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Electrons or atoms? – The future of retail
(Part I)

HMV, the 100+ year old UK high street retailer went into administration overnight, another big name casualty of a growing crisis that appears to beset many retailers today. Typically, the press coverage tends to oversimplify the problem as being about price competition from online competitors.

But it’s not as simple as that; it’s not like HMV’s management was recently ambushed by the threat of online music sales, and as in the cases of recent electronics retail casualties in the UK like Comet and Jessops, no business – retail or not – has immunity from the forces of disintermediation in today’s web era.

So, here’s my take on why certain kinds of high street retailers are probably done for, and in a follow up blog post I’ll list ten things that retailers can do to survive in the web era.

  1. Price competition from online competitors – undeniably a factor but not the whole story. If as a retailer the only value you bring is physical place and you then compete on price, guess what – you won’t be playing any long playing records let alone selling them.
  2. Innovation in modern manufacturing has resulted in greatly increased diversity of product ranges and categories. Physical retail is space constrained therefore can only carry limited lines which runs counter to the modern day consumer desire for more choice, not less.
  3. Following on from 2. if a retail store doesn’t carry the specific item I need and I can get it online next day, why not just buy it online in the first place.
  4. And if retail space constraints dictate that stores only carry the products that are in greatest demand, opportunity to differentiate between competing stores evaporates and it’s all about price and squeezed profits. So, if it’s a mainstream product I’ll just buy it at a big grocery store more cheaply where the space is underwritten by selling thousands of other product lines.
  5. Retail sales staff are no longer the experts – a) there are just too many products to be expert in, see point 2., and b) consumers now use the web to inform buying decisions before they set foot into the store. c) consumers are now the experts.
  6. Plus the personal opinions of retail sales staff no longer carry the same weight when you can read reviews from prior customers online.
  7. Retail sales staff are human and can make mistakes, appear lazy, uninterested, unhelpful. Websites generally don’t.
  8. Compared with the precise control over the customer experience gained by going direct (Apple Stores) or selling direct online, why would a manufacturer pay an intermediary like a high street retailer to sell their products. Retailers aren’t just competing with online intermediaries like Amazon, they’re competing with the manufacturers.
  9. Seeing a threat to their own futures, postal and parcel delivery companies seized the opportunity to innovate and now do a great job of delivering parcels overnight, augmenting the appeal of buying online. (Arguably in territories with poor postal systems, physical retail should be good for a while yet).
  10. The number of people who aren’t online and still depend on physical retail is dwindling with every year that passes.

It’s not all doom and gloom, in a subsequent post I’ll write up my thoughts about what specialty retailers can do to adapt and survive in the web era.

 

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4 comments

Sean Price
15 January 2013 #

Truth of the matter is, if it didn’t happen this year – it would have been next year – there is very little the likes of HMV could do to stay afloat. We all purchase/rent ala spotify/share music online. Its a commodity that no longer demands the need of a physical store.

Certain businesses will continue to live on in the high street – most typically Fashion/Clothing outlets but even then they have work to do to keep shoppers buying.

There will be I feel a lot more businesses ceasing to trade either in the high street or at all this year – plenty of room on the high street for small businesses / boutique companies to open up shop and begin to thrive – but it depends a lot of landlords offering the right incentives and the banks willing to lend to small businesses.

Carl
16 January 2013 #

Very good point regarding shopping assistants.
They used to be the experts and be able to help a shopper towards what they needed, but more often than not these days they have no real product knowledge and just point people to either the cheapest fast mover, or the biggest margin generator – and worse, the retailer will not honour a thing their representative says.

That means the only value add, is if I need the item Right Now. And since the delay is only a few days at a much cheaper price…..bye bye retailers.

Leigh Prendiville
17 January 2013 #

True about the shop assistants. Do we not all just Google the product reviews or go to comparison sites to check out which product best suits our needs? Physical stores must provide a point of difference and a degree of product expertise may be a solution. People don’t buy on price. It may be a factor but it is not the only factor. If it was we would all drive the cheapest cars, live in cheap neighborhoods, all eat at McDonalds and no one would go to private school. It never really is price – Its a point of difference. I don’t like seeing any business fail but failure is inevitable if these companies don’t adapt to a new consumer driven market where choice, expertise and speed combine with price to swing the decision of the buyer.

Phil Burchell
15 February 2013 #

You stopped me dead at “disintermediation” … so I had to Wiki-P it.

And with that, kudos to you sir … I learned a new word, and didn’t need to get out of my chair! Power of the web and all that.

I agree mostly to your prognosis about retail outlets (yet to read part 2), but the point-of-difference I think is on discretionery purchases where first-person impressions are vital to the sale … think fashion and quality of materials, let alone fitting (standard shoe-sizes anyone?) and then the ‘covet-factor’ of holding something in your hands and impulse-buying. Hard to do that online.

Commodities and standardised items, yes … artistic, designer and tactile-appreciated things, no.

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