysmic, it’s best to set your sights on what I often refer to as the boring, mediocre, undifferentiated middle. With few exceptions, retailers that execute well at either end of the value spectrum are doing pretty well. Those that are weak on price and convenience or, alternatively, fail to deliver a memorable more premium, differentiated product and shopping experience increasingly find themselves in an unsustainable no man’s land.

Recent earnings reports from Gap, J. Crew and Hudson Bay continue to reinforce the idea that physical retail isn’t dead, but boring retail is. Gap Inc’s three big divisions (the namesake brand, Old Navy and Banana Republic) all reported sales declines, largely owning to challenges differentiating their merchandise in an increasingly competitive apparel world. Nevertheless its Athleta performance apparel concept, which has a more distinctive point of view, is thriving and is soon to be spun off (along with Hill City and Janie & Jack) into a separate company to help accelerate their growth.

The story at J.Crew is similar, with the namesake brand continuing to experience anemic sales, while better-positioned cousin Madewell racked up a 10% comparable sales increase in the most recent quarter.

Hudson’s Bay is another tale of two cities. The moderate department store division continues to leak market share. Heavy discounting contributed to a huge (and growing) quarterly loss. Meanwhile, its two formats targeting decidedly more upscale customers (Saks Fifth Avenue and Saks Off 5th) ran increases.

This performance bifurcation has been with us for yearsA 2018 Deloitte study shed light on the concentration of poor financial performance and store closings among those brands stuck in the middle. The report also dissected some of the macro-economic factors—essentially low- and middle-income households losing spending power and very affluent gaining it—that helps explain the polarity of outcomes.

As power shifts to the consumer, competition intensifies, choices abound and we are all flooded with a tsunami of information and clutter, no brand is going to command attention, much less get us to part with our cash without delivering some unique, memorable and intensely customer relevant. Good enough no longer is. A slightly better version of mediocre won’t cut it.

The lack of innovation and risk taking is catching up with all these retailers that watched the last 20 years happen to them. It’s death in the middle.

All those that are drowning in a sea of sameness need to make a run for the edges. Or, like many before them, it will be a run to the exits.

A version of this post recently appeared at Forbes, where I am a senior contributor.

My first book–“REMARKABLE RETAIL: How to Win and Keep Customers in the Age of Amazon & Digital Disruption”–will be published by LifeTree Media early next year.

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"The Store Operations Council enjoyed every minute of Steve Dennis's presentation on retail's future. He always keeps it real and speaks the language of retail experts."

Cathy Hotka

Principal

Cathy Hotka & Associates

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"The Store Operations Council enjoyed every minute of Steve Dennis's presentation on retail's future. He always keeps it real and speaks the language of retail experts."

Cathy Hotka

Principal

Cathy Hotka & Associates

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