The Gathering Storm in Retail

George Knauf headshot 2_4.pngSears, the company that was where you ordered absolutely anything to be delivered to your home a century before Amazon ever existed is closing stores.  JC Penny, another of the oldest names in retail, closing stores.  Macy’s, HH Greg and Payless Shoes are all closing stores.

We are watching one of the most interesting sea changes in how companies sell and how consumers buy in history.  In the industrial age manufacturers made goods, shipped them to distribution warehouses then on to be inventoried at local stores for final sale.  Stores were less an “experience” than they were a simple distribution and sales infrastructure.

Today walking into a department store and never talking to anyone that works there is not enough to hold on to our wallets, we can get that same customer service online.  And as far as trying on or seeing items in person, returns are so easy from online sellers that it may actually be more trouble to go to the store.

When I was a teenager you actually made plans to meet friends at the big regional mall for a movie or to just wander around.  Now there are websites and Youtube channels devoted to those same, now abandoned, malls!

If you are looking at franchises you have to give close consideration to what this will all mean for the brands you may be looking at.

At this point you can see 3 main categories as relatively unchanged by this retail trend:

  1. Restaurants – Amazon Prime does not deliver a prepared dinner, but they do sell ingredients
  2. Service – Amazon Does not deliver a home repairman or automotive technician
  3. Service based retail – Your personal trainer does not fit in their shipping boxes

You have to consider that every electronic gadget, battery, car part, piece of clothing or tangible item has a part/item number on it.  Consumers that do go to a retail location to see the item in person often cross check the price online to see if they can trade money for time, receive it days later for less money.  There was a well-known electronics retailer some time back that was noticing people checking out flat screens then pulling out their phones to compare prices.  There was a big dust up as they asked people comparison shopping to leave the stores.

Here is the core of the change that is happening, where service is not a key component we will see consumers looking for best efficiencies and lowest price which will most often be found online where those sellers do not have the added cost of the retail infrastructure.  Where service is a key component consumers will consider passing on a lower price to be catered to.  Some offerings will cross both lines and consumers will get to decide what is more important to them.

Here are a couple generic examples.

Imagine a consumer that wants to get more physically active, they have the choice of joining a local gym, using an app on their phone or using something like a popular service where you buy a very expensive exercise bike with a computer attached and then subscribe to a telecommuting exercise program so you can workout in your living room with other people who are working out in their living rooms.

I know consumers that have made each of those choices for different reasons, but I tend to think that unless you are very driven to hold yourself accountable that going to a local gym where people will notice when you don’t show up is a greater motivator.  The local gym offers a lower cost of entry in that spin class category, a benefit that may not hold for the boot camp category when an app may work for some very driven people.   The cost to go to the first gym based spin class may be $30-40, but the cost to buy the bike with the computer is well into the thousands and then you have a monthly obligation, whether you are on the bike or your laundry is.

Another category to consider, clothing.

The old low service distribution model may be disappearing but a new high service model may be filling a slice of that gap.  For some people shopping is a fun activity if you have someone to play with, this is true across all demographics.

Imagine a clothing store that is more about the experience, the relationship and where you have a personal shopper as you partner in consumerism.  It would not need a big footprint, they would just bring in things that their clients were most likely to buy. They could deal in items made in smaller quantities, that are harder to find and that may be unique at the next neighborhood cookout.

In this case the retail space is nearly disposable, it is simply a place for customers and their personal shopper to hang out and have fun!

Nearly all categories have some sort of online competitor.  If you are looking at franchises ask yourself if you can get a similar item or experience via Amazon, Uber or the other online service providers.  If it is a tangible item you may find more often than not the consumer may make the online purchase, unless there is a service offering packaged with it to draw them to you.  What you don’t want is that they use your store to see it, then go home and order it.

For franchise investigations at this point I think that one rating criteria would have to be how much does the service provided by the franchise operation determine the likelihood of a sale being made.  The lower that rating the more likely that you need to be looking at something else.

So, where does all of this end up?

Well, Amazon is reopening bookstores after taking away the playing field form Borders, Barnes and Noble and many other book brands.  But that is a conversation for another day.

What is your success story?  Let’s go find it!

George Knauf is a highly sought after, trusted advisor to many companies; Public, Independent and Franchised, of all sizes and in many markets. His 20 plus years of experience in both start-up and mature business operations makes him uniquely qualified to advise individuals that have dreamed of going into business for themselves in order to gain more control, independence, time flexibility and to be able to earn in proportion to their real contribution. Contact the Franchising USA Expert George’s Hotline 703-424-2980.

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