Evolve or be Extinct – retail is a constantly evolving industry

196
Photo by Craig Adderley from Pexels

By: Darrell Wisbey

In the striving for a competitive edge retail is a constantly changing environment. What works today becomes “old fashioned” tomorrow as other retailers simply copy the latest concepts, retail formats and operational improvements.

One element of retail that does not change is the demand by owners and shareholders to deliver an acceptable profit. Retailers are constantly under pressure to find new methods to achieve this demand.

Before listing significant retail changes over the past 4 plus decades it is important to acknowledge what I refer to as the “The 3 phases – “point of power”.

Retail in the early 70’s was controlled by the suppliers and most actions delivered in the retail store were heavily, (if not solely), influenced, (some would say controlled), by the suppliers. Within that decade retailers grew larger with more stores and rapidly growing buying strength such that the retailer’s buying power was able to wrestle control away from the suppliers. It was however the next shift in power that had the greatest impact on retail behaviour and that was the recognition that the true power is held by customers. Fail your customers and your business will inevitably also fail.

What follows is a list of the most significant changes experienced in the Australian retail market:

1. Mass Merchandising
Retail in the 60’s saw the arrival of the Mass Merchandising Department Store, (MMDS). This concept adopted the supermarket format with products available self-serve off display fixtures and pay at supermarket style front of store POS registers. The format attracted customers looking for value and this was responsible for taking business away from the traditional Department Stores.

2. Building the “bottom-line”
With increased retail competition in the market, retailers had to look internally to find ways to protect and improve their bottom-line profit. Retailers used 3 key initiatives to protect and deliver net profit to meet the demands of owners and shareholders:

a. Supplier contribution – retailers negotiated additional financial contribution from Suppliers by way of:

i. Rebates – short and long – based on a % financial contribution rebated against a sliding scale of the annual purchase value and paid by quarter.
ii. Promotional Subsidy – for suppliers to gain exposure for their products they contributed to the retailer’s promotion program.

b. Direct importing – to gain a market advantage retailer’s moved into direct importing and bypassed importers. Direct imports when controlled increased profit margins.

c. Operating Costs – with discipline and dedicated actions to reduce and control “shrinkage”, (the loss of potential profit by way of theft and administrative error), the savings delivered equal increase to the bottom-line net profit.

3. The introduction of Technology
Technology entered the retail industry in the early 70’s and has grown from a simple data processing facility to today being immersed as a critical function in all facets of the business. Successful retailers now make decisions in real time and do so 24/7.

4. Online Retail
The entry of “on-line” shopping gave the shopper a totally new way in which to purchase products. Initially there was doubt on the acceptance of the format but as is typical with technology the acceptance growth has been both fast, dynamic and is now .

5. Retail Expansion
As retailers realised own market geographic expansion was almost at saturation, they sought entry into completely new regions and then moved on into new countries and global expansion became the new challenge.

6. Fast Fashion
One of the most recent impacts was the arrival of the “fast fashion” retailers. These players thrive on “new items” getting onto the shelves more frequently than ever before to drive shopper visitations.

7. Price reduction selling
In earlier years advertising was a date event driven activity e.g. Mother’s Day, Christmas and Back to School or driven by seasonal fashion releases for Winter and Summer but as time has passed and the fight for market edge intensified the retailer has created more and more promotional activity as the primary tool to drive customer traffic.
In supermarkets in Australia now it is usual to find the store smothered every day in big discounts and product special offers. Customers now resist paying full price and expect key items to be discounted and if not, they simply shift their place of purchase to a competitor.

8. Increase in customer will self-serve at POS.
The most recent change in the world of retail is the expectation customers will now complete the point of sale transaction as “self-serve”. First delivery of this function was in supermarkets and this has followed quickly by the mass merchants.

CONCLUSION:
Across many decades in retail experience shows that change is inevitable. In the constant battle to win and keep customers in this every increasing competitive market, failure to understand, embrace, anticipate or create change will lead to your business demise.
Reactive retail management – “the retail followers” – whilst still important has the danger of always being behind the success achieved by the market leaders – “the retail creators” – and so as a follower the big enemies are time and reputation.ng
Time: change happens faster and faster being driven by the reality of what is acceptable today is “out of date” tomorrow. Increased time pressure can lead to misinterpreted understanding of how the change benefits the retailer and what is required to successfully execute it in your business.
Reputation: getting loyalty from your customers is a much tougher achievement in retail today than ever before. Customers are retail intelligent and more importantly demanding in what is required to attract them to your stores. Being innovative is a valuable differentiator that, in the eyes of the shopper, positions your business ahead of competitors making your stores the preferred destination.

About the Author:

Darrel Wisbey is a chief mentor and retail adviser who has 30 years of retail experience and has built a reputation for being a leader who interprets the market accurately, define strategic direction and deliver success by motivating, developing and inspiring teams to achieve continual improvement.

Learn more at: www.darrellwisbey retailadviser.com.

 

*First published in Philippine Retailing newsletter 2019 Q2 issue.