The destruction of traditional retail

A steady stream of news stories is trying to convince us that online is killing retail, that online has an unfair advantage and show rooming is evil. There’s some handwaving around omni-channel and claims that that if you sharpen your approach a bit then you will be able to stand out from the online crowd and stay alive, but it’s all a distraction. The problem is that ‘retail’ is just not something we need as much as we used to.

It’s not that we no longer need retail stores. We don’t, however, need as many of them as we have today.

Retail stores serve many purposes, but the most common is to be the last stage in someone else’s supply chain. This role – the retail store that is little more than a convenient place to make a purchase – is dying.

The internet and smartphones mean that we can now shop and purchase when and were we want. We’re no longer forced to pick between the meagre offerings at a nearby store.

Browsing is something we do in a spare moment, sitting in front of the TV with our tablet or via smart phone during our commute on the train. We purchase when we realise that we’ve found something we want or need, where ever we are at the time.

The other uses for local shops and businesses will remain:– community gathering places, restaurants etc. Life for your typical retail store is looking grim though, as they are simply something that we no longer need as much of as we used to.

The end of retail as we know it

Retail is struggling[ref]Joshua Wright (22nd February 2013), The Decline of Traditional Retail Industries, Economic Modeling Specialists International.[/ref]. Margins are down while more and more shops seem to be shuttered on the high street every day. It’s getting harder to attract customers to stores. Harder still to get them to buy something.[ref](13th February 2013), High Street retailers: Who has been hit hardest?, BBC News.[/ref]

The growth of online shopping is often used as an excuse. Industry groups are asking the government to regulate or tax online shops in an attempt to try and level the playing field. It’s similar to when the big box store turned up and killed the high street, only worse.

The problem is that consumers just don’t have as many reasons to head to a shop as they used to. Time change and needs change with them. Mobile phones, cloud computing and social media are changing how we buy.

The decline in retail is not a simple question of being ‘out competed’ by the online e-tailers. How we shop has changed and retailers have been left holding the wrong end of the stick.

We don’t shop like we used to

The shopping mission – the trip to the shops to find something we want or need – is becoming a thing of the past. With it many of the shops that are little more than the end of someone else’s supply chain are dying.

The traditional buying cycle is built around the assumption that the retailer has better access to information and products than the consumer, forcing the consumer to go to the retailer to satisfy their needs.

Having realised that we need something (new shoes for a wedding), we’ve been forced to head to somewhere that we can find a solution (a local department store or mall). We spend our time wandering around to identify and evaluate the alternatives (sneakers, white high-tops, dress shoes…) before selecting and purchasing the product that we think best meets our needs (the black dress shoes). Afterwards we might even dabble in a little post-purchase remorse.

Today, however, we can use the internet and smart phones to browse products available around around the world. This has changed shopping from a mission we go on into into a leisure activity that we can do from the comfort of our couch.

Identifying and evaluating alternative products – browsing – has become something we do in our spare time. We might be commuting on a tram browsing shoes or jewellery on our smart phone. Or we might be sitting on the couch at night researching new fridges to replace the old mouldy one lurking in the corner of our kitchen.

Selecting and purchasing a product has become something we do when and where we realise that we have a need that can be satisfied. Something that we do, more or less, on impulse.

It’s becoming rare today for us head out on a mission to buy something we need.

Shrinking demand for retail stores

As a community, we just don’t need as many retail stores as we used to.

Think of the ‘book’. Books – codexes consisting of a collection of pieces of paper with words and diagram imprinted on them, stacked and bound – have gone through a similar transition.

Back when I was at university books were the only convenient way of packaging knowledge and delivering it to me. A lot of books that I bought were books only because there was no more efficient way of distributing the knowledge they contained.

Today, though, there are a wealth of options for delivering information to the hungry student. My son’s school, for example, is removing many of the old stacks in the library and replacing them with comfortable chairs.

The school has also moved the text books their students need onto tablets (iPads or Android devices, the student’s choice). Students now carry around a single tablet loaded with all their books rather than lugging around the heavy bag full of paper that I remember. Text books have been replaced with e-books, as the e-books are more convenient.

However, the school is not removing all the old stacks. Roughly a quarter of the stacks will remain once they’ve renovated the library. These are the stacks dedicated to the books that the students want to read for pleasure: novels, biographies and the like.

The book is not an outdated and redundant piece of technology; the students still derive a great deal of pleasure them. Sitting by a window when it’s raining and reading a book – a book that sends them on an adventure into the past or the future or which helps them find their place in the world – is a pleasure that seems to be staying with us.

The reduced demand for books is just a consequence of the development of more effective and convenient ‘knowledge distribution technologies’. Previously we where forced to use books to codify and transmit most, if not all of our knowledge. Today we have other options.

The addressable market for books – words on paper – has contracted.

There will be fewer retail stores on the high street

The ‘retail store’ – as an idea or piece of technology – is on a similar journey to the ‘book’.

Retail stores started as somewhere convenient where you could get the stuff you need.

