When tactics won’t cut it

An article in The Wall Street Journal at the end of 2012 noted four struggling retailers: Best Buy, JCPenney, RadioShack and Sears. They were all deemed to be in a do-or-die situation. Compare these four goats with the highfliers such as Urban Outfitters/Anthropologie, Apple and Nordstrom.

Urban Outfitters, which also owns the Anthropologie brand, says in its annual report that it’s a “lifestyles” company with “highly differentiated collections” and “environments that establish an emotional bond with the customer.” Based on my pre-Christmas visit to an Anthropologie store with my wife to buy something for our daughter, the company is doing it extremely well! They had ropes and poles set up for the long queue of customers waiting to pay. A beautiful sight!

You can’t really separate the Apple retail strategy from its products. Poor Ron Johnson, who led Apple’s retail expansion and then left to become CEO of JCPenney, must now clearly understand the importance of a differentiated strategy. Apple was selling the coolest products in the world (also proprietary) in a great retail environment. (While the stock has taken a nose-dive, the retail experience remains outstanding at this point.)

Nordstrom, through decades of a highly focused service model, has likewise differentiated itself from others selling clothing. I’ve heard many firsthand accounts of great service at Nordstrom but not one from Sears or JCPenney.

If you throw my positive examples into a bucket and toss the negative examples in another bucket, you can see that one group has strategies that clearly differentiate themselves from their competition. The others seem to be stuck in no-man’s-land, selling on price, no clear differentiator from their competition.

This is the coffin corner of business strategy. Companies get there primarily for two reasons, sometimes both: (1) Management is asleep at the switch. Perhaps executing well and controlling costs but unaware that the strategy looks like Phyllis Diller in a bikini. Might have been good at one point, but … (2) Market forces have changed dramatically and quickly — usually a disruption caused by technology, a new entrant into the market, new legislation or a rapidly changing customer trend. The thing about either is that you cannot tactically work your way out. It requires a strategic shift.

Business models change. RadioShack was once a viable model as were JCPenney and Sears. Best Buy was viable only a few years ago. However, all of them have become irrelevant. They can execute well, but it won’t save them. Only a new strategy — most likely a radical one! — will pull them out of their tailspin.