The future is now for retail.
The tables have already been overturned. Shoppers are more empowered than ever: They’re quick to draw their smartphones and compare prices and product assortments. And they’re ready to buy online in an instant or seek inspiration from lodestars that hardly existed a decade ago — putting down their fashion magazines and turning to bloggers or social media for style ideas.
Consumers are also ready to say, “No, thank you,” when a bauble or bag isn’t just want they want and spend instead on experiences. Skydiving instead of suits and sunglasses? You bet.
While all that adds up to a moment that’s ripe with retail potential, with new business models being invented and new consumer worlds waiting to be discovered, it’s not exactly a pretty phase.
The next-gen brands that have caught fire in recent years — Nasty Gal, Bonobos, Warby Parker, et al — are all on some level still working to establish themselves as digital-retail hybrids. And established names looking to get in sync with the next generation of spenders are interested in transitioning into something new.
Retail’s reached a new kind of awkward adolescence, filled with exuberance and fear — and a new kind of strength that still isn’t fully understood.
As with any adolescence, growth is uneven.
“Retail today is probably in the most important position that it’s been for many decades,” said Arnold Aronson, managing director of retail strategies at Kurt Salmon. “For years it’s been overstored, it’s been over-assorted, it’s been overly price-promotional, it’s been overly driven by short-term considerations.
“This is really the time in every existing channel of retail distribution for a champion to emerge,” Aronson said. “That champion is going to be a company that understands the major needs of today’s customer, who is really demanding the right product, in the right place, at the right time, in the right atmosphere, with the right execution.”
He pointed to the success of brands such as Nike, Apple and Starbucks, which have thrived while avoiding the path to the bottom that some other brands have taken in their efforts to attract customers.
“The battle lines are drawn and everybody knows what they need,” Aronson said. “[Retailers] don’t want to become victims of disruption, but at the same time, they want to do their own disruption.”
Recent research from Accenture found that “inflexible operating models” are holding retailers back when it comes to staying competitive and growing their businesses.
The consultancy surveyed 700 executives about the process of creating “cost-competitive operating models and reinvesting in growth.”
“The findings highlight the need for retailers to become more agile — constantly learning about their customers and flexing to deliver relevant, engaging and useful interactions with consumers,” Accenture said.
Recently, many of the big retail brands have been trying to do just that. Macy’s announced plans to shutter 100 more stores as it repositions itself in the market. J.C. Penney Co. Inc. said it would continue rolling out Sephora shops in its stores while also pushing the accelerator on other merchandising initiatives.
And they have their supporters. Polo Ralph Lauren Corp. chief executive officer Stefan Larsson told attendees at the company’s annual meeting this month that he’s “a big believer in the department store. A well-run department store solves a big consumer challenge.”
The Accenture survey found that 88 percent of retailers are currently focused on getting leaner and freeing up funds to invest in growth, largely by pouring money into the digital area and by entering new markets, according to the study.
“This is consistent with where industry analysts see growth opportunities,” Accenture said. “Just over half of retailers (52 percent) strongly feel their businesses are investing in innovation in order to gain a competitive advantage, with primary areas of focus being expanding into new geographies (cited by 60 percent), digital technologies (54 percent) and enhancing customer experiences (52 percent).”
“The old model for retail is broken,” said Shyam Gidumal, principal and Northeast consumer products and retail market segment leader at consultancy EY. “The old model for retail was, find some really cool stuff and a high-traffic location and put it on the shelf and people will buy it. If all you’re doing is that, the model’s moved on, you need to do something more than that.”
How to get there is a problem of focus.
Retailers face dramatic changes in the marketplace. According to Gidumal’s tally, they include:
• Increased price transparency
• Broad availability of product
• Changes in the economics of delivery
• Shifts in consumer preferences
• An overstored environment
“The mistake [retailers] are making is they’re just picking one or two and saying, ‘I can resolve this. I don’t want to change too much, I just want to change a little,’” Gidumal said. “That might not be enough for many, particularly those retailers with big store bases.”
“Real estate is expensive and some people have bought into footprints that are just way too big,” Gidumal added. “They were driven by the public markets in many cases to continue to open more and more stores.”
Now many of the old beliefs are being questioned, or reevaluated in a new light for a new age.
“Everything that we considered as the core and the fundamental to a retail business is now being challenged,” said Hana Ben-Shabat, a partner in A.T. Kearney’s retail practice. “We always believed that economics of scale were the most important thing to get a more efficient business. Now we’re talking about personalization and we can’t do personalization [on a big] scale — or at least, it’s not easy.”
Looking to the future, it’s certain that some of the current crop of retailers will fall by the wayside while others charge ahead.
To make it into the latter group, Ben-Shabat suggested retailers start by taking a close look at their business models and find the inefficiencies, which are the areas that are ripe for disruption.
“Is there anything I can do in my business model that could be completely disrupted? That’s what I need to protect and build from there,” Ben-Shabat said, describing what the thought process should be.
While there are clear leaders in the market today, there’s still plenty of room for retailers to reinvent.
But that will require a long think, some help and advice, an appetite for wholesale change and more than a little moxie.