“The Man in the White Suit” 2020- Why Large apparel companies only talk about Sustainability

 

“The Man in the White Suit” 2020- Why Large apparel companies only talk about Sustainability

 

 

The Man in the White Suit is a 1951 British film starring Sir Alec Guinness. The story is about an eccentric genius who works for a textile mill, and, while there, surreptitiously invents a polymer that, when woven, will produce a fabric that is indestructible, stain repellent, wrinkle and tear free. In other words, the perfect fabric.

After being fired from one company, Sidney Stratton schmoozes that company’s competitor into hiring him. While there, he perfects his polymer and the result in fabric is as advertised.

Never mind that it is slightly radioactive:-/

When the textile community gets wind of this development, they quickly realize that this fabric will destroy their business; the union workers have the same reaction. Together, they try to get Stratton to sign a deal giving them the rights to the process, which they will suppress.

After a wild chase, we are left to find out that the fabric is unstable, but the last scene implies that Stratton has figured out the problem.

 

I love this movie because I feel it is an allegory for our current situation with Sustainability. The large apparel companies could very easily achieve 90% sustainability through eliminating plastic and synthetics in garment, packaging and packing. For example, in our Lotus & Michael- The Art of Shirts line, we eliminated 95% of non-sustainable elements by losing the plastic bags, using mother of pearl buttons, shipping to us and to consumer only using paper packing. Only two small elements, the plastic clip at center back and the butterfly under the collar, remain as yet unsolved. But they will be.

 

Most important, our fabric and garments are designed and built to last. Solid shirts made from yarn dye instead of piece dye, fine and strong fabrics, artisanal construction will make for a shirt that will last a long time, still looking great. Your average piece dye solid shirt starts fading and deteriorating the first time you wash it. Result: Disposable Clothing. It is this that results in something like 500 million tons of clothing in landfills each year and it is this that we are determined to reduce dramatically. Other small companies like ours have taken a similar stand.

 

Do the large apparel companies really want to improve their packaging and their garments to reduce disposability and make their lifespan longer? My answer is no. Why?

 

Reason #1- It will cost more. Thus raising their retail prices or, heaven forbid, lowering their margins (this does not have to be the case over the longer term). Their value proposition does NOT depend on their quality and longevity; it depends on their price.

 

Reason # 2- They will sell a lot less units. Even if they can get a higher price, they will be constrained by the discount-happy world of retail. So, if the consumer does not have to replace their garments as often, their sales will go down.

 

Reason #3- Quality is not in their DNA. To make this change would require a. A change of attitude by top management b. hiring/firing/retraining of personnel to fulfill the new mission.

 

Reason #4- They would have to reorganize their supply chain. New suppliers, new mills, new accessories vendors, testing, etc. would be absolutely essential to succeeding in the world of quality. Again, cost.

 

So the result is that Management, while maybe not consciously undermining Sustainability, is bound by cost rather than product. In most cases the product fits into the cost profile rather than the cost fitting into the product profile. This is the main business philosophy change that would have to be made.

 

I believe that the above reasoning prevents Management from Implementing or even Proposing the changes that would be necessary to achieve a 90%+ sustainable product. And I see no scenario under which that would change.

 

Sustainability bye bye? Well, no, here’s the vision: Us small companies that have committed to this from the getgo will grow as the customer demands sustainability as a prerequisite to purchase. The big companies will fail to evolve and will go the way of the dinosaurs.

 

Evolution is a part of life in business, and his process has already started and will accelerate. Customers will drive it from here. What I know after decades in the fashion business is that radical changes can happen much faster than you expect them to.

 

Think small, buy small. Wear Sustainable. That’s our mantra.

 

 

 

 

 

 

Tony by Lotus Zhang

 

Tony by Lotus Zhang

(original post: https://www.lotusmoongate.com/2020/08/tony.html) 

On our way home from market this morning, I rolled my cart and passed a woman with her dog. My husband walked after me, but he stopped and exchanged a few words with her. I immediately realized that she was walking Tony’s dog.

When my husband caught up with me, I asked him how is Tony. He lowered his voice and said:”Tony is dead.” I was shocked.

