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Retail’s Product Problem — Why We Need to Stop Thinking with Our Small P’s

A look at how Amazon, Wayfair, and others are creating a new definition of the word “product” in retail and proving that the size of your “P” does matter.

Spurred by surprisingly popular reader demand, I am excited to compose today’s post, Retail’s Product Problem – Why We Need to Stop Thinking with Our Small P’s.  I am also dedicating this to my good friend Jen who inspires me everyday.  Hang in there you. 

Now I know what many of you are thinking, from the title of the post, even to the video I teased last week and have reposted below – “this could be scandalous and raunchy.”

Fortunately or unfortunately, depending on your perspective, and as much as I love looking back at Kim Cattrall and reminiscing about the groundbreaking show Sex and the City, and all Carrie Bradshaw’s travails, this post has nothing to do with dongs.

Sorry to disappoint.

It does, however, have to do with impotence.  Because impotence is exactly from what many retailers will suffer if they don’t start learning how to ride Sendin’s Omnichannel bike (from last week’s post:  Are Retail CEOs Destined to Become Murray Hamilton) and start learning to do things differently.

Impotence is a relevant prognosis for many reasons.  To start, if you have not attended NRF recently, you should.  I went this past January.  For the most part, it was the conventional equivalent of a 50-year-old rich, white man going through a mid-life crisis. It was a convention led by the same men I wrote about last week who, to no fault of their own, are evolutionarily programmed (neuroplasticity) to have difficulty dealing with the crisis in front of us.   Contrast NRF with ShopTalk, the retail conference that feels like a Ken Jeong improv scene during apex Apatow, and you get an idea where I am placing my bets.

The “p” then to which I so coyly allude in the title of this piece stands for product and not what your dirty minds think.  Retail has a major product problem.  If left unchecked this problem, will lead to impotence.  Impotence in terms of current retailers’ abilities to service their customers’s needs.

Retail, led by these same NRF-attending middle-aged white men, who found their career successes in the 1990s and 2000s, running their Student Body Right Playbooks, while Amazon was Dien Bien Phu-ing all of us and perfecting the West Coast Offense, has been asleep to important discilpines outside our industry for the past 20 years.

Say “product” to a retailer in (my favorite saying) “a merchant driven” company, and the first thing that retailer will think of is the myriads of products on its shelves.  Name a product – towels, sheets, deodorant, carrots, t-shirts, shoes, etc.   They are all products.  Products that I will forever forward and intentionally refer to as products of the small “p” variety, like Samantha’s diminutive boyfriend referenced in the clip.

“The smart people of Silicon Valley” to whom Terry J. Lundgren condescendingly referred in his finals earnings call, unlike retailers, don’t think of the word “product” in this way.  Neither do e-commerce retailers for the most part.  They instead think of Product Management.  A discipline.  A discipline with a big “P,” though maybe still not as big as the middle initial in Terry’s own mind.

Here is the “smart people of Silicon Valley’s” working definition of Product, courtesy of Wikipedia:

Product Management is an organization lifecycle function within a company dealing with the planning, forecasting, and production, or marketing of a product or products at all stages of the product lifecycle . . . (it) integrates people, data, processes, and business systems.”

Said, more simply, and in case you are visual, like my buddy Chris Weaver for whom Weaver Posts are affectionately named, Product management is the intersection of User Experience Design, Technology, and Business, as captured by the below picture, courtesy of mindtheproduct.com:

what_is_a_product_manager

Retailers aren’t in the business of products, manufacturers and CPGs are.   Retailers are actually in the business of Product Management.  The brand, the store, the e-commerce portal — the collection of them all, if you happen to be a true omnichannel retailer — that is a retailer’s true Product.

But how many current retailer leaders have you heard talk about their Product in this manner?   Almost everyone I can name – Jeff, Marc, Niraj, Andy, Katrina – had their starts in e-commerce, and all these mentioned names started their professional lives in careers other than retail (mostly in finance, consulting, and investment management to be specific), the same disciplines as many of the “smart people in Silicon Valley.”

