The Retail Organization of the Future
By Denise Lee Yohn, president of Denise Lee Yohn, Inc.
To be ready for newly empowered customers and further increases in costs, we need to think about – and operate – our businesses differently.
Here are five characteristics that should define the retail organization of the future:
Organized by brand, executed by channel. Managing the brick-and-mortar business separately from the direct/online channel produces redundancies and conflicts of interest internally, and breakdowns and limitations in the customer experience externally. Instead, we should organize the way people shop us – by brand. Each brand should have a single merchant team, marketing department, pricing strategy, etc. That way, we can present a unified brand message and deliver a cohesive brand experience across all channels.
Led by brand managers. When we organize into brand-based units, the head of each unit acts as the primary brand manager. That person should be responsible for driving core brand-building activities including:
- Identifying, defining, and understanding the target customer(s)
- Selecting a brand positioning
- Nurturing defining brand values and attributes
- Setting the expected brand experience across product, price, and promotion
In a small company with a single brand, the president might function in this role. In a larger, multi-brand organization, all the brand leaders should report into the COO or someone whose primary responsibility is managing the portfolio of brands and aligning corporate resources with the portfolio strategy.
Enabled by vital cross-company communication. While customer communication remains a priority, the myriad of social networks and technology devices existing today should first be deployed internally to facilitate cross-company coordination, collaboration, and knowledge-sharing. Many retailers rely on intuition and fluidity, so internal communication is often overlooked as a necessary cultural discipline. But when everyone has access to each other and to up-to-date information, we can develop a shared understanding of the most important issues and opportunities and move quickly to address them.
Powered by a single insights function. Twenty years ago, retail might have been hindered by the lack of information; today, we have too much data – and often it’s spread across the company. Among our sources are:
- Customer transaction data
- Learning from consumer research
- Insights from social media listening and trend analysis
- Findings from competitive intelligence
- Business performance metrics
Without a single view, we are not only squandering the value of the data, but also we are probably missing the forest for the trees.
Driven forward by intrapreneurs. We need to aggressively and systematically pursue innovation. Intrapreneurs are employees who act like entrepreneurs within a company. They can be organized into a formal team with a clear charter and dedicated budget, or simply a few sanctioned change agents. The point is to ensure there is a group responsible for bringing new ideas and capabilities to our organizations.
Discussion Questions
Do you ascribe to Ms. Yohn’s vision of organizing and managing retail organizations by brand? Which of her suggestions do you think would bring about the most meaningful improvements? How should retail organizations be transformed in the future?
I really like Denise’s first bullet point, i.e., tomorrow’s retailers should be organized around the customers they serve rather than the products/services they sell. Many retailers say this kind of thing but very few actually do it. It’s time to drop the focus on product profitability and focus on customer profitability instead. Admittedly, I have an agenda here (see my recent book), but I sincerely believe that this is the right direction for retailers to pursue. It’s a difficult change to make, but an essential one for many retailers facing commoditization and empowered customers.
I’m not sure that the CPG concept of brand management — which has been in place for many years — is totally applicable to retail merchandise management. There is still a place for category managers (i.e. buyers) who can put together assortments of disparate brands, to make sure that each brand has a point of view so the department (and store) is coherent to the customer. Do private brands and exclusive brands need their own advocates in a retail organization? Absolutely, but not at the expense of redundant assortments and a confusing shopping experience.
The future is more elastic than any retail store or any of its committees. You can only stuff so much stuff in 5-lb. sack or any other size sack. So you must strive to find the most acceptable and the most contemporary profit mix of things to stuff in that sack. That’s what Trader Joe’s, Whole Foods and Costco are doing. Meanwhile, most brands and food retailers are struggling.
While prevailing marketing data, and sophisticated science and technology will harness all future operations, imagination and innovation will drive the successful future.
Depending upon the definition of “brand,” I must reserve judgement as to how practical it is for retailers to organize around that concept. But I would respond to this approach by saying that anything a retailer can do to organize their business around how shoppers “shop” versus how the retailer “buys” is a good thing.
Retailers spend an enormous amount of energy and resources managing categories and products, with little or no structure around shopper segments and their behaviors. As Dr. Fader correctly asserts, the future of successful retailing is consumer centricity.
I also heartily endorse the practice of making a “single view” of the customer the center piece of the retailers CRM and databasing efforts. Without this ability, the efficacy of the retailer’s shopper centric efforts are going to be suboptimal.
This idea is DOA, in my opinion. Retailers are for sure supply chain focused, at the category level, but NOT at the brand level. There is no reason any retailer would form internal groups to focus on single brands, when their bigger job is to manage the inter-brand competition, to the retailer’s benefit – NOT TO THE SHOPPER’S BENEFIT. It is in NO retailer’s interest to help one brand to “win” over other brands.
Each brand supplier is a CUSTOMER for what the retailer provides — shelf-space and access to the passing traffic. The retailer’s primary source of profits, often, is the brand on brand warfare that they manage in the supply chain, maximizing the retailer’s own profits by maintaining a number of profitable brand customers, from whom they seek profits (various fees and allowances,) for accessing their neighborhood warehouses (aka “stores.”) They wish ALL the brands well, just not so well individually as to damage the others. They are their CUSTOMERS!
All this leaves the shopper as a utility that is sold en mass to brand suppliers. The retailer’s job is to build and stock the neighborhood warehouses (aka “stores,”) and assure a good traffic through the stores, purchasing, the retailer cares not what, as long as it is plenty. Self-service, shoppers selling themselves from the well stocked and maintained “warehouse” assures the retailer’s continuing access to a nice cut of their suppliers’ profits.
