Retail impacted by digital finally changing business models


Supply chain software, and a minority stake at that, wrote Loretta Chao to WSJ readers made it clear that Nordstrom definitely is intent on preserving their advantages.  As a retailer, they definitely get what digital business means–they are actively engaged in shifting distribution and inventory control, not merely adding data points to track, but redirecting their fulfillment.

Yesterday, the Wall Street Journal also reported shifting focus by big mall developers, who have leveled the mall spots once anchored by top retailers to make room for a new wave of experience magnet attractions. Fewer and fewer people respond to traditional retailer marketing and sales cycles.  Ron Johnson’s early insight that shoppers were ready for greater transparency was ineffectively translated and instead of turning JCPenny’s into a winner, he managed to accelerate its decline.

In a 2013 blog post following a peer discussion of this strategic failure, I wrote:

“The days in which stores stood between buyers and consumer good manufacturers are dwindling. Location or proximity to the consumer may still have an edge but your competition’s ability  to insert themselves into the face to face transaction has dramatically altered the sales dynamic. Mobile communication devices  make it easy for sellers to find buyers anywhere anytime; and yet, the playbook  for many stores , from department stores to specialty retailers,  fail to keep pace with the change in buyer behavior, perception and thus fail to live up to  increased expectations.”

(Click the link for the full post:  For JC Penney and Ron Johnson experience counts, but which one will deliver growth? )

The realization of end-to-end digital retailing has been slow to arrive. True to form, it has not materialized evenly. The latency, or the time interval that separates store buyers’ pre-order of seasonal merchandise, and its staged manufacture, delivery to warehouses and distribution centers before making it to the store created more than one headache for retailer. In a stable environment, where information was as limited as resources , retailers may have been better at holding customer’s captive and thus been more effective in their ability to  forecast, price, track and sell in keeping with customer demand.  The once innovation of a sale to prime the pump, by Ron Johnson’s time had become a fixture in the sales cycle.

Was it really Amazon who introduced the idea of “Drop shipping?” No, as far as I know, Amazon merely managed to take advantage of Chris Anderson‘s description of Long tail distributions as it applies to supply and demand on the internet.  Amazon’s platform that made it easier for interested buyers to find a supplier no matter how rare or plentiful the good. In other words, Amazon freed consumers from the restraints of retailers merchandising and elaborate distribution schemes.

clip_image002Drop Shipping Loretta Chao explains doesn’t merely reduce retailer’s inventory storage and management costs.  Instead it enables retailers to reinvent their old process for securing product and putting it in the hands of consumers. This lets them compete directly with e-commerce players like Amazon and gain the same, if not greater advantage than Amazon’s platform provides.

Personally, I’m just really excited about what else will emerge, and realizing that DropShipping is just one element of the changes that are here but just not evenly distributed. For example, remember why Kickstarter exists? On one hand it represents the unshackling of constraints forced by manufacturers who limited what designs made it to the mass market.  New designers share their idea and get people to pre-pay and pre-order which makes it possible for more alternative goods making it into production.  The presumption of scale still embedded into the calculations that the manufacturers would need a minimum order to make production worthwhile.

Democratizing design is one thing, but imagine a non-inventory business model, one that puts goods in the hands of consumers faster with more control and choice.I recently heard a panel entitled Rethinking the Design Process at a thoght leader summit sponsored by soho house, Samsung and surface magazine, entitled Intersection 2016. Scott Wilson , original maker of MNML design, spoke with Charles Adler (founder of Kickstarter), Jesse Harrington , designer at Autodesk and Dean DiSimone , creator of Othr dedicated to minimizing the environmental footprint of remote manufacturing.

Direct to consumer, suggests that retail as it has existed for the last few centuries is finally catching up to technology, are at least some retailers. If you want to see who, check the panelists recommended you look at the following: Rapha –a completely different sales model; Tesla back to the pre-order and customize and personalized delivery; and finally Story–who boasts “Point of view of a Magazine,Changes like a Gallery, Sells things like a Store.”

If you have any other evidence of the shift, I’d love to hear about them.