Case Study: Retail & The Relationship Chain

In this edition of The Lesson, I will provide some unique insight from a Marketers perspective into the Bed Bath & Beyond (BB&B) bankruptcy gathered from three unique experiences:

1.     As a CMO who left a giant legacy retailer- Sears, I can draw many BB&B comparisons with home products, private label brands and corporate cash challenges.

2.     As a marketer who was interviewed inside the walls of Bed Bath & Beyond, that left me with more questions than answers.

3.     Finally, as a CMO I reported to a board that was occupied by the future CEO of BB&B.

THE CAVEAT

Let me caveat this article by humbly stating we all know what to change in hindsight. I recall hearing many outsiders’ theories on why Sears Holdings went under, and some had merit, and many didn’t based on my CMO experience there. What seems apparent reviewing public filings does not always reveal what was happening inside the walls of a business, the power struggles, and personalities that influence strategies. Additionally, there are often very smart and qualified people that get pulled into the gravity of negative business momentum and for a myriad of nonpublic reasons they are not in a strong enough position to influence the reverse of the downward death spiral. Some of the brightest people I have ever met were in such positions. Someone does have to own the failure of the company, but this article isn’t pointing the finger at people but will showcase a marketer’s perspective on how to have a positive impact on a company fighting to survive. With that, let’s get to it.

PERFORMANCE ISSUES

First, let’s peel the onion. From 2016-2018 (pre pandemic) BB&B sales were a little better than flat comping at about a +1% year over year (YOY) but Gross Profits were going down 3x YoY, SG&A was going up 7x YoY and as a result Operating Profits were getting hammered. So, there was trouble in paradise before the pandemic decided to smack down almost every business in the world. Post pandemic the negative acceleration began in 2019 and 2020 posting a -7% and -17% net sales respectively with increasing SG&A as a percentage of sales made for a brutal Operating Profit outcome. There were plenty of challenges to be solved that many could say were outside of marketing. Let’s dive into this topic a bit more.  

In retail, traffic and customers can mask a lot of inefficiencies. My best guess is BB&B didn’t go out of business because of lack of cash. The lack of funds was the residue of a greater problem of why they went out of business. Many moves were made to try to improve the bottom line and increase cash flow. Several failed stock offerings to raise cash as well as selling businesses like the Christmas Tree Store, Cost Plus World Market and other owned brands. BB&B also began moving to a private label brand strategy to increase margins but alas it wasn’t enough.

I felt like the latest leadership team was challenged with catching a piano that was pushed off the roof of a building after the pandemic. I can’t intelligently judge from the outside every move that was attempted by the leadership to save the business but my experience with the final CEO at BB&B was positive. Sue Gove was on a board of directors that I reported to quarterly. We always had good conversation, suggestions, and challenging questions to discuss. Which is why my point of view is that inertia is hard to fight when the trend is not your friend and being urgently proactive and humble can be the best medicine. 

WHERE MARKETERS FIT INTO BUSINESS TRANSFORMATION

As a marketer one way I assist the executive team is to assess the Marketing Relationship Chain. Since every business desires to have long lasting relationships with customers, I find formulaically evaluating the sequence of events that build personal relationships can be applied to businesses as well. I will share Lessons from my career and “assume” some parallels at BB&B. 

In the C-suite most executives sit at the table looking internally at income statements, balance sheets, cash flow and details around workforce, technical capabilities and supply chain matters etc. The Marketer is one of the few in the C-suite that is turned away from the table looking outside the walls at the customer and competitive landscape. The marketer should spark internal discussions and debate about external insights that can lead to ideas and solutions that are beyond the typical day to day marketing operations. Marketers should play a role like preventative medicine to keep the company healthy before a known illness arises, however marketing is often pulled into reactionary mode. In business emergencies marketers often find themselves performing triage to stop the bleeding and find more customers “now” which can often lead to ineffective ad spends, unprofitable discounting and result in questioning marketings capabilities when “chasing customer” activities didn’t perform. I’m assuming BB&B marketing teams were experiencing the same.

