The Invisible Changing Business Environment

I am very worried about every small businessperson.  We operate in several dynamic environments that are changing, and most of us are too busy to keep up with them.  Some environments are invisible, which makes their impact even trickier to detect.  One way to track them is to watch big businesses and notice how they are responding to these environments.  Big businesses have more staff, do more research, and make more decisions based on research.  Taking note of their research and response to it helps to reveal the effects of the invisible.

The invisible environment I am addressing today is the Internet.  After the holidays, several news organizations reported that big retailers including Macy’s, Kohls, Walmart, and Sears would be closing stores this year.  In the stories, these changes were tied to a 5.6% drop in sales during the holiday season.  While online sales grew during the holidays, brick and mortar stores sales were down. 

I did some research into the situation and discovered that these decisions regarding store closings were not knee jerk reactions to a bad holiday season.  Last August Macy’s had planned to close 100 stores in 2017, which is 15% of the chain’s total.  CEO Jeff Gennette stated that “Nearly all stores to be closed positively cash flow today, but their volume has been steadily declining in recent years.  We decided to close these stores proactively to invest in growth sooner and more aggressively in digital and mobile.”

In other words, the stores’ profitability today was not the issue.  The trend was the issue. 

Big chain stores were built to offer a convenient place to shop for a wide variety of items.  Now the Internet has made the big stores’ convenience and wide variety irrelevant.  Consumers can more easily go online and shop with their fingers than get into the car, drive to the store, and hope to find the item they want.  As is demonstrated by holiday sales, more shopping is happening online now than ever.  The trend shows no sign of stopping. 

This environmental change is affecting the sales of big chains’ brick and mortar stores.  In addition to Macy’s, Sears and Kmart are closing 30 stores, and CVS is closing 70 this year.  Over the past couple of years, the big chains have closed hundreds of stores.  Their loss will impact malls.  The loss of an anchor store to a mall such as Macy’s or Sears triggers a downward spiral in the performance of the mall that puts it in danger of closing, too.  Right now, two hundred malls are in this position.

Interestingly, specialty stores are not experiencing the difficulty of the big chains.  This is due partly to their focus on a product rather than convenience.  They also have a successful online presence.  For example, Victoria’s Secret gets 20% of its sales online. 

In this Insight, I have been focusing on how the Internet is affecting big retail chains.  If you are thinking, my business is not a big retail chain so this doesn’t apply to me, you are wrong.  I absolutely guarantee the Internet will affect your business in some way.  Some businesses might be threatened with extinction, and others may be altered in a milder fashion.  All will be impacted.  The extent of the effect may change over time, too.

How do you address the invisible changing environment of the Internet?  Be certain to conduct a SWOT for your business every year.  The O stands for external opportunities, and the T represents external threats.  The Internet offers both to every business.  How you identify and react to the opportunities and the threats from the Internet will determine its effect on your business.  If your customers are leaving your business to shop online, what can you do to keep their business?  Do you have an online presence?  Do your customers know of it?

Does it offer them what they want?

This week's marketing trivia challenge is What threats and opportunities does the Internet offer your business?  E-mail me your answer.

Worst Customer Service

A report on the nine stores with the worst customer service caught my attention the other day.  Many on the list surprised me, especially number one.  Here is the list:
1.  Walmart
2.  Netflix
3.  Safeway
4.  CVS Caremark
5.  Sears
6.  Super Valu
7.  The Gap
8.  TJX Companies  (TJ Maxx, Marshalls, HomeGoods)
9.  Walgreens

Are you surprised? 

The report mentioned that Walmart had held the worst spot since 2007.  That amazed me even more.  I know that Walmart doesn’t do everything right, but the worst store for customer service for the last five years was a surprising position.  I wanted to know more about this survey, so I went online and found the original article.  I discovered that Walmart was rated 71 on a scale of 100 when it was graded as a department and discount store.  As a supermarket, the company also received the worst supermarket score at 72.  Walmart’s e-commerce performance was at 78.  That seemed better until compared to Amazon with a score of 88.

In fact all online companies, with the exception of Netflix, had much higher satisfaction ratings than brick-and-mortar stores.  Netflix received a score of 75 in 2012 and 74 in 2011.  Compared with the average for online companies of 82, that was not good. 

