What does a retailer do?

Are you in retail? Get out now!
It can be a very harsh world at times. The retail world has always been massively competitive and difficult. The profit margins in retail are extremely modest compared to some professional services and manufacturing indutsries. Now, the massive force of globalisation (which was the goose for major retailers for the last 20-25 years) is now chewing away their profits and moving the game into territory where these dinosaurs are looking at the big comet falling from the sky. Retailers are struggling to add any real value to customer experience, and when they do they tend to get exploited.
Current situation

• Customers have access to more information and more purchasing channels.
  It wasn't so long ago that you would walk into a major retailer and be fairly sure that the price being presented was just about the best you could get. And even if you went to the trouble of comparing you would be wasting your time as the big boys had all the good deals. Even if you were savvy enough to look on the internet you would be faced with long waits and expensive shipping. Manufacturers weren't very well equipped to distribute to individuals and actively avoided cutting their distributors out of the supply chain.
  
  Now websites are popping up all over that do all the price comparisons for you. The television you buy in your own country or abroad is the same product, the only difference is the price – so why not go for the cheapest! Even if there is a wait involved due to shipping the massive (50-80%) price differential quickly eases the pain of waiting.
  
• Customers are exploiting retailers
  This is the scary one for retailers. They get the customers into the shop, they do the sales pitch, the customer actually wants the product! But they go and buy it from somewhere. This is absolutely heartbreaking. Great service, value adding service, going unrewarded.
  
• Retailers are giving less to customers
  Having said that, many retailers are actually providing poorer service than in previous years. Product faults, complaints and enquiries are often being transferred directly to the manufacturer. Furniture retailers are trying to reduce stock holdings so will wait until they have orders for a full container load before importing the goods, meaning one main advantage of buying locally is removed: there is now a 6-8 week on your new couch! This reduces the retailer to nothing more than an order taking centre. Why would a customer want to pay a higher price for the same product, with a long wait?
  Floor staff at most retailers are young, inexperienced and poorly paid. Many companies have moved away from career plans and cut costs in training and education. The younger generation is also fairly well known for not lacking loyalty to their employees. This little combination of events has led to a severe drop in the service given to customers. In other words a poor or negative customer experience.
• Taking a margin, exploiting economies of scale
  Most large retailers became large due to exploiting economies of scale. They sourced cheap product from overseas, shipped it across, slapped on a big margin and sold for just under local prices. This was a good deal for customers and they rushed in. Now the good deal exists by going straight to the source. And that is how it all came to this.

What are retailers doing to stem the tide?

• Increasing online presence
  It is probably too late for this, but the retailers are finally beginning to move into cutting edge territory with their websites. Being user friendly, customer focused, including order tracking, etc. are all standard elements of an e-business sites. Some major retailers are even pursuing social media channels to gather feedback and provide customer service to the clientele.
• Commissioning governments over taxs and laws
  This is a white flag move. Approaching governments to reduce taxes that give major retailers a cost disadvantage is a very short term approach that is unlikely to fix the problem: the outdated business model that creates overpriced offerings.
  
• Becoming finance departments
  Debt loyalty is an ugly practice that seems to be falling out of favour these days. For high dollar items, retailers have been offering up to 5 years interest free on financing. The longer the debt is held for the better it is for the ongoing income of the retailer. The customer gets the product immediately without the sting of shelling out all the cash for it. Unfortunately it still needs to be paid for and these individuals are left resenting the chain, even if the individual has handled his/her own finances poorly.
  
• Relying on branding
  With all of this – how is it possible that these retailers are still in business? They are not closing stores and they still receive a lot of traffic. It is simply the power of brands. The impression still exists that these companies are large, reliable, offer superior service, and offer a competitive price. Some are looking to extend their branding. They are asking manufacturers to rebrand products or are simply sourcing products directly, and becoming a manufacturer themselves.

What could they be doing?

• Close the stores!
  Retail as we know it is dead. It is so dead there is very little purpose in trying to rescue it. Shopfronts have to start closing. The rental on floor space and costs of floor staff is entirely prohibitive to competing with online retailers. If you can't beat them, joing them! But do something additional. Service them better. Leverage that existing brand loyalty by surprising the customer.
• Or, increase the service!
  Some things simply can't be bought overseas, or at least they can't be bought easily and advice is one of these. If you sell household goods, why not help the customer choose what suits their home? Offer cooking classes, etc. These are things that a website can't do. It needs local people interacting with local people. It needs to be commercialised, as simple product advice is being exploited by customers as they purchase online. Product installations, or delivery services at times that suit the customer (wouldn't that be nice!). There are many avenues to explore, but they all involve moving away from the brinks and mortar.
  
• DO NOT try to compete on price.
  It is a waste of time. It is a fight that a traditional retailer can't win. It is as simple as that.

It will be fascinating to watch the major retailers across the world. Soon enough one of them will take the plunge into redesigning a business model. Once it happens the others will scramble to follow. If the change is profound enough then e-tailers will also be fighting to follow suit. Meanwhile, the first company to do so (successfully) will sit back, rub their hands together and enjoy the good times.