November 21, 2002

Retail RX

  • In the intense fight to keep customers, there are winners and losers
    5ifth Floor


    Nordstrom reinvented itself orange. Thanks to Lowe’s Home Improvement Centers, Eagle is now extinct. And more bad news for area birds, Eddie Bauer killed the goose.

    What are these companies thinking? And more importantly, as retail consultants, how can we stop other retailers from falling into the same trap?

    I’ve been told that identifying the disease is the first step to a cure.

    Well here’s my diagnosis. In all three cases, the disease is a simple issue of listening to the wrong people. These reactions are a result of listening to the analysts on “The Street” and not the customer on the street. The end result is a focus on short-term sales solutions and not the long-term brand growth that allows companies to weather the inevitable economic storms. And that can mean a long-term problem for the retailer.

    Looking at the example of Nordstrom, the symptoms were a complete disregard for the current customer and an irresistible lust for a newer, younger one. This takes place even though the existing customer is as loyal as ever and the newer customer has done nothing to justify this obsessive interest.

    A more accurate diagnosis for the disease Nordstrom fell prey to might be Medius Vita Errare, more commonly referred to as a “midlife mistake.” And Nordstrom isn’t the only one to catch the disease in the last few years. The Gap and Banana Republic also fell victim to this evidently contagious disease. For them, it was more about stretch fabric than the color orange, but in both cases you’d best be a size 3 — or forget it.

    Marketers and branding experts call it “re-inventing yourself.” I like to think of it more as shooting yourself in the foot. No matter what you call it, it’s a violation of retail rule number one: Treat your existing customer like gold. It’s a good rule because they are like gold.

    Once the retailer makes this kind of mistake, it requires a huge amount of money and loyalty to turn it around. It appears Nordstrom has that type of relationship with its customers. Time will tell how much of the damage to Gap is irreversible.

    There’s another version of the story. Consider Eagle Home Centers. Eagle — a young company — experiments with different approaches, sets new standards, redefines its market and wins customers. Soon, the upstart comes to the attention of a larger, more established company. That larger company, enamored with the young start-up, buys it.

    This is when the symptoms of a disease, which I’ll call BIC, start to surface. Sadly BIC, commonly known as “Because I Can,” is a fatal disease. What makes this such a devastating illness is that the elements which originally created the loyal customer base are systematically removed. Everything that made the upstart retailer unique is stripped out so that the purchased company is made to conform to the program of the new owner.

    No doubt this makes sense from an operational perspective, but it’s crazy from a customer relationship point of view. Without ever evaluating the factors responsible for Eagle’s success, Lowe’s completely changed the Eagle stores, the organization, the look and the assortment. In the process it also changed the Eagle customer base into Home Depot shoppers.

    This isn’t an isolated case either. In the Pacific Northwest we can cite at least two other recent examples. In one, where Long’s Drugs purchased Drug Emporium, the sales volume disappeared just as fast as the old floor plans. The other case that comes to mind is Kroger’s purchase of QFC. While the changes haven’t been as radical at QFC, it is quickly losing the market differentiation it enjoyed for years.

    All of the sudden, Safeway and QFC aren’t so different. Not all of this is bad. I mean if you’re a Home Depot customer in the Pacific Northwest you’ve certainly noticed a huge improvement in the quality of service they now offer. We assume that’s because with all the additional business from former Eagle customers they can now afford more sales associates — thanks to Lowe’s.

    And while I’m on the subject of birds, I can’t ignore Eddie Bauer. Companies pay hundreds of thousands to create a brand and then millions more to promote it and build equity in it. One of the most consistent hurdles facing a company in building a brand is getting the brand to stand for something.

    Eddie Bauer was there and walked away from it. They abandoned the trademark goose and redesigned the store to look like a cross between a Gap and Lane Bryant. It’s not that it wasn’t attractive; it’s just that it wasn’t what the customer wanted. They took a unique concept, stripped it of its identity, and joined the already crowded group of blend-together stores offering chinos and work shirts.

    It may sound like I’m against change but that’s not the case. I’m a huge supporter of change — my whole career has been about helping companies change. If companies don’t change they die, but radical changes without a customer-driven strategy is brand suicide.

    Two examples of companies that continue to build their brands and long-term market share are Polo Ralph Lauren and Crate & Barrel. Polo may be totally in vogue one year and not nearly as hot the next, but it doesn’t chase after every customer who walks by. It remains true to the core values of its brand. Because of this it doesn’t need to chase after customers, customers find them.

    The same is true for Crate & Barrel. I remember watching how Crate & Barrel responded when Pottery Barn grew so quickly in popularity. A typical “Street” approach would have been to copy Pottery Barn as much as they could in an effort to compete. Instead, they did just the opposite and reinforced their own brand identity and secured their place in the market. Did they miss some short-term sales? No doubt, but not the long-term ones.

    If I have a point to this rant it’s simple: Be true to your brand and, in doing so, be true to your customer. A company can’t afford to alienate its customer base just because the grass is greener on the other side. And the truth is, you don’t need the grass on the other side — you just need to nurture the grass under your feet.

    James Adams is principal-in-charge of 5ifth Floor, a subsidiary of MulvannyG2.

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