Why do retailers do the obvious things wrong?

I have been prognosticating about eCommerce for more than two decades. On balance I have been mostly right. But this is not about that, and I’ll explain shortly. First some context and some examples to set the scene:

Back then Y2K loomed large. YET to be launched was MySpace, Wikipedia, Facebook, Dropbox, Kindle and pretty much every organisation that dominates the internet today. In fact, 2000 was the year the dot com bubble burst.

I helped launch the first internet venture (Compuspace) in 1997, a year before Google Search and PayPal. This piece was written in Feb 1999.

future99.png

 

I have been writing on Inside Retail (Australia)on this topic for 8 or 9 years, so my record is in the open.

And it got me thinking about whether I was lucky or smart or whether there was something else.

Unfortunately, it is the latter. (I am smart enough to know I am not smart enough.)

Consider this case study on Lend Lease - a previous employer.

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My conclusion in a paper I sent to the executives snipped from my archives below. In short, I advocated that they DON’T play the eCommerce game (how did they go for any of the Landlords who tried?) – but instead to focus on ‘infrastructure’. That is, focus on logistics, focus on owning the routers the cables the switches and to own the highways and the portals of the internet – whatever that may look like; and NOT try to be a ‘retailer’.

Where would Lend Lease be if they listened in 2000 and spent the bounty received for MLC on internet infrastructure? (Cisco Systems traded at around $15 at the beginning of 2001 – after the dot com bubble - and at around $45 in 2018. A bit better than Babcock Brown.)

The modern take on this would be to be the ‘platform’ rather than a player or an aggregator.

Not one landlord (to my knowledge went there) but then again, Kodak did not become Flickr, Encyclopedia Britannica did not become Wikipedia and so forth – so there is a proud history of great companies not doing the obvious things.

This post is not (much) about MY perspicacity, but to pose a serious question. 

A misreading of this article would be to conclude that I am (humble-)bragging. I am setting the context because I want to illustarte that I am not being a wise-ass after the fact.

If someone with no special skills, no special training, no special insight living in a third world country (at that time) could 'know' these things; why do organisations not embrace/ address the obvious? They had to be reasonably obvious to MANY others, and they had fancy strategic planning departments doing the heavy lifting. Now that these things have come to pass, companies are surprised - and go broke – having failed to address what is obvious.

The key to being smart about the future that will play out boils down to this: understanding the difference between things that are fundamental and things that are transient. Any trends/ shifts/ technologies that enable the fundamental attributes or needs of people are bound to succeed and if not, likely to fade as a fad.

There are more than these, and Maslow’s hierarchy is a good starting perspective, but consider for instance that people are:

-          Social beings (status conscious, self-expression, interaction)

-          Selfish beings (see comfort, seek self-advancement)

-          Insecure (demanding, needy etc)

-          Inquisitive (learning, experiences etc)

In the light of the above, you can judge whether these ‘trends’ likely AR or CRYPTO are likely to last or fade.

I guess many people look at the same things and come to the same conclusions.

Why do companies then NOT respond to the obvious shifts that tap into the fundamentals of human nature?

In my concluding remarks to those Lend Lease executives, I made what I believe is to be an important observation: focussing on the present customer needs stifles innovation. Steve Jobs said something similar – the customer does not know what they want. (“It is hard to design by focus groups because most of the time people don’t know what they want until you show it to them.”)

Managers focus on the present because the present is where bonuses are paid. That is why:

•        Cabcharge did not become Uber

•        Holiday Inn did not become AirBnB

•        Blockbuster did not become Netflix

•        Sony did not become Spotify

And given what I already said about the fundamentals attributes of human beings, managers too will always look out for themselves first, and consequently lazy, present-focussed incumbents will always be replaced by hustling, future-focussed newcomers.

There are ways to avoid premature demise of great institutions, for instance:

1.      Boards should structure their remuneration practices to reward future-focussed innovation. (Including rewarding worthy failure.)

2.      Companies should stop focussing on ‘wellness’ and ‘diversity’ initiatives (for their own sake) because social engineering is not the mandate of a business. (There is a better way.)

3.      Strategic plans can almost entirely be scrapped, but at the very least should treat competitor behaviour as irrelevant.

4.      Throw most of your qualitative market ‘research’ in the bin.

Will ANY corporation follow this advice? No chance whatsoever.

In fact, here is a test: The more outraged readers are with these suggestions, and the more strongly convinced they are that I am wrong will be an exact indicator of how committed they are to popular tropes and memes and consequently how wedded you are to the present/current zeitgeist as opposed to being open to a different interpretation of the future.

And that is why - eventually - a new Netflix will replace the Old Netflix.

Differentiate and DIE

Differentiate and DIE

We can learn something from the rules of the wild.

Biologists studying zebras in the wild discovered something that flipped all their assumptions.

They watch the zebras, but they look down at their notes and then look up they got confused about which zebra they were looking at because the striped camouflage is actually protection for the herd. The scientists solved this by dabbing red paint on the horns of the zebra or tag it with an ear tag.

 

Then they discovered an amazing thing. The predatory lions would kill these painted zebras in disproportionate numbers. As soon as it became identifiable the predator, the predators could organize their hunt to target the specifically tagged animal.

 

The the old idea that lions and predators take down the weak animals, but they don't; they take down the identifiable animals.

Most marketing gurus will tell you that the secret to success is to differentiate. There is no dearth of literature on ‘point-of-difference’ and how crucial it is to survival and success.

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The Children are in Charge

I spoke at the WA Property Conference a few years ago. One of the topics I identified was the increasing ‘INFANTILISATION’ of Society.  From time to time, I like to check back on myself to see if I was on the right track – and yesterday I came across something that seems as if I was.

I am not a regular TUMBLR user, but a link led me there yesterday, and the ‘homepage’ struck me as particularly infantile. Check it out yourself. Here is a snip anyway, but the whole thing is pretty much GIFs and cartoons (visually) and you’d have to scroll for a long time before you found anything that could be of interest to a mature adult.

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For those interested in the TL/DR version, here is an extract from my eBook on the topic:

***

The manifestation of infantilism is not prominent in current business literature; possibly because it is not popular to do so for the bloggers and journalists. To me at least, the evidence of increasing infantilism is over-whelming. I deviate from the dictionary[i] definition which states: A state of arrested development in an adult, characterized by retention of infantile mentality, accompanied by stunted growth and sexual immaturity, and often by dwarfism. I am referring exclusively to the behavioural aspects and not the medical/ physical manifestations.

It is possibly no surprise that one of the biggest TV cult hits at the time of writing is Arrested Development. While the show was cancelled in 2006 after a few seasons, it was revived to much wider acclaim in 2013. (In 2011, IGN[ii] named Arrested Development the funniest show of all time). That to me seems indicative of it possibly being a tad early for its times and the ‘we generation, infantilism found its mark after the pendulum had swung a bit deeper into the current social era.

Web 2.0 Logos

Business names of the Web 2.0 era are almost without childish and infantile. From the funky, primary colour schemes and fat fonts to the made-up names everything is strongly reminiscent of baby talk.

Flickr, Prezi, Box, Pipl, Plinked, Pownce etc. is not too dissimilar to coochee coo that adults will turn to when talking to babies.

SMS language & emotional expressions

There is no need to explain the meaning of LOL or Gr8 to anyone. Nobody blinks an eye when today becomes 2day. Whilst it may have been necessitated by physical limitations of SMS messages, the conventions have found their way to other forms of communication where those constraints did not apply which suggests that it found fertile soil.

Some linguists might argue that this is a normal evolution of language, and others would describe[iii] this new variety of language, texting () as "textese", "slanguage", a "digital virus". According to John Sutherland of University College London, writing in this paper in 2002, it is "bleak, bald, sad shorthand. Drab shrinktalk ... Linguistically it's all pig's ear ... it masks dyslexia, poor spelling and mental laziness. Texting is penmanship for illiterates."

