Remarkable Retail. Steve Dennis

is supercharged by the new forms of connection and empowers the consumer in previously unimaginable ways. The emergence of the sharing economy (think Uber, Rent the Runway, Poshmark) creates entirely new sources of competition for traditional retail models.

       Cheap Is No Longer Scarce

      Discount mass-merchandise chains, warehouse clubs, and outlet stores are hardly new. But the spread of “value”-oriented products and services has accelerated greatly. Whereas the availability of value-oriented merchandise once largely depended on whether you had a Walmart or dollar store near you, the internet changed everything. Today just about everyone in the developed world has a discount store on their phone or tablet.

      The friction involved with finding the best price has been eroded in multiple ways. A simple Google search does a pretty good job of serving up useful information and a world of inexpensive choices. Various browser extensions will scour the internet to find the lowest price or even notify us when the price of a product we covet drops. The Groupons of the world offer all sorts of deals and offers that were previously difficult to come by. Offers of 10 percent off simply for a first order or for subscribing to a retailer’s emails are hardly in short supply.

      Another factor—though one of questionable long-term sustainability—is the significant subsidization of quite a few “disruptive” business models by investors to the great benefit of consumers. Amazon was able to deliver low product pricing for years because its investors valued growth over profits and because its Amazon Web Services business—the division that provides cloud-based computing support to other organizations—is a huge cash cow. For many years it lost money in its more well-known retail division. Only recently has Amazon started to generate meaningful profits (though its margins remain below retail industry averages). It has also been able to offer superior and cheaper delivery options (and endure the high cost of returns) for similar reasons.

      Amazon isn’t alone. Many of the sexy high-growth digitally native brands can offer both great service and value pricing because their investors will accept margins (for now) that are in many cases far below historical industry standards. As just one example, Wayfair, the rapidly growing online home furnishing brand, has been operating on margins that are markedly below its traditional competition. Its—I would argue—artificially low prices are a big part of why it is gaining market share. But Wayfair is hemorrhaging cash.

      This imbalance won’t last. But for the time being, venture capitalists and other investors have allowed many of the disruptors to deliver incredible consumer value, fueling outsized revenue growth.

       Everything, Now

      Decreasing costs of computing power and the associated network effects have created a bountiful buffet of choice, much of it on demand, whenever we want it.

      Before the internet, the shopping world consisted of a limited selection of outlets carrying a limited assortment of products that might work well for us, purchased at a hoped-for decent price, during regular store hours, delivered mostly on the retailer’s terms.

      Not very long ago the typical customer journey might involve running around to a bunch of stores over a series of weekends and getting pressured by commissioned salespeople or flipping through magazines, Sunday newspaper circulars, or a stack of catalogs. Along the way we might get overwhelmed reading confusing technical product specifications or wonder whether it’s worth paying for more thread count or some other higher-priced option. We might get annoyed that the size or color we want is out of stock or that we could get what we want but have to wait several weeks to custom-order it. We might lament the fact that “all the good stores” seem to be in New York or LA or London. We might very well end up settling.

      Today, the expectation is that everything can be had now. No compromise. No excuses.

      As retailers seek to gain customers’ attention, engage in meaningful ways, and earn their trust, this is no small task. This new abundance forces us to rethink much of what made our organizations successful in the past. The scarcity that used to determine so many retail and consumer market decisions is now effectively over. Forever.

       Good Enough No Longer Is

      We could have an interesting philosophical debate about whether it’s desirable that so many of us have become weapons of mass consumption. We can make a good case for the many perils of an always connected, constantly distracted, FOMO-driven, social-media-obsessed culture. Real societal questions can be raised about the power and wealth that have shifted to an elite few in this age of digital disruption. But there is no denying that the diminishment of key elements of scarcity has changed just about everything that was once important in most businesses.

      Not too long ago, plenty of brands could get away with good enough. Their focus was on scale, serving the peak of the bell curve, providing average products for average people. Yet when customers have vast information at their fingertips, access to just about anything they want, whenever they want, from wherever they want, why should they settle for average, merely acceptable, unremarkable, mediocre, or boring?

      Not only shouldn’t they. They’re not.

      Our mission—should we choose to accept it—is to build new sources of scarcity that can be proprietary to our brand. These days building scarcity around information, access, choice, and connection is hard, if not impossible. Most times scarcity in items that are cheap and convenient can only be maintained for a short time. For some brands scarcity is created and protected by highly defensible patents or natural monopolies—but for most retail companies this is rarely an option.

      Instead, this new scarcity must be built around commanding attention in new, interesting, and memorable ways, creating incomparable experiences, and earning customers’ trust by knowing them better than the competition and delivering on a promise over and over again. Mostly, we need to create a brand story that moves them, that customers become enrolled in, and that they feel compelled to share, to spread, to (quite literally) remark upon.

CHAPTER 3

       Apocalypse? No.

      “Reports of my death have been greatly exaggerated.”

      —MARK TWAIN

      From recent headlines you might assume that sales in brick-and-mortar stores must be falling off a cliff. You’d be wrong. Yes, e-commerce is growing at a much faster rate, but revenues in physical stores in most major markets remain positive. Another mistaken belief is that online shopping is becoming the dominant way people buy. In fact, even with the dramatic shift of the past few years, e-commerce still represents only about 11 percent of total retail sales in the United States. The portion is expected to remain below 25 percent even ten years from now.

      So the constant media references to a “retail apocalypse” lack both accuracy and nuance. We’re all better served by avoiding painting the industry with too broad a brush or spinning false narratives.

      Yet it is true that far more stores closed in the US during 2019 than during the financial crisis. Moreover, dozens of once-prominent retail brands, such as Payless ShoeSource and Barneys, have filed for bankruptcy in the last few years, with quite a few deciding to dissolve, closing their doors forever. Others that have re-emerged are most likely only postponing the inevitable, which is one of the reasons I have been referring to Sears’s prolonged descent as “the world’s slowest liquidation sale” for quite some time.

      Years of over-building, the failure of most traditional retailers to innovate, shifting customer preferences, and market-share grabs from transformative new models that aren’t held to a traditional profit standard are creating fundamentally new dynamics. Physical retail is not going away, but digital disruption is transforming most sectors of retail profoundly.

       Physical Retail Is Still Growing

      In opposition to the retail apocalypse narrative are some important facts. During 2019, major retailers in the US opened a lot of stores—by one estimate, well over 3,500. Sales growth through physical stores was positive for the tenth straight year. Moreover,