As retail dies, who will be the winners?

The high street is dying. Retailers are struggling to attract customers to their stores. When they do manage to get them in the retailers worry about the same customers using their smartphones to buy a product they've just picked up from the shelf, from an internet retailer. Retail gurus are telling the high street that they need to make their stores more inviting if they want to continue attracting an ever more fickle public; ensuring that there's accessible parking for baby boomers who don't like walking, QR codes on all the products for smartphone wielding Gen Ys, and so. This ignores the fact that globalisation, the internet and mobile phones have fundamentally changed the way we shop. Consumers haven't just become more fickle, how we go about buying the goods and services we need is in the process of being transformed and any retailer that is little more than the last step in someone else's supply chain has a poor chance of surviving.

Sales have traditionally been built around the concept of the shopping mission. You, a consumer, realise that you need something – boots for work, butter to make a cake, a smart suit for the big evening out, some wine for tonight's posh dinner, a messenger bag for you laptop… – and having identified this need you head off to the high street or the mall to find a product which can satisfy your need. The product you end up with might not be the ideal product that you had in mind as you've been forced to compromise on cost, quality or colour, but your shopping mission is usually, more-or-less, a success and as you end up with something that more-or-less solves your problem.

The challenges many retailers are dealing with stem from the fact that how we buy the goods and services we need is changing. The shopping mission is dying{{1}}. It might not be dead yet, but its condition looks terminal. The confluence of globalisation, the internet and mobile technology has changed consumer behaviour. We used to search and make compromises: now we are increasingly buying opportunistically and only settle for the cheapest or the best.

[[1]]Death of the shopping mission @ PEG[[1]]

I'm reminded of a story a friend told me. This friend has a daughter in the middle-teen years who had, for some time, been admiring the Vans that her friends were wearing. One evening she was watching TV with some of the same friends when she saw a character wearing a pair of Vans that had a pattern she liked. On the spot she decided to buy a pair for herself. She tried on her friends Vans to check the size, typed something like ‘vans online shipping cheap green skulls’ into an internet search engine on her phone, and a few clicks later had the shoes she wanted at the price she wanted delivered free of charge directly to her home, and all without leaving the comfort of the couch. What she didn't do was head to the high street on a shopping mission where she would have been forced to compromise on brand, style or price, constrained by what the retailers has chosen to offer locally and the price points they'd set.

While the traditional high street is struggling some retailers are booming. Apple is an obvious example – setting record profits and just recently becoming the largest company by market capitalisation of all time – along with Amazon and Zara. There's a number of smaller players that are doing quiet well, such as Book Depository{{2}}, Kogan{{3}}, Aussie Farmers Direct{{4}} and Habbot{{5}}. Even a few that are little more than shop fronts seem to doing well, such as Pure Pop Records{{6}} (just around the corner from my house) and Bertie the Butchers{{7}}.

Pure Pop in St Kilda, Australia, blending a music store with a bar, café and live music venue

Pure Pop in St Kilda, Australia, blending a music store with a bar, café and live music venue

[[2]]Book Depository is an online book retailer based in the UK.[[2]][[3]]Kogan Technologies is an online retailer of discount electronic goods based in Australia.[[3]][[4]]Aussie Farmers Direct have brought back the milkman, delivering reasonable priced perishable goods directly to your house and ensuring that they're there by the time you wake up.[[4]][[5]]Habbot Studios is a successful shoe designer owned and run Annie Abbott, that is successfully blending a unique product with an online presence and pop-up stores.[[5]][[6]]Pure Pop Records is a music store in Melbourne, Australia, run by Bon Scott's son Dave Stevens, and has evolved to include a café and bar with live music and is the hub of a thriving community.[[6]][[7]]Bertie the Butchers is a butcher in Melbourne, Australia, is working hard to build a community around good food and everything that goes with it.[[7]]

If we step back for a moment and squint a little we can see three successful business models at work. Apple, Zara and Habbot make products (consumer electronics, clothing and shoes, respectively) that their customers desire, and allow their customers to engage with their business over multiple channels, from face-to-face relationships forged in-store through to online and mobile interactions. Amazon, Kogan and, to some extent, Book Depository and Aussie Farmers Direct, are working hard to ensure that they are with you when you realise that you want to purchase something, building a relationship around accessibility and reliably low prices. Pure Pop and Bertie the Butchers are focused on building a community around a shared interested and they providing the community with the goods and services it is interested in.

