0

Are Brands Ready for the Political Arena?

Since the Trump administration came into power, there have been more brands taking a position on political issues (willingly and unwillingly), and with a greater sense of divisiveness. As social values and politics become intertwined, consumers are expecting more from brands and their ability to deliver solutions. In essence, they want them to become more political.

Is it safer for a brand to hide in the shadows or take the political bull by the horns? Like any successful matador, your brand needs to be an aficionado in the political arena. It takes over seven years of intensive training to be a bullfighter, and still they can get gored by a smarter bull. If consumers are blurring the lines between lifestyle and politics, and as politics become all consuming, do brands need to answer where they stand on the political spectrum?

It seems the more disruptive politics become, the greater the chance of a CEO jumping into the political arena. There has been no shortage of political upheaval and emotional drama surrounding immigration, nationalism, trade, Islamic extremist threats, diversity, gender rights and political theatre.

I was always told to avoid talking about sex, politics, and religion at the dinner table if you wanted to make it to dessert. This same guidance benefited me in the work environment. But today we are forced into more uncomfortable discussions related to mental health, gender equality, religious freedom, and diversity—both as individuals and as corporations. The foundation of economics is for corporate brands to provide shareholder value, but does the need to be politically sensitive trump this value?

 

Political Brands

Brands have always been political—influencing government through campaign funding and lobbying politicians, policy makers, and regulatory agencies. Not unlike unions, NGO, and interest groups, brands look to provide a corporate perceptive to help governments set direction. They hope to define the infrastructure of business governance, provide an educated and healthy workforce, and ensure a safe banking system to protect wealth and capital. The Center for Responsive Politics did an analysis in 2017 that found industries from around the world spent almost $1 billion to lobby the Republican federal government.

 

Politically Relevant

There have been a number of recent research studies that came to very different conclusions on whether brands should take a public stand on political issues. Like a pollster trying to determine who is going to win an election, there isn’t any consistency or conclusive direction.

The Sprout Social 2018 study found that over 60 percent of those surveyed agree that brands should take a stand on social and political issues. The MNI Targeted Media 2018 survey with Generation Z echoes those findings, with over 50 percent agreeing with this statement.

The 2018 Edelman Trust Barometer survey also revealed a staggering collapse of trust in government, especially in the US, while two-thirds of respondents said they wanted CEOs to take a lead on policy change instead of waiting for government. In another Edelman study, Beyond No Brand’s Land 2017, 51 percent of respondents believed that brands have more power to solve social issues than the government. Similar results were found by public relations agency Weber Shandwick, with respondents indicating they would be more likely to buy from companies with activist CEOs.

In another study done by Cone and Porter Novelli, 2018 Purpose Study says Americans expect companies to lead with purpose which means supporting issues they care about.

Yet, another study, Brands, Agencies, and Political Values, by the American Association of Advertising Agencies found that 58 percent of consumers dislike when brands talk politics. And the older the consumer, the more they dislike brands mixing their messaging with politics. In fact, over 76 percent of those surveyed that were aged 65 and older reported they disagreed with brands taking a political approach.

So, while some people seem to want brands to take control and fix social issues, I’m not convinced (based on the research) that there is sufficient benefit for a brand to stick its neck out in a win or lose situation. Branding consultant Dean Crutchfield states that “There’s no study in the world that says that brands benefit from politics. It’s usually not something that is a good strategy for brands in a typical way.”

However, as governments become more polarized and unpredictable, are global brands the only hope to counterbalance this instability? Petah Marian, senior editor at business trend forecaster WGSN says that “People are looking to companies to fill the role of government around social ills as public trust in institutions falls to new lows.”

 

Building Consensus

To build strong global presence, brands must create appeal and desire cross many different consumer demographics and psychographics. Their goal is to be liked by as many customers as possible, regardless of political, religious, or ethical background. J. Walker Smith, Chief Knowledge Officer at Kantar Consulting says that “Brands win only through unification. Big brands are big because they unite a diverse group of consumers with divergent values and preferences.” Politics, of course, has the opposite effect by creating division of two opposing views. Politics can’t be all things to all people, but a brand can be inclusive and unify the world…one coke at a time.

Politically Naïve

The Trump administration has whipped the public into a frenzy, one tweet at a time—so much so that the typical CEO is being forced (willing and unwilling) into the debate. Representing thousands of employees and protecting their company’s values, CEOs are jumping into the fray. Backed by their beliefs, they speak out about racism, immigration restriction, trade barriers, and injustice. Scott Maxwell, founder of OpenView Venture Partners, says the last thing a business leader wants to do is to alienate a potential customer. Arguably, taking a strong political stance does exactly that.

