9.052012

the retail organization of the future

One thing’s for certain in retail today – it’s a brand new world.  The old way of doing things just isn’t going to cut it.  To be ready for newly empowered customers and further increases in costs, we need to think about – and operate – our businesses differently.

In addition to testing new technologies and optimizing supply chains, we need to rethink our organizational structures.  In a post on RetailWire last week, I outlined five characteristics that should define the retail organization of the future:

  • Organized by brand, not channel.
  • Led by brand managers.
  • Enabled by vital cross-company communication.
  • Powered by a single insights function.
  • Driven forward by intrapreneurs.

The piece expounded on each of these points and generated quite a few comments.

Regarding the point about being organized by brand, Roberto Orci, CEO, Acento Advertising, seemed to agree with my thought that consumers flow seamlessly between channels, so our organizations should do the same:

“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.”

On the other hand, Herb Sorensen, Ph.D., Scientific Advisor TNS Global Retail & Shopper, Adjunct Senior Fellow, Ehrenberg-Bass Institute, offered some surprising comments:

“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.”)…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.”

I was shocked by this perspective.  While Dr. Sorensen may have misunderstood what I meant by brand (which I’ll get to in a moment), 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 to customers of the retailer as a 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.

Now on to the question from David Zahn, Owner, ZAHN Consulting, LLC:

“Do you mean ‘banner’ (the retailer’s brand) or do you mean ‘Brand’ (the manufacturer’s product) when you refer to ‘brand’?”

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.

Department stores, for example, have been moving toward this model, cultivating brand shops for manufacturers’ brands and for their own private labels.  (In fact, this is the core of Ron Johnson’s “town square” strategy for JC Penney.)  In a sense, some companies are making the term “department store” outdated – instead they’re becoming “brand stores.”  This approach may make sense for other retailers as well.

Grocery stores, for example, might benefit from organizing and managing by brand for certain brands/categories.  Kashi has become such a popular product brand, a grocer might generate great appeal by having a “Kashi” section where customers could find Kashi cereal, bars, waffles, cookies, and frozen entrees all in one place.  If the grocer had a Kashi brand manager, that person would optimize the brand assortment across categories in different stores to meet consumer demand, run promotional programs based on Kashi brand loyalty, generate distribution and back-office synergies, and build the grocery store’s brand as a source for all things Kashi.

I realize this would require dramatic changes in the operating structure of retailers – but it’s this kind of new thinking that the industry needs.  Perhaps Gene Detroyer, Professor, Entrepreneur, Adviser, Consultant, Independent, says it the best:

“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.”

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