The Changing Cost Landscape

In a piece that appeared yesterday evening on, two executives with Kurt Salmon Associates, a retail operations consulting company, argue that the structure with the retail industry is being "radically reshaped by the Web and the economic downturn. " They claim that "an financial and technological tsunami has started to drive merchants into one of two camps: They must be possibly discounters that sell countrywide product makes on the basis of cost or retailers that don't need to discount mainly because they offer individually compelling companies shopping experiences. " The piece goes on to state that "(t)his bifurcation is undoubtedly beginning to convert the retailing landscape, in fact it is also spurring some significant suppliers that don't like either scenario to open their own retailers. They further note that this kind of transformation would not begin with the current downturn, but "actually begun, slowly, in the 1980s. "

The 'bricks 'n mortar' world will appear to be cracking in two, and the department is, seeing that the piece suggests, among retailers who have don't have fees power circumstance who carry out. I believe, however, that the market of company retailers exactly who do include pricing power is very good smaller than they suggest. Actually there are few corporate shops that do. Many corporate merchants operate on a small business model of traveling unit costs down through ever-increasing volume, achieved with store-count expansion, in many cases over a national and international degree. This model cedes pricing capacity to build volume, whether the position is promotional or certainly not, whether they will be vertical and proprietary or not. Various retailers just like WalMart, Wallmart, Macy's and The Gap go along with this model. Their products have become more and more commoditized, possibly in groups like vogue apparel and electronics, and the customers react primarily to price. In a really really sense, this is the sole model ready to accept national suppliers, who need to appeal for the broadest prevalent denominator.

Distinction this with those shops who do have price power. Since the piece suggests, they are doing differentiate themselves, but not a great deal by very differentiated items as simply by compelling buyer experiences. The very best example of this strategy in the business retailing community is Urban Outfitters Incorporation, which performs both Elegant Outfitters and Anthropology. Both of these stores deliver distinctive items, though not too distinctive that they wouldn't be commoditized in another setting. What gives all of them pricing power is that, rather than pursuing the broadest common denominator, they have every single targeted a narrowly described niche, and created entertaining, exciting retailers that charm exclusively to their target buyer. They have known that these principles have limited scalability, so the business model relies not on volume nevertheless on maintaining pricing electricity and producing healthy margins. They are, by simply definition, not really national in scope. Different retailers, proefficinents like Urban Outfitters and Anthropology, which in turn follow it is Awesome Topic and Buckle, both of whom did very well over the recession. All their target customers are smaller, trendy and cutting edge.

All this has relevance for smaller sized, independent suppliers. They well known long ago that they must follow this kind of latter style. What this article reflects, however, is a innovative awareness within the corporate regarding the limits of your volume motivated model. In such a commoditized world, there can easily be so many survivors.

This kind of leaves smaller, independent sellers in a position where they have to do what they do very well, only better. They must develop their concentrate on their goal customer, realize and command their topic, continuously strive to captivate buyers, and bolster the romantic relationships they have with the customers; meaningful, durable human relationships which are their most critical ideal asset.