Wednesday, April 22, 2015

Target's Pulitzer-losing strategy

The success of Target over the past two decades has been built by offering better quality merchandise at lower prices, creating a unique position (and loyal following) between traditional discounters and higher-end retailers. As with other discount retailers, Target has partnered with higher end brands, providing volume in exchange for their cachet.

The latest effort was Sunday, when Target offered an exclusive collection from Lilly Pulitzer, a line of colorful women’s clothing originally based in South Florida. My teen tells me this is the brand of sorority girls and other Southern Belles. The line is normally sold in expensive boutiques, and thus Target provided both convenient distribution and the promise of better prices.

However, the demand vastly exceeded Target's expectations. As with healthcare, the initial focus was on the crashing. However, as it turns out, the more systemic problem occurred in the retail stores.

At the two stores nearest to our home, the clothing sold out in the first hour, with cosmetics and accessories lasting about a day — a pattern repeated around the country. It was a one-time deal, with no restocking planned. Target later admitted that it expected that the sales (and traffic) would last weeks and not hours.

Instead, enterprising shoppers cleaned out the stores — one shopping cart at a time — to resell the products upon eBay. By our count, there are 38,000+ “Lilly Pulitzer for Target” products on eBay at 3x the original price. Lilly’s fans have vowed to boycott the online sales with their own hashtag (#LillyforeBay).

Avoiding this problem isn't rocket science. Our generation knows this as the Rolling Stones (or Springsteen) concert ticket problem — limit 2 per customer. The former newsmagazine Newsweek reports that H&M imposes limits on similar promotions.

Per Fortune, Target claims that only 1.5% of the merchandise is being resold, but I suspect that includes the less desirable accessories. The fashionistas denied even a single copy of the iconic Lilly Pulitzer shift dress — despite being there when the doors opened at 8 — would consider the problem more serious than Target wants us to believe.

The Pulitzer fiasco has certainly undercut Tarzhay’s image of chic fashion and operational efficiency. And apparently this happened four years ago when Target sold the Missoni designer brand. A brand is a shortcut for quality — including reliability and predictability – which is the opposite of what this weekend’s shoppers experienced.

If they were targeting boomer geezers it wouldn’t be a big deal, but irritating the pre-teens and teens that are its future customers is equivalent to pissing in the soup. It’s a perfect plan to send these young shoppers back to mall for H&M and other specialty realtors.

So — as in so many other aspects of business — here is another example where the execution is more important than the strategy.

Thursday, February 5, 2015

Adieu, Radio Shack

As expected, Radio Shack filed for Chapter 11 Thursday. The brand isn't worth much, but some of the locations are coveted by the 3rd largest cellphone carrier, who plans to operate almost 3/4 of the stores to peddle cellphone service.

The failure of Radio Shack — like so many other firms — is almost anti-climactic. The business model failed years ago, and the firm has been struggling to find any excuse to stay open and throw good money after bad. The company had its time, and that time has passed: like K-Mart, Sears, Borders, Circuit City and (my greatest distress) Mervyn’s.

Radio Shack served several roles: it was the only hobbyist electronics chain and the only electronics store in many small towns and exurbs. As a parts store, it actually played an important role in the 1970s in getting the PC revolution off the ground. And I still remember visiting it for that purpose in high school and college to get some switch or solder or other part to finish a project. There was also a brief period where they had cutting edge computer equipment, notably the TRS-80 Model 100.

Whether or not that would pay the bills today — and certainly not for 2,400 stories — the company has been struggling to find a business model for the past 10-20 years,with an emphasis on cellphones (plus misc. consumer electronics like novelties like toys). They never had very good audio equipment, so anyone who bought stereo stuff there (other than cables) didn't know what they were doing. But they were a cellphone distributor — and a neutral one at that — in thousands of local malls that gave people a predictable place to buy electronics.

Today, you can buy better stereo and computer equipment at Best Buy (at equally inflated prices): yes you have to drive 5-10 miles instead of 1-2 miles, but if it’s a purchase over $100 it’s worth it (and many of the cables can be purchased at the corner drugstore, Target or Wal-Mart).

