Photographer: Elizabeth Renstrom for Bloomberg Businessweek
Bad in-store experiences have been, in a certain sense, the defining retail trend of the past 15 years. Between understaffing, locked-up products, metastasizing self-checkout kiosks and endless nudges to shop online, it’s begun to feel like some retailers resent the necessity of hosting customers at all. Wouldn’t it be more efficient and cost-effective, in the end, to operate something more like a big vending machine?
By the time Covid-19 hit, brick-and-mortar chains of all sorts—department stores, drugstores, big boxes, mall brands—had clumsily weed-whacked their in-store operations. They closed scores of locations, starved remaining ones of staff and resources, and filled shelves with cheaper, lower-quality goods their buyers wouldn’t have tolerated in decades past. This transformation is a symptom of what Bloomberg Opinion columnist Beth Kowitt describes as “the revenge of the bean counters.” Across industries, career bankers and financiers have taken control of a growing number of companies, appointed by boards searching for a steady hand in turbulent times or installed by private equity owners to wring more profit from businesses.
For decades, retailers had been run by merchants—people who directed overall assortment and strategy, usually with careers built if not in merchandising itself, then on the sales floor or as buyers or product developers. Many of them had spent decades in the retailers’ now-diminished training programs, which groomed talent from the ground up. They learned how to spot trends, select products and analyze consumer interest. When the Great Recession kicked the legs out from under retail, management consultants, tech experts and corporate financiers without much or any industry experience flooded in, sometimes ascending to the top post, as they did at Gap, Barnes & Noble and, more recently, Nike. These executives were billed as clear-eyed outsiders—people who could transform a dusty industry, unencumbered by the baggage of its traditions.
Photographer: Elizabeth Renstrom for Bloomberg Businessweek
The results were at best mixed, if not disastrous. In cases where private equity wanted to strip companies for parts anyway, the deteriorating in-store experience, declining product quality and fleeing customers were practically a bonus. But even at public companies that needed their core retail operation to succeed, some of the choices baffled people inside and outside the business. Nike Inc. spammed the market with so many retro sneaker reissues that people lost interest. Barnes & Noble Booksellers Inc. went all in on the Nook, its Amazon Kindle competitor, and lost more than $1 billion. Gap Inc. fell behind the trends it used to set.
But then, quietly, the conventional wisdom on what these floundering businesses needed began to change. In 2017, Abercrombie & Fitch Co. appointed Fran Horowitz, a merchandising lifer, as its chief executive officer. In 2019, B&N replaced its CEO with James Daunt, the proprietor of a chain of beloved British independent bookstores. In 2023, Gap hired CEO Richard Dickson, who most recently turned Barbie around at Mattel and who’d previously spent more than a decade at Bloomingdale’s, beginning his career in the retailer’s executive training program. Last year, Victoria’s Secret & Co. brought on Hillary Super—another retail lifer. Some of these appointments have already paid off in stunning reversals of fortune for ailing businesses, while others are too new to judge and still may very well fail. Either way, we may be in the midst of a retail reckoning.
When traditional retailers began stocking up on those number-crunching outsiders in the early 2010s, many of the companies were already in some kind of trouble—department stores, for example, were buckling after decades of increasing pressure from big-box discounters. Instead of investing in new products or services to compete in the e-commerce era, executives arrived holding a knife. This theory of retail “is very much about cost control,” says Neil Saunders, managing director of the retail practice at GlobalData Plc. “It’s ‘Let’s reduce capex. How can we squeeze every cent out of the business?’”
The problem with trimming a retailer’s operations down to the bone, though, is that the company still has to give people a reason to keep shopping with it. When the online competition offers rock-bottom prices, infinite selection and fast shipping, enticing shoppers with human customer service and intriguing displays to help them discover new stuff can give the old guard an edge. Merchant-led companies aren’t infallible—think Bed Bath & Beyond, with all of its lumbering decision-making and bad bets—but the bean-counter method, even if it manages to improve financial optics in the short term, has often proved “a recipe for failure,” Saunders says.
Physical stores have inherent constraints, at which point you need someone with the kinds of soft skills—taste, judgment, institutional knowledge—that career consultants and bankers don’t have and often don’t even value. Liza Amlani, co-founder of the Retail Strategy Group, says she’s seeing a return to corporate leadership spending more time physically in stores to observe how shoppers react to products and experiences. “We’re going back to the fundamentals of retailing,” she says, pointing out that the retailers growing right now are doing things such as tailoring an individual store’s assortment to its neighborhood and using actual feedback from customers to, say, adjust the fit of their jeans or stock different types of snacks.
To see what all of this means in practical terms, consider B&N and Abercrombie, two of the more startling recent retail turnarounds. Entrusting a US chain of big-box, mall-adjacent bookstores to a British indie bookseller like Daunt wasn’t a risk-free proposition, even though he’d managed to pull off a turnaround at the smaller UK chain Waterstones Booksellers Ltd. But the efforts he’s overseen have stabilized a company that was circling the drain. Part of the plan has been handing over a considerable amount of control to its more than 600 individual stores, allowing managers to make decisions about what they carry, how those selections are displayed and what kinds of store events might coax readers in—a level of autonomy and variation that would be easy for a cost-cutter to dismiss as inefficient. B&N has also dedicated in-store and online displays to following the whims of BookTok, TikTok’s sprawling community of obsessive readers, which can shoot titles onto bestseller lists seemingly at random.
This combination of granular attention to local needs and recognition of large-scale trends seems to be paying off. B&N is a private company that doesn’t release financial metrics, but a spokesperson confirms that it’s profitable, and market intelligence firm Placer.ai’s estimates show foot traffic increasing year over year through mid-2024. Last year, B&N opened 57 stores, and it says they’re “exceeding sales expectations.”
At A&F, Horowitz inherited a brand with declining relevance and revenue and transformed it into an agile mainstream fashion machine. By delegating more authority to merchants and buyers, who can respond to emerging trends or rapidly test ideas, the retailer—once infamous for its sexualization of teens—has evolved its products and stores to appeal to a broader audience. As it turns out, hoodies beloved by adolescents and inoffensively trendy dresses for thirtysomethings can live side by side in the same store, as long as those stores are reasonably well-lit and don’t stink so thoroughly of cologne they give passersby a migraine. Sales have surged: Since 2016 net sales are up almost 30%—the kind of growth that industry watchers might have otherwise thought impossible for a brand so closely associated with struggling malls. (At the end of 2023, A&F’s stock price was growing even faster than Nvidia Corp.’s, though it’s no longer quite that hot.)
Bean counters in retail have spent so much time and money over the years trying to replace these kinds of traditional tactics with the wisdom of data. What B&N and A&F show is that people who’ve spent decades in finance and people who’ve done the same in merchandising can look at the same data and come to different conclusions.
One of those conclusions is that even in the age of e-commerce, many companies have been undervaluing their own stores. Finding customers online through ad targeting used to be cheap and preferable, but the calculus of Meta Platforms Inc.’s and Google’s ad networks has changed. “Now that we have a real sense of how much it costs to acquire customers online versus in store, it’s much cheaper to do it in-store,” Retail Strategy’s Amlani says. Shoppers who buy in person also return things at a far lower rate, don’t commit as much fraud and don’t need retailers to subsidize their last-mile shipping costs, which are all existential problems plaguing the same companies online. Suddenly, brick-and-mortar retail—when it’s run by people who actually understand shopping—looks pretty efficient after all.