The chart reflects the erosion of shareholder value of traditional retailers over the last 10 years and represents a changing of the guard from traditional legacy retailers to modern retailers like Amazon. (Chart: Jeff Desjardins – thevisualcapitalist.com)
This traditional model of retail has been around for more than 100 years or arguably 2,500 years if you believe Confucius, who said “A Man without a Smiling Face Must Never Open a Shop” and is in the process of transforming into a new digital model with role models like Jack Ma and Jeff Bezos. At least 50% of retailers will not survive this transformation in our view.
So what is it going to take to survive and prosper and what industries can we learn from to successfully make the transition. For me the most recent and best example is the Newspaper Industry and I have to thank my friend Colin Morrison of the Flashes & Flames blog for providing insights over a number of years on this subject. So the 3 lessons we can learn in retail from the Newspaper Industry transforming into digital are
Lesson 1: The transformation will happen quickly and accelerate. For retailers facing Amazon and Alibaba you will need to be ready in 18 months. Not being prepared will be terminal, can you really take the risk? For example the “rivers of gold” revenue from paid print advertising literally disappeared overnight and transferred to more nimble digital competitors.
Lesson 2: Management will protect the status quo, their jobs and the old ways which slows down innovation, being competitive and often proves terminal. If you were going to start a newspaper today the business model to make a profit is completely different – no print manufacturing, large offices , hundreds of journalists etc, more an innovative low cost stripped down model in alignment with revenue projections. When a large global fashion retailer was looking to transform from a traditional legacy retailer to a modern retailer, the CEO and Head of Strategy took responsibility for defining the customer experience strategy and selecting all technology applications rather than defer to the IT Department with 175 staff. This is a real problem for retail CEO’s who rely on their management teams to initiate and implement change. From my experience most managers are focused on the next quarter, the tactical and are too busy to “look over the Horizon”.
Lesson 3: Think Digital to identify new revenue sources, identify competitors and cut costs. In newspaper terms think Carsales.com.au, Realestate.com.au and Seek.com.au. as competitor. A digital mindset allows you to identify opportunities, threats and cost savings. In retail, you don’t need an expensive training department if you train your staff on the job with apps. If you have a cloud based ERP systems you can eliminate a number of headcounts in your IT department and automatically get upgrades. Amazon and Alibaba will open up a whole new group of competitors both global players who do not want to open up stores here, Consumer & FMCG supplier’s base and ultimately from Asian manufactures. I was surprised how shortsighted Woolworth’s was in replacing several Mount Franklin SKU’s with their own home brand. I can imagine a scenario in 18 months’ time where coca cola Amatil may bypass Woolworth and deliver via Amazon prime cases of water with free freight within 2 days to the consumer and save considerable margin to boot. I predict Coke Cola and every other supplier for both consumer & FMCG will be on Amazon and Alibaba when it arrives here. I recently worked with a global supplier to retail and by 2015 Amazon was their No 2 customer globally.
A number of Merchandise Departments have adversarial relations with suppliers in Australia (For example Woolworths/Coke is not exactly a win-win for both parties with Mount Franklin) whereas the trend overseas is joint value creation with key suppliers/retailers. Last year I facilitated in the US a 3 day sales training for 40 KAMs on a specific course I developed on selling to retail buyers and we were comparing who was the best in the US in Joint Value Creation – no surprise there, Amazon and Walmart followed by Target USA
It’s an exciting time in retail, though it’s not for the faint-hearted. The old fairy tale about the tortoise – “slow and steady wins the race” in a digital age turns into road kill. I prefer Jeff Bezos version of a digital fairy tale especially if you look at the growth of their market value- “put the customer first, invent and be patient” (but not slow).
By Bill Rooney CEO 6one5 Retail Consulting