OK, that headline is a bit harsh. But so is the world of retailing – – no matter how high-concept and inspired a new retailing idea is, if it doesn’t integrate the core consumer in the development process, there could be trouble. We will respectfully dance on a few graves and illustrate with 3 cases.
Case 1: JCPenney. By now we all know that Ron Johnson flew a bit too close to the sun, banking on his reputation and the obvious hubris gained during his successful run at Apple. He applied the Apple Store model (where the stars were ultimately the products) to JCPenney, with an immediate switch to an everyday pricing approach (since reversed), and store remodels including branded mini-boutiques. All, famously, without testing. The result: a disastrous $4 billion sales slide, imploding stock price, his ouster and most recently JCP looking to the capital markets to secure another $1 billion in operating cash. Ouch.
—> Diagnosis: Less brilliant, more tone-deaf. The plan counted on consumers to see things Ron’s way: “Hey! JCP now offers reliable low pricing all the time, so you can trust us!” The catch: consumers apparently liked the way they already shopped – -they were used to buying on deal, and there was not much merchandise at JCP that couldn’t be bought elsewhere. And elsewhere is apparently where consumers went.
Case 2: Tesco’s Fresh & Easy Neighborhood Markets. British supermarket giant Tesco announced it will shutter and take a $1.5 billion write-down on its F&E chain, after cumulative losses exceeding $1 billion and 5 years after noisily entering the California market. Fresh & Easy, which famously touted its in-depth consumer research, opened smaller format (10,000 sq. ft) stores and promised “convenience, fresh produce and tasty prepared foods” (LA Times).
—>Diagnosis: They didn’t walk the talk. Rather than truly adapting to Americans’ shopping habits, Tesco essentially imported its own model and assumed that customers would do the adapting. A few examples of British norms that didn’t make it here: pre-wrapped produce (heavy on the watercress!) and pre-packaged sandwiches (but no fresh deli), fewer familiar branded products in favor of higher-priced private label, and a policy against couponing.
According to respected researcher The Hartman Group: “We believed then, and said it repeatedly in the following years, that Tesco had an innate desire — an arrogance if you will — to do things their way rather than make adjustments that catered to the needs and expectations of American shoppers. Despite Tesco’s vaunted success in the European marketplace, the resulting retail experience in Fresh & Easy was artificial, sterile and increasingly without a relevant proposition.” (bold added)
Case 3: Webvan. The mother of all examples of misjudging the consumer. Founded in the late 1990s by Louis Borders (of bookstore fame), Webvan was an online grocery retailer offering delivery within a 30-minute window. Funded by Silicon Valley venture capital, Webvan hired away the president of Andersen Consulting (now Accenture) and was heavily capitalized ($1 billion for warehouse infrastructure, plus vans, computers, etc.) By 2001 Webvan was bankrupt (although subsequently bought by Amazon, where it exists in a much smaller form).
—> Diagnosis: Webvan management and investors incorrectly assumed that consumers would immediately adapt to their genius. Grocery buying is very personal, an ingrained habit, and expecting large numbers of people to abruptly abandon what they’ve been doing for years was naive at best. In the heady days of the dot-com bubble #1, funding was fast, and it was big (Borders himself said “It’s $10 billion or zero“. He was right). So the inclination was go big or go home, leading to huge advance spending, astronomical traffic expectations, and a spectacular flameout when consumers didn’t sign up as the financial pro formas had assumed. By one estimation, Webvan would have had to sign up two-thirds of the tech-savvy households in the San Francisco area. This is probably one of the best examples of misjudging (or conveniently ignoring) consumer input, breathing one’s own exhaust, as well as the adage ‘Easy come, easy go’. A short, fun post-mortem can be found here.
Three stunning examples! Thanks for sharing. It is amazing that the executives at Tesco ever thought the US entry would work…certainly a case of over-confidence.
I remember sitting in planning meetings where folks were fretting about the Tesco entry. Make no mistake, the local retailers were concerned about the entry. That they blundered so badly speaks not only to their own mistakes, but also how well prepared the local market was to defend turf. Never underestimate the home field advantage.