The death of Radio Shack won’t even be noticed by Southern California hobbyists. The last two times I went to my local store, I was struck by how few components (like wire or solderable connectors) were offered compared to earlier this century. Instead, we all go to Fry’s which offers components, tools, assembled products, recorded content, toys, kitchen appliances, candy and a cafe.

So Radio Shack is like the pro athlete who retires after two years of warming a bench, or the movie star who dies in their 60s when they haven’t had a role for 15 years. Yes, they were important once, but now no one will shed a tear.

The funny thing is, the hobbyist market might survive the onslaught of Amazon — just as Home Depot (or Lowe’s) could do so. When you're in the middle of a project, you need the part now, and you don’t want to wait 2 days for it to be delivered (and unless you’re in NYC or SF, the Amazon warehouse is unlikely to have it in inventory for same-day drone delivery). So this yet another reason for me to support Fry’s at every opportunity.

So my condolences to Radio Shack’s shareholders and employees. Forgive me if I don’t have time to attend the wake. And if Radio Shack comes back from the dead (as some accounts imply), there’s nothing in their current (or rumored future) formula that’s going to bring me back.

Tuesday, January 6, 2015

For once, LG may beat Samsung

Samsung has been touting the latest strategy for Tizen — this time as an integrated OS for its smart TVs. It’s earned dozens of news stories this month, all tied to its promotional efforts for this week’s CES show in Las Vegas.

Samsung has always been better at announcing and publicizing Tizen strategies than it has been at executing on them. It did not skimp on the grandiloquent predictions when its original incarnation (then called Bada) was announced in November 2009:

Samsung Launches Open Mobile Platform: Samsung bada รข€“ The Next Wave Of The Mobile Industry
November 10, 2009
Samsung Electronics Co. Ltd., a leading mobile phone provider, today announced the launch of its own open mobile platform, Samsung bada [bada] in December. This new addition to Samsung's mobile ecosystem enables developers to create applications for millions of new Samsung mobile phones, and consumers to enjoy a fun and diverse mobile experience.

In order to build a rich smartphone experience accessible to a wider range of consumers across the world, Samsung brings bada, a new platform with a variety of mobile applications and content.

Based on Samsung's experience in developing previous proprietary platforms on Samsung mobile phones, Samsung can create the new platform and provide opportunities for developers. Samsung bada is also simple for developers to use, meaning it's one of the most developer-friendly environments available, particularly in the area of applications using Web services. Lastly, bada's ground-breaking User Interface (UI) can be transferred into a sophisticated and attractive UI design for developers.

Samsung will be able to expand the range of choices for mobile phone users to enjoy the smartphone experiences. By adopting Samsung bada, users will be able to easily enjoy various applications on their mobile.
Encouraged by Samsung, one analyst predicted that Tizen would make up “half of its portfolio by 2012.”

Instead, (according GSM Arena) only 11 bada models ever shipped — out of more than 3200 models during the past 5 yearsbefore bada was discontinued in favor of Tizen — a merger of bada and the Intel- and Nokia-flavored mobile Linuxes (among others).

Samsung announced its first Tizen phone — the Samsung Z  — June of 2014. A defeatured version of the Galaxy S5, it debuted not in Korea — or North America or Europe — but in Russia, suggesting the company did not think it could compete head to head with the latest Android and iOS phones. In fact, it was even ready for a third world BRIC country: the release was cancelled due to a lack of applications.

At CES this week, Samsung announced that Tizen would jump species — from its viral reservoir in rare smartphones and smartwatches — and become the only OS it uses for its smart TVs. I had three reactions.

First, so what? Yes, as the leading TV vendor Samsung can push out lots of copies of Tizen. But does anyone care what OS is in their VCR, DVR, Blu-ray, TV or home stereo? (I care about the OS in my car stereo — due to cellphone compatibility — but that’s a story for another time.)

Second, Samsung is saying: “let’s ship a platform in a product category where no one cares about app availability.” In other words, it may never win developer support for Tizen — and thus a large assortment of apps — but on TVs, who cares?

Finally, while Tizen frees Samsung from dependence on the evil Google, is shipping Tizen an asset for Samsung — or a liability?

Under the hood, Tizen has a very robust Linux, reflecting bada’s 2011 merger with MeeGo, which in turn built upon years of work by Nokia (with Maemo) and Intel (with its Maemo fork called Moblin). (It also included the failed Linux Mobile standard, LiMo).

