How Retailers Can Avoid Being Blockbuster in a Netflix Age

By Lockie Andrews

Wake up retail. The retail industry is still reeling from a devastating right hand blow from ecommerce juggernaut Amazon.

While a select few retailers have taken the necessary steps to go mano-a-mano with Amazon, the majority of retail brands are still down for the count.

Netflix vs. Blockbuster

It seems most retailers did not learn the lessons from cautionary tales like Netflix vs. Blockbuster. Instead, legacy retail brands have consistently underestimated the staying power of new entrants and disruptive technologies.

As you will recall, Netflix leveraged a digitally enabled subscription model to craft a brilliant market domination strategy that ultimately eclipsed Blockbuster.

The mistakes that led to Blockbuster’s rapid demise are widely known, yet most retailers still haven’t heeded the warnings.

Marquee Fight: Amazon vs. Walmart

One retailer who has become a worthy adversary to Amazon is Walmart. Despite a relatively slow start, Walmart has managed to stay in “digital commerce shape” via massive technology investment, ambitious acquisitions (e.g. $3.0 billion Jet.com acquisition) and major organizational transformations.

Walmart CEO Doug McMillon has taken both defensive and offensive postures against Amazon. Most recently, under the leadership of ecommerce guru Marc Lore, Walmart’s digital efforts have really been paying off.

Surprisingly, the list of traditional retailers and brands who have copied Walmart’s digital swagger is short. Over the last decade, most specialty fashion brands and department stores have largely run scared or simply ignored the impending threat from digital upstarts.

Retail Reckoning

In fact, the U.S. retail sector continues to struggle with the same outdated marketing tactics, poor customer service, slow response time and lack of product innovation that plagued Blockbuster. Consumers have rejected stale brands and embraced retail’s latest digital darlings furthering laggard brands’ downward spiral to the brink of bankruptcy. 

Over 500,000 retail jobs were cut in 2016 (highest since 2010), and thousands of retail stores and malls have closed as a result of the consumer shift to ecommerce from traditional brick and mortar stores.

The good news among all this carnage, is that a few enlightened retail boards and management teams have already completed digital transformation programs. These heavy weights have proactively re-allocated human capital and investment dollars to high growth divisions such as ecommerce, mobile and digital.

So what can a legacy retailer or brand do to increase their chance of success in the digital age?

I suggest direct to consumer brands focus on two core areas to prevent being disrupted by ecommerce upstarts.

Two Main Antidotes to Retail Disruption

1.    Adopt a Digital Mindset

Like most crisis situations, a solution can only be found after there is realization that there is a problem. For too long, Blockbuster buried its head in the sand and assumed the threat of ecommerce and Amazon would simply go away.

Instead of procrastination and denial, I suggest retailers accept and actively entertain ideas and technologies that can improve sales and operations. The best legacy brands, like Nike and Sephora, constantly seek ways they can disrupt their own business models. The thought process being that if they don’t pursue disruptive strategies, their competitors most certainly will.

Such digital diagnostic reviews have led to innovative manufacturing, systems, culture, talent management, product and marketing initiatives that allow these legacy brands to thrive. Unlike Blockbuster's fatal decision to reject Netflix’s proposal to sell 49% of their company, forward-looking legacy retailers are striking innovative partnerships with digital native brands to ensure they deliver exceptional products and experiences to their end consumers.

2.    Digitize Marketing

In this new ecommerce world, digital should represent a sizable and growing percentage of a retailer’s marketing budget. However, in order to truly crush marketing, a brand’s marketing leadership must be equal parts creative and analytical. Historically, many retail marketers have lacked technical skills, and marketing departments had to be restructured to better integrate digital, social media and ecommerce capabilities.

But once the structural impediments are removed, successful retailers quickly discovered the major benefits digital has over traditional marketing. With the right technology stack, marketers can quickly and easily measure the effectiveness of digital campaigns. Fast insights and quick results allow marketers the ability to iterate and optimize marketing spend, thus lowering the overall cost. I have advised and witnessed many legacy brands emulate the success of growth hacking digital native brands, so I know this is possible.

In short order, the best legacy retailers have turned into best in class marketers that routinely execute A/B testing, social listening campaigns, remarketing strategies and user generated content initiatives. By keeping their finger on the pulse of consumer sentiment both online and offline, these legacy brands are ensuring that they capture millennial and digital savvy consumers.

Digital Knockout

In summary, it’s clear that winning brands like Walmart, Nike and Sephora have refused to rest on their laurels and have optimized their digital and ecommerce strategies to stay relevant and competitive.

Unfortunately, the laggards in the retail sector have lost market share to ecommerce titans and they are now faced with the daunting task of shedding assets and laying off personnel. This devastating decline could have been avoided if retail brands would have learned from the failures of companies like Blockbuster.

Until the majority of retail management teams wake up to the harsh digital and ecommerce reality, this unprecedented shakeout in retail will continue.

To that I say, in the proverbial words of my millennials friends, stay woke retail!

 

Lockie is the founder of Catalyst Consulting, a boutique advisory firm specializing in “all things digital” for consumer and retail companies. With 20+ years of general management experience, Lockie has assisted high growth companies (e.g. Nike, Lane Bryant, various start-ups) in diverse areas such as strategy, innovation, branding, digital marketing, social media management, revenue enhancement, operational/financial improvement, workforce automation and fundraising. Catalyst’s unique ability to provide strategy and implementation services yields actionable and sustainable results for our client base.

Lockie founded the consulting firm 10 years ago because she foresaw the emergence of digital and ecommerce, and leveraged her position as a thought leader to solve complex growth problems for C-suite executives. Lockie is a featured speaker and blogger and is passionate about new technologies, seamless retailing and disruptive innovation. In March 2017, she will be moderating “future of social commerce” panels with executives from Facebook/Instagram, Pinterest and Google.

Prior to founding Catalyst, Lockie served as Operating Partner at retail/consumer portfolio companies of Sun Capital and Brightwood Capital in the areas of strategy, branding, marketing, merchandising and operations. Lockie has also held roles as the COO of Tadashi (fashion eveningwear brand); head of New Business at Liz Claiborne Accessories (Kate Spade); CMO of Nora Gardner (fashion womenswear); and VP of Business Development at babystyle.com (fashion apparel and accessories). Lockie was also a Senior Director in Alvarez and Marsal’s Retail Consulting Practice.

Lockie began her career on Wall Street at Donaldson, Lufkin and Jenrette, and holds degrees from Harvard Business School and Georgetown University (magna cum laude). She received a certificate in Fashion History and Drawing from Parsons School of Design in Paris.

An avid yogi and runner, Lockie currently serves as a Friend of Education at the Museum of Modern Art, and is the co-head of Fashion Tech investments at the HBS Alumni Angels of NY.