Articles

Time To Bring Business Thinking Into The 21st Century.

Retail business thinking is 99% about a belief paradigm that most – if not all – business people share. The retail business thinking that we practice and teach today however, reached its use by date last century and is due for a radical overhaul. Current practice is based on the model developed immediately after World War 2 when we saw inputs as infinite and the world was rebuilding with a voracious appetite.

This is the era that refined the ‘supply based’ business model. The model on which profit through volume is based, consuming ever-increasing amounts of commoditised inputs, seeking lower and lower production costs and forcing higher and higher levels of inventory through an ever expanding distribution network with an expectation that consumption is infinite.

The 21st century is a million light years away from the forces that shaped this era.

Today we understand that most if not all inputs are finite and that sustainability is a critical social, environmental and economic issue. We know that commoditising limited resources is not maximising value. We have proven that speed of replication and cost of replication have created a business climate where we oversupply a flooded marketplace where consumers are increasingly questioning “why they need more stuff” and profit through volume assumptions that lead to aggregate profit growth from lowering unit margins have proven to be wrong in the vast majority of cases.

The 21st century demonstrates consistently that a ‘demand based’ business model is the one that ticks all the boxes in the era that we live in.

Today the most profitable car company isn’t Ford but Porsche. The most profitable apparel company isn’t Marks and Spencer but Zara. These businesses understand that magnetic customer appeal creates demand which the company always ensures is ahead of supply in order to ensure desire is maintained hence supporting profit growth not through increasing volume and lowering prices but by maintaining brand premium and managing ‘right volume’ inventory levels and a feeling that opportunity is limited.

Profit through volume is not dead. There are some notable categories and businesses in retail where the model works well and – with continual refinement – is sustainable. But generally speaking where it works, it is only sustainable by one player.

For a whole host of reasons, retail is at a watershed moment where we have the opportunity to re-align our business models and beliefs and drive sustainable profit growth based on sound thinking. In the 21st century – managing demand beats pushing supply; making more from less beats making less from more; built to last beats short term exploitation; and customer-centric beats investor-centric.

Our old business beliefs belong to the 20th century. Time to update our thinking and enjoy the prosperity that awaits the true 21st century retailer.