 

We have lived in this neighborhood for about 3years, Tony is one of our few acquaintances. We met him on the street, started from saying “Good morning” to each other then gradually sometimes we had longer conversations, such as meatball recipe, Yankee, the local news of our neighborhood. He was a man in his seventies, of medium height, a little fat, always wore a woven fisherman hat and a brown leather jacket, with a cane in his hand. He told us his family was from Sicily, but he was born in Brooklyn and spoke with a very thick Brooklyn accent. He must have been retired because we could see him wandering on the streets very often; And he lived alone, with a little dog.

 

He always reminded me of the old-fashioned New Yorkers, open minded, easy to make friends, and very picky on certain types of things. Sometimes when he saw me from another side of the street, he would take off his hat and call “Hi” to me. He told my husband that he always thought I was from Singapore. Every time after an important Yankees game, if my husband happened to meet him on the street, he would chat with my husband for a very long time by standing on the street and completely ignored that we might be in a hurry to go.  

 

I still can remember when we saw him the last time: It was in March before the shutdown of NewYork city by Covid-19. We met one early morning on the street; he looked very weak. He stopped by and told us that he didn’t feel very well and he considered he must have caught cold. After hearing this, my husband bounced back immediately. He told him to find a doctor without hesitation then took my hand and hurried away. I looked back once, Tony was still standing there and looking at us in a confused way. I felt very guilty for running away from him, and we even didn’t say goodbye.

 

Since then, I have always expected to meet him again. I wanted to apologize for our inappropriate behavior. Every time when I passed his apartment building, I looked into the hall and wished to see him. A few times we recognized his little dog was walked by a woman (perhaps a dog walker) on the street, but he had never shown up again. Until one day, we thought maybe we could ask that woman about him.

 

After the outbreak of coronavirus, people started to talk about new normal. I really never think there will be any difference to my husband and me. Our life is simple, everyday just work, cook, and shop occasionally. We have a lot of plans for the future, and we think everything will be back the same as before, sooner or later. But now we know something will never be as it was: Tony has gone forever. There’s no more old man to chat with us on the street, and in his current world maybe he isn’t that lonely. How many people in our lives have disappeared or will disappear without bidding a farewell, just like Tony, like the fallen leaves swept away by the wind.

 

Life is delicate, we eagerly explore for the security of eternity but nobody ever can find it. So how to move forward? I guess the only thing we can do is embrace the world, accept the way it is, each time let’s love and cry as hard as possible. The moment won’t last, but our emotion can.

8/8/2020

Why Are Retail CEOs Failing? A Simple Explanation

Why are Retail CEOs Failing? A Simple Explanation.

 

Recently I read a very thought-provoking post by Tom Ott in LinkedIn (read the full post here) which was entitled, “Leadership in Retail.” The post ends with the following statement:

 

“Leaders give clear direction to their teams on a way forward. They are about their people as individuals. And finally they put the team’s happiness & welfare before their own, understanding in the long haul it will pay multiples.”

 

As a Mantra for Leadership, in my view this is 100% spot on. But, it seems to me that this is a formula for ALL leaders, not just in retail.

 

There is no doubt that retail leaders are failing, and therefore retail stores and enterprises are also failing. So, it got me thinking, what specific attributes can we isolate for retail leadership that may apply and define success and failure in that world? So below are my top line thoughts (I absolutely believe the subject deserves more discussion than a short article-hmm, do I feel another book coming?- but this is a starter).

 

Kirk Palmer Associates took a stab at it (read the full article here) in a piece called “Digital CEOs Rising: Hiring the Modern Retail CEO.” In the article they listed 5 attributes that they felt lead to Retail leadership Success:

1.     Digital Fluency

2.     Focus on Customer Experience- A Customer Orientation which the article says will “Amazon- Proof” their business- why? Because Jeff Bezos is not just customer oriented, he is customer obsessed.

3.     Inclusive Mindset

4.     Entrepreneurial + Corporate Experience- Sure, why not? But how well does this define a leader? Experience is not an attribute.

5.     Non- Traditional Tenure- Recommends Marketing and Digital Executives.

 

So here’s my take on it: First, the above is too generic to clearly define retail success. It is, again, a group of attributes that could define a Bank CEO. So, what can we learn about RETAIL success, maybe from those who have succeeded now?

 

Another article in RIS News (read the full article here) is entitled, “Best Retail CEOS 2019”  in which they list seven examples based on business success AND Employee Approval. Now, we are getting closer to learning something about RETAIL success.

