“The New Rules of Retail: Competing in the World’s Marketplace”

In a discussion with WWD, the ceo of The Robin Report elaborates on the new rules of business and what retailers must do to succeed in the 21st century.

Count on Robin Lewis to preach his gospel of retailing — any chance he has.

This story first appeared in the April 22, 2011 issue of WWD. Subscribe Today.

From the podium at a fashion forum or chatting one-on-one over a cocktail, refuting mom-and-pop retailers that whine about Wal-Mart, insisting on which brand “gets it” or doesn’t, and tracing tectonic industry shifts have been his shtick. So has casting department stores as dinosaurs. “They just don’t get it,” echoes in your ears.

So what does this strategic consultant say now, with Macy’s, Nordstrom, Belk and Bloomingdale’s showing renewed vitality? “There was always a caveat. I would say department stores would be gone unless they transformed into a different business model,” Lewis said in an interview.

Now Lewis, the chief executive of The Robin Report and a professor at the Fashion Institute of Technology, has another platform from which to preach. He’s coauthored “The New Rules of Retail: Competing in the World’s Marketplace” [Palgrave Macmillan] with Michael Dart, principal and head of private equity and strategy at Kurt Salmon Associates. The book lays out the evolution of modern retailing in three waves: 1850 to pre-World War II, when demand was greater than supply and the grande-dame department stores emerged; 1950 to the Eighties, when the development of highways triggered explosive mall growth and Wal-Mart, Target and Kmart were born, and the Nineties to the present, when advanced technology, globalization and low-cost production emerged, clogging the pipelines with too much “stuff.”

Then the authors make some bold predictions, among them that 50 percent of all brands will disappear over time and 80 to 90 percent of department store revenues will be generated by exclusives and private brands and that department stores will roll out specialty chains. The only survivors, they say, will be those that “neurologically connect” to consumers by providing compelling shopping experiences; “preemptively distribute” through all channels — Internet, mobile, catalogue, stores and social networking — to get to consumers fast and frequently and take control of the “value chain” of design, sourcing, manufacturing, logistics and distribution.

In the following Q&A, Lewis elaborates on the new rules of business, how consumers are wising up and what retailers must do to succeed in the 21st century.

WWD: Can department stores take back share and what should they do to ensure their survival?
Robin Lewis:
Look, department stores are still losing market share — $12 billion in sales to specialty stores from 1997 to 2010. But those that morph and evolve into more of a specialty-chain model, that end up operating with a whole bunch of specialty stores within that big giant space in which they operate, if department stores do it right, they could beat specialty stores at their own game. Penney’s has Mango and Sephora. Macy’s has Sunglass Hut. Somebody one day is going to let Victoria’s Secret in.

WWD: What’s happening with the consumer? Are they shopping smarter?
With all of the advances in technology and communications, we think the consumer is reassessing value in terms of quality and price. IPhones can take a picture of a bar code and five or six names of stores come up that sell the product for less. Information is so transparent. They are going to find a lower price. Consumers are driving all ships down.

WWD: Are stores getting better or worse at creating “experiences” and achieving that “neurological connectivity” you write about?
With department stores, it’s much more difficult to pull off, but they are pursuing better experiences. They are moving in that direction but it’s a much bigger challenge because they have so many different departments and brands, whereas a specialty store has one location, one brand. They can create that experience a lot easier than Macy’s. I think the ones who “get it” know that product alone, or service alone, are not enough anymore. That’s just the price of entry. They’ve got to create an experience. Even Rue La La, Gilt Groupe and HSN will tell you it’s no longer about convenience or just product or service. It’s about the experience.

WWD: Are you being provocative in your book when you predict 50 percent of all brands will be gone, or is that for real?
It’s a general number, and there will be new ones coming on board replacing a lot that disappear. But the retailers that are not pursuing some level of these three operating principles [neurological connectivity, preemptive distribution and control of the value chain] are just not going to make it. Some of these failed businesses might be acquired. Some might be replaced. Some might go private, but then the effort must be to change them. Like everything else in this economy, we prop up the losers. We keep them alive. Our theory is that in this new wave three environment, this bubble can’t continue to grow.

WWD: You’ve been outspoken on Sears, which is a case study in your book. Is this a retailer being propped up, like part of the bubble?
I think Eddie Lampert believed he could turn Sears around, but I think he got to a point, heading into the recession, when he finally realized he can’t. But rather than let it collapse, he is managing it down. He’s not going to spend anything to clean up the stores or renovate. Instead, he will allow [the team] to play around with all these initiatives, all very low investment tactics. He’s taking cash out, not putting it back in, and investing in other things. He will let the businesses steadily decline. He is managing its decline [rather than] letting it collapse like Circuit City. At a certain point, he will start selling the brands.

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