You would head to the general store – which would sell everything from soap through dresses to biscuits – and give your list to the shopkeeper or one of their assistants. They would then run around the shop gathering the items on your list, and either bundle them up for you or organise for them to be delivered to your house.

Or you might head to a specialist store, focused on one type of products – such as hardware – where there was sufficient demand to justify a standalone operation. You would review the products on offer, compare them to what you found in other stores nearby, and pick the one that seemed the best fit for your needs.

Department stores built on this idea by bringing together a collections of departments, each selling a different type of product, where a department could be a small to mid-sized store on it’s own. Malls took the idea to what might be its logical extreme by collecting a large number of separate stores to create a shopping destination – often built around an anchor tenant such as a major department store.

The common thread between specialist, general and department stores, and malls, is convenience: providing us with a convenient location to fulfil a need or want.

It’s too hard to visit every factory or crafts person who makes something that we might want, so the shopkeeper does that for us by sourcing a product and bringing it to a location that we can get to. If the customer can’t go to the product then perhaps we can bring the product to the customer.

The corner shop is a convenient place to buy milk and bread when you run short, as it’s only a few minutes up the road. The local strip mall (only a short drive away) is a convenient place to do the weekly shopping or to pick up a book or a tool, something you need every so often. The local big box retailer is a convenient place to head to once every month or so to stock up on bulk items.

Once you realise that there is something your want or need – milk for you coffee, new hat for the races or a huge box of toilet paper – you’ll head out on a shopping mission to try and find a product to address the want or need.

The size of your want or need determines the size of the shopping mission that you’re willing to undertake. Some needs send you to the corner store where you’ll settle for what ever you find. Other needs see you spending weekends traipsing from store to store to find the perfect item.

Retailers have worked hard to manipulate our shopping missions. They’ll pay the owners of a mall for the right to be the only shop of their type in the mall, forcing you to buy from them or be faced with having to invest another weekend heading to another mall.

Retailers will also stock only a few products of each type – typically one product at each price point – so you don’t really even have a choice. It’s buy the product in front of you that you can afford or head home empty handed.

Retail marketing is a indoctrination process where the retailer is trying to convince you to visit them as the first stop on your shopping mission.

The problem that retail is struggling with is that, with the advent of online and mobile shopping, we just don’t need as much help getting the products we need anymore.[ref]Julia Kollewe (21st March 2012), Up to 40% of high street shops ‘could close over next five years’, The Guardian.[/ref] Their efforts in convincing us to head to their store are wasted as we’re not engaging in shopping missions as much as we used to.

Why would you go to a shop?

A friend of mine tells an interesting story about his daughter. She’d been thinking about getting some sneakers / trainers for a while. She’d spent a few weeks looking at what her friends’s sneakers, what her favourite actors and TV characters wore, and wondering how much she had to save.

One day, watching TV with friends, she spotted a pair of Vans on one of the show’s characters. She decided then and there that those were the shoes she wanted. She tried on her friend’s pair to check the size then, pulling out her smart phone while still sitting on the couch, she searched the internet for the best deal and placed her order. The shoes arrived a few days later.

Some e-tailers and retailers are realising that if you can’t get the customer to come to the till, then you need to move the till to where the customer is.

Amazon has taking to this idea of mobile commerce like a duck to water. While it might be hard to pin down Amazon’s business model – Are they just an e-tailer? Do they offer infrastructure services? Now they’re a grocer. – what they are trying to do is quite simple. When you buy something Amazon wants to be there, streamlining the transaction and taking a small clip on the way through.

Smart phones have enabled Amazon to put their shopfront in your pocket, so they’re there whenever you want to buy something.

When a friend recommends a book to you over dinner at their house, you can snap a photo of the book’s barcode and it will arrive at your home 24 hours later. Standing outside a DVD store, waiting for your partner shopping across the way, you can snap an image of the DVD and it’s automatically added to your rental queue and shipped to your house.

If you’re standing in an aisle casually browsing products then Amazon’s till is closer to you than the one at the front of the store.[ref]Jim Milliot (9th December 2011), The Amazon Price Check App and The Battle over ‘Showrooming’, Publishers Weekly.[/ref] You also don’t need to worry about carrying your purchase home.

We no longer need to visit a store for many of our casual purchases. E-tailers are also working hard to increase the range of products that we’re willing to purchase without a store visit.[ref]Nicole Seghetti (1st March 2013), The Next Victims of Showrooming, Motley Fool.[/ref]

The end of the shopping mission

Some businesses are even starting to directly attack the shopping mission. They’re arranging their products and services so that you don’t search for a new product when you recognise a need. Apple is a great example of this.

Microsoft pioneered the practice of integrating a date into their product names: Window ’95, Office 2007… Their theory was that adding a data to product name would remind you that what you were using was old and unfashionable.

Adding dates to product names was a great idea when Microsoft had an effective monopoly. Every couple of years you would be nudged into a mission to buy the latest-and-greatest. Still on Office 2007? But it’s 2010! Technology moves fast; you should try and keep up.

