There has been a lot of press recently about the terrible situation for retailers. With house prices plunging, incomes stagnating for 6 years, and credit tight we’ve entered a consumer-led receission in the USA. Analysts are giving plenty of reasons for retail companies to do poorly. About all the big boys are seeing declining revenues – and even the behemoth Wal-Mart is barely growing and it’s doing all the price-chopping it can. Walgreens, the nation’s fastest growing retailer, has slowed its store openings. Jewelers are going bankrupt. A single stumble seems to have led clothier Steve & Barry’s into bankruptcy despite a great reputation with college students. In the middle of this, one company is going into the retail business, opening new stores in hotly contested markets like Chicago. L.L. Bean (read story here).
L.L. Bean has been around a long time, selling product via catalogs. Of course as the internet blossomed and web pages replaced catalogs, their sales on–line grew as well. They’ve long made money as a catalog-based retailer. Their distinctive product line of outdoor-oriented gear, coupled with their catalog distribution, has been the L.L. Bean Success Formula. Yet, now in one of the worst retail markets in recent history the company is moving into traditional brick-and-mortar retail. To traditional analysts, this seems nuts. But L.L. Bean is showing all the strengths of a Phoenix Principle organization. Like Virgin, that launched a profitable airline when everyone said airlines were impossible to make money, L.L. Bean is moving now when the traditional retailer’s Success Formulas are most at risk.
- Traditional retailers are suffering. This shows that the industry Success Formula is producing diminishing returns. The industry is primed for change, because Locked-in existing players are trying to "hunker down" and do "more of the same." This provides a great opportunity for a new player with game-changing ideas to enter the market.
- L.L. Bean’s stores are not targeted at existing retailers. They are targeted at what will make retail stores successful in future years. The plan is all around what people will want in the future to shop at retail, not what has worked in the past.
- L.L. Bean is focused on competitors, and how it can beat them. This move is not about trying to Defend & Extend the old L.L. Bean business, it is about taking advantage of weakened competitors at a time of market shift. L.L. Bean isn’t opening these stores in Chicago (and other places far removed from its traditional market of Maine and the Northeastern U.S.) because customers told them to – they are doing it as a way to be more competitive. For a long time the midwest was a difficult competitive market because of Lands End based in Dodgeville, WI. But since being acquired by Sears Lands End has grown considerably weaker, creating an opportunity for L.L. Bean.
- L.L. Bean is disrupting it’s old Success Formula. These stores have nothing to do with the old centralized catalogue sales and distribution tactics. And the stores are industry Disruptive environments that are as different from a Sears, Wal-Mart, Eddie Bauer or Aeropostale as they can be. L.L. Bean isn’t just trying to sell more stuff in new markets, it is creating an entirely new approach to how it sells.
- L.L. Bean is not trying to extend its old Success Formula. It is using White Space to develop a new Success Formula that will allow the company to be far more successful in 2015 than it was in 2005 or 1995 or 1985. By using White Space since launching its first stores, L.L. Bean is experimenting – trying new things – and learning how to be more successful in a shifting retail marketplace.
When markets shift the existing leaders often stumble. By trying to Defend & Extend their old Lock-ins they hope to regain past results. But shifting markets make old approaches create declining returns. The result is an opening for new competitors, with new Success Formulas, to take advantage of the shift. These new competitors, whether brand new, or a company willing to retool like L.L. Bean, use White Space to figure out what works in the new marketplace. So even when you hear how bad things are in any market, and the existing players are talking about cutting back, there’s always room for a winner. If they are willing to undertake Disruptions, and use White Space to learn what creates the new Success Formula.