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I was recently on a conference call organized by BWG Strategy during which senior retail executives discussed the future of the industry. The industry has evolved a lot in the last 18 months and, for many major retailers, not in a good way. A number of large retailers’ very survival is now at stake.
One senior retail executive on the call had a theory he called “The Seven Survivors of Retail.” He explained that when you look at the retailers who sell products made by other companies, multi-brand stores if you will, there are seven of them doing well enough that their survival is likely. If you’re not one of the seven survivors on the list, this executive says the strategy you’re using to adapt isn’t working well enough and there’s a question mark on your future viability.
A short time ago, it would have been absurd to be talking about scores of big retailers that might not make it, a ridiculous idea. But the prospects of many legacy retailers are now so serious that the person who named the Seven Survivors can’t be quoted by name — it’s too real and too dire. His relationships in the industry would be jeopardized if he made it clear that he felt so many retailers might not survive. Such is the state of retail — the reality can’t even be spoken of because it’s too painful and severe.
The survivors are in three groups. There’s a gaggle of three based in Seattle. There are three based in the middle of the country. And there’s a wildcard.
The Seattle Gang
Amazon. Well, of course. They are dominating e-commerce, they have a ridiculously low cost of capital that allows them to try almost anything (more about that in thisearlier blog post), and they are growing like a monster. There are certainly risks in their business but any list of survivors that doesn’t have Amazon on it isn’t real.
Costco. Yes, definitely. They have differentiated themselves with their offering and price-value relationship in a way that makes their position more secure than anyone else remotely like them. They’re not growing like Amazon but they have a strong presence and identity. They’re profitable and their operations are highly efficient. They work on very thin margins and that’s a risk but displacing them would be very hard for anyone. Their uniqueness makes them an interesting acquisition target but their scale would be daunting for any acquirer.
Nordstrom. They were focused on high-service at a time when it was just one of several valid ways to operate a department store. Now that almost all other ways of operating a department store are questionable, their focus on service will allow them to be a survivor in an industry where selling other people’s brands is a more questionable model than it has ever been.
The Mid-Country Group
Wal-Mart. It’s not just that Walmart is the biggest retailer in the world, it’s that it’s using its resources to adapt. No one knows what the future of a store experience will look like although it’s starting to take shape (more about that in this earlier blog). Walmart is using its position and financial strength to find every possible solution and try it. If they keep doing that, they will be able to create the right offering that will ensure their survival. In particular, their acquisition of Jet.com and the subsequent related acquisitions shows a derring-do that can potentially transform how they are perceived by consumers.
Target. Target was always built to adapt and they are continuing to do that. Their financial performance hasn’t shown growth but their merchandising skill, including partnerships with Casper and others as well as their capsule collections with well-known designers, keeps their stores interesting. Their willingness to try new things means they will likely hit on the right formula over time.
Kohl’s. They have a long history of developing proprietary product and innovative presentation and strategy. Most recently they announced a partnership test with Amazon to have drop-off and pickup in 82 stores with dedicated space and parking for Amazon customers who have a surprising, over 80% overlap, as Amazon shoppers. Their integration of online with legacy retail has been very forward-thinking and their adaptation to mobile has been very good.
The Wildcard
Hudson’s Bay. It’s not that their owned brands — Saks, Lord & Taylor, Gilt Groupe and others — are adapting so well individually; it’s that the parent company is willing to do things that no one else will do. Buying Gilt was a daring move when they did it. Particularly, converting the flagship Lord & Taylor store in New York to mostly WeWork is very innovative and financially savvy. Their willingness to use their brands and space to adapt gives them a wildcard’s chance to be one of the survivors.
When the executive went through his list, all the other industry commenters on the call said yes, that makes sense. There’s a consensus coalescing around the idea that everyone else beyond the seven needs to change how they do things to ensure their survival. Some of those other retailers have strong balance sheets that will allow them to go on for a long time. But they won’t thrive unless they change their approach. The kind of changes needed are above all changes in culture and those are the hardest kinds of changes to make. These seven retailers have made investments in customer experience in-store and online with a clear focus on new customer acquisition, value, service and convenience. They have strong loyalty programs and above all, permission from their C-Suite to take risks and make mistakes along the way.
I’ve mentioned this “Seven Survivor” thinking to a number of knowledgeable people, and no one I’ve talked to disputes it. That’s not scientific but it’s remarkable — no one can suggest another multi-brand retailer whose future is assured besides these seven (and one of them is a wildcard).
In 2016 I wrote one of my first articles for Forbes.com entitled, “In Retail, The World Is On Fire.” I would have said at the time that retailers will adapt and there’ll be a lot of change and then the industry will go on. But the fire isn’t going out, there’s more destruction coming because retailers aren’t adapting fast enough. There is more change that has to happen in retail than has happened already. In spite of this process now being years old, we’re still at the beginning.
This morning marks the opening of one of the largest, most important conferences about retail every year, the National Retail Federation’s annual exhibition in New York. That’s a time when people take a step back to think about their retail business conceptually. If I were a senior person at one of the multi-brand retailers that aren’t among the Seven Survivors, I’d be thinking about how my company could change course to emulate the creativity of the Seven Survivor group. If I were an employee without input into the strategic discussion, I’d be thinking hard about my future.
