The Death of Merchandising in an Online World

Financial Analysis is My Christmas Present

In the age of Amazon $AMZN, Costco $COST, and Walmart $WMT, merchandising has died out.

Companies that rode their brand names for decades are fading. Store chains that relied on brands in turn are also dying, like Kohl’s $KSS and Target $TGT. Consumers seem to believe there is no enduring value worth paying for.

It’s not just malls. It’s not just downtown. It’s any physical space where people used to “shop,” as opposed to just buy. Shopping has entirely moved online, and brands are now personal.

If you put $100 into Nike $NKE stock five years ago you would have a little over $40 today. If you had bought shares of Lululemon $LULU instead, you would have about $60. How about the world’s safest brand, Walt Disney $DIS. About $65.

Branding has gone to Google $GOOG and to Meta $META, put into the hands of “influencers” who are selling themselves the way Martha Stewart did 30 years ago, only at almost no cost. Their names can change just as quickly, and many never scale, as consumers chase image like meteors. Their images represent desire, ideas of cool, of competence, a fantasy of “I can do that.”

Like the brands they’ve replaced, influencers must remain true to the values they claim to represent. The stuff they endorse better be good, and they had better use it before they tell others to do so. A recommendation can be powerful, but it can quickly blow up in an influencer’s face, because they’re putting their brand on it and can go down as fast as they went up.

What’s a Brand to Do?

I was reminded of this recently by the arguments among financial analysts about Lululemon, the Canadian-based yoga lifestyle brand. CEO Calvin MacDonald is leaving, and they’re having a tougher time finding a replacement than Penn State did.

Markets where merchandising is still relevant, like China, are doing fine. But Americans don’t want to go to the store anymore. I can understand it. We either save by buying vast quantities (Costco), by making one trip (Walmart) or by getting it delivered (Amazon). (If you’re poor, you buy what you can where you can (Dollar General $DG).

Where does merchandising come into it?

Great store merchandising comes from making your outlet the singular choice for the thing you sell. Costco, Walmart, and Amazon aren’t merchandising because they sell everything. Maybe that’s the ultimate expression of the merchandising art, but then what do you choose to buy? You buy Kirkland, you buy Great Value, you buy Amazon Basics.

What are the exceptions? Dick’s Sporting Goods $DKS has seen its shares nearly triple over the last five years, as it has rolled up the sporting apparel market. Home Depot $HD is hanging in there. So is Kroger $KR, which rolled up the grocery market.

The problem with the end of merchandising, or the seeming end of merchandising, is that there’s no serendipity, no way for the new to break through, no way to bring progress to consumers, and thus no way to grow.

That’s where influencers come into it.

Merchandising Goes Online

The difference between merchandisers and influencers is that, while merchandisers stand behind the brands they sell, influencers are their brands. The merchandise is secondary to the image the influencer seeks to project. The influencer becomes a store, but there’s nothing to sell until a product manager can make a deal with them. The resulting choices better be top quality, however, and support the influencer’s message, because people are fickle and can drop influencers in a heartbeat.

The first influencers, like Martha Stewart, used the media of their time to gain their fame. They had to build enormous, structured companies around their personal brands. Today’s influencers can do it with a few YouTube videos, and some may be completely unaware of their own commercial potential. Ironically, those turn out to be the hottest with consumers. Influencing turns out to be a lot like acting. As Spencer Tracy said, “Don’t let them catch you at it.”

What does this mean? It means that, in an online world, everything has changed while nothing has changed. We’re all still looking for value, and we find it in buying from scaled stores we assume offer the best prices. We’re all still looking for quality, and we only trust those names we perceive of as friendly, as being “like us.”

Having watched this transition over 40 years, from the sidelines of Internet and business reporting, what are the lessons I’ve drawn? Retailing is all about infrastructure, getting the goods from the factory to the consumer for the lowest possible cost. Branding is more personal, even if the relationship is only online.

It will be fun to see where we go from here, because AI is going to put all these trends into hyperdrive and, I’m certain, make them global.