The five new rules of retail

Retail is such a fantastic business because the rules are constantly changing. It is so dynamically affected by the “winds of change” from consumers purchase behaviour, investment community, business practice, governmental regulation, product innovation and coverage shifts that it remains one of the most stimulating business categories on earth. While there are many trends that rise and fall like the tides, there are five key trends that have become what I call the Five New Rules of Retail. They are:

1. Time is the new gold.

Consumers today feel “time challenged”. Time poor is an inaccurate description as we have always had and will always have 168 hours in a week. However, we have more things competing for our time than every before. The consumer understands that while money may be elastic, the one thing that isn’t is time. Today the personal key performance indicator for every human being is R.O.T. – Return On Time. For retail this new rule means you either entertain the consumer, make the shopping experience outcome productive for the consumer or save time for the consumer. But wasting their time is a recipe for retail suicide. Build-a-Bear Workshop is a great example of business which understands this rule and has built a franchise based on selling the experience gained by spending your time enjoyably producing a bear which is no more than a repeat purchase device.

2. Attention spans of human beings.

Since the 1950’s and the advent of the mass communication revolution with free to air television, social scientists have tracked a continual decline in the attention spans of human being.

A natural reaction to the bombardment they face from a continual barrage of message being fired at them, consumers have learnt to duck and weave, filter and reject message overload. Combined with the revolution in production leading to a shift from high demand low supply to the current era of high supply/steady demand we have created a noisy modern marketplace where consumers are continually asking the question “what is the reason to buy now?” The retailers that have responded to this new rule such as Zara have prospered by giving continually changing stimulation to consumers though merchandise shelf life of 4 weeks. Buy it now or it’s gone for good. Come in and see what we’ve got every month or you may miss out on just the right thing for you. Target USA with their “cheap chic” strategy, Selfridges at the Bullring with their store built as a renewable warehouse and Comme de Garcon’s “pop-up retail” store are further examples of retailers who are using newness to force visitation and purchase to a growing mass of consumers who’s only reason to have yet another top in their wardrobe is that it is new and relatively limited.

3. Masstige.

Masstige is the Harvard Business Review term that describes a concept where prestige allure meets mass marketing pricing. Target call it cheap chic. The Spanish Armada call it disposible fashion. But to me it is the biggest paradigm shift we have seen in my lifetime because today cheap doesn’t mean compromise. You can get the functionality, aesthetics, durability and quality for an unbelievable price. Thanks to global sourcing, cheap production methods and defecting design talent the middle market is evaporating and luxury has had to re-define itself. In the USA Michael Graves (previously a designer with Alessi) and Isaac Mizrahi (who’s couture boutique is housed in New York’s Bergdorf Goodman temple of luxury) are now household names with the mass market as consumers adopt the “buy smart” attitude to how they spend their money. Today “blending” is the name of the game to find ways of creating individual and unique looks and saving money in one place to spend it somewhere else. The choices can be shopping for food at Wal-mart or Draegers, buying clothes from Tesco or Louis Vuitton. Or increasingly, selecting individual items from both and combining them. This is the rule that has every mid-market specialty retailer in the world re-thinking their business.

4. Retailers as manufacturers, manufacturers as retailers.

We have at last arrived at a point in time where the realisation of over-distribution has dawned on us. The same brands, the same product through many outlets leads to profit erosion. Not the least because the consumer sees it and the only criteria left to force purchase on identical like for like goods is price. The consumer relationship has always been the primary battleground.

Today it is increasingly being played by the rules of differentiation or exclusivity in merchandise and as market forces drive an insatiable desire for profit growth, this has forced verticality on retailers and manufacturers. Verticality brings more than the promise of increased margin. It delivers speed, control, exclusivity and differentiation when exercised correctly and these lead not only to short term margin gains but sustainable profit growth. These are the lessons behind GAP’s move from Levi’s biggest retailer in the USA to pure internal verticality. The reasons LVMH has so heavily invested in buying retail stores such as DFS, Sumaritaine, Le Bon Marche, Christian Dior and Louis Vuitton. And it is now force behind profit through volume retailers such as Tesco, Asda, Wal-Mart and Target USA.

5. Have to have, want to have.

Retailers seem to have a lot more problems understanding the difference between needs and wants than consumers do. What consumers classify as “have to buy” is usually treated as grudge purchase and bargained down on price or efficiency. Wants are elevated to treat or reward status and involve higher degrees of immersion and engagement from the total customer experience. The tricky part of this is that the same consumer flicks in and out of grudge and treat depending on their own personal classification criteria. The Target USA food shopper may rather buy their clothes at Prada because they are more turned on by clothes than basic household food items. Likewise the consumer who is in love with the delicacies on offer at Draegers Deli Supermarket may be more inclined to by cheap chic clothing at Target because their oral fetish is greater than their desire for designer clothes. Establishing a core consumer profile that firmly places the business model and customer experience in either the needs or wants sphere is an important part of the agenda for successful retailers.

Understanding the flip that consumers do across categories and the fact that needs shopping is increasingly the exclusive domain of the profit through volume retailers, has forced many specialty retailers and selected mass merchants to re-think their approach to market.