Mark Cohen spent much of his career in the C suite for major retailers like Sears Canada, Sears Roebuck & Co., and Bradlees. With this breadth of experience and insider knowledge, Cohen has a unique perspective on today’s landscape—thoughts on what will and won’t work going forward. For one, Cohen said many legacy retailers are “dead men walking” with little hope of turning things around though notable exceptions like Nordstrom and American Eagle exist.
Here, Cohen, who now consults and leads the Retail Studies department at Columbia University’s Graduate School of Business, shares insights on what makes a good leader, the best next step for Amazon and the massive overhaul needed at America’s biggest department store chain.
SJ: Mark, you’ve called today’s environment a Retail Armageddon, please elaborate.
MC: The industry as a whole is just fine. There is no shortage of customers. Customers have no shortage of disposable income, and student loan debt notwithstanding, they are once again loading their credit cards up to support their retail “habit”.
It’s boom time for the new age, largely e-commerce driven, new retailers. Most will fail but many super large like Amazon to tiny local green shoots operations will succeed brilliantly. However, it is Armageddon for the many legacy retailers who are in the throes of a Retail Apocalypse—those who can’t/won’t/don’t properly adapt to the realities of today’s marketplace.
SJ: That ability to adapt starts at the top. What makes a good retail executive today?
MC: First, a good retail executive must exhibit a pronounced capacity to acknowledge everything happening around them with regard to their company, their customers, their competition and what is going on in the world at large. Second, a good retail executive must be great at assessment, which is to say, the creation of differentiated and successful plans. And third, a good retail executive must be able to execute their plans through effective and efficient action. Acknowledge, assessment and action, the three “A”s that are fundamental to good retail executives.
SJ: You’ve said Nordstrom is an exception to the retail armageddon. Why?
MC: The Nordstroms correctly noted the impending presence and importance of the Internet early on by way of Acknowledgement. They then formulated a plan to create an important web-based component to their business by way of Assessment. Last but not by any means least, they executed their plan to create a near seamless customer experience between web and store by way of the Actions that they took. Kudos to the Nordstrom leadership in that regard.
Nordstroms gets credit for creating a website that from day one was fully integrated with their stores. See it in store, buy it on line or vice versa. Buy it online and return it in store. Their view from the outset was to create transparency. Everyone talked about that but few have mastered it even today.
They also correctly noted the emerging presence of ‘outlet style’ retailing and created and have now importantly rolled out their Nordstrom Rack network of stores. Unfortunately, their going in hypothesis that said that a young and less than fully financially capable customer would patronize the Nordstrom Rack and then trade up into the Nordstrom store may very well have proven to be less than sound. The Rack seems to be subsuming the [mainline] store.
SJ: What about American Eagle? That’s another bright spot that you’ve identified. Why is it succeeding where its peers have struggled?
MC: I can’t speak about newly installed current company leadership. What I will say is that prior management correctly recognized that their most important element of differentiation relative to their primary competitors, Aeropostale and Abercrombie and Fitch, was five pocket denim jeans. They built a world class design, sourcing, production, marketing, pricing and distribution model, both in store and web based. They continue to reap enormous benefits from this strategy by way of excellent ongoing execution. As for their competitors, Aeropostale is almost out of business, and Abercrombie and Fitch is still wandering about trying to find a viable strategy that they can rely upon to sustain them.
SJ: You have thoughts on Macy’s. If you were running things there, where would you start?
MC: Macy’s is broken and does not appear under new leadership to doing anything meaningful to remediate the issues it faces. Here’s my short list:
- Macy’s has been milking hundreds of its stores for what feels like forever for their four-wall cash flow. These stores increasingly look tired, outdated and outmoded. Before the age of the internet, which is to say, before customers had choices, this strategy seemed to have been defensible. Now, no way. Macy’s has to bring its store fleet down to 300 or less doors, exclusively in viable urban locations and only in triple A malls. Macy’s must exit every flagging or outright zombie mall where they currently do business, or risk the collapse of these venues taking them down. Let’s stop using these stores as internet fulfillment sites as a way of convincing the world that they remain viable. They are toast.
- Macy’s needs to find a way to answer the question, ‘What is Macy’s and what does it stand for?’ Let’s face it, ‘The Magic of Macy’s’ is nothing more than a mere slogan. Macy’s needs to organize its assortments around the brands (whether private label or exclusive), categories and life styles that appeal to a broad base of customers. Macy’s, which years ago placed a bad bet on apparel and accessories at the expense of hard and soft home, housewares, electronics, etc. has to reposition itself as a far more powerful destination than it is today. Bring back the Macy’s Cellar, for example!
- Macy’s has to address its fatal addiction to rampant, miserably uncoordinated high/low price promotion which has backed it into a calendar and pricing corner that is not sustainable or survivable. Hand in glove with this, Macy’s must develop an incredible value program across the house that has no promotional component other than clearance. Yes, Macy’s has to stop trying to chase TJX, Ross Stores, etc. down an Outlet Store rabbit hole that it is currently doing. No one has ever succeeded in this business by mimicking someone else’s success.
- Macy’s stores and Macy’s website both have to become extraordinarily congruent. The website has to be a virtual version of the stores (even in advance of AR becoming ubiquitous). The website now is nothing more than an on-line version of whatever Macy’s is promoting each week in its various tired inserts and ROP ads. The stores and website must tell stories that are far more interesting and differentiating than merely announcing what is on sale.
- Macy’s has to actually deliver great customer service everywhere it does business. Every day on line and every day in every store and service facility. No winking. No blinking. No fooling.
There are quite a few more things I would act upon if I were running Macy’s but these five will have to suffice here.
SJ: You’ve said there’s little legacy retailers can do in the short run, say the next 18 months, to save themselves but some are trying bold moves. What do you think about Walmart’s virtual mall with Lord & Taylor as the first major “tenant”?
MC: I think Walmart is trying to become something that, not only, it is not, but that it is trying to appeal to a customer it doesn’t have and won’t readily pick up.
As for the Walmart/L&T deal—profoundly misguided is about all I can say. The intersection of Walmart’s existing customer base with regard to lifestyle, taste level and price, and L&T’s almost nonexistent customer base, is just not there. Again here’s Walmart making a dumb decision as they have done repeatedly in the past and L&T making a decision more borne by desperation than logic.
SJ: No retail conversation is complete without at least a mention of Amazon. Does Amazon want to make money in retail? Are they buying marketshare?
MC: Amazon could, at the stroke of a few keys, almost instantly become the world’s most profitable retailer. They could do it by ceasing to reinvest all of their prodigious positive cash flow into their expansion in assortments, categories, new global markets, etc. They could do it by merely raising the price they charge on everything they sell by a few cents (instead of lowering it as they are doing now). Amazon is doing far more than just building marketshare. They have created the new 21st century marketplace which they believe has virtually few if any boundaries.
SJ: What about Amazon’s move into physical stores?
MC: First off, I don’t think Amazon has to go into brick and mortar as some have suggested. Their Whole Foods acquisition may turn out to be more of a technology and logistics exercise than a harbinger of more physical retail. I do think, however, that a strategic case could be made for Amazon acquiring Costco. Costco is enormous in volume, consistently profitable, has an extraordinarily successful subscription model and is global. And, almost all of their business is done in their brick and mortar warehouse stores. They also have long ago mastered the private label business in both hard and soft lines and food.
Marie Driscoll, CFA is an industry analyst focusing on apparel brands, retailers and luxury goods and providing consulting services to academia, industry, investors and non-profits through her firm, Driscoll Advisors. She can be reached at firstname.lastname@example.org.