We’ve seen the fall of numerous retail stores in the last few years, some are the classic big box like Circuit City and others might be classified elsewhere like Borders. Select the classification you want and the problem is really mostly the same in the end. They all maintain expensive bricks and mortar location specific stores with visibility controlled by real estate location and store hours. Even so, all of them have (had) also embraced to varying degrees online commerce with difference levels of offerings and functionality. But is the problem really that such animals have the physical presence or is it something more?
I’d argue the retail store concept is changing and in some ways it’s not completely clear what business model will draw the most success going forward. Small and large concepts have succeeded and failed and arguably I’d suggest success comes from innovation, service, selection, connectivity, and execution. Businesses with no physical store front have cost advantages, but even Amazon, arguably one of the more successful online only merchants, maintains warehouses and physical structure, but not on the scale of Best Buy or other specialty retailers. So does that mean specialty retail is fading away? No, look no further than Apple, Nike, and others who even in a challenging economy have or are adding physical stores to the sales channel. Then you see companies like the Gap and others that have been catering to customers for years seemingly struggling to maintain their brands. Is it fair to lump all of retail together and make one massive conclusion. I would say no, the answer lies generally in poor execution and lack of an ability to quickly change when the environment changes.
We live in a disruptive world and sometimes a first mover wins and other times it is the mover that moves last. When Circuit City finally went under one had to question what was going to come of Best Buy, after all Ultimate Electronics failed too. Radio Shack on the other hand seems doing fine. But I’d suggest that the things Radio Shack is selling are more impulse or critical purchase needs and in some ways the products can’t be found in many other retail stores. I don’t need to shop at Best Buy for a TV or computer, why bother when the same things can be found online. One might say, well you can’t get help at Costco or Walmart, which is generally probably true or at least more frustrating and time consuming. But for most shoppers who are already in a Walmart, Target, Costco, etc. it’s easy enough to just add on a TV. After all if one puts there mind to work you can easily research technology online. So does it come down to certain types of big box retail fading away? That’s probably more likely the case. If you look at Borders and Circuit City which both failed leaving an essentially single large player to control the market it’s no wonder what is likely happening. The remaining player might get complacent. More likely it’s a signal the market is changing.
So in my opinion the answer is layered. First on my list would be poor execution in the executive suite and lack of vision. Second would be changing market dynamics whereby customer needs change or how they fill those needs change. Third would be limited innovation and a more challenging cost structure on which to operate—lack of innovation and cost structure are leading examples of why businesses fail. Fourth is what I classify as disruptive technology factors—that would be ecommerce, Facebook, mobile technology, etc. And fifth on the list is an inability to proactively make decisions quickly, precisely and in a timely fashion—I’d suggest Nike has potentially understood this issue and now a customer can custom order shoes without needing to go to the store. Just think of the applications and now Nike doesn’t have as much inventory, can offer more options, and as a customer I get what I want and Nike likely makes a lot more money per item since the overall delivery model is flatter. Market signals on change aren’t always clear and timely. I’ll be the first to admit that making changes is difficult and sometimes our own vision or experience clouds decision making. I would suggest that being aware of challenges and being able to admit we need help making changes is a core competency to managing a business and executing on critical competitive levels to serve the market.