Christian Scarborough, president of Inventive Public Relations, advises CEOs to “stay out of politically sensitive issues. CEOs’ ultimate responsibility is a fiduciary responsibility to generate as much money as possible. It’s the first rule of business and hugely important especially for investors or shareholders. That being said, why would anyone want to alienate 50 percent of their potential revenue stream?”

Understanding the risk, there has been a number of CEOs who have foregone their fiduciary responsibility to take on the President of the United States of America. Major brands like Starbucks, Nike, Google, Twitter, Coke, Airbnb, and Ford have all voiced their disapproval of the immigration ban that President Trump tried to impose. These companies said the policy went against their corporate values.

On August 16th, 2018 over 350 newspapers across the United States rallied together to tell President Trump that journalists are not the enemy. They couldn’t take the anti-press rhetoric anymore, so together they joined forces to protect free press and try to mobilize Americans. “Journalists, don’t let Trump’s attacks on media keep us from doing our job,” read an editorial headline from The Arizona Republic. It’s unfortunate that the US total daily newspaper circulation (print & digital) has fallen over 42% percent since 2005, with continued decline expected.

 

Political Differentiation

Patagonia, an outdoor clothing and gear retailer, has built their brand on political differences. They took a stance on environmental issues and filed a lawsuit against the Trump administration, because of the administration’s actions to reduce the size of the Bears Ears and Grand Staircase-Escalante National Monuments in Utah. Niche brands can afford to be more cavalier with their political views, as long as their customer base agrees.

Ultra-conservative fast food brand Chick-Fil-A is known for its religious values and anti-same-sex marriage stance is one of the fastest growing chains, with several stores opening in Canada recently. If you know your customers, taking a political position isn’t always bad for business.

Chris Pearce, CEO at TMW Unlimited, warns brands to think twice before using a moral stance as a marketing tactic, however well-intentioned. Political emotions are running hot and social channels are becoming flooded with hatred. Pearce says the current climate is a “more disturbing prospect of the ‘bandwagon effect’ with perhaps less principled brands confusing clear purpose with ‘faux empathy.’” Pepsi’s Kendall Jenner protest commercial was a great example of exploiting the #BlackLivesMatter political movement, an effort that went horribly wrong as social channels blew up with condemnation and ridicule. Somehow, the public couldn’t buy the concept that Jenner could save the day from hatred and tension with a can of carbonated sugar. They felt it was over-simplifying and mocking an important and complex issue.

 

Politically Correct

With the ability to amplify any social injustice or political view in seconds, brands have become ultra-politically correct. Many brands’ reputations have been called into question, with serious allegations against senior employees as a result of #MeToo, #BlackLivesMatter, #NativeLivesMatter, and #Racism, to name a few. Brands have gone into damage control, quickly removing the accused to appease the social media jury.

Vox Media has been keeping a count of the number of powerful people (celebrities, politicians, CEOs) who have been accused of sexual misconduct. In the last year, that number is 219. There is also a long list of past employees who saw their career abruptly end due to insensitive and stupid tweets. Do I need to mention Roseanne Barr and ABC pulling her show? Brands must be prepared to take a stand at a moment’s notice with limited facts. Gone are the days of a sober second thought.

 

Politically Savvy

David Parry, Head of Interactive, UK&I at Cognizant, says the trend of brands getting involved in politics isn’t going to disappear soon. “As a brand you have to ask yourself: ‘Is this a fight you really want to take part in? Are you simply adding noise to an already saturated crowd or are you truly adding value?'”

Patrick Quinlan, CEO at Convercent, a proactive ethics and compliance management company, says the conversation needs to shift from the risks to the rewards. He says, “Beyond the most important reward—positively impacting society—taking an ethical stance can positively impact recruitment, consumer perception, and brand legacy.”

When and if you enter the political arena, you have one chance to get it right. Make sure you clearly understand why your brand is in the ring in the first place. More importantly, understand what your customers think you should do.

Nike’s recent controversial Colin Kaepernick’s campaign is a case in point. They took a calculated risk knowing their core consumer-base would support the brand. “Nike took a strategic risk to alienate some customers in order to appeal to their core base of 18 to 29-year old males,” said John Gerzema, CEO of The Harris Poll. “It was a calculated move to become a more polarizing brand and it seems to have worked.” If anything Nike has been getting more press, PR and social media pickup than they could ever imagined.

