Office Depot, Staples and new CEOs

What the future CEOs of Office Depot and Staples should know

Changes are afoot among the office supply chains with both Office Depot and Staples looking for new CEOs. This comes on the heels of the expected merger between the two retailers coming to an end over antitrust concerns.

That leaves both of them in a quagmire. What to do now? What do the future CEOs of these chains have to look forward to when they take office?

Office DepotFor one, they both will find declining sales and profitability. Office Depot will close hundreds of stores, including an exit out of Europe. Staples is doing much the same with sales declining 5% in the last quarter.

Both retailers have blamed the rise of internet spending for the kinds of products they both offer, and they are right about that. Amazon has become the go-to retail space and threatens the entire retail industry, not just the office supply chains.

From the perspective of consumers, why buy from office supply stores – especially in bulk – when shopping online is believed to be more convenient?

Where Office Depot, Staples stand now

The proposed Office Depot Staples merger was irrelevant anyway. Consumers never saw a true difference between them, so a Office Depot Staples merger would have largely gone unnoticed among them. (That is, until prices went up.)

Now that a federal judge has nixed the merger, both must think of the other as the enemy, not a potential partner. Stealing market share from Amazon is possible, but it’s impossible if target audiences cannot distinguish between the two suppliers. Consumers can’t choose either Home Depot or Staples when they cannot tell why they should choose one over the other. Audiences couldn’t tell you which is which.

Closing stores will mean nothing if consumers have no compelling reason to choose one of them over the competition. In fact, if Office Depot and Staples don’t uncover those reasons for choice, they will become the next Circuit City and Radio Shack.

Right now, neither has a brand claim that makes them relevant. The theme line for Staples is “Make More Happen.” Office Depot claims you shop there to “Gear Up for Great.”

StaplesWhat do those mean? Is either of them emotional enough to create preference? Both themes are used in current back to school advertising, but neither are emotional or say anything truly meaningful about who their individual customers are.

Taken at its word, the definition of a Staples customer is some one who wants to make more happen. The definition of an Office Depot customer is that they gear up for great.

Does either of these retailers truly believe these are the most emotionally intensive triggers for target audiences when buying office supplies?

What the CEOs of Office Depot and Staples should do

Let’s take one step back. Retail as a whole is an industry in crisis. Amazon has taken a big bite out of the market share of brick and mortar brands, and retailers have been late to respond. It’s not too late, but audiences prefer Amazon in greater and increasing numbers, thanks largely to its Prime membership.

But there are larger issues involved. Retailers have long taken for granted that the shopping experience will draw customers. Therefore, there is an entire science devoted to making the experience more fulfilling and enticing.

What if shoppers don’t want to experience a store at all? What if they would rather do something else and leave the shopping chores (such buying back to school supplies) to Amazon for the convenience or Walmart for the prices?

Office DepotThe answer to those questions is simple, but difficult to achieve. You must create preference for your brand.

Strangely, retailers invest very little in their brands. Instead, most focus on products, sales and sub-brands. The problem with that strategy is that you train audiences to shop based on convenience – which store is closer – and that means opening more stores, not closing them. Convenience becomes the rational trigger because all retailers sell similar products, hold sales and promote sub-brands. Customers can get them anywhere (even online).

Instead, investing in the parent brand as the reason for preference gives the meaning to why those products, sales and sub-brands are important. It demonstrates the difference between you and your competition to offer a true choice.

It’s the reason why Nike has rarely talked about the advantages of its shoes, instead saying the Nike user will “Just Do It.” The Nike wearer is a winner, who does not have time for indecision.

For the new CEOs of Office Depot and Staples, there is also no time for indecision. There is a future where both chains could close and the new executives will wonder why they couldn’t prevent it. Don’t be that CEO.

Losing strategies from AT&T, Target

You know a brand is failing when it gets desperate to find new customers and keep its current ones, often by reducing prices. It’s the last gasp of brands in markets where brand meaning is ineffective and often similar across the board.

That’s what has happened for both cell phone carriers and retailers. Two cases in point: AT&T and Target.

AT&T
AT&T is in defense mode…

AT&T is doing away with overage fees for data plans, instead reducing the speed of data customers receive if they go over their limit. AT&T is hoping customers will opt to buy bigger data plans or simply be satisfied that they are not getting unexpected fees.

AT&T is following in the footsteps of both Verizon and Sprint, who have similar processes. (Although Verizon actually charges for what it calls its Safety Mode.) This is a defense tactic. And once you are in defense mode, your brand message isn’t working.

Target isn’t doing any better, and maybe worse.

Then there is Target. CEO Brian Cornell told investors that it will double down on the second half of its brand promise: The Pay Less section of “Expect More, Pay Less.”

Target
…and so is Target.

Great. That means Target, which saw a dip in sales of 1.1% last quarter, will reduce prices (and, therefore, margins) to compete with Walmart, which already owns the “Save Money, Live Better” space in retail.

One thing retailers like Target have not learned is that, if you copy the market leader, customers will default to that market leader because market leadership becomes the only reason to choose.

