The Death Of Retail ?

Retail, as we understand it today, is undergoing a remarkable and fundamental change. Most in the industry don’t yet realize how dramatically different the retail environment will be in just a few short years.

Most are still talking about the current economic uncertainty as the cause for the changes in the industry. What they fail to realize is that the current state of retail is more than a simple temporary slowdown. It’s a fundamental shift being driven by several trends in the way America shops that are coming together to provide the “perfect storm” for the death of retail as we know it today.

Strong words I know.

Every time the American Consumer takes a break from the unprecedented 30 year spending frenzy they have been on, one pundit or the other calls for the end of retail as we know it.

In 1981- 1982 the stock market suffered one of its worst years in decades. Fortunes were lost and the warnings began that Americans were racking up debts that had reached unsustainable levels. I thought for sure that this would cause an adjustment to retail purchasing, but still the American consumer kept on spending.

On October 19^th, 1987 the stock market suffered what was up until then the single largest point drop in history. “Black Monday” saw the market loose 22% of its value in a single day. I went to the local mall to see how the stores were faring, and I couldn’t find a parking space.

Sept. 11, 2001, the day that America’s very way of life came under attack, did little to change the way America spends. After a brief time to morn, retail spending actually increased as President Bush reminded us that shopping was a patriotic duty.

Even the burst of the dot com bubble later in 2001-2002 did nothing to stop spending. Somehow, even though everybody knew it could not happen, the American consumer just kept buying at a torrid pace.

The warnings issued over the years were based on solid reasoning. Consumers in 2007 were spending more than they made. The savings rate in this country had actually fallen to a negative number. With consumer buying making up over 70% of the nation’s Gross Domestic Product, there were strong indications that it could not continue. It’s because of these worrying trends that whenever the economy hit a rough patch, the calls for the death of retail rose in volume.

I had been though every one of these major economic upheavals and I had seen the consumer spend its way out each and every time.

So when the “Credit Crunch”, or the “Housing Bubble” or the “Economic Meltdown” or whatever nomenclature sticks, happened on Sept. 29^th, 2008, I went where I always go to see how the economy is faring, I went to the store.

What I found stopped me dead in my tracks.

For weeks, the aisles were empty. Almost nobody was shopping and nobody was planning to shop. Even those who were shopping were only spending what they absolutely had to.

For a full year, the American Consumer has stayed out of the big box retail shops in record numbers. It’s not a simple correction; it’s a big change in the American Consumer's buying attitude. One that may make the way retailers are operating today obsolete.

The trends driving the change coming to retail include:

The rise of frugality

• Unemployment
• Savings rate
• Garage sale chic

Going green

• Sustainability
• Buying local
• safety

Consumer intelligence

• Lessons learned
• The internet
• New Options

These trends will not be going away when the economy ”recovers”. I say that with some qualification, because it is very possible that the economy will never “recover” in the sense that things go back to the way they were.

It’s a whole new ballgame out there where increases in the stock value of large retailers will not be predicated on growth, where new shoppers don’t exist and where brands have no more importance than either outlet or price.

Institutional Intelligence

I just attended a sales training seminar which focused on how to do a better job of pushing products for the company.

I’m old. Really, really old. And I have been selling, in one form or another, for most of my adult life. I’ve had more than my fair share of “training”.

Selling, as my experience has shown me, is nothing more than solving problems…at a profit.

First you need to find out what the problem is, figure out how what you’re selling can solve the problem, and then determine to what degree the customer wants the problem solved, meaning how much money are they willing to spend to make the problem go away.

Now you have just been taught in one paragraph what it took a trainer half a day to teach.

I think they make these training seminars painful so that you’ll actually look forward to going back to work.

As a rule, I try to take any opportunity to learn. What I learned today is that my company has no idea how to teach product knowledge or selling skills.

It was amazing to learn how ill informed the salespeople at the training were. At best they had no idea about how to answer customer questions and at worst they have been giving customers simply dead wrong answers, sometimes for years.

