The earthquake that killed retail

At the time I am writing this article an earthquake has hit Mexico, my building is in danger of collapsing and I have been left homeless (which I hope is solvable). It is a feeling in which what we consider solid and sacred, is not, nor does it protect us. Mexico still has something good, which is the knowledge that the threat is real. Were it not for that, the death toll would have been much higher. The same is happening in retail and many other industries. The last company to file for bankruptcy was Toys R’US, and in the United States alone more than 10,000 physical stores are expected to close this year while dozens of shopping centers are abandoned.

E-commerce and omnichannel is not the future, contrary to what many people think, it is the present and is already causing irreparable damage to traditional companies. Geographic differentiation, where having stores “everywhere” was enough of a competitive advantage, no longer works. Brands are also selling directly to customers.

In the next 5 years e-commerce will account in several countries for more than 30% of total sales and in the next decade surpass traditional. Amazon was already responsible in 2016 for more than 40% of retail growth in the US and every time the stock goes up, other retailers go down. What is good for Amazon is understood to be bad for others. Meanwhile the company continues to grow and is now launching physical stores (purchase of the healthy supermarket chain Wholefoods) where it complements the experience with all its expertise and customer knowledge. Other digital giants are increasingly developing e-commerce such as Google (now Alphabet) and Facebook. The level of investment and technology that these companies have at their disposal will make it very difficult for traditional retailers to face them even in their own battlefield. While the initial entry into these new channels may not be too expensive or complex, operating them in a serious way is increasingly challenging thanks to the level of sophistication required, the human resources with adequate knowledge, and new technologies such as augmented reality data processing, internet of things, etc.

Stores still make sense for some retailers (for example with very low prices or convenience) and clearly for many brands. But these physical spaces are set to evolve into increasingly dynamic and personalized experiences. They will be spaces for entertainment and branding that will complement the companies’ ecosystems built around a deep understanding of the customer.

Some people reading this article will think that they knew this a long time ago and that I am late. Unfortunately it’s not the first time I’ve written about it, but how many retailers still don’t have good online operations and don’t use data in a smart way? 

As with earthquakes, the main risk in these situations is not being prepared and thinking it only happens to others. When it happens, people don’t know what to do and they make mistakes, or they despair, or they ignore it. Unlike earthquakes which are unpredictable, the death of retail in its current format is going to happen. Yet surprisingly many companies continue to ignore it. It’s getting late…

David Bernardo
David Bernardo
Articles: 76

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