To what degree have Internet or digital firms like Amazon, eBay and Zynga disrupted traditional retail or affected your business?
To the extent that the customer sees a product as a commodity, it changes behavior. If someone wants a wristwatch, he can go to the Internet to find the best deal because all Rolexes are created equal and you can buy them on the Internet. The same is true of, say, Levis and items where the product has limited variability. Ten years ago, we didn’t think that cameras or cars were commodities, but we know that most cars are shopped for first on the Internet.
Other things, such as scent or perfume have emotional content. If you know what perfume you want and you’re not curious about what the next new scent is, I can’t deliver that experience. However, if you are curious, I can. In retailing, there are always countervailing ideas. Today, people relish the opportunity to get in their cars and drive two miles to spend $3 for a cup of coffee at Starbucks. Nevermind that you can make the same cup of coffee at home using Starbucks coffee for about a dime a cup.
How do you differentiate successfully when market forces seem to conspire to make everything a commodity?
We amplify the emotional content. One could argue that all Ferris wheels are Ferris wheels; the emotional experience of an amusement park is much the same. So why do people travel 2,000 miles to go to Disney World? It’s the whole package. It’s the Disney experience. The best retailers—Bloomingdale’s, Marshall Fields, Selfridges—always understood that creating an emotional experience lay at the heart of their success. They have always understood this. One of the niftiest, emotional experiences in retailing today is Costco. It is tremendously entertaining to go there. Sometimes, I go there because I’m just curious about what’s going on and what the current deal is.
How does one explain the success of an Apple store? Everyone knows what the next phone looks like. It’s bigger than the last phone. I don’t really have to go there to see it. My kids don’t have to go there this week because they bought one last week, but they want to go there anyway. They want to look around, soak up the atmosphere and see the people. Whether it’s Victoria’s Secret or Bath & Body Works, it’s about theater.
For much of your career, you were identified as a successful apparel retailer and the founder of The Limited stores. What changed?
The question is, “How do you define yourself?” I began thinking very early by defining myself as a merchant on broad terms. Understanding customers is a higher order of perception than whether I’m an expert in women’s apparel. I began to sense 15 years ago that there was less emotional content in apparel. The field was crowded. Stores were replicating themselves. It was the same stuff at multiple prices and multiple qualities. There was some advantage when production went offshore, but now everybody uses the same base of supply, so there’s no advantage. I told the board, “Let’s think about this.” I picked lingerie and beauty because I thought we could transfer our skills to different categories and carve out areas where we could be more dominant as specialists rather than one of 30 guys in a shopping center selling clothing to young women.
Some observers note that you follow a method that they describe as experimental—fail early and cheaply, learn and go forward. Assuming you agree, do you do this consciously or by instinct?
I am an entrepreneur, but I don’t jump out of airplanes without a parachute. Risk-taking doesn’t bother me, but the question is, “How do you test things and learn?” I might have enormous confidence in the ideas I am launching, but I still want to see how they work in the real world. A fashion retailer, who bats close to Babe Ruth’s average, say .333, belongs in the Hall of Fame. When this business was smaller, I could see how many mistakes I made. The question is, “How do you recover from mistakes?” Whether it is testing a color or a store size, we test close to our beliefs.
Fashion merchants have to constantly believe that what they are doing is obsolete. You’re constantly testing just to find your way into the future. This philosophy is so engrained in our company DNA that whopper mistakes become less likely. Some may think of me as stubborn, but I see it as having a deep keel that supports the ship in the face of headwinds, crosswinds and the like. The deepness of keel just means that there’s steadiness that may seem slow to some, but [it] allows me to take an interactive approach to risk in managing arguably the riskiest industry in business.