You see that strategy all the time in many markets. Someone takes market leadership with a unique claim and everyone in the industry follows suit, thinking it’s a winning strategy for them as well.

But that’s not how it works. To steal market share, especially if you are not the market leader, you need to be different and better than the market leader. You have to present yourself as a true choice.

AT&T could hold onto its customers with a better brand message than “Mobilizing Your World” because that’s just a definition of its category. If it had something more meaningful, then reducing data speeds to eliminate overage fees wouldn’t need to happen. It would already have true preference.

Same with Target. Give customers a reason to prefer you, not just put your thumb in the hole of a collapsing dam.

The IKEA experience is rooted in a belief

I am not much into indulging in the retail experience. I could care less about walking up and down aisles of loot, envisioning stuff I might want to have at home. Nope. I am the kind of guy that knows what I want to buy and strikes quickly on that impulse. No mess, no fuss. It’s an in and out shopping exploit.

Or I just go online.

Then there is IKEA. Sure, the company has had its share of bad press of late. (All of which could have been avoided by folks using the included strap and bolting to fix their dressers to the wall.) IKEA is an experience for me. Judging by my last venture there, it’s that way for most everyone who visits.

IKEA
IKEA has built its experience on its brand.

In the spirit of transparency, I should tell you that I worked on the IKEA brand many years ago. But I’m pleased to see that it has maintained a shopping experience so pleasant that it has become a destination for many.

IKEA’s parking lot is littered with moving vans and family cars with license plates from a multitude of states. Those same families file into the store cafe to fill up on a lunch or dinner – typically, beef or chicken meatballs – and follow that up with an hour or so jaunt through the store.

I have never been let down by IKEA, and neither have my family members. Just last week, I went with my son and his family. They came along looking for something fun to do, without any intention of buying. When we left, they spent just shy of $400 on goods for their home – and probably would have bought more if we had more room in the car.

IKEA functions according to an unwavering precept

At Stealing Share, we believe human behavior is driven by what we believe to be true about the world and ourselves. IKEA’s brand is rooted in the idea that a stylish home can be had by everyday people. So its stores showcase how that can be done.

It focuses on the little things: The maze-like design of the two-story structure, the kids’ playroom allowing parents to fully dive into the shopping experience and the offering of food and drink all contribute to its brand promise. It is a concierge service for those who normally can’t afford it. The belief is: “I believe I should be treated with respect for my lifestyle.”

While I only visit the store every year or so, when I go I always am expecting to buy something and to have a fun time doing it. I don’t know of any other retailer that holds such a place in my heart. What’s more, I don’t see that behavior of mine changing any time soon.

Retailer Troubles. Who will survive?

Retailer problems seem to mount and grow

Retailer. Just like Macy's
The problems at Macy’s are systematic of the retail space.

All (or almost all) brick and mortar retailers are in trouble. Macy’s is just one of the bigger retailer examples. Sports Authority, JC Penney and Sears would make the list. And even Walmart is closing some locations to better position the bottom line.

What’s really wrong with the retail industry? Are the troubles in which retailers find themselves due to online competition? Is the category of department stores doomed?

It all depends on if the retailers start to learn from their failures and change. Based upon past performance in adaptation to change, success in the category is highly unlikely. Retailers are the last to embrace change and the most stubborn in adapting to newer market conditions. Most of this is due to a lack of vision by leadership and a tenacious gripping on the model in which they have invested.

Macy’s leads the pack…in headlining the troubles

The trouble with these retailers (Macy’s closed close to 40 stores in 2015 and it looks like the blood-letting will continue in 2016) is not the rise in online retail sales. It is the inability to understand the WHY behind consumer changes. Online retail is NOT the problem. It is a symptom of the problem. Department stores like Sears, JC Penney, Macy’s, and Kmart are simply failing the needs and expectations of the mercurial consumer.

The prescription for this malady is to regroup under the wing of so-called industry experts. In other words, they look for answers in the same old places.

What it’s like to be a retailer?

It reminds me of a story I heard years ago. It goes something like this… A man and his wife leave a bar in the evening. As they head up the sidewalk, they pass by an alley and the gentleman notices that there appears to be a man crawling on all fours in the alley. He pauses for a moment, asks his wife to wait for a moment and he heads down the alley to see what the problem is and if he can help.

Reflection of a retailerAs he approaches the frantic crawling man he notices the strong smell of alcohol. Despite this, he asks the poor fellow if he can help with anything? The drunk man tells our hero that he has lost his wallet and is trying desperately to find it. So the gentleman agrees to help him and begins a careful search of the wallet in the alley. After 10 minutes or so, neither have any luck finding the wallet. Exasperated, the helpful gentleman asks, “Are you sure you lost it here?”

“Oh no,” says the drunk, “I lost it down there…”  and he points to the far end of the alley.

“Why on earth are you looking here then,” the man asks.

“Simple” he says. “There is no light down there.”

If Macy’s wants to survive as a dominant retailer, let alone win, they need to look outside the category for answers. But, they all seem to always look where the light is.