Retailers loved these regular shopping missions as it provided them with the opportunity to convince you to come to their store. Deals, product bundles and discounts would draw you in where their sales staff could work hard on the cross-sell and up-sell. (Did you ever buy that extended warranty?)

Microsoft soon realised that this strategy could be embarrassing when delivery dates slipped or when they failed to update a product for a while. It’s also a strategy that is disastrous when you lose you monopoly, or when your product is no longer the buyers first choice.

Push consumers into a shopping mission and you might prod them into a upgrade. However, it also provides your competitors with a chance to draw the consumer away and convince them to swap to the competitors product.

Apple have realised this. Over the last few years they have been removing all dates and version numbers from products. It’s not the ‘iPad 4’ or ‘iMac 8’. It’s simple the latest ‘iPad’ or ‘iMac’.

Apple is in the process of setting up their products and services so that their customers never go on another shopping mission.

Apple’s customers trust Apple’s products to have the latest and greatest bits. The customers have their content – their music, movies and documents – in Apple’s services. Upgrading is simple a matter of plugging your Apple ID into the new device and waiting a little while.

Apple also makes it as easy as possible to buy. They don’t care if you buy online or in a store. You can use their app to browse the features of a product. You can buy the product within the app if you chose, or the app can direct you to the nearest Apple store. Once in the store you can even use the app to buy products and walk out without ever seeing a sales person. The app the sales people use also enables you to pay for your selection in front of the product display, without going to the till.

Apple is doing everything in the company’s power to prevent you from engaging in a shopping mission. They don’t want to provide their competitors with an opportunity to convince you to buy something else. When you realise that your current Apple product is a little old for your liking, Apple wants you to automatically purchase the latest (and greatest) version rather than engaging in a shopping mission.

Trapped between a rock and a hard place

Today may of our high street retail stores are little more than the end point of someone else’s supply chain.

We can play with the margins in the short term to keep our business going. But this is not a viable long-term strategy.

You can focus on well-branded, highly differentiated, and exclusive products, as Ron Johnson did for J.C. Penney. However, the high value brands who might attract customers to your store are becoming increasing agnostic as to where their customers buy their products. Apple, for example, doesn’t care how or where you buy and Apple product. They only care that you do buy an Apple product.

You can focus on non-exclusive products with a twist of differentiation to create a little value for consumers and minimise price comparisons. You will, however struggle to attract consumers to your store, pulling them away from the comfort of couch or encouraging them to spend a spare moment heading to your store to see what you have on offer. Nor can you pitch your wares in a spare moment during their commute.

You can try to sell non-exclusive and non-differentiated but at a discount. This, however, is a race to the bottom where your competing with global organisations who don’t have your overheads and other retailers who can use smart phones to put their till in the hands of the customer.

Finally, you can try to sell non-exclusive, non-differentiated products at no discount, but products that advantageous to buy at a store. Many consumers still prefer to try on expensive clothes, for example, before they buy them. Consumer preferences change though. Many pundits said that you could only off-shore services that can be competently done at a distance. That was until the booming trade in medical holidays emerged, with individual flying from London to Eastern Europe for expensive dentistry, or from the U.S. to India for plastic surgery. We must assume that consumers will adapt.

You need to build a community

So how do we attract consumers into our store?

Marketing – branding – has always been concerned with trying to get the consumer to identify with a brand, to make the brand part of their identity. From the Marlborough Man to ‘Think Different’, the challenge has been to make your image something that the consumer want’s to display to signal something about their own character.

Retail needs to make itself part of the consumer’s identity, rather than simply providing a convenient delivery mechanism for someone else’s products.

The consumer needs to have already made the decision to come to your store before they realise that they need or want to buy something.

Success in retail now depends on your ability to build a sense of community. Provide the consumer with something that they can identify with and which they want to make part of their lives.

Your retail presences needs to be build on a topic, as interest that your organisation and the consumer share.

This might be as abstract as the idea of a ‘third place’ (other than home or work) which Starbucks has exploited so successfully. It might be as broad as music or fashion, literature or books. It might be narrow, built around a specific craft or hobby, such as scrap booking.

Your retail presence won’t be focused on moving product. It will be built around servicing the needs to the community.

Music stores are expanding beyond shifting vinyl and CDs, hosting in-store events, functioning as small music venues and even allowing you to by a morning coffee or an afternoon beer. Craft shops are selling craft supplies along with hosting crafting courses and providing a launching point for weekend retreats. Clothing repair stores are hosting clothes-making and fashion evenings, helping customers explore fashion, helping them finish or repair garments and providing them with the supplies they need. Even Starbucks has experimented with selling the music that is piped through the store: you heard it, you like it, you can buy it (if you want).

There’s no future in building your retail experience around selling someone else’s product. How do you attract consumers to your store when it’s simply one of many places – on- and offline – that they can buy the same product?

You can, however, make your store part of a community that your customers belong to. As long as they are part of this community they will buy the products and services you provide.

Image source: Intérieur du Bon Marché, Archives Moisant-Savey, Photo vers 1900 Domaine public