Finally, make sure you are entering the political arena for the right reasons. Make sure the reasons are authentic and not about exploiting a political issue for pure profit. Ensure you understand how the outcome is going to add value to your brand, to your customers and ultimately to your shareholders. Buena Suerte !

 

0

Six Reasons Why Brands Should Care

care brands

Building a brand on functional and emotional benefits isn’t entirely good enough today. Beyond the brand promise brands need to be socially responsible. What does this mean? The most common buzz words are sustainable (over used word), ethical, corporate socially responsible or CSR, green, eco-friendly, cause-marketing and community involvement. The sum of all of these terms is doing good or protecting people and/or the planet. Can you buy it?

0

The Secret to a Successful Brand Starts with “Why”

Have you ever wondered why people line up for the latest Apple gadget, but not for a Microsoft one? Why do some brands become more emotionally connected to their customers than others? Why does a 149-year-old brand like Heinz Ketchup have over 84% of the market share in Canada and over 62% in the US? Why do people still want to buy the world a coke? The secret behind the success of these and many other beloved brands lies in the “why.”

An Apple a Day

Consumers don’t need complicated details about your brand, they just want you to make their life better. It’s that simple. Yet brands often want to tell their customers about all the craftsmanship and technology that goes into making their products. They can’t seem to help but talk about all the things that make their product superior, faster, and smarter. Brands that do this are serving their best interests instead of their customer’s desires.

Rest assured, consumers do care that you have the latest, greatest, best quality technology, but don’t bore them with the details. Apple understood this from the beginning. Their products inspire consumers because they’re idiot proof—all you have to do is turn them on.

Steve Jobs didn’t talk about how they built the iPod’s mercury-free, LED-backlit display, nor did he elaborate on its Mac: OS X v10.6.8 system requirements. Instead, he talked about the big “why” of changing the digital world forever. As he said, “the people who are crazy enough to think they can change the world are the ones who do.” I guess he was one of the crazy ones, because he and Apple changed the music and the smartphone world forever.

Brands led by a visionary, or who are focused on a specific cause, start from a level of passion for doing something that is both right for their customers and for the world. Not only do customers relate to this approach, they become emotionally invested in these brands.

 

Over 650 Million Bottles of Heinz Ketchup Consumed Every Year

The founder of Heinz, Henry J. Heinz, revealed the company’s secret to success as “doing a common thing uncommonly well.” He was adamant that customers should see what they were getting in every bottle, hence the clear ketchup glass bottle (which was more expensive to make). He insisted on strict quality control, providing their farmers with their tomato seed—6 billion seeds every year. This guaranteed firmer tomatoes that stayed riper longer to provide the ketchup’s trademark thick, rich taste. There’s even a quality specification on the speed at which the ketchup pours from the bottle, set at a maximum of 0.28 miles per hour. If it pours faster, it doesn’t make it to the store shelf.

Few people know the lengths Heinz goes to in the quest for the perfect ketchup to go with your French fries. That’s because Heinz doesn’t inundate you with these details to try to sell their product, they just deliver consistent results that drive consumer loyalty.

 

 

Esquire restaurant critic John Mariani describes Heinz ketchup as, quite simply, “one of the few things in the world brought to such an honest state of perfection.” This is all that people want to know—that the company cares enough to make sure every bottle is perfect.

As a side note, if you tap the bottle where the “57” is on the neck, the ketchup will come out quicker. Skip hitting the bottom of the bottle—that’s for amateurs.

Happiness in a Coke Bottle

Coca-Cola understands the magic in the bottle. They stay away from the product attributes, focusing instead on how their product makes you feel. They have successfully appealed to the consumer’s heart and not their stomach.

Jim Stengel, author of Grow: How Ideals Power Growth and Profit at the World’s Greatest Companies, said that “everything they do is inspired by this idea of, How do we promote, develop and create happiness?” They have never lost focus on why they exist, even when they introduced the failed New Coke. Stengel further explains that “they never forget why they started and where they came from, which means a lot to consumers.”

Richard Laermer, author of Punk Marketing, says the secret to Coca-Cola’s brand is its ability to transfer adults back to their childhood, “a time people relate to being happy and worry-free.” Every Coke can give you a sugar high, but Coca-Cola can also provide a feeling of warmth and nostalgia. They have successfully tied the brand to sentimental thoughts and stayed clear of being informative.

