The future is bleak, unless… | IR News

The future is bleak, unless…

Posted Date: 18/07/2011

By Dennis Price

It is easy to be a pessimist, and I don’t consider myself to be a graduate of that particular school of thought.

Having said that, the Titanic of traditional retail is sinking and there aren’t enough lifeboats for all businesses.

I am not referring to the traditional economic indicators because that would just be cyclical, albeit painful, period.

I am casting my eye towards other trends and factors that will impact traditional retail and cause massive, irrevocable disruption. (And it does not give me any pleasure to do so.)

I am presenting at a conference in September, and as part of my preparation I will discuss the research conducted by Lewis & Dart (2011) on what is happening in the retail channel. They predict that 50% of retailers/brand will fail. Whilst they do not put a timeline on it – the suggestion is that it will be this decade.

That is a very big number. And it scares me.

I have privately been forecasting doom & gloom but until now I have not gone public because there is very little benefit in being negative.

But I have decided that unless we now acknowledge the pending disruption, we are postponing our capacity to deal with the solutions.

Looking beyond the current economic climate, which would ordinarily be cyclical event that will come good again, what are the troubling signs?

Fact #1: Margin Contraction

In a hypothetical scenario where every member of the supply chain has a 100% mark-up, the relative margin earned as a % of the RSP can be conceptually viewed as per this image.

The retailer has a big chunk of it in dollar value and every member of the supply chain is after a piece of that pie:

They do this by opening up their own ‘channel’ to the consumer – usually online.
Retailers are responding (or possibly started it) by pursuing private label strategies, trying to claim additional margin upstream because of the price pressures down-stream.

Hello - Apple Retail. Is Amazon far behind?

An interesting question on the side is whether the NBN accelerate the demise, or enable the survival of traditional retail?

Fact #2: Channel Fragmentation

Channels are popping up everywhere. Retailers now have numerous channels to navigate because consumers are in numerous places.

Multi-channel is not an option – it is an obligation. And by multi-channel I don’t mean adding ecommerce website to your existing business.

There are currently estimated to be 50 billion websites in the world. Even if you do open that Facebook page or add a shopping cart to your website – and even if you pay some good money for SEO, the chances of being found by a sufficient number of people are decreasing by the day.

Fact #3: Consumption Value Shift

Consumers are re-defining their view of what constitutes value.

Some retailers are mistakenly thinking that this equates to a universal shift to lower prices.

This is not the case. Value is more than price. Resorting to price-cutting is what we are forced to do in the absence of a more creative alternative.

Our response

These are just some of the meta-trends that are inexorably re-shaping the retail landscape. There are more, but they all mean the same thing:

We need to respond with imagination to the challenge, and I believe we can.

That statement is of course a frustrating, generic response, but for good reason:

The specifics of the strategies may be different from business to business…
A more detailed framework requires more space…
And I can’t give away the crux of that presentation…

What I WILL say is that I honestly believe we can respond smartly to a very bleak prognosis.

Just sayin’

Dennis

PS: My conference presentation is about how we can avoid that 50% failure rate – and respond to the challenge. If you are interested in attending, download your brochure here and get my special codeword that knocks another $125 off a great price. (Or email me.)

PPS: If you wanted to check out google+ but haven’t scored an invitation into the beta yet, email me, and I will add you.

Keywords: Dennis Price

Comments:

Wednesday, July 20, 2011 by Alfonso

Dennis....Making money off a rude customer is the sweetest revenge, right? Absolutely, and if you can get them to come back and spend more money it's even sweeter!

Paul.... True in the end the customer is always right and rude or not we have to serve him/her pretending not to mind their rude behavior, their money is what keeps us in business. Put it this way I never enter a retail establishment with a mobile phone attached to my ear it's just common sense and rude do to so. In a perfect world the customer should learn how to behave and by doing so will get better service even by the most unqualified or inexperience sales person, but of course I agree with you retail is about servicing the customer not the other way around. In conclusion I was just letting off some steam and taking advantage of this forum to see If other retailers were agreeing with me or I am just getting too old and grumpy and maybe just maybe retail is no longer a field I should be in. Of course that fact that fellow retailers agreed with me does not mean I am going to treat my customers any different, we always treat them politely. Come to think of it some customers may not even realize that they are being rude since so many people do it it may have become as acceptable behavior. Thanks for the feedback I'll take that on board and share it around.

