The retail apocalypse. Sounds scary, right? By now you’re probably aware that retail is going through an unprecedented reset. And 2017 bankruptcies in retail will outdo the Great Recession of 2007-2009 if the trend continues.
What is driving this change?
Is it the “Amazon effect? Is the 20 percent CAGR of e-commerce impacting overall retail? Has consumer behavior changed forever? The fact that the U.S. is “over-stored,” combined with the 50 percent reduction in store traffic since 2010, has created a consumer shift that cannot be ignored.
The consumer has been empowered by technology in a way not seen in many generations. Consumers are now flexing this new-found muscle, and it is supporting tremendous growth in businesses who “get it,” while burying those who don’t.
The deeper trend driving this underlying change is the fourth industrial revolution, or what many are calling the commercialization of the consumer. As Klaus Schwab writes for the World Economic Forum, “The First Industrial Revolution used water and steam power to mechanize production. The Second used electric power to create mass production. The Third used electronics and information technology to automate production. Now a Fourth Industrial Revolution is building on the Third… It is characterized by a fusion of technologies that is blurring the lines between the physical, digital and biological spheres.”
The consumer, empowered by the technological ease and simplicity afforded by the fourth revolution, has been one of the main triggers of the current retail apocalypse.
The hallmark technologies of the fourth industrial revolution have a profound effect on how the consumer interacts in everyday life. Mobile devices, artificial intelligence, robotics, the internet of things, autonomous vehicles, nano/biotechnology, 3D printing, smart fabrics, energy storage, cloud computing… the list goes on. The key is that all of these technologies have real-world, personal applications to them, and consumers are adopting this technology at a rate faster than companies are able to adapt.
Where the first three revolutions had a profound effect on business innovation and growth, at a pace where a business could control the consumer’s every move, the fourth revolution has changed that. One person, one mobile device, with a data connection and access to social media, can have a direct impact on how companies engage with their consumers.
New consumer expectations
In the pre-digital world, the consumer was captive and complacent; following the marketing cadence of big business. They watched ads on TV, sifted through promotions in their newspaper, and were inundated with point of sale offers in-store. Marketers owned the conversation with their consumers. Those times are long gone.
The internet democratized the conversation between companies and their target audiences; Amazon, Google and Facebook weaponized this interaction.
The commercialized consumer of today has limited brand loyalty, demands a channel consistent shopping experience, wants the best product, at the lowest price, shipped fast, free and on-demand. Oh yeah, and don’t forget free returns without limitations. The overall experience must be exceptional every time.
How does retail support the consumer of the future?
The following are three ways innovators of today are riding the wave of continuous change:
1) Vertically integrated, direct-to-consumer strategies win
If you are a brand and not selling direct-to-consumer, you need to. Amazon is rolling out their own brands. Target is changing its private-label strategy to be entirely consumer-centric, while Walmart continues to invest heavily in M&A by acquiring brands suh as Bonobos and ModCLoth. Successful upstart retail brands, including Warby Parker eyewear and Casper mattresses, are laser-focused on engaging consumers through optimal shopping experiences both online and instore. Subsequently, they have a competitive advantage over the traditional retailers and are eating up market share.
2) Re-imagined store strategies unlock competitive advantages
Say what you want about the growth of e-commerce, but it still only accounts for 10 percent of all retail sales. Yes, there are too many retail locations in the U.S., but $3 trillion of the $3.4 trillion still comes from stores.
It’s important to understand that e-commerce at scale is not cheap, and having a physical presence can support your digital efforts logistically. Ship-from-store, online returns and curbside-pickup are cost-efficient options that leverage store operations to optimize service. Retailers need to focus on the consistent experience for all of their fulfillment options. There is no difference between the digital and store shopper; they are simply consumers that demand service from their favorite retailers at every step of their daily journey.
Amazon started opening stores in 2014, and with the recent purchase of Whole Foods for $13.7 billion, they look to build a physical footprint of “bricks”. Even digitally-native brands are being acquired by traditional retailers: Walmart bought Modcloth, Moosejaw, and ShoeBuy. Hudson’s Bay bought GILT. While the footprints, formats, and functions of brick and mortar stores will inevitably continue to change, store utilization focused on serving modern consumers can unlock strategic growth.
3) Play like Amazon, don’t try to beat 'em
As a retailer, trying to fight head-to-head with Amazon is a losing battle. Amazon’s profit centers; including the marketplace, AWS cloud-hosting and advertising platforms, allow the company to ignore thin margins in retail while growing rapidly.
The good news is: you can still play like Amazon. Walmart, Target, eBay and others are building out their marketplace capabilities to offer an alternative to Amazon’s Fulfillment by Amazon (FBA) platform. Further, technology startups, such as FLEXE, a direct competitor to FBA; DSCO, a drop-ship integration platform; and Arteria Network, a marketing and data network that leverages e-commerce logistics, provide the broader retail landscape with the capabilities Amazon has employed to become the behemoth it is today.
Amazon’s success has always been about providing modern consumers, who are empowered in an unprecedented way by technology, with what they want, which is convenience and affordability. One-click checkout, Prime and Alexa are all examples of supporting the needs of consumers first, by empowering them through technology.
All businesses, especially traditional retailers, must actively embrace the tech-enabled, commercialized consumer if they are to avoid succumbing to the hellfire and brimstone of the retail apocalypse.
Rob Caucci is CEO, and Bill Thayer is COO of Arteria Network, a marketing and data network that leverages e-commerce logistics.