- September 7th, 2016
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5 Major Retail Fails From P&G, Macy’s, Walmart (And What They Teach Us)
Some of the most attractive investments in retail have proven disastrous. Fortunately, retailers have learned to rebuild from past mistakes. Following are five major retail fails, some of which passed under the radar, and what to learn from them.
In the annals of retail, few leaders understood the importance of missteps – and of profit – as well as Sam Walton. “All of us profit from being corrected,” he said, “if we’re corrected in a positive way.”
The founder of Walmart might have been talking about his associates, but I suspect the words applied to him as well. If Walton were around to see the empire he had built today, he’d likely still be advising, as he once did, to “find humor in your failures.”
But humor comes more easily within the context of learning. The best retailers acknowledge their failures, dissect them to see what went wrong, and then use the guts to nourish their comebacks.
Following are five examples of major retail missteps – some relatively unknown – and what we can learn from them.
Whole Foods’ high-priced reputation: Whole Foods can be misunderstood, and many say that is its own fault. The supermarket chain tolerated its “whole paycheck” reputation for too long, even as Kroger and other rivals started nibbling at its organics market share. Whole Foods responded and lowered prices on some items in 2014, but few people realized it because, as some analysts pointed out, the promotions were not well marketed. By 2015, Whole Foods’ sales – and stock price – took a significant hit.
In 2016, Whole Foods not only began promoting lower prices, it also put a name on the idea. It introduced its first Whole Foods 365 store, a chain of more affordable, neighborhood-y spots that combine fresh food with local flair. At just three locations, the concept is still a bit small to measure for success, but Whole Foods has made a point to reach out to members of each community and customize each location by including local vendors. Smart move – by putting local faces on its stores, Whole Foods is attempting to mask the “whole paycheck” image.
Procter & Gamble’s bleach mistake: Going back a number of years is a misstep that, regardless of age, still keeps many leaders up at night. In the 1980s Procter & Gamble attempted to sneak a new product into market without its competitor, Clorox, noticing. P&G cleverly chose to introduce the product, a color-safe bleach called Vibrant, in Portland, Maine, because of its distance from Clorox’s home base in California. Former CEO A.G. Lafley told the Harvard Business Review decades later that P&G thought it could “fly under the radar.”
But Clorox caught the blip and planned its own stealth attack. It sent a free gallon of Clorox to the front door of every household in Portland, effectively eliminating the need for bleach in the entire market for months. P&G took its bleach and went home but learned a valuable lesson. A few years later, when Clorox tried to enter the detergent category, P&G, maker of Tide, sent a similar message and won. P&G, meanwhile, took the R&D from Vibrant and created Tide with Bleach, at one time a half-billion-dollar brand.
Macy’s and the Fingerhut fiasco: In August, Macy’s gained headlines for its plan to close 100 locations, recognizing the undeniable power of online competition in an overstored U.S. market. But as far back as 1999, Macy’s was taking the first of many critical steps toward creating its successful internet business. And that turned into a critical misstep.
Macy’s, back then called Federated Department Stores, paid $1.7 billion for Fingerhut, a catalog known for its extensive direct marketing and internet expertise. Fingerhut was a master at database marketing – quite an asset. A key role of that data was enabling Fingerhut to separate customers who would not pay their debts from those who would, to whom it extended installment plans. Federated, however, replaced that system with credit cards, and in doing so reduced the predictive reliability of the database. Credit limits rose and customers fell behind on payments. By 2000, Fingerhut had lost $400 million.
Federated sold the business in 2002. Some experts suggested that the department store chain did not understand the catalog business or Fingerhut’s lower-income customer base. That being said, Federated clearly gained valuable insight into e-commerce – its online business generated $1 billion in sales in December 2015. Now, with the closure of 100 stores, it plans to invest more in improving its online customer experience.
Home Depot’s failure in China: Home Depot is the largest home improvement chain in the world thanks to strong performances in Mexico and Canada. But its 2006 expansion into China, despite precautions, presented a key unexpected challenge. Not that Home Depot was unprepared. When it entered China through a retail acquisition, Home Depot had already opened a businesses development office to gain better insights to strategically plan its entry, and it had sent an executive to study the markets and competition in 25 Chinese cities.
The problem was that Chinese consumers had little interest in doing it themselves – to them this was a sign of poverty. Besides, labor was highly affordable. As one Home Depot spokeswoman put it: “…this is more of a do-it-for-me culture.”
Home Depot shuttered 12 large-format stores in 2012, taking an after-tax charge of $160 million, but it maintained a string of specialty locations that focused on paint and design. The lesson: Home Depot studied the market and the competition, but it apparently did not examine the preferences and values of the emerging Asian consumer.
Walmart’s SKU rationalization: Back in 2009, in an effort to make its stores less cluttered and easier to shop, Walmart pulled thousands of items off its shelves. The plan was to enable Walmart to focus on faster-growing categories by eliminating slower-moving products and adding more “upscale” items.
The plan backfired, however, when shoppers could no longer find their preferred detergent or clothing and took their entire shopping lists elsewhere. Sales declined for seven consecutive quarters. In April 2011, Walmart added 8,500 items back to its mix. To emphasize the customer’s influence on its restock strategy, Walmart applied flags that stated, “It’s Back.”
Sam Walton would approve. The missteps that define retail today could fill a series of books, but let’s not make the mistake of spending too much time examining others. Instead, as we approach the day’s challenges, keep in mind another gem from Walton: “You can learn from everybody.”
This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here.