The poor trainer may have been the most clueless of all. She had very little institutional intelligence she could shed on the training beyond having us open the book and watch the video.

So how, exactly, are you supposed to get the product knowledge that customers expect?

In the two years I have been with the company, this was my first training seminar. Sure, they show you video’s and make you take competency tests before you wander out onto the sales floor after orientation, but none of that training has anything to do with what happens in the real world. You are basically swinging without a net.

If you don’t come into the business with some knowledge about what you are selling, then you are forced to learn it on your own or hope that someone else in the department has an idea about how to answer customer questions.

As a Home Improvement Warehouse, our employees are supposed to be a font of knowledge for the customers who wander in. At least that’s what the TV ads all say.

Customers expect me to know which wood flooring is best for a dog that can’t stop peeing in the house, which products will protect ceramic tile from a cat that can’t stop throwing up, and the best way to get bleach stains out of the carpet.

Here’s an idea; train the dog, shoot the cat and don’t be stupid enough to mess with bleach while standing on the carpet.

I know that’s a little rough for you cat lovers, so if you’d like, you can shoot the dog or the dumb bastard that spilled the bleach, your choice.

So unless you are old like me and have come into contact with more than your share of dog pee, cat puke and bleach stains, you have no way of knowing how to respond to these, all too common, customer questions.

It can be frustrating for new employees which helps explain the huge percentage, in some cases 90%, of employees leaving within the first 30 days. Nobody wants to feel dumb, and you certainly don’t what to take abuse for being dumb from a complete stranger.

So you are left with using your free time to search out information on your own so you can become a better employee…at a salary of $11.50 and hour, or you have to depend on the senior people in your department, if there are any, to point the way.

That’s why nobody knows anything.

The information they get on their own may or may not be correct and the history handed down from the elders may be just plain crap. Either way, there is no real way to become smart about what you sell unless you do the work on your own.

Imagine a fireman that picks up his skills on the internet, or a doctor who reads a few brochures before an operation. I know those are extreme examples, but if you spent anytime with my customers you’d know that they do expect me to constantly pull their butts out of fires and to do brain surgery.

And the worst part is that the company, and store management, expects it too.

Why is there so little time or money allocated to continuing education for employees?

Why does the company put so much emphasis in their marketing about having well trained employees and then tells those employees, by their lack of commitment to any substantial training program, that they aren’t worth the time and effort to train?

The company believes that its employees are their most important asset. They just don’t think that you, as one of those employees, is all that important.

This is just another symptom of the emerging trends that will hasten the down hill slide of big box retailers. If you don’t invest in your people, then you loose a big part of the value you should be delivering to your customers. If your employees can’t give them the information they need, then they will find it someplace else, and that someplace else where be will they spend their money.

Here’s a new slogan for you;

“Let’s build something together…with you doing most of the work”

The Rise of the “Super Discounters”- Part II

I’ve blogged about how super low price retailers and a new class of “non-retailers” are threatening the dominance of Big Box stores.

So why are more and more consumers bypassing Wal-Mart? Is it simply because of the zeal to find the lowest prices? In my case it was that and a chance to get even with the brainiacs at Texas Instruments.

The story goes like this.

Late on Saturday our daughter informs us that she needs a graphing calculator for her high school freshman AP math class by Monday.

We knew this was coming. The calculator was on the list of school supplies we knew she would need back in August. But we had put off buying the calculator because the cheapest one we could find that fit the requirements cost $150.00. Some were retailing for upwards of $180.00.

So here we were, late into the weekend having to scramble to make a purchase that we really didn’t want to make. Being unwilling to risk our daughters’ acceptance into Berkeley over a lousy $150.00, I figured we were going to have to pony up the money.

We had a problem with the concept of spending that kind of dough for a variety of reasons.

My wife had a problem with spending the money because she didn’t see why a class in high school should require such an expensive piece of equipment.

I put off buying it because I simply refused to pay $150.00 for technology that Texas Instruments first introduced in the late 70’s.

