Successful Retail is about making PAR (part 1)

THE STORY
According to the Online Etymology Dictionary, the origins of the English word “par” comes from the Latin word par, meaning “equal” or “that which is equal.” In 1632, the word par in English still had this original meaning.

By 1767, the meaning of the word in English started to get modified. Par now was also used to mean “average or usual amount.” Its still similar, but not exactly the same meaning. Now, par was being limited to equality with normalcy.

The first reference to using par in reference to golf can be found in 1898. The idea here was that this was the normal amount of strokes it would take the average golfer to make the hole.

This golf usage then broke away from golf around 1947, when people started using the phrase, “that’s par for the course,” referring to that being normal behavior for someone.

Of course, nowadays professional golfers have gotten so skilled that to accommodate them golf courses have become ever more difficult to play in order to achieve “par.” As a result, par is no longer what a typical golfer achieves. Heck, even the great professionals of golf often have trouble achieving par these days.

So the meaning of par is morphing into more of an ideal state of performance, rather than an average performance. In other words, achieving par on the course makes one better than the masses. And so now, par is starting to imply that you are “unequal” and instead superior. So, in the span of less than 400 years, the term has moved from “equality” to “inequality.”

THE ANALOGY
In retailing, it used to be that if you did well on the basics, you would be successful. The basics of retailing are to have the right items in stock at the right price with enough efficiencies so that your cost of doing business was less than your markup from wholesale.

However, just as golfers have gotten better over time, so have retailers. Similarly, just as golf courses have become more difficult, so has the playing field for retailing. As a result, merely being good at the basics of retailing is no longer enough to win. Mastering the basics of retailing is merely the minimum level needed to make the cut and survive to play another day. It does not ensure success.

To get to the higher performance of the newer, more stringent retail par, one must add to the mastery of basics additional skills. It is the only way to achieve the superiority required to be a winner.

THE PRINCIPLE
What are the additional skills required to achieve this more stringent level of par? Well, I used the term “par”, because it is a useful acronym for the three skills one must add to basic retail mastery. Those three skills are:

1. Personality
2. Advocacy
3. Respect

In today’s blog, we will cover personality. In a subsequent blog, we will look at Advocacy and Respect.

1. Personality
When I first went to work for Best Buy in the late 1990s, I was given the results of some research that had been done a few years earlier. This research was asking consumers their opinions of various consumer electronics retailers. At that time, there were a large number of good-sized consumer electronics retailers in the US, including Circuit City, Best Buy, Highland, Silo, Fretter’s, and so on.

According to this research, most consumers saw these retailers as all pretty much the same. They felt they all had about the same variety of products at about the same price. There was very little to make anyone stand out from the crowd.

When asked to ascribe a personality to each of the retailers, most of the people surveyed drew a blank. The stores were viewed as so bland and similar, that they did not have any distinguishing characteristic on which to base a personality. The one exception was Best Buy. At the time, their advertising included a character dressed up in a costume to look like a giant Best Buy price tag. This character did some silly things interacting with customers which made Best Buy (the company) appear more human and more likeable.

As a result, Best Buy was the only retailer in the survey to get a meaningful number of positive personality responses. (Note: the survey comments showed that many respondents referred to the guy in the price tag as the reason for giving Best Buy the positive personality) So with everything else being relatively equal, Best Buy got an edge in “likeable personality” which became a sort of tie-breaker to shift business towards Best Buy.

I believe that this edge in personality was one of the key factors which started to shift the momentum towards Best Buy. Best Buy was able to take advantage of that momentum to build an even stronger business. Conversely, most of those other retailers (who were relatively competent at the basics, but had no positive personality) no longer exist.

Customers have a large number of choices of where to purchase products. All of these choices are fairly good at meeting the basics of retailing. The weak players have already been eliminated. To stand out from the crowd, a retailer needs to develop a positive personality which they can own to differentiate themselves from the crowd.

Target spent years refining its cheap chic personality. It’s the cool kid on the block when it comes to saving money, and people like hanging out with the cool kid. This has made Target very successful and helped it survive the shakeout when nearly all of the other discount store chains went away. At the teen level, American Eagle Outfitters has built a strong, positive personality which resonates with that age level. Whole Foods is another great retailer with a great personality.