Let’s breakdown the pieces of the Marketing Relationship Chain and then compare them to what we know as an outsider of BB&B. 

UNDERSTANDING- The first part of any strong relationship is knowing the other person. Your best relationships are filled with knowledge about what she likes to eat, what he is allergic to, where she likes to go or what he finds funny. Understanding someone enhances your ability to have meaningful relationships with them. Also, when you share what you know about someone, it helps others in the organization perform better to nourish the relationship. If my friend is visiting, and my wife decides to cook, my knowledge that my friend doesn’t like cheese can assist my wife to kick off the introduction on a positive vs awkward note serving four cheese lasagna. Understanding should pollinate across the organization from merchants to customer service to sales to help everyone relate to the customer. Here are some key investments in research types to understand and be worthy of a customer relationship. Below is a list using a vacuum cleaner as the marketed product:

·       Consumer Insights- Ex. Uses a vacuum but not your customer

·       Customer Insights- Ex. Has purchased a vacuum from you before

·       Shopper Insights (Physical Store / Website / UX)- Ex. How do they shop for vacuums?

·       Competitive Intelligence (USP / Pricing / Product / Positioning / Service / Convenience etc.)

·       Category Insights- What is driving vacuum manufacturers to make the products the way they do?

·       Customer Journey (offline / online)- From sunrise to sunset how does the need for a vacuum arise, actions taken by shopper and ultimately decision to purchase?

Few of us know what BB&B understood per above but we can derive they didn’t know enough, or they didn’t translate their knowledge into winnable actions. At Sears we had a range of highly considered merchandise like appliances, vacuums, or lawn mowers and when I was CMO we held the #1 US market share in many of these categories. That’s not a brag but to set the scene that Sears was still a viable in the marketplace. This highly considered merchandise was purchased infrequently and researched when consumers had major life events like moving or birth of a child (same reasons as BB&B shoppers had per their earnings reports). Big box retailers sold the exact same categories (Appliances) and brands (Whirlpool) at the exact same price per industry MAP pricing policies as Sears. We had the “UNDERSTANDING” that consumers would go out of their way and travel to purchase such big ticket items if they had a reason to, otherwise convenience was key when purchasing a trusted commodity. At Sears we needed a reason for shoppers to bypass at least one if not more Home Depot, Lowes, or a Best Buy stores to visit Sears, a mall based retailer. Tough challenge. 

BB&B sold many infrequently purchased items as well. How often do you buy sheets, towels, or a blender? Unlike Sears these items are not as highly considered, their ticket price is lower, and the downside of making a poor purchase choice on plates wasn’t as devastating as buying and installing an unsatisfactory dishwasher. Driving traffic would be even more challenging for BB&B because similarly priced commodities often win sales based off convenience. Shoppers could buy the BB&B categories more conveniently from Target or Walmart when they are in those stores weekly buying groceries. If you are not passionate about your cutlery you could take a chance buying sight unseen from Amazon (which many do) with free returns. The challenge is marketers need to creatively assist with all their knowledge and UNDERSTANDING to answer the question- why shop us or in this case, why shop at Bed Bath & Beyond?

WHY ME?- I will spend the most time on this part of the Marketing Relationship Chain because it is often neglected. This is the area where you convert your “UNDERSTANDING” into a meaningful reason to be considered for a relationship. As a person with friends and/or a spouse you have asked and answered WHY ME many times without even knowing it. Our “why me” value proposition could initially be our looks, intellect, personality, or values or our purpose aka what we are passionate about that makes us attractive for a relationship. Similarly, the same concept can be applied to businesses. If a retailer or person looks run down, you may be uncomfortable dealing with them. This is something I faced at Sears. 

When looking at the Purpose of BB&B (see image) it was to “Make it easy to feel at home”. All too often corporations create a purpose that sounds logical. Looking at this “purpose” I would assume BB&B had some “UNDERSTANDING” or knowledge that feeling at home in your house wasn’t easy. That was the big problem to be solved per this purpose. Not sure about you but I have always felt “at home”, at home from when I was a first time renter in a little apartment to my first home purchase. So, I am a bit skeptical of this purpose. 

