Have Retailers Lost Their Minds? Or Just Their Way?

What is it about egos and market-share-at-all-costs that suppresses judgment?! Are the "Big Guys" nuts?!

This Thanksgiving weekend exposed the worst strategic thinking by retail CEO's that we've ever witnessed. In fact, we call this phenomenon "The Bezos Laugh-A-Thon." Jeff and his Amazon team must have sore sides by now.

So spooked are major retailers about Amazon's growing market share that common sense seems to have evaporated. Just imagine all the additional direct and indirect expenses that opening on Thanksgiving Day must have generated. All to protect their market share! 

Remember, "the pie isn't getting bigger!" All this has done is "time shift" that shopping.  The media loved it, but the shareholders should be appalled.

Two outcomes of this misjudgment seem predictable:

• Continuing a recent trend, sales over the next two weeks will be much lower than last year. Customers have just so much to spend, especially in this difficult economy. 

• Each year, no publicly-traded retailer can tolerate sales being lower than last year. For shame! So next year, look for openings at noon(!) on Thanksgiving.

Bottom line: Advantage, Independent Retailers

Those who keep working smarter will benefit greatly by the "Big Guys" errors.  Enjoy it!

Pro-Active Response to "Showrooming"

Have you experienced "showrooming" in your stores? You know, you spot a customer in your store who is price-checking your merchandise, and is actually on the ecommerce website of an online retailer. 

Here's how one retailer we know is dealing with it. Approach the "showrooming" customer, and encourage the customer to put the product into the online Shopping Cart. 

Why? Because only then can the customer see what the total cost would be of buying it online. Only after the product is in the Shopping Cart are the costs of shipping and sales tax added in. That is the true "comparison" price.

So, this retailer encourages the customer to get complete price information. And, at that point, when both the customer and retailer see the total online price, then an actual comparison can be made. Some customers discover that they won't be saving much, if anything, by buying online

. 

Essentially, this retailer uses showrooming as a "teaching moment." He helps the customer discover for themselves what their actual cost would be.

Even Better: Shelf Talkers Do the Showrooming FOR the Customer!

What if you can't intercept every showrooming customer? After all, they often try to be discreet about it! Or, it might feel too confrontational for you. Here's an idea: provide the price comparison for them! 

• Pick a product that you feel is most vulnerable to being showroomed. 
• Go online, find that same product, and put it in the Shopping Cart, as if you were going to purchase it.
• Use a local ZIP code for the shipping address.
• Proceed to Checkout, so you can see the total actual price (including shipping, tax, etc).
• Take a screen shot of the Checkout screen.
• Use the screen shot to create a "shelf talker" to display alongside the product in your store.

This is what the big guys call "price transparency." You're  giving the customers what they want, which in this case, is the facts about whether they could save money by buying online.  

We call it another example of how retailers can work smarter, not just harder. Happy "Proactive Showrooming"!!

Must Retailers Pass Through the "Valley of Bankruptcy" in Order to Change?

Last week, we received an email from a long-time follower of The ROI. It included a comment and a question that you, too, may have wondered:

"How do you go about changing the mindset of the owner/CEO about GMROI, inventory management best ideas, etc?

Our CEO stills buys by intuition, hunch, seat-of-the-pants. He likes to use phrases like: stack-em-high, watch-em-fly. One-to-show, one-to-go.

Can CEO's go from mediocre to great, or do they have to pass through the valley of bankruptcy first?" 

Quite a question, isn't it? Speaks volumes about the underlying concerns.

Thanks to what we call "Retail Darwinism", those Owners & CEOs who still "stack-em-high, watch-em-fly", who buy by hunch and intuition, are in fact disappearing.  They are not making the "mediocre to great" transition. Is the "valley of bankruptcy" the only alternative?

"Am I running this business...or is it running me?!?" 

Every case is different, of course. In our work with retailers in "turnaround" situations, we've found that the fear of impending failure, the acceptance of being on the brink of bankruptcy, can prompt changes.  Of course, sometimes it is too little, too late.

Then there are the times that fear is more paralyzing than motivating. These retailers simply do not appreciate how much control they could have!  Not able to recognize their alternatives, they become frozen in the headlights. This is especially true for those who have delegated the "accounting and financial stuff."

So, how can Owners and CEOs be motivated to change? It starts with increasing their financial skillset and confidence. Enabling them to have a positive answer to "Am I running this business…or is it running me?!"  Knowledge IS power! 

That's not to say that Owners & CEOs need to do all of the accounting and bookkeeping themselves. Far from it!

