Disrupting Brick And Mortar Retail

Photo by Terry Ross via Creative Commons

Photo by Terry Ross via Creative Commons

Rethinking How To Sell – Make It Personal And Easy

In the previous section, we saw how disruptive forces have put a serious hurt on the brick-and-mortar bookstore. This process has extended into the entire retail sector. Let’s see why brick-and-mortar businesses in general are ripe for disruption. This does not mean that they will disappear altogether, but they are under tremendous pressure to change.

Circuit City

In June of 2006, Circuit City stock hit an all-time high of just over 30 dollars per share. In 2009 the company liquidated everything and then declared bankruptcy since it could not find a buyer. How did this happen so quickly? Some might point to the financial crisis at the time as the culprit, but the reality is online sales were really beginning to gain traction at the time. People simply began to get more and more comfortable with buying things online.

The central theme of “resistance to change” killed Circuit City. They had online ordering, but they kept trying to keep their physical stores running while huge overhead costs kept sinking them. If they had seen the change coming, they would have looked for a buyer much earlier or invested everything they had in developing online sales, marketing and logistics.

One of the greatest ironies of the tale is that Blockbuster made a bid to purchase Circuit City. This was the pinnacle of highly misguided thinking on the physical sites instead of understanding what people want. They wanted electronics, and they wanted to get them as easy as possible. Provide that service, and you have a winner.

Clothing Industry

We might be tempted to make exceptions, like the clothing industry. It seems logical that people would still like to see, touch, feel and try on the clothes they want to buy. Jeff Jordan on his The Tipping Point (E-Commerce Version) article puts it this way:

Apparel retailers serving the youth market are facing big headwinds. The “Three A’s” (American Eagle, Abercrombie & Fitch and Aeropostale) are all performing poorly, with declining sales and stock prices. It feels pretty likely that a key factor in these declines is early-adopter teenagers turning to online alternatives like Nasty Gal and Stitch Fix.

The secret is in the last sentence. Teenagers. Today’s teens, like yesterday’s teens, have huge buying power, and they grew up online. They are completely at ease buying anything and everything on the Internet, including clothes. The online retailers make it easy to return goods, and they make it even easier to buy them. They carry engaging blogs and appear on social media. Savvy web marketers know all about the rapid evolution of web marketing to capture teens unconsciously searching for fashion trends.

Teens aren’t the only ones though. Look at Stitch Fix which is for more mature women. The company makes custom fit and styled clothes. Customers pick the style, and meanwhile the Stitch Fix blog gives style and fashion tips. People post pictures of themselves wearing the clothes, and they post reviews on the site so it creates a sense of community. Each item comes with extra styling tips, and a stylist is even appointed to you for you to consult with.

The Clincher: Subscription Service

Perhaps the real reason Stitch Fix is such a hit is because of the subscription business model. They send their customers clothes to try with the option of buying or sending the clothing back if they don’t like it. The store literally comes to the consumer, and it is personalized. This is convenience unlike never before.

According to Kristin Luna:

Between Birchbox and GlossyBox to NatureBox and Stitch Fix, subscription services would seem to have reached their pinnacle with consumers. But some retail experts say this is just the beginning–and that subscription box services are here to stay.

Now a whole host of these services has appeared. They send you boxes of stuff that you don’t really even order, and the contents of your box fits your personal profile. You keep what you like, and send back the rest. So on top of the convenience aspect, you now have the element of surprise and discovery.

All of this has also created online spin-off businesses, such as websites, like subscriptionboxes.com that review and catalog the subscription box services.

Same Pie, Different Cut

At the macro level, total retail sales across the country have not grown much, but online retail sales are booming. What does this mean? The brick-and-mortar stores are going to have to reinvent themselves to keep up with the change. The following graph illustrates how online retail sales are climbing rapidly:

Source: US Census Bureau (graph image taken from Jeff Jordan’s blog)

Source: US Census Bureau (graph image taken from Jeff Jordan’s blog)

Media, sporting, hobby, electronics and clothing industries have been particularly successful in the online arena. The flip side, of course, is that the brick-and-mortar counterparts have suffered.

It is not just one big company doing the disrupting, but many small startup businesses are involved as well. Subscription boxes are often tiny operations that satisfy a niche big enough to support a successful business. Overhead is tiny, unlike what existed with Circuit City.

Again Kristin Luna explains that the benefits of subscription boxes are plentiful, and it’s a business made for cash-strapped businesses. She quotes Marshal Cohen, chief industry analyst of The NPD Group, a research firm in Port Washington, N.Y.:

If I have 1,000 subscribers, I know I need to have 1,000 things to put in the box. You don’t risk excess,” says Cohen. “You can do this on a shoestring. And on the local level, this is something you can do in your garage or kitchen if you want to

No Giant Is Too Big To Fall

On Thanksgiving of 2013 retail stores were open for business on the holiday. Why? According to Jennifer Reingold at CNN Money, it’s because the retailers are getting desperate. How serious is it? Even the mighty Wal-Mart is feeling the heat. Reingold says on her blog:

We all know the macro reasons for sluggish shopping stats at the low and middle end of the market — the shutdown, the lack of consumer confidence, increasing income inequality. But there’s another issue that has little to do macroeconomics, but may be the most significant of all; brick-and-mortar retail has given consumers few compelling reasons to go there for years…

Powerful Alchemy

Retail will never die. If we look at the subscription model, we see how powerful the new face of retail can be for the consumer:

  • Convenience
  • Personalized and customized to fit customer’s tastes and lifestyle
  • Element of surprise/originality and discovery
  • Linkable, likeable, sharable
  • Unique and local

And it just so happens that these are basic elements that disruptive technologies not only satisfy, but take advantage of to become successful.

Not So Easy

Many dismissed Netflix when it first introduced its subscription model. Netflix paved the way for Batch Nashville who only sells local items from Nashville, Tennessee. This doesn’t mean that any subscription service will be automatically successful. The competition has already proliferated to the point that some say this market is saturated. But Netflix evolved, flourished and evolved again.They now offer a complete online format for maximum convenience and agility, and their reach is now global.

Perhaps the key is to look for those solutions where everyone says, “That will never work.” There we might just find an early disruption in the making. Taking this leap of faith is always difficult. As we continue to explore and understand disruption, however, we can increase our odds of making wise decisions.

Who’s Next?

In this section, we examined how disruptive forces can topple what seem like impervious businesses (Circuit City) or unalterable industries (clothing). Next we will examine how the advent of a single technology can change the playing field for multiple sectors.

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  • Terry Ross

    Interesting. I need to explore this some more. Thanks for notifying me about the use of my photograph.

    • Terry,

      Thanks for visiting the blog. This is the 2nd installment of “Disruptive Innovation” series. This will be a long series and there are more articles to follow. I hope you follow the series. Thanks for the photo!

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