Tuesday, July 19, 2011 by Dennis

Making money off a rude customer is the sweetest revenge, right?

That is a bit facetious, but (a) since Alfonso is right -there are many rude customers - and (b) Paul is right (we have to serve anyway) - the best way to deal with it by seeing it as a professional challenge.

Tuesday, July 19, 2011 by Paul Mischel

Alfonso, having been a senior executive and sales trainer for a retailer with 50 stores in Australia and 100 stores situated throughout Singapore and Malaysia; I can appreciate your perspective. Dealing with the public can be very frustrating at times. However the public are the ones that keep you in business. Whether you agree or not, regardless of the types of consumer behaviour you outline in your post, your business is primarily set up to fulfill their needs and exceed their expectations.

If your salespeople are worth their salt, then they should have in their possession a range of strategies to circumnavigate the iPod / Phone issue and the seeming "rude" behaviour of customers. The last time I checked, retail was about servicing the customer, not the other way around?

The question I have for you Alfonso is, what strategies are you using to entice, entertain and welcome customers in to your store? Once you have converted the window shopper into an actual customer, how are you going about converting them into a loyal customer for life?

Alfonso, please correct me if I am wrong, but it would seem that some of your statements in your commentary are about the customer behaving in a manner that you and your business define as "acceptable", and that it is the customer not the retailer that needs to change?

@ Dennis - thanks for the clarification and the opportunity to contribute to what is evidently a hot topic.

Tuesday, July 19, 2011 by alfonso

I like how everyone points the finger at the retailer and how slack we are in customer service etc:. It's true about customers regularly checking goods at a bricks and mortar retailer and then let the fingers do the walking on the net until a bargain price is found. Ah and by the way if they have any questions about the item they will go back to the brick and mortar retailer and find a way to get him to give free advise it's no wonder he has to cut staff free advise does not pay the bills.

So here it is, call me a pessimistic but how about running some conference that actually teaches the customer on how to behave when they enter a retail outlet and not treat floor people with arrogance or talk to you while on the mobile phone to someone else or listening music on the iPod in other words they are not listening to what you are saying until you get to the price. I have already placed a sign that says no food or beverages allowed in stores as customers used to touch leather shoes leave a greasy mark on them and walk away no conscience at all about how much those shoes cost me and how useless they are now as even at half price no one would buy them. I will soon put a sign that says no mobile phones are allowed in store as they interfere with the salespeople natural ability to provide good old fashion service. As I said call me a pessimistic and a winger I don't mind. just my 2 cents worth.

Tuesday, July 19, 2011 by Dennis

Paul. Most/all of what you say is correct. The article was about underlying trends that are 'fundamental'. The issues you list point the way towards solving the problem.

Tuesday, July 19, 2011 by Peter Buckingham

I totally agree with most of the comments, the writers and especially Paul Mischel. Last night (on TV) we were introduced to the new IKEA (39,000 sq m) in Melbourne, and the new Coscos opening up. If it is tight now, watch this space!
I normally state that we are about 20% over in retail in speaches and workshops I participate in / run, and yet we still keep opening new locations, or converting a theological college in Newtown into retail as mentioned today.
Whilst the Coscos and IKEA can preach lower prices, the truth is it is probably another nail in the retail coffin that is being formed.
The quote of 50% in 5 years of retailers going belly up does not seem too far fetched to me!

Monday, July 18, 2011 by Paul Mischel

Interesting article Dennis.

I have had numerous discussion on this topic. In my opinion, customers are leaving bricks and mortar retail behind because of some important factors not addressed in this particular article.

Customer's are not willing to spend their money with a retailer:

1) When the staff ignore them and treat them disdainfully.
2) When the staff hang around the counter and are simply there to take cash or credit payments, rather than serve the customer.
3) The staff are less educated about the products they are selling than the customer who is there to buy it.
4) The staff do not actively sell the Features and Benefits to the customer, but instead simply drop margin to "make the sale".
5) The shopping experience with the retailer is more problematic than going online and clicking a box, entering one's credit card details and waiting for the product.

