You heard it here first

Margin Convergence

There is a current ‘trend’ in retailing that is the logical consequence of the shift that has been happening for some time.

In case you are sick and tired of reading about trends for the new year/decades from pundits who have no track record, let me offer two pieces of evidence:

  • I founded in internet data exchange company (that folded after a few iterations) in 1997 – so multi-channel retailing/ eCommerce have been on my radar for a while.
  • Admittedly I was wrong by 5 or 10 years when I advocated (in 1999) that my employer embrace eCommerce (no schadenfreude, that is why they shall remain nameless J) but I was right about the scale and the impact.

My key suggestions at the time (2000) were that the shopping centre managers (landlords) should look at:

  • Leases (especially majors) and how eCommerce activity should be treated
  • Masterplanning – especially design of loading docks (many, smaller vehicles) and the shape of stores (wider, more showroom than retail store).
  • Retail Planning – especially music and books (and yes it was obvious even then)

I am not sure how many of them did. But it is probably too late now, the battlefield has shifted again. In the next 5-10 years, there will be a few key battlefields, and your business survival depends on your ability to ride these trends.

Over the next 3-5 years margin convergence will shape the future of many retailers.

As the margins between traditional retail and online retail converge, the advantage lies with the online operator.

Your response to this challenge will determine your future.

1.      Technology: Your business should be as high-tech as it could be. Whether it is virtual dressing rooms, RFID or the most sophisticated merchandise planning software, every retailer will need every edge it can get in order to survive.

2.      Experience: In order to find some blue ocean (and the corresponding margins) traditional retailers will have to truly create an experience for (physical) shoppers if they want them to visit. This will change the format, the size and the function of retail space in ways that I cannot yet imagine. (And this is not about customer service.)

(For the record, I do not believe it is appropriate for a landlord to attempt to create an online retail portal. This possibly puts me in the opposite strategic camp to Westfield for instance, who seems to be trying to be the landlord in cyberspace. IMHO, this strategy is not compatible with internet culture, customer expectations, technological capabilities or indeed online (user) psychology –but I may be wrong about their strategy since I am not privy to their strategy.)

Suffice to say that the ‘GST’ debate is a red herring and fighting that battle will at best lead to a Pyrrhic victory.

PPS: I don’t know Gerry Harvey or anyone of the so-called Retail Coalition. If you do, send them a link to this article J