More Ideas About the Future of Retail

A reader sent me this article discussing how retail seems likely to evolve.  Why don’t you go and read it before I offer my comments?

The author (Doug Stephens) and I are, in general, in violent agreement about the direction and speed of retail change.  We further agree that if you, as a retailer are paralyzed by uncertainty and aren’t at least trying to keep up and figure out how to change, you’re in trouble.

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The Details We Don’t See; Zumiez’s July 29 Quarter

During the quarter, Zumiez increased its sales and reduced its loss compared to the same quarter last year.  It continued to follow its strategy and its balance sheet remains solid- perhaps a bit stronger than a year ago.

I’ve generally been a supporter of Zumiez’s strategy.  It’s not that they necessarily know any better than any other retailer how things are going to shake out as retail consolidation winds its way through the industry, or that they are certain how, exactly, brick and mortar and online are going to evolve and influence each other.  But they’ve made a couple of bets (that we’ve been talking about for some quarters bordering on years now) that are complementary to their long-term strengths and strategies and that offer them the data and flexibility to respond when, inevitably, things don’t turn out exactly as they expect.

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Not Too Bad, But Not Too Good. And Generally Uninformative. Globe’s Annual Results

Globe is no more immune to economic conditions than any other company.  But what I’ve always liked about them is they seem to be in touch with reality and have a positive attitude about it.  They haven’t always been right (me neither) but they’re not slow to realize when something should change and in making it happen.  Their results for the year ended June 30, 2017 demonstrate that.

As usual, we don’t get very much useful information in their statutory report, and nothing by brand, but I’ll give you what I’ve got.

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More of the Same; Billabong’s Results for the Year

Here’s what I said six months ago about Billabong:

“Six months ago [talking about a year ago], reporting on Billabong’s results for the whole year, I said this was a challenging turnaround, Billabong was doing things right, they were starting to see results, but the market was tough, and implementing their plan was taking longer and costing more (perhaps because it’s taking longer) than they’d initially expected.  That’s all still true…”

And it’s still, still true as we review the results for the year ended June 30, 2017.  I thought the delay was especially highlighted in Billabong’s July 28 “Omni Update” press release where they noted they’d “…terminated the agreement with the Omni-channel solution provider…” and taken a write down of AU $11.7 million as a result.  Billabong continues to try and change the engine oil while driving the car.  Tough task- but it’s what they have to do.

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As the Trade Show Proposition Changes, Would You Want to Own More of Them? Emerald Expositions’ Quarterly Results

As you probably know, Emerald Expositions (EE) is the owner and manager of Surf Expo, Outdoor Retailer, and now what was formerly SIA’s Snow Show.  Overall, they operate over 50 shows as well as other events.  They’ve grown by acquisition, and expect to continue to do so.  Their shows are in many industries and include the International Drone Conference and Exposition (kind of cool!), the National Pavement Expo (who knew there was one?), American Craft Retailers’ Expo, and the Digital Dealer Conference and Expo (no idea what they do there).  These, along with the Snow Show, are among their most recent acquisitions.

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To Have or Not to Have Stores; That is the Question. Deckers’ June 30 Quarter

The 10-Q reads this way:

“…in light of the recent and continuing changes in the retail environment, we also believe it is prudent to further reduce our global brick and mortar footprint. We expect to continue to reduce our footprint through a combination of store closures and the conversion of owned stores to partner retail stores, and, accordingly, we anticipate generating future cost savings. We are currently targeting a worldwide retail store count of approximately 125 owned stores by the end of fiscal year 2020.”

At June 30, Deckers had 96 concept stores and 63 outlet stores for a total of 159.  These are “predominantly” UGG stores.  Getting down to 125 stores will be a reduction of 21.4%.  Some of the decline will be due to converting owned to partner stores.  Partner stores “…are branded stores that are wholly-owned and operated by third parties. Upon conversion or opening of new partner retail stores, each of these stores become wholly-owned and operated by third parties.”

One can’t help but ask why, if Deckers doesn’t want to own these stores because of “changes in the retail environment,” the potential partners will.  Perhaps that suggests these will mostly be store closures.

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Advantage Big Guys with Solid Processes and Cash Flow: VF’s Quarter

Before I dive too deep into the financial weeds, let’s look at VF’s overall strategy as explained by CEO Steve Rendle and Chief Financial Officer Scott Roe in their conference call discussing the results for the quarter ended June 30, 2017.

Strategy Stuff

Steve: “…while we expect the retail landscape to remain uncertain, we will invest against our largest growth opportunities to create momentum rather than wait for it.”

They have the cash flow and balance sheet to do this.

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One More Comment on Trade Shows, A Perspective On the “Outdoor” Industry, and Articles on Retail.

Trade Shows

Trade shows were created to bring buyers and sellers, that is brands and retailers, together to do business.  Everything else that goes on at trade shows, beneficial as it may be, has been secondary to that goal.

But there are fewer smaller retailers and fewer retailers overall.  The consensus is that the number will continue to drop (see the articles referenced at the end of this).  Larger retailers have less reason to attend, as their most important suppliers reach them outside of the trade show venue.  Meanwhile, changes in logistics, technology and the supply chain have introduced some chaos into the formerly more or less reliable buy sell cycle around which we scheduled shows.

To me, this means there’s less value in attending traditional shows.  The return on investment is harder to justify for buyers and sellers.  Meanwhile, brands and retailers are generally competitors at a greater or lesser level.  Are they perhaps a bit more cautious in how they work together and share?

