Passengers in first class are convinced the ship will survive the collision with the iceberg. After all, Titanic is unsinkable. Floors below the cabins are filling with water and the bulkheads are becoming flooded. People are drowning while the wine and music flows above. The executives at Sears and Toys R Us are planning next year’s strategy, convinced that the slowing sales are just another market dip as they have experienced many times in the past. Stores are becoming vacant and people are being let go with nothing to do.
Status quo bias is powerful in business. We believe success in the past is the best indicator for success in the future. We are blinded by the comfort of size and wealth. Just like the affluent passengers, these executives refuse to acknowledge the ship is indeed sinking. Amazon is a powerful iceberg in the sea of retail sales. Amidst the calm waters, retail giants are blind to the impending doom lurking in their path. Academy Sports and Dick’s Sporting Goods may be next.
The buying landscape has been disrupted by one simple concept that so many retailers cannot see. Or worse, refuse to see. This one thing is so obvious yet hidden among the boardrooms across the country. Businesses build momentum and velocity over time. In physics, Newton’s law remains constant. The first law states that something in motion will remain in motion until acted upon by an outside force. The second law states the movement of an object depends on its speed and size. The third law states for every action there is an equal and opposite reaction.
Amazon is the outside force in the retail industry. Long-tenured retailers have mass and acceleration. The collision of the established retail market with Amazon represents the reaction. Albert Einstein stated, “If you cannot explain something in the simplest of terms, you do not understand it”. The impact from Amazon on retail markets is simple. Amazon has determined the one thing a buyer wants in a transaction and it is not price. While price is important, it is not the one thing. Walmart is beginning to understand the one thing and is changing fast with new pick up services and home delivery. Walmart executives may understand the one thing customers really desire in a transaction.
The one thing has different facets and doesn’t appear to be the same for all customers. We all need food yet have many choices for what we consume to survive. The one thing consumers desire is the experience of buying. Amazon may be affordable, however the one thing we love is the convenient experience of buying something from a trusted source that will be delivered free of charge in two days. And if we don’t love it, we can return it without hassle. Remember the no hassle return days at Walmart that served as a catalyst for growth? Stay with me, this is about to get interesting.
Sears and Toys R Us focused on products and brands. We trusted Sears’ brands like Craftsman and Kenmore. Toys R Us was the one place we could get that perfect toy for birthdays and Christmas. They both saw Amazon coming, however by the time they noticed the impending collision with the Amazon iceberg, it was too late. Build A Bear Workshop understands that kids do not come to the store to buy a bear. They come to build a bear. What if Toys R Us changed focus from toys to experience? What if Toys R Us bought The Build A Bear Company and replicated the idea of an amazing experience for children in each store? Build A Bear is surviving the Amazon impact with a modest decline in sales expected. What if Sears understood brands alone would not bring customers from the comfort of home to smelly, inconvenient stores? I am not sure why Sears always had a peculiar odor to me. If Sears focused on the experience of a customer, they might have populated the stores with experiences found at Ace Hardware. Ace revenues grew six percent in the first quarter of 2018 and is ranked number one for customer experience in 2018 according to Temkin Experience rankings.
I am predicting a dark horizon for Academy Sporting Goods and Dick’s Sporting Goods. Why? Both companies are product centric organizations. Both companies have a business model that incorporates low paid staff and virtually no customer experience. I recently purchased a high-end, in-ground basketball system online after visiting both stores and found no expertise or assistance with products. Both stores have one advantage over Amazon. They are a convenient purchase when customers cannot wait two days. Is this enough? I am not optimistic. Retail companies must think like Bass Pro Shops who is growing at a rate of 94% year after year according to Business Insider. Bass Pro Shop is a cool place to hang out with fresh fudge, shooting galleries, fish tanks, and restaurants. We will also spend some money while we are there.
The convenience of Amazon can only be overcome by a better customer retail experience. Retailers must think like Rainforest Café. The food is good but the experience is the draw. Brick and mortar retailers can learn from this company. Going forward it will not be about the products. To get us away from our computers, retailers must create an amazing customer experience. Retailers must think like Netflix who abandoned a successful business model (mail DVDs) and focused on streaming at the incipient stage. The old retail model must be abandoned.
CEOs are surrounded by sycophants that tell them the path is clear amidst the calm seas – no icebergs in sight. Keep doing what we have done in the past only better is the retail mantra. Board members are afraid to hire a CEO that will take the “moon shot” because it might fail. Short term stock price and a safe path to becoming irrelevant are more comforting than big change. Richard Thaler’s Binmore Continuum states we get better at low stakes decisions because we make them often and we struggle with high stakes decisions because we don’t get enough practice to become effective. All CEOs need a group of trusted peers that will challenge the core of the business. This is not likely to come from their teams or their boards. The more a CEO is challenged and also challenges others to make high stakes decisions, the better they will become. The high stakes change “muscle” will get stronger.
Brick and mortar retail is not dead. Too many people enjoy the shopping experience. Organizations can change from product centric to experience centric. Leadership must be willing to abandon the past and slaughter some sacred cows if you want people in your stores. If you create an amazing experience, we will come and spend.