Manifesting Retail’s Week Of Revolution
Retail, for all intents and purposes, has always been an interdependent system. Supply depends on demand; demand depends on supply; supply depends on the supply chain. Pricing depends on supply and demand. Pricing also depends on more intangible factors such as sales, operations and marketing. And all retailers depend on the one constant that separates any business from a hobby: the customer.
This week, retail has seen the manifestation of several changes to this interdependency that were already in the works before the pandemic, and have been accelerated by shoppers’ fear and/or loathing of visiting physical stores. We’ve seen Ralph Lauren come close to economic trouble, arguably because the department stores and boutiques that have not been open for a good part of Q2 have either underperformed or have not performed at all. We’ve seen the CEO of Saks pen an insightful piece for Fast Company that basically admits how broken the department store model is. We’ve seen Walmart throw down the gauntlet on eCommerce, going public with its plans to hire Amazon-like numbers for its fulfillment centers. And we’ve seen Nike take a victory lap to celebrate its unadulterated bet on the brave new world of digital-first retailing.
These may seem to be unrelated happenings, but they’re not. What’s happening right now is nothing less than a sea change in the interdependency of retail. To demonstrate this, it’s best to start with the industry’s problem child: department stores.
Department stores are in some ways victims of dependency. Take a look at how they operated before the pandemic. First, they depended on an inventory mix that could be counted on to keep shoppers in the confines of the store for a long period of time. Then, they depended on good relationships with designers and consumers’ attraction to their seasonal merchandise. They also required a supply chain that included factories in faraway countries. Then there was the dependency on shipping, and warehouses, and related reliability issues – and the mall owner who took the time and capital to drive foot traffic.
Think that’s a tough way to do business? Check out what Saks CEO Marc Metrick had to say in Fast Company: “We know customers want to buy things as they need them, but the industry has not kept that basic concept in mind. Instead, department stores have been hindered by a severe disconnect between product availability and demand, which hurts retailers, designers and customers alike. Delivery cycles, all born iteratively through the 20th century, simply never evolved to meet the consumer’s on-demand lifestyle.”
But they have evolved enough to send consumers happily to eCommerce sites. Online sales platforms lack dependencies for consumers, and that’s become crystal-clear this week. For physical department stores, the store needs to be open, the salesperson needs to be polite and knowledgeable, and the price needs to be right. Return policies need to be liberal enough to allow for mistakes. In the digital-first economy, all of these requirements go away. The store is always open, the salesperson is in the mirror, prices are easily compared and returns are almost always free.
In many ways, reducing interdependency is what Amazon does. It’s up to the seller, not Amazon, to organize and optimize the supply chain. And if Amazon can’t depend on the seller (whether it’s a small shop out of Maine or L.L.Bean out of Maine), it simply suspends them. It depends on less infrastructure to open the doors, and has instead been able to build a world-class delivery system. Amazon doesn’t even want to depend on normal delivery services: It didn’t like FedEx or UPS, so it built its own.
It’s also key to Nike’s new strategy. It’s hard to overstate what Nike is in the process of doing: It is revolutionizing the process of tribrid retail, comprised of:
1) Direct-to-consumer (D2C)
2) Owned retail outlets
3) Third-party retail partnerships
It’s clear that Nike doesn’t want to depend on third-party retail, as it is moving away from it. It’s also clear that it doesn’t want to depend on brick-and-mortar retail in general, because it is moving toward making it a local platform for its team sports and local athletes.
Nike wants to depend on Nike – and it wants its consumers to do the same. Its digital-first platform can adjust inventory, optimize communications and understand customer behavior in a way that no brick-and-mortar retailer ever could. It will become a “clean” model without obstructions, full of customer value and ripe with pure consumer connections.
“Our organizational restructuring will simplify the way we work, eliminate duplication and redundancy, and realign our resources to focus on our biggest growth opportunities,” said Nike CEO John Donahoe on this week’s earnings call. “This restructuring will also create a similar level of recurring annual cost savings that will help fuel the acceleration of our digital transformation. In this moment, the pandemic has allowed us to accelerate where and how we will invest. Ultimately, we will drive deeper consumer connections and continue to amplify our brand strength using technology to operate more efficiently and at greater scale.”