 

Gillette, Always on the Edge

Gillette has dominated the razor and blades market since 1901, with nearly 65% of the global market share in 2017. The brand started with the single safety razor and, over time, moved towards multiple-bladed razors. Gillette has been relentless in product innovations that are heavily patent protected, while pouring funds into sports marketing and advertising to justify their hefty price tag. From the beginning, Mr. Gillette understood the brand’s purpose was to transform men from prehistorical brutes to civilized males. As a 1910 advertisement eloquently stated, “The country’s future is written in the faces of young men.”

It wasn’t until the late 1980s that the Gillette brand decisively started articulating the brand’s why with the slogan “The best a man can get.” This purpose was brought to life by emotional images of men as devoted sons, fathers, husbands and boyfriends, all devoid of facial hair. For more on the Gillette brand voice, click here.

This doesn’t mean, however, that they haven’t occasionally fallen into the technology trap of explaining the “what” and “how” of their cutting-edge, stainless steel, micro, anti-friction, Pro-Glide, FlexBall razor that can cut hair one-fortieth of a millimeter shorter than its competition.

Today, the Gillette brand is under attack by lower-priced upstarts like Dollar Shave Club and Harry’s, but if they keep true to their follicle roots of “why,” they should continue to protect their competitive edge.

 

Dove Soap Floats Above the Rest

Since its launch in 1964, the Dove soap brand has always used its unique selling proposition of their 1/4 moisturizing cream formulation. It wasn’t until the late 1990s that the brand realized that the “what” wasn’t keeping the brand ahead of the competition. In 2004, Dove finally understood the importance of a higher purpose and launched the “real truth about beauty” campaign that targeted women. To get to this realization, they probed deeper into the emotional insights, surpassing the functional benefit of 1/4 moisturizing cream to a more inspiring discussion of what defines beauty. In the end, they started a movement about self-esteem. Advertising Age reported that Dove’s sales increased to $4-billion in 2014, compared with $2.5-billion just a decade earlier. Moving from “what” (¼ moisturizing cream) to “why” (beauty) is a beautiful investment.

Toms Shoes Firmly Planted in “Why”

“Start something that matters,” is Blake Mycoskie’s motto and the foundation to his shoe and accessories company, Toms. His business concept is firmly planted in the “why,” and has sparked many companies to adopt the buy-one-give-one business model. His advice is to “stay true to what you believe.”

“Why” is the Secret to a Successful Brand

Making a difference in people’s lives and explaining the “why” seems to be the starting point for all successful brands. To elevate the purpose beyond the functional wants and needs of a consumer to a higher-good of fulfilment, identity, affiliation and societal or environmental altruism is the ultimate key to success.

It is this passion of “why” that brands do what they do that gives customers a reason to embrace the product. In the book Starting with Why, author Simon Sinek explains that successful brands communicate the whys (beliefs, causes, visions) before they communicate what they do and how they do it. Martin Luther King, Jr. said “I have a dream” not “I have a plan.” It’s all about the why.

Allen Adamson, author of BrandDigital, BrandSimple, and The Edge, says “A company that looks at its brand and asks not simply what promise does it make, but what purpose does it serve, to its customers and its shareholders, and brings this purpose to life through every customer experience will be the company most likely to beat its competition. When an employee can answer the question ‘Why am I here?’ in a positively motivating way, everyone benefits.”

A brand purpose must be simple and clearly understood by everyone in the company, so they can emulate it every day. It must be single-minded in its focus, and speak with one voice. It also helps to have a leader who is passionate about what the brand stands for and keeps everyone focused on what matters.

Start asking “why” your brand should be above the rest, and results are sure to follow.

 

0

A brand, by any other name…

Guess the brands - answer at the bottom of the article.

Companies invest millions of dollars building and protecting brand names. A brand, by any other name, would lose all the credibility and loyalty it worked so hard for. Who knew Shakespeare could stay so relevant?

To put this into perspective, Fortune’s Top 500 global companies spend, on average, $1.9 trillion on brand marketing each year. Why do they care so much? Well, creating a dynamic and memorable brand can contribute significantly to the bottom line. Take a company like Wholesale Landscape Supply. Not much to remember there, right? They changed their brand name to Big Earth, and the next year they increased sales by 200%.

