February 01, 2017

Digital Consumes Retail

About ten miles from my house, there is a field dominated by rabbits. Rabbits everywhere. Rabbits constantly surveying the landscape, hoping not to see a bald eagle or a fox.

Eventually, the population of rabbits grows to large levels ... and then the foxes move in. The foxes fill their tummies on a veritable plethora of rabbits, leaving a small population of rabbits.

Then the foxes get hungry ... too little food ... and they move on.

Rabbits breed and the population grows once again.

Foxes come back.

Rabbits are gone.

Foxes move on.

What we are seeing in retail is a classic rabbit / fox scenario.
  1. Traditional Retail Stores are Rabbits.
  2. Digital Strategy represent Foxes.
  3. Amazon is represented by Wolves ... Wolves eat both Rabbits and Foxes.
Digital is eating Traditional Retail. No doubt about it. Worse, the conversion of "food" is not one-to-one ... a dollar of retail sales are consumed by digital, leaving us with forty cents of digital online sales (your mileage will vary).

If we want "digital" to be successful, then we have to "feed digital". We haven't done this, to date. All we do are create more and more foxes, and then we praise the foxes for their hunting ability. How hard is it for a Fox to hunt a Rabbit?

Use Macy's as your poster child - online sales grew and grew and retail sales sunk - and then store closures (food) caused online sales to stop growing as fast.

Now, you can't say "just keep the stores open" if the store are unprofitable. No way. Don't listen to the pundits who now demand that retailers keep unprofitable stores open. If you have skin in the game, you look at the p&l and you see a nightmare and you have to do something about it.

I know what I'd do about it.

What we have to do is feed our rabbits (i.e. Merchandise Productivity). We need low cost customer acquisition programs (food) that increases sales within stores ... so that our stores are healthy enough to provide food for the foxes (#digital) ... enough food that even the wolves (Amazon) can't harm us.

The failure of the past decade is that we haven't produced enough retail food (rabbits) to feed digital foxes. We just sat there and cheered on as the foxes ate the rabbits.

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