end of the century saw the advent of the mail-order catalog, which held the promise of bringing big-city shopping to small towns and rural areas. Sears, JCPenney, and Montgomery Ward were the early pioneers, becoming large, iconic brands in subsequent decades.
Various formats evolved and expanded during the first half of the twentieth century, but as the post–World War II economic boom took hold, more and more consumers headed to the suburbs to pursue the American Dream. Regional malls started to be built all over the country, and the once-dominant mail-order retailers (and a handful of more upscale department stores) became their anchor tenants. Within two decades, malls had become the predominant retail format for many shoppers, and Sears was the king of the hill, becoming one of the ten most valuable companies in America in the 1970s.
The seeds of big change, however, had begun germinating a few years earlier. During the 1960s, Walmart, Kmart, Zayre, Woolco, and others started opening their twist on general merchandise stores. Located off the mall, with lower prices and less service, these rapidly expanding brands offered a more convenient and more value-oriented alternative that many shoppers found appealing.
Eventually came the emergence of so-called category killers. Similarly offering off-the-mall convenience coupled with a strong value orientation, Toys “R” Us, The Home Depot, PetSmart, Staples, Circuit City, and dozens of others started to open thousands of stores with huge assortments focused on more particular shopping occasions.
By the 1990s, retail offerings became more diverse and targeted. There were variations at one end of the value spectrum (off-price, outlet stores, dollar stores, warehouse clubs) as well as the other (Neiman Marcus, Bloomingdale’s, all manner of high-end designer boutiques). Niche players in organic grocery, cosmetics, fashion, and home furnishings became more plentiful and joined the common tenant mix in power centers and lifestyle malls across the country. Home shopping (Home Shopping Network and QVC) became a phenomenon.
Most of these started to take a big bite out of the once-dominant regional mall-based department stores. In particular, the growth of fast-fashion and off-price retail stole significant share from moderate department stores during the decade, as did the emergence of off-the-mall home stores like Bed Bath & Beyond and Linens ’n Things and beauty-focused concepts like Ulta and Sephora, among others.
As we approached the new century, forces were gathering that would lead to profound and unprecedented disruption. Jeff Bezos, Steve Jobs, and a cadre of venture capitalists started to see how technology could completely change the face of retail. While the initial wave led to some really dumb and unsustainable business models (anybody remember Pets.com?), large companies such as Nordstrom and Williams-Sonoma saw the potential and began investing in e-commerce and digital technology. Amazon began diversifying away from its original books-and-music offerings. Intrepid investors began getting excited about a second wave of online shopping businesses.
Assume the Brace Position
Retail has always been dynamic, but what’s transpired during the past decade is particularly astounding. What will happen during the next five years will shake many brands to their core.
Take a look at the top ten retailers by decade in the chart below and it’s easy to see why Walmart CEO Doug McMillon is said to keep a copy of this with him on his phone to help remind him of how quickly retailer fortunes can change.
Figure 1.1 Top Ten Retailers by Decade
Image: Becky Quick/CNBC1
The rising wave of e-commerce now represents 10 to 20 percent of all shopping in most major countries and is generally growing four to five times as fast as physical sales. Amazon has become the most valuable retailer in the world and continues to grow at impressive and scary rates. Digital channels influence well over half of all physical store transactions in nearly every category. Once-iconic retailers—some more than a century old—are dead, dying, or in serious trouble. Dozens of so-called DNVBs are gobbling up market share and putting pressure on industry-wide margins. More and more products can be delivered to your door in less than two hours. In a growing number of new stores (most notably Amazon Go) you don’t even need to check out. And retail is just beginning to scratch the surface of artificial intelligence, virtual reality, robotics, the Internet of Things, and many other emergent technologies.
To say this is a frightening and confusing time for all but the most successful companies is probably an understatement. In fact, one survey of retail CEOs found that fully one-third of them feared that their company could be out of business within the next three years.2
You say you want a revolution? Congratulations, we’ve got one. Big time.
Unrecognizable
You might have been working in retail for a decade or more but, paraphrasing Forrester Research’s Brendan Witcher, only the last few years count.3 Why? Because the revolution is here, and the years before that represent the end of the last era, not the beginning of this one. Because so much of what was useful and important in the past not only doesn’t serve us very well right now but in many cases may even lead us down the completely wrong path.
“We cannot solve our problems with the same level of thinking that created them.”
—Albert Einstein
A mere 25 years ago, Amazon was a tiny start-up selling only books over the internet from a warehouse in Seattle. Today they are a retail behemoth, growing rapidly and establishing large positions in most developed and developing countries and virtually every product category of any size. Similarly, Alibaba, the disruptive Chinese shopping platform, and Mercado Libre, South America’s leading online marketplace, are just over twenty years old. Flipkart, the top online brand based in India, went live just in 2007.
Remember, too, that the iPhone was first launched in 2007, and that smartphones have only become ubiquitous in the last few years. Cashier-less check out, voice commerce, “buy online, pick up in store” (BOPIS), “buy online, return in store” (BORIS), and many other technologies and practices that are likely to be commonplace within a few years still have low penetration in many major markets throughout the world.
For most brands it is next to impossible to know what will be important and disruptive in five years’ time. Indeed, shift happens. It’s just happening faster and faster all the time.
The Bullet’s Already Been Fired
The bullets that killed RadioShack, Sports Authority, KB Toys, Sharper Image, and many others were fired long before their respective downward spirals of cost cutting and store closings began. They weren’t legislated out of existence. Consumer behavior didn’t change overnight. The superior brands that stole their market share and won over their formerly loyal customers mostly did it over a number of years.
And while it may make for a catchy headline, Amazon didn’t kill any of them all by itself.
The notion that disruption comes out of nowhere, catching once-powerful companies unaware, is rarely true. What’s far more common is that new brands catch fire slowly, consumer behavior shifts over many years, and most technologies take a while to grab a meaningful foothold.
If you work for a brand that is in trouble today, the forces most likely have been building for quite some time, and the underlying issue is this: leadership didn’t notice. Or maybe they were aware, but they didn’t accept that profound change was needed. Or maybe they knew what was coming, but they failed to act with urgency
