December 11, 2014

Major, Major Retail Problems - Fueled By Demographics

You probably read this article in Vox ... about Abercrombie, Delia's, and Aeropostale (click here).

Do you read Vox? Or Mic? These are not traditional news organizations. They are enjoyed by younger readers - whereas Fox News and MSNBC are enjoyed by older Baby Boomers. And you can click here to read about traditional news organizations being cut off from civilization ... 2/3 of readers being age 55+.

Why bring up the news angle while discussing retail?

Because demographic changes are obliterating existing businesses, cutting existing businesses off from younger customers.

Catalogers went through this transition first, and catalogers have finished the transition. When you analyze the vast majority of pure catalog businesses, you find a customer base that is 50-90 years old, with an average typically in the low-mid 60s. Customers under age 45 are cut off from catalogers. The transition is over, and is highly unlikely to be reversed. The content / merchandise / channels used by catalogers appeal only to those age 50-90, further cutting off younger shoppers. When the transition was in-process, experts told catalogers to be "multi-channel" ... to simply move into all channels to acquire all customers. The strategy failed. Because the merchandise and content only appealed to older customers, younger customers simply abandoned catalogers. The outcome has been decided, save for a minority of companies (there are no laws, there are probabilities). Multichannel did not work for most.

Retailers, on all levels, are now going through the same process. An Abercrombie / Delia's / Aeropostale catered to a pre-mobile customer, and are now lost as Gen-X kids exhibit fundamentally different behaviors. And it doesn't matter how "mobile" these businesses become - the core issue is competition with H&M and "fast fashion" - customers moved there, and the younger segment is cut-off from Abercrombie / Delia's / Aeropostale. Now, in fashion-centric businesses, merchandise plays a greater role, it has a short half-life, so problems can be fixed. But the problems are more merchandise-centric in nature, they aren't "omnichannel". Be honest - the 17 year old H&M shopper isn't looking for a "buy online, pickup in store" solution. Be honest!

Then there's the rest of retail.

Notice that high-end fashion-centric businesses are not struggling, but the "middle" is being absolutely gutted. High-end fashion depends upon a small number of highly affluent shoppers, often older shoppers. Behaviors aren't changing as much there.

But the rest of retail, lower/middle income, is being gutted. Gutted by audience and price. Gutted by ten years of retailers teaching customers to sit at home and not visit a store.

The article cites four issues:
  1. Teens spending less.
  2. Spending less on apparel compared to other categories.
  3. Attention turned to mobile devices.
  4. Malls are dying.
If we remove the "teen" focus of the article, the 3rd/4th points become highly relevant, don't they?

We trained the customer to sit home and click - every expert in the retail industry told us this would be a good thing (multichannel / omnichannel). The exact opposite happened - it's a bad thing - customers click and don't get in a car and drive to a store. So malls are dying as a consequence ... many studies suggest that mall traffic is down by anywhere between 10% and 50%. Nobody is going to the mall.

Think about your spending habits - you have home internet, you have mobile devices and mobile internet ... you didn't have these two issues 20 years ago. Your dollars now flow in that direction, and away from malls.

We're being told that the solution is to just be "omnichannel" ... be everywhere ... digitize the entire business ... and problems will be solved.

The real issue, of course, is this ... how in the heck are we going to train the customer to get in a car and drive to a store?

Panera Bread and Chipotle figured out how to get a customer to get in a car and drive to their stores - while McDonalds failed.

The secret, then, isn't omnichannel. It's a marketing / merchandising strategy that causes a customer to get in a car and drive to a store. Too few of us are focusing on the strategy. Retail can be fixed - even though there are way, way, way too many square feet available. Courses can be reversed. Time to get busy.