Most retailers have cut their staffing to the bone, with the end result being that customers are primarily self servicing. Add the dangerous combination of little to no sales skills and a poor customer service attitude from the staff who do happen to be in the store; and it drives customers away in droves.

Ironically, a technology company like Apple have gone in the reverse direction. Instead of simply just being online, they have opened up bricks and mortar flagship stores and are exceptionally successful.

Key reasons are:
1) All the staff are passionate advocates of the brand.
2) The staff are customer service oriented and the stores generally are well staffed.
3) You are greeted and acknowledged from the moment you walk in.
4) They sell the product and it's benefits, not the price.
5) You are encouraged to interact and relate with their products and have a fun, enjoyable experience in their store.
6) If you have a problem or issue, they seek to correct it quickly and amicably.

My comments are by no means meant to be an exhaustive list or the only reasons why consumers are walking away from retail. However, retailers should be mindful that if the customer is continually left to their own devices and is forced to self service in a store, then the retail store itself is simply just a showroom not a sales floor and your sales data will reflect this.

Monday, July 18, 2011 by Dennis

Rick
I think there is an answer (you are right). It is called the H-Factor (mmmmh :-))

Monday, July 18, 2011 by Rick Marshall

I think there's another change on the way - prize goes to the first to workout how to take advantage of it.
At the moment visiting a store, deciding on a product (see, feel, try, etc), and then going online to buy cheaper is easy.
If the number of stores shrinks dramatically, that won't be easy and online disappointment is likely to grow.
My bet at the moment is that there will be a period of relative shrinkage in retail while businesses at all levels try to find an answer to this dilemma.
Interesting times...

Monday, July 18, 2011 by Dennis

@Phil very interesting proposition ;-)
@Walter - nice piece you wrote. Interesting fact about group decisionmaking is that the decision is either more conservative or more risky, depending on the make up of the group - but it is rarely 'best outcome'. Which is kinda why 'creativity' in that context does not deliver the best outcome either I suppose.

Monday, July 18, 2011 by Walter Adamson

It's very interesting that the issues are conceptually similar across all industries when the time for business re-invention is near. In my work with execs, across public and private, I see the same pattern, these three key markers:
1. Margins shrinking and the management team spending all the focus and energy on running harder for less - it's the natural operational reaction;
2. Customers asking different questions - very often questions which are not understood by the current supplier-vendor - the discussion at the management team (IF it is discussed at all) is why are they asking that question, what do they mean?
3. New players appearing on the company's turf - e.g. seeing people "in the corridors" or the sign-on book or waiting to see "your" customer and you know them but don't know why they should be there as you have never competed with them before and "they are not your competitors".

When those things all happen then it's time for a serious and hard project of business reinvention. That's painful, but it's a matter of getting across onto the next growth curve with manageable risk.

And the answer is not "creativity". In fact resorting to "creativity" is dangerous, as I write here http://goo.gl/1a1iV "Why creativity is bad for business". It's a matter of team process, deep thought, realism, authenticity, and reality (and resources) to get to the right answer for business reinvention.

Walter @adamson
http://walteradamson.com

Monday, July 18, 2011 by Philip Endersbee

Dennis,
Some retailers never learn & some have not been around long enough to realise the power of a brand. When a retailer says to me that their housebrand is a National Brand then that just says to me that they just don't dig it. What they also fail to realise is that if we all march down the Housebrand slope, chasing price, important elements like R&D, new technology, new products etc just gets left behind as margins are squeezed & squeezed.
Ones reaction to a retailer who wants you to make a Housebrand should be lets have a 5 year contract or go & route up someone elses business.
The tide is now turning as retailers sales with Housebrands decline & they wish to now climb back on board with branded manufacturers & the reponse should be - sorry we cannot fit you in.
We would all love to see Cadbury put their business up for tender with Coles & Woolworths & say that because of production capacity they can only fit one of the big players into the retail mix !!! How good would that be.
Cheers,
phil

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