Looking back, in 2009 Netflix was the top-rated online company.  Then Netflix suddenly announced in late 2011 that not only was the company raising prices, it was also separating its DVD rental and streaming platforms into individual billings.  Customers had been receiving both under one price.  Customers were furious.  Some left.  Many complained.  Eventually, Netflix reverted back to the original one-price offer. 

Evidently, the damage had been done, and it still exists.  Customers continue to be upset with Netflix.  The company may never regain its stellar customer service rating.  When customers develop an irritation toward a company, they keep the irritation.  Undoing a mistake such as the one Netflix made is close to impossible. 

Much of this customer survey has to do with expectations.  Since customers feel that generally their experience at brick-and-mortar stores is less satisfying, they have decreased their expectations from these stores.  On the other hand, customers are happy with their online experiences as is shown in an average rating of 82 for online companies.  From those experiences, customers are setting their online expectations even higher. 

Right now, brick-and-mortar stores still handle the majority of the retail business in the United States.  However, these retailers are concerned about a trend.  In February, the U. S. Census Bureau reported that online sales increased from 4.8% of sales in 2011 to 5.4% in 2012.  If customers continue their satisfaction with online purchasing, that figure may increase and may happen at a faster rate that brick-and-mortar retailers anticipate.

The bottom line of this survey is that the customer is of utmost importance.  Knowing your customers’ expectations and experiences with your company is paramount.  Assuming that your customers are happy is a dangerous practice.  Talking to your customers is the only way to understand what they think.

That talk cannot be off the cuff.  It must be prepared, honed, and focused.  It must respect your customers’ time and use your time wisely.  It must yield information which will help your business serve your customers well.

Make time to talk to your customers and gather information critical to your business’s profitability.  Do it soon.     

The End of the Sale

JC Penney has announced the end of its sales, at least as we know them. No longer will JC Penney endlessly have weekly, bi-weekly, or one day sales. The first steps of Ron Johnson, the company’s new chief executive, are to get rid of the nonstop promotions at the store and move to three kinds of pricing: everyday, monthly specials, and clearance.

Penneys has been running commercials which feature frustrated customers missing big sales and screaming, “No!” The commercial ends with “Enough. Is. Enough” written exactly that way across the screen.

Long ago, big chain retailers, including Penneys, began an advertising strategy of one-upmanship. They competed for customers by offering the biggest discounts and the wildest sales. They taught customers to wait for the next sale before buying. They trained customers to feel good only if items were purchased at a reduced price. Their efforts have worked.

Today many customers don’t want to buy anything at regular prices from these stores. Doing so makes them feel uncomfortable. If they buy an item at regular price now, they are certain that it will be on sale next week. Thus, they wait for a sale at most big chain retailers.

The exception is Walmart. Walmart has sold its customers on the concept of everyday low prices. Walmart shoppers are convinced that they are getting the best deal any day that they shop the store. After all, Walmart has price drops. Customers think that Walmart management is watching out to give its shoppers the best price everyday. They think Walmart customers do not need to wait for a sale.

Walmart management found the weaknesses of the one-upmanship strategy. They recognized that any store can always have a lower sale price on a temporary basis. They saw that it takes a great deal of expense in labor and advertising to maintain this strategy. Most importantly, they realized that this strategy loses customer’s everyday business.

Walmart management did not want customers to wait for a sale to buy. They wanted customers to come to Walmart everyday to purchase. They wanted customers to feel comfortable with the price on an item. They wanted customers to buy everything at Walmart instead of shopping around for the best deal.

Customers have been trained by Walmart that they save money everyday shopping there.

As for the sales strategy, today’s consumers are suspicious of sales. They are tired of hearing about the biggest sale, the last big sale of the year, or the sale to end all sales. Every week they are subjected to more sales. They know it’s a game.

Today’s consumers are more interested in getting an item that meets their needs. They wants the item to do what they want it to do. They don’t want to use their time searching for the best price. If they are interested in price options, they can check online.

For profitability, it’s a good time for J C Penney to change its strategy.

Are you copying the big chains in your promotional strategy? If so, check out the profitability of that strategy. Giving away less leads to more profitable customers.