I believe there is consensus that this transformation has been more rapid, and more profound than any previous single shift in language use and this can be attributed to these seed of change falling on a soil that is particularly suited to such infantile linguistic conventions.

Gamification

Whether it is Commerce, Art, Education or Health, there does not appear to be an industry that is immune to Gamification.

Gamification[iv] typically involves applying game design thinking to non-game applications to make them more fun and engaging. Gamification has been called one of the most important trends in technology by several industry experts. Gamification can potentially be applied to any industry and almost anything to create fun and engaging experiences, converting users into players. (From)

Behind all the pseudo-science talk, it is worth remembering that Gamification is essentially about playing games.

Entertainment Software Association[v] reveals some telling statistics, which reinforces that games are popular and that Gamification of everything is tied to the social and technological shifts discussed elsewhere. The average gamer is 30 years old and has been playing for 13 years. Sixty-eight percent of gamers are 18 or older. Forty-five percent of all players are women. Today, adult women represent a greater portion of the game-playing population (31 percent) than boys age 17 or younger (19 percent). Sixty-two percent of gamers play games with others, either in-person or online. Seventy-seven percent of these gamers play with others at least one hour per week. Thirty-two percent of gamers play social games. Gamers play on-the-go: 36 percent play games on their smartphone, and 25 percent play on their wireless device.

Infographics

Whilst data visualisation itself is not new – and can arguably be traced back to cave paintings – it is worth noting that data visualisation has always been direct; e.g. the slice of a pie-chart was proportional for the dataset or the heights of the bars in histograms had a direct quantifiable relationship with all the other bars. Infographics have proliferated steadily over the last several decades, but it is only the last decade with the advent of specific software tools (to create) and software platforms (to distribute) that Infographics, as we know it, have exploded.

Infographics have introduced an indirect, narrative element to the data story – to the extent that it is has made the picture childish. This is usually exacerbated by the colour schemes and fonts (again a very Web 2.0 design language). For example, a simple stack diagram won’t do, it must now be filled with jelly-baby figurines to highlight that the bar might be referring to people – instead of simply writing the word people on the relevant axis. (Image[vi]).

Reality TV

It is generally believed that reality TV has boomed since 2000. Some interesting statistics[vii]:

Americans spend 1/3 of their free time watching television and of that 67% are reality shows and the number of shooting days for reality TV in Los Angeles rose 53% in 2012, making up about 40% of all on-location production and it now constitutes 57% of all television shows in the US.

It is appropriate to represent some statistics as an easily digestible infographic[viii]:

Presentism

Strictly speaking presentism is a philosophy where presentism is the belief that neither the future nor the past exists. In this context, I am applying less rigorous (non-philosophical) definition to refer to a general attitude that reflects short term orientation, including the desire for instant gratification and a disregard for the long term and the distant future.

This is no more cleared by the apparently whole-hearted embrace of the infantile, presentist philosophy appropriately referred to as YOLO – You Only Live Once. The disciples of this particular religion do not embrace that philosophy as a matter of self-evident truth, but rather proffers it as an excuse to do stupid stuff. (Jack Black famously quipped that YOLO is Carpe Diem for stupid people. I take from that whilst there is a metaphysical dimension to Carpe Diem, YOLO is seen as an excuse for stupidity – and is explicitly defined as such by the urban dictionary.

[i] http://www.thefreedictionary.com/infantilism

[ii] https://en.wikipedia.org/wiki/IGN

[iii] http://www.guardian.co.uk/books/2008/jul/05/saturdayreviewsfeatres.guardianreview

[iv] http://www.gamification.org/wiki/Gamification

[v] http://www.theesa.com/facts/gameplayer.asp

[vi] http://designreviver.com/inspiration/30-of-the-best-infographics-that-effectively-showcase-data/

[vii] http://anhoward.wordpress.com/the-effect-reality-tv-is-having-on-us-shocking-statistics/

[viii] http://screenrant.com/reality-tv-statistics-infographic-aco-149257/

Is offering Free WiFi a smart strategy?

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Before a mall (or a retailer for that matter) decides whether they install free WiFi for the public, there are a few factors to consider and it is not right for everyone.

Customers want it because it will help them save time, be flexible, increase productivity and stay connected with their world, but, there are risks and other factors to consider

1. Know it is a double-edged sword

There is a risk that customers will shop around other retailers without moving- comparing prices with competitors online.

Also, people expect connectivity and connectivity can increase satisfaction. since it can - if it is not fast enough for instance - be a cause of ongoing complaints.

By offering free WiFi, you also take on an indirect responsibility for the security of the data, whatever the fine print says.

All of these risks can be mitigated by choosing a reliable supplier.Most of us have probably installed our own Wi-Fi at home, so it does not seem to be a reason to get third parties involved, but that would be a major error, considering the risks and the benefits.

There are a few providers in Australia, Skyfii being one of the largest who have experience in malls in particular and also Aruba. Choosing a reputable operator allows you to access (and potentially benchmark) insights. Every year, according to Skyfii, they can analyse 300 million visitor experiences using existing WiFi infrastructure, BLE beacon networks, door-to-people counters, video sources, web and social platforms, and bring all of that together in one application.

2. Don’t do it because it is cheap

And don’t choose your partner solely on price. Cost is negligible for a regional mall. But you don’t do it because it is cheap, you do it because it will make you better. The reliability of the service, the detail of the coverage, and most importantly the depth of the analysis are far more important than cost of initial set-up.

3. Invest in infrastructure ONLY if you will invest in using the data

The key is offering WiFi can allow you to gather data. (Hence choosing the right partner.)

Wi-Fi is not installed simply to provide a free service for customers. Wi-Fi for customers supplements the traditional loyalty card. People think loyalty cards are a mechanism for points, but actually it’s a mechanism for gathering data about the customer. WiFi does that, but is also able to add contextual information such as how people move through the store or the mall.

With a good provider and with a sound strategy, mall owners and large retailers will be able to change the way they do marketing:

  • Data capture: Capture customer information through your Guest WiFi’s registration page.

  • Configurable templates: Customise your registration page and other customer forms.

  • Progressive profiling: Schedule subsequent questions with each login at the captive portal to capture additional data.

  • Content delivery: Deliver content like welcome emails, SMS, Video and customer landing pages.

  • Multi-venue configuration: Configure your Guest WiFi based on a single venue or multiple venues.

  • Social login: Provide users social login options including Facebook, Instagram & Twitter.

  • Foot traffic: Measure unique visitor counts and identify your peak visitor times

  • Smart Zones: Use geo-fencing technology to define areas of interest for analysis

  • Visitor flow: Visualise the most travelled paths and popular destinations in your venue

  • Wi-Fi Activity: Measure sessions and analyse which sites customers visit using Wi-Fi

  • Conversion: Analyse the conversion funnel for your venue, from passerby to till

  • Heat-mapping: View visitor movement in real-time on your venue map

  • Dwell Time: Understand how customers spend their time and engage with your venue

  • Attribution: Segment visitor activity and traffic to analyse the impact of marketing campaigns. I.e. being able to ‘attribute’ your traffic to the right source.

Like so many things, there is a temptation to adopt new technologies because they are new technologies. That is not smart. But WiFi (and Bluetooth and NFC) technologies are increasingly being integrated into our lives, and I can only see reasons to install WiFi becoming increasingly important.

It may seem futuristic right now, but for instance, consider this:

  • Most cellular networks are now adopting WiFi-enabled calling, and this way you can guarantee consumers don’t have to suffer poor mobile reception in your centre.

