Let's project this business out, from 2014 - 2020.
Do you see what happens, folks?
In just three years, the productivity drops cause the fifth store to be unprofitable. In six years, the productivity drops cause both the fourth and fifth stores to be unprofitable. Meanwhile, the online channel grows and grows and grows, fueled by mobile.
Between now and 2020, your CFO runs the projections. She sees the writing on the wall. Strong stores will get even stronger. Weak stores have no purpose in a mobile world. They become unprofitable.
By 2017, your CFO has convinced the Executive Team that Store #4 and Store #5 need to be closed when the leases run out at the end of 2020.
The projected profit and loss statement in 2020, with stores closed, looks very healthy. But the business has cut back on total stores by 40%.
This is how structural change in retail plays out. It's not a big, dramatic "end-of-the-world" scenario, it's not doom. And it's not the success promised by the omnichannel community. It's a slow evolution that eventually achieves critical mass, resulting in the closing of what have become unproductive stores.
In other words, the retailer without debt and with 10% - 15%+ pre-tax margins survives. Easily. The outcome is worse for 5% pre-tax retailers.
This whole thing plays out the same way it did for catalogers from 2003 - 2013. The only problem is that paper can simply disappear from the ecosystem. Dying stores will turn into dying shopping centers.
What comes next? That's the really interesting question. You almost have to believe that the stores that survive will become far more entertainment/service/emotionally based. They will have to become that to compete with the cold, sterile omnichannel solutions being thrust at us by technology. They will have to fuse, in some way, with mobile ... a mobile channel that will likely be in the process of thoroughly consuming e-commerce by 2020. The stores that die will sit vacant, or will be replaced by something that folks currently age 8-34 will embrace. That's going to be very interesting to watch unfold.
Thank you, Kevin. Great insight. This is what happend in Paris : less stores, replaced by just one so called 'flagship' in a luxury area, with "experiences" to deliver to the customers. Thanks.ReplyDelete
Very interesting - thanks!ReplyDelete