1.302009

can anything retailers do, manufacturers do better?

In the ongoing war that wages between retailers and manufacturers, manufacturers often threaten to abandon (or at least de-emphasize) the existing channel and open their own direct business.  Liz Claiborne, the mid-tier womens fashion label, is the latest company to announce such a plan.

In a recent interview, Liz Claiborne Inc.‘s Chief Executive William McComb said the business is considering opening its own full-priced stores to sell its namesake clothing brand (it already operates outlets to liquidate old merchandise.)  McComb justified the move explaining that selling Liz Claiborne clothes in its own stores could be an alternative strategy if it becomes unhappy with the treatment the brand (which is scheduled to re-launch next month) receives at department stores.

Claiborne, and really any fashion company, has plenty of reason to be skeptical about department stores’ ability to promote brands well.  The mass-targeted, fragmented format of most department stores puts individual manufacturers’ brands at a disadvantage.

But I wonder whether business leaders who say they want to open their own retail stores understand what it really takes to be successful in retail.  In considering — or even just threatening — the move to direct selling, manufacturers need to be as ready as Annie Oakley‘s character in Annie Get Your Gun, who sang “anything you can do, I can do better.”

They can need to be better at either (or ideally, both) of the two fundamental ways retailers create competitive advantage.  (I owe much of this post to Peter Taylor, an e-commerce expert advisor whom I had the pleasure of working with when he was at Road Runner Sports — Peter inspired these thoughts over lunch today.)

First, there’s customer information.  Retailers are at an advantage because they have direct interaction with customers which gives them direct access to customer information.  Whether it be transactional purchase data or traffic analyses or salesperson conversations, customer information can be used to generate critical insights to improve product, merchandising, assortment, service, marketing, store layout, etc.

However most retailers aren’t doing this.  And it’s usually because they lack the technology to gather, synthesize, and analyze it into meaningful insights.  (I recently attended a presentation by the SVP of SPSS on this very topic — you can read a summary at http://tinyurl.com/bbftp9 .)  Those retailers who have mastered the customer intimacy discipline (Zara and Best Buy come to mind) have established a clear advantage and have succeeded where similar concepts have failed.

So, if a manufacturer wanted to do retail better, it should start with building a customer intimacy infrastructure.

The second fundamental competitive advantage in retail is value-added services — services like renting equipment (REI), stringing tennis rackets (Sports Chalet), and fixing your hardware (Best Buy).  Given the open access of today’s market, it’s not enough for retailers to rely on their product mix alone to drive business.   Services generate incremental traffic, initiate sales opportunities, produce higher margins — and most importantly, differentiate the retailer.

So, any aspiring retailer should build value-added services into their model.  Problem is, manufacturers usually don’t do services well.  They see labor as a cost, not a profit center; their service objective is maximum efficiency, not optimal customer experience; they don’t know how to market service.  In fact, a colleague who works for a large consumer electronics manufacturer was recently lamenting to me about the difficulties the company was experiencing introducing a new service concept — practically everything that has made the company a successful product maker makes them a terrible service provider.

Claiborne’s McComb, and his manufacturing peers who think taking over retail maybe their brand’s best chance, would do well to realize that retail is different — very different.  And any foray into the space must be done with a clear strategy for one-upping existing retailers through superior customer intimacy and value-added services.

P.S. I realize I’ve been posting a lot on the retail industry lately — I guess the dismal state of its affairs has kept it on my mind.  If there are other industries or topics you’d like me to address, please let me know — I’m always open to suggestions.

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