  • When people start paying with cryptocurrencies, they need network access to their digital wallet.

  • How will the Internet of Things play out?

  • Could it impact how children are monitored (and not lost) in the mall?

No one knows for sure how everything will play out, but what we do know is that there is data in your future. The key takeaways, therefore are:

First, have a strategy, second, pick a good provider and thirdly, keep iterating and keep learning. Fail forward.

Have Fun.

(Image: http://dailypicksandflicks.com)

The unvarnished truth about ecommerce failure

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What no one tells you about eCommerce Failure like Surfstitch: 10 lessons for bricks and mortar:

I am not an eCommerce denier. But I do have two eCommerce failures under the belt. So I can speak from experience. 

But rather than my failures, let’s consider the more spectacular story of Surfstitch. My son was a customer of theirs, so I also have some experience to confirm that Surfstitch had:

  • Great customer service
  • Good product range and pricing
  • A very nice UI/UX on the website
  • Good marketing

In short, they had EVERYTHING the gurus are telling bricks-and-mortar retailers they should get as a matter or life or death. Yet that did not work out so well for them.

SurfStitch had their IPO in 2014, and less than a year later, the share price had more than doubled, pushing market value beyond $500 million.

Surfstitch shares crashed in 2016 after a peak in 2015. CEO Justin Cameron bailed out in 2016, and the company issued three profit warnings and is facing the prospect of a $100m class action from irate investors.The reported loss totalled $155m for 2016.

While sales grew 7 per cent over the (2016) year, this was largely due to the spate of acquisitions. In 2017 Surfstitch went into administration, although the main online operating entity continues to trade.

Excuses that were offered included:
The period of rapid expansion (multiple acquisitions and two major capital raisings) involved significant management time.
The  focus on increasing market share, combined with difficult trading conditions – particularly in USA  – saw  margins slump from 46 per cent to 39 per cent.

Excuses that were NOT offered, but probably did not help:
Co-founder Lex Pedersen - who returned as interim chief executive saw his base salary for the year jump from $280,000 to $634,000, 
Mr Cameron's (previous CEO) had his base salary also increase from $220,000 to $561,000 in the eight months to his March departure.
Chairman Howard McDonald's total remuneration jumped 40 per cent from $71,950 to $100,903.

But what really happened?

To paraphrase Forrest Gump: Life is a box of chocolates. And Surfstitch got stuck with the leftover Cherry Ripes.

Of course it would be presumptuous of an outsider to prognosticate about the specifics, so let me generalise the lessons for any retailer in any channel:

  1. Money (capital) does not fix everything
  2. There is no substitute for spending less than you are earning: sales is not the same as profits, and without sufficient margin you don’t have a platform
  3. You can indeed grow yourself broke
  4. Hubris will kill any business: don’t drink your own Kool Aid
  5. Inexperience can only be cured one way
  6. It can’t cost you more to acquire customers than you make from them - at least not forever
  7. You can bulls&*t some people some of the time
  8. There is nothing more vicious than an aggrieved shareholder who had already visualised spending the returns
  9. All the metrics matter - except positive PR

And finally, and most importantly:
10. eCommerce businesses are not immune to all the issues that any other business faces. You have do all the same things ‘right’, and not do all the same ‘wrong’ things . And if you have an traditional retail business, simply adding eCommerce capability is in and of itself NOT a panacea. 

As JH Plumb wrote so eloquently in his treatise on The Renaissance:

Success comes most swiftly and completely not to the greatest or perhaps even to the ablest men, but to those whose gifts are most completely in harmony with the taste of their times.

That was true then (fifteenth century), and it is true today. And that is just the start. After that you have to execute. 

To fail at execution is to fail for sure.
 

(Image: surfstitch.com)

The Siren Song of Growth

 Image:  oopperabaletti.fi

Image:  oopperabaletti.fi

The roots of mermaid mythology varied.  In modern myth we tend to see mermaids as kind and benevolent to humans but not all stories go this way though. In these myths, mermaids would sing to men on ships, hypnotizing them with their beauty and song.  Those affected would rush out to sea only to be either drowned, eaten, or otherwise sent to their doom.

The idea of Growth seems hold the same powers as the magical mermaids of your. We are seduced by its siren song....

Its existence seems accepted.

Its desirability is assumed.

Its benefits implicit.

But is it?

It is undeniably true that nothing grows forever.

In fact, the trajectory of growth is something that goes like this:

Birth, Growth, Maturity, Decline

You may recognise that that is the Livecycle Curve I just described.

The only question and the only variable is ‘how long’.

So, decline and death is inevitable and inexorable.

Growth is NOT an unending upward trajectory.

So, if the END of growth is death, why are we so obsessed with growing?

How to position your business (practically)

OR, YOU HAVE TO BE IN IT TO WIN IT

If you use words like positioning or point-of-difference, many retail operators switch off because all they hear is ‘theory’. It is worth remembering that the process works like this: you RESEARCH what happens in PRACTICE in order to formulate a THEORY. So, in fact ‘theory’ describes what happens in practice, and in practice retailers ‘position’ themselves differently.

The problem is that it happens by default and not by design.

Below is a simple approach to design your positioning; if done right, can be difference between success and failure. I will use a furniture store as an example.

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There are a range of competitors – from the dollar shops, to the big furniture retailers – in this category. How do you find a niche, communicate that to your customers in such a way that you have a sustainable business?

What is Positioning?

Positioning is how you want your customer to think of you. (Your ‘position’ is the space you occupy in the mind of the customer.)

Can you identify the brands based on how they have ‘positioned’ themselves?

·                The go to place for… birthday cards

·                The drink to get if you are thirsty and hungry

·                The car to buy if you like driving for sheer driving pleasure

In order to conduct a positioning exercise, we usually recommend it is done on a two-dimensional matrix, but in this example, we take a different (more user-friendly) approach.

Step 1: List all the criteria/attributes that are relevant to your sector. Be sure to concentrate on those variables that matter to consumers. (This stage is important, and should be done with real insight. If you are able to identify a variable that really matters that no one else has considered, you potentially have discovered some ‘blue ocean’.

Apple ignored ‘capacity’ and ‘size’ when it came to portable music players, and instead focused on ‘aesthetics’ with the iPod. They hit the jackpot, which was amplified when they launched iTunes to also provide ‘access to music’ instead of ‘owning music’.

Step 2: Plot your business on these variables.

Step 3: Plot competitors. (The more data-driven insights you have the better, but sometimes common sense gives an answer that is close enough to be good enough.)

Step 4: Identify the point(s) of difference.

Step 5: Claim one POD and communicate that with laser-focus.

EXAMPLE:

The following is an incomplete list of strategic positioning variables for two furniture retailers.

Whilst these are hypothetical examples, for the sake of testing yourself, which positioning path (for example) represents Harvey Norman and which would better represent Oz Design?

If you were, say, Beds-R-Us, where would you position yourself on these variables – and which one would be your POD?

 Point-of-Difference describes how you differ from your competition. The diagram above will reveal your point-of difference that you focus on. Communicate this difference with consistency over a long period of time and the message will eventually embed in the mind of the consumer.

If you succeed with that, all that it means is that you are in the ‘consideration set’ of options when a consumer makes a decision about buying your product. Your POD may not be relevant to them or may not be the most important variable when it comes to making the decision.

But if you are positioned appropriately in the mind of the customer, at least you are in the game.

And as our friends at Tatts remind us; you have to be in it to win it.

When a business model eats itself

Or, Committing Ouroboros

The emergence of platform brands has been interesting, and perhaps the defining feature of the post-millennial business models. By platform I am referring to businesses like Facebook, Uber, Spotify, Amazon etc which operate essentially as a marketplace/ platform that connects supply and demand.