Until the business model gets widely understood, shoppers will remain largely an enigma to an industry that does not even understand itself. Instead, since everyone is a shopper themselves, the presumption is that everyone understands shoppers. This self-referential subjectivism is shot through with error.
At a recent meeting of the Store Operations Council, members discussed how best to share information sequestered at headquarters with store managers. Would store managers want to know which items are selling out immediately? Preferences of individual customers? There’s no consensus yet but the dialogue is encouraging.
I think the use of the word “brand” here may be throwing off the interpretation. Do you mean “banner” (the retailer’s brand) or do you mean “Brand” (the manufacturer’s product) when you refer to “brand”?
Depending on how I interpret that — I either agree strongly or disagree vehemently.
Ms. Yohn’s thoughts and direction are good and would be helpful. But, they are not far from Sam’s Rules, which every company should follow, retail or not.
The biggest challenge facing retailers today is transformation. Retailers have never been good at it and few show the ability to take it on. Most want to resurrect their business by moving the clock back rather than forward.
Every retail decision maker should take a case study course examining Kodak. The decision making at Kodak with regard to film photography is absolutely parallel to the way retailers look at their business today. Just because they have walls, ceilings and doors doesn’t mean that those walls, ceilings and doors will hold them up in the future.
I was surprised to see this, but 44% of respondents to our latest merchandising benchmark cited “inability to identify new ideas and innovate quickly on price, promotion and customer preferences” as a top-three business challenge. This was cited more frequently than any other option, but was followed closely by “understanding consumer preferences.”
Internal communications have been hot-button issues for retailers since I can remember — but the need for speed and innovation has come to the forefront in the wake of the consumerization of IT.
Total stakeholder feedback is critical as is moving beyond having this data locked up in different silos within an organization. Customers, employees, market data, and product insights must be integrated in a usable fashion to truly drive value.
Ms. Yohn raises an important issue. We sell our brand to customers, but sadly many of us think we are in the business of efficient distribution. Nothing wrong with that, as long as it does not take precedence over finding unique ways of meeting customer needs.
I agree with Ms. Yohn’s vision, but it is American-centric. There is little input in her vision of Globalization and its affect on brand building. Social interconnectivity and communication is making the world change — minute by minute. How will retail organizations keep up? It’s great that people like Ms. Yohn are thinking about it.
I’m actually in full agreement with a number of the commenters, (Peter Fader and Mark Heckman, for sure,) about what retailers SHOULD do, but I really don’t see any possibility of this happening in the near term, since self-service retailers don’t make money serving customers, per se.
The job they are doing, supply chain management, is so engrossing, and so beneficial to all three parties — shoppers, retailers AND their suppliers — that it will be nearly impossible to change retailer culture, internally. Besides, their present thinking has delivered beaucoup profits over the past 100 years (for retailers and brands.) Why change? The future will probably hit many like a freight train.
The beauty and the scariness of retail today is that there is no one model for success. Each organization must have clarity around their DNA, their evolving customer and channels, and extraordinary execution acumen to drive both employee and customer engagement. With these in place, they can craft an appropriate strategy and the structure to support it.
Internal communications received the lowest vote percentage and yet it is the most critical element without which the other capabilities are meaningless. “Driving Innovation” is actually the least important, but is just a overwhelmingly popular buzzword which few understand let alone have the aptitude to exercise. Innovation is the fruit of the other activities, not the driver.
Thanks to everyone for your comments — please keep them coming.
I’m glad I’ve provoked your thinking and for the most part, I agree with the comments. However, I was shocked by Dr. Sorensen’s perspective. He may have misunderstood what I meant by brand (which I’ll get to in a moment), but I completely disagree with his point that retailers should manage their assortment by profitability alone and that the retailer’s function is to “sell” a customer to a manufacturer (what he calls a “brand supplier”) by building and stocking a warehouse of products. This overlooks the role and value of retailer as curator of products and brands, and the retailer’s use of product brand selection to develop its own brand — not to mention the importance of the shopping experience apart from the product.
As for David Zahn’s question, by “brand,” I had meant “banner” — the retailer’s brand. If a company has one brand, e.g., Brookstone, it should not operate a brick-and-mortar business unit separate from an online or catalog unit. If a company has more than one brand, e.g., Gap, Inc., it should have business units for Gap, Banana Republic, Old Navy, etc. and each unit should manage all channels for its brand, as opposed to having a single e-commerce unit for all brands. This will ensure that each brand:
– presents a unified and cohesive brand message
– offers consistent assortment, pricing, promotions, etc.
– delivers an omni-channel brand experience.
However, Mr. Zahn’s question got me thinking about the opportunities for retailers to manage their product brands holistically as well, and I believe there is merit to doing so in many instances. I’ll be sharing my thoughts on this in an upcoming post, so stay tuned.
Thanks again.
I have seen retailers such a JCPenney reorganize their stores to have a different section by brand (e.g. Levi, Lee, Wrangler for jeans). As a consumer, this was really difficult for my shopping experience. I prefer jeans to be all together by style, not brand, so I don’t have to wander around the store to find the right pair. And I felt the displays had uneven marketing opportunities for the different brands—by virtue of placement, some were more difficult to find than others, giving an unfair advantage in my opinion. It turned me off of the shopping experience entirely in that particular store.
However, Denise’s explanation below helps me to see what she is trying to convey—and yes, as a consumer, when I saw that Carter’s and OshKosh combined their websites, it became difficult to determine which brand I was really buying from; although the checkout was easier since I didn’t have to pay separate shipping. I felt the brands were getting too diluted together and soon, I expect one of the brands to no longer exist if they want to maintain a strong brand presence.