When Dinosaurs Embrace

The funny thing is that these failure rate statistics have been around for years. Apparently hope does spring eternal.

Synergy, as it is applied in typical MBA-myopic mantras, is about efficiency. Lowering costs by eliminating redundant overhead to service a larger combined customer base.

In most cases the products do not change. That is the missing piece of the merger puzzle. If the business combination is for the purpose of unleashing innovative new products to meet an underserved customer, then mergers have a chance.

This usually leaves the smaller deals for the merger success column. (big conglomerate tech company buys small software firm with innovative technology to integrate into its product) You are hard pressed to point to any mega deal that has been a resounding success. Time Warner/AOL - No, Compaq/HP - No... All built on market dominance, efficiency synergies.

There is a natural law of markets. They divide, they specialize. As a result, they break into smaller product opportunities. This goes fundamentally against the grain of large integrated corporate giants. Most cannot adapt.

Department stores are a great example of big working against you. They all carried the same product at roughly the same prices. The experience was also pretty generic. Their response to WalMart which is really just an ugly, no-service, cut-rate department store was to cut labor and other manageable costs to try to preserve profits with slowing sales.

So they lost the price-conscious market and they drove the middle market upward to Nordstrom, and other luxury/specialty brands that provide product knowledge and service... undergarments were served by a focused Victoria's Secret, Youth by Abercrombie and Fitch, Working casual by GAP... who optimized the experience and the product to match a specific market as department stores never could do.

A merger will NOT solve this problem. To survive, these companies must innovate. They need to focus on their customer's problems. Time is a big one. With nearly 70% of women in the workforce, household time for shopping is a problem. Provide more service, more cash/wraps, and explain why the garment you are selling is better than the one at WalMart...it is more durable, will hold up better in the wash, won't shrink... explain that price does not equal value. Go to a larger commissioned sales force. They build relationships with clientele who like to be known by name and like to have an insider who keeps an eye out for the sale on an item we covet. Drop any brand that appears at WalMart and Target that you cannot offer at a better price (your buyers should be able to achieve this)...or...position WalMart(at least in apparel) as "cheap and inferior" this is something that could easily be done...attach a stigma to it that slows the middle-class migration. Target is more problematic, they must be positioned against name brands that they do not carry... even Target can be positioned as the Sears of the new millenium...for the poser, want-to-be's who can't afford the real thing. Target has built an image that is vulnerable...look at the Geico commercial that pokes fun at the Target ads...that can be taken a step farther.

A merger just distracts the department store management from the blocking and tackling that needs to be done to compete.

Phew! I feel better now. Soapbox anyone?