Future of Business: Discount and High End

[Sebleo]

I found this article, emailed to me through Shopify, to be very interesting.     It it basically says that the future of business is either discount or high end and suggests it’s hard to make it in the middle.

The Retail Renaissance: A Crash Course on Retail’s Great Bifurcation At this point, the “retail apocalypse” has proven to be a lingering myth. After all, the industry just finished a year with strong sales and in 2017, retail sales outpaced the growth in the U.S. GDP. But 2018 didn’t end happily ever after for every retail brand. In spite of healthy overall holiday sales, some brands like J.Crew, Sears, Macy’s, and J.C. Penney announced plans to shutter hundreds of stores. So, why do these headlines tell such disparate stories? As many retailers reading right now can likely attest, the sector is shifting in seismic ways. Some brands are going bust while others are blossoming. That’s because, rather than undergoing an apocalypse, the industry is experiencing a renaissance. The Harvard Business Reviewpoints out that retail has reinvented itself multiple times over the last couple of centuries. Railroads and the rise of cities spawned department stores, and later the invention of automobiles led to sprawling shopping malls, pushing the likes of Woolworths and Marshall Field’s into extinction. And a similar shift is happening now. “Every 50 years or so, retailing undergoes this kind of disruption. Retailers relying on earlier formats either adapt or die out as the new ones pull volume from their stores and make the remaining volume less profitable.” — HBR Luxury retailers and budget brands are seeing encouraging growth while stores in the middle are closing by the dozens. But what’s behind this bifurcation, and which brands are adapting well?   Socioeconomic realities: The dwindling middle class As we explored in our last issue, modern shoppers are more empowered than ever; technology has put a wealth of product information and data in their immediate grasp. Shoppers are also more discerning—not just because they can be, but because the economic realities of the last decade have forced many consumers to be more conscious about how they spend their disposable dollars. “The industry is showing weakness in some areas while demonstrating strength in others. This divergence is what we refer to as the great retail bifurcation, and we view the change as highly related to changing consumer economics.” — Deloitte Insights According to data from Deloitte Insights, the last decade was rough on 80% of U.S. consumers. The lower 40% income group struggled to keep up with expenses while the middle 40% saw its income shrink. And while incomes stagnated or decreased, the costs for many necessities now gobble up a bigger portion of the average paycheck. For example, health care costs shot up 62% while food spiked 17%.  As a result, the retail industry is mirroring this shrink in the middle class. With fewer discretionary dollars, the competition between retail brands is fierce and the need to differentiate is stronger than ever.     Read more       Amazon eats up vanilla retail brands competing on “convenience” When attempting to understand the “why” behind this divergence in retail, you can’t discount Amazon’s relentless growth. According to recent data from eMarketer, Amazon was predicted to close 49.1% of all ecommerce sales in 2018 and 5% of all retail sales. With this growing loss in market share, big-box brands that previously competed on convenience in the mid-priced tier have lost many of their sales to Amazon. Three of these traditional retailers (Sears, Radio Shack, and Payless) accounted for 6,985 of the stores that closed down in 2017. But the growth of online shopping (and the magnetic draw of Amazon Prime) is only part of the story here. When you scratch the surface, you’ll realize mid-tier retailers were already vulnerable because of their lack of differentiation and refusal to adapt. Sure, the age of Amazon has forced the industry to pay attention to ecommerce, but more brick-and-mortar stores are opening than closing and the majority of sales still happen in-person. “...the stores that are swimming in a sea of sameness—mediocre service, over-distributed and uninspiring merchandise, one-size-fits-all marketing, look-alike sales promotions and relentlessly dull store environments—are getting crushed.” — Steve Dennis, Retail Consultant and President of SageBerry Consulting       Read more         Two roads diverged: Premium versus discount brands As a consequence of those increasingly tightened budgets and more discerning tastes, consumers are passing over middle-of-the-road retailers that provide mid-tier products and shopping experiences. Instead, they’re opting for premium retailers peddling quality products and memorable experiences, or budget-conscious brands that offer economical shopping experiences with low prices to match. As illustrated in the chart below by Deloitte Insights, most of the growth is concentrated at the opposite ends of the spectrum—leaving brands in the middle to adapt or die off.   As Deloitte Insights revealed in their now seminal study on “The great retail bifurcation,”both premier and price-based retailers have seen exponential growth compared to their “balanced” retail counterparts. High-end brands, notably those with equally high-end experiences, saw their revenue grow 81%, or 40-times more than mid-tier retailers. Premium retailers that emphasize memorable in-store experiences are thriving (see Allbirds, AdoreMe, and The Sill, among many others). On the other end of the spectrum, cost-conscious brands opened 2.5 new stores for every shop that balanced retailers opened and also saw their revenues spike by 37%. Drugstores, convenience stores, and dollar stores made up the top segments of retailers opening new locations. Off-price retailers are also seeing sales shoot up: Discount retail chain Ross saw a 7.8% revenue spike.      Read more       “Retailers should be mindful of these industry-wide trends. We see a divergence happening where consumers are choosing very low-priced items or premium items, with less consideration for products that fall in the middle.”  — Arpan Podduturi, Shopify’s Director of Product, Retail  Bridging the great divide As this bifurcation continues to divide brands into two distinct categories, many retailers are staring down two divergent paths: competing on price or offering a premium experience. While “value” stores serve a strong purpose (who doesn’t love bargain hunting?), high-touch experiences offer retailers a number of benefits. While online shopping is efficient, experience-driven retail’s hands-on, personalized experiences are ideal for shoppers who want something more than “click, cart, checkout.”  While this may not be the right path for every retailer, picking a lane and being deliberate about your strategy can help keep your retail brand out of the barren middle. — Lindsey Peacock, Managing Editor of Shopify Retail  Want more insights and analysis delivered right to your inbox? Subscribe to our monthly retail newsletter.     Subscribe today

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[pughaus]

Sounds like a retail apocalypse and a societal apocalypse.  "dwindling middle class" indeed...  