Conversely, many of the retailers that are struggling today have poor or non-existent personalities. The Gap has tried to be too many things to too many people in too bland of a way. As a result, it really doesn’t have a strong, identifiable personality. And I’ve personally done some research on the personality attributes given to K Mart. Let me tell you, they describe the personality as being like a classless bum with bad breath (along with a lot of other negative attributes). This is the type of personality you do not want to be associated with (and their sales trends reflect this).

And this gets to the crux of the issue. People like to hang out with people who are similar to themselves or are like what they aspire to become. The same applies to the stores people want to hang out at.

The personality of the store reflects upon the people who patronize the store. If the store is cool, then my being there makes me appear more cool. If the store is considered wise and caring about the environment, then my shopping there will make me appear more wise and caring of the environment. If the store is considered rebellious, then I am more rebellious if I shop there.

The idea is that people prefer stores whose personality reflects their own personality.

We make a statement with our choices of where to spend our money. We want our peers to think better of us (and we want to think better of ourselves) based on these statements. The personality of the store impacts those statements. As mentioned in a previous blog, the personality of the name on the shopping bag you carry in public reflects on you and changes behavior as well (see "Pride of Bag").

Finally, if a store has a positive personality, it tends to create greater store loyalty. If you are seen as just a bland store selling what everyone else sells at about the same price, there is little reason for the customer to remain loyal. It is easier to walk away from a lifeless store than it is to walk away from a store that seems alive—like a friend—because it has a personality. There is more of an emotion bond when there is a personality. That bond helps keep people more emotionally attached to your store.

SUMMARY
In today’s world of retailing, the stakes are very high. Practically all the retailers who are left are pretty good at mastering the basics of retailing. Just being good at the basics is not enough. If you are a retailer, you have to elevate your game to a higher level in order to create the kind of superiority which makes one stand out and become a winner. That requires a mastery of PAR (personality, advocacy, and respect).

Regarding personality, the creation of a strong, positive personality for your store will give you an edge. People prefer shopping stores which have a personality which reflects well upon their own personality. The old saying is that you put your money where your mouth is. It is also true that you put your money where your personality is. Personalities also increase store loyalty, since emotional bonds are harder to break than rational ones.

FINAL THOUGHTS
One of the great things about personalities is that there are a variety of personalities to choose from. This variety allows you to choose a personality not already taken in the marketplace, so that you can stand out and be unique. This can be a lot easier than if there was only one desirable personality and you had to continually fight everyone else to gain temporary superiority in that same area (which, by the way, is a good reason not to pick the same personality as the leader when choosing your personality).

Going in Circles

THE STORY
There once was an important executive at an amusement park. He needed to get an urgent message to someone at the other end of the park, so he gave the letter to one of his subordinates and said, “Quick, get on this horse and hand deliver the message to the man at the other end of the amusement park.”

So the man got on the horse that the man pointed to, just as he was ordered to do. Unfortunately, this was a wooden horse on the park’s merry-go-round. The merry-go-round went around in circles a couple of times and dropped of the subordinate at the same location as where he started. This made the important executive furious. He yelled, “What’s the matter with you? I thought I told you to deliver this letter to the other end of the park. Give me back the letter.”

So then the executive gave the letter to another one of his subordinates and gave her the same message—get on a particular horse and hand deliver the message to the man at the other end of the amusement park. So the second subordinate got on the merry-go-round horse, went around in circles a couple of times and she ended up where she started, still holding the letter.

Again, the executive was furious, so he gave the letter to a third associate and gave him the same message. He got on the merry-go-round and had the same result. This lead the executive to give the same orders to a succession of other subordinates—all leading to the same disappointing result.

Finally, a thought occurred to the executive as to why he was having so many problems delivering the letter. “I finally know what’s wrong,” said the executive. “The problem is that nobody knows how to ride horses any more.”

THE ANALOGY
Over time, businesses will hit periods of difficulty. The old ways suddenly seem less effective. The business is no longer appears to be going anywhere, just like the merry-go-round horses don’t seem to be going anywhere. There is lots of activity, but no forward progress. All that activity just seems to make you go in unproductive circles, like the merry-go-round. Just as in the story, your difficulties prevent you from completing your business's mission.

