The good news is that while the pace of change is increasing in retail, we have a lot more time to react than we do in a gunfight.
The bad news is that the impact can be just as deadly if we are not prepared and we do not act.
The harsh reality is that the time we have to respond is dwindling virtually every day.
When the Shift Hits the Fan
Think for a moment about all the radical shifts we are experiencing.
The shift from largely siloed experiences to those that are cross-channel and demand well-harmonized integration.
The shift from going online to living online.
The shift from traditional media consumption to a mostly digital-first model.
The shift from the best location being a well situated and designed brick-and-mortar store to it being wherever our customer happens to be with their smartphone.
The shift from being weapons of mass consumption and disposable fashion to more conscious consumerism.
The shift from highly intentional shopping to more spontaneous and impulsive buying.
The shift from isolated customer journeys to those that are deeply connected.
The shift from brands being in control to empowered consumers who are increasingly dictating their requirements.
The shift from merchandising strategies of piling it high and watching it fly to the endless aisle and more intelligent curation.
The shift from one-size-fits-all, batch, blast, and hope marketing to highly personalized interactions and precisely targeted offerings.
The shift from marketers’ push to consumers’ pull.
The shift from wanting ever more stuff to desiring memorable experiences.
The shift from getting by with merely good enough to the need to become truly remarkable.
And on and on.
Confronted with these profound shifts, the tendency of many organizations is to go on the defensive. Overwhelmed by the shifting tides—and afraid to take risks in a fast-moving and highly uncertain environment—they circle the wagons to fight the changes, defend the status quo, or develop plans to merely soften the blow.
But survival is not enough.
CHAPTER 2
The End of Scarcity
“To my mind the old masters are not art; their value is in their scarcity.”
—THOMAS A. EDISON
Whether you are an economist or just applying simple common sense, you know that supply and demand largely determines how markets operate and which companies ultimately generate customer and shareholder value. If an item is of high customer value but is difficult to get, prices go up—and typically so do profit margins. Conversely, even when a good or service is highly desired, if it’s too readily available there may be little or no opportunity for a solid economic return.
At the intersection of customer wants and needs and the ability to meet them in unique and highly relevant ways lies opportunity. The first time we encounter a newly launched product or try a novel experience that moves us, it may be fascinating or even rather memorable. Yet once something becomes ubiquitous it tends to become uninteresting. What’s abundant is no longer special. But where strong consumer desire meets scarcity we find potential: the potential to win—and keep—customers, to drive profitability, to be remarkable.
Much of the luxury fashion industry takes advantage of this phenomenon. The most in-demand new item from an iconic fashion house retains its elevated image largely based on scarcity, much of it quite deliberate. Part of the intentional scarcity is the sky-high price point, which limits the number of people who can afford it. The other component is very narrow distribution, where only a small and select number of retailers carry the items.
The Hermès Birkin bag is a case in point. Since its introduction in 1984, Birkin bags, which start at over $10,000 (and can go much higher based upon materials used and degree of customization), have grown to be among the most sought-after fashion items globally, often commanding high markups on the resale market. Hermès reinforces the bag’s exclusivity through artificial scarcity, limiting production so that there is a waiting list and restricting sale to only a handful of stores. If Hermès were to decide to dramatically lower the price and greatly expand distribution, the remarkability of the brand would be undermined considerably.
Although few brands are as powerful and iconic as the most rarefied luxury companies, historically what we might call “managed scarcity” has been a component of many retail brands’ core strategy. Manufacturers generally chose the retailers they allowed to carry their products, seeking to balance consumer reach against over-saturation of distribution that would dilute their brand image and put too many of their retailers into head-to-head competition with each other. Another strategy employed by many premium brands (Sony, Bose, et al.) involves strictly enforcing the sale of their product at their manufacturer’s suggested retail price (or MSRP). While the price might have been suggested, it was well understood that retailers that broke from this pricing discipline might well forfeit the brand.
Retailers historically have employed several principal strategies to use scarcity to their advantage. The first is how they manage their store expansion, seeking to strike a balance between reaching the maximum number of customers while making their physical location a must-visit destination. Private-label (or “house”) brands by definition are those that can only be accessed at a given retailer’s store. Similarly, many organizations have invested in private-label cards tied to their store loyalty programs, “forcing” the customer to use the retailer’s payment method to rack up loyalty points (which often could only be redeemed at their sponsoring retailer’s locations) and gain exclusive access to special events and limited-time offers.
But over time many of these scarcity advantages began to erode or become less effective, as consumer choices and alternative substitutes abounded and became more accessible. Market forces and more empowered consumers make it increasingly difficult for retailers to dictate their terms.
More and more, what was once scarce no longer is. This new abundance helps explain why so many in retail are struggling today. To understand the underlying forces driving disruption, it’s worth taking a quick look at how important aspects of scarcity have disappeared completely, have become much less powerful, or have fundamentally redefined the basis of competition.
Media Are No Longer Scarce
Older readers will remember the media landscape of our youth. We grew up with three national commercial broadcast networks, one public network, and a handful of local TV channels. Radio was either AM or FM, and essentially all of the stations were local. Many folks got a daily local newspaper delivered to their door and subscribed to a handful of magazines, most of which were published monthly. The most popular magazine for many years was TV Guide, a weekly magazine that listed which TV shows were on and when.
Today, this lack of selection and immediacy almost seems laughable. Media choices have exploded and fragmented exponentially. There are now many hundreds of TV stations and much of radio is delivered digitally. Many people get their news from social media platforms that scarcely existed a decade ago. And millions of blogs, vlogs, podcasts, and so on create the opportunity for virtually anybody to be their own publisher. Some of the most popular and influential media channels of yesteryear are either gone completely or in serious trouble. Not only are media choices far from scarce, much of the content is now available immediately on demand and on devices we have on our person, not just in our home or office.
Information Is No Longer Scarce
For a good chunk of my retail career, a customer who wanted to get product information had four basic options. First, they could run around to different stores to talk