Modern Retail – Survival Of The Fittest

The year 2008 saw some tumultuous economic times in many sectors. Oil hit all time record highs. Banks toppled over like one of those Guinness domino record attempt shows, and in the UK some of our longest standing retailers passed into history. The media doom and gloomers heralded times of economic whoa for all retailers as high street sales slumped and dire Christmas performances were reported nearly across the board.

Sean Brietsche from Iridium Corporation comments, “Working within the payment processing industry gives a unique vantage point from which to gauge general retail performance. Having a wide variety of Merchants ranging from local Mom & Pop shops to blue chip retail and everything in between means that we can look at a specific industry or just retail as a whole and compare data with what the media is reporting and what is actually happening. This years results were quite interesting as the trends did not follow exactly as reported in the media. This is no surprise as online retail has been gowing from strength to strength, however when everything is combined some quite interesting Darwinian premises can be put forward.”

A recent casualty of our current economic times is Empire Direct as reported by the BBC (http://news.bbc.co.uk/1/hi/england/west_yorkshire/7838656.stm ). This failing was used to further the idea of how far reaching the current economic situation is and that bad times are ahead for us all. So why have so many of the new breed of technology savvy Internet retailers experiencing great sales and strong month on month growth.

The answer is survival of the fittest. The days are ending for companies who boast their success in terms of volume of turnover and numbers of employees with fabulously expensive head offices. The bureaucracy that comes part and parcel with big business is being slowly but surely undermined by the new breed of Internet retailer.

Traditionally as a retailer grows in size and locations they need an ever increasing support backbone to maintain their retail space. Everything from warehouse space, head and regional offices, middle and upper management all cost large amounts of money. All combined this creates a natural bureaucracy which in itself hinders the company’s ability to change. This creates a huge weight that must be carried aloft by the performance of its outlets. There is a constant battle to keep enough sales to support the ever increasing weight at the top. The whole thing will come crashing down when sales, even for a brief time, fail to inject enough blood into the support legs.

So what exactly is it that is causing a decrease in high street sales and a growing increase in online sales. The primary reason is during times of economic uncertainty people naturally become more frugal with their money. People still want a shopping experience however they want the best deal for what they are buying. So they head to the high street shops where one or two retailers may have the item they are looking for. They get to touch and feel for themselves if they like the item. However the key difference is that instead of buying there and then they are going home and finding the best deal online. And this is the key difference between a traditional retailer that has failed to adapt to, for lack of a better term, a modern one.

Most online retailers have clued to the fact that if they do things right they may never have to actually touch a piece of stock. Combine that with importers and base distributors that want a piece of the end retail price, flavored with a fundamental change in how people shop then what you have is the proverbial primordial soup ready to support retail evolution. And that is exactly what we are seeing, pure survival of the fittest.

The profile of a typical modern retailer is all about automation of the traditional aspects of running a business. Stock and inventory are kept to an absolute minimum with processes in place to ensure that anything sold via a website are either immediately available from direct stocks or a drop shipper. Invoicing and collecting of funds is automated through a payment service provider with accounting and banking reconciliation all tied into a seamless process. So instead of having Leslie in accounting balancing ledgers and Jim in stock control counting widgets, all the staff within a company are actually focused on building the company and not maintaining it.

Duane Jackson from Kashflow comments, “Every second one of our clients has to spend doing books, chasing stock, or trying to get invoices paid is not only less time they can spend on building their businesses but actually has a financial overhead as a company grows. The more business transacted the more that has to be chased and at some point means hiring staff just to deal with transactions that have been completed. By working with internet payment gateways and other Service as a Software (SaaS) providers we can greatly minimize the resources a business has to spend on simply maintaining itself. With slick accounting, electronic payments, and reconciliation methods you vastly decrease the ratio of the amount of additional staff you need you to do greater amounts of business.”

As 2008 fades into history we see a story of some 27 UK high street retailers entering into various forms of insolvency. Some have been household names for generations. The ones that we will see survive are the ones that have embraced doing business in the modern way. Lean at the top and efficient throughout. The best will fill the voids of their now dead competitors. Evolution is unforgiving and only the best will flourish.