Today’s $150.00 TI-89 bears a remarkable resemblance to the TI-58 launched by the company in 1977. I remember having to buy this calculator for my college classes, it cost about the same in 1983 as it does now. It was an ungainly piece of technology and I never did learn exactly how to use it.

My thinking was that if the cost of computers can drop from something like a million dollars in the 70’s to around $200 today, why is this piece of technology still being sold at 1970’s prices? I mean, my first cell phone cost me just north of a grand, but today I can pick one up for $29.00, not to mention that I don’t think my 1989 suitcase phone could take pictures.

Perusing the features listed on the packaging, I don’t think the TI-89 performs one iota better that the TI-58 did. And that brought back all of the painful memories of struggling with that damn calculator through statistics class. I was determined not to give those bastards at TI another $150.00 to be completely humiliated…again!

“Thank God for Craigslist”, were my wife’s exact words. She bypassed the usual retail channels and found a slightly used TI-83, which is the same as the TI-89 (and the TI-58 for that matter) being sold on Craigslist for a mere $50.00.

So late on Sunday, I take a trip to the local mall, not to go into the mall mind you, but to meet the owner of the TI-83 in the parking lot.

After a brief introduction and a quick review of the product, I handed the man $50.00 and drove home with our prize. I was happy to have gotten the calculator my daughter needed, but I was even happier about the fact that I had pulled one over on the jerks at Texas Instruments.

Who are these guys that think they have no need to adjust the prices of their beloved calculators to match the real world reduction in the costs of producing electronic devices?

And with that, a $150.00 in revenue is lost to the retail industry. It’s that type of transaction, which is happening everyday, that is speeding the demise of what we think of as retailers.

Wal-Mart may be able to offer the TI-89 at some reduced price, but even they can’t sell it for $50.00 and make $50.00 in profit like the man from Craigslist did.

This is a radical idea among most of the people in the industry that still talk to me. I have found that telling people how everything they think about retail is completely wrong doesn’t get you a great many returned phone calls.

Recently I tried to put the growth of this phenomenon into some kind of numerical perspective. I am attempting to correlate the trend towards these outlets with the movement of stock prices, more on that later, but here’s what I have so far.

The growth of the Super Discounters has been impressive, but is still in its infancy. The companies that provide numbers give some idea of the scale:

Company # stores Revenue

Family Dollar 6,500 $7.4 B

Dollar Tree 3,450 $4.6 B

Dollar General 8,414 Taken Private by KKR

99¢ Stores 279 $1.3 B

So no big threat here… until you consider that the segment is growing at a rate above 6%, during a time when most retailers are struggling to keep from shrinking out of existence.

It’s also telling that the biggest player has been taken private by KKR. Those are the folks who started the consolidation frenzy in the supermarket industry in the early 1990’s that drove company valuations through the roof.

Maybe they know something?

I’m just saying.

The second part of the argument is a bit harder to quantify. “Non-retailers” don’t report annual numbers. Craigslist has no clue how much of the stuff offered for sale is actually bought and nobody reports the profits from their garage sale, don’t take my word for it, ask the IRS.

There is some anecdotal evidence however.

The National Association of Resale and Thrift Shops (yes, this proves that there is a group for everybody) takes the pulse of the industry thought a series of surveys.

The latest NARTS results show that over the second quarter of this year the growth rate of the industry accelerated from a 5% annual figure to 7%. 64% of those responding had an average increase in sales of 31% and a 77% increase in new customers. 65% saw an increase in inventory offerings that averaged 28%. Most of the members reported that the inventory offerings increased in quality over previous years.

When was the last time you saw any big box retailer with double digit sales and customer traffic increases?

New stores, new customers and a new “Frugalista” mentality (the trend towards selling off your old stuff to buy new stuff) feeds into the future growth of this type of retail…at the expense of the status quo.

Nobody at Wal-Mart is afraid of these guys today, but I remember when nobody in the retail industry was afraid of Wal-Mart. These things have a way of creeping up on you.

Stay Tuned!