On the other hand, retailers who's businesses are little more than the last step in someone else's supply chain are finding that their revenues are plummeting. Being physically close to potential customers has little value in a globalised, internet enabled and mobile world where the very same customers can buy the products and services they desire from the comfort of their lounge room or a favourite café two doors down from your shop front. Your store might have accessible parking, QR codes, and all the other retail accoutrements recommended to facilitate a pleasant shopping mission, but if you're relying on customers to come to your store to fulfil a need then don't be surprised if your competitors, competitors who could be anywhere on the planet, get to the customer first.

The shopping mission has formed the basis of the sales process for generations. Having recognised that they have a need, consumers would start prospecting for a solution to this need. Traditionally this has required a trip to the high street a nearby mall. The consumer would dive in and out of shops evaluating the products each retailer might propose. While it is unlikely that the consumer found the ideal product, more often than not one of the retailers they went prospecting at was able to convince the consumer to compromise and buy one fo the products that the retailer had on hand. The challenge for merchants was to convince the consumer to come to their store: convincing the consumer to pick the mall over the high street (or the high street over the mall), and then enticing the consumer into their store rather than that of their competitors'. (Which is why many malls allow retailers to negotiate an exclusive position in the mall, ensuring that there are no competitors and thereby forcing consumers on a shopping mission to compromise on one of the products offered by the excusive retailer, or walk away from the shopping mission without having fulfiled their need.) All this changed with the advent of the internet.

Before the internet became ubiqutious the balance of power was firmly in the hands of the merchant. It was the merchant that had all the information on product availability and pricing. The customer, on the other hand, only had limited information and faced a laborous trek between shops if they wanted to compare products. A skilled merchant might use this asymetery to convince a customer to spend more than they intended, or even to purchase a product they didn't need. Product reviews and consumer information organisations went some way to addressing the imbalance, but merchants always held the upper hand. The internet eliminated this imbalance. It allowed consumers to obtain as much, if not more, information than the merchants; reviews were easily locatable and some web sites even enabled consumers to directly compare the products and prices offered.

This change in the balance of power between merchant and consumer drove enduring changes in the consumers' behaviour. Previously consumers were forced to compromise, and settle on the best product that they could find locally. Consumers have left behind the shopping mission to become ‘mission shoppers’{{8}}. Now consumers treat the retail experience as just one more touch-point in a buying journey that will involve them reaching around the neighbourhood and around globe to find either the cheapest or best product the meets their need. Companies such as Book Depository, for example, are offering product at knock-down prices delivered free of charge anywhere on the planet. Why head out to the mall or high street to find a book when the book you need is only a few clicks away?

The direct online companies are working hard to get closer and closer to the point of need recognition. Amazon has been chipping away at the decisions consumers make between need recognition and purchase, removing opportunities for the consumer to reconsider a purchase. First there was ‘One Click’, reducing the purchase to a click through to Amazon and then one click to buy the product and have it shipped. More recently Amazon have launched a mobile application — available on Android smartphones and the iPhone — that allows a consumer to buy a product just by snapping a photo of its barcode. Consumers can now purchase a product wherever they are: from a friend's house where they've just seen a book they like, through to a bricks and mortar store where they are browsing the shelves (part of a trend termed ‘show rooming’{{9}} as it allows consumers to treat any bricks and mortar store as a showroom for an online store). Other organisations, such as Aussie Farmers Direct and the amusing but directly name Sock of the Month Club{{10}}, are converting regular purchases to subscription services, jump over need recognition entirely.

Amazon's mobile application allows consumers to use any location or any shop as a showroom for Amazon

Amazon's mobile application allows consumers to use any location or any shop as a showroom for Amazon

[[8]]Carolyn Cummins (25 Aug 2012), Men on a mission find remedy in retail, The Sydney Morning Herald.[[8]][[9]]Marcia Kaplan (25 July 2012), Showrooming challenges brick-and-mortar retailers, Practical eCommerce.[[9]][[10]]The Sock of the Month Club sends you a new pair of socks every month as a subscription service.[[10]]

A new generation of product companies (typically those creating highly desirable products) are using the ubiquitous communication provided by the internet and mobile technology to leap around the traditional supply chain channels and touch consumers directly. Apple is the most obvious example of this, creating high-value products and then allowing consumers to skip across channels – online, face-to-face… — until they decide to purchase, and then allow them to purchase whereever they are. Apple is equally happy for you to purchase in an Apple store, online, or even for an Apple store employee to help you with an online purchase wihin the store (for those products that are only available online). Apple also holds very tight control on prices and discounting to encourage impulse decisions (as you know you won't get it cheaper elsewhere).

