EST Retailing

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• EST Retailing
• McMillan/Doolittle Retail Positioning Concept
• Presented by
• Mike Hegener
• General Motors Corporation

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What separates retail winners from losers?

• Why do some stores win big, when others that
  appear to be dead ringers down to the last detail
  fall flat on their faces?
• How do customers pick and choose their favorite
  stores, leaving certain ones behind and thus
  making them losers?
• Why do so many prototype stores fail so miserably?

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One way to find out Build lots of test stores.

• One way to prove your new retail concept is to
  build a test store, correct and improve the
  model, then add a few more and a few more -- then
  wait for the cash to roll in.
• Trouble is, it costs too much if youre wrong to
  begin with.
• Indeed, most are wrong to begin with -- the 5
  year success rate for new stores is less than
  25. Remember HQ, Builders Square and Builders
  Square II?

Home Depot remodels former Builders Square site
for store By GREG ROHLOFF Globe-News Business
Writer Home Depot, the nation's largest chain of
home improvement stores, will open a store in
Amarillo by the end of the year at the former
Builders Square location. The building at 2500
S. Soncy, has sat vacant since the...
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Development of EST Theory

• In the mid-90s, McMillan/Doolittle, a retail
  consulting firm in Chicago, attempted to
  understand the operating results of supermarket
  chains.
• Only a few chains had pre-tax profits in the 5
  range.
• There was no single key to their success in
  fact, there seemed to be many ways to win with
  customers.
• And many ways to lose.
• The supermarket industry paradigm had long
  included only upscale and price-based formats (at
  least thats what many believed) but that didnt
  begin to explain the success of the 5 club.
• The search quickly broadened to other kinds of
  retailing, and lead to the EST Theory with wide
  applicability.

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There are at least 5 ways to win

• Be CheapEST. Dont be squeamish about the word
  cheap. That is the word customers use, so if
  thats your strategy, get used to it.
• Be BiggEST. This doesnt refer to square
  footage, it refers to the number of items you
  carry in a given category compared to other
  stores customers visit.
• Be QuickEST. Were talking about getting in,
  getting what you need, and getting out.
  Anything you can do to move things along for the
  customer, you should do.
• Be Easy-EST. This is the store that helps
  customers solve problems. Most of these
  customers dont know what they want or need, and
  the store helps them figure it out and gives them
  confidence.
• Be Hot-EST. These stores have the most wanted
  merchandise, the most fashionable items. This
  applies to every category, even hardware and food
  (not just apparel).
• NOTE EST derives from the word best. There
  are at least 5 ways to be best.

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EST Model
EST retailers are those that exist furthest out
on the dimensions, and customers regard them as
great.
Cheap-Est (Lowest Prices)
Wal-Mart Costco
Black Hole
Easy-Est (Service)
Nordstrom Saturn
Hot-Est (Fashion)
Sea of Mediocrity
The Gap Starbucks
Quick-Est (Speed)
McDonalds Walgreens
The Sea of Mediocrity is where pretty good
stores die slowly. This is also where most
stores live, running on inertia until EST
competitors come along and pummel them.
Big-Est (Selection)
Home Depot Barnes Noble
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EST Theory Rules of Thumb

• FIRST -- Profit success begins with customers --
  you cant get there unless you place solving
  customers problems at the top of the list.
• Probably the most abused rule retailers make when
  developing new stores. The paradigm of most
  retailers is to solve the problems THEY have when
  designing prototypes.
• Customers talk about merchandise, price, products
  they cant find, hot products, ease of shopping
  certain stores, etc.
• In sharp contrast, retailers think and talk about
  things like square footage, fixtures and formats.
• Second -- You cant make it to the top of the
  profit list unless you are seen as clearly and
  obviously THE BEST at something. Better yet, be
  best at a couple somethings.
• In a market with many shopping alternatives
  (which is the case in virtually every merchandise
  category everywhere in the country), being seen
  by customers as pretty good means your
  long-term future is murky and doubtful.

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EST Theory Rules of Thumb - continued

• Third -- When developing a new store, about 75
  of planning time and energy should be devoted to
  solving customer problems (e.g. price, in-stocks,
  fashion, the whole experience).
• If you spend more that 25 of your planning time
  on the companys problems, youve got it
  backwards.
• Fourth -- Dont try to be four-EST or five-EST.
• Some retailers declare that they are going to be
  the best at all This is noble, but ridiculous.
  Dont even think about it. By definition, if
  you go off in four or five directions, youll end
  up in the middle, the Black Hole.
• So, pick one dimension to be best at, and you can
  win. Pick one more to be also damn good at,
  and now youre really talking.