 

Some of their choices were:

Hubert Joly, Best Buy- Created differentiation for the brand that it had lost. Employee approval-97%

Craig Jelinek, Costco- Raised in the Costco system since 1984, he built the Costco and Kirkland brand with superior merchandising and value pricing. Employees love the benefits, Approval 95%

Dan Bane, Trader Joe’s- Two Buck Chuck and a superior product differentiation PLUS value image that stands alone, even though TJ’s is owned by the huge German firm, Aldi. Maybe the happiest employees I know- Approval 91%

Mark G. Parker, Nike- Innovation and Digital Transformation, creating a fetching consumer experience, building since 1979. Approval 91%

 

My additions to that list are:

 Doug McMillon, Walmart. Finally, Walmart looks like a person because it is led by a person.

Tim Cook, Apple- Took over for a legend and led the company to heights itself could probably not have dreamed of (see: 4 for 1 stock split).

 

So, what is my criteria for retail success, and consequently the reason so many have failed recently? What should a retail leader’s leadership and workplace attributes be?

 

#1- They must have the Soul of a Merchant- Even if they did not come up in the merchandising/buying line, we are talking about their soul. The art of finding something the customer wants, and/or some way to convince them to buy that others do not have, because it is RELEVANT to those customers’ lives. Past Heroes (that have fallen on their sword):

 

1.     Mickey Drexler- He made the Gap the go-to casual clothier for most of America. And he did it with keen merchandising. I knew Drexler, and he always believed in Narrow and Deep, the 80-20 rule, and The Next Hot Item. The Gap Pocket T sold more units than perhaps any other single style in history. 1 Tee shirt- many colors. (And it was imitated all over the world).

2.     Mike Jeffries- He turned Abercrombie & Fitch from a staid brand into a Must Have. Reason to get rejected from a college fraternity could be that you didn’t own enough A&F.

Both fell on their sword because, as good as they were, they marched in place too long. Which brings us to attribute #2.

 

#2- Never, ever, be satisfied with what you did yesterday- Obsessively Innovate, and always Evolve. You possess a latent curiosity and a passion for innovation. You are NOT afraid of disruption; you don’t get DISRUPTED, you are inclined to be the DISRUPTOR . What you create in your own house and what you see outside will form your wide MOAT.

 

#3- Embrace what the digital world offers you, but never forget that your customers are PEOPLE. Find the most beautiful intersection of bricks and clicks which will make your customer feel loved, appreciated and interested.

 

#4- Love your employees more than yourself (as Tom said). Don’t take money out of their pockets by taking a bonus you don’t deserve, or obscene amounts of pay when they don’t make more than minimum wage. IF the company makes profit, the CEO should take theirs AFTER everyone else gets a share.

(The difference between 1 and 2 million dollars(or 10 or 20 million) affects the CEO’s life how? And, conversely, how much good could be done for the employees with that money?)

We have a problem, as Mariana Mazzucato says in her book The Value of Everything, between the makers and the takers. TAKING a multimillion-dollar bonus when you just led the company into Chapter 11 is exactly what she is talking about and is an obscene waste of GDP.

#5- Build your successor. And their successor. And so on. A baseball team without a bullpen is sunk. Same with retail. Yes, it is feasible to hire executives from outside, but much better if this is an absolute corporate priority from training onward. Craig Jelinek and Doug McMillon are examples. More important- without someone internally to take the reins, the search begins for someone who is not familiar with the organization, and whose changes may not be relevant- maybe a square peg in a round hole.

 

#6- Obsessive Customer Focus- “Turn fans Into customers and customers into fans” (Fanocracy, David Meerman Scott). Find new and exciting ways to engage and interest them. Find products for your customers, not customers for your products. Watch this video of Jeff Bezos in 1999 and count how many times he says the word “customer.” Voila, Amazon- ‘nuf said.

 

The bottom line truth is that not everyone can lead a retail company effectively. More important, not every CEO possesses all the above attributes, at least not in equal strength. Such Unicorns exist, but they are very rare. Do you know one? Chances are you don’t, but if you do, please share.

 

IF you know where you are strong and where you are not as strong, you will surround yourself with people who can compensate, thus making the whole ship sound and seaworthy.  But, it seems that at least our crop of retail CEOs either didn’t have enough of the above attributes, OR their Ego and Blind Spot (see Ray Dalio Principles) prevented them from seeing and admitting where they needed help. Which leads us to the final criterion:

 

#7- Get over yourself- Ego Kills. Humility is a trait needed by all and possessed by few in the C-Suite.

