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The unknown law of retail (part 2 - the cure)

The unknown law of retail (part 2 - the cure)

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Last time I wrote about the Law of More - and how we incentivised consumers to be cheapskates.

Some people may argue that the horse has bolted and that we will never re-educate the customer. It is true that retailers as a group will never succeed to do this in a coordinated manner.

But the Market is doing it for us.

Market trends will affirm that the retail formats that continue to grow are ‘luxury’ (higher end niche markets) and ‘experiences’ (services and food). We can learn from this.

If consumers don’t (or can’t discern) the value in products, we have two options:

  • we should stop selling ‘products’

  • We should not compete on dollar value

Stop competing on price

Low margin businesses demand high turnover, which means there are rarely more than a handful (often one or two) ‘winners’ per category. Discounting is indeed a race to the bottom, and the winners (like Costco, Walmart, Amazon etc) are already emerging.

The curve is your enemy or your friend. Consider a product with a GM% of 50%. If you discount that by 20%, you have to sell 66% MORE by volume to recoup the lost margin dollars.

Price competition is a lazy form of retailing. (There is a time/place for discounting to manage cashflow or to buy marketshare.)


Servify your products

Two of the smartest business model pivots are to productise your service and to servify your products.

We can take a leaf from the software industry’s book. Instead of selling software products on CD ROMs, they have developed software as service. One traditional retailer already going down this path is Patagonia. (I am not advocating the strategy be mimicked, and more importantly look deeper than the ‘don’t-buy-this-shirt’ narrative; but instead understand their business model.)

Another example is a sports shoe retailer (from memory, in Geelong) that turned their store into a runners’ hub - offering a wide range of service as well as a ‘community’ space.

Not failing is succeeding

Not failing is succeeding

The unknown law of retail (part 1 - the problem)

The unknown law of retail (part 1 - the problem)

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