For legacy companies facing disruption, corporate innovation won’t be enough

Today corporate innovation is all the rage. Large companies host accelerators, launch internal startups, and court potential startup partners in a quest to harness young companies’ innovativeness and energy for themselves. 

But large legacy companies shouldn’t throw the baby out with the bathwater by neglecting their core business and assuming it has minimal room to grow. 

In this article, I will detail how our company, Randa Accessories, grew from 10 to 25 to 50 percent market share in several categories and channels by focusing on its core business and adjacent “bridge” categories, and offer some takeaways for other businesses based on that experience. (I will also describe how Randa has launched its own successful internal startups — I'm not saying corporate innovation isn’t useful, just that it needs to be one part of a broader strategy to excel.)

First, a little about Randa. Our products are available under 50 brands (including Levi's, Ralph Lauren, Tommy Hilfiger, Columbia Sportswear and Dickies), and are sold at over 20,000 points of sale, and millions of digital touch points.

We’re the world’s largest men’s accessories company. We sell ties, and belts, wallets, bags, hats, slippers and luggage.

Randa is completely vertical, business-to-business and direct-to-consumer, with 4,000 employees working from 23 global offices.

Our culture emphasized growth and efficiency and led us to success in revenue, margin, penetration, and market share.

For example, we’re the leading supplier of belts to Nordstrom… and to Walmart, to Macy’s and to Kohl’s, Amazon, Ross Stores, and The Hudson’s Bay, Liverpool, Printemps, El Cortes Ingles, David Jones, John Lewis and Costco.

We spent over $50 million to assure that when a consumer walks into a retail store for pants, they immediately see our belts nearby. Dress shirts? There are our ties…

And then, we hit a wall.

Shifts in macroeconomic trends, changes to consumer path-to-purchase, price compression, disruption of the retail landscape…

Suddenly, fewer customers were walking into stores.

And online, when you shop for Levi’s jeans, you’re presented with other choices of jeans, not our Levi’s belts.

So, we turned to our powerful corporate culture. We threw resources, cash and talent at the challenge… and, we still hit that wall.

It turned out that our legacy culture was our most valuable asset, until the day it wasn’t.

We learned that we couldn’t navigate tomorrow’s landscape with yesterday’s maps. So, we drew a new map.

And with this roadmap our company has grown from $100 million to over $700 million.

We call our roadmap, “Moats, Boats & Bridges.”

Moats protect the core and build barriers to competitive entry.

Bridges leverage adjacent opportunities — adjacent customer segments, channels of distribution, and adjacent products and services.

Boats are transformational.

“Moat” culture, that of successful legacy companies, is linear. One thing leads to another. Efficiency and optimization are highly valued. And innovation strategy is deliberate. Everyone knows where the company has been, where it is, where it is headed, and the plans to get there.

“Bridge” culture tends to align well with “Moat” culture… inclusive of new, but adjacent, businesses.

“Boat” culture, as is favored by start-ups, is nonlinear. It values novelty. Boat culture is often inefficient at its onset. And, strategies are emergent, they bubble up from all directions.

Reid Hoffman, the founder of LinkedIn, once said that ,

Start-up innovation requires that you to throw yourself off a cliff… and build the plane on the way down. 

For incumbents, the larger you are the faster you fall.

It’s a common misconception that legacy “Moat” cultures fail to identify non-linear innovations, that they’re stuck in the “old” way of doing things. 

In our experience, this is plain wrong.

The real problem is that most non-linear innovation does not serve current customers, it disrupts the legacy process — which drives the bulk of the sales and cash flow — and it is often a big distraction for little immediate gain.

Conversely, start-up cultures are inspired by disruption. And these teams are usually free from the encumbrance of comp sales and increased profits that the other cultures face.

Legacy and Start-up cultures, “Moats” and “Boats,” fiercely compete for limited resources — A-level talent, capital, and technology. They don’t play nicely in the sandbox together.