A new BB&B marketing campaign followed and was well produced around the idea of “Home Happier”. So, the purpose in the strategy was about making it “easy” to feel at home, but the definition of “easy” was not communicated or defined. The ad campaign was about “happier” which didn’t pay off the purpose of easier. There was a disconnect strategically. What was the “understanding” of the problem? Was it ease or happiness? If the two were related- then how? Now, we can chalk this up to semantics and marketing feel good messaging, but nailing the purpose with your value proposition can be powerful and spark a relationship vs sending the mixed signals causing confusion. 

At Sears, we were not very “good looking”, Our “Why Me” had to be a little deeper than that. We had to be the “they have a great personality” retailer. Many suggested and tried to lean on our legacy. True we were around a long time but that didn’t always bode well for us. I always said there is a difference between being classic (Beatles) and being outdated (Duran Duran). So, we had to lean into where we had permission from consumers (LEVERAGE UNDERSTANDING) and reinvent our strengths- we knew we were trusted and seen as knowledgeable. Sears was in tens of thousands of homes a year to fix things that were broken with the largest service network in America. Customers literally left their keys under their front door mat to let our techs in to their home to fix the AC or washer while they were at work! Sears also had Kenmore, a private label brand, with legitimate equity. Analyzing our competitors (LEVERAGING OUR UNDERSTANDING) we learned that only Sears carried all top 10 appliance brands.

Creating the WHY ME could have just resulted in a message of saying “Best Service and Best Selection” which is nothing more than white noise that people have heard a thousand times from every car dealer in America. So, we decided to create a message we could build equity and differentiation in.

WHY ME STEP 1- We developed an idea to brand our Sears techs and associates as the “Blue Crew”. We positioned these people as being highly trained to either sell you what you really needed or fix what was broken. We invested in these people from the classroom to the uniform to marketing. 

WHY ME STEP 2 Create the value proposition of “The Top 10 Advantage” which promised shoppers that they didn’t have to bounce from store to store making an important decision (we had knowledge that shoppers didn’t like shopping for this category and wanted to get it over with, but many wanted to “feel the steel” in person before buying such a big ticket item). Since only Sears could showcase all top 10 brands side by side, with the knowledgeable highly trained Blue Crew associate to help navigate, deliver, and install the product we had converted knowledge into action of a multi-pronged ownable WHY ME of service and selection authority.

The value proposition creation wasn’t just marketing fluff. Some of the best merchants in the US ensured we kept the selection advantage when normally they might drop the #10 sku in the assortment but wouldn’t because of our value prop! Merchants pushed vendors for associate product training to keep the Blue Crew promise which injected pride of wearing the blue shirt on the sales floor. Ad campaigns leveraged ownable icons of Blue Crew and Top 10 Advantage to persuade Sears was worth the drive. Sears had seven years of quarterly declines that turned into a run of quarterly YoY growth. Note- Obviously the story ultimately didn’t end well for Sears years later for other reasons but the durable $4B+ category was a huge success and remained #1 for the duration of my time there. Hopefully you can see the magic marketers need to inject and convert UNDERSTANDING into WHY ME value proposition building.  

BEWARE of corporate value propositions that are just strategies to optimize the BASE BUSINESS. A value proposition acts as a connective tissue joining together your purpose and your offering. Having an assortment or providing a service/experience is table stakes which is what I took away as the strategy from some of the BB&B annual reports. All too often these optimizing table stakes value propositions are an attempt to make a better mouse trap and isn’t ownable, not memorable or compelling enough to be differentiated. I often say there are shareholder value props and consumer value props. Shareholder value props talk about optimizing the business (two lanes for a drive thru can sell more Kentucky Fried Chicken), consumer value props explains (proprietary formula of eleven herbs and spices only at KFC) which is an ownable “why me”. Separate the two.

