The Retail Collapse is Really Just Suicide
While the business pundits and politicians blame the
Internet and foreign competition. American retailers just keep loading the gun,
spinning the cylinder and pulling the trigger. Sure, online sales are
increasing, but they are only about 10% of consumer transactions. The real problem is retailers and brands have
crawled in a corner and shot themselves in the wallet. Here are five of the bullets that are aimed
at the retail and brand market. They must stop spinning the cylinder
and playing the bad odds or a major segment of the economy will collapse.
Dependence on Malls for Store Traffic
Bullet one impacting store closings is dependence on common
mall locations from anchors like Sears, J.C. Penney and Macy’s and specialty
stores like; The Limited, Wet Seal, Bebe, BCBG, Guess, Crocs and many more. For
years, malls brought shoppers together for a social experience. They were more
than commerce centers they were social hubs for seeing friends, planning
weekends and sharing experiences. All
interactions that now are more efficient and personal on social media. Losing this segment of social traffic and the
attached peer pressure to purchase left many retailers and brand outlets
without the store traffic they depended on to support impulse purchases. Most malls were not financially prepared to
counter this loss of traffic so as the ecosystem collapsed the dependent stores
became memories.
It is important to remember that all malls have not suffered
this fate some are huge successes and support retailers that have adapted to
this new environment. These sustaining commerce
centers fall into two categories. The
entertainment based mall is the most spectacular and although most of the
largest are outside the U.S. there are still some impressive examples in the
states. These malls draw with live
shows, amusements, rides, giant multi screen cinema complexes and restaurant
level food venues.
Another successful model is outdoor shopping centers usually
anchored by a superstore like Wal-Mart or chain box store like Home Depot or
Lowes. Non-competing specialty stores or
food or service outlets, like fast food franchises and personal services,
surround these anchors.
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| Anchor store based mall |
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| Nickelodeon Universe at entertainment based Mall of America |
Stocking
by Season Not by Product Movement
One of the technical
differences between superstores and traditional department and specialty stores
is their buying decision structure. Most
super stores have enough buying leverage to create flexible purchase contracts,
which allow them to stock and display product based on consumer purchases
derived from their POS data. Simply put,
in superstores consumers drive the product availability. Many of the retailers currently in trouble
still use seasons to drive product stocking.
This is especially true of the apparel sector where stores buy in bulk
thinking that lower volume pricing will insure profits. Six to twelve months
before every season they spin the cylinder and pull the trigger based on the
best possible forecast. Every retailer
believes that they will spin up a winner but there are too many risks loaded
and sooner or later the inevitable happens. This outdated forecasting system
sourcing leaves retailers with fashion losers, odd sizes and excess merchandise
when the next seasonal shipment is on the way.
Discount and clearance sales blow
away all the planned profits leaving limited cash to operate the store leading
to self inflicted bankruptcy.
Modern POS stocking is an exercise in constant product
resetting based on the velocity of consumer product purchase. Restocking and repositioning are mapped by
computer and tied to simple formulas like, “Gross Profit X Inventory turns” product
indexes (GPxT=PI). This index competes
with other products in the same category for on-hand inventory, product display
position and replenishment orders. This is why many of us have experienced
going back to Costco and finding that the product we bought three weeks ago is
no longer on the floor. This process creates much less risk of product “backfire”
since actual sales drive the inventory not dangerous forecast roulette that blow
away profits.
Many of the current and pending retail and brand closures
have been caused by self inflicted clearance discounts caused by out dated
stocking, antiquated POS systems and seasonal based buying. Coordinating sales and manufacturing in real time is the path to saving jobs in both manufacturing and retailing.
Discounting Retail’s Omni-Channel Advantages
Omni-channel retailers have a huge selling advantage with
consumers. They can address the customer
at every level of value gratification.
With some merchandising restructuring retailers can satisfy instant,
delayed and deferred gratification much better than online only stores.
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| A Touch Screen endless aisle of touch it, feel it, try it choices for the consumer and a virtual inventory with no risk for the retailer and brand. The consumer can choose fabric, color and print from thousands of virtual SKU's and pick-up in store or ship to home in three days. |
First, retailers need to recognize today’s customer is no
longer an impulse shopper manipulated by advertising or sales. According to Forrester Research, over 83% of
retail purchases are influenced by information gained online. This data defines today’s customer not as a
traditional shopper but a dedicated searcher.
