LIM COLLEGE FACULTY BLOG
What's Happening at the Store
posted by Professor Marie Driscoll, CFA
The pace of change in retail is accelerating and many old-line retailers are tottering on the brink of irrelevancy and sure demise. The organizational culture at many retailers is not prepared for the future. Their processes and procedures are antiquated, lacking the nimbleness that is necessary to compete in today's environment.
They lost their way in the past 30+ years of promotional pricing tactics that ignored and exacerbated the lack of merchandise differentiation. They reduced store employees to protect the bottom line. Their value proposition eroded and consumers have moved on.
The entire commerce ecosystem is under-going profound change, from design, sourcing, logistics and point of sale. Given the over-stored US landscape, retail bankruptcies and store closings will impact vendors selling into those retailers and landlords housing those retailers.
There will be a ripple effect as going out of business sales capture consumer dollars from healthier retailers and brands. The ecosystem is undergoing rationalization or right-sizing amidst the digitization of the industry and changing consumer preferences. A total industry reset.
Many shopping center developers and REITs are too sanguine about the channel shift to digital. Yes, they are diversifying their tenant portfolio to include more food/experiential retail and new concepts as they deal with vacancies, but I believe they remain blissfully unaware of the sea change in the way people shop.
The go-to response is there is always another new specialty retailer. Perhaps, but with each Limited, BCBG, Bebe, Rue21, Aeropostale, et al. 100+ store retail chain shuttered. There just are not enough new concepts to fill the vacancies.
In addition to right-sizing the store fleet for individual retail banners, retailers need to invest in in-store digital, BOPIS (buy online pickup in-store), ship from store, and inventory visibility for the consumer. Public companies need to tell their shareholders that they are investing profits today for their future--that near term profitability will suffer.
Retailers need to take a few pages from the playbook of tech companies, to fail, to fail often, and fail fast on the way to success. And from Amazon, that not earning profits today is good for profits in the future.
Technology spending will take the place of new store openings. With it will come the data rich consumer learnings to direct future growth. Retailers should hire tech professionals and give them latitude to run a digital business and create new digital businesses. Walmart has got religion with Marc Lore. Nordstrom has a very iterative business model. Let's see more retail winners!