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A word on choosing too many dimensions...

• We can think of only one retailer who appears to
  have EST status on three dimensions, and that is
  Nordstrom (easy-EST, big-EST and hot-EST).
• Some may argue that easy-EST is really the key
  for them, and they are also damn good at
  big-EST and, to a lesser extent, hot-EST.
• Further, there are only a handful who win on two
  EST dimensions in their respective categories.
• Home Depot -- big-EST and easy-EST (Lowes is now
  challenging)
• Toys R Us -- big-EST and hot-EST (arguable)
• Certain regionals, like Harrys in Atlanta, or
  Larrys in Seattle
• The point is, pick something and be the best.
  Pick something else and be among the best.

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Evolving EST theory -- Are Category Killers still
killers?

• For years, the big-EST idea held up well, as
  stores like Blockbuster and Home Depot swallowed
  markets. However, several disturbing trends have
  emerged.
• Toys R Us still has the most toys, so why are
  they struggling?
• PetsMart went from stock market darling to
  troubled company.
• Computer superstores are struggling. What gives?
• Sure, some of the struggling companies just
  executed poorly. However, there has also been a
  fundamental shift in customer purchasing habits.
• Customers are under time pressure, and retailers
  must remember this. PetCo surrounded PetsMart
  with more locations. While PetCo doesnt have as
  much selection, they have what most customers
  need.
• Discounters have expanded in certain categories,
  harming cat-killers. Consider the toy department
  at Target or Wal-Mart. Good stuff cheaper.
• Micro Killers. Cat-killers tend to be
  generalists, which leaves them vulnerable to
  specialists who can carve out a niche. Consider
  Zany Brainy, which takes a chunk of Toys R Us
  educational toy business.

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Evolving EST theory -- Cat-killers, continued

• For these reasons (and others), it is likely that
  a retailer can no longer win by just being
  big-EST.
• The reality of EST is that you must own one
  dimension AND at least be very good in one or two
  others.
• With less time to shop, consumers want more help
  from retailers. More products can actually be a
  negative, making shopping more difficult than it
  has to be.
• Retailers must be trusted merchants, offering
  carefully edited selections.
• Solution selling helps customers solve their
  problems, rather than just presenting a huge
  array of product choices.
• Pottery Barn and Restoration Hardware cross
  product boundaries to sell whole solutions.
• Office supply chains have evolved into solution
  stores for small businesses by offering such
  things as furniture and printing services.
• Home Depot has reached more do it for me
  customers through (for example) greatly expanded
  floor coverings and comprehensive installation
  services.

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Pretty good -- Words to Dread

• Most customers use the words pretty good to
  describe unexceptional stores. These words sound
  vaguely reassuring, but carry with them a whole
  different, negative meaning.
• The term mediocrity also applies, and this can
  be interpreted as You are in the process of
  dying. Slowly, perhaps, but dying just the same.
  You need to begin the process of renewal before
  it is too late.
• If your store is rated only as pretty good, on
  all dimensions, that means customers have better
  choices and will sooner or later find them.
• Your customers are telling you that small
  adjustments to the current strategy wont get you
  where you need to be. You need to figure out how
  to win on at least one EST dimension.

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Steps toward becoming EST

• First, you have to admit you have a problem.
  Recognition of where you really are is where you
  must start.
• Start with a formal strategic audit. This is
  the bedrock of reality upon which to base future
  strategy. (Hint -- get help from specialists in
  this area).
• Understand what your company is good at, and
  lousy at. This means studying your core
  competencies.
• A company with high break-evens, for example,
  should not pursue being the cheap-EST.
• You must choose one of the EST directions where
  you intend be the best, and at least one other to
  also excel in.
• This will be the key plank in your companys
  strategy. Your vision is that customers will
  recognize this strength and talk about it to
  others.
• Develop a plan of many actions which, if you
  stick to it and are disciplined enough, will
  break you out of the ranks of the mediocre.

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Beware the Black Hole

• This is where stores, even multi-billion dollar
  chains, go because they didnt get it right with
  customers in some significant, relevant way.
• They are not the best at anything they arent
  particularly hated or loved, just ignored by too
  many people.
• Black Hole stores sometimes get a favorable
  mention on location by customers, but this is a
  very fragile base upon which to build a future
  (or make an investment).
• While customers may rate the stores positively on
  convenience due to location, a more brutal
  truth is that they only shop there because they
  lack the energy to go someplace they really
  prefer!

It is hard to be the hottest, the cheapest, the
biggest and the easiest all at once.
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