Traditional Retail Might Not Be Dead, But It Is In A Coffin

Followers of the debate between traditional retail vs. e-commerce have seen two nicely written overviews in recent days, from each side of the argument. Li & Fung analyst Deborah Weinswig contributed a positive essay: “The Reports of Retail’s Death Are Greatly Exaggerated” and journalist Michael Corkery weighed in with a more negative assessment in “Is American Retail at a Historic Tipping Point?”

Both essays are well worth reading and despite my respect for Deborah, I find myself more in sympathy with Michael’s point of view. Rather than tackling the essays point-by-point, let me weigh in on a few thoughts of my own:

1. The 90% argument. Some 90% of U.S. retail sales, the argument goes, take place through traditional retail, so how can it be in trouble? What matters is the trend. At one point in U.S. history, horses accounted for 90% of transportation needs, with motorized transport accounting for only 10% -- but the trend was clear. Once the telegraph accounted for 90% of communications needs, with the telephone accounting for 10% -- but the trend was clear. E-commerce has grown as a share of the U.S. retail market by some .5% a year for the last 10 years, rising from 5% to 10% of the total market. The trend is clear.
2. Traditional retail has been driven by scale and speed to market, not by agility. The strategy since the 1950s has been build, build, build. This is not an industry used to downturns. Many retailers do not have experience in right-sizing. Some retailers are already over-extended. A 1% downturn in sales might make 10% of a retailer’s stores unprofitable. Rather than grapple with the e-commerce competition, my hunch is many retailers will be in denial, hold on to unprofitable stores, and pile up debt. When a retailer declares it is going to refresh its brand, backed by a new logo, a new celebrity endorsement, and a new ad campaign, it is time to unload the stock.
3. Maybe nobody loved you anyhow. OK, that’s a bit harsh. But consumers can be fickle. Did they really love you, or did they love your value proposition? To the extent they merely loved the value proposition, they can find that on-line.
4. Where is the creativity? Retail has been saying for a decade that it understands the e-commerce challenge and it will rise to meet it. Walmart is doing it by combining online orders with in-store pick-up. LL Bean does a marvellous job of offering specialty courses through its stores. But many retailers are dead in the water. Is there value in going to a store beyond the transaction?
5. Whatever is somewhat true in U.S. retail is more true in China. Over 20% of the retail market in China is online, more than double the percentage in the U.S. E-commerce might be the icing on the cake in the U.S., but in China it is the cake.
6. Traditional retail might be around forever but it will be subordinate to e-commerce in defining the brand. I believe there will always be a role for the physical store. But the store is less of a place where the consumer encounters and discovers the brand, and more of a place where he picks up the product.

Yes, Amazon is opening up traditional stores. This is a bit like saying auto executives go horseback riding on weekends. Traditional retail, like horseback riding, will long be a part of our lives but neither sets the pace.

Conclusion: There is a global conversation taking place about your brand and it is taking place online.