The new business is a peculiar beast

One peculiar feature of these business models is that they are, quite literally, business models that eat themselves.


Mythologically, the meaning of the snake eating its own tail (Ouroboros) is strangely enough the Infinity Symbol too. These businesses may seem to last forever, but there is also a limited amount of tail to eat.

Let me explain.

Spotify

Spotify had to attract the big brand (artists) to the platform in order to gain traction. Every time the sign a big name, the number listeners climbed. Eventually they even got Taylor Swift. Now there is no reason for anyone not to listen to spotify.

But as Spotify ‘learns’ your taste in music, and the algorithm produces playlists and stations for you, the constant stream of music obliterates the artist who created it. Unlike radio, where the chatter of the DJs and other human interaction revealed something about albums, artists and other context that constitute the art of music, Spotify  turns all music into muzak. I have hundreds of songs in a playlist (that I like) that I don’t know who the artist is.

When all artists stream on Spotify, you don’t need an artists anymore, just an infinite number of variations of a genre that suits my ear.

Kickstarter

Kickstarter is a way of raising venture capital. In order to get where it is, it needed (traditional venture capital) even while crowdfunding is replacing traditional sources of capital. Eventually, VC can conceivably be replaced altogether by peer-to-peer lending. I can even imagine a time where the applications on these platforms are selected and promoted on the platform based on an algorithmic prediction of likelihood of success. And that the ‘users’ or investors, set an investment budget and allow the algorithm to decide.

Netflix

There are an infinite number of options, but instead of us immersing ourselves in the characters, reading stories about the actors in gossip magazines for the better part of the year, we binge on a series for a weekend - are briefly engaged - and then move on to the next.

I have watched 5 seasons of Suits, and I don’t know who plays the main characters. But I can remember that Corbin Bernsen and Harry Hamlin played major characters in LA Law back in the 80s. Our interest in the actor is fleeting and superficial and they are all eminently interchangeable. Except for the odd break-out series such GoT, everything is forgettable.

Netflix needed the big names to attract us, but can’t produce big names that will keep us.

Amazon/ Commerce/ Shopping Cart

Shopping sites need to stock the brand we want in order to attract us. Once we are there, like it and return, we set up our favourites to re-order. After that, we are less likely to switch brands, because we ‘set and forget’ and have little exposure to alternatives if everything is done on automatic reorder.

Amazon found its fame by signing up all the big name authors to be distributed online. The Kindl seduced them further.

As soon as every author is on Amazon, then all the readers are on Amazon, and then no individual author matters. You are fed an endless stream of authots/titles that are 'like;' the one you already like and they all blur into a genre-soup that satisfies you. Ultimately it kills your curiousity AND your taste, because by never reading something you don't like, you will forget what you like. And no consumer brand eventually will matter when Alexa orders everything.

[ASIDE: That is why social media is so dangerous in fostering groupthink - creating these echo chambers of followers/fans who all happily drink the kool-aid.]

The Brand Paradox

This means in practical terms that brands are developing a new value architecture: These platform business models are at once very hard to replace because they own the demand. This strength increases over time, because of the self-reinforcing nature of the business model. The more people use Uber, the more drivers will want to drive for Uber.

But at the same time, there is paradoxically very low barriers to entry and the business (platform) can easily be subsumed and surpassed. If a better search engine comes along, the value of Google will fall off a cliff in a matter of mere weeks. The switching cost for the consumer is as low as spending a minute to download an app.

The only barrier to entry is the critical mass of consumer demand. This is hard to win, but easy to lose.

The brand becomes a placeholder: Uber now means taxi, and nothing more.

These modern brands are different from traditional brands in many ways. Most obviously is the way in which there is separation between the product/service experience and that of the brand values. If you have a poor AirBnB experience, you won’t necessarily (not initially and not completely) condemn AirBnB, but instead would understand that it is the host that should be punished with negative brand assessment (ratings). If this happens consistently, you will start questioning the AirBnB vetting process, but there is initially some separation between brand value and the actual product or service. The same applies to say Uber or Amazon et al.

But the flipside of the platform-brands enjoying this immunity is that they are also less valuable as a brand. By that I mean that the huge valuations they enjoy is because of the (crazy) multiples of their anticipated cash flows, and not because of some inherent brand equity.  If Uber rebranded tomorrow to Zuber, it would be easily done compared to rebranding Coke.

In Summary

Let’s take Netflix as an example, but exactly the same can be said of any of the other platform brands like Uber, Amazon etc.

  • The value of Netflix is in the number of subscribers they have.

  • Because of that critical mass, there is a major barrier to entry.

  • But if you created a product that was demonstrably better, shifting the mass of customers is easy; the barriers to exit are low.

  • Netflix engenders no loyalty from the suppliers (producers, distributors, actors) because in fact Netflix destroys the brand value of the very thing it needed in the first place by virtue of becoming dominant through infinite supply.

  • The customers are not loyal to the brand of Netflix, because there is no real brand of Netflix - it has no brand and no personality, no more than a bookshelf has a personality.

  • If you see a bad movie or have bad reception, you don’t attribute it to Netflix. But neither do you think Netflix is great because you enjoyed Ozark so much.

  • When the brand is a platform, it only has utiltarian value.

For Netflix to grow, it needs to eat the thing that made Netflix great:  that is ouroboros - the snake eating its tail.

All these businesses, now so seemingly invincible, are vulnerable at the core, because neither the customer, the supplier or the partners are loyal, since they are all destroyed in the process of making the company great.

Infinity is an illusion.

Transformative Innovation in Malls - Pt 2

3. Create an ‘agile lease’

We don’t envisage that leases will disappear altogether. But what would introduce the necessary flexibility to empower retailer-driven innovation is the notion of an agile lease.

Innovation: Change the Standard Specialty Lease to an Agile Lease

This is a lease where the key commercial terms (duration, cost, usage clause etc) are contained on ONE sheet, which then can be changed by sitting down in a single meeting or phone call and counter-signed and legally take effect. If new concepts can grow and establish themselves without the constraints and costs of for instance trading hours and with the guaranteed ability to vary the usage to fine-tune the offer to see what works, their chances of success are greatly enhanced.

There are strong socio-cultural trends that suggest that the value of these legal agreements are being eroded significantly anyway. In fact, the recent Sumo Salad/ Scentre debacle points to the absolute necessity.

5 Every centre a mixed-use centre

Creating a TRUE mixed-use centre would mean incorporating many of the following uses - possibly even all of the areas below.

Innovation: Multiplicity of Use

  • Retail

  • Public Domain/ Community

  • Entertainment

  • Office

  • Residential

  • Alternative

  • Tourism

This is in essence a risk diversification strategy.

Start by adding maximum residential living to the centre. That is, to use an Aussie social convention a matter of BYO Customers. This is obviously not necessarily easy or applicable in every instance, but on the whole, most retail centres are in prime real estate locations with excellent infrastructure as well as often with community facilities.

It may require serious, long-term lobbying to overcome zoning issues, height limits and what not, but political opinion aside, I find it difficult to visualise any shopping centre that could not accommodate hundreds, maybe thousands of living units above it.

Great use of space, roads/parking etc can be expanded (possibly going underground) more easily than entirely new land to be found somewhere else. The accommodation could be for residents, holiday or even student accommodation.

Alternative use could include spaces often found in event/convention spaces. I can imagine ‘Launchpads’ = space in the shopping centre for experiences. Shop selling yoga clothes can use this space to run a yoga class once a week and promote their clothes. These are spaces to learn, explore and meet.

Ensure some spaces are large, flexible and multi-purpose. For a shopping centre to be a true marketplace it will  need to cater for a events (we lost our centre courts to kiosks).

