Our Market Can’t Support This Many Majors.

The math is pretty straight-forward. We have the population of greater New York spread across the continental landmass of North America. Our population growth – not including a few unauthorised arrivals – is pretty static. Inflation and interest rates are relatively low. The dollar is high. Disposable income is healthy and consumption growth is strong.

This is about as good as it gets anywhere in the mature western world. So if you are struggling in this market, just wait to see what happens with the addition of international brands.

In that context we have two national department stores and three national discount department stores, in addition to a raft of mini-majors and big box volume operators.

Even the large supermarket chains are broadening their offers and re-entering categories they abandoned in the 1980’s when they evolved away from the variety store model.

24 million people cannot possibly support 5 major national majors employing a strategy of everyday low prices. The volume upside is simply not there. And if any of the prevailing economic drivers change it will get even worse. If the dollar falls or interest rates increase or unemployment spikes or disposable income declines ………..

At some point in the near future the strategies of at least one if not more of the majors will be forced to change or face the inevitable consequences of rationalisation at the very least. Closure at the most dire.

Interestingly, both shoppers and landlords may do the job the Boards really should be doing. As shoppers abandon selected stores and landlords diversify their models away from subsidising rent under the out-dated concept of anchor tenants that no longer drive foot-traffic, ‘natural selection’ is forcing the rationalisation of foot-print based solely on economics on a store by store basis.

Eventually though you can prune a rose bush to death.

While corporate ego and alpha male competitive instincts drive a ‘fight to the death’ attitude, sometimes the brains ability to analyse a changing context and detail a well thought out alternative strategy are clouded by the brawns determination to be the winner at all costs.

Cost cutting will get you so far. Verticality and direct sourcing will support a little more. But if top line sales dollars are in decline, despite volume growth in this market context, you are in for a bumpy ride. And unfortunately, the performance of the majors has a knock on affect to the whole market.

Shareholders, shoppers, retailers, landlords and all the other stakeholders appeal to the majors? Please proactively manage the market transition. None of us want to end up as friendly fire in a battle of the giants.