The School of Hard Knocks
by Kevin Coupe
STEW LEONARD JR., CEO OF FAMILY-OWNED GROCERY chain Stew Leonard's, likes to say that one of the most important retailing lessons he ever learned happened years ago, when he decided to create and sell small, four-inch-high replicas of the enormous boulder that sits outside the front door of each of his stores. That boulder has become legend, with retailers coming from all over the world to see it; it is engraved:
OUR POLICY:
Rule 1: The Customer Is Always Right!
Rule 2: If The Customer Is Ever Wrong, Reread Rule 1.
And underneath that boulder, is Leonard's engraved signature.
Yes, the stuff of legend. So the store spent thousands of dollars to have the little replicas made up, and they were proudly put on display and up for sale.
Almost none of them sold. Which prompted Leonard, who was a little embarrassed by the lack of movement, to mark them down: "Buy One, Get One Free." Which is when he got the lesson that he says he'll never forget: "If people don't want to buy one, they don't want to buy two!"
(An admission here: As I sit at my desk writing this, I can gaze across at my file cabinet. On top of that cabinet are two four-inch replicas of the Stew Leonard's boulder. And I can vividly remember buying them during the two-for-one sale, which only proves that P.T. Barnum was right about a sucker being born every minute.)
The fact is that retailing — really, really good retailing — is as much art as science, and there are plenty of times when even the best intentioned ideas blow up in your face. Often, good ideas go unrecognized by the general public, which sometimes is even worse.
Not every promotion can be a winner, and not every marketing ploy can work out as well as, say, the decision by 7-Eleven to run a promotion linked to "The Simpsons Movie." And it's important to remember that while this marketing relationship ended up being an enormous winner for 7-Eleven, the movie could have tanked and left the retailer with Slurpees…er, Squishees…all over its face.
Every retailer has to start with the critical realization that failure is a possibility. Most of the retailers I spoke to seemed to agree on one thing — retailing is a gamble…and that means that you have to take chances, try new things and be willing to risk public failure and embarrassment.
But when you win…it's magic.
Head of the Class
It should be noted that the retailers I spoke to when putting together this piece were exceptionally good natured and humorous about the things they've tried and failed. It takes a certain self-deprecating willingness to return a phone call from a guy who wants to hear about your mistakes.
Not everybody, to be honest, shares that sterling quality. When I posed the question to my MorningNewsBeat readers — "Tell me about the mistakes you've made, and don't be afraid to make yourself look silly" — I got an awful lot of emails from retailers in a variety of venues pointing to broader industry mistakes, initiatives that didn't work out. Like Fleming signing an exclusive distribution deal with Kmart. Like Kmart hiring Chuck Conaway as its CEO to turn the place around. (Actually, it was sort of interesting how many of the "stupid mistake" emails were about Kmart. Interesting, but not surprising, and probably the grist for a different article.) Another retailer remembered when a company decided to have one store manager for every two stores, which seemed efficient at the time but ended up being enormously ineffective.
Some of the memories were pretty funny. For example, one retailer remembers thinking that it would be unusual, and effective, to cross merchandise in-store, fresh-baked pizza with Alka Seltzer — which ended up killing the sales of both.
Wawa's Howard Stoeckel recalls his biggest mistake as one that, in many ways, helped define the company. "Back before I was CEO, I was chief marketing officer, and going back 15 years we believed that co-branding was the way to go. That was when PepsiCo was pushing its Taco Bell and Pizza Hut concepts, and we made a major commitment to them. We must have had a hundred Taco Bell kiosks, and we also had Dunkin Donuts. We thought that in order to expand our offering, we needed to have the brands of others.
"What we didn't realize was that our customers liked our brands, they preferred our brands, and that when we brought in these other brands, it confused them." Stoeckel also says that the moves confused the company's store employees, who, it turned out, had an even greater investment in the company's brand identity than anyone thought. "They preferred to make hoagies or to make soup," he says, as opposed to making tacos or pizzas that represented another company's brand equity.
