Why do retailers fail?
There are many ways to describe what’s happening in the retail sector. Disruption is too generic, and not helpful to understand what is happening. I prefer to identify specific patterns and one such pattern is ‘convergence’ or what is referred to as the dumbbell effect.
A good example would be shopping centres, where the big centres with great offers just get bigger and the small, convenient ones do well too; but the middle is being squeezed because the convenience is compromised, yet the range isn’t quite there; so the middle gets squeezed at both ends.
A similar pattern can be identified as boundaries between retail formats are being squeezed. See Image 1 below. Traditionally, you get fast food at one end and restaurant quality food at the other. The price, the quality, the wait – everything was different resulting in very different experiences and expectations.
Then disruptors come along and squeeze the formats by creating a niche where none existed before – often in between two niches. When three niches go into two, there is usually some pain for someone.
The most interesting thing about the big squeeze is that it is allowed to happen. Or is it that simple?
One can argue that the incumbents of the pre-existing format, simply failed to cover their territory and an upstart came in to eat their lunch. The quality steakhouse should have offered $10 steaks.
Or one can argue that the incumbents could not cover those territories because if they tried, they would have diluted their own proposition. Would you really have gone to Hungry Jacks for a $12 steak burger?
As usual, the answer is probably not either/or, but rather a little bit of both. So the important thing is figure out what the important lesson are:
- Whatever positional advantage you currently enjoy, will be eroded in time by an opportunist – it is only a matter of time.
- Differentiation is critical in responding to consumer preferences. (Corollary: there is alwaysa different way to slice the pie.)
- The best, strongest and most compelling proposition will beat weak a weak proposition every day of the week.
- In the new age of marketing, the value of brand can grow more rapidly than ever and decline more rapidly than ever. (You need it more and it is worth less.)
- Niches are getting smaller, so you have to go deeper. (In practical terms, expanding your geographic reach via the internet allows you go deeper after a smaller niche.)
What are you doing successfully to navigate the squeeze? Has it happened in your sector?
Original Article posted on Inside Retail, by Dennis Price