Less Products More Buys

Reshaping of the Retail Landscape
October 17, 2014 Omnibus

WHAT’S EXCITING IN THE CRISIS

All the negative aspects of the crisis aside, we shouldn’t miss some exciting moments of the situation. In the wild currents of turnover times, we suddenly have the ability to first-handly observe the reshaping of the industrial landscape. It’s like witnessing a huge building being renovated. Renovated, not only restored! And it’s not that everything existing is going to completely disappear in the process: some walls will remain, the other will fall down; new spaces will open, plumbing will be modernized; new furnishings brought in, worn out pieces partly recycled, partly removed.

NEW PICTURE

In this light, some contours of the new arrangement have already become visible. Looking at the retail industry it becomes obvious that the traditional retailers – giant chains of yesterday – are the ones who are experiencing most troubles during the change. The 3rd largest retailer in the world, Tesco, has just recently replaced its former CEO due to »sinking of the market share«. At the same time, the discounters like Aldi & Lidl & Co managed to successfully pull the customers through the doors of their premises. Other (or the same!) customers escaped to internet retailing with its easy price comparison and snake long-tail of products described in Chris Anderson’s book. Then there are specialty stores and other new competitors.

Stepping back from the media buzz that discounters and internet retailers attain, we can see also another new competitor that is usually overlooked. I’m talking about local food suppliers who deliver directly to the customer. In Slovenia – small, central-European economy, where I come from – we have experienced a sudden resurgence of almost dead local vegetable & fruit markets. Yes, the ones where the tomato still has traces of mud on it and where people mix with wasps.

My point is, that exactly these – the least fancy local food markets – are the ones who most thoroughly expose the failure of the retail giants of yesterday.

FALLING MASKS

It seems that despite the steady flow of consumer research, developed data-mining techniques and use of sophisticated shopper observation techniques, the giants have overlooked something there.

So, what is this something?

It’s something that small niche players in local markets feel without state-of-the-art technologies — the pulse of the customer. Sometimes pure listening would help. People now want to participate, to know where the products are coming from, hear real stories of the products.

But the traditional retailers try to defend their yesterday’s position with cost-cutting, heavy promoting, providing online retailing, etc. Their answer to the new situation is still pumping tons of money into advertising/marketing campaigns. Unfortunately for them, all of this doesn’t work anymore. At least not as expected (see: Tesco).

Although in my opinion discounters are part of the same coin as old retailers, it has to be admitted that they have very clearly addressed the changed customer’s expectations. With less-than-basic shops covering 800 to 2000 products, they are almost shouting: Come on, it’s only plain, old industrial products, nothing else – don’t pay too much for something that is nothing special! And it tastes the same! Or even better!

Let’s for the brief moment return to the image of building renovation, presented in the opening part of this article. While everything has been changed, the Giants are acting like they could get away by only putting some fresh color on the walls. Instead of real change, they are using new marketing labels to cover old contents – they’re offering just marketing cosmetics!

But this is the place and time where the masks fall down.

THE SCOPE OF THE CHANGE

To see the scope of the change we can turn to other buildings being renovated. For example, tourism, with the rise of the Airbnb, the platform that connects independent, private travelers and hosts. It is exactly new customer’s – pardon, traveler’s – expectations that are addressed here. What seemed impossible even 10, 20 years ago is now the fact. Many people now want to mix with locals, they are more independent & flexible and that makes huge concrete dinosaurs without personality (read: hotels, read again: traditional retailers) losing their grip, becoming part of the yesterday’s game.

And the profound change is everywhere. The list of examples is neverending. From immobilized banking capital being by-passed by Kickstarter to the thriving of local beer breweries with stories.

TO SHAVE OFF THE ARROGANCE

So, are the traditional retailers already dead, vanishing in the renovation of the industrial building?

I wouldn’t say so. But in order to reestablish a connection to their customer base, they will have to really discard of the old business model and accept the innovation. First, they will have to shave off their arrogance and learn from what the niche players already know. Our local farmer’s joint cooperative brings its organic vegetables directly to the doors in nicely decorated green crates. Their products have a clear origin, are produced in a traditional way and are accordingly spiced with funny internet blog full of healthy recipes plus invitation to visit their farms during the weekend (where children can interact with animals in a natural environment).

Here, I will go one step further. The Traditionals shouldn’t only learn from the small, but they also need to widely open the doors and cooperate with innovative, but dispersed small suppliers. Gigantic old guys’ have the industrial experience, the network, the capital, the power, the logistics, etc … but only new approaches from the innovative providers could bring them new blood that would really rejuvenate the old-timers.

FINAL THOUGHTS

And it seems that board members of Tesco wouldn’t agree with this strategy. Only few days ago they appointed new leader Lewis whose basic experience was gathered at Unilever. With this in mind, his main agenda (it least according to a Guardian profile) would be to win price wars … But it’s not really the price war that has to be won or brand portfolio to reposition. It’s the old, worn out model that has to be changed.

It is real innovation not emulation that is needed!

Only then the traditional retailer can be really changed and integrated into the building that’s being so profoundly renovated.

Photo: (c) zeleni-zabojcek.si

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