Dear Big Box Retailer,
Is it just me, or have you gotten a really bad rap lately? I can’t think of the last day when I didn’t read some story about how Amazon is going to put retailers like you out of business. Or how about all of those “Sears-will-be-dead-any-minute” stories? Or maybe the death of malls stories? Or the “can-Macy’s-turn-it-around” stories?
It seems like just yesterday when we were reading about how all the big box retailers were going to shutter because Circuit City, Linens ‘n’ Things and CompUSA all closed their doors. It’s amazing how quickly those long-standing merchants slip from our memories.
Somehow, the struggle in the retail world and the growth of Amazon have obscured the successes we’ve seen from T.J.Maxx, Ulta Beauty, Ross Stores, Burlington, Best Buy and others. Sure, it’s really fun to read about drones flying around delivering packages, but you know what’s also fun? Creating and executing on a strategy to sell lots of product while ignoring the conventional wisdom that you have to fail fast and disrupt everything. Ross Stores doesn’t even sell online. You know what’s disruptive? Not having ecommerce in 2017 while doing nearly $2 billion in EBIT off $12 billion in revenue.
Should You Really “Act Like a Startup?”
As retailers close their doors (or at least some of their doors), we’re reading all sorts of prescriptions for how retailers can manage the upheaval in the market. Oftentimes, the advice is something along the lines of “act more like a startup.” But I’m always concerned when I read that.
Large public companies answer to a different master than startups. Managing Wall Street earnings expectations as a company with, say, 2,000 employees, requires strategic and operational discipline and risk management that aren’t required of venture-backed startups. These companies are slow and risk-averse for good reason: Their owners (re: shareholders) generally expect it of them. “Acting like a startup” — which I will assume means that you should push more decision-making down to staff with lower seniority and not be afraid to adapt strategies as quickly as the market dictates — can be disastrous for large companies where structures are in place to mitigate risk that can affect earnings (although certainly these measures are not always effective, as we’ve seen repeatedly over the past few years as retailers have struggled).
But we’ve seen one common thread among retailers who have thrived over the past few years — they have a relentless focus on defining and then executing on their value proposition, and they all use data to understand their customer base and the products that those customers want to purchase.
Perhaps this is what people mean when they suggest that large companies should act like a startup. Rather than tired tropes about “failing quickly,” they mean that all decisions should be based on customer and product data and that there should be an infrastructure to actually make business decisions using the data being collected. With that structure in place and a clear vision from the top, decision-making can then be pushed down through every layer of the organization. And every team member will understand how their decisions affect company-wide strategy.
A Case Study in Success: The Best Buy Story
It’s worth taking a moment to examine how Best Buy has managed to thrive after a period when many observers wrote it off for dead. In 2012, the company experienced financial performance that it deemed “unsatisfactory” and called out declining comps and operating margins as two problems that needed to be solved in order to thrive in the Amazon era.
Best Buy followed up this analysis with action by rolling out a turnaround program called Renew Blue that used data to diagnose the underlying problems and present solutions about how the chain can present clear value to its customers. The New York Times recently wrote about the results of that program and the key initiatives that Best Buy undertook along the way, including price matching and better educating in-store staff.
Three Lessons from Best Buy’s Turnaround
Much has been written about how Best Buy has managed to compete with Amazon through the Renew Blue program, but I think there are really three keys to their success that can be repeated elsewhere.
1) Prioritize accountability
First, this initiative was spearheaded by the CEO (so it was clear how important it was), presented to the investor community (so there would be accountability) and updated publicly with metrics about the success so far (so investors, staff and customers would have confidence in the initiative).
2) Rely on data
Second, every bit of the program was based on data. It’s worth reading through this deck on the Renew Blue program just to see how Best Buy proved the importance of each change it made by using survey and financial data and then measured the results of each change to determine whether or not to move forward with it. For example, Best Buy rolled out a redesigned store in Minnesota, then measured the impact on customer satisfaction scores, revenue growth and return on invested capital. Along the way, everyone was clear on the measurement criteria and the results.
3) Stay open to experimentation
Finally, Best Buy wasn’t afraid to test. Large companies can often be slow to make changes, but new technology like Bluecore allows large companies to make small changes quickly and test the impact. That change might be trying different product cross-sell strategies or it could be testing promotion levels to see which drives the highest margin. It doesn’t really matter. The key is taking the opportunity to try something different. And having a clear company-wide strategy (with clear goals and metrics) makes it easier to launch a testing program — that way, every staff member knows what they’re trying to achieve and how success will be determined.
What To Do Next
What does it look like to chart a path forward in an Amazon-dominated world? Check out our advice on what it takes to co-exist with the force of Amazon.