This is my perspective as a former retailer and leader. Humbly offered…

 

 

 

 

 

Chapter 11 Bankruptcy: Pardon or Stay of Execution? (THIS ARTICLE HAS BEEN EXPANDED- SEE BELOW FOR LINK)

Chapter 11 Bankruptcy: Pardon or Stay of Execution?

Expanded Edition: https://www.isourcerer.com/2020/08/chapter-11-bankruptcy-pardon-or-stay-of.html

 

What is Bankruptcy?

 

Per Investopedia:

 

Bankruptcy is a legal proceeding involving a person or business that is unable to repay their outstanding debts. The bankruptcy process begins with a petition filed by the debtor, which is most common, or on behalf of creditors, which is less common. All of the debtor's assets are measured and evaluated, and the assets may be used to repay a portion of outstanding debt.

 

So, in my simple terms, a company that owes more to its suppliers, landlords, employees, etc. than its sales will repay can file Chapter 11 to protect it from these debts- temporarily. Temporarily should mean that the company can stay open and earn revenue while it figures out how to pay these debts.

 

IF you owe more than you take in, there are only two ways to change that situation: 1. Generate more sales; and 2. Borrow more to pay the debts.

 

Can you actually “emerge” from Bankruptcy and not go back?

 

IN case 1, you must find the missing pieces, the relevance and the customers to accomplish what you couldn’t before you filed; In case 2, if you don’t accomplish case 1, all you are doing is like the song, Sixteen Tons: “Another day older and deeper in debt.”

 

There is case after case of companies filing bankruptcy and being so overwhelmed with the debt service that they have to do the only thing possible: File Chapter 7 which may allow discharge of debt and liquidation of assets.

 

There are fewer cases of companies that have emerged from bankruptcy (and stayed viable, not returning to bankruptcy) to become profitable enterprises. Those that did have had to rejuvenate their offering, or venture into blue oceans. Examples of this are Apple (near bankruptcy in 1997 and saved by Microsoft, yes it’s true), Marvel Entertainment, bankrupt in 1996, now owned by Disney and wildly popular. (Investopedia)

 

In the apparel industry, fewer still have emerged and stayed out. One example was Wet Seal, which ventured into plus sizing to save itself. Many others, such as Toys R Us and Sears were too choked by debt and too lost as to what to do.

 

So again, as I have said in other articles, for companies like JCrew, JC Penney, Ascena and more, COVID-19 is not the cause of death. It is the executioner. Chapter 11 is merely a stay of execution. Why? Tell me, as in the case of Wet Seal, what plans for improving its relevance via product mix and customer base, have you heard from the latest list of casualties?

 

IF we view Bankruptcy as a disease, the main cause is the loss of relevance. Either someone took the company’s relevance while it was asleep, or it just forgot to evolve, or both. Great companies survive all manner of financial downturns, some may become even more relevant during it (there are many cases of this during the Pandemic, starting with Amazon, Walmart, Best Buy, etc.)

 

One retailer who, in my view, has a very good chance to emerge from bankruptcy is Neiman Marcus. Clearly they are making efforts to get closer to their customer and personalize their offering; IF they match these efforts with great and sustainable investment dressing, they will have completed their task and should be able to generate the income necessary to pay down and back the debt. I have said this a few times, most recently in my last article, “What is the Future of Retail?”

As a former department store retailer, I believe I am right. Let’s see.

 

The bottom line is that Chapter 11, for most, is just a stay of execution. Companies who found themselves in the position to have to resort to Chapter 11 Bankruptcy filing, were usually lost as to their relevance in the marketplace. What is the answer for those companies: Use the Brand Name or Store Name good will and retool, revitalize; strip anything that didn’t work and reinvent themselves. In most cases, as with Sears and JCrew, the Brand has value; it just needs to be applied to the current market.

 

 

What is the Future of Retail?

What is the Future of Retail?

 

Chicxulub, Yucatan, Mexico- 66 million years ago- An Asteroid, known as the Chicxulub Impactor, of between 11-81 kilometers in size, hits this area at 20 miles/second. This Event caused ecological collapse, notably the acidification of the oceans, which resulted in the extinction of 75 per cent of all species on earth. The most famous effect of this cataclysmic event is the extinction of all non-avian dinosaurs.