No different than partners struggling to find the perfect name for their newborn, companies spend a lot of time and money finding their perfect brand. Company owners build a potential list of names and, if they have the resources, they include customer research testing to find out how each name lands. Yet often research and science factor very little in the brand decision-making process, with companies spending most of their energy and resources on their product or service instead. In some cases the brand name becomes an afterthought. “If that’s true, those businesses are run by idiots,” says Mike Mann, author of the book and blog MakeMillions.com. He goes on to say that the brand name is foundational for everything else. Therefore, taking shortcuts and relying on your emotional instincts could sabotage your brand’s long-term success.

To facilitate success, spend the time upfront to choose your perfect name. Come up with some naming strategies and use data-driven research to help you get to the one unique and memorable brand name. But before you can even do that, you must have a clear brand strategy that identifies your brand position, promise, and reason for being. Your final brand name should encompass and embody your brand strategy.

Here are five possible approaches to finding your perfect brand name.

 

1. Use people names as the brand

Consulting firms like lawyers, accountants, trainers, and agencies tend to use founder, owner and inventor names as their brand, since their consumers are buying expertise directly from their people. It’s logical that their brand names are the actual people behind the brand.

Additionally, many companies have successfully built empire on a family name—think Disney, Johnson & Johnson, Johnnie Walker, Maytag, McDonald’s, Hugo Boss, Porsche, Procter & Gamble, Wal-Mart and Toyota, to name a few. If you want to see a complete list, check out Wikipedia’s Companies Named After People. They have almost 1,000 family brand names.

2. Use descriptive words to explain what the brand is

This is where the left-brain entrepreneurs live. The descriptive brand name clearly communicates, in a straightforward manner, what service or product they are selling. Whether its tires, donuts, airlines, hotels, banks, restaurants, or pizzas, there are no surprises of what to expect from these brands.

The problem lies when they want to expand beyond their core product. Dunkin’ Donuts, for example, opened a store this year with only the brand name “Dunkin’” so they could expand beyond the donut and compete directly against Starbucks. Tim Hortons had the same problem when they first started as Tim Donut Limited. Today, they are known as Tim Hortons and offer much more than just the sugar-glazed donut. Midas Mufflers started as a specialty shop servicing vehicle mufflers but, as time evolved, they added brakes, shocks, tires and more. Simple solution—they dropped “Mufflers” from their name.

As long as a company sticks to their description they are golden, but once they want to branch out their name becomes a detriment. If you’re thinking of getting that granular with your own brand name, make sure to consider the future and stick to a name that is broad enough to encompass future plans.

3. Develop an image or experience that the brand projects

We shift now to the right-brain thinking. This is where we can use analogical reasoning with metaphors and tap into mythology and foreign words. These types become visionary brands with multidimensional imagery that can evolve and create a strong brand story. In some cases, the brand is much bigger than the product or service and actually becomes the underlying theme or promise. Nike, Patagonia, Verizon, Amazon, Expedia and Virgin are all great examples of creating a brand story that is bigger than any one product.

The $100 billion Nike brand actually started as Blue Ribbon Sports in 1964, but they had to come up with a new brand name once they started producing their own runners (see what happens when you get too descriptive?). They came up with two options, Falcon or Dimension Six, but no one liked either one! Jeff Johnson, Blue Ribbon’s first employee, came up with the name Nike— and it was just a name that came to him in a dream. Nike is the Greek Goddess of Victory. In 1971, graphic design student Carolyn Davidson designed the Nike logo swoosh for $35. The swoosh was designed to represent the wings of the goddess Nike. There was no research or focus group testing—they just did it!

4. Develop a new word as a brand name

Still in right-brain territory, this is the last chance if you have been unsuccessful in finding the perfect word to describe your brand. Start mashing up existing words by deleting or changing letters, creating new words, compounding words, or abbreviating words. The world’s most famous mashup brand name is IKEA. The first two letters in IKEA’s name are the initials of its Swedish founder Ingvar Kanprad. The last two are the first letters of the name of the property and village where he grew up: Elmtaryd Agunnaryd. Remember, you need at least one vowel to make it roll off the tongue. Some other successful mashup brands include Instagram, Tumblr, Fcuk, Pinterest, Facebook, FedEx, Acura, and Flickr.

5. Take a known word and reposition it as a brand name

I would have loved to be in the room when the agency pitched the brand name “Gap.” I can see the account manager reading the Oxford Dictionary definition: “Gap – a break or hole in an object or between two objects.” In the end, though, it was brilliant. Take an obscure word and load it with a new meaning. If you can tie the word to the brand story or promise, you’ll create a stronger connection to the brand name. Fruit seems to be a popular repurpose muse—we all know Apple, Blackberry, Tangerine, Orange, and Peach. I believe Lemon and Gooseberry are still available!