However, a robust OS under the hood means nothing if it has a clunky UI. Exhibit A is the Symbian OS with Nokia’s aged S60 UI; Exhibits B-Z are every incarnation of desktop Linux known to mankind.

Which brings me to the dark horse: LG. I hadn’t noticed, but two years ago LG bought webOS, the failed Palm smartphone OS that HP owned for three years before dumping it. This week LG announced it’s using webOS for its own TVs.

Almost six years ago, webOS was a really good smartphone OS. But despite Palm’s efforts to double-down on its modern OS, it wasn’t enough to save the company. Now, webOS has a $100+ billion/year company behind it — and unlike with OS — a large volume of shipping products where it can run.

With a product strategy that usually consists of copying Samsung — much like Panasonic copied all its Japanese rivals — LG is rarely thought of as an innovative company. But here, instead of copying Samsung by developing its own lousy embedded OS, it bought a good one.

Again, will it matter? Will the TV OS matter more than screen size, brightness or — most importantly for a commodity product — price? As a former software guy, I want software to matter in providing differentiation. But I’m not going to bet even one dollar of our youngest’s college fund on it.

Tuesday, December 30, 2014

Web standards exist for a reason

Back at the end of the browser wars — i.e. the late 20th century — it looked like Microsoft had won and Netscape had lost. A number of Windows-centric shops designed their websites for Internet Explorer, either in terms of full functionality (“works best with Internet Explorer") or actual access (“requires Internet Explorer”). Microsoft encouraged this by promulgating APIs for Visual Basic, .Net and DirectX and the like.

Fast forward to today. Over the past five years, Microsoft’s desktop market share has been in a freefall. Statcounter — the widely cited arbiter of browser usage — chronicles how Google Chrome has come from nowhere to take share from IE and (to a lesser degree) Firefox (heir to Netscape’s customers and developers). At 55% in January 2010, the IE share is now under 22%:

When you include all platforms — tablets, mobile phones and consoles — the news for Microsoft is even worse — with an IE share of 13.5%:

Yes, as a Mac owner this was particularly galling, since Microsoft had a Mac version of IE (as one MS employee pointed out to me) only as long as it served its purposes during the browser wars. MS discontinued IE for OS X in 2003. Fortunately, with IE now a small fraction of the web audience, it no longer matters — except at one site crucial for business professors, as I discovered today working on a paper.

The Virtue of Bad Design
One of the more popular proprietary business databases is called Thomson One, from Thomson Corporation (later Thomson Reuters). For entrepreneurship scholars (like me), the most relevant content is VentureXpert, a database of investments by VCs, angel networks, corporate VC and other private equity investments. This data is used by PWC and its partners to announce their quarterly VC funding stats at the PWC MoneyTree site.

Unfortunately, Thomson One is only compatible with Internet Explorer. Worse yet, it is not supported (and doesn’t fully work) with any version of IE greater than IE 8 (as documented by IT support desks at Wharton, Harvard, Columbia, and other schools).

Internet Explorer 8 was introduced in 2009 and last updated in February 2011 (almost five years ago), just before IE 9 was released in March 2009. IE 8 is not compatible with Microsoft’s current desktops, laptops, tablets or mobile phones, which require Internet Explorer 10 or 11. StatCounter estimates the November 2014 market share of IE 6+7+8 at 4.03% of the desktop market.

For Windows users, there is an IE Tab plug-in that helps Chrome and Firefox imitate IE, but not all the Thomson One features are available in this emulation mode.

Customers Lose, and (So Far) Thomson Still Wins
So to recap, here is where we are:
  • The virtue of the web (particularly HTML 4+) is interoperability between browsers.
  • One or more IT architects at Thomson Corp. decided years ago to lock their database to specific features of one browser, rather than support Internet standards.
  • Those features are so non-standard that they are not supported by Microsoft browsers released since March 2011.
  • The company has done nothing to upgrade their site to support the 96% of the world that uses other browsers.
I'd like to think that whoever made this architecture design error was fired for his (it was most likely a he) mistake, but that would assume a level of IT competence that the legacy team of Thomson Corp has not yet demonstrated. (Meanwhile, other Thomson Reuters sites seem to work with a wider range of IE versions and in some cases even have a mobile client).

