The Multichannel Business Model: In BIG, BIG Trouble

I run this little experiment for Executives from time to time.  It's time to run it for you as well, given that Sears is about to close 100 - 200 stores, given that Best Buy ramped-up sales by about 20% and was killed, from a profitability standpoint, after discounting to compete with online brands.

Experiment:  Pretend you want to purchase a pair of UGG Dakotas.

• Saks.com:  $100 + $10 shipping/handling + $9 sales tax = $119.00.
• Saks in Store:  $100 + $8 sales tax = $108.00.
• Nordstrom.com or Nordstrom in Store:  $99.95 + Free Shipping + $8 sales tax = $107.95.
• Zappos.com, Most Markets = $100.00 + Free Shipping + $0 Sales Tax = $100.00.

So there you are, in your favorite Saks store in California, and you pull out your smart phone, and you realize that you can buy the same shoes at Zappos for eight dollars less, and Zappos will get the shoes to you, tomorrow.  You try the shoes on, they don't fit, you try on a different size, they do fit, and then you tell the sales person, "Thanks, but no thanks."  Saks becomes a virtual showroom for Zappos.

Remember, just a few years ago, when the pundits told you that you HAD to integrate bricks 'n clicks to make 'em stick?  Click here to read all about it!

Today, you integrate everything so that Google indexes it properly, so that your customer has an outstanding multichannel experience, and you are required by law to collect sales tax.  The combination of smart phones, pricing comparison (which existed for a decade or more), a dying middle class, debt required to open retail stores, overhead required to keep retail stores running, and online competitors that don't have to collect sales tax completely hoop you!!

Bricks 'n Clicks!!

In my work, I repeatedly see how the death of the middle class and digital technology result in the plundering of existing business models. Ten years ago, a customer was willing to pay an extra $10 or $20 per item (the customer could still comparison shop online, remember).  Today, the middle class is being shredded economically, requiring customers to be hyper-thrifty.  This trickles down to the businesses we manage.  


Today, there are three types of businesses.

1. Low cost, low overhead, lowest price for a customer with high-service or average-service (think Zappos).
2. High-service or positive brand perception or value-added business (think Nordstrom).
3. Everybody else (think Best Buy or Sears or Coldwater Creek or pick your favorite, almost everybody else resides here).

Now, please take a moment, remove your CEO/EVP hat, and put on your consumer hat.  Under what circumstance would you pay an extra $10 to $20 to buy the Uggs featured above at Saks/Nordstrom instead of Zappos?  Be honest.  Because honesty will yield the only competitive advantage you have.  


Is your competitive advantage sustainable?  Profitable?