Is there really a 'retail apocalypse'?
By Pascal Salasca - November 01, 2019
If you're only looking at the hard numbers, the future of retail seems bleak. With some major US and global players filing bankruptcy in recent years, it's enough to make everyone in the retail industry more than a little nervous. But what the numbers don't show you, may be the true reasons that big brands have lost their foothold. Can we truly place all the blame on a post-consumerism age, or did these brands go under because they failed to adapt to the inevitable changes in customer behavior and demand?
If you're heading into the age of digitization and servitization with a "business-as-usual" approach, it's no wonder you may feel at risk. But the "death spiral" can be survived!
What is happening to retail - disruption in the market
If we take the apparel industry in particular, 10 of the 16 major bankruptcy filings so far this year have been by companies that exclusively sell clothing and/or footware. Even more companies are shuttering doors, and slashing their workforce. But if we look to common factors that may have contributed to big retail downfall, we can see how market trends coupled with "too little, too late" inaction got them there.
Structural changes in retail
It's no secret that e-commerce is thought to be the major contributor to the death of physical stores. When shopping can now be done from the comfort of our homes while we have pyjamas on and a beer in our hand, it's no wonder e-commerce is a multi-trillion dollar market globally. But it is possible for traditional retail and e-commerce to exist in tandem.
Consumption is down
The simple truth is this: overall, consumption is down. It's a reality that any company that sells anything must face. In fact, the average household spend on apparel in 2017 only accounted for 3.1% of total spending. That's down from 6.2% of overall spending in 1977 - a decline of 50% over the last 40 years.
But there are a lot of reasons for this, and we can't really point fingers to one main culprit.
However, globally, the percentage of the population with disposable income is growing. The size of the middle and upper class is now actually a majority, with this demographic now claiming the highest percentage of the population that it ever has in history. Countries like China are seeing rapid growth, with more people possessing more wealth. So we know that there is enough cash to go around, when it comes to spending. An overall trend that points to a decline in consumption is more likely due to consumers just spending their money differently.
Cost, and competition, is up
Simultaneously as consumption goes down and e-commerce grows, costs for running and managing brick-and mortar retail operations are higher than ever. Rent prices per square meter have been steadily increasing, as well as labor costs. This can deter some brands from expanding into physical spaces, and cause others to pull back to save on resources.
But adaptable, scalable business isn't simply about saving costs, but rather how resources are allocated.
In other ways, competition and oversaturated markets (over supply) are leading retailers to struggle. With so many choices now available to consumers, it becomes more difficult for companies to differentiate, capture attention, and generate loyalty.
All of this sounds like a recipe for disaster, right? It seems as though retailers could hardly get through the current economic landscape unscathed, hence the fear mongers who are crying "apocalypse." But here is the important thing to remember: While consumerism is down, and competition is up, that doesn't mean you still can't get a piece of the pie. It's the retailers who become more savvy to the times, and learn how to access the new kind of spending, that will survive.
Adapt or die
We should remember though, we've been here before. Industry has always had disruptions that force entire markets to make structural changes. The names we remember from history class as the "titans of industry" or revolutionary innovators are those who didn't shy away from changing times, they found the best ways to capitalize on them, and in some ways, they even drove the change themselves.
When we hear of the latest casualty of the retail "apocalypse," we shouldn't be all that surprised by the names. While it can feel shocking that a company like Sears, for example, (which had been around for over a century), closes its doors, there is a pattern here. Very little was done by the company, or others like it, to change their business model or in-store service.
Don't just improve offerings, improve experiences
Which brings us to the point. With competition at an all time high in oversaturated markets, comparison shopping is no longer only based on quality versus price. Millennial consumers, especially, look to company values and overall experience - especially when shopping in-store.
A great example of this done right, is the French cosmetics conglomerate Sephora. While carrying high-end brands together with lower-cost store branded products, they've hit the nail on the head when it comes to creating better overall shopping experiences. With a try-before-you-buy model, there is less risk to customers in making big purchases, which is an advantage in and of itself.
But one of the main differentiators that Sephora has become known for is their army of knowledgeable, skilled employees. What they've managed to do really right, is not just build a staff of salespeople, but rather experts. While of course the end goal is to push products, Sephora employees give tips, tutorials, advice, and generally help guide customers to make informed decisions.
Focusing on customer experiences means that they've managed to create a demand for brick-and-mortar shops, with the company opening as many as 150 new stores worldwide per year. In 2019 alone, they announced 35 new stores to be opened in the US.
Better resource allocation
So what can we learn from Sephora's example? It's not enough to sell great products at great prices. Retailers need to think about how personalization, service, and experiences play a role in modern purchasing decisions, and invest in the methods for delivering on these values.
One of the best ways to do this may very well be investing more in staff, who can work to delight customers, and build the types of relationships that aren't possible with online shopping. Thinking about how to engage potential buyers when they walk through the door can help brands build the types of experiences that incentivize store visits. Because when you don't offer anything superior to what consumers may find online, you won't easily motivate customers to give you their time and money.
Products + servitization is the winning formula
You may also look to change your actual business model to adapt to changing times and the need for better retail experiences. How is it that you can not just sell your products, but also look to add customer service or experiences to the offers you provide? The bottom line is, you don't need to abandon brick-and-mortar to survive the so-called retail "apocalypse." You can (and should) alter your offerings to include an element of servitization, and create better in-store experiences for customers. These are the things that drive foot traffic, instill positive associations, and encourage repeat business.
How can you offer customer service as an aspect of your business? Take the example of Apple, or other big multi-brand electronics retailers. Not only are you buying the product (say a smartphone, or computer), but these brands drive store traffic by offering professional services like problem troubleshooting and tutorials. Knowing that support is available before, during, and after a purchase, can make a big difference in consumers' decisions.
As with Sephora and Apple, much of the creation of good retail experiences comes down to the people you employ. It's not always about saving money by moving to online and e-commerce, it's about being smarter with how brands can use resources for their locations. You can look to equip staff with resources (a la sales enablement), but encouraging salespeople to provide better experiences can also come down to training, coaching, and customer service strategy delivery.
It also means having the right tools in place to monitor and track performance, communicate within your organization, and receive support when needed. Being able to handle customer support questions, monitor budgets, set and measure goals, and be more engaged can ensure that your sales staff are able to provide those great experiences to customers.
Is there really a retail "apocalypse"? Maybe, but not in the ways you may think. While the old way of doing business may be dying, there comes new opportunities to encourage sales in different ways, by adapting to how consumers now spend, and what their motivations are. Instead of throwing your hands up and closing up shop, look to build out your customer experiences, with a more service-minded approach for your salespeople.
We strongly believe that with the right focus, activities, and engagement, important KPIs can be raised. How much can your profit increase with a well-executed sales management process and sales operations. And what would your return of investment be? Try our retail calculator and find out!