These spaces should be  accessible AFTER hours. The idea is to work towards a mix of activities and an offer that extends the trading period of a shopping centre. In a world of shift work, remote work, permanent casual work, the gig economy, the idea of a 9-5 centre will become a quaint relic. The town square is not only applicable to large regional centres with external space to use; it can be replicated in every centre, and it starts by reclaiming the old centre court.

Placemaking is gaining traction in shopping centres. The argument for this is easy; the payoff is a bit harder. But if shopping centres are to be function as public spaces, it has consider topics such as Biophilia . An environment devoid of Nature may have a negative effect, with a potentially undesirable impact on health or quality of life. Malls have the social obligation to manage these spaces differently.

Placemaking relies on high quality common areas, a blurred line between public and private spaces, and the integration of traditional and non-traditional retail uses like local government offices, community centres, medical, childcare and education services.

It is critical that malls be about much more than stores. We see the mix of tenant/public space shifting from the current 70/30 to a significantly different split. When this happens, these expanded public spaces will need to be planned and programed over the year much like an exhibition. They will be managed more like content and media, instead of real estate.

Mckinsey suggests that malls must become like retailers, isolate and quantify the consumer touch points that are most responsible for driving satisfaction.

This means applying recent retail innovations like customer journey mapping in the mall, tracking it and using the information to improve the experience.

6. Crack the Code

Any landlord of any material significance could create a crack team of retail professionals that can scour the world and create a new concept. Landlords have capital, data that will aide insight and decision-making and  It will likely be a franchise concept, and as soon as it attains critical mass, it can be sold.

It is really Landlords adopting a BYO attitude to retail mix. Landlords should:

  • get better at judging a retail talent

  • have retail teams working on partnership with retailer

  • be willing to perhaps operate retail shops themselves

(When you are funding the retail concept through fitout contributions anyway, you might as well have more control.) Mckinsey says that malls (should) see themselves as customer-facing providers of shoppable entertainment. (For example, the Menaissance: men are taking the lead in spending.)

7. Toe-prints

I borrowed this term from Liz Holland, even though our use is a bit different. It is about exploring the multi-channel crossover opportunities.

For example, provide space for customers/patrons to:

  • see and try the products for eCommerce retailers (shared space).

  • pick online orders up

  • provide showroom spaces

These types of opportunities are designed to make the shopping mall a place where non-traditional retailers (like eCommerce merchants) can get a micro-footprint (or a toeprint as Liz calls it) in an environment before they are ready to commit to bigger, longer-term arrangements.

These examples are not an exhaustive list - you will see that it involves all four elements of the shopping centre mix to some extent, so I believe it has the potential to be TRANSFORMATIVE.

Transformative Innovation in Malls - Part 1

Why do shopping centers struggle with innovation so much?

Over the years I have made many proposals and floated many ideas with clients and with employers. I have had many bad ideas, but I have also had many ideas that were simply ahead of time.

Ideas have an extraordinary difficult path to adoption; what with politics, resources and risk to consider.

The diagram below illustrates the two types of innovation. Both are desirable, but only one is critically necessary. Implementing truly transformative innovations is harder by an order of magnitude. Simple, transitional innovations are necessary, but they don’t transform a business to make it sustainable in the long run. For instance, it is important to implement recycling programs, install charging stations for EVs, but these won’t help ensure your future. Transitional innovations are necessary, but not sufficient.

 (c) 2017 ganador

(c) 2017 ganador


The problem, as it is with so many strategic insights, is how to actually, practically make it happen. I think I have solved that riddle for shopping centres. The framework below articulates the four key elements of the shopping centre’s success. The investors (representing the providers of capital), the actual bricks and mortar place, the shopping community (patrons) and the merchants that are the primary attractors.

Transformative innovation happens when you succeed in introducing a change that involves and benefits all four these elements of the shopping centre mix. When you integrate changes that to some extent combines and involves these four elements, then you get innovation that transform.

 (c) 2017 ganador

(c) 2017 ganador

As an aside, for the sake of completeness and transparency, it should be pointed out that simply having an idea is a very small part of the process. The biggest challenge is the cultural shift that creates a climate that is receptive to innovative ideas and a structure that enables the execution of innovations are prerequisites. But this is not a book about change management per se, so I will stick to the knitting.

The list below are all ideas (some more than a decade old) that seems to me still have merit, and all of them integrates to a greater or lesser extent these elements of the mix.

1. A Fund for Fitout Contributions:

Retailers in the current climate (2017 and foreseeable future) rely heavily on landlord funded store development.

Innovation: Create a FITOUT FUND.

That is a separate fund (with a dedicated Fund Manager)  that takes equity but with a payback structure for the retailers, instead of providing lease incentives with no return. Instead of funding failing business models, invest in new concepts. Make it compulsory for a portion of the funds to be spent on professional advice (design, marketing, legal, financial, operational etc) that improves the risk profile of the fund.

2. Casual Incubator.

Casual Mall Leasing and later Pop-Up Retail has long been part of the shopping centre scene. Landlords saw this as revenue opportunities - occupying common area space and generating incremental income. It was largely a response to the luxury of high occupancy rates. Many in the industry saw this as an opportunity to ‘incubate’ future tenants. But for a variety of reasons that hardly ever materialised.

A few entrepreneurial types tried things like 100 Squared. Scentre recently launched an incubator at Chermside which I have not seen personally, but is possibly the type of innovation that could be transformative.

Innovation: Design & Create dedicated a Co-op Space

Much like Offices have become Co-working spaces where a bunch of rotating and fluctuating temporal concepts can trial themselves. The key to making it a sustainable option is to (a) support it with professional advice to incoming trial concepts (b) make it permanently available (c) prioritise the concepts that can scale for shopping centres and (d) allocate space based on potential (not first movers only) and (e) constant rotation to keep customers coming back anew.

The key feature of something like this would require the Landlord to NOT be cynical.

 The shaded/blue areas are those services we specialise in over at www.yearone.solutions

The shaded/blue areas are those services we specialise in over at www.yearone.solutions

A real incubator must be applied the full lifecycle of new retail concepts - as per above diagram: Identify, source, screen, onboard, support, adapt, grow and iterate.

One can brainstorm various innovations once you have a specific stage of the cycle to focus on. Examples of innovations that could be applied to the various stages are:

Online Academy: Create a dedicated website for any business interested in opening in a centre to (a) learn how to do it (b) step them through actually doing it. It may even be a joint-initiative of multiple landlords, but the idea is that making a success in a shopping centre has its own unique requirements. It is not about teaching people how to retail (only) but how to do business and to ‘stress-test’ their ideas and give them an opportunity to bounce ideas off the facilitators (independently).

Retail Development Support Office: For the duration of every retail development, create a Retailer Academy/Forum for any business (comprising fewer than 3 stores) who is signed up to a deal. Offer the newbies guided, independent advice to help plan their business, design and configure it, finance it and launch it. A simple thing like navigating the recruitment process on intuition is fraught with danger and getting the wrong people on the wrong agreements at the start of the new retail business could easily be fatal (at worst) or just result in such a poor customer experience post launch that they are on struggle street to retail customer interest. (How often have you gone into a store for the first time, had a bad experience, and wrote that store/brand off never to return?

Screen for Success: We have created a subsidiary company - www.yearone.solutions to act as an external validation agency  in this space. Y1S can help de-risk new retailers and assignees though better, professional assessment and validation. This mitigates risk and secures any potential landlord investment. This intervention can also be geared to guide the retailer - through the business planning process - to help get them off to a better start, particularly those who are not familiar with the constraints of trading in a centre.

We conclude the two-part series in the next post.

PS: Drop your name in the subscription box to be notified when we publish the FULL version of THE BEAT OF THE MALL.

