frankly speaking

Retail Reinvented

The Great Repression (as it will come to be known) of 2008 and 2009, will have inflicted a lot of damage when it is said and done. One of the the things that I believe it will be most known for is the way it will change consumers. Specifically, I think retail shopping is about to change in a big, big way.

Since the Web first started to hit critical mass circa 1995, prophets have been predicting the end of retail - alas companies have been more than competent in their ability to get people off of their pc and into their stores. However, with people now realizing that it’s probably a good idea to save rather than retail sales (including e-commerce) have dramatically slowed.

Am I saying the consumers will stop going to stores? Of course not, that’s ridiculous and naive. What I am saying is that retail stores should change the way the use their brick and mortar distribution points.

It’s obvious that physical stores get tons of traffic and it’s easy to see why they do. Consumers can try on the jeans, play with the hardware, and take the car for a test drive before actually making a purchase decision. This method has worked for retailers for nearly hundreds of years and will continue to work because it makes a physical connection between the consumer and the retailer. What I suggest that retailers change is the type of inventory they distribute in their stores. While it’s great to have the latest and greatest of everything in your front window, there is a physical limit to how much inventory a store can carry. On the Web, inventory becomes less of a concern.

The Web is the place where a customer can customize ‘til their heart’s content. The same can’t be done in a retail store. It’s entirely possible that the store doesn’t have the right size, fabric, model, etc. However, on the web, there’s literally a limitless amount of customization that can go on until the consumer finds exactly what he wants. Best of all for the retailer, the more customization, the more you can charge.

What the retailer can do is store inventory in a warehouse as they currently do, with all the variety they can imagine their customers demanding. When the inventory is ‘fresh’ or ‘in-season’ the retailer makes it available only on their website. As the inventory ages, the retailer then moves the inventory to its physical stores, where it can begin to discount it and move it more quickly.

Why will this work?  Simply because consumer’s in today’s economy are the most price conscious they’ve been in at least 25 years - with no sign of letting up. Today, stores are going to great lengths to attract customers, so far as to give customers 60% off retail. The problem with this is two-fold 1) Retailers can’t keep this up forever (especially if they need to please Wall Street) and 2) Consumers are coming to expect some kind of discount at the cash register.

Further, retailers can delay (if not altogether avoid) selling their inventory to discount stores and thrifts. These shops usually pay 30 to 60 cents on the dollar for inventory. Instead, retailers can apply a variation of this discount to their goods and still sell them in their physical stores. All the while, they can charge a premium on their customized web inventory.

Obviously, there are still many gaps to this process that need to vetted a little bit. But the fact remains that in order to more efficiently get consumers what they want and (perhaps most importantly) at the price they want, retailers are going to have to change the way they move their product.