Our solution, create an environment where all three cultures will thrive… and separate the opposing forces.

Let’s take a look at how we accomplished this at Randa:

In our “Moats” world we leveraged and extended what we do best. We went vertical and we went deep.

We invested what is now the largest belt factory in the world: Tata in Guatemala.

We purpose-built over 1 million square feet of Randa-owned distribution centers.

We purchased what is now the largest in-store merchandising company in America, MCG, with 3,000 employees who assure our fixtures are filled and our consumers engaged.

We created an extraordinary Vendor Managed Inventory system, with enhanced machine learning, allowing us to place precisely the right inventory in each of 20,000 stores every week.

“Bridges;” We added adjacent categories: Luggage, Footwear, Headwear, Cold Weather Accessories.

And, leveraging our concept-to-consumer supply chain, we penetrated adjacent channels of distribution: Vertical Specialty (Old Navy, Lands’ End, Gap), Aldi supermarkets, drug stores, and “Farm & Ranch” stores including Tractor Supply.

Equally important, as our market share in several classifications and channels grew from 25 to 50%, we began to manage entire accessory departments. We remove risk from our retail partners, elevate department performance and increase customer satisfaction.

We pivoted much of our marketing budget from business-to-business centricity to consumer insights, and to stimulating consumer behavior.

And, we built “Boats.”

We created Randa Digital Labs and moved them out of our headquarters to their own facility, we provide them with their own A-level talent, their own resources, and allow them to create their own performance indicators based-upon emergent business models.

Randa Digital Labs uses start-up strategies including rapid prototyping, and fail-fast, measure-fast, optimize-fast tactics.

And, Randa has an appetite for acquisitions, investments and collaborations.

In addition to major investments in owned-brands, infrastructure and supply-chain, we’ve recently invested in several early-stage business-to-consumer companies including The “Greats Brand” of fashion sneakers, a digital-first tailored clothing business and a luggage start-up (to be launched shortly). And, stay tuned, we have some large surprises in store.

Our “Boats” culture is consumer-obsessed, we conduct ongoing qualitative, quantitative and path-to-purchase studies. We have already collected over 4 billion points of consumer data. And, Randa, a belt, wallet and tie company, is now investing in data scientists and artificial intelligence.

All of this, to delight and satisfy our customers.

For our company, one innovation strategy was not enough. To succeed, we needed three.

This three-tiered roadmap has served our company well. It is my hope that it will do the same for yours.

© 2018, David J. Katz

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As presented by the author on March 18, 2018 at ShopTalk: “The World’s Largest Conference on Retail and Ecommerce”

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If you liked this article you might enjoy my other articles, below:

• What if Amazon is Retail's Only Hope?
• Australia & Amazon: The Battleground Down Under
• Disruption is Inevitable, Essential & Painful
• What I Should Have Said, But Didn't
• Everything That Can Be Invented Has Been Invented
• A Customer Complaint, 4,000 Years Old, Lives On.
• Other Posts

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David J. Katz is chief marketing officer at Randa Accessories, an industry-leading multinational consumer products company, and the world's largest men's accessories business. 

His specialty is collaborating with retailers, brands and suppliers to innovate successful outcomes in evolving markets. 

David was selected by LinkedIn as a "Top Voice in Retail." He has been named a leading fashion industry "Change Agent" by Women's Wear Daily, a "Menswear Mover" by MR Magazine, and a "Top Writer on Innovation and Fashion" at Medium.

He is a public speaker, co-author of the best-selling book "Design for Response: Creative Direct Marketing That Works" [Rockport Publishers]. He has been featured in The New York Times, The Wall Street Journal, New York Magazine, The Huffington Post, MR Magazine, and WWD.

David is a graduate of Tufts University and the Harvard Business School. He is a student of neurobiology, consumer behavior and "stimulus and response." The name Pavlov rings a bell.

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