How AirBnB's business model is the blueprint for shopping malls

This was intially published to the #thinkdifferent newsletter. If you would like to get advance insights, well you need to be smart enough to know what to do...


Business Model Disruption in Real Estate

In many ways, this section goes to the heart of explaining HOW the business model of shopping centres will be disrupted. Rather than speculate or theorise about it, I looked at disruption in other industries and identified to key elements of disruption. There are many to choose from (Taxis, Media, Movies and even Retail). I considered all of them and I found a patterns of disruption that (a) conforms to the way we think as revealed in our dialectical cycles of system change and (b) it reveals a set of consistent principles.

It is worth noting that entrepreneurs who disrupt industries, rarely can articulate with foresight a list of dimensions that they aim to ‘disrupt’. It is a result of opportunistic thinking - simply doing the opposite of the incumbent’s strategy.

It is only with hindsight, once the disruption has occurred that we can sit back and see what actually happened, and more importantly what worked. We have had sufficient examples of effective , technology-led disruption in multiple industries to start seeing the patterns.

Like Uber, not like Tesla

I don’t consider, for instance, that Tesla is a ‘disruptor’. Their business model is at its core quite similar to the rest of the auto industry. Electric-powered cars are more disruptive than say the inflection that occurred when the industry went from normally-aspirated vehicles (with carburetors) to fuel-injected vehicles, but the nature of the disruption is relatively similar.  EV will fundamentally disrupt the oil exploration and fuel distribution business, but not so much the automobile manufacturing industry.

As will be explained below, one of the characteristics is that it is a case of winner-takes-all post disruption. With Tesla other manufactures can (have) follow suite and do it relatively quickly.

The Principles

The principles below are simply the key strategic elements of any business - brand, value, price etc. By comparing the industry sector before and after the disruption provides a powerful insight into what the future is for industries yet to be disrupted.

The criteria considered are:

  • Brand
  • Determinants of Supply
  • Nature of Supply Chain
  • Marketing Characteristics
  • Roles of the physical location (Real Estate
  • Nature of Service
  • Nature of Value
  • Range/Offer
  • Determining the Experience
  • Choice
  • Capacity
  • Scale
  • Pricing

The question is simply this: how did these criteria change in the NEW business models? Given the opportunistic nature of business evolution (go where the opportunity is); the hypothesis is that the disruption will occur in the direction of the opposite (from thesis to antithesis).The disruption that AirBnB brought to the holiday/short-term accommodation sector seems to be an appropriate case study as hotels function very much like shopping centres on many levels. What happened?

Brand

The idea of a ‘brand’ was traditionally used to identify the nature of the product; that is communicate essential features of the actual product. In the new model, the actual product can be anything anywhere - from a six star experience, to a tent on a farm. The brand is a platform that attracts people to it and is not determined or influenced by the actual product. No one associates AirBnB with a certain type of product, a certain type of experience. 

Supply and Demand

In the old model the winner was the brand that owned the supply. In the new model, the winner owns the demand (the market) and suppliers follow. There are challenges in creating these ‘marketplace’ business models initially, but once the tipping point is reached, it becomes self-fulfilling.

Marketing Characteristics

As much as traditional businesses claim and aim to be ‘market-led’, the reality is that they are very much in charge of their own destiny, deciding what the strategy, execution and so forth are.  Traditional marketing is top down, from the inside out. In the new format, the marketing becomes outside in and bottom up. Other than 'founder ego', there is no reason for AIrBnB to advertise - the participants advertise their participation as they wish.

Roles of the physical location (Real Estate)

At the dawn of commerce, the production of goods and the consumption of goods were co-located. In time, as distribution expanded, the importance of owning locations mattered a lot. Trade routes determined marketplaces. The one with the best real estate won. Hotels that opened prime locations on the ‘trade route’ of holiday destinations owned the real estate to differentiate themselves. This created high barriers to entry.

AirBnB owns no real estate and the barriers to entry come from owning the market, not owning the supply of rooms.

Nature of Service

Businesses choose to differentiate on the level of service they offer, usually adding services = adding value and adding margin. In the new model, there is typically only the essential services.

AirBnB does not facilitate insurance, does not help its suppliers to procure cheap soap. Not additional services.

Nature of Value

The value procured can range on a scale of tangible to intangible. (Pure product to pure service). In all major instances, the disruption has been in one direction - towards intangibility. (There is currently the emergence of the Internet-of-Things, which has a distinct tangibility to it; again the ‘antithesis of the thesis offered by the internet.)

I have spoken and written at length about ‘ephemeralization’ - the idea the the things we buy seem to be increasingly ephemeral - even for digital products. The storage disk becomes the Cloud and the CD becomes a ‘stream’.

Range/Offer

Consumers always wanted unlimited choice (but it must be easy to choose and be frictionless to transact) and so the ephemeralization has enabled that to the extent that consumers now have practically unlimited choice. In the old model, there are obvious constraints and limitations in the offer.

Curation: Determining the Experience

The brand owner determined the experience. In fact, the brand ‘promised’ the experience. The hotel operator determined the level of ‘stars’ of the experience. AirBnB has very little control over the quality of the offer, relying on consumer rating mechanisms to communicate the nature of the experience. (As aside: AirBnB is attempting to enforce social justice agenda by setting rules as to who the operator may or may not decline to host. This runs counter to the core premise, and it will be interesting see how it plays out.)

Capacity & Scale

In traditional business there is often a capacity constraint that limits the operational capacity. Only so many locations, only so many customers. In the new marketplace model, there are virtually no capacity constraints to limit growth. AirBnB is not even limited by the number of houses on Earth - they can keep adding ‘experiences’ or they could even colonise the moon.

Pricing

The old model of pricing was quite structured, with each member of a the supply chain carving out a margin that kept the whole system alive. Each stage of the chain was carefully and formally negotiated. In the AirBnB world pricing is variable. There is a ‘clip-the-ticket’ mentality that operators adopt - often taking a relatively small portion of the price, relying on scale to provide the returns by keeping resistance for newcomers low.

The Dialectical Meta-Pattern

The dialectical pattern always seems to emerge doesn’t it? When you carefully analyse all the changes articulated above (or summarised below) you will notice that there is a dialectical pattern. The full process is explained in THE BEAT OF THE MALL - so you will just have to stay tuned for more on that. 

The table below summarises how the traditional model of hotels compares to the business model of AIRBnB. Both industry sectors aggregate and sell rooms to visitors and derives a profit from the amount spent by the guest.

The key takeaway is quite simple, and quite self-evident: whatever the features are of a currently successful business model (the THESIS), the future lies in doing the opposite (the ANTITHESIS). Ovder ttime, these differences get SYNTHESISED. 

And then a NEW ANTHITESIS emerges.

THESE ARE THE QUESTIONS TO ASK:

What are you doing now?
What is the opposite?
Is that possibly the future?

The 7 Immutable Truths of Prosperous Shopping Centres

 Bal Harbour Shops is the most lucrative, most productive, and most profitable shopping area in the world. Located in Miami, Florida, the mall is renowned for being the hotspot for individuals who belong in the high-end market with money to burn on extremely expensive products. (Image from http://www.therichest.com/

Bal Harbour Shops is the most lucrative, most productive, and most profitable shopping area in the world. Located in Miami, Florida, the mall is renowned for being the hotspot for individuals who belong in the high-end market with money to burn on extremely expensive products. (Image from http://www.therichest.com/

Not all malls will survive, not all malls will die. The question is what to do to ensure your mall is winner?

In the coming evolution of malls, there are a few (IMHO) self-evident truths to be considered.

Truth 1: The Offer

The offer (retail mix) will change, possibly unrecognisably so. At one point the malls have become the go-to place for any shopping, primarily offering convenience. The mainstay of the mall became the easy shopping for functional comparison goods like fashion.