RELATING- To relate to any individual you must communicate. Since the beginning of time people communicated by telling stories. We do it at parties, long drives, posting reels on Instragram or just catching up on the phone. Human beings’ lives are not just providing updates or status reports when we connect. Brands need to harness the idea of relating to influence vs trying to influence without relating. Human connection comes through stories. Marketing must serve the function of being a storyteller that communicates “WHY ME” based off your “UNDERSTANDING” of the consumer. This is where great brands separate themselves. Great agencies are nice, but even the best agencies will tell you if they don’t have the insight of that “human truth” they are at a disadvantage relating a meaningful message to your target consumer. 

If I asked you what you thought of Bed Bath & Beyond, I bet you would say the 20% off coupon. Amirite? How did BB&B relate to people? Through markdowns! Consumers became trained not to shop with the retailer unless thay had the coupon. BB&B trained their customers that the relationship was based off a mathematical transaction and the problem with that is when reduced to being a commodity, the business will be treated as a commodity. That was their story from my POV as one of their customers. The results of this approach were likely reduced margins (as reported), likely less loyalty and more openness to switching to a competitor based on price or convenience. 

To demonstrate the impact of discounting, imagine if Pottery Barn offered you a 20% off coupon (above). You would likely think it is fraudulent or a rare event like Friends & Family. How you relate to people sets the terms for the relationship. Do you have a quality friend who can be counted? You likely would go out of your way for them too. On the otherhand, if a "friend" will only drive you home for gas money, you will likely not be too generous with them in return.

How you relate (communicate/message) is signaling to people how they should treat you! This isn’t to say discounting is bad or a wrong way to relate but it can be a drug and abused. Consumers will cherry pick your brand on sales advancing the story your brand is a commodity. This is why EDLP (Every Day Low Prices) strategies are so attractive for storytelling. EDLP is a trust story and allows the business to relate in additional ways because price is understood. Switching from the coupon to EDLP would need to be a slow transition. We all learned what happened when JCP made the move too fast and stopped couponing. JCP didn’t have the right UNDERSTANDING when they made the EDLP move, and it hurt. In a relationship if you showed up at an acquaintance’s house with a personality change that wasn’t recognizable, they might shut the door on you. That’s what happened at JCP and have since been making progress on a comeback under new leadership.

Finally, as mentioned in the WHY ME section, BB&B didn’t fully harness the power of their purpose or likely didn’t truly have a meaningful one that could rally the organization. BB&B made it more challenging to RELATE to their consumers because they didn’t own anything from their WHY ME stage- language (Happy Meal), visual identity (Flo from Progressive) or recognizable everyday programs (Top 10 Advantage). The lack of ownability in messaging puts the onus on a consumer to RELATE to your brand by recalling your WHY ME messaging in a Time Square like atmosphere where advertisers are everywhere. In the end, your brand will be just noise. 

Several years ago, I had the opportunity to travel to New Jersey and interview at Bed Bath & Beyond. It was a humble office I could have driven right by. I learned their retail model and how store managers had a lot of influence on merchandising based on their local community preferences. I thought it was brilliant. I could tell they were extremely focused on analytics and harnessing the data to master sending the coupon. Although none of what I learned at BB&B was negative, I felt there was something missing. I truly valued analytics, but it was just one part of the relationship chain. Analytics was the engine in their car, but I was concerned if it had wheels. I didn’t leave the building feeling they wanted to harness UNDERSTANDING to convert insights into differentiation or WHY ME. The true purpose and soul of the brand was missing, and it didn’t feel like anyone cared to find it. 

REACHING OUT- In our personal relationships, there are various degrees of meaningful outreach. We choose the type of outreach we feel will be most effective and efficient. Sometimes it’s a quick FYI text message or maybe a quick social Snap to keep a streek of communication going. Other times we may feel a call is necessary or even a face to face visit. It’s no different in marketing. Always balancing the efficient and effective way to leverage paid, owned and earned media to get the right message to the right person at the right time.