In times of trouble, many executives resort to changing the person in charge of the mission. The thinking is that the reason the mission is failing is because the person in charge of the mission is incapable or unqualified for the task. Therefore, if you put someone new in charge, the problem will get fixed. This was the thought pattern of the man in the story. He kept thinking that if he could just put the right subordinate in charge of the mission, he or she would succeed.

Unfortunately, the problem was not the person in charge, but rather the business model chosen for the mission. No matter who was put in charge, no one was going to get to the other side of the park by using a merry-go-round horse. Rather than changing leaders, the executive should have been changing horses…finding a different kind of horse that is capable of getting to the other side of the park.

The same is true in business. Quite often the only path to success is not in changing leaders, but in changing the business model. That is where strategy comes in—to tell you when to change horses and which type of horse to change to. The sad part of the story was that the executive never caught on to this truth. He kept thinking that if he switched leaders long enough, he would eventually find one that could ride the merry-go-round horse to the other side of the park.

THE PRINCIPLE
The principle here revolves around degrees of control. Typically, the more control you have over your destiny, the more successful your future will be. Studies have shown that in most cases, strategic decisions impact your destiny than more than the person in currently in charge of the strategy. The leaders have less control of their destiny than most people think. They’re freedom to act is constrained by the strategy they inherit.

Years ago, I went to a retailing seminar where the professor said that the ultimate success of companies (and particularly retailers) can only be affected about 20 to 30% by the leader. The other 70 to 80% is determined by major strategic decisions made long ago. You can see this when you replace a bad store manager with a good store manager. Yes, the store will have better performance under the better store manager, but rarely will the results move by more than 20%. Earlier strategic decisions account for the rest of the performance:

• How you’ve managed the brand image.
  
• Your particular business model (price, product, service levels, etc.)
  
• How you’ve positioned yourself versus competition

If the brand reputation is terrible and your business model is uncompetitive, there is not much that a new leader can do in the near term to make a huge difference. He or she has inherited a wooden horse strategy that won’t make it to the other end of the park. Even a good manager can do only so much when given a mission based on an obsolete business model.

Often times you will see someone leave a successful company and go to lead a less successful company. The person frequently brings others from the more successful company to help him or her. Yet, despite their past success, they do not turn around the less successful company. The reason is because people alone are not enough. There is a reason why that company was less successful in the first place. Frequently, it is because it has an inferior strategy. Until the strategy is changed, there is only so much the new management can do. Making the merry-go-round go faster will not get you any closer to the other end of the park. Similarly, working harder at executing an obsolete or inferior strategy will not lead to great success.

Yes, sometimes current management has done such a poor job of executing a good strategy that new management can make a meaningful difference by just improving the execution. However, if you’ve changed the management two or three times and things are still looking bad, it may be time to concentrate on changing horses rather than changing riders.

February seems to be the time when you see a lot of changes in retail management. Financial results for the year are coming in, and if they are bad, there is often a change in management. Just yesterday I saw seven press releases announcing top level management changes at large retail companies.

The buzz in retail circles in recent months has been that the strategy of the Gap stores is so obsolete that it didn’t really matter who they chose to run the company. Some even speculated that the Gap would have a hard time finding qualified new executives, because no one would want it. In an article in the Wall Street Journal entitled “Gap Needs a CEO, and Many Qualify; Will Any Apply?” dated January 24th, 2007, it says:

“The job pays well and has plenty of perks. There's just one hitch: You have to be the next chief executive officer of Gap Inc. The successor to former Gap CEO Paul Pressler, who resigned Monday, must contend with unpopular products, falling sales and profits, anxious investors, problematic store leases, fleeing executives, and rivals gobbling market share. There's also an influential founding family that might balk at a restructuring the CEO might favor -- all or any of which might give a contender pause. No simple solutions are at hand.”

That sounds a bit like a wooden merry-go-round horse to me.

SUMMARY
New management can do only so much to change a troubled company if the trouble is due to having an obsolete or inferior strategy. Until the strategy is changed, the impact of having a succession of new management every year or two will do little to improve the circumstances. Management can only impact about 20-30% of performance. The rest comes from strategic decisions. Doesn’t it make sense to concentrate more on areas which impact 75% of performance than on areas that impact only 25% of performance?

FINAL THOUGHTS
There’s an old saying that the definition of an insane person is someone who keeps repeating the same bad behavior over and over again in hopes of getting a different result. Dare I say more?