Time for a retail purge – be reborn or be dead!

Amazon started in the mid-90s. Online stores and e-commerce were also emerging in the 90s. We have talked about digitization for decades but only now do we start to witness a real purge of brick and mortar stores with many closing around the world. Why now, do changes really happen so slowly? But maybe the game is not yet over if retailers could just become innovators and change the rules of online commerce.

Especially in the US and UK, thousands of stores have been closed or gone bankrupt during the last 12 months. Some other countries might be left behind and the big wave is only coming. In a way this has been expected for years, yet it is almost surprising, how long many traditional retail stores and chains have survived. They haven’t been able to change their business – they have just tried to delay the inevitable.

Why is this happening now? We can assume some reasons:

1. Behavior of consumers changes slowly but now the mainstream has gone online;
2. Customer experience of online buying has become acceptable;
3. Brick and mortar stores must cut costs and cuts affect product range and customer service;
4. Volumes grow online and it is harder for traditional retail compete with price;
5. Big online stores exercise superior data management.

The situation is a combination of many things, but it is very hard for traditional retailers to stop or delay the development. The only solution is that they must adapt to the situation. It requires them to become innovative. It is not enough that to simply open an online store when the big online players already have better resources and brand recognition to do it better. 

We can see some rising concepts that also offer opportunities for old retailers. For example:

1. Showrooms are becoming more important to demonstrate products;
2. Even Amazon has opened some stores, but utilize modern technology;
3. Privacy issues can turn the data models around.

As is expected in any battle, each party should focus on their own strengths and find the other party’s weaknesses. Customers are still looking for experiences, and physical stores and showrooms are a part of that, but they must be modified to support and improve customer experience and have clear ways to drive sales, offline or online. This requires a new type of concept and customer experience design that can definitely not be achived by cutting costs and product lines in existing stores.

Data and privacy are another interesting area to change the game. Amazon and other leading online stores have accrued better customer data than traditional retailers. They can make better recommendations to customers and they can also better predict demand and manage their supply chain. Data helps them optimize their business and offer what customers want with better prices.

Privacy is also becoming a more important issue and consumers are not so willing to give their data to those big players any more. We are also seeing that in the future consumers could own and control their own data. These kinds of distributed data models are the only option where smaller retailers could compete with leading online stores. Retailers could cooperate with parties that empower consumers to collect their own data and use their profiles to get better customer experience and the right products. This development will lead to personal AI that help consumers find what they really want. 

These new concepts are possible weapons for traditional retailers to fight against leading online companies. The concepts are not enough to win the battle or the war. It also requires superior execution. It also means these companies must renew their operations. They must become modern digital companies internally, with data-oriented processes. It means they must be ready to kill their old processes, operations and functions. To be clear, this doesn’t mean just using new software and IT for old processes, it means building new operations, processes and models from scratch.

Many retailers are now in a death spiral. They still have many assets, but they could soon be gone, if they don’t build totally new businesses now. They must not only look at the 20-year history of online stores but find the new trends and areas where they can change the current online business and offer something better to customers. Customers look for good experiences, and price and data drives both business and consumers, too. Retailers really must become innovators in those areas.

The article first appeared on Disruptive.Asia.