The REACHING OUT part of the Relationship Chain often draws the most interest from the C-suite because of the dollars associated with ad spends. Many organizations believe that marketing starts at this stage of the Relationship Chain and don’t appreciate this is stage four of six. What makes ad spending more effective is the investments made upstream in the Relationship Chain- UNDERSTANDING, WHY ME and RELATING. This is why some companies can participate in specific marketing channels and have success and other companies using the same channels see limited results.

BB&B a few years back seemed to understand that they were under siege by online shopping options for the same commodities they sold. To tempt consumers to shop the way BB&B wanted them to- in store, they ran a marketing campaign with a TV ad boasting all the reasons why shopping in a physical store was better. The value proposition points of “instant delivery” because you take the product with you or “touching” the physical product were key selling points. In the end the campaign’s end card (shown) challenged consumers to “Think Outside the Screen”.

I suppose we would have to ask whose problem was BB&B trying to solve with this campaign? Their problem of traffic or the customer’s problem of not knowing what physical shopping was like? Don’t get me wrong, there are benefits to shopping in a brick and mortar store for both the retailer and consumer, but the ad wasn’t delivering any news people didn’t already understand. Key takeaway is always make it about the customer’s need no matter how tempting it is to make it about yours. 

Later BB&B decided to ramp up their digital transformation in a big way and like with so many businesses the pandemic forced them to lean harder into digital channels. At one point in 2020 BB&B posted +83% online growth which represented 38% of their sales however, the brick and mortar sales were down -34% representing 62% of their sales. Not a desirable trade. Surely some cannibalization was happening, and the shift likely incurred new costs of shipping impacting SG&A and impacted basked size vs a physical store hurting topline and likely margin. Online Average Order Value (AOV) in my experience is smaller than physical retail because of less impulsive or inspirational purchases that are often margin rich.

The moral is REACHING OUT on a popular channel doesn’t guarantee overall success and although digital numbers looked good for BB&B it couldn’t offset the downside of in-store declines. Think about how people reach out to each other. If you are having dinner and your college roommate calls out of the blue, you may be ecstatic, take the call and your dinner might even get cold. Same meal a telemarketer calls, you hang up the phone frustrated they called at that time of evening. Same channel but different relationships get a different reaction.

To be fair, at this time in 2020 BB&B was dealing with store closures and a lot of other pandemic issues. The point is, to survive long term you need to have a top down integrated sequence of purpose and differentiated value. Then marketers and anyone who talks to customers need to build the relationship based off universal messaging with outreach that’s appropriate.

To accomplish this, try to align the C-suite mindset that REACHING OUT (paid, owned, earned media) isn’t a cost, it’s an investment. This could cost you a few beers with the CFO :-) It's important to convery the investment starts off by building a relationship earlier in the chain so you can maximize the message and personalize the contact, so you are as welcome as possible to your target audience. Although you will likely never be welcome to call at dinner time. 😉

FEEDBACK- In any relationship getting feedback is a pillar of earning trust and improvement. Perhaps a friend asks you “Does this outfit make me look fat?” They trust you to gain understanding if they are putting their best self forward. Of course, being tactful is important when giving feedback but that’s for another article. Confirming what you are about to do is desirable (outfit for tonight) or what you have done (Do you like what I cooked?) are important moments to make the relationship better even if the answer isn’t always positive (That shirt doesn’t accentuate your best features).

When sales are flat to negative, your company is getting some direct feedback. One needs to dig into understanding the root causes to make your offering the most attractive. Some typical ways can contribute to understand is through these basic metrics- using a vacuum as the product:

·       Marketing Funnel- Vacuum = Brand Awareness, Consideration, Shop, Trial/Buy, Loyalty/Advocacy

·       Loyalty Drivers- Emotional, Rational, Habitual purchase drivers of the vacuum

·       CSAT / Net Promoter Scores- Customer quantitative feedback from purchase, use and service

·       Advertising Insights (Concept testing, Recall etc.)- Vacuum content influence quant/qual

·       Traffic (online/offline)- conversion rate and vacuum sales data (average order value, basket etc.)

