Archive for June, 2015

Who holds the cards in the “free shipping” game?

The major package carriers (UPS and FedEx) have made clear to their retail customers that their pricing will need to go up for holiday 2015, to help cover the growing costs of so-called “free shipping” offers, late shopping deadlines, and so forth. The question is: Who pays? Here’s my point of view from a recent RetailWire discussion:

There is no such thing as “free shipping,” no matter how aggressvely the service is pushed by e-commerce and omnichannel retailers. Somebody ends up paying for shipments that are too close to shopping deadlines like Christmas, or too bulky in the first place. So it’s understandable that the big carriers (UPS and FedEx) need to think harder about the impact on their own shareholders.

The question becomes whether retailers have any negotiating leverage against the two giant carriers, or whether they are willing to pass along costs to their customers even in the form of higher prices (so they can continue to offer “free shipping”). There will be a lot of back-and-forth between retailers and delivery companies before agreements are reached, so the initial volley by UPS and FedEx may not be the last word.

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Unconventional choices in the CEO succession race

Kohl’s recently announced that its “chief customer officer,” Michelle Gass, is taking over the helm of the merchandise organization. This puts her in position to become the chain’s next CEO, despite her relative lack of “general merchandise” background. (She spent most of her career at Starbucks.) She may compete against the “chief operating officer” to be named, who will have oversight of stores and logistics. It’s an interesting recent topic for discussion at RetailWire:

Kohl’s has had only three CEOs in the past 35 years, and all of them have been promoted from within. (Full disclosure: I worked for Kohl’s for 24 years, until 2006.) So it’s important for the company’s board to be thoughtful about the most important decision it can make, and to weigh the merits of store-operations vs. merchandising backgrounds…among other things.

The broader question facing huge national retailers (and not just those who are publicly traded) is how to identify the right forward-looking skill set for an effective CEO. Is it simply the traditional retail background of “merchant” or “store”? Or do more intangible skills like leadership, brand building and change management in an omnichannel world matter more today?

Among recent examples, JCPenney went for the more conventional choice of a CEO with a strong background in store operations. Target, on the other hand, opted for a CEO from the CPG industry with less grounding in a traditional retail career path. The next few years will be interesting to watch at both companies, but the early read is that Brian Cornell is acting like the change agent Target needed.

Higher wages = more customer satisfaction?

Walmart and several other retailers have made well-publicized moves to raise the starting pay of their associates. At RetailWire, the “Brain Trust” discussed the cost/benefit of these changes, not only in terms of measurable economic benefit but also in terms of morale and goodwill. To me, it’s not just about reducing turnover and training costs:

The costs of turnover are certainly measurable, as George Anderson’s article points out. Over time, Walmart and other stores will be able to gauge the higher costs of payroll vs. the lower costs of recruiting and training. Short-term, however, this is unlikely to deliver a payback.

But as an intangible benefit to service levels, employee morale and goodwill among shoppers, the higher pay scale will begin to pay dividends sooner rather than later. Consumers are well aware that higher-paying retailers like Costco, Nordstrom and The Container Store also have some of the highest customer satisfaction ratings in the business…and it’s no accident.

What makes a top retail CEO?

RetailWire panelists recently discussed a ranking of America’s top CEO’s, and in particular the members of the list who run retail companies. While several panelists commented on these executives’ vision and entrepreneurship, I found something else that many of them share:

One common thread is the number of CEO’s who are “homegrown.” They are either family members (Wegman, Butt, Nordstrom) or founders (Schultz) or longtime employees themselves (Jelinek, Cook, Iger). These are people who have been immersed in each company’s culture, have a sense of “ownership” and in some cases have their names on the door.

This isn’t to suggest that companies always should look inward for their senior management, and there are other names on the list who earned their stripes elsewhere. (Although Mickey Drexler’s reputation is under a cloud right now.) And “great” — as rated by one’s employees — may not always translate into great results from shareholders’ perspective. But it’s a telling argument for the importance of company culture in the overall success of a retail business.

Amazon finds another new business to try

With Amazon’s recent announcement that it’s testing a streaming service for video games, there was some speculation on RetailWire that this is “one category too many” for the giant e-commerce retailer. I disagree:

Amazon’s expansion into new businesses doesn’t appear — so far — to have affected its core brand promise, which is to deliver a wide variety of products quickly at a competitive price. In fact, delivery speed is getting faster: I bought a pair of shoes on Amazon on a recent Saturday that showed up the next day (a Sunday) for about 10% less than I would have paid at Nordstrom. And, of course, shipping was free.

Video games may be a logical extension of Amazon’s streaming businesses, or they may turn out to be a misfire like the Fire Phone. Either way, Amazon is prepared to jump on the success — or pull the plug on the failure — quickly. So I don’t see it as a misfit with bigger volume opportunities such as grocery delivery.

An omnichannel experiment…in reverse

Blue Nile has been a successful e-merchant of fine jewelry for many years, and has decided to open a brick-and-mortar “showroom” of sorts, in a mall on Long Island. It’s an interesting reversal of the usual pattern of physical stores engaging through e-commerce, and is a new twist on the idea of omnichannel retailing. Here’s a brief comment from a recent RetailWire discussion:

Omnichannel isn’t just about brick-and-mortar retailers developing e-commerce and then providing an integrated shopping experience. It’s also about web-based retailers needing to establish a physical footprint, and the Blue Nile experiment is a good illustration. In a category like fine jewelry, there will always be a substantial number of customers who need to see the merchandise before buying (especially higher-end diamonds), so even a well-conceived website like Blue Nile will eventually need to reach those shoppers in other ways.


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