[Candybee]

More people shop online today and go to big box stores like Walmart for all in one stop shopping. The day of dept stores, boutiques, and strip malls is in the dust. I think one of the few exceptions are grocery stores and pharmacy/drug stores. I don't see retail diminishing, just being changed by todays shopping habits. I also think spending has actually increased. I know more people are using cards again than they were a couple years ago.

 

It would be nice to see more interest in homemade, made in the usa, and buying local handicrafts and produce from the small businesses across America.

[Sebleo]

I agree wholeheartedly @Candybee   

 

I am am one of those people who shop online almost exclusively. 

 

I think there is a lot of interest in handmade, made in USA, and buying local. But I also think people are torn between that and lowest price. And often times the lowest price wins. It doesn’t matter that it is, not always, but usually, an inferior product. People can’t help themselves when it comes to a “deal”. 

[Quentin]

I would go so far as to say that Home Depot and Lowes also fall into this author's middle group. The big box warehouse model that these two follow is already a dinosaur. 

On 1/30/2019 at 1:37 PM, Sebleo said:

“...the stores that are swimming in a sea of sameness—mediocre service, over-distributed and uninspiring merchandise, one-size-fits-all marketing, look-alike sales promotions and relentlessly dull store environments—are getting crushed.”

I think this describes Depot and Lowe's to a T. Change both store's colors to grey, blindfold someone, and drop them in the center of one of these two stores and it would be hard to tell the difference. Neither has even mediocre service. Their whole model of keeping the merchandise palletized up in the racks is certainly not convenient. Who wants to wait 30 minutes to an hour for an employee to find someone certified to operate machinery, block off two or three aisles with gates and pull a pallet down only to discover that the merchandise isn't there either. I worked my last 10 years at Home Depot and I can tell you that their inventory counts are never correct. As a shopper in both Depot and Lowes, I've found empty shelves when their website says they have the item in stock. The other day I shopped at Home Depot for a chainsaw. Completely empty shelves. The guy working there told me they had probably been stolen. I know the guy. I used to work with him. So I just drove back home, ordered it online from Homedepot.com and had it in less than two days. Free shipping of course. People don't have time for that. I've gotten to the point where I order simple things such as aspirin on Amazon. 

Edited February 2, 2019 by Quentin
Typo

[Shari]

I too primarily shop online.  I hate malls of any kind.  However, we have a store like Home Depot here called Menard's and I love that store.  They always have plenty of help and are helpful.  My husband will ask if I want to run to Menard's with him and I jump.  Even to look around.  They have everything.  Even foods, some toys, pet supplies etc....And the store is always clean. 

[TallTayl]

Costco does not seem to be suffering one little bit. The crowds there on any given day, at any time of the day say people are willing to suffer crowds and pay more than Walmart prices. 

 

We have some new supermarkets here that are high end in feel with typical prices for fresh made things and higher than most for canned/bottled. You can’t find a spot to park most days. They offer nothing new or really different from any other store other than a fresh layout. The feeling inside the store draws people.  It’s set up as kind of a maze, has various live music playing (for instance my middle school daughter is in the chamber orchestra for her school and plays there in exchange for a gelato reward). The store is affiliating itself with gas stations, etc to extend the rewards. 

 

I agree with the menards above.  The parking lot is always jammed with home owners and contractors .the entire chain just revamped all of their stores. They offer rewards... 11% off sales happen monthly. Their merch is different from Home Depot and Lowe’s. It changes frequently enough to keep people spending and spending and spending. 

 

The article is missing the mark on some innovative brands that are defying the odds. People want a shopping “experience” with loyalty rewards. People like variety.

 

I’m ready to drop amazon myself.  The imposter brands posing at the real thing and stale food (human and pet) items are enough for me to not buy. Bezos has a good thing going, but is getting too greedy. The mighty all fall. When purchasing something I try to get to the business page and purchase direct. I use amazon as an electronic product directory. 

[Quentin]

10 hours ago, Shari said:

I too primarily shop online.  I hate malls of any kind.  However, we have a store like Home Depot here called Menard's and I love that store.  They always have plenty of help and are helpful.  My husband will ask if I want to run to Menard's with him and I jump.  Even to look around.  They have everything.  Even foods, some toys, pet supplies etc....And the store is always clean. 

I've heard of Menard's from my years working with Home Depot. They aren't in my part of the country, but I've heard good things about them. Sure didn't know they sold food!

[Quentin]

8 hours ago, TallTayl said:

Costco does not seem to be suffering one little bit.

Costco is a different situation from Lowe's and Depot. While they have the "warehouse" feel and have things up above in the racks like the other two stores, they still have all the product on the ground where you can grab it and throw it into your cart and they do a good job of keeping those items stocked down. Costco will make it. They've been around a lot longer than many people realize. They'll be around a long time, I think. However, all it takes is for a new leader to come along with his own "great ideas" and any company can go down really fast.