Omnichannel
Retail’s last chance saloon?
Jim Shaw, founder and partner at Shaw & Co, writes about the 'new normal' of retail and why he views retailers as being on the back foot and those most at risk are those selling branded higher value products.
May 11, 2021 by Jim Shaw
As we start to emerge tentatively from what we all hope is the worst of the COVID-19 pandemic, the 'new normal' is starting to manifest itself. The last 12 months have brought about permanent changes to the way that we go about our day-to-day lives and how we interact with the world around us. However, in some respects these changes have merely been accelerated, as areas of the economy reach the end of their useful economic 'life'.
One of these areas is retail. Retail, and my argument focuses on this activity in its purest form, is increasingly less relevant in a rapidly growing digital economy. The function of a retailer no longer adds value to the customer or the manufacturer, and as is the way with efficient markets, the market will make this known in the most ruthless way. Retailers are on the back foot and their demise is, in my view, inevitable.
Retailers have long since bemoaned issues with property costs and other structural baggage. These pressures are real, but the truth is that many retailers have failed to recognise their fundamental value proposition is changing in a rapidly shifting landscape.
It is also important to note that an online retailer is as endangered as any physical retailer in the new ecosystem. Any 'success' by retailers to capture this new online traffic is simply a temporary reprieve. Does this extend to the almighty Amazon? Yes, it certainly does and I am sure Jeff Bezos knows it. Without fundamentally changing their value proposition, the relevance of retailers is ebbing away.
The value proposition of retailers, and specifically retailers of scale, was centered on distribution Manufacturers needed greater reach to get their vast quantity of products to their customers. In the same way, its production processes had been broken down into repeatable and specialist sub-processes, and so was the distribution model….and the retailer was born.
Retailers offered access to vast numbers of customers, national and international distribution of stock making goods readily available to consumers, marketing, sales support and customer service to name but a few. For customers, the retailer represented the face of the brands, the trusted interface and gave them the confidence to purchase the products of otherwise faceless manufacturers. So successful were some of these retailers, they became 'brands' in their own right.
Today, there is a changing business landscape driven by the evolution of the internet. Technology is bringing the manufacturer and the customer closer together each day. Technology is allowing manufacturers and consumers to engage at a level and pace never seen before; and the smart ones are taking advantage.
Consumers are happy to build trust in brands through their digital presence alone. The manufacturer who sees this opportunity can develop websites that are so rich in proprietary content that a retailer can no longer demand the top spot on a search result.
Furthermore, once that manufacturer has the attention of the customer, it has the opportunity to price products at a level that will beat any retailer. Empowered manufacturers are starting to realize that a direct-to-consumer model can and will work. For the manufacturer, consumer and retailer, it's win-win-lose in that order.
It's now easy for a direct-to-consumer supply chain to be established. A manufacturer can now access millions of people across the globe directly and the retailer's role is removed from the value chain.
However, this raises the questions about curation, discovery and the important role a retailer has in introducing new products to its customers? Once again, new technologies and online discovery make this value proposition increasingly obsolete.
Is there any evidence for this direct-to-consumer model? I'd say Apple is doing a pretty good job of showing the way with a mixed digital and physical offering that appeals directly to their consumers whilst protecting the brand and profit margins..
Does this mean that malls and high streets are dead? Physical retail as we know it must change; there is no doubt millions of people will return to the national pastime of 'shopping' as restrictions are lifted but shopping will change in nature and will become focused on brand experience and not moving volumes of generalized goods.
But none of this is new. The global pandemic has accelerated the process and we are now just four to five years ahead of where we might have been without COVID-19.
Are retailers in all areas equally at risk? No, I'd admit there is a continuum; those most at risk are selling branded higher value products or specialist products and those at least risk are smaller value retailers like supermarkets.
Customers that are looking to make a purchase of a single high value item will more readily seek out the manufacturer. Fashion and clothing sit in the middle with customers more likely attracted to a brand rather than a specific item. But in time, retailers will feel the forces of digital disruption and the ecosystem evolving alongside it.
Jim Shaw is founder and partner at Shaw & Co
About Jim Shaw
Below he provides a summary of his career, his current role and what he does in his spare time.
Jim is a Fellow of the Institute of Chartered Accountants and has received several awards and industry recognition including South West Young Deal Maker of the Year in 2013 and nomination for South West Deal Maker of the Year in 2018. He is also listed as one the regions’ 42 entrepreneurs under 42 to watch.
After graduating from the University of Bristol with a Physics Degree, Jim pursued his interest in business by becoming a Chartered Accountant with PwC From there he moved into an Associate Director role with Target Corporate Finance where he provided lead advisory services to clients in a wide range of sectors including Aerospace & Defence, Energy & Renewables and Human Capital.
Over the last 15 years Jim has developed a deep expertise of mergers and acquisitions and has been advising clients across multiple sectors on complex M&A transactions. In that time, Jim has completed more than 70 M&A deals with a combined transaction value exceeding $670m (£500m)
