Remember the days when retail was all about scale?
More stores, bigger space, more product, more customers.
It all added up to a compelling growth strategy.
Retail has always been one of the most volume-sensitive businesses, where incremental sales attracted diminishing costs and were therefore increasingly profitable.
That was then. I believe bigger is increasingly becoming a millstone that will drag retailers down.
While most of the blame will be attached to the wider economic picture and Brexit in particular, the key driver of retail change is structural.
And online is at the core of this change – it has added massively to capacity (the equivalent of more than 100m sq ft of space in the past 10 years), progressively reducing the footage required to reach target markets.
Having loads of stores used to be a symbol of strength – today, it’s a symbol of potential vulnerability.
And many stores are simply too big.
Most multichannel retailers are watching their sales per foot decline as their cost of store sales rises.
With the market for new space massively diminished, many are turning to acquisitions, joint ventures and tie-ups.
These are usually more attractive financially than strategically – forced marriages generally end in tears.
Then there is product proliferation.
Growing store footprints have encouraged retailers to add more options to chase a widening target customer market.
This has diluted focus on core customers, slowed stock turns, increased the need to clear stock and adversely impacted trading economics.
In every business I have ever seen, there are some sales (and customers) you don’t want.
Sacrificing engagement with core customers by pandering to the far less frequent needs of more distant ones is not a smart trade-off.
We are seeing a fundamental shift in industry economics, giving diminishing wriggle room.
Flimsy growth strategies won’t work. Inflexible cost bases wont either.
Nor will a lack of focus on exactly who you are addressing and how.
And this really brings me to the heart of the matter, and it’s as old as the hills – customers.
First came the space race and now it’s a dash for digital – the modern form of more space.
Meanwhile, customers tend to be taken for granted.
There has never been a time when retailers have so needed true loyalty and customers have so little need to give it.
All this adds up to the most promotional market we have ever seen
Today’s oversupplied market allows customers to shop around more than ever.
Online gives shoppers greater knowledge and price transparency than ever.
And all this adds up to the most promotional market we have ever seen, not driven by bargain hungry shoppers but by retailers needing to shift stock they shouldn’t have bought.
And excess options are not just devaluing retail prices, but the value attached to offers by customers.
In this period of unprecedented change there is one core fundamental that remains, and always will.
The customer is by far the most important element in the retail equation and forgetting this is life threatening.
- Richard Hyman is founder of Richardtalksretail.co.uk