Lamentation or Innovation – Where are You?

This week we listened to a business broadcast where the discussion focused on retail’s state of crisis – hypothesizing that this is the leading edge of another major recession.  It is true that we are seeing an accelerated pace of distressing news about the retail industry, especially regarding bankruptcies, store closures and labor reductions.   However, for most every point, there is a counterpoint.

• Over 3200 store closures have been announced in the first quarter, due primarily to declining productivity. However, continuous evaluation and pruning and the willingness to give up unprofitable sales can be a smart business decision, even though it runs contrary to investors constant clamor for revenue growth.  Profitability growth is a better measure of health.
• Retail bankruptcies are on the rise. Nine companies have announced so far and a number are on the brink or taking on even more debt, increasing future risk.  However, there are few surprises among this group, as many have had declining performance for an extended period.  At some point, it’s no longer possible to cut your way out of trouble.  Yet every day we also read about new and growing concepts, many branching out to add physical stores as well.
• Over 90,000 retail jobs have been cut since October – more than total employment in coal mining or steel production. The majority are in lower pay sales functions, renewing arguments that the minimum wage can’t be raised.  Yet retailers as diverse as Nordstrom, Trader Joe’s, The Container Store and Costco have proven that you can pay people very well and attract high caliber people – all of which help drive growth and build brand loyalty.

Lots of negative news along with the growth in digital retailing are also leading to increasingly frequent commentary that stores are dying.  But as long as people remain physical not virtual, we will continue to have physical stores.  There are many examples to back this up:

• 2500 store opening announcements by big chains were also made in the first quarter, and there are a large number of small retailers and brands adding stores as well. These include innovative concepts solving real problems for consumers, such as Amazon, Untuckit, Bonobos, Eatsa, Warby Parker, Ray-Ban, MOD Pizza and Crayola.
• The U.S. remains grossly over-stored with more than 23 SF per capita, 5-6X more than the U.K. France, Germany, Italy and Spain. Weak players should go away, whether entire concepts, individual stores or shopping centers.
• Many retail jobs lost are tied to the bankruptcies and closures, but it neither means lack of future growth or that pay scales can’t be raised. Many retailers have or are doing so, and these are not the ones shrinking and going away.

Further, new jobs will be created in retail – these will not be based on bringing old economy manufacturing jobs back but by innovation driven needs.  Innovative new retailers with new service and solution models will create growth across their enterprise including sales, fulfillment, services and technology support.  And Amazon will continue to add to the 100,000 new hires already announced.  Just recently, they received a patent for on-demand textile manufacturing that could bring one-to-one manufacturing at a mass scale another step closer.

And digital commerce, particularly mobile, will continue to grow, and new concepts will continue to launch.  Some will grow and eventually add stores, some will be acquired by established retailers to extend their customer experience and some will fail but leave a seed of some new idea that will sprout again somewhere else.

What these stories have in common is the direction management teams take (whether by choice or by circumstances).  We often quote William Gibson, “The future is already here.  It’s just unevenly distributed.”  Innovation drives ever more rapid changes in consumer behaviors and the challenges and opportunities for retailers.  It takes constant hard work for retailers to:

• Understand and empathize with a company’s target segment
• Carefully define what problem they will solve or new solution they will provide for their target customers
• Look beyond their business and competitors to learn about and evaluate innovative ideas that can be applied to their business and bring new vigor and growth

Where are you?

Want to see more retail innovation ideas?  Check out Retail Innovations 12 here.