Of course some of you may now be saying, “So what?  What’s the big whup?  None of this is rocket science.”  That’s what is crazy!  It isn’t rocket science at all.  But what is amazing is that the concepts described above are not well understood or practiced by the current C-level leaders of bricks-and-mortar retailers right now.  It is why you constantly hear of the internal culture clashes between new-age digital and old-guard stores in so many companies.   The leaders at the very top — especially the CEO and the head merchant — are not skilled in the described discipline because it isn’t what they did to start their careers.  Mickey Drexler just admitted to as much on his way out of J. Crew.

Let me turn now to give you a salient example that illustrates just how scary this “product problem” is.  I travel to many retail conferences each year, read many earnings reports, press releases, etc. and the one thing I hear over and over again is how legacy store retailers believe they will survive the looming retail apocalypse through “differentiated product.”  Differentiated product to them is like what pot used to be to Woody Harrelson.

You’ve heard the argument – “We will create product that people can only find under our roof.  We have a history of developing great product.  People will continue to come to our stores because they demand our unique products that they can only find with us.”

This argument is flat out wrong.

If you buy into it, you are walking right into a trap.   Right into Amazon’s Dien Bien Phu style jungle warfare.

The economics and the empirical evidence we have today do not support the differentiated product as panacea argument.  Even the very best luxury retailers (see Luxury Hits the Wall in Forbes) are struggling, and don’t they have the most differentiated product around?  If the argument holds, how are they struggling too?  Something else must be happening?

What’s happening is that the differentiated product argument forgets the tenets of Product Management.  Whether you are Louis Vuitton or Kohl’s, your Product is not the product inside your store walls, but rather your Product is the collective experiences, feelings, and emotions that your store connotes, with your store (and your e-commerce portal) being a tool in your toolkit to elicit emotion in your customers.

Through an in-depth look at the likely user experience, disciplined Product Management would uncover that the economic logic of differentiated product as the Messiah is doomed from the start .  For instance, our mobile phones are now the front door or window into almost every retail experience.  No large scale retailer can expect to survive without a strong mobile and social presence.  Plus, people are getting busier and busier every day, and so the shift to online purchasing isn’t going to slow down either. Meaning, even if you have the most differentiated of all differentiated product today, say the only flux capacitor that makes time travel possible, that means over time the economics of sending Marty McFly back to 1955 will become more expensive with each passing day because of the gradual shift to online purchasing and the shipping economics and margin drain that come with it.  Differentiated product as your key strategy is therefore small “p” stuff.

It is a road to financial nowhere.  It is an approach of impending impotence.  It might work in the short-term. It may make companies feel like vigorous 19-year-olds for a time, but it will leave them over the long-haul limp, balding, grey, and desperately in need of a Viagra boost.

Ok, Walton, we get it.  But pray tell how do we pivot and start to enact strategies that really have some meaning then?

First, we have to start thinking like Product Managers and become students of the competition.   I have already blog-slobbered the hell out of Amazon like a happy beagle, so now let me turn to another retailer I admire perhaps even more – Wayfair.

Wayfair 100% gets what I am talking about.  I had the chance to sit down to coffee with Niraj Shah, CEO of Wayfair, while attending a furniture market in Vegas a few years ago.  In addition to thinking Shah was possibly the smartest person I had ever met, I was struck by just how well Shah understood what he was trying to do within the principles of Product Management.

As a mentor once told me, nearly all great businesses start with addressing a customer pain point.  Wayfair had its start because Shah and his partner began studying search terms back in the day on Yahoo.  They quickly learned that “TV Stands” was a popular search term.  So he and his cofounder created a marketplace to solve the friction of finding TV stands.

Fast forward, and what started as an effort to help people find TV Stands is now a marketplace to help people find all their home furnishing needs, with a $6.6B market cap to boot.  What Shah understands is that shopping for furniture is complicated, it’s personal, and it generally happens at memorable moments in consumers’ lives (weddings, new children, leaving college, etc.)  Consumers therefore need a Product or brand expression that leverages a complete toolbox of tools of various shapes and sizes that puts them at ease during these situations.

Shah and Wayfair have been steadfast since the company’s inception in focusing on the intersection of Experience Design, Technology, and Business to alleviate their customers’ pains.   They have smartly used the tools in their toolkit to create a defensible niche:  tools like selection, a great site experience — designed solely around furnishing your home — national advertising on HGTV, impeccable customer service, and reliable shipping just to name a few (aside: I will never understand how the likes of Pottery Barn or West Elm, who run “curated” home furnishings businesses, will survive over time.  Style and color choice peculiarities are just too specific to satisfy large scale demands with a truncated assortment, against such massive selection online, but more on that some other day).

