Monday, June 13, 2016

Specialty Stores and the Risk of Snow Blindness (Tradecraft)

What do the failing of Sports Authority and Hastings have in common? Besides crippling debt, both lost focus and became department stores, unable to serve their customers as specialists. How does this happen? First you fill your space with a bewildering array of product in hopes of attracting customers, then you allow your staff to be overwhelmed by it, lacking enough expertise to serve them. I care about this because these stories turn into the inevitable failure of brick and mortar, when they are actually retailing cautionary tales.

The specialty store model is viable as long as you keep the special. Special means tightly focusing the store around expertise and avoiding tangents and chasing profit with unfocused merchandise. The desire for tangents is strong, especially if you're analytical.

Here's what plays in your head if you're an overly analytical store owner: X amount of inventory gets me 3X gross sales at 1/2 x 3X gross profit. That provides me 1/10th of 1/2 x 3X annual profits. Send in more X! You have strong desires to increase X to juke these formulas. That's your analytical mind. However, inventory is also subjective and deeply psychological. When I give my inventory management presentation, I start with the numbers, and half way through switch to the squishy, subjective stuff.

Human psychology doesn't care about X, it cares about human perception of coherency, variety and value. You can have too little of X and you lose coherency and your customers don't "see" you having that product line. You can have too much of X and you overwhelm customers who can't "see" the trees for the forest. You can have too many price points for X and customers can't "see" the value of each and make choices. Too much X and customers develop the equivalent of snow blindness. So much stuff they can't even see anymore.

Staff likewise develop snow blindness and become overwhelmed. They bunker in the cash wrap. They hope and wait for customers to wander into areas they understand. Some are openly hostile towards product lines they feel pushed into selling and let that hostility out on the customer, either passively or openly. Staff become demoralized and unhappy and every area of business suffers.

Specialty stores are about tightly matching the right product with the right customer to maximize their happiness. Specialty stores do this by hand, not through retail osmosis. Department stores are passive operations built around having a wide variety of things, available for the customer to come and select on their own.

The department store model is a 19th Century relic of the Industrial Revolution, from the era of paper catalogs, and has no place in modern society with informed consumers who have the world's products and information at their fingertips. Not even department stores want to be department stores anymore, and many have tried ways to individualize their department store experience to become more specialty. Turning your specialty store into a department store, therefore, is something you want to avoid and a concern always in the back of your mind.

The story of Sports Authority and Hastings is a cautionary tale. Carefully consider what you sell that makes your specialty store special. Train your staff on these products. More often than not, less is more. Every store has its "right size," and you should avoid expansion for expansions sake. Focus on being a better specialty store. Do what you do now, just better.

And avoid crippling debt.

Macy's NYC 1907

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