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?
Balance of Power
The unprecedented ability of your customer to evaluate, price, and select product without any involvement from you (okay, I guess you have to make the product) is the biggest change in selling I can think of since the Lydians (according to Herodotus) invented money so there could be shopping.
That there continues to be so much traditional advertising frankly stuns me. But I suspect it’s mostly targeted at the older, richer, baby boomers and will decline with their numbers. In the youth focused part of our industry (which is most of it?) it’s declining, at least according to the companies I hear or read about.
We’ve all acknowledged that our customers are more in control than they’ve ever been. But we say it like it’s just another challenge to be added to the list above.
It’s not. It’s the single most important thing that’s impacting how you do business. It changes everything. It affects everything.
Your customer used to rely on you to explain and differentiate your product. They got their information from you. They don’t need you for that anymore. I’m not sure they believe you when tell them anyway,
It used to be hard to find competing brands, not to mention compare them. Not anymore.
It used to be hard to compare prices. Not anymore.
It was much harder to start a brand, identify customers, and make them aware of a brand. Not anymore.
Lack of competing information meant it was easier to differentiate your brand. Now, it’s more likely to be perceived as a commodity. That’s true even if your product isn’t quite a commodity, as all the information on brand/features/pricing/distribution is at customers’ fingertips. The competitive environment we all operate in makes products seem more like commodities.
Don’t you just love it when I write this kind of stuff? Some of you do. Some of you, not so much. My continuing goal is to get you to think about critical issues. You don’t have to like it, and you certainly don’t have to agree with me. In fact, I love hearing from those of you who don’t. I learn a lot when I get yelled at. I’ll be at Agenda if anybody wants to yell at me there.
How, then, does customer dominance change how you are running your business?
Finance, Organization, Technology
Kind of since the Great Recession, I’ve been suggesting a different financial model. Most of you have adopted it- not because I thought it was a good idea. It isn’t rocket science.
I suggested that sales increases would be harder to come by for some years. If that’s true (and it appears to continue to be true), the focus needed to be on gross margin, expense control, and inventory management with the focus more on the bottom line than the top. I encouraged you to build your balance sheet and thought if you took this approach to financial management, you’d also be building your brand. Still do.
Having your customer in charge has added some complexity, uncertainty, and cost. This is particularly true where pursuing the omnichannel has cost a lot of money but not generated enough operating income to pay those costs. Hardly surprising. It’s going to be spendy when you try and give a customer “what they want, when they want it and where they want it,” and keep the price down as well. When a market structure changes in fundamental ways- that is, when your existing assets aren’t as valuable in meeting customer needs- why would anybody expect existing brands and retailer not to be challenged?
Proclaiming an “omnichannel strategy!” TA-DA!! Drum roll please, is initially defensive in nature. It’s a recognition that the market is changing dramatically while you are stuck with your old assets and ways of doing things.
Meanwhile, getting back to financial matters, you are reallocating your advertising and promotional spending from traditional to social media/online. Maybe there’s a chance to save some money. Except of course, you have to think of ways to offer customers “experiences,” or at least to let them participate vicariously in your brand’s. How much does that cost?
If there are cost savings, it will happen because you invested in systems and big data that’s allowing you to figure out who your customers are (or should be) and reach them more effectively.
You are also gutting and restructuring your logistics and supply chain not just to take out costs, but to get product made faster and moved quicker to respond to those customers who are now in control.
There’s some spending here, but also benefits and savings down the road.
Anybody who has started up since the online/ecommerce/social media world became a thing has an advantage over existing purveyors of active lifestyle products. They can build their business in the existing environment, rather than react to the changes from their existing base. They don’t need to be omnichannel and don’t have to figure out what to do with existing assets and organizations.
The possible exception? Larger companies with strong balance sheets. It’s not that they aren’t impacted, but they are better able to manage through it. Before we go any further, read this article; “The Amazon-Walmart Showdown That Explains the Modern Economy.” It talks, in part, about the advantage the biggest and best run companies have. Kind of seems to me that the best run companies should always have had an advantage. But now, there’s less room to make a mistake.
Financially, then, you need a strong balance sheet and must change where and when you spend money. Initially you are spending more with the hope that the return on investment is attractive. As things change faster than we can react, there’s less certainty if you’re always spending in the right place. I’m a big believe in taking lots of small chances and seeing what works.
Maybe the ability to react quicker is where smaller businesses have an advantage. At least that’s the conventional thinking. I am personally hopeful that the costs of software/systems/robotics will continue to decline and become more affordable to smaller players.
You are investing in systems because big data matters. You are hiring some different kinds of people- the proverbial 14 year I’ve jokingly (well, not so jokingly actually) suggested before. Systems are letting you take layers of management out of your organization (if you’re big enough to have them).
Functions in companies are connecting to each other in different ways. Do you really think the inventory people don’t need to be in constant communication with your sales/marketing teams as you try to manage distribution to solidify your brand’s position and micro manage inventory? No more silos please.
You are trying to figure out how to follow your customers’ lead as you can’t lead them like you used to. But you can’t follow them too far. It’s an interesting question. As a group of highly engaged customers try and take your brand in a new direction, how do you react and how far to you follow before you find yourself somewhere your brand doesn’t belong? In our industry we’ve watched various brands give explanations of why it was okay to pursue certain distribution or do some kind of cobranding that pushed the bullshit meter way past the red line. Sometimes, these were the result of financial desperation. Sometimes, they just appeared thoughtless.
“The customer’s always right” is an antique colloquialism that seems almost quaint. We certainly take it for granted. Yet it’s never been truer than it is now. You need to build your whole business around it.