In the last decade or so the trend has been towards more experiential forms of retailing, but to be honest ‘experiential’ meant adding food - ala ‘eat street’. This was a relatively one-dimensional view of ‘experience’.

Recently the emphasis has widened to include services (healthcare, libraries, gyms).

The two obstacles that prevent malls from evolving sooner and better are:

Lack of retailer-led innovation.

Mall owners can only facilitate the infrastructure needed to retail; they are not retailers or even in the retail business. Too many retailers are acting like deer caught in the headlights of e-Commerce (or the B-Double called Amazon.) And, very importantly, ‘retail experience’ has become a buzzword and few people seem to be able to articulate.

The other obstacle is the lack of flexibility.

Some of that is caused by local government planning regulations. And some of that is self-inflicted, as investors demand rigid lease structures (to minimise risk and differentiate from other investment classes) but these structures do not facilitate agile retail and innovation.

Truth 2: Time Horizon and Lag

The malls that will survive have owners who play the long game. The current system has considerable inefficiencies caused by the (a) different investment and performance profiles of landlords vs tenants, and (b) the resultant friction costs caused by the lag in relative fortunes.

The solution is to adopt an ‘agile’ lease structure. I will address this in another post.

Truth 3: Balance of Power

The balance of power between landlord and tenant will oscillate during the transition, even if it now favours the retailer in most instances.

Truth 4: eCommerce

The nature of eCommerce will influence the format of the new mall.

It is shaping what customers expect to be available, both in product, expediency, price and service. Responding to this challenge requires two tactical responses:

Attack by differentiating:

A physical space with real people interactions cannot compete with a virtual/digital space on many of these elements, so it is critical to find/create and then focus (relentlessly) on the differentiators.

Defend by Seamless Integration:

This is what the commentariat mean by ‘multi-channel’ retail. Ensure the customer can seamlessly move between channels, irrespective of  the specific stage of the purchase journey.

This will eventually determine the retail mix of the mall in very specific ways. (Keep reading Inside Retail and I’ll share those thoughts in future article.)

Truth 5: Technology

Technology will play a key part in the functionality and features of the new mall.There was a short segment on the Today Show (The Future of Shopping). The crux of the message was frictionless payment (true) and walk-in-walk-out shopping (not so true).

True:

In Psychology, there are two types of stress: one is called eustress and then the old fashioned distress. Point-of-sale causes distress. That is why tap-and-go payment resulted in higher frequency of purchase. Trütsch  found (2014) that “contactless credit and debit card adopters undertake statistically significantly more transactions by their corresponding payment cards compared to non-adopters while this also holds true for overall card services payments.”

Not so True:

Walk in, walk out shopping (WIWO) with no interaction at all will be adopted to some extent by certain consumers for certain types of experience. WIWO shopping behaviour is adopted where less friction is desired, but less friction is not required in all elements of shopping.

If there is no friction there is no interaction, if there is no interaction, there can’t be a (pleasurable) experience. (Ahem.)

Truth 6: Fundamentals

The malls that survive will do so because they address the core values that underpin all consumption. An important consumption value is “the experience”. But there are five additional patronage values.

The more complete (and strategic) the Landlord is about responding to these values, the more prosperous the future. Strategies like ‘community engagement’ and ‘placemaking’ are tentative steps in the right direction of tapping into some of these other consumption values.

Truth 7: No one knows

No one knows for sure the exact nature and details of what that looks like specifically. But on aggregate, the mall owners can and will figure out what works.

If you are an owner or investor, I hope it is you.

As always, many of these truths must be addressed by spending money. The challenge is to do so when the return on investment is over the horizon, or maybe even unquantifiable. Ultimately, this will be the real differentiator for shopping centre landlords: a commitment to investing in a future with uncertain returns.

I didn’t say it would be easy, or that it wouldn’t require courage; just that it is possible.

Dennis Price: Co-Founder at www.yearone.solutions

Is Elon Musk the Emperor with no clothes?

Like everyone else, I harboured a general admiration for Elon Musk of Tesla fame. A successful, focussed, visionary person who has achieved great success, right.

 I didn’t quite feel the same towards Jeff Bezos - Amazon’s lack of profitability concerns me.

 Then I read this article. (Read in full - well worth it.) Here is a sample:

The key for Amazon making it all these years was to keep people focused on everything but their financials. This is not an exception. Faceberg will never have earnings to justify its share price. In fact, it will never have user rates to justify its ad revenue. It’s not unreasonable to think that everything about the business is fraudulent. That should trigger large scale audits and investigations into its business practices, but Facebook is on the side of angels in the cultural revolution, so its all good.

Probably the best example of our carny-barker economy is Tesla. To his credit, Musk has built a real factory that builds real cars. No one is going to say the Tesla is a work of art or even a practical car, but it is a car and the technology is impressive. The trouble is the company does not exist to make cars. It operates as a tax sink, where government subsidies flow into it and some portion of those subsidies turn into payments to the principles in the form of stock repurchases, debt service and compensation.

This only works if people think the venture will either one day turn a profit or the technology that it creates will result in something good down the road. To that end, Musk is regularly out doing his Lyle Lanley act, making all the beautiful people feel righteous by backing his ventures. He’s also telling Wall Street that he will soon be making and selling enough cars to turn a healthy profit, even without massive tax subsidies. The trouble is, that’s probably never happening, at least not with current management.

And then there was another article I read soon after - this time with the more usual glowing perspective.

Tesla has safety issues.

Elon Musk’s response to the issue is hailed as exemplary.

Then I thought about it, and I think Elon’s approach sucks.

At it’s core; here is his plan:

“Going forward, I've asked that every injury be reported directly to me, without exception. I'm meeting with the safety team every week and would like to meet every injured person as soon as they are well, so that I can understand from them exactly what we need to do to make it better. I will then go down to the production line and perform the same task that they perform.”

So in essence:

1. Knowing about the individual injury is very important to me as the CEO.

2. I will invest a significant portion of my team in a meeting discussion this.

So far, so good.

3. I am going to meet injured people personally. After you have been injured.

4. I am going to take your incident (sample of 1) and make sure that such an incident don’t happen again.

5. Then I am going to invest even more time by showing you I will get my hands dirty on the do the same job.

Items 3-5 are really problematic for me.

I appreciate that it (a) plays well for the layperson and casual observer, as well as (b) being likely to make the individual feel good and (c) may even mitigate the potential future claims. I get that.

But, here is the thing.

I think a CEO should be more proactive than this. It is great at managing feelings, but I am not sure it will fix the problem proactively.

There is no indication that by fixing everything on a case by case basis will actually ever address the systemic issues.

His approach does not scale.

If a workplace injury has the (pleasant, albeit unintended) consequence of getting the CEOs attention in addition to the time off and the compensation; I wonder if workers will really take the safety issue as seriously as they should?

If you get kissed by a pretty nurse every time you hit your thumb with a hammer, I reckon a few blokes may well be prepared to be a little bit more careless than they otherwise would be.

Safety is fixed on two levels:

  • Processes and systems  (that produce safe work)
  • A culture of taking responsibility, being diligent and looking out for yourself and your mates.

I am not sure that the path Elon is adopting is the quickest way to get any of that fixed.

This article is not so much about Elon. After all, how much can you know about a person from two articles. The more salient take out for readers are this:

There is always another perspective.

Read and learn constantly - things always change.

An open mind is not one that is easily persuaded; but one that is open to consider the facts, and to change a view based on new facts.

Don’t believe everything you read.

Be prepared to go against the popular narrative.

Changing your view is often as a result of the cognitive dissonance, which is not a pleasant experience. But if the Emperor has no clothes on, the Emperor is naked; and that will be a fact and should be called as such.