 

Slowly, eventually, the earth regenerated new species which may have been related to the dinosaurs, but were more resilient and capable of evolution, many of whom survive today.

 

What does this have to do with retail? Let’s focus on COVID-19 as the Impactor. And the extinction of a long schedule of retailers, which is not over yet. Let’s call them 21^st Century Dinosaurs.

 

Sears, Penneys, JCrew, Brooks Brothers, Neiman Marcus, now Ascena, parent company of Ann Taylor. With more to come (can Macy’s be far behind?). These are some of our dinosaurs.

 

What? How can I call them dinosaurs? Of all that went Chapter 11 or belly up, is there one you can point out that was in the prime of its existence? Or could we rather say that most had lost ground and their fastball anyway?

 

COVID-19 was the final impactor. But there were many more, persistent influences in the world of retail that had been growing, like a cancer on those who were sedentary:

 

Amazon- Founded 1994

Walmart- Founded 1962

Inditex (Zara, etc.)- Founded 1963

Trader Joe’s- Founded 1958

Aldi- Founded 1946

Dollar General- Founded 1939

Target- Founded 1902

 

So here’s my point about what happened: COVID-19 was just the final impactor; the above retailers and those like them, combined with the development of the Internet, evolved into relevance with the theme of life today. Those who we are saying goodbye to, didn’t.

 

One main reason for their death can be found in the word “sedentary.” In the heyday of the department store and shopping mall, customers were bound by geography. Now they are totally free to shop globally and geography is not an issue- except if somebody nearby (like TJX) gives you a great reason to go there in person.

 

Conclusion: They were bound for extinction sooner or later. COVID-19 was the euthanasia.

 

So back to Title: What is the Future?

 

Those who are “scared” by the events described above are either generally scared or not seeing the future clearly. Let me help.

 

First: People will never stop shopping; on the contrary, shopping is easier and more vibrant than ever before.

 

Second: the retail landscape, while it will still be dominated by the major players, has vast blue oceans for startup retailers who provide a relevant product and/or business model.

 

Third: Omnichannel, and the ability to keep in touch with your Customer Community 24/7, will enhance the shopping experience and promote impulse buying (Neiman Marcus has this concept clearly in their plans, which is why they may very well be the one dinosaur to survive). That being said, omnichannel won’t do you any good if people don’t want to buy what you are selling.

 

Fourth: Retailers like Amazon and Etsy will continue to provide a global platform, which will promote sales never possible before. This has the advantage of helping to build economies in developing countries like Ukraine and puts local retailers on notice that they better compete, because there’s a big world of good stuff out there, and it can be bought from your smartphone.

 

So, who will be the survivors?

 

1.     Those new and nascent companies that catch the attention of those with the pocketbooks, such as Millenials and Gen-Z; example is Lululemon;

2.     The Major Shopping Destinations- the Go-To Retailers: Amazon (in a world by itself), Walmart, Target, Alibaba, Tencent;

3.     The Category Killers like Trader Joe’s, Aldi, Lidl, maybe Best Buy if they don’t lost their fastball.

4.     The Mass Market Treasure Islands like TJX, Ross, Dollar General, Dollar Tree etc. who provide the price/value alternative for those who are inclined that way;

5.     All of those, including the above, who provide a great Customer Experience, BOTH virtually and personally;

6.     Those who don’t fail to customize and personalize such experience.

7.     Those brands who Represent the lifestyle of its customers, producing an empathetic reaction, such as Glossier;

8.     Brands and Retailers that actually practice sustainability, not just talk about it;

9.     Local shops that find a captive geographic customer base with the relevance of their product and service.

 

Who won’t be?

1.     Not that I want to wish them any bad business, but I believe that if the Fast Fashion Disposable Clothing purveyors like Zara and H&M don’t improve their quality and the life of their product, they will NOT be part of the future.

2.     Department stores like Macy’s who fail to provide great merchandise at moderate prices, who don’t cull their merchandise to represent their CHOICES of what the customer should want to buy, and don’t compete well or credibly on price with the Mass Market and Treasure Island retailers;

3.     Specialty Chains that don’t evolve their Brand Persona and Customer Experience (like JCrew, Victoria’s Secret).

 

The fatality list is not over, by any means. At some point, COVID-19 will not be able to be blamed anymore. So let’s call the Cause of Death: Failure to Evolve.

