Monday, February 17, 2014

Top 10 Trends for 2014 - trend # 6 - The evolution of retail channels

We tend to believe that things change slowly in retail.  After all, Macy's, Tiffany and Zale's have been around now for many years.  Independent stores, from the local shoe repairer, to the corner diner, to the independent jeweler, come and go, usually when a new generation opts not to enter the family business.  But, of course, it is not that simple.

Many years ago, as a store closed, another came along to replace it.  There was growth as population grew, as new towns and suburbs developed and as new ranges of products came onto the market.  No need for auto dealers and electronics stores when there was little or no need for either.

The explosion in retailing started in the 1950's, a period that saw the start of the Interstate Highway system, and the concurrent boom in mall construction.  Independent retailers moved from downtown to mall, discounters and catalog showrooms emerged from nowhere, local department stores and the big three cataloguers (Sears, Ward and Penney) expanded nationwide.

As we know, none of that worked out as expected.  Independents left the malls as they realized that mall demographics, in most cases, homogenized mall retailing.  Some of those that stayed on grew into major chains. We now have a handful controlling 80% or more of mall jewelry business.  Discounters got wiped out by the most aggressive - Walmart and Target.  Barely a few now survive.  Catalog showrooms disappeared entirely, though the next iteration, warehouse clubs, came up quickly (only three remain).  Department stores consolidated at a dramatic pace.  Of the three cataloguers, Ward is gone, and the other two are struggling to survive. 

Evolution of retail channels.  So that is quite a story of change at retail.  Most dramatic, perhaps, is the change among independents.  We have seen the rise of very strong independents who have moved into the top end of the market (where none of the channels I mentioned above compete).  That has come through good management, updated facilities, good marketing and the right locations.  Some have gone from $1 million stores, say 20 years ago, to $10 million and more today.

At the same time many stores have not been able to compete with the buying muscle and ad budgets of the big chains, and have closed.  We have seen a steady decline in the number of independents in the last 30 years, but, in fact, many of the survivors have established and excellent position for themselves.  Part of that success has come at the expense of others.  A city that might have had a dozen upscale jewelers 30 years ago now has two or three.

Over that same 30 years or so, we have also seen the steady expansion of global brands - Tiffany, Cartier, Van Cleef & Arpel, De Beers, Chanel, and relative newcomers like Graff.  They will never have the brick & mortar market penetration of the top line independents, but they do contribute to the image of jewelry through their extensive advertising.  (In some ways, replacing the image advertising done by De Beers over the years.)

So we now have a jewelry marketplace that that remains understandably stratified.  But how has the consumer changed, and how will that effect the future course of retailing?

I have not mentioned what everyone knows is the single greatest disruptive force in retailing - the Internet.  Of course, the Internet is not a retail channel, or any other kind of channel for that matter. It is a communication tool, a fast and relatively cheap one at that.  The only restraint today is a lack of imagination. 

People do focus on the disruption it has caused.  Stores selling software and computers, or renting movies, have just about been wiped out.  Booksellers are holding on, clinging to people's love of browsing.  Newspapers and magazines are under heavy pressure.

Jewelers pooh-poohed using the Internet for years.  They said that it takes a great deal of work to develop a good site, to get consumers to come to the site, and dedicated effort to maintain and freshen the content.  All true.  Then they offer the rationale (excuse?) that consumers will simply not buy jewelry without touching and trying on.  Not true.  And this past year, clearly not true, as better than 50% of buyers used the Internet to search for purchases they wanted to make.  Internet retailing for a few years now has been, by far, the fastest growing retailing channel.

( I wrote a blog relating to this subject two years ago.  Go to Best Buy, Ask Why which was posted on 7/1/12)

We see that all major retailers now run web sites as an essential part of their business, as do many small progressive ones.  Yes, these sites generate sales, but more important is informing the consumer about who they are, how they care for their customers, and what they carry.  The most aggressive want consumers to buy any way they wish, but also to communicate any way they wish - on-line chats, telephone, e-mail, on a wide variety of social networks, or face-to-face in a store.

Today, the heat is on.  Consumers, and especially affluent consumers, will use the Internet to find out what they can about a jeweler, new pieces, alternatives and choices, and pricing.  They will demand the service, and will come into stores very well informed.

We already have stores that e-mail you sales tickets (Apple showed the way), and all the information about what you bought, when you bought it, and what you paid.  Jewelers will need to find even better ideas.  Send sales tickets, but also photos and appraisals, maybe even insurance quotes.  Maybe chits good for checking settings and re-polishing. 

And that old favorite demand made by retailers of their vendors, geographic exclusivity, is about dead.  Retailers will be selling their lines everywhere (and will want the right to do that).  But being the local jeweler that offers great service will mean keeping the business.  This will drive many jewelers into proprietary lines and actually broaden the selections the public can buy.  (That feeds into another issue I will cover in the next blog.) 

Retailers will open far fewer stores, maybe closing some, as they see their customers use the web more.  Centralizing inventories and service is a plus.  The number of stores needed in a metro area will go down, even as business is enhanced. 

I could go on from here (as of you can) in imagining how things will change, but it is certain that the Internet is going to continue to change the landscape in many ways, often in ways we cannot totally envision.


Please note:  If you are interested in seeing the subjects covered in these 10 days of trends, you might be interested in a full-day seminar being tentatively planned for later this year in New York.  We will expand the discussion, cover other issues, and include options for the future.  I would be happy to hear your thoughts.  Comment here or e-mail at benj@janosconsultants.com.  Thanks!

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