The media have been reporting about the demise of bricks and mortar retail and the retail apocalypse for the last couple of years. The long anticipated retail apocalypse is definitely here now, it’s galloped up on us and has overtaken a lot of retailers. The global pandemic which triggered this recalibration wasn’t part of the media’s predictions. However, it was the final straw for many businesses which were already stretched.
About a year ago I wrote a blog about why retailers need an alternative business model to survive and it is all the more relevant now. Before I look at the business model let’s look at the retail landscape. And it’s not a pretty picture!
The retail landscape.
The pandemic has hastened the demise of many household names, but most of them have been on pretty dodgy ground for months or years. The list of failed or failing retailers is long, starting with House of Fraser and my friend Mike Ashley whom I’ve written about before in my blog post, Why does my Mike Ashley want to be CEO of Debenhams. Bet he’s glad he’s not the CEO now!
Along with Debenhams in Ireland, JC Penney and Neiman Marcus in the US, it looks like the days of department stores are truly numbered. The business model of a large city centre store that sells everything doesn’t resonate with today’s customers. Plus these stores pay exorbitant rents so are saddled with a high cost base compared to local or online retailers.
Fashion has been really hit with the likes of Warehouse, Oasis, Monsoon, Kath Kidston, Laura Ashley, Karen Millen, Coast and Gerry Weber, to name but a few, all going into liquidation. Card shops Clintons and Hallmark are both gone.
This is just a snapshot and it is quite depressing to think of all those jobs disappearing and all those shop fronts being boarded up. And we’ve probably not seen the worst of it yet. All over Europe businesses are reopening after lockdown. Some will survive and thrive but some will not.
Some common factors to failure.
What do the retailers who haven’t survived all have in common? To generalise, they are:
- Big companies with a large cost base
- Have a big debt burden often built up by over expansion
- Have a top management who are divorced from their customer base
- Rely on a business model based on historical information
- Are slow to change – the super tanker syndrome – also written about in a previous blog post
- Are reluctant to embrace new technology
Is there any good news amongst all of this? Well yes, there is.
Who has done well in the pandemic?
Food retailers for a start. At the beginning of the pandemic it was like Christmas for them every day, many reporting increases of 40% or more. In particular, small local retailers that people could access easily have witnessed a huge upsurge in demand. Delivery services from big supermarkets were overwhelmed with customers often waiting weeks for delivery slots. Into this void stepped local independents who were quick and nimble enough to offer a delivery service. What might have been an ad hoc service before now took on a life of its own. Many were simple services without fancy websites or apps. The customer rang the local store with an order and it was delivered within a day or so. A really useful service for the many who were cocooning. In a way it was a return to the grocery businesses of days gone by when “the messages” would have been delivered by a boy on a bike!
And of course, online shopping continued to rise and rise. From the middle of March, this was the only way for non-essential retailers to get products to the customer. Anyone with a good online site saw a big boost in sales, up to 400% according to some reports. Many retailers suddenly realised that they needed to get online or improve their e-commerce offering. The spin-off from this was that web designers and e-commerce companies were busier than ever before.
Independent retailers found innovative ways to connect with their customers. Without a website or e-commerce platform some sold directly through social media. One of the silver linings of the pandemic is that consumers have had time to think about what they really need. Based at home, they’ve started to realise what is available in their locality without having to get in their car to drive to the big shopping centre many kilometres away.
What does this mean for the alternative retail model?
Let’s look at a couple of successful retailers with an alternative business model.
Yvon Chouinard, the 81 year old founder of Patagonia, sounds very left field. He believes stock market valuations are “absurd”, investing in shares is “buying blue sky” and modern-day capitalism is destroying the planet. He may be right.
Yet Patagonia is a $1bn turnover company that started up in 1973, uses 100% organic cotton and donates 10% of its profits to environmental charities. Chouinard also has the right idea on where the consumer sits in the change process.
“You’ve got to change the consumers first and then the corporations will follow and then government will follow the corporations. They [governments] are last in line.” In some ways this is unsurprising as many corporations have revenues that exceed entire country’s GDPs.
He was definitely ahead of his time, yet he has proved that by being a responsible retailer you can also be successful and grow. I have written previously about Ingvar Kamprad, founder of IKEA. In the introduction to his 1976 book “The Testament of a Furniture Dealer,” he wrote, “We have decided once and for all to side with the many people. What is good for our customer is also, in the long run, good for us. This is an objective that carries obligations.”
What both of these retail success stories have in common is that they don’t neglect their consumers or their workers to placate shareholders or to enrich themselves. Both Patagonia and IKEA regularly rate well on the Great Place to Work survey and often have more progressive work conditions than other comparable companies.
In last year’s blog post Why retailers need an alternative business model to survive I outlined my list of six attributes for the retailer of the future. In spite of our current apocalyptic situation those six attributes remain the same.
For retailers to remain sustainable they should: .
- Be totally in the shoes of the customer, so very important and all the more important now. Know who your customer is and what’s important to them.
- Have an Omnichannel marketing approach. An omnichannel approach is to put the customer at the centre of your sales and marketing strategy. In a world of 3bn plus smartphone users, the customer is now in control of how they view a product or brand. Ironically this means that the interaction between the customer and your product or store is now more personalised. I’ll be taking a closer look at what an omnichanel approach looks like in a forthcoming blog post and podcast episode.
- Take a proactive approach to the changing market.
Never more relevant than in these unprecedented times. Change averse organisations have a harder time surviving and meeting the needs of their customers. - Have a reactive financial reporting structure
Accounts are historical and only tell you what has happened in the past. A reactive financial reporting structure looks at what is happening now and how that can inform you for the next week/month/year. - Operate to the triple bottom line: Profit, People and Planet.
Profit is the traditional measure of a company’s success but just focussing on profit is no longer enough for today’s consumers.
Planet: environmentally responsible policies are more and more important to millennials and genZ customers.
Socially responsible – the impact of your business on people; workers, producers, customers, your supply chain. This is a big subject that I’ll be coming back to in a future blog post - Be rooted in the community, part of the community where you trade, where you are known and trusted.
These values chime in with where we are now.
Consumers, you and me, are realising the value of shopping locally and supporting small businesses. Minister Heather Humphries called on us all to support local businesses at the start of phase 2 of easing the restrictions on June 8th. SMEs make up over 90% of the enterprises in Ireland but have not always been the focus of the Department of Business and the Enterprise Agencies, who have traditionally favoured foreign direct investment.
Who will survive?
Who are likely to be the survivors of the storm and stress of the current pandemic and the economic fallout? For my money, (you’ve guessed it) it’s the smaller, independent retailers. They are nimble and adaptable, as proven in the past few months. They are really in touch with their customers and are willing to experiment with technology to attract and keep customers.
If it wasn’t obvious before, it is now. The old business model used by the fallen giants of retail is broken. What is needed for retail success in the future is a return to some of the basic values of successful retailers alongside adopting technology to deliver more value. Developing relationships with and understanding your customer base, responding to their needs and using technology as a means to do so.
Retail has always been hard work but the rules have changed now so retailers must adapt and change to stay in the game.
© Retail Renewal 24/06/20
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