Retail isn’t dead. It’s a challenge to get right, but not dead.
Professor Cristensen’s research tells us new technologies constantly reshape the marketplace. Consumer needs, wants and desires also shift as does competition. There’s nothing new in this. This is old school threats and opportunities; Porter’s forces still play out.
Professor Darrell Rigby’s research tells us every 50 years or so, retail goes through a major disruption. History tells us this also. Big cities and railway networks introduce people to city based shopping malls. Massed produced motor vehicles pushed the populus to the suburbs thereby creating urban centers. Shopping malls then move into the suburbs. Big category killers (Toys R Us) and massive discount stores (Walmart) emerge next.
Online shopping now. The internet has caused a shift in consumer behaviour. Sales associated with bricks and mortar stores have at best flatlined, with sales moderately increasing for stores who work hard on their customers. Online players on the other hand, have been reporting increases in sales by 11% or more in a relatively short space of time.
Consumers are demonstrating a propensity to spend more in the experience economy, travel and food in particular. Arguably an oversupply of physical retail stores, including an oversupply of shopping malls exists. There are also newly created segments such as the pre-loved sophisticated clothing segment for example. Let’s not forget poor retail management has also contributed to a decline in retail.
Strategic positioning is one area of management responsibility. Not recognising a changing marketplace and sticking with existing strategies is an upstream problem. Recognising this with downstream metrics is too late – ‘oh sales are down’ – fixing it with a ‘50% discount sale’ is too little too late. Underwriting losses is a short term fix.
Big picture strategic questions – What business are we in? Who are our competitors? How do we create value? For example – are we a brand or an integrated fashion company or are we simply a generalist retailer?
These questions force a re-examination of a business, possibly presenting opportunities for a change in how the business interacts with new marketplace dynamics. Established methods, such as ‘that’s the way we do things’, or ‘I was always taught to do it this way’ is a definite warning sign for a business competing in a changing marketplace. There is simply no agility in the ‘that’s the way we do things around here’ ethos.
I recall an executive program on strategy I attended at New York University. We had the task to examine the business operations of each participant on the course. One group held the exclusive distribution rights for Red Bull in New York City. There were concerns the current licence agreement with Red Bull would not be renewed. Red Bull were doing this in other cities. They were looking for strategies to manage this risk. As it turns out, their business was not distributing Red Bull to retailers in New York City. They were in the business of knowing the ins and outs of every road, back street and ally and what times work, what times don’t, which locations are more vigilant than others and what size trucks fit where and who will cut you some slack to double park for a fiver.
This is now a totally different business opportunity.
Relationships also change, particularly with customers, not to forget employees and suppliers. Research conducted by Professor Joseph Pyne highlights two dynamics – online retailers provide an opportunity for consumers to save time, the notion Professor Pyne labels – ‘time well saved’ whereas physical retailers compete on the basis of ‘time well spent’. Simply having a bricks and mortar store with an online presence doesn’t cut it.
We see these notions at play with Apple’s move into bricks and mortar retail stores and I asked the question, ‘why would Amazon buy Whole Foods’?
Mark, Mary and Annette is a true story about a retailer I worked with who changed and is surviving. Read about their Story.
