When change is in store: How Starbucks, Stouffer's and others manage transformation
The old chestnut goes that the only constant is change, but in retail this is not true. The other constant is the risk of failure, and knowing how and when to make the correct change.
Here's a look at three major misstep areas.
If only Sports Authority had spotted what was waiting at the goal line, it might still be No. 4
The sporting goods chain, once the fourth-largest, filed for bankruptcy protection in March and then, unable to tackle its debt and sales issues, shuttered all of its 460 stores months later. Analysts had blamed the company's collapse in part on its failure to adapt to shifts in consumer behavior, particularly the migration to online shopping.
Put another way, Sports Authority died because it did not quickly change its playbook.
Yet plenty of retailers suffer serious setbacks because they did the exact opposite: They embraced change. Which suggests the adage about change being the only constant in life should be amended for business. We should consider that when it comes to business and retail, in particular, there is another constant — that adapting to change can sometimes lead to failure.
And one of the key ways to avoid failure is in knowing when to steer into, or away from, change.
It's an area of considerable operational insecurity. Nearly half of 534 global executives surveyed (48 percent) believe their companies are somewhat or not at all prepared to pull off a successful business transformation, according to a 2014 Oracle/Forbes Insights survey. The leading cause for failure, they said, was inefficient execution cited by 41 percent.
The subject can fill chapters in a retail textbook (and not just Chapter 11). But there are a few common areas where most retailers have considered or will have to consider change at some point. Let's look at how some major brands managed change of their products, online experiences and loyalty programs.
Remember New Coke? Triggered by competition from “New Generation” Pepsi, that product-reinventing debacle epitomizes the truth of another adage —if it's not broke, don't fix it.
But sometimes a good product is forced to transform to meet shifting consumer behaviors. Coke might not have been one, but a migration toward healthier eating is forcing many brands to reconsider their formulations today. Perhaps most notable, the first required change in 20 years of U.S. Nutrition Facts labels will take effect in 2018 and require brands to list all added sugars.
As a result, some cereal and snack food makers are reformulating their sugary additives with healthier alternatives. These modifications have apparently led to a broader movement among other processed-food makers to replace other preservatives and additives. Stouffer's, for example, is reformulating the recipe of its lasagna to include ingredients people recognize from their own kitchens.
Supermarkets, too, are climbing on board. The Kroger Co.'s Simple Truth line of healthier foods boasts an absence of 101 artificial preservatives and ingredients. Unlike Coke's internal decision to replace its iconic beverage, the product changes by Stouffer's and other brands respond directly to consumer preferences.
Also, and importantly, Stouffer's and others are not loudly promoting their product changes. This would lead to comparisons, and the risk that customers — particularly younger customers, who can be pickier — would not like the new tastes as much.
Loyalty programs: Starbucks rewards understanding
Few customers are as damaging to a brand as the customer scorned. When Starbucks changed the earnings structure of its 11 million-member Starbucks Rewards program, awarding points based on dollars spent rather than the number of visits, the blowback was immediate and fierce.
Starbucks, addressing member concerns, heavily promoted monthly double-point days (for quicker rewards) as well as other specials, including a chance to win free Starbucks for life. But perhaps most important to weathering the shift was its Mobile Order & Pay app, a time-saver that enables members to order ahead and pick up in store. Starbucks continues to test new ways of rewarding its customers that benefit the bottom line, such as a partnership with the ride-sharing company Lyft. Program membership is now north of 12 million, proving a well-executed engagement strategy in the midst of a significant change can help to smooth out the bumps.
Others have not recovered to change so well. The Australian supermarket chain Woolworths is in the midst of altering its loyalty program for the third time since 2015 as it strives to resonate with customers.
The program originally awarded frequent-flyer points with the airline Qantas, but Woolworths replaced them with "Woolworths Dollars" that were awarded only for the purchases of select items. Following a consumer backlash, Woolworths allowed the points to be transferred to Qantas miles. Still, just 41 percent of those surveyed in June said the program offered good value, according to news.au.com.
In late August, Woolworths replaced its reward currency again, with Woolworths Points. These can be used toward discounts at Woolworths or as Qantas points. This iteration may appease shoppers, but so many changes in so short a time causes confusion and indicates an inability or unwillingness to understand the customer.
Online experience: Tumi packs new approach
In 2014, the premium luggage maker Tumi decided it needed to upgrade its ecommerce site for one clear reason: It felt its online experience needed to better match the high quality of its pricey product. This was no small feat — for many Tumi customers, the brand experience begins online. But the company thought the back-end process of getting new items loaded and catalogued onto its site was taking too long, and the imagery was not dynamic or interactive enough for its high standards.
Tumi decided to take the online presentation work, previously managed by a third-party provider, back in-house. To assist, it acquired a suite of technology from Adobe and began to monitor the analytics.
The added capabilities from the software enabled new interactive features, such as a monogram function that overlays varying fonts and colors onto images of luggage. Among the benefits of the change to the company: Session times on the Tumi site increased by 40 percxent. The company also learned consumers were moving from online shopping to mobile shopping at a faster rate than expected.
In direct contrast to Tumi's highly focused change is the online design merchant Fab, once an ecommerce darling valued at $1 billion. Launched as a social network for gay men in 2011, it first transitioned into a flash sales site, scaling up to 11,000 products from 1,000 across a range of categories. This expansion caused it to lose its selective edge, so in 2013 it pivoted again, transitioning from limited-product flash sales to a retail platform that sold a range of trendy gift-type items from smaller suppliers.
That last change might have been the correct one to drum up sales, but execution fell short. Fab.com spent a lot of the money on advertising but did not offer the kinds of distinguished products, style or prices to set it apart from Amazon and the growing number of other online competitors. In 2015, it sold to PCH, a customer design manufacturing company. It continues to operate as Fab.
Similarly, if Sports Authority had paid closer attention to its customers and how their shopping habits were changing, it might still be operating. Maybe not with all 460 locations, but with an overall experience that would be relevant to shoppers.
If anything, it might have had the chance to fight so it can face tomorrow.
Bryan Pearson Bryan Pearson is President and CEO of LoyaltyOne Inc. and the author of the best-selling book The Loyalty Leap: Turning Customer Information into Customer Intimacy. www