 

On the other hand, I see a bright and RELEVANT future for Retail once the dinosaurs pass on and move out of the way. The above possibilities set the stage for Better Than It Ever Was. Technology provides the evolved with unprecedented opportunity.

 

As with the dinosaurs, the retail casualties will be remembered, but not missed.

 

So, for those who are panicking and scaring the snot out of the otherwise ignorant and skittish stock market, please read the above and present facts before you cry the sky is falling. OR tell me where I am wrong.

 

 

 

 

Does the Future of the Workplace Belong to Generalists?

Is This the Key to Productivity?

Certainly the cost of labour using more productive staff with more comprehensive knowledge will reduce cost, increase profit, and/or increase the standard of living of those productive staff who are paid more for their skills, which will trickle down in their own consumption.

This article by a Harvard Lecturer is spot on. It should be required reading for all recruiters, HR, Hiring Managers, Owners- well- everybody.

"Harvard Lecturer: No specific skill will get you ahead in the future- but this way of thinking will"

Organization structure today is built around silos of specialists, which is not only inefficient but can be dangerous. For example, if someone in Department A makes a critical mistake in product specifications not caught by Department B, whose only responsibility is to execute it, they will not catch the mistake because it is as written, even if it is wrong. A generalist responsible for the whole process would have a 90%+ chance of a. not making or b. catching such a mistake.

Also, I am constantly shocked by companies' ignorance of the fact that, regardless of the product, the sourcing and manufacturing process is almost identical in every case. What is more, I found that if I could successfully produce shirts, which will have dozens of specifications and parts (worth a couple dollars), that it was super easy for me to correctly evaluate a crusher plant worth $500K.

I am not sure what the speed of recognition will be-if at all- but I am sure that COVID-19 may be the stimulus needed to start people thinking this way.

The bottom line is: EVERYONE SHOULD READ THIS ARTICLE

Should Amazon Buy Macy's?

Be careful what you wish for? (Or be smart and invest)

 

Many times in my various marketing courses I have used Scott Galloway’s The Four (Apple, Amazon, Google, Facebook) as a text to highlight what today’s winners in marketing did to become the world’s 5^th largest country, combined; Galloway’s T Algorithm tells us what they have in common, and his New Algorithm of Value shows us why they will continue to grow.

 

In my lecture, using the numbers to illustrate their position vis a vis other famous companies, I compared market cap, debt etc. of the four in historical perspective with companies including Macy’s, Coach, Tiffany, Gap, Sears, Penneys, etc. The winners and losers, as it were.

And I said, repeatedly, only half joking, "Amazon could buy Macy's with pocket change." My investment in Amazon keeps getting better; my avoidance of Macy's keeps getting smarter.

 

So, when looking at Macy’s, whose name has equal or better name recognition with Amazon, it is shocking to see the difference in market cap. Imagine: With equal name recognition, Macy’s market cap today is a little more than 2 billion, Amazon’s is $1.5 trillion. A multiple of 750 Billion times.

 

Macy’s has a debt of $7.8 Billion to detract from the market cap, so its value is a net minus. Amazon’s debt is listed today as $78Billion, or .05 of its market cap. Cash for Amazon is listed at $49Billion; Macy’s is $685Million. Not mentioned, rarely mentioned when the vultures are circling, is that Macy’s real estate holdings are probably worth more than its market cap and debt combined.

 

So, however you value the deal, Amazon can buy Macy’s with chump change. Or, even better, their market cap increased by $548BILLION from its low point in March 2020, and $301Billion since its previous high in February 2020.

 

The above establishes clearly that, for Amazon, buying Macy’s is NO PROBLEM financially.

 

But SHOULD they?

 

From Bezos’ standpoint, first, at least these:

 

PRO- they are getting a brand name that has as much persona as any other in retail.

 

PRO- Herald Square location is the prime shopping location in the US, maybe in the world.

 

PRO- Real Estate value of Herald Square, if sold or rented out, has to beat any price Amazon would pay in a buyout. This doesn’t include real estate value of the balance of the Macy’s locations, many of which are in the heart of other cities in the US.

 

PRO- There is little inventory risk, as I am sure it would be included as a liability in any deal. Even if it isn’t.

 

PRO- Amazon/Macy’s could only enhance both brands and would give Amazon extra juice on their web site.

