Wednesday, March 29, 2017

Retail Apocalypse (Tradecraft)

There is much talk about the demise of retail. We have Sears, JC Penneys, Macy's, Radio Shack, K Mart, GameStop and many other big chains closing shop this year. It has been described as an apocalypse, with over 3,500 stores closing. But what's it all about and what does it have to do with specialty retailers?

The first thing to know when assessing the victims of the Apocalypse is the number of stores starting out. According to the National Retail Federation, there are 3.8 million stores. This bloodbath of end times stores therefore accounts for .09% of retailers. So why the hyperbole and rush to declare retail dead?

Business reporters are only interested in publicly traded stocks. Unless the entirety of retail were to be feeling some sort of stress, they'll focus instead on companies with well known stock tickers. Nobody cares about my store because you can't make a buck buying from selling bits of it. You can't predict the future by reading my annual report. My CEO compensation is definitely not worthy of a social justice meme. So no, this is not a condemnation of retail and I don't even think it's condemnation of the venerable shopping mall. It's a failure of UVP.

UVP is Unique Value Proposition. These stores lack one. In fact, they're so far away from a UVP, the concept of UVP isn't even used in the conversation. Unique is instead changed to Useful. They need to have a useful Value Proposition (uVP), with a small "u." While their online competitors battle it out for Unique, they struggle for relevance, for Usefulness. These legacy stores are unable to come up with a uVP, and are simply waiting to die. They are so big, so entrenched in the 20th Century, they actually take a long time to expire, like a dying star going supernova. The only question is whether they'll become white dwarfs or black holes.

The main reason they're not useful is they've failed to change with the times, something specialty retailers are especially good at. Millennial customers, in particular, are about experiences rather than acquisition of goods.  Specialty retail has embraced concepts like Third Place Theory to take the experience economy into account. Barnes & Nobles is known for Third Place too, with their in-store coffee shops, but with a 30,000 square foot store footprint, there is no way to use specialty store tactics with big box real estate. If Barnes & Nobles was 5,000 square feet, sure, but they're doomed with 30K and a business model that can't adapt fast enough.

So no, retail is not dead. Business reporters like to report to their investor community, meaning we (the public) are not the target audience for apocalyptic visions of the future. As specialty retailers we need to stay nimble, stay useful, but aim for unique.

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