Why there is no retail apocalypse
Not a retail apocalypse, but retail’s decadence and transformation
In his masterpiece The Republic, Plato described, in the form of Socratic dialogue, his philosophical principles and beliefs. In particular, he dedicated a chapter to the political systems, and their transformation from one to another: according to Plato, the renovation is always triggered by the decadence of one system into a corrupted version of itself, before a new – purer – form, can finally emerge.
How does a thousand year old script opposes the argument a modern-day retail apocalypse? I believe we are assisting at the decadence of industry – not to a retail apocalypse – and new forms of retail will be emerging. The critical aspect being that retail for quite some time – and not because of the emergence of digital and web technologies – has been corrupting itself.
When we look at retail, we mostly mean modern trade: the large scale, efficiency-based model of selling to consumers, which has taken over – from the traditional proximity store – the lion share of grocery, consumer and beverage shopping, and even fashion and furniture. Modern trade is the child of economies of scale, of the massification of products, and of the hyper-industrialization of food, beverages and groceries. The proximity store was developed on the axe of location, as well as on the notion that personal relationships count. A good store owner would remember the preference of its customers, would often offer credit to them, and often times would receive an order by the phone and deliver the goods to its client’s office or house. In my home city of Naples, which is well known for its creativity and stillness, we even had “O’ Panaro”, which used to be a vimini basket attached to a cord that the clients would lower from their windows to the street, so that the store courier – in dialect “o guaglione e bottega”, a young apprentice – could deliver the goods and exchange money from outside the building. It does not get more personal than that!
But the need for efficiency and the search for increased productivity facilitated a model which was less personal, less intermediated, with shoppers normally roaming larger and larger surfaces and self-serving the goods from aisles filled with choice. Of course that increased the breadth of offering, as well as the value for money for many products, by driving the consumption higher and higher. But because they had captive audiences, and the complexity of choice increased with the increasing category offerings, modern trade players also became sophisticated in-stores marketing machines, “helping” their own customers with identifying best value products, or even setting-up special areas for promotions. They could basically charge money to their suppliers to advertise to their own customers.
Why the decadence
In a nutshell the vast majority of modern trade players are so comfortable with their dominant position, that they have not seen the change in their industry, emerging before their own eyes. In my experience with commercial teams dealing with modern trade players, I have seen this “arrogance” translated in many different ways. Two examples above all:
- We received an invoice for promotional activities we had not planned, we were not sure had happened, and we surely did not want. When we disputed the bill, we had answers of the type : “We are the experts and we know better”, “We had an agreement, but it was not in writing”, “We are the customer, so you need to please us”, “If you do not pay, we are going to de-list you”. Talking about partnership among suppliers and retailers. Why do you think that large consumer goods manufacturers are exploring direct to consumer models or alternative channels to modern trade?
- In my experience in Wines and Spirits, I have learned a thing (or two) about cross-border trading. Because of the level of excises and the different VAT/ Sales Tax levels, there are often arbitrage opportunities, given by the fact that price to retailers for the same products differ from country to country. And while perfectly legal – in many contexts – I have witnessed large retailers purchasing products in one country, and reshipping them abroad, taking advantage of these arbitrage opportunities: which, albeit legal, are definitely a betray of the trust of the supplier, which is likely to invest money in one market to support sales of products ending up in a shelf abroad. Many retailers don’t think they need a trustworthy relationship with their suppliers, even when they know these practices might create problems abroad.
Beyond my professional experience, retailers’ practices are under scrutiny a bit everywhere. Wal-Mart is one of the largest retailers in the world, and it’s employing about one million hourly employees at minimum wage. And – as Walmart – many other top-players have exactly the same approach. These minimum wage employees are the people in their distribution centers, but also in the stores. Most of them are concerned with their own problems; many work multiple jobs to makes ends meet, and they are the shopper-facing workforce. They are probably not the most motivated nor proactive workforce, and a standard interaction with a customer it’s often through monosyllables which do not convey the shop’s customer service mantra.
Of course there are also retail workforce who can’t stop talking to customers in stores, because they need to reach their monthly quota. Anytime I am in a department store, I can feel a presence lurking behind me, and finally I hear the question “May I help you?”, usually followed by 4-5 promotions of the day spit like an automatic weapon. Of course, that’s when I feel like the fish swimming in water near a fishing hook, disguising itself as an opportunity, but it’s there just to catch me in its net. That’s what I call an Anti-aphrodisiac Shopping experience.
Retail in its modern form has reached the apogee of its civilization with the second industrial revolution, and it has started a slow and inexorable decadence, by establishing dangerous relationships with its partners, suppliers, employees and customers. Digital transformation is just a catalyst for the speed of decay, it’s not effecting the final result, to the extent that we should not expect brick and mortar to be superseded by on-line channels. Probably the most important evidence is in what Amazon, the king of on-line retailers, is doing: with the acquisition of Whole Foods Markets and the pilot of hybrid channels, they are not betting on a future made of on-line alone.
This is not the end of the world for retail, it’s just the midst of a transformation process, where – in Platonic sense – corruption is happening before new pure models might emerge.