Is your strategy insane? | IR News

Is your strategy insane?

Posted Date: 25/02/2013

By Dennis Price

I have written previously that omni-channel is a pipe-dream.

In subsequent comments/status updates and the like, it was clear that the message wasn’t universally accepted nor understood.

First, let’s clarify some assumptions:

The laws of supply and demand govern the retail supply chain and will continue to do so for most products/services.
The total size of the ‘retail pie’ will only increase marginally over time.
The rate of e-commerce growth continues on its current trajectory for the foreseeable future.

Given these assumptions, let’s apply some logic to the current retail environment and consider where things are going:

Total retail spend will simply be redistributed among all retail outlets (online and offline). Much like Sunday trading increased sales initially but over time as it was widely practised, people can only spend what they can, so the benefit is distributed thinly over all retailers.

Smaller retailers will be disproportionately represented among the failures because they do not have the resources or skills to make the jump as readily those better capitalised. (Although they have other advantages, the SME retailers don’t seem to be capitalising on these.)

As smaller retailers progressively reduce in numbers, the supplying brands will have to enter the online space directly (more aggressively than they have in the past) to remain represented in all geographic areas and to redress the balance of power with the larger retailers. Of course some brands will enter the world of offline (bricks and mortar) retail in response.

As brands develop skills in the online space, some may abandon the traditional channel and potentially even stop supplying the larger chains.This could force the larger retailers to become de facto manufacturers to secure supply; i.e. extend their private label strategy.

Eventually, the average e-commerce website will generate revenue similar to the average retail store. It is hard to say if the total number of e-commerce sites and traditional stores will be more or less than the total number of physical retail stores currently.But even if 50 per cent of existing retailers fail (according to Lewis & Dart, 2012) the remaining 50 per cent will all have online sites, so the total number of outlets remains the same. I don’t know what the average revenue is across all retail outlets, but I do know that it is pretty difficult for a website to make real money with revenue of less than $2 million to $3 million.

Many of the websites that are being launched right now will eventually fail to scale – and also close down.

To repeat some thoughts from earlier posts: Embracing technology in the retail delivery is a must.

Making the physical experience count is the major priority.

Replicating your existing business model (including the full product mix) as on online equivalent channel is not a realistic starting point for many small retailers.

You will have to negotiate with multiple brands/suppliers.
The backend will be vastly more complicated; especially fulfilment and systems integration.
Bigger capex and opex requirements.

Alternatives to a full omni-channel strategy are:

Pick one POD product and set up shop to learn the ropes – that is how the vast majority of successful e-commerce operations started (Zappos, Amazon, Kogan etc).
Invest in e-commerce start-ups. To diversify your investment in growth areas does not mean you have to personally operate businesses that don’t fit your core skills.
Start a different business altogether in the e-commerce space based on a hobby or other opportunities that may exist.

To be clear: I am all for e-commerce and I accept and embrace technology more than most.

I have opened shops on a few platforms and have worked with others who have. (My first internet venture failed in 1997.)

Ganador has embraced the eLearning technology in our sector to the extent that we are actually reseller for a very good platform, so this is not an anti-internet post.

But we hear only about the successes and very little about the failure. Don’t be a strategy lemming – we all know what lemmings do.

As a bonus for reading this far, here is a special invitation to Inside Retail readers you are invited to a free Retail Strategy Hackathon.

Have fun

Dennis Price

GANADOR: Architects of high-performance retail environments.

Get RetailSmart: Daily, Weekly or Monthly Options – CHOOSE HERE.

Keywords: Dennis Price

Comments:

Join the discussion online: Be the first to leave a comment.

Leave your comment

CAPTCHA Validation

Code:

Name:
* Email:

Please note: all comments are subject to moderation for legal reasons and to prevent spam. We'll approve your comment as quickly as we can. If you don't see it appear you do not need to repost it.