Habbot is a another great example of this in action. Sales are split between traditional retail channels, online and company-run pop-up stores. Habbot is seeing the traditional channels decline at about the same rate that the online business is growing, while pop-up stores (who's revenue is determined by how much effort is put into creating new pop-up stores) are stable{{11}}. This is a cross channel startegy – using different technologies and media to touch the consumer wherever they are as they learn about the product and work their way from interest in the the product, through desire to need and, ultimately, purchase. The traditional retailers caught up in this process find themselves to be little more than one of the product showrooms used by the consumer on their journey to a purchase.

One of Habbot's pop-up stores

One of Habbot's pop-up stores

[[11]]Rachel Well (28 Feb 2012), Online sales outpacing traditional retail, The Age.[[11]]

A few retailers are making the leap and adapting to this new world. One of the tenants of a quality retailer has always been that the customer should leave the store satisfied, regardless of if this means selling the consumer a product or not. If you're a hardware store, the customer wants a hammer. If you don't happen to have any hammers today then you should send the customer onto another store as this helps ensure that the customer comes to you the next time they have a new problem, providing you with the first chance to solve it. Zara and the other ‘fast fashion’ retailers have achieved this with global scale{{12}} connecting the catwalk directly to the retail experience, and ensuring that the store always contains the latest fashions. With styles turning over every week customers drop by their local store whenever they're in the area to see what is new, and tend to impulse buy as they know the same products won't be there the next time they visit.

A natural extension of this is to use the retail experience as an anchor for building a community around a shared interest. This might be as simple as moving the focus of a book store from shifting product to integrating book readings, book clubs and author events into the ebb and flow of the store, and then selling the community not only the books but they want but the glass of wine to have while they mingle or charging them to attend author events (and taking the fee off the price of the author's latest book if they buy it). Pure Pop Records has built a thriving community incrementally and has become a highly respect member of the local music community{{13}}. Started when Dave Stevens (Bon Scott's son) bought Raoul Records, Dave has slowly added new products and services that add to the business’ value as the hub of a music community. A coffee machine was added first, allowing you to sip away in coffee obsessed Melbourne{{14}} whilst listening to the latest vinyl release. Next the shop was extended into the yard out the back and a couple of taps of beer were added. Then a small stage was added out the back. Over a few short years Raouls was transformed from a record shop into a music hub where a community gathered, with the business eking out a living by selling not just music, but food, drinks and entry fees too. Patrons come not because they're on a shopping mission, but because the business is part of the community.

[[12]]Kasra Ferdows, Michael A. Lewis and Jose A.D. Machuca (21 Feb 2005), Zara's secret for fast fashion, HBR Working Knowledge.[[12]][[13]]Craig Tansley (2011), Melbourne's to 10 ‘in the know’ music spots, Nine MSN Travel[[13]][[14]]Dave Sinclair (26 Mar 2012), Coffee in Melbourne – an obsession, DaceSinclair.com.au[[14]]

So where to for retail? For all the doom and gloom it is unlikely that high street retail will disappear. While many of us find the shopping mission a burden, some enjoy the experience. They find an afternoon skipping between stores or departments to be an afternoon well spent. For them a visit to a major department store to something like letting the kids loose in the candy store. The challenge for these department stores is that their target demographic is shrinking. A few generations ago a trip to a major department store was the only way many of us could find the goods we needed. In the future it looks like the only people interested in these stores will be a small subset of the population for which the shopping mission is a joy rather than a chore. Demand for these stores will still exist, but there will be much less demand for their products and services than there was in the past.

The problem for many retailers is that how consumers shop has changed but the the retailers haven't adapted. Their sole virtue was to be the last step in a supply chain delivering somebody else's products to the consumer. However, being the last step in the supply chain is no longer a virtue when consumers skip across channels and can reach around the globe, no longer dependant on or limited to what they can find locally. Making a store more engaging with new displays and QR codes, petitioning the council or mall owner to improve the parking, or trying to prevent show rooming by placing stickers over product bar codes are only temporary measures. The demand for traditional retail is dropping, and traditional retail is being replaced by a new generation of businesses that either focus on selling their own high-value products across a range of channels, provide the lowest cost product just when the consumer realises they need it, or who build a community around a shared interest.

 

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