Amid waves of retailer bankruptcies, forecasts about the apocalypse of the U.S. retail industry have been gaining traction. But American retail has always been a resilient and lively organism and it will continue to adapt and evolve this time too.
For decades, retailers tried to be everything for everyone. They went over the top on three essential elements to meet customer demand: convenient locations, a wide array of products, and a reliable inventory.
Many U.S. big-box retailers have configured their supply chains to best juggle these three priorities. They stock merchandise inventory of large assortments across as many brick-and-mortar stores as possible. In fact, such configuration tends to minimize total logistics because the inbound and outbound logistics can be efficiently and effectively coordinated between the retailers and the suppliers. Most importantly, customers take care of the expensive “last mile” delivery by coming to the stores themselves. Thus in-store customer traffic — particularly during this lucrative holiday shopping season — is essential to the economic supply chain configuration used by the big-box retailers.
However, simultaneously juggling of all three essential elements becomes challenging as the amount of in-store traffic has been substantially eroded by online shopping in recent years. Suddenly, what used to represent juggling bowling pins now looks more like juggling chainsaws. The risk and costs have skyrocketed and the payoff has lagged. Moreover, retailers that carry heavy debts are even more likely to lose balance when juggling all three. As a result, the economic supply chain configuration is increasingly vulnerable and unsustainable.
What can retailers do to endure the seemingly unstoppable trend of online shopping? One effective solution is to simply juggle two elements instead of all three.
Wayfair is doing this as a purely online retailer that has no physical stores, yet has become the largest online-only furniture retailer in the United States. Aldi does it by offering curated product selections to drastically cut costs. And Bonobos is a retailer that has showrooms but does not carry inventory. All three are thriving in different ways, but acknowledge that they aren’t everything for everyone.
Another effective solution is to still juggle all three, but with somewhat different pins.
T.J. Maxx and Burlington may have relatively low or unstable stock levels of the merchandise they carry because the store buyers deploy frequent, opportunistic procurements to keep the merchandise assortment exciting to the in-store customers. That is, the “stock” pin the retailers are juggling is smaller, but shining, which arguably turns out to better lure customers to come to the stores for treasure hunting. Target Corp. has opened many small-format stores that sell nothing but curated essential as well as fashion items — a smaller “selection” pin. Casper Mattress and Amazon Books, once purely online retailers, began to entertain the idea of having brick-and-mortar stores to better service their customers — smaller “site” pins.
These examples demonstrate that resilient retailers find creative ways to successfully satisfy the customer demand without juggling all three, or at least not three identically large bowling pins, leading me to believe that retailers are never afraid of evolution. One piece of good news for local retailers that plan to strategically leverage physical space as their competitive advantage: among some prime urban retail corridors in the United States, Philadelphia stands out as the most affordable and desirable city.
What will the new generation of the retailers look like to combat today’s harsh and challenging market conditions? According to retail’s theory of evolution, some retailers will not adapt fast enough and will be eliminated, while those that adapt will not only survive but also thrive. I believe that the harsher the business environment is, the more creative and stronger the new hybrid retail industry will become.
Yes, retail is changing, but it’s certainly not dying. The problem is that retailers who change effectively don’t make headlines, while those who can’t are left wondering where they went wrong. For many, it’s clinging to the age-old juggle that ultimately will make them drop all three of their responsibilities to consumers.
Jimmy Chen is an assistant professor of management at Bucknell University. firstname.lastname@example.org