Notice never once did I mention differentiated product in Wayfair’s toolkit. Differentiated product is distinctly absent.  The majority of the assortment Wayfair carries is market available.   Differentiated product means vastly more inventory too. Wayfair is successful in large part because it runs on a drop-ship model.  Ask Shah, and I bet he will likely tell you owned brand product development is important, but that it is only a sub-tactic to improve margin.  Selection is what matters first and foremost.  Selection is what gives him the data to build the best private label products he can.

The second step that we must take is to reorganize the C-Suite.  In our new complex omnichannel world, we need leaders who have a faculty with all the concepts of Product Management.  A really good college buddy of mine who works at Wayfair tells me Shah is a great CEO because he understands the ins and outs of everything to the last detail — merchandising, supply chain, and e-commerce (Wayfair doesn’t currently have stores.  Niraj – if you are reading this, we should talk 😊).  Shah understands that in our new world these disciplines have to be in lock step with each other.   See Shah at the Las Vegas Market, and likely you will find him walking on his own, peering through showroom windows, studying and analyzing how to be better at all aspects of his craft. No PR people.  No entourage.  Just him, by himself, learning and absorbing.

We need to begin to organize ourselves around more leaders like Shah.  The work starts in the boardroom and C-Suite.   Retail leaders – take a look at your organizational structures.  What is the reporting relationship of supply chain, stores, e-commerce, and merchandising within your companies?  Do they report up through one final decision maker, who has a similar faculty as Shah?   Or is everything organized old school, with stores off on its own reporting to one person, e-commerce reporting to your CIO or CTO, and supply chain reporting to a COO or through something else?  Or some variant thereof?

If any of these functional areas I mentioned are off reporting to different people, dear retailer, chances are you are going to have a problem — a product problem.  Chances are that there is probably even a strong correlation with your said disorganized structure and your also likely delusional belief that you are a “merchant” led company who believes small “p” product strategies will be your salvation.

Chances are too you will be impotent in the face of the new wave of retail.

In conclusion, take an important example in the news right now.  Whole Foods. Amazon’s acquisition of Whole Foods isn’t about Kale Chips.  It is about Experience Design and creating something we haven’t even imagined yet.  For Amazon, it’s about walking around with the biggest, most capitalized “P” in the room and showing it off to the envy of everyone else.

Be careful out there,

Chris

P.S. I am “through the moon” excited by the readership thus far.  Demand keeps building. Week 2 was almost double of Week 1.  Thank you so much for your continued support. Please keep liking, sharing, retweeting, and don’t forget to sign up to receive your posts over email too.   Special thanks to Jim Hoar as well for the awesome share last week.  It really meant a lot.

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P.P.S. If you haven’t stopped to take a look at a quick sample of everything inside the Amazon Product portfolio either, here is a snapshot below:

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Damn.  They’re good.

Chris Walton View All

Chris Walton is an accomplished Senior Executive with nearly 20 years of success within the retail and retail technology industries. He is well-versed in merchandising, store operations, inventory management, product design, forecasting, e-commerce, pricing and promotions, and tech product development.

Chris was most recently a Vice President with Target, where he led the retailer’s Store of the Future project and also ran the Target’s home furnishing division for e-commerce. He previously worked for GAP, Inc., as a Distribution Analyst and Manager.

Chris holds a BA in Economics and History from Stanford University, and a MBA from Harvard Business School.

He likes to dress as Darth Vader for Halloween, and his wife also frequently asks him to ask Alexa, "to turn off the music."

7 thoughts on “Retail’s Product Problem — Why We Need to Stop Thinking with Our Small P’s Leave a comment

  1. Insightful and intelligent! Pretty amazing stuff, considering you were up with our sick toddler all night long. 🙂

    • You two are too cute! 🙂

      Great article CW. In regards to the old guard vs. new guard, reminds me of one of my favorite Warren Buffet quotes, “It’s only when the tide goes out that you learn who has been swimming naked.” The retail transformation has only yet begun.

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