Upheaval in Retail

The retail sector appears to be undergoing one of its periodic bouts of upheaval, what with the rise of social media in marketing, the launching of online only stores, and an increase in loyalty programs. This flurry of innovation might fit well with the thesis of Robin Lewis and Michael Dart’s book, “The New Rules of Retail: Competing in the World’s Toughest Marketplace.” It states that the U.S. retail industry is undergoing a wave of fundamental change, and brands and retailers that do not respond are doomed to fail. Lewis, a former executive editor of Women’s Wear Daily, and Dart, head of private equity at retail consulting firm, Kurt Salmon, boldly predict that 50 percent of current brands will disappear in a wave of structural change.

There have been two such upheavals before, they write. The first, starting in the late 19th century, saw the emergence of the first national retailers such as Montgomery Ward, J.C. Penney, and Sears, Roebuck & Co. These pioneers sought to satisfy demand for newly available manufactured goods by using the new infrastructure of industrial America. The next came after WWII, with the proliferation of choices brought by new national brands of consumer goods and the ascendancy of mass marketing. It lasted until the beginning of the current century. The current upheaval, they say, is driven by the emergence of, “total consumer power,” as buyers use digital technology to determine what, how, and when they buy.

The book outlines three principles that the authors argue will determine which businesses survive. The first is to establish a, “neurological relationship,” with the customer, the kind of rewarding customer experience that builds an emotional relationship with a brand or store. Second, brands need preemptive distribution, so they’re available to the customer almost immediately. Third, retailers need total control of their value chain. That is, even if their goods are sold in a department store, they should make sure the items are presented in a way that reinforces the relationship with the customer. The authors say their research into retail companies broadly supports their three principles. This story first appeared in the LA Times. The full story is available at http://tinyurl.com/6yqco4b.