One thing that is clear is that Thomson Reuters is pretty confident of their monopoly position in this particular niche: if not, their customers would be defecting in droves, and fixing this broken IT infrastructure would finally become a priority. I’m not holding my breath (on either competence or customer orientation suddenly breaking out).

Monday, December 15, 2014

Retailers' Hobson's choice: crushed by Amazon or exploited by Google

It’s no secret that during the e-commerce era, the local (and even chain) retailer has lost its hold over local customers — particularly in the face of an ever-expanding variety of online merchandise, first from Amazon and later from the clicks-and-mortar chain retailers such as Target and Wal-Mart.

Meanwhile, the tyranny of the local newspaper has been replaced by the tyranny of the search engines (i.e. Google) in controlling the ability of retailers to get their message to potential customers.

Now the Wall Street Journal reports that retailers are facing a Hobson’s choice of being exploited by Google to avoid being crushed by Amazon. (Merriam-Webster defines a Hobson‘s choice as “the necessity of accepting one of two or more equally objectionable alternatives”).

The report says that to capture more product search — advertising and purchases — Google is testing a “buy” button for its search results to reduce the number of searches that begin on Amazon:

In the third quarter, 39% of U.S. online shoppers began researching their purchases on Amazon and only 11% started on search engines like Google, according to Forrester Research . That’s a reversal from 2009, when 24% started on search engines and 18% on Amazon.

“Amazon is increasingly running away with online retail in North America, which poses a huge problem for Google,” said Jeremy Levine, an e-commerce investor at Bessemer Venture Partners. “Google has to get in front of this and create a reasonable alternative.”
That Google chose to fight back is not surprising, nor is it surprising that it did so without consulting retailers. Given its data-driven culture, it’s also not surprising that it ran a live experiment. However, the nature of the experiment alarmed some retailers:
Retailers’ concerns about Google’s initiative were heightened in November when digital-marketing agency RKG spotted an unannounced Google test. Google users searching for “anthropologie,” the women’s clothing retailer owned by Urban Outfitters Inc., were also shown a link to a Google Shopping page with dozens of the retailer’s product ads. Anthropologie didn’t give its permission, according to a person familiar with the matter.
Or as search engine guru Larry Kim explained:
Is Google Shopping Becoming A Competitor To Retailers?

Based on this test, it would appear that's a real possibility.

Essentially, this would cut out the middleman and drive searchers to make their purchasing decisions within Google Shopping. It adds competition to what began as a branded search – rather than being presented with David Yurman rings for sale by David Yurman, the searcher sees David Yurman rings for sale at Nordstrom, Bloomingdale's and other retail sites.

If Google adopts this test as a permanent feature, it has the potential to drive up CPC's for branded search terms, as people searching for a particular type of product from a specific brand will now be presented with competitor options, as well.

Further, users can do comparison shopping right within Google Shopping, without having to go the retailers’ websites, whether they were searching for a specific retailer/brand or not. It’s another example of Google stealing traffic from your website, like they do with Knowledge Graph and vertical results like weather and flight comparisons.

This could be a welcome change for searchers; this is why Google runs all these tests. But advertisers may be annoyed to learn that searches on their brand name are being used to drive traffic to Google Shopping. … As for advertisers, I’m pretty sure they won't appreciate Google creating competition for them where it didn't exist before.

In this regard, Google is seeking revenue growth by taking traffic from those who created the content it indexed. It doesn’t have to integrate to generate the content or be able to fulfill orders, but instead can control the eyeballs (selling more ads and having more stickiness) while commoditizing retailers.

So in a fight for Total World Domination (or at least North American retail domination), Google will take away visibility and revenue from its most profitable customers.

Why does Google do this? Because it can. It’s not quite a monopoly, but it’s almost without viable competition: in the US, it has a 3:1 market share lead over its nearest competitor on PCs, and a 5:1 lead in mobile. In Europe, it has a nearly 10:1 lead, which is prompting calls for competition authorities to end its vertical integration.

The web brings a scale to retailing that never existing in the turn of the century (or Calvin Coolidge) Main Street USA era. Local retailers (and their commercial landlords) will continue to pay the price.