A Twist of the Dial to Rescue Troubled Retailers

In the last issue I wrote about retail and made the point that retailers should stop being about “retail” and be about “brands” that are “exclusively” sold in their stores.

To refresh, my point was that “retail” is merely a place – a location – where someone with branded (or unbranded) goods sells their wares to the public.

Retail is therefore a classic “middleman”.  And what does the internet do to “middlemen?”  It destroys them – or at least eviscerates their profit margins.

Retailers are trying everything possible to save themselves, which is admirable; however, I suspect most efforts will fail.  For example, the flavor of the month is for retailers to try to make the “experience” wonderful for their visiting customers.  Sorry – I just don’t see this.  Even if it is just so much fun to visit the new Widget Store, how many times are you going to go there for the “experience?”  Maybe twice and then it is just shopping and then you will care only about getting the brand you want at the lowest price.

However, I have another thought that may be a powerful one.  It may sound like just a twist of the dial in thinking, but sometimes rethinking the nature of the business you are in can be the catalyst for all sorts of unplanned upside.

Consider a major asset of what classic retailers have going for them?  They have locations!  And these locations are typically near people, i.e. customers.

Yes, the value of a “location” is in flux due to the technological disruption of the real estate world; however, location is still a critical factor and likely will be for some time to come.

So, pretend you are a classic “retailer.”  What should you do?

I would suggest you re-think your business and change your understanding of the “purpose of your business” from “retailing” to, instead, being “a distributor of branded goods!”

And I would add to that concept – if possible – a distributor of branded goods that are “exclusively” found in your store.

Now this may sound like just semantics, but I think it is a lot more than that.  If you look at some of the most successful businesses, they succeed because of their distribution network.

Indeed, this is part of Amazon’s magic.  Based on my thorough research – one click on Google – it appears that Amazon has about 100 “fulfillment centers” nationwide.  Sears/Kmart has I think about 1500 stores.  And many troubled retailers have networks with even more locations.

If (some) retailers rethink the purpose of their stores as essentially “fulfillment centers”, they may have a dramatic advantage – even over the likes of Amazon.  At this point I don’t see retailers thinking this way.  Meanwhile, Amazon keeps on increasing its fulfillment centers because Amazon is really in a lot of ways at heart just a distributor.  If no one wakes up to this it will soon be “game over” with Amazon winning.  But it really doesn’t have to be this way.

This re-thought business model – where a retailer’s many existing locations are essentially distribution outlets/fulfillment locations for branded goods – works neatly with:

  • The internet – i.e. the magic of having locations near people plus availability on the web.

  • The brands themselves – how many brands would make an exclusive deal with a retailer that has, say, 2000 stores near its customers nationwide?

  • Saving a fortune by not spending a ton of money on enhancing the shopping “experience”.  Instead of the experience, which costs a fortune and is incredibly hard to do in multiple locations – consider the much lower employee training time and cost for a fufillment location – all you do is put the stuff on a shelf in a “fulfillment” center and let the customer take it.

  • Saving a fortune with fewer employers.

  • Saving time and trouble with less focus on customer service and all the other accoutrements of classic “retail”.

  • Indeed thinking this way, might just be a major relief to retailers struggling with all these problems how to make their stores “better” to compete with a third party in a world that may not care about that in the first place….

As you peel away the onion, I am sure there are a lot of other ideas that flow from this that I haven’t thought of.

To sum up:  If you are a classic retailer, consider changing the essence and purpose of your business to be “Distributor of [Exclusive] Branded Goods”.

Hearkening back to my Power Niche theme – if properly effectuated, this mode of thinking would take a retailer from a weak position to a Power Niche position.

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