You’re Halfway There

Once you have the perfect brand name you need to protect it. The trademark process is a complete article in itself, and one I will never write. Securing viable trademarks is becoming increasingly difficult, but definitely not impossible. As a general guideline, descriptive words are generally too common to protect. For example, Hotel.com can’t be protected so, if you own the web domain name, that is as good as you will get.

Which leads me into the digital properties. If you can’t secure the domain name or social handles for your brand name, don’t sweat it. Joel Gascoigne, co-founder of Buffer says “the name itself matters much more than having the same domain name. Pick a great name, go with a tweaked domain name.” You might want to also buy misspelled variations of your name before others do. Google owns gooogle.com, gogle.com, gogole.com, goolge.com and googel.com. Trust me I have typed all of these variations, at some point.

Also remember that people must be able to easily pronounce your brand name and have it recognized by audio assistants like Siri, Google, and Alexa. If your brand will go beyond the world of English, make sure you understand any linguistic challenges with translations, idioms, slang, cultural associations, and connotations.

You will notice there was no mention of acronyms or initialism as a brand names. You have to start with the long, boring, and descriptive brand name first, make it known, and then shorten it down to its initials. KFC, RBC, IBM, AFLAC and BMW all started with their full names to gain recognition before they could shorten them. Check out my previous article WABBA – Will All Brands Become Acronyms.

acronyms brand names

 

A Brand Name is Only the Beginning

The brand is more than just a name. It’s a good start but it’s only part of your brand identity.

Beyond the name, a brand must define its voice, messaging, and content strategy—and make sure those representing the brand embody all of those things. The brand personality will influence all decisions like advertising campaigns, job postings, packaging and store design, sponsorships, customer service, and digital experiences.

 

brand name evolution

 

If at First You Don’t Succeed…

Many famous brands didn’t get their brand name right the first time, and many continue to tweak their names to broaden their markets beyond borders and product lines today. If you start with a name that doesn’t fit, don’t be afraid to go back to the drawing board.

Lexicon Branding, one of the leading brand name agencies in the world, says a great name can make a big financial difference. And they should know—they have created $15 billion in brand names, including Blackberry, Danani, Febreze, OnStar and Pentium. The most iconic brands today aren’t mind-blowing works of art, either. They are simple words that have evolved into powerful brands: Nike, Google, Facebook, Walmart, Apple and Amazon. A simple name with a powerful strategy can (and will) make all the difference.

 

0

Why Are So Many Retail Brands Closing?

why are so many retail brands closing

Is a retail evolution happening before our eyes?

Commercial real estate firm Crushman & Wakefield estimates that more than 12,000 retail stores could close their doors in 2018.  You can hardly go a week without reading a headline of a retail chain closing their doors or going into bankruptcy protection. The most prominent in recent memory was Toys “R” Us Inc. in the US. And while they’re still in business in Canada, they are hoping someone will buy them out.

The retail business is notorious for its cutthroat, aggressive tactics in a dog-eat-dog world—Walmart and Target are great brand examples of driving the market into low profit margins and destroying local merchants. Meanwhile, brands like Amazon, Uber, and Airbnb have taken the traditional retail model and completely transformed it, dominating their competition by daring to think differently. This success, plus the fact that in-person transactions still account for a whopping 84.5 % of total retail sales, suggests the problem is much bigger than online shopping options.

Willy Kruh, Global Chair of Consumer & Retail at KPMG, says there are three distinct revolutions taking place to create “a perfect storm that has been and will continue to hit retailers.” According to Kruh the changing demographics, geopolitical dynamics, and technological transformation make up these revolutions. While these certainly play a factor, sometimes a business’ demise boils down to the basics—bad business decisions and poor financial management in a world of cheap credit. If anything has remained consistent through the years, it’s that eventually someone has to pay the bank. Here are six reasons why so many retail brands are closing:

Shifting Demographics – Fashion Trends

At the end of 2017 and after 65 years in business, Sears Canada closed the last of their 130 stores, putting 12,000 people out of work. In 1952, Simpson-Sears started as a national mail-order business, and for years the Sears catalogue was more popular than the phone book. Every small town had a catalogue depot—their presence was better than Amazon with representation in 900 communities. On a regular basis, they produced a 556 page catalogue that sold everything from Allstate Car Insurance, live baby chicks, saddles, and even radiation detectors, according to the Canadian Museum of History website.

