The Inconvenient Truths (Part Three) – The Distribution Paradigm Has Changed Forever.
The biggest change that e-commerce has brought to the retail world is not a shift in foot traffic. Physical retail has not lost access to customer flows. Nor has it lost total aggregate sales dollars. Physical retail still dominates every sector of retail with – on average – e-commerce sales representing less than ten per cent of total retail sales dollars.
The biggest change that e-commerce has wrought is that it has inalterably changed the distribution paradigm forever.
Shoppers today have access to information instantly. If it happened on the catwalks of Paris, 20 minutes later it is on YouTube and I can buy the real thing or a knock-off the next day from somewhere in the world. Pricing is completely transparent and obvious to shoppers who use international websites to look for new news 24/7. This has led to some very interesting consequences.
Firstly, while e-commerce may represent less than 10 per cent of retail sales, it affects 100 per cent of the pricing decisions of retailers. Once a retailer publishes a price in any electronic form, it is immediately picked up by competitors and shoppers electronically. Secondly it has eradicated geographic borders. If it is on sale anywhere in the world I can buy it somewhere in the world.
The e-commerce world may be immature and unsustainable in its present form, but it will create havoc as it matures and mutates into a powerfully integrated part of the retail model of the future. In the meantime we still see evidence of retailers and wholesale brands that either can’t or won’t come to terms with how they need to change. And fast.
Brands for example cannot act as if geographic borders offer justification for price disparity, delayed release schedules, product availability, grey market activities and over-representation in local markets. They cannot continue to disregard the impact of their global distribution activities on local retailers.
Local retailers who cannot sustain cheapest price should not even venture into a world where they will be laid bare to price comparisons not only locally but globally and must begin to look for differentiated product ranges, services offerings and customer experience that can be money-tised. In most market segments and for most individual retailers the 80/20 rule is amazingly robust. More than 80% of your sales and profit will always come from less than 20% of your customers. That is where the money is and where your focus should be.
Customers aren’t as smart as the politically correct would have you believe, but they aren’t stupid. Too many retailers have brought their businesses down to a transactional relationship with their customers. When items can be directly benchmarked customers will seek the best deal they can get for themselves.
If you aren’t the 40 tonne gorilla in your category, you better find a way to source products and services that add value from the customer’s perspective and are new and different. Fast.