Tracking and Winning the Revolution

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\"revolution\"Hey, are we having fun yet? Let’s think about where we are today. Is it somewhere in the early exciting phase of the retail transformation that we know is possible? Or are we held back by the fear of failing to make this shift and ultimately be snuffed out?

Here is where we really are: At the intersection of the art and science of retailing, converging on technological steroids, serving an omnipotent consumer who expects and demands the satisfaction of their dreams wherever they may be, whenever, how and how often — and instantaneously.

Daunting, complex, disruptive — these are just a few of the ideas describing the awesome challenges facing us in this profoundly transformational era.

Traditional brick-and-mortar retailers across all channels are in the process of seamlessly integrating technology, the Internet and m-commerce into the omnichannel model, while at the same time mining big data, configuring apps, and selecting from the endless stream of experience enhancing gizmos, gadgets and augmented reality for the delight of their shoppers.

E-commerce pure plays are trying to get big fast as Amazon did, to gain a large enough beachhead to ward off copycats. And the more advanced pure plays like Warby Parker, Bonobos and behemoth Amazon, now understand that the omnichannel model is not just for brick-and-mortar retailers, but for e-commerce models as well. These Internet pioneers all now realize they must open physical stores to be everywhere the consumer wants them to be.

And then there are countless new innovative business models launching daily. One such example is Shinola, celebrating the rebirth of American manufacturing ingenuity and domestic supply chains. It proudly launched in Detroit, the iconic capital of the original innovator, the American automobile industry. They produce a diverse array of products, from Shinola leather polish, leather accessories and bicycles, to watches, pet accessories and handmade journals. Are all carefully crafted to the highest quality and style standards that resonate with the 21st century consumer. The fact that they are crafted in America also appeals to the cultural sensibilities of today’s emerging millennial generation.

The Tough News

However, all of these transforming new business models, enhanced and accelerated by the miraculous new technological tools of this era, are also faced with enormous challenges. I would say that many of these hurdles are hangovers from the Great Recession; others are the result of structural shifts to our economy. And the elephant in the room is a huge generational shift in the consumer base.

First of all, our economy has not, and in my opinion, will not, recover to pre-recession 3 to 4 percent GDP growth rates. Lawrence Summers, famed economist and former Treasury Secretary, defined what he believes to be a structural shift in our economy and coined the phrase secular stagnation, projecting the economy to grow at much lower rates, somewhere in the 2 percent range for years to come. And since 70 percent of GDP is consumption, this does not bode well for the retail industry. Stagnant to declining wages, except for the very wealthy, further suppresses overall consumption spending.

Adding fuel to this fire is the continuing net increase in retail space (including an international onslaught) in an already over-stored and over-websited marketplace. This overcapacity, in turn, is driving insane price promoting and outlet store expansion in a “race to the bottom” for all. Of course, this discounting spiral simply perpetuates the slow-to-no-growth economy.

In the middle of it all, we are in the early stage of a huge generational shift. Boomers are downsizing into retirement and shifting their spending behavior on experiential travel, leisure, entertainment and health and welfare … rather than stuff.

They will be replaced by the incoming millennial generation, a larger group in numbers, but with smaller pocketbooks. Nevertheless, even with less spending power than the Boomers, millennials will account for 30 to 40 percent of total retail revenues by 2020.

However, to dip into their smaller wallets, retailers need to understand two huge differences in millennials’ shopping behavior. First, they are smartphone addicted and more e-commerce inclined than preceding generations. Therefore, with every store and brand in the world sitting comfortably in their pockets, they are the new POS (point of sale) wherever they are.

Secondly, while hanging out in the malls and shopping used to be a favorite pastime for young people, today they are hanging out together on their smartphones regardless of physical location. They are finding a multiplicity of entertaining things to do other than shopping, such as sharing Tweets, texts, videos, and photos, plus social networking, playing games and on and on. If they want to shop, they can scan through more stores and brands in 10 minutes on their phones than spending an entire day in the mall.

So, retailers are not just competing against each other, they are also competing for consumers’ time and dollars now being spent elsewhere.

Winning The Revolution

To state the obvious, if consumers have unlimited and instantaneous access to whatever their hearts desire, either a key tap away or in a store across the street, then it is axiomatic that for any consumer-facing business to win the consumer’s purchase over hundreds of equally compelling competitors, they must master three strategies:

  1. Provide online and offline shopping experiences that are so compelling they will make their consumers neurologically addicte
  2. Develop seamlessly integrated omnichannel distribution platforms that will preemptively deliver the products/services first, faster and more often, ahead of the hundreds of equally compelling competitors. Essentially, they must provide quicker and easier access to consumers and quicker and easier access for consumers.
  3. To be able to successfully implement strategies #1 and 2, the business must have a vertically integrated (owned or predominately controlled) value chain.

I’ve been working on this for some time, connecting the dots and predicting the macro patterns that define the future of retail. Not to be overly promotional, this is all right out of my co-authored revised edition of The New Rules of Retail.



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