In February of this year, Ron Johnson, Apple’s senior vice president of its retail operations, took over as CEO of J.C.Penney. In four months, Mr. Johnson, who is widely credited with putting together Apple’s retail store operation, launched a multimillion-dollar campaign rebranding the department store conglomerate. As incredible as it sounds, this experienced professional appeared to have forgotten everything he learned at Apple and bet all his dollars on a price-driven strategy that got rid of heavy sales and promotions that used to draw in herds of customers and implemented a monumental media investment to drive the traffic under the promise of low prices every day, while stores remained virtually intact.
The result: total sales fell 20% while same-store sales declined 19% and gross margins fell to 37.6% from 40.5% as foot traffic in the stores dropped 10%.
Around the same time, Sears recently announced four new stores in Ontario, Canada. The press release referenced “wider aisles, less clutter, and streamlined merchandise offerings with exciting new brands at everyday low prices.” Read out of context, this sentence could belong to a number of other discount retailers from Kmart to BestBuy.
Both brands are convinced that reinventing themselves in order to remain relevant means adding a few new items to their inventory, defining a not so creative price strategy (everyday low prices… sound familiar?) or using the technique of rearranging their visual merchandise. The results are loud and clear: this isn’t enough.
Not long ago, I commented on the opportunity for Barnes and Noble to create an experience (not an electronics showroom) with NOOK. Sure, remodeling stores and keeping prices competitive are useful tactics, but they are not the formula to competing with big e-commerce players who are selling everything, every day, at all hours, and at lower prices.
Retailers must embrace that their industry, like most other industries, is changing dramatically. While Amazon is turning into the king of convenience and low prices, across the world, malls are becoming places where people go in search of something to do, not for something offered. Millions of consumers are waiting for someone to entice them with experiences through merchandize displayed more for entertainment than for selling. I firmly believe that any retailer that wisely takes advantage of these realities is more likely to remain relevant than the ones who are still using the almost null “low prices guaranteed” line.
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