The harsh truth is that, after being the economic driver for the last 50 years, the Baby Boomer generation is taking a back seat. The Boomers (54 years and older) represent over 37% of the population but will not be a major target audience for retail brands unless you sell adult diapers (a $2 billion industry projected to grow 10% annually).

There has been a great deal written about the perceived “touchy” Millennials (check out 5 Traits Brands Need To Know About Millennials), but the underlying message to retail brands is that Millennials are different than their parents. They are a demanding crowd who expect more than just the traditional customer service model—they want an experience they can Snapchat or Instagram to their friends. They want to feel good, be socially responsible and, if possible, they want a one-of-a-kind bargain. Simply put, they want the Gucci bag without the Gucci price. They want to feel in control of the entire process. They want to engage brands via digital channels and if that’s too hard, they’ll go somewhere else. This is where the Internet of Everything continues to grow.

So what does all of this mean for retail brands? First, don’t rely on the Boomers to keep spending as they move to a fix income (called a pension). Generation X is doing fine, but isn’t a large enough group to replace the big spending Boomers (and they have too much debt). The Millennials will be the next big spenders when (if) they can secure stable employment. But how those Millennials will spend their money will be very different.

The cold reality is the past isn’t the future. Sears lost touch with their customers. They had their eye on their fierce competition instead of on who was paying their bills. If they had continued to innovate, could they have been today’s Amazon? Retail consultant Richard Talbot said “It’s very sad, and it’s just amazing how they could fritter away their name, reputation and business model.” The watch is now on US Sears Holding and Kmart to see how long they will keep their doors open.

 

The Right Business Model – Retail Therapy

Starbucks is the world’s best-known coffee retail brand. They built their empire on the insight that people wanted a small indulgence of a great cup of coffee in a wonderful atmosphere, and would pay a steep price for it. Past Starbucks International President Howard Behar explained that “We’re not in the coffee business serving people, we’re in the people business serving coffee.” This customer-centric model catapulted Starbucks’ success, so why didn’t it work for their tea offshoot, Teavana?

In the third quarter of 2017, Starbucks announced the closure of all 379 Teavana locations across North America. They couldn’t blame the demise of Teavana on Millennials, who are just as big a fan of tea as coffee. Instead, they attributed it to declining mall traffic. The big difference between a Starbucks restaurant and a Teavana outlet is that Starbucks is a place to sit down and enjoy your coffee experience, while Teavana was a walk in and walk out retail outlet.

Teavana had no ambiance nor community. Charlie Cain, once a VP at Teavana, said “Teavana’s success was as a novelty gift shop in high-traffic, Class-A shopping malls.” Starbucks eventually understood this business model’s limitations, but it was too late. Teavana sold you tea leaves, not an experience, and this mistake was ultimately responsible for its failure.

It’s not all bad news. While some retailers have seen the writing on the wall and given up, others have innovated their way to success. PetSmart, a big-box retailer of pet food and pet toys, saw shrinking margins and understood they had to diversify and create more value by adding the convenience of veterinary medicine, pet grooming, pet training, and pet boarding.  All of these were complementary services that strengthened their brand and protected them from being obsolete—at least for now.

 

Pile it High and Sell it Cheap

The economics of retail aren’t for the faint of heart. Real estate and operational costs, including higher minimum wages, continue to increase pressure on retail margins. Pop ups, fast fashion and off-price chains create an impossibly competitive landscape.  “A pair of men’s dress pants cost less today than they did a decade ago,” explains Manny Chirico, CEO of PVH Corp. (parent company of Calvin Klein & Tommy Hilfiger). E-commerce has also added another pressure point, making it easier for consumers to comparison shop. “The internet has acted as the great price equalizer,” said Joel Bines, managing director of AlixPartners retail consultants.

When a brand is not applying retail economics well, they tend to focus on the bottom line and forget about the customer. But every time a customer goes to the store and gets frustrated, they go somewhere else instead.  Target’s launch in Canada was a great example of this frustration—after many years of Canadians shopping at US Target stores, there was a huge and pent up demand for the same experience in Canada. Instead poor prices, lack of merchandise, and void of service quickly drove them out of the Canadian market.