Retailers without an informative presence on the inter-net cannot
compete to satisfy modern consumers. Web
presence only gets retailers the opportunity to compete the real advantage is
the physical customer interface. Touch it, feel it, try it, gives the retail
experience depth and value. The
instant gratification of immediate possession only happens at retail. The delayed gratification of customization
and later pickup or home delivery is the most profit making change available to
retailers today. It can be as simple as
the custom paint counter at the home center or a custom printed holiday card or
even custom dyed, printed and fitted clothing sent to your home or picked up at
the store. Deferred gratification is
satisfied, by allowing the customer to create the perfect fit by creating their
body avatar at the store and then building a wardrobe around their “digital
body” at home. This technology available
today is seen every day on HGTV by custom home decorators to visualize
different coverings on furniture in the customer’s home. For the retailer, selling from a virtual
inventory with no stocking cost or risk, retail price and purchase driven production
insures a profit in every sale.
Ignoring New Production Coloring Technologies
Removing this bullet is both the most critical to profits
and the most difficult to install. For
hundreds if not thousands of years color has been applied to fabric by
essentially the same process. First you mix the color of choice, then you apply
it to the fabric and then fix the color through heat, steam or drying. Next, operators prepare for the next job by
must carefully cleaning the equipment and then mixing a batch of the next
color. If your printing each color must
be separated, mixed to match, burned to a screen, registered to each other and after
printing carefully cleaned for the next run.
All of these actions cost the dye and print house time and lost income. In the end that cost is passed on in the form
of sir-charges and minimums preventing the brand or retailer from quick
replenishment or custom orders based on actual sales. This process of individual premixed colors is
the single greatest obsolete manufacturing technology causing product risk and
excess labor costs. Separating, printing
and/or sewing in dyed or printed colors cost labor time and over production and
eventually extended delivery time and inventory risk.
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| Current screen printing requires each color to be separated, mixed to match, burned to a screen, registered to each other and after printing carefully cleaned for the next run. Screen print is currently over 90% of all printed textile and apparel production. This mass production technology cripples profits in the garment and textile markets. |
The irony is that all this time the technology that solves
this manufacturing dilemma has been sitting on the desk at your office. Ever wonder how that desktop printer produces
all those colorful charts, slides and pictures, instantly without mixing inks,
making screens and time consuming cleanup between each print? This coloring technology is call “process
color” and it has been producing the brilliant colored point-of-purchase and
fabric based display art at shows, conferences and stores for years. The technology and equipment is available
today to create the same “change-on-the-fly” pollution free colors and prints
on apparel and textiles. The industry
continues to resist while they hope that better data, design and PLM software
will save them from over production and the inevitable clearance sale bullet.
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| Digital process color printing changes on the fly with little or no downtime and produces to match sales without dangerous pollution or separation and screen costs. |
Obsolete Merchandising and Sales Methods
Today many stores
operate on a “buyer knows best” merchandising strategy where the brand/store
buyer determines what product will be offered to the customer. This strategy assumes the stores or brands
customers all have similar taste and style.
This provider centric strategy is demanded by factors like mass
production, long transportation and distribution lead times and dedicated floor
space that must be filled.
Making the fundamental change
to a customer centric merchandising strategy has baffled most of the retail
chains because it requires changing manufacturing, sourcing, real time POS,
customer interface and online design.
The customer centric store operates with at least these key customer
participation features:
- Purchase Activated Manufacturing either while-you-wait in the store (Direct-to-Garment) or at touch screen kiosk for unlimited color choice and at home delivery.
- Optional personal take home avatar for individual fitting at home.
- Endless aisle touchscreen access to virtual inventory.
- Sales associate guided product customization.
- Access to personal closet of previous purchases and product virtual lay-away.
- Automatic POS linked production replenishing actual sales.
All these technologies are available today but retailers
shun their use for a myriad of reasons from “wait and see” to “there’s no hope”
while continued inaction just spins the cylinder and…
