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(Sneak peak at next months article)

The Future is Here
November, 2015

I'm not buying another phone, until I can get one with an unbreakable screen. In fact, I'm thinking it shouldn't even be a phone, it should be more like a bracelet.

What is shown here is called a 'rollerphone' (go ahead, look it up). It has a flexible/retractable/multi-function screen, and will render the phone as we know it obsolete. But that isn't what I'm writing about today.

Today's subject is department stores. This morning's USA Today (section B) headlined HERE'S WHAT'S KILLING DEPARTMENT STORES. The article was drivel, to be sure. It was completely wrong, and really offered no insight. Many of us (those with a lean background) can point to some of the real issues with department stores.

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Bill Kluck
The Northwest Lean Networks

Department stores carry a lot of inventory. In the lean world, inventory = waste. In the department store, inventory = an opportunity to sell, so it's difficult to sell lean in this kind of environment. Lean in department stores often focuses on productivity and efficiency (so I'd argue it's not really lean they're implementing), and they're not doing very well at it.

Let's be honest. Department stores are getting their hat handed to them, principally by online retailers. Amazon alone is bigger than the top 4 department store chains combined. No wonder the stores are losing. But here's what's really killing department stores:

THEY ARE DEPARTMENT STORES!

Let's face it. When I think about buying something, anything really, I go to my phone. I hit the browser, then I think, (BONK!) "I could have had a V-8". Then I go to Amazon. I don't always buy from Amazon, but I always check there. I'm a Prime member (if you haven't checked it out, you really should), so many items can be delivered in a day or two. Sometimes, that trumps price for me, other times, not. So I tend to check a lot of online sources, shopping online to find the best deal for me. All without even considering actually going in to a store.

Here are some of the things I recently purchased online: Gift cards, bar stools, floor tiles, granite counters, stainless steel sink, garbage disposal, fruit gift baskets, cover for my iPad, groceries, a 'how-to' book, shoes, shirts, pants, socks. The list is endless, really. Why would I want to fight traffic, parking, and long checkout lines? Only to be disappointed with selection, price, and service. I wouldn't, and I don't. However, I do go to stores, sometimes.

There are times when I want to 'see it'. To 'feel it'. To 'know it'. So I go to the store, and check it out. Then I buy it online. C'mon, you do it too, you may just not admit it. But let's get back to the department store. What is the real answer for these dinosaurs?

Evolution, that's the obvious answer. But into what? Well, how do animals evolve? They take on the best characteristics, and let the worst ones die off. Let's list those 'worst' characteristics:

  • Low growth (less than 2% per year)
  • High inventory
  • Horrible customer flow
  • Customers actually have to pick items up in the store, and carry them around
  • No way to compare in-store deals with the competition
  • No real reason for the customer to buy in store (no robust loyalty program)
  • Many reasons not to even go to the store (mall parking, mall crowds, and more)

We actually have several great models to use in evolution. Amazon Prime offers items in a day or 2. These are items already in Amazon warehouses, or available from suppliers which have ready (pass-thru) inventory. Ikea provides models throughout the store, the customer just takes a model number to the warehouse for checkout. Progressive (insurance provider) shows you the rates of several competitors. Apple doesn't even have check-out counters, you can check-out with the associate who is helping you.

So what might a department store of the future actually look like? Consider this future: You're at a neighborhood store, perhaps in a small strip mall. The store is small, but there are endless varieties of merchandise available. They are presented on touch-screen monitors, but there are many physical models available to touch and feel.

The screens show many options, including various cost, service, and delivery options. I can buy right then, if I like. There are plenty of secondary 'impulse' items available, if we care to actually carry things around. The store has a progressive loyalty program, which encourages me to buy now, with added benefits.

What I'm describing may be the future, but it is merely a combination of Amazon, Apple, and Ikea. Throw in something like the American Express Membership Program, or a Frequent Flyer-type loyalty program. iPad screens all over the place, with Apple Pay or Square capability at the point of shopping (the new POS).

From a lean perspective, getting rid of in-store inventory (shipping from central warehouses, or utilizing supplier inventories, much as Wayfair does) has any number of benefits. Less cash tied up in this years trend, less risk of getting caught with a store full of stuff that won't sell. Less damage, theft, and obsolescence.

Who is moving in this direction? Actually, nobody. Retailers are scared to death of this model. They don't understand it, and they don't have a clue how to implement. Interestingly enough, Target stores are probably the best test ground for this, as they have a great number of stand-alone and strip mall stores, smaller venues which would benefit greatly from the increased level of products they could offer this way.

Don't count on seeing this store anytime soon. Before any great evolution occurs, there is usually an 'extinction event', where many species disappear. We'll see certain retailers die off, and others combining in a futile attempt to gain profitability with scale. But perhaps by 2025, we'll see these new, evolved, future stores. In the meantime, keep voting with your feet, and keep shopping online!

Happy Holidays!


ABOUT THE AUTHOR

no_photo.gifBill Kluck is the Founder and Director of Operations for The Northwest Lean Networks, a professional society which connects the community of lean professionals worldwide.

Bill has over 20 years of experience implementing lean in a wide variety of industries, both public and private. He has trained thousands of leaders & associates in various lean strategies and techniques, and has facilitated billions of dollars in impact. Bill's main focus is building transformational change and evolving business culture.

Bill earned his Bachelor of Science in Industrial Engineering from the University of Washington, an MBA from Seattle University, and holds several continuous improvement certifications (including a Six Sigma Master Black Belt, and a Masterís Certification in Lean Methods). He currenlty works as Assistance Vice President for Genpact, LLC.

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