Publicly we don’t know what feedback BB&B was receiving from their customers. Did they feel advertising was compelling? Was the marketing funnel strong? Were consumers loyal without a coupon? What we do know is somewhere the feedback wasn’t as positive as it needed to be. My guess is mid to bottom of their funnel probably suffered from severe competition where consumers were shopping and buying from more convenient or cost effective competitors. I’d also guess that adverting (paid, owned, and earned) had low recall or impact due to a lack of WHY ME leading to the coupon drug.

The most important aspect of feedback is you get what you ask for. People often won’t provide feedback unless it is extreme from either a very bad or good experience. So be sure to have regular hooks in your process to check in to ensure how the consumer and customers are relating to your brand. 

SELF IMPROVEMENT- In a relationship one way you can show that you care about the other person is to improve yourself. If you have a significant other, you may decide to get into better shape to improve your looks. If you have a friend who’s a big soccer fan, you may take the time to learn the game so you can enjoy watching together. Showing signs that you care is important in a customer relationship too. Gaining feedback is only meaningful if you are willing to act on it.

We did witness BB&B taking actions to self-improve that could be derived from customer feedback but can’t be sure. Often companies see industry trends (shoppers buying online) and shift to what appears obvious without asking the consumer (lets digitally transform). However, if they asked the shopper why they are buying category X online to learn they are seeking the lowest price item, and you are not willing to commit to new low pricing, you will need a new strategy. Validating is important to ensure you are measuring twice to cut once. Here are tips for self-improvement:

1. In staff meetings where metrics are being reported, have a moment to verify 1) actions based off data or 2) no action required. Teams can habitually get metric hypnosis as if that reporting is the end game, but it is what you do with the information that drives performance. If you are 100% happy with the metrics then no action is required, if there is room for improvement, action how.
2. Have quarterly cross functional meeting time to QBR the Voice of the Customer. This makes sure the organization is reminded that the customer should be at the center of what you do. Review how you are better/worse in the eyes of the customer this year vs the same quarter last year.
3. If you have a call center, installation team or store have the team play the recordings of typical customer calls, assign team members to do a service ride along or just observe in the store. Seek a variety of good and bad moments, summarize, and get those observations into your Voice of the Customer QBR. 

Ultimately, combining all the feedback and understanding of the customer you can put together a SELF IMPROVEMENT plan. Create a 4 box chart with high effort actions with high payoff to low effort actions with low payoff. Try to identify the items that give you the most payoff for the least amount of effort to gain some quick wins with your customer. Don’t let high effort items age too long because there is always something easier to do. One way to prevent this is give high effort items a birthdate and agree how old these items become before you prioritize them to be addressed (See Image).

When FEEDBACK and SELF IMPROVEMENT parts of the chain receive new data, it should always be circled back to your core UNDERSTANDING base of the chain. A continuous feedback loop to grow the business stronger over time.

SUMMARY:

A key Lesson I have learned over the years is the Relationship Chain is strong as its weakest link. Patience is required and gaining buy-in from management is important. If something isn’t working in your business, keep fishing upstream and often the insights you need can be found. There is a plethora of businesses that don’t exist today for a large range of Relationship Chain reasons. Block Buster lost to streaming technology BUT they had a chance to buy Netflix and declined. Poor UNDERSTANDING and over confidence in Block Busters WHY ME lead them to a poor decision. Broadline retailers all under one roof convenience value propositions were replaced by Amazon’s endless isle BUT Amazon didn’t have exclusivity on the internet marketplace. Some retailers didn’t seek FEEDBACK fast enough to cross the digital divide and paid the price. As a business leader, one of the best preventative medicines you can offer is investing in your Relationship Chain.

Thank you. Like, share or comments are appreciated.

#marketing #retail #relationships #branding #performancemarketing #cmo