 

PRO- The Bloomingdale’s division gives Amazon entry into better goods that they have been salivating for. Amazon has not been able to develop anything worth buying for more than $20.

 

PRO- They (maybe) can add vendors who are not under the Amazon umbrella, such as Canada Goose.

 

From my standpoint:

 

PRO- Macy’s has done nothing but talk about rebuilding their brand; but still they exist in the nether world between luxury/designer (few of these will even sell to Macy’s) and mass market like Walmart, Target and TJX. They need a radical makeover, and management are frozen in their tracks, or don’t get what is needed. Amazon can and would do it. Nothing to lose.

(Macy’s needs to become a specialty brand store, and/or a department store in the original incarnation, which they were in the 60’s and 70’s)

 

PRO- Amazon name and products/other ecosystem components (like ordering from Alexa) can only make the stores not only more relevant, but more interesting.  Amazon can build a unique shopping experience in the best location in the country and others across it.

 

PRO- Build a Whole Foods in the basement.

 

Are there any CONS to this transaction?

 

The only one is for the executives that will lose their fat undeserved bonuses and will have to deal with the reality of their failure.

 

What does Amazon have to lose? Is this out of their lane? NO. We know they need to strengthen their Brick & Mortar presence. And now, they will be able to inhabit non-food (and maybe food too) retail in every major mall and major city in the US.

 

IF, in the end, the name Macy’s is worth nothing more than a parade, Amazon will either make profit on the real estate sale or build something better in place of the stores that were there.

Above are the common sense retail marketing reasons; there are more which I will leave to the analysts.

 

This, friends, is the beginning of Amazon’s Omnichannel Opportunity.

Not Understanding the Relationship Between Price and Value Can Be (Is, Was) Lethal

Brands and Retailers: Urgent Correspondence

 

In her thought-provoking book, “The Value of Everything: Making and Taking in the Global Economy,” Mariana Mazzucato explains that the determinants of value had changed for many economists- and companies. What does she mean by that?

 

She says that, previously, the determinants of value actually shaped the price of a good or service. Lately, however, that relationship has gone into reverse and the price of a good is determining its value.

 

Let me explain the meaning and significance of that statement. Depending on how much value I see in the good or service (be it emotional, functional, or status) will depend on what I am willing to pay for it; In the reverse definition, the relationship reverses itself: The value of a good is determined by how cheaply I was able to buy it.

 

So, given the first definition, if I pay $100 for a shirt because of its materials, design, quality, sustainability, etc. I will consider that I paid for the characteristics and attributes of the item, and I would have paid more if that is what it took to acquire it; the second way, if I paid $30 for a similar shirt, no matter if it matches the first in quality, design, durability, etc. I got a real value for my money- aka Bargain.

 

Are there people who just can afford an $30 shirt and can’t pay for the $100 one? Sure. But, as Ms. Mazzucato is implying, most of the potential customers are those who could afford both, but whose minds got infected by the perverted definition of value.

 

For brands, letting (or encouraging) your customer to apply the second definition of value can be lethal- and has been for many brands and retailers who are, or are about to be, extinct.

 

Let’s start with Brooks Brothers, who Forbes reports is about to go into bankruptcy after nearly 200 years of existence. When you think of Brooks Brothers, what do you think of? I bet your answer is shirts. In recent years, the company has externally, and clearly internally, deemphasized their shirt business. Instead of making efforts to be in the forefront of fashion, color and pattern, and maybe translating their mens business to women, they decided it would be a better strategy to reduce the price of their shirts (same shirt) for volume purchases. So the $92 shirt became a $69 shirt.

 

So here’s how it ties to the above concepts of value and is one reason Brooks Brothers is about to die, or at least get very ill: The shirt is a very good shirt that was worth the $92- durable, non-iron, etc. So the characteristics of value $92, determined the price of the item.

 

Now, at $69 the price determines the value of the item: I can get this shirt for $69 so that is its value. $92 is a distant memory to the consumer as their price/value equation has been reset.

And Brooks brothers encouraged this mentality by continuing to promote instead of coming up with shirts whose value could command the higher price. (Note: once you train the customer as BB did, it is nearly impossible to get them to reset their price/value equation back to the value/price formula.

 

Wait for it—So the brand is—DEVALUED.