(Image from https://www.businessinsider.com.au/

If at first you don’t succeed, F*** it

gymnastics-clipart-flip-clipartfest-gymnastics-flip-clip-art_2362-1004.png

Amazon is coming and they will force this upon you if there is any weakness in your business model. Why not pre-empt it?

If you want to have a successful, sustainable business, you need to make strategic moves that effectively flips your business.  This is true not just inretail, but in any business.

Let me explain what it looks like for a business to f*** over.

Those who never flipped

  • Kodak did not become Flickr
  • Encyclopaedia Britannica did not become Wikipedia
  • Dymocks did not become Amazon
  • Siemens did not become Apple
  • Cabcharge did not become Uber
  • Holiday Inn did not become AirBnB
  • Blockbuster did not become Netflix
  • Sony did not become Spotify

Those who flipped successfully

  • PayPal – once was into cryptography
  • AOL – once was into Video on Demand
  • Twitter – once was into Podcast Delivery
  • Avon – once was into selling books door to door
  • Nokia – once was a Paper Mill
  • AirBnB – once was a temporary accommodation for conference goers
  • Netflix - once was into mail order DVDs

Take Netflix for example

They launched as a DVD mail-order business.

Then they jumped the curved and ‘flipped’ their business model to get into streaming

Now they are getting into direct creative production

What Netflix did is irrelevant for your retail business. Except to understand and appreciate the scale and the disruption and the commitment.

They were a successful DVD mail order business and was overtaking Blockbuster. To go into the content streaming business required a fundamental (paradigmatic) shift in business model, skills, cash flow, technology, customers, marketing - on almost every level they have to change.

They are going through another iteration now in becoming primary entertainment producers. And they will have such rich data about what exactly people like to watch, they are bound to have more successes than failures.

(I won’t be surprised if Netflix starts offering services  to their customer base. I am thinking email, home automation, internet of things applications etc would all be within reach, and they clearly are developing the cultural capacity to ride the curves.)

The critical success factors

One: A cultural capacity (willingness + ability) for change.

Two: The strategic skills to identify the right flips to make

Each of those are separate topic to explore in their own right, but in brief just a few points on each:

1  Culture Change:

It is not an objective you can delegate to a subordinate. Whilst someone may be tasked with project management, the CEO and directors have to demonstrably own it, live it and be willingly measured against its success failure.

To succeed at change, you have to understand the systems archetypes in business, and how your structure is connected to your strategy, the staff to the skills, the finances to the systems and so forth.

2. Strategic Flips

Imagine the stages of the lifecycle. (Some brief notes here.)

It does not matter what business you have, it is not that unique and I guarantee that you currently find yourself in SOME stage of the lifecycle. The trick is to make the plans, take the decisions about a new, scary future before it is upon you.  

The challenge is often that the decisions and the short-term results are not in the interests of the current management AND the outcomes are not guaranteed, so there is little cultural incentive to take the plunge. Refer to challenge #1 above.

The key issue is this: working on your flipping strategy should be an ongoing focus.

So the question is: Are you currently working on a strategic f*** over?

If not, the future is as predictable as the shape of a lifecycle curve.

DENNIS PRICE: CO-FOUNDER AT WWW.YEARONE.SOLUTIONS

When the runway stops

Opening new stores is all about execution. You need to DO stuff. The core skill is project management. When you run out of geography, you run out of growth. It is easier run your business through the copy machine.

But as your top-line growth slows gradually, your expenses don’t (the copy machine is still running). So your sales keep growing (slower and slower) and your expenses grow faster and faster. That is recipe for disaster.

Running out of highway is inevitable.

Then the focus shifts to ideas. To innovation, to productivity, to marketing. Away from projects, to opportunities. From the easy, ‘busy’ work to the hard grind of squeezing little bits of incremental improvement from every process and re-thinking or re-inventing or scrapping processes.

The focus moves from internal capacities and needs and processes to the customer needs and journeys. From ‘our map’ and our capital, to ‘their map’ and their money. We move from footprint to brand. We move from logistics and distribution (supply) to demand and leverage.

In the new world, we need to learn to live with 2-3% growth (marginally better than inflation), and break the addiction to growth.

We have spoken previously about ‘margin convergence’; the idea that traditional retailers will have to learn to live with lower margins and that e-tailers will eventually have to increase their margins in order to start producing some returns for their investors. (Amazon being the exception that proves the rule.)

Just like traditional retailers run out of geography, eventually ecommerce will run out new customers too. There are only so many people in the world, after all.

And the pendulum will swing back and the value of ideas, and innovation and strategy and commitment to change and flexibility and willingness to take risks will again be in vogue.

When your plane runs out of runway, slowing down is no option, you have to accelerate to get lift-off, as scary as that may be.

(Image from goodwp.com)

Are you chasing your retail dream?

Achieving retail success amongst the carnage is difficult. And we have this:

  • Sugar causes hyperactivity.
  • Caffeine dehydrates you.
  • Einstein failed Maths.
  • Goldfish have a 3-sec memory
  • Bulls hate red.
  • The Great Wall of China is visible from ‘space’.

If we were honest with ourselves on these things, I’d guess most of us would have heard and believed those things.

They are myths.

How many of the things we ‘know’ about retail is myth and how many are facts?

We believe retail is doomed, multi-channel is the answer and Amazon will eat the world.The only way to be successful, is to be the ‘Uber-of-something’.

 

Let’s consider the facts:

You have to be in eCommerce and there are successes across the board. Boohoo is travelling well, and so is the The Honest Company - and countless more.

Multichannel is the way to go: Former online-only retailers such as Warby Parker, Bonobos and Birchbox have rushed to open stores. Apple and Amazon get trotted out as exemplary case studies, and I have no doubt they are.

Bricks-and Mortar is dead. The retail graveyard in the US is a sight to behold: Abercrombie & Fitch (60 stores) Crocs (160 stores), J.C. Penney (30-140 stores) Macy’s(100 stores), Radioshack (552 Stores), Kmart (108 stores), Sears (42 stores), American Apparel (104 Stores) and The Limited closing All 250 stores

Yet there are ‘alternative facts’, to borrow a phrase.

Collapsing valuations of once high-flying brands like Trunk Club and One King’s Lane and a host of others. (Walmart announced it was acquiring ModCloth for a fraction of the VC capital invested to date.) There is plenty of red ink at SurfStitch and Temple & Webster.

Uber is the poster child for the ‘gig economy; but is still losing insane amounts money. In the last three months of 2016 alone, the company lost $991 million and there is no short-term indications that the business model is viable. (Only time will tell whether investors with deep pockets propping it up are proven to be greedy with a herd mentality or perspicacious.)

Amazon is a true Black Swan event and no comparisons can be made to any ‘regular’ business. Amazon is more than a conglomerate it is a platform, making money of a diverse range of products from web hosting and cloud services to retail. It is worth noting that it took them a decade to show their first profits. You need extraordinary patient and rich investors to keep you afloat for that long and this is hardly normal.

The only reasonable conclusion that one can draw from this is that commerce is a tough gig. There is no single strategy (online, multi-channel or brick-and mortar) that is the ‘right’ strategy.

There is a strategy that is right for your business, your market, your proposition. And if you execute that strategy well, success necessarily follows - barring the uncontrollable externalities.

It therefore seems that the only sensible approach is to stop fretting (even obsessing) about who is doing what (successfully or not) and to focus on what you can control. (I used to teach my MBA students that the ‘competitive analysis’ is the most overrated and probably least necessary part of the business planning process - IF a business plan was required. I wonder how many remember.)

To some it may seem to be a rather simplistic conclusion, but core truths usually appear simplistic; but I am a fan of Occam's Razor.

Best to chase your own dream.