"I respect those brands," Stoeckel says, referring to the fast food brands that, as it turned out, enjoyed an abbreviated stay at Wawa. "As it ended up, they actually gave us confidence in our own brands. If we hadn't worked with them first, I don't think we'd be where we are today." Stoeckel says that it was that experience with outside brands that made Wawa determined to emulate British retailers that emphasize their own private-label products, such as Tesco, Sainsbury and Marks & Spencer. "It has been a 10-year journey," he says, "but we are determined to become the Trader Joe's of the convenience store business," referring to the private-label driven, limited assortment grocery store chain.
Gil Moore, president of New West Petroleum, says that his worst mistake was to buy cash acceptance dispensers with color televisions — four per store for 36 stores. "I'd never do it again," he says, pointing out that not only has the technology become antiquated, but when he put news programming on the televisions, he discovered that a percentage of customers actually resented being shown news that they hadn't asked to see. Not what you'd expect in a world of 24-hour news channels and constant e-mail advisories, but some people simply don't want to be tuned in all the time.
Stan Sheetz, president and CEO of the chain that bears his family's name, laughs when asked the question. "We've tried pizza twice now and failed miserably," he says. "The first time we used belt drive gas ovens, and the cost of keeping them going 24 hours a day, seven days a week was a fortune. Fifty percent of sales came in two eight-hour periods on Friday and Saturday, and the rest of the time we were just heating the store … The second time we tried more traditional pizza ovens, and I'm not sure why that one failed."
The Taco Bell experience is one that Sheetz shares with Wawa. "We thought that franchising was a panacea…and then we found out that we had to sell a million 99-cent tacos in order to do any real business."
Greg Parker, president of The Parker Companies, says that there have been a whole series of ideas gone wrong at his company. "We did whole fresh, with fruits and vegetables, for 16 months before we realized that it wasn't going to work," he says. "And then we tried a 'living light' section with healthy alternative snacks, and great looking POP signage, low carb bars, South Beach Diet products and energy bars." The problem, he says, is that "everybody says they want to eat healthier, and then they come in and they order burgers and fries."
Parker says another idea gone wrong was a "buy one, get one" program that the company used for cigarettes, which resulted in an enormous number of cigarettes going out the door, but reduced sales and profits in the category. The reason? Parker's customers tended to buy cigarettes two packs at a time, and so by using a BOGO program, the retailer was giving away a product that customers were probably going to buy anyway. "We've found a three-pack promotion program to be much more effective," he says.
For Roy Strasburger, president of Strasburger Enterprises' international division, the challenges of doing business outside the United States have yielded a series of missteps. "If you're looking for losers, I'm probably a great one to talk to," he laughs. "We try things all the time, try to push the envelope a bit, and there always are lessons to
be learned."
Some mistakes, he says, are simply a matter of using the wrong language. Like the time stores in the Philippines decided to get into the fresh foods business, and used conspicuous signage to promote it to customers. "Customers would come in, see the sign, look around, laugh, and leave," he says. The problem was that for people in the Philippines, "fresh food" connotes the kinds of products they might get in a wet market such as live poultry and fish, and Strasburger's offering was more along the lines of better fast foods, such as rice bowls. But they learned, reconfigured the offering, and made sure that they communicated in the right idiom.
Or there was the time in Australia when Strasburger worked with a major sports drink manufacturer in a promotion that was designed to sell, at a significant discount, a sports bag carrying the company's logo once people bought a certain amount of product. "We ordered several thousand of the things, and we did great volume the first week or so, and then things dropped off. And what we found out was that the bags were actually too big to be a sports bag and too small to be used as a duffel bag. In the end, we had a hard time giving the things way."
In the U.K. the company developed a fountain drink program, which never worked, he says, largely because of an ice issue that turned the program into a financial bust. "Consumers there don't want ice in their drinks the same way we do," Strasburger says. "But because they weren't using ice in their drinks, the cost per product went up. Here in the United States, maybe 60 percent of a fountain drink is ice, but if you don't use ice, it throws the economics off. You have to raise the price to where it costs the same as a can of soda, and then there is no discernible consumer advantage."