 

Let’s take another example (I could talk all day here, but I think after this you will get the point)- A Retailer. There are so many stories I could tell, but let’s talk about Macy’s.

 

Why did people turn to shop in department stores? Tracing the history back to the late 60’s, when I entered the picture in NY (not Macy’s, but their main competitor), it was because they found value in the brands and the reputation of the retailer. Department stores did not only represent one price point of value- there was budget, moderate, bridge, better, designer which represented the tiers of value available to you within the same building. All represented value for their target customers- and even, if you had a special occasion or got a raise/promotion, you could upgrade to the next levels.

 

Yes, there were sales. But these consisted of two things, neither of which could be expected: Markdowns on items that didn’t sell and specially bought or arranged promotions. But, as buyers, we lived for and were judged on what we could entice the customer to buy at first price- based on our ability to select.

 

After Macy’s took on tremendous debt by eating Federated, May Company and Broadway Stores in the 1980’s, someone decided that they needed to drive sales in a more predictable (?) manner by buying into and planning promotions rather than staking their business on the ability to select merchandise their customer would pay for because they considered the value. Wait- see- we just went from the first concept of value (value as a determinant of price) to the second one (price as a determinant of value).

 

And Macy’s did it very well: The price strategy had (and has) layers, conditions, and a schedule. But guess what? The customer figured out the schedule. So here we are at the same relationship- Price determines the value (today it is 25% off) but I know, even though the product may well be worth that price, that it will be 50% off really soon, so THAT is its value to me. Bottom line: nobody believes Macy’s any more.

 

Macy’s isn’t in Chapter 11-yet- but all the signs are there. If you look at the market cap of Macy’s, especially vs. other retailers like Walmart and Target, and where it has gone, you will feel embarrassed for them. Nobody in the corporation has the courage or insight to recommend a radical restructure. So where can Macy’s go? Their only chance is to become a real estate company (think about 34^th Street- the rentals there would exceed the market cap).

 

Trust me, a company that sacrifices itself by F**ing up the value/price relationship is only left with one option: to secure funds for an impossible revival (because nothing is learned or it is too late) to the vultures of finance. What happened to Sears, JC Penney, JCrew, Toys ‘R Us, is a shameful end to a story; we resent vultures for eating leftover carcasses, but that is their role in the ecosystem. Forbes explains the case we have seen so many times lately:

 

Gordon Brothers, their new lender, is a fine firm run by smart people and very successful. But it is best known for expertise in bankruptcy and liquidation with extensive experience closing stores and liquidating them. Often when you see Gordon Brothers in a loan, it’s because no conventional bank will lend, and Gordon Brothers gets first dibs on running the liquidation in the event there is one.

 

Finally, let me answer a question that may be on your mind: What about those retailers, like TJX, who have built their businesses on price? Do they defy the concept?

 

Answer: No. Why? Because they got the relationship right. It does not matter at which level of the price scale they exist.

 

Let’s take TJX, with their TJ Maxx, Home Goods, Marshalls etc. stores. Once stores were allowed to open in parts of the country, these stores were mobbed. OK, you say, because their prices are cheaper. No.

 

These stores have not perverted the value/price relationship. They do not offer any pretense that the price justifies the value- their customer trusts them that, if they say the price is $9.99, that is the value. Unlike Macy’s.

 

Perversely, their buying philosophy is more akin to what we did in the late 60’s to what retailers like Macy’s are trying to get away with today. If we tell you this s**t is worth $19.99, it is. And their customers believe them in spades. And their selection process as opportunistic purchasers is at a very high level. Unlike Macy’s.

 

This is the key reason for the phenomenon that Steve Dennis calls Bifurcation 2.0: the department stores not only lost their relevance; they lost their credibility as value-determined locations and gave in to the reverse. In which they also are not credible, as is TJX.

 

So what is the future? Post COVID-19, many customers may reevaluate their value/price relationship. Anyone can buy a $30 shirt. But, if price is my thing, I go to TJ Maxx and satisfy my value/price relationship in one way, or I find some credible brands to give me the product whose value I want, for which I will pay.

 

Those who already got it wrong and are too arrogant to change, will see their carcasses consumed by vultures like Gordon Brothers or Eddie Lambert.

 

To me, this is not rocket science; what needs to happen, as our Native Americans say, is “open my eyes so I can see.” Or, strip away my bonus millions so I have to see.