Is retail necessary? Until not so long ago, if you made or supplied a product you needed to reach customers via retailers. That unique role of bringing the product and the customer together is progressively eroding. And increasingly, the economic question is what does retail add to the distribution chain?
In general, retail is answering this question badly. Increasing degrees of panic characterise company behaviour. Leadership teams have little or no direct experience of managing in a market like this, Few businesses have NEDs with enough understanding of the industry.
A key example of what I’m talking about concerns product, and suppliers. The critical relationship between retailer and supplier has over many decades become increasingly unequal and in more recent times, increasingly adversarial. As retail has become more concentrated, so their power has grown and so has their dominance in the relationship. The mushrooming of online has a twin impact on retail. The first is the explosion of capacity, adding cost but largely cannibalising sales and tightening trading economics. The second, more subtle impact that this still relatively new channel is open to all. Increasingly, suppliers can go direct, bypassing the retailer altogether.
Against this background, retail has continued to push economic pressure up the chain to suppliers. I constantly hear how retailers have no loyalty, buyers are getting younger and less experienced. And they face increasing pressure to deliver great product at lower cost. Suppliers will look to protect their business by lowering product spec, usually through inferior fabric in the case of fashion. No wonder consumers are falling out of love with an increasingly unattractive product.
The key elements of successful retailing are the product and the customer. Retail cannot afford to push economic pressure onto suppliers any more – the price of inferior product is too high to pay. This is what we are increasingly seeing. The customer wants value but will not find an inferior item more attractive because it is cheaper. In a market where suppliers need you less and less, you need to give them more and more reason to supply you.
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