Why are retailers failing at such an alarming rate?
Assuming a few basic presuppositions are not the issue, there is one compelling reason that is evident in most failures.
The preconditions for any business to be successful are:
1. Is there a real market need that I understand?
2. Do I have access to a product or service address that need?
3. Am I sufficiently equipped (skills, resources, motivation etc) to address this opportunity in a particular way that provides me with a competitive advantage or at least desirable point of difference?
No 1 and No 2 are usually not the issue because failure is quick – if the business even succeeds in getting off the ground.
The root cause of many failures can be found in HOW the retailer chooses to play the arbitrage game of tapping into a supply to meet a need.
That is, entrepreneurs will pick the way in which business is done (proposition delivered) and attempt to build some differentiation around that that can be defended at a profit.
1. Timing: First or Faster
An example would be Zara that aims to bring the latest fashion (from the catwalk to the store) in less than six weeks – and if anecdotal reports are to be believed have done so in a matter of days. Or you can be the Concord. Or the movie house that shows all the premiers.
2. Leverage: Add value, minimise cost
Someone turns raw meat into patties, someone solves the challenge of distributing fuel to every town in every country. Someone is the cheapest, someone figures out how to make things smell better, work differently, last longer or taste better. We are limited only by our imagination and the possibilities of innovation are endless. Of course, any particular innovation can be made redundant in a flash.
3. Change: Adapt, Transform, Improve
More than simply adding value, there are opportunities for entrepreneurs to transform products completely. Old tires can become road base. Cars can be turned into supercars or transformed into vehicles for mobility impaired people and clothes can be altered to fit. Wind can be turned into electricity.
4. Access: Exclusive or Convenient
Businesses also exist on the premise that access to the product/ service is exclusive or particularly convenient. This is a very typical ‘advantage’ that many smaller retailers rely on, and it is most often also their weakness. E.g. to be the only menswear retailer in Yepoon or the only newsagent in the shopping centre, or maybe even the only convenience store on that particular side of that particular city block leverages ‘access’ as the method of arbitrage.
Most small, product-orientated retailers tend to rely on the ‘access’ angle to create a POD. Retailers tend to be resellers, so innovation is not a primary focus. The only value-add lies in the bulk-breaking activity. These SME retailers are content to be ‘the only shoe shop’ in the mall as their core proposition.
In the past this has been a legitimate approach to ‘capitalise’ on an opportunity. There has always been limits as to how far people would travel to gain access to a product, so geography-based retail propositions have been viable since forever.
And, forgive me for stating the bloody obvious:
But, reliance on this particular approach is the reason why the technological shift in the market is causing serious competitive pressure. And being blind to the change that has occurred is the cause of many retail failures.
Too many retailers rely on the fact that they are ‘the only’ café on the strip, the only menswear retailer in a suburb, the only servo on that street.
If you only rely on being the only store in a particular geography, the internet obliterated that point of difference because on the internet geography hardly matters.
Everything that is for sale is in every customer’s pocket. And the time delay (caused by delivery requirements) are (a) offset by cost saving and (b) becoming shorter and shorter. In metropolitan areas, many eCommerce providers are providing same-day delivery and food delivery businesses do it in a matter of hours.
This leaves traditional corner-stores an ever-shrinking market comprising mostly of emergency shoppers or impulse buyers.
That is why Amazon poses such a threat to retailers – suddenly there is a competitor that it is more convenient and cheaper than your shop on your corner, and you can do very little about it.
Geography is irrelevant on the internet.
The only appropriate response is to change your execution. You need pick a different propositional dimension to differentiate