What’s the result?  Neither buyers or sellers need to send as many people to trade show for as long.  Smaller booths, shorter shows, fewer attendees.  Consolidation of shows.  I haven’t had any retailer or brand tell me that putting OR together with SIA is a bad idea.  If you are one who thinks it is, I’d love to hear why.  Ultimately, I expect fewer shows though, as is always the case in consolidation, everybody will struggle to survive hoping it’s the other guy who goes away.

There will be more focus on consumers.  It’s the best way to cover overhead.  There will be some smaller, focused, curated shows.  Interestingly, it feels like there will be room for big shows and for small shows.  As usual, the ones caught in the middle will have the most trouble.  I wonder if there might somehow be some local, “popup” shows.

The fundamental reason trade shows were created has declined in importance.  A lot.  That’s the thought I want you to have top of mind as you consider the show landscape.  Given the change, how has what you get out of the shows changed?

The Outdoor Industry

Boardsport Source is a good magazine.  It’s generally thoughtful, and helps me know what’s going on in Europe.  I was looking at “The Great Outdoors SS18 Retail Buyer’s Guide” in the July issue.  I can’t find the picture on line, but in the Camping Gear section of the magazine, there was a picture of a campfire.  Nothing unusual about the fire.  But it was on some kind of curved metal grate or holder just for the fire.  Stuck into the ground next to it was a black metal pole with a couple of adjustable rods coming off it.

One of those rods held a large metal pot with a lid that was cooking something over the fire.  The other, higher up on the pole and not over the fire, held a tray with what appeared to be a coffee pot and mug as well as a plate with food on it.

So, I used to do some serious back packing.  A week to two weeks out in the back country over mountain passes carrying everything we needed on our backs.  Sometimes we caught some fish.  My “friends” let me clean them so I would be the one the bear was attracted to.

When you do that kind of camping, you are always concerned with the weight of your pack.  First, you are concerned that it is too heavy.  Later in the hike, as the food goes away and if the fish aren’t biting, you worry it’s too light.

I want you to know that none the equipment I described around the fire ever made it into any back-country camper’s pack.  Not for a minute did we consider trying, as the article says, to “bring your kitchen outdoors.”  Comfort was measured ounce by ounce, as you strove obsessively to minimize the weight of what you had to carry.  Or to put it in somebody else’s pack.

I’m not against drive up camping and having your comforts.  Certainly, rigorous backpacking isn’t for everybody.  But the picture and description of the gear made me think about the “outdoor” target market.  For the reasons I’ve described this kind of equipment specifically excludes serious backcountry campers.  Unless they have it flown in by helicopter I suppose.

The elite athletes in skateboarding, snowboarding and surfing always used more or less the same equipment the typical participant used, though of course they did things with it that most of us were never going to try.

Suddenly, in this particular case at least, that doesn’t seem to be the case.  I don’t quite know what to make of it.  Is the “outdoor” market defined as anybody who’s not “indoors?”  Is there a “core” to be connected to?  Does that matter?  Do the customers, whoever they are, care about the product or do they just take product for granted and focus on an associated experience?

What does it mean to be a brand in the “outdoor” market and how do you identify your customers?  If you think it’s everybody who’s not indoors, it’s nobody.  I guess it helps a little if you say, “active outdoors,” but it hardly solves the problem.

Perhaps, as we’ve become more and dependent on the public and private equity markets for financing, you have to define your brand’s potential in a way that at least appears to place it in a market where there’s enough growth opportunity- even if that’s destructive of the brand in the longer term.

Read These

This first article, “Over Storing America,” gives some insight into how retail got to be so overbuilt that perhaps you hadn’t thought about.

The second, called “Retail Shift,” was sent to me by a friend.  Thanks friend.  The article says:

“the market make-up has been shifting and continues to shift from a fairly homogeneous composition of primarily baby boomers into a significantly splintered compilation consisting of Gen X, milliennials, Gen Z and the boomers. Multiple sub-segments exist within each of these large segments that have their own defining characteristics. This complex segmentation is compounded by the fact that the vast majority of retail platforms today have erroneously been founded and built on the strategic premise that large homogeneous groups of people generally desire the same things.”

Both are worthy of a read.

 

Agenda’s Got a Consumer Agenda

As usual, the Agenda trade show, Long Beach version, was held July 13 and 14.  What was unusual was that it was followed, on Saturday the 15th, in the same space with the same brands attending, by its first consumer show.  Having no intention of spending three whole days in the Long Beach Convention Center, I arrived late Thursday afternoon.   I walked the show Friday and spent four or five hours in the consumer show Saturday.

We are all aware of the long, ongoing conversation about the changing role of trade shows, their relevance, and role.  The consensus, as far as I can determine, is 1) we need some, 2) face time is important, 3) we’re not completely sure how to improve them and 4) there are too many of them.  I applauded the combination of the SIA show with Outdoor Retailer.  Step in the right direction.

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Damn- Turns Out the Customer Is Always Right- More Than Ever Before

Running an active outdoor business right now feels like a game of Whack-a-Mole.

  • There’s too much retail- right size yours. Whack!
  • Create product that can be meaningfully differentiated from competitors. Whack!
  • Careful on that distribution. Whack!
  • Manage your inventory and expenses cautiously. Whack!
  • Figure out e-commerce without cannibalizing brick and mortar. Whack!
  • Lower growth economy. Whack!
  • Find and keep enough quality employees. Whack!
  • Most children living with their parents since 1940 (World War II fixed that). Whack!
  • Slow to non-existent wage growth among our customers. What will they/can they buy?  Whack!
  • Close to 10 million American men not in the work force and not trying to get in it. What do we sell them?  Whack!

Whack!  Whack! Whack!  Whack!

I hope to get your attention by saying that these things are pretty much tactical- or in some cases issues you just can’t influence.  What in the hell would I consider strategic then?

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