For a long time, he adds, it was extremely difficult to sell to-go drinks and foods in Europe. Not only did the cars there lack the cup holders that U.S. cars have, "but most cars have standard transmissions" that make it difficult, if not impossible, to steer, shift gears and eat at the same time. At least, not without getting into an accident, which doesn't help the store's brand equity. "We came in with an American mindset," Strasburger says, and it took
time to learn.
However, Strasburger points out that in each of these cases, failure was not a matter of American arrogance. "We've always had locals working with us on all of these things," he says, and even they didn't see the pitfalls. Besides, "people don't always know what they want until you give it to them…what people will tell you and what they will do aren't always the same thing."
Norman Mayne, a legendary food retailer with three stores in the Dayton, Ohio, market, says that one of the biggest mistakes he ever made was back in the early eighties, when he got some so-called "expert advice" about the aisle that ran perpendicular to the main grocery aisles through the center of his store. "The experts told me that if I closed up that aisle, the customers would stay in each of the grocery aisles longer and I could increase my sales by as much as fifty centers per transaction. So I closed it up.
"Then, I heard from about four thousand of my immediate friends and family." Their message — and Mayne swears that he is not exaggerating the number — was that the loss of the aisle made the store more difficult to shop. "So we tore it up," he says. "And then we ran an ad in the local newspaper that showed me in jail, and the copy said that the center aisle thief has been caught — and I promised never to take it away again."
The lesson, Mayne says, is much broader than the anecdote. "The lesson is that you always put your customers first. The gross margins and the average transaction sizes will take care of themselves."
Lessons Learned
If there is a common refrain in all these songs, it is that virtually all the retailers involved say that the mistakes they made had to happen in order for them to learn something critical about their customers and their businesses — no amount of research could have saved them the pain of failure, and no amount of research could substitute for actually trying new ideas, even if they didn't work out.
"Our bigger mistake," says Howard Stoeckel, "would have been not to take risks."
Parker agrees. "Look, I think it is important to have a culture of trying things," he says, "because that's how you make sure you don't miss something." But, he says, "one piece of advice that I'd give to other retailers is to always make sure that ideas are measurable and quantifiable…I would stress the importance of measuring ideas in a robust way, of knowing how an idea is performing."
Strasburger says that you "can ask consumers if they want something or not," but in the end, "you can only find out whether something works by developing a product and then marketing it." Research is important, he says, but there is no substitute for the crucible of real life.
Stan Sheetz says that being willing to fail "is the only way to hit on a good accident." At his company, "we've tried to create and nurture a culture of 'try it, try it, try it'…hopefully we can learn from our mistakes." While his company has tried to improve its odds by working with a consumer research facility at Penn State, Sheetz says that all this research can tell you is a product's taste profile — focus groups can't really tell you precisely how they will respond once a product is actually in the store.
According to Moore of New West Petroleum, his mistake "was one of those mistakes that we had to make." It "sounded brilliant," but it taught the company that "the simple things are always the best."
Now, to be fair, everybody makes mistakes. And if I'm going to share with you other people's failings, I should be willing to share mine.
My personal experience dates back to the mid-seventies, and has nothing to do with the retailing business. It does, however, illustrate how flawed human judgment can be.
It was 1977, and I was working as the film critic for my college newspaper at Loyola Marymount University. This was an especially good gig because LMU is in the Los Angeles area, so the campus film critic tends to get invited to a lot of press screenings, parties and press conferences, often at the studios themselves.
It was at that time, during the spring, that I received an enormous press kit and screening invitation to a new movie that was opening up in a few weeks. I took a quick glance at it and heaved both the kit and the invitation into the garbage; I couldn't figure out why Alec Guinness was making what appeared to be a really cheesy science fiction movie.
The film was Star Wars. And when it finally opened and changed the movie business, I had to wait on line to see it just like everybody else. Go figure.
Kevin Coupe is the founder and "content guy" of MorningNewsBeat.com, the daily online information service that offers "news in context and analysis with attitude."
He can be reached at kc@morningnewsbeat.com.