What did Kodak CEO think just weeks before his company filed for bankruptcy? Having pushed forward a strategy of advanced, high-quality cameras and paper photo printers when customers were looking for the contrary, quick and easy “Kodak moments” to share digitally? Probably that they did not stay true to their core vision, focusing more on products and technologies than on their “Why”. And also that complacency and ignoring the long-term trends was what made their company irrelevant.
True business disruption does not only shift market shares from one company to another, it makes business models disappear. In fact, it turns the value that a company or an industry creates and offers to its customers entirely irrelevant and unnecessary. Could true disruption happen to the retail industry?
What is retail anyway?
A retail company is a middleman who makes it easy and priceworthy for consumers to find and buy products. It is the last link in the consumer goods value chain, buying from producing or wholesaling companies and selling to end consumers.
We all know that the old retail business model is eroding and that it is going through a digital shift. From being based on product expertise and retail stores to being customer-centric and omni-channel. But this paradigm shift is not true disruption. Even with Artificial Intelligence replacing category managers and websites replacing stores, it is still retail.
Real, true disruption within the retail industry will happen when retailers are not needed anymore, when the value they create and provide to their customers is not relevant anymore. Let’s have a look at which trends could be truly disruptive for the retail industry
Trend #4: Going back to local
When consumers really shift to sustainable buying behaviours, they will shift to local suppliers. Understanding that local solutions and local products have a much smaller environment footprint, they will start favouring and selecting local-based producers, even agreeing to pay higher prices just to support sustainable consumption. The small producers will be able to sell directly to consumers in local markets or in dedicated city centres and main streets, like the Tabia project in Toronto. Volume-based, global retailers will stop being relevant and will not be needed anymore. Customers will have bypassed the retail middleman.
Trend #3: The revenge of the global brands
It is a fact that global brands are on the rise again, after several decades of power balance in favour of the retail industry. As always, Apple led the way, reaching directly to the consumers and making retail near irrelevant: same products, same prices, same marketing whatever sales channel. But companies like Adidas, Nike, Luxottica, with Ray-ban and Oakley, are also increasingly bypassing the retail link, opening own flagship stores and e-commerce sites, leveraging on their brands’ uniqueness. Consumer will increasingly trust these mega brands in terms of price and product availability and will eventually skip retailers when buying these products.
Trend #2: The digital marketplace
Alibaba have shown the way: create a marketplace that puts consumers and producers in direct relationship with each other and you will become the largest non-retail company in the consumer goods value chain. As a true marketplace, Alibaba owns no products; they define no assortment, collection or catalogue. They just bypass the whole retail/wholesale link and create extraordinary value for end-consumers. They need no stores to do this. They need no warehouses or category managers. Others are following this trail. Amazon started being a marketplace roughly five years ago. Coming from retail they still have a long way to go: today, they mainly just put smaller retailers in contact with end-consumers. Other actors like Etsy are driving the peer-to-peer marketplace even further, allowing you to buy directly from individual artists or artisans from all over the world. The digital marketplace as a “retail bypass” will grow and could eventually mean the end of retail.
Trend #1 – The most disruptive of all trends: “Making physical digital”
When you think about what still makes the retail business relevant in our world, one of the obvious and main reason is that it deals with physical products. You can digitalize product information, product selection, purchasing and payment processes but you cannot digitalize the product itself. Or could you?
The most disruptive trend is actual the 3D-printer, or any machine that can produce a single product on site. Because the main value of such a machine is keeping the end-product digital until the very moment when needed. This is a potentially devastating innovation for the retail business, and for the industries that are dependent on retail like transport and warehousing. Think about the purity of a value chain directly connecting the designer of a product with the end-consumer. The only thing you buy is the product drawings and specifications, just like in this example with 3D printed guns in the US. It may take time to be realized in full scale, it may never happen. But, if it happens, it will definitively mean the end of retail as we know it.
What to do?
What could retailers do to survive these truly disruptive trends? How do you stay relevant in the eyes of the consumers, and do not become an unnecessary and superfluous link in the value chain?
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Retailers should embrace these trends: You should define your role in the value-chain by responding to questions like “how can we play a significant role in our local markets?”, “how do we collaborate with mega-brands to stay relevant in the eyes of our customers?”, “How do we move toward becoming a digital marketplace, bringing most possible value to our customers?”
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Retailer should focus on capturing customers, not on delivering products. With the raise of e-commerce, consumers will soon be confronted with an infinity of choices, and this will make it hard to know and decide what to buy. They will need help finding how to fulfil their needs. The rise of social media influencers, of consumer reviews and the development of price comparators are just examples for this. Retailers could play a significant role as information and expertise hubs, bringing new value to their customers online and offline, and not only delivering products
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Finally, the most critical for all retailers is to define their company’s “why” and purpose, and to make it as “non-retail” as possible. Defining your real purpose and the core values you want to bring to your customers without referring to the retail business model will make your company much more resilient, long-term relevant and able to face real disruptive trends. Just try to answer this question: “what would your “Why” be if your products were digital and not physical?” And re-read Amazon’s vision statement…
Real disruptive trends are long-term trends that should be addressed already today, as their power will increase, eventually becoming unstoppable. Start moving toward and embracing them will help you sustain the test of real disruption. If you want to continue the discussion, just contact me at: stephane.renaudin@centigo.se
