The Existential Question Facing Every Retailer Today
Bad retailers will never run out of customers. History suggests that there is always a segment of the consumer population willing to trade down if they believe they can save a dollar or two. Some retailers, like long-beleaguered J.C. Penney, have spent decades proving this thesis.
No, bad retailers will never run out of customers. But they will run out of brands. And the reason for that comes down to simple math.
At its core, retail has always been a value exchange between brands, consumers and retailers, with retailers occupying the precarious middle part of the equation. For the relationship to hold, each party must contribute value to the others, leaving each stakeholder feeling richer. But in a post-industrial and increasingly post-digital and post-pandemic world, the retailer’s place in that equation has become more complicated.
Only a decade or two ago, delivering value as a retailer was relatively simple. Brands brought product design, quality and name recognition to the equation. Consumers brought demand and dollars. And retailers, in most cases, needed only to provide physical points of distribution for products coupled with a willingness to relay product information on behalf of the brand to consumers. Everyone was satisfied — until now, that is.
The problem today is that while the value contributed by brands and consumers has remained more or less constant, the contribution traditionally made by retailers is now all but worthless. Consumers, with the internet at their fingertips, no longer require retailers to act as porters of product information. Likewise, brands with unmitigated digital access to hundreds of millions of consumers no longer need to rely on a third-party retailer’s physical assets for customer acquisition or product distribution. In other words, consumers and brands have all the tools they need to carry on quite capably without retailers. Hence, brands like Nike are ramping up their direct-to-consumer strategies and dispensing, to a large extent, with wholesale.
It has all driven us to a rather dramatic moment in retail history. A point where retailers across all categories, including fashion, have to completely rethink the value they bring to their part of the equation. They must once and for all retire easy scapegoats like Amazon, e-commerce and Millennials because the real enemy is none of these external forces, but rather their own failures to beat back irrelevance, a condition for which there is only one cure. They must reinvent themselves and contribute new radical value, not only for consumers but for brands, too.
This notion of radical value is important. For example, love them or not, brands are drawn by the tens of thousands to sell on Amazon because Amazon radically redefined our sense of selection and convenience. And, in the process they formed a global tribe of Prime Members almost 200 million deep. Similarly, Alibaba has executed a radical level of integration into the lives of its customers, offering brands access to the world’s largest single market of shoppers.
In order to survive, all retailers must create similarly radical levels of value.
It starts with creating radical value for customers. Retailers can and must create radical value in one or more of four areas: culture, entertainment, expertise or product.
Radical Cultural Value
Outdoor retailer Patagonia creates radical cultural value through its single-minded focus on environmental stewardship, placing this imperative at the core of everything the business does, right up to baking it into its financial model, making Patagonia as much a social movement as a mere retailer: a lightning rod for likeminded customers and staff. All organisational objectives, communications and initiatives ladder back up to environmental protection, making Patagonia a tribal outpost for customers who share its values.
Radical Entertainment Value
Retailers can also create customer value with entertainment. UK department store Selfridges creates radical entertainment value through an intense focus on experience. From streetwear departments with skate bowls to creative pop-ups and unique food and beverage installations, the experience at Selfridges has, to a great extent, become the product itself. The years leading up to the pandemic saw the retailer make huge investments in what managing director Andrew Keith recently called “all the magic that goes on in the store.”
Radical Expertise Value
New York’s new Allure beauty store — a partnership between publisher Condé Nast and retail platform Stour, to which, in full disclosure, I’m an advisor — delivers radical levels of expertise and category authority in-store. They do so not by hiring retail workers who become experts in beauty, but instead by hiring beauty influencers looking to broaden their reach through retail. The result is a dynamic team of influential beauty experts, all of whom speak with authority from personal experience and do so both with customers in-store and through social content shared to the retailer’s growing legion of followers.
Radical Product/Channel Value
Finally, there are those retailers that bring radical levels of product design, channel control or consolidation to the table. Luxottica, for example, is estimated to control 40 to 60 percent of the global eyewear market, making it almost impossible to do business in the optical category without doing business with Luxottica. Retailers that so thoroughly control access and distribution within a category carry obvious value to consumers as a go-to destination.
Other retailers create products that become so dominant in their categories that they become a magnet for associated products. Apple is one obvious example. If you make iPhone cases or any other tech accessory, chances are you’d clamour to obtain space in an Apple store because Apple contributes radical levels of design to both its products and its stores.
But what’s particularly interesting is that, in most cases, the same retailers that create radical value for consumers also tend to create equally radical levels of value for the brands they partner with.
In becoming a cultural flagbearer for the environment, Patagonia brings to its brand partners an army of loyal and highly engaged army of customers to whom they otherwise wouldn’t have such easy access.
Retailers like New York City-based Camp create elaborate in-store theatre and events for parents and children, but in doing so also provide hands-on and contextual opportunities for children to engage with their brand partners’ products; opportunities that simply can’t be delivered online or in other conventional toy stores.
B8TA, arguably one of the most successful retail startups in the market, brings an entertaining and tightly curated selection of unique products to their customers — products not easily found elsewhere — but in doing so, also offer access to a robust data-set to their brand partners, providing them with intelligence and insights they wouldn’t otherwise have access to.
The Allure Store not only delivers an authoritative level of beauty expertise to their customers, they also act as a marketing fly-wheel for brands, producing radical levels of compelling product content and in-store activations, all of which would carry significant cost if brands were to produce it themselves.
The common thread here is that these retailers are fundamentally changing the conversation they’re having with their brand partners. For too long, we’ve assumed the retailer-brand relationship to be transactional — purely based on volume, margin and incentives. But brands today are asking for more. They want market intelligence; they want (at the very least) co-ownership of the consumer relationship; they want their unique brand stories articulated and animated with excellence and their prices treated with integrity.
Retailers that appreciate this shift and deliver radical value back to brands will do infinitely better in the long-term than those retailers who do nothing but extract value from the relationship. Because, in the end, retailers that do not become a source of radical value for brands will awaken one day to find their sales floors empty of branded goods.
By Doug Stephens