It’s no surprise that off-price retail stores like T.J. Maxx, Winners, and Marshalls are booming. T.J. Maxx and Marshalls’ annual sales exceed those of Nordstrom Inc. and J.C. Penney Co. combined. Today T.J. Maxx and Marshalls have over 3,800 locations, with the hope of another 250 stores within a year. Discount retailer Dollarama who has over 1,100 stores across Canada has been one of the most successful retail chains who has motivate customers to  increase their spend from one dollar to over four dollars per visit in less than ten years. This equates to almost $3 billion in sales in 2017. It’s interesting that these retail brands aren’t relying on a digital strategy or big data to figure out what their shoppers want—they know its affordable pricing for quality merchandise.

Who’s Minding the Store? Or Is It a Layaway Gone Bad?

Moody’s Investors Service analyst Charlie O’Shea says that US retailers have been under duress for years with the rise of new retail brands and online shopping. Those brands with heavy debt—much of it from leveraged buyouts similar to Toys “R” Us—have been able to push off a reckoning because of a decade of low interest rates and central bank stimulus keeping the credit markets loose and free. Now that interest rates are rising and the credit market is tightening, many retail chains are on their creditors’ radar. J. Crew Group Inc., Claire’s Stores Inc., Nine West Holdings Inc., and Bon-Ton, to name a few. According to Moody’s Investors Service, the amount of debt coming due for 19 distressed retailers is set to more than double over the next two years. So this painful trend of failed retail business will continue.

 

Political Catwalk

The retail industry thrives on stable and growing economies where consumers know where their next paycheque is coming from. In the last couple of years, nothing can be taken for granted. Terrorism, Brexit, uncertain trade deals, wild stock market swings, mass immigration, political shifts in the US and UK, anti-establishment sentiments, and growing “nation-first” attitudes all add up to a pervasive sense of uncertainty that has a negative effect on the retail industry.

Nielsen Company tracks consumer confidence of the top 123 countries quarterly. At the end of 2016, there were only 15 countries that indicated an “optimistic” view on the economy and their situation. Interesting that the US is in third place for optimistic consumers and Canada is just a hair under in the pessimism camp –Trump tweets aren’t helping.

Technology Transformation – Bricks and Clicks

There is no question that Amazon has changed the book industry forever, and now has set its sights on all things retail. Many brick and mortar retailers are scrambling to build their digital presence in spaces like e-commerce and social engagement. It’s curious that while Walmart wants to become more like Amazon, the reverse can also be seen.

Willy Kruh says retailers must become more connected to customers at all potential touch points. This includes “unifying data and analytics to create a holistic view of the customer; going ‘beyond the sale’ to improve the customer experience; upgrading systems to be more agile and better able to integrate commerce and mobile technologies; improving the supply chain; improving ties with brands; and expanding partnerships, especially with fulfilment centres.” And don’t forget—do this at the lowest price possible.

All of this will be possible with big data and artificial intelligence (AI), assuming privacy laws don’t curtail its advancement. While the off-price retailers don’t seem to waste their time or money on technology by overcomplicating the customer experience, others like Walmart and Costco are pouring billions of dollars in to e-commerce and digital capital. They have the business model to allow them to transform, while others who don’t have the ability to compete as this level will struggle. Former Walmart CEO Bill Simon claims that e-commerce retailers like Amazon have an unfair advantage against the small, specialty retail chains because they don’t collect sales taxes unless they have a physical store or office in that state. “Amazon sells below cost and continues to do that. It’s destroying jobs, and it’s destroying value in the sector.”

 

Selling Out

The foreseeable future doesn’t bode well for some retailers. Robert Schulz, analyst at S&P Global Rating, predicts that “[retail] defaults in 2018 could match or exceed last year’s record report level.” As retailers move away from trends, fads, and colours and move towards algorithms, clouds, and robotics, new retail models will come and go—and so will the brands.

While it seems to be a perfect storm, there are many brick  and mortar retail stores doing just fine. E-commerce isn’t the answer to all the challenges, because e-commerce will not replace the desire for human interaction. We are social animals who like to explore and try new things. We are physical, and need to use our senses to get excited to attach ourselves to material things. Because of this, it is estimated that e-commerce will take 25 years to reach 50 percent of retail sales. “This is not the end of retailing as we know it,” says Joel Bines. “People are not going to stop going to stores.” But the experience will continue to evolve and become more interactive with every experience being capture on social media.

No question, brands must have a digital strategy to better service their customers, but it shouldn’t be the brand’s ultimate goal. The goal should be to build a relationship on the customer’s terms, one customer at a time.