But since Owners are responsible for projections, for playing "what if…?" about their business, they must understand the cause-effect financial levers in their business. That's how they can be empowered, better able to respond as the business environment changes.

Emails such as this one cause us to redouble our dedication at The Retail Owners Institute® to help retailers "Turn on their financial headlights!"  The ROI's goal remains: "Eradicate retail bankruptcies!"

Congress, Consumer Confidence, and Holiday Spending

In the last 90 days, we've done training workshops for retailers of all sizes in Orange County, Kansas City, Cleveland, and Indianapolis. In private conversations with many of them we've repeatedly heard the same refrain: "Those turkeys in D.C. are scaring the bejeebers out of our customers! Consumer confidence is being ruined!!!"

As readers of this blog know, we believe that consumer confidence is the true leading indicator of retail performance. Uncertainty about their economic future undermines consumer confidence. The continuing Congressional stand-off on economic policy is only heightening this uncertainty.

Then today we read this report from Yahoo! Small Business Advisor. The last paragraph should be used by demonstrators on The Mall in D.C. Here's the key quote by a retailer from Maryland: 

“We’re finally about to have a Christmas season tacked onto the end of a good year. The last thing I want is to have the news dominated by fear-mongering to scare the heck out of all my customers,” he said.

 Some background leading up to the testimony, as reported by Yahoo! Small Business Advisor.

The Small Business Majority flew in 14 entrepreneurs from around the country for two days of meetings with House Minority Leader Nancy Pelosi, Senate Small Business and Entrepreneurship Committee Chair Mary Landrieu, and members of the U.S. Small Business Administration. They discussed access to capital, healthcare reform, clean energy policies, and legislative solutions to economic issues such as jobs creation. And the entrepreneurs urged Congress to pass bipartisan legislation allowing more credit unions to lend to small businesses.

Mike Brey, president of the Laurel, Md. business Hobby Works and a member of the Small Business Majority's Network Council, told Yahoo! Small Business Advisor that he built his company on the back of SBA 7(a) loans. He said he told legislators that, “While things have gotten better, the way banks use SBA loans have changed. It appears to us that banks are using the SBA to guarantee loans that in a different economic climate they would have been making without SBA.” Brey told legislators and SBA officials that he’s had a good year and would like to open two new stores now and asked, “How can we free up some of those loans that used to be [available] again?” 

Brey recalls how much stronger his business was when the federal budget was balanced. He said he would be willing to pay higher taxes if it helped get the economy on track and pay down the debt. “For me, going back to those tax rates is the tradeoff for having a stronger economy and more customers. It’s a trade off I am absolutely willing to make,” he told Yahoo! Small Business Advisor. 

During his visit to the White House this week, Brey told officials that his toy and hobby supplies retail business does best when customers have confidence that they will have money in the future. 

“We’re finally about to have a Christmas season tacked onto the end of a good year. The last thing I want is to have the news dominated by fear mongering to scare the heck out of all my customers,” he said. “It’s so important that the economic policies get the country back on a path to fiscal solvency.”

Wow! Leave it to a retailer to tell it like it is! Let's hope it's not in vain.

New Approach to Employee Bonuses?

Seattle Times columnist Jerry Large cited some interesting research on performance bonuses: 

Researchers at the University of Chicago took advantage of the brain's strong aversion to the loss of anything it values.

They gave teachers a bonus at the beginning of the school year and told them they would have to give the money back if student performance didn't improve.

By the end of the year, students did significantly better on an academic test than demographically similar students. The experiment was done in a high-poverty district.

Previous studies have shown that the lure of a reward at the end of a successful year produced no academic gains. The fear of losing what we already have motivates people more.

Wow! What an intriguing incentive compensation program this could be for retailers! Here's why.

• Focus. It requires clear definition and agreement on what performance earns the bonus. 
• Measurement. Both employer and employees must be able to know where they stand vis-a-vis keeping the bonus. 
• Motivation. The research found that the fear of losing something we've already received - in this case, an upfront bonus payment - is more motivating than a bonus paid after the fact!

Why Not Try It?

You don't have to totally revamp your incentive compensation program to give this a try. Just pick your spots. 

In fact, it may be more appropriate for some of your management team, rather than front line sales associates. The key:

• Have a clear understanding and consensus about what is to be accomplished. 
• Decide what that is "worth"; that is, what should the bonus be?
• Pay the bonus upfront.
• Enforce it! If the results are NOT achieved, take back the bonus!