There has been a lot of focus on how traditional retail is being disrupted by technology, but very little of that discussion has extended to looking at how that changes how retailers scale. However, the model for retail growth has been just as disrupted, and one of the places it has had the biggest impact is in what makes for a “global” retailer or brand.
The Old Way
The traditional path to growth and scale was earned the hard way. Retailers identified a market niche, met the needs of that niche, and grew in their home market. Twentieth century retailing was marked most notably by the rise of retailers that could be “everything to everyone”. The general store, the department store, the mass merchant – they met the market need of one-stop shopping and the convenience that consumers could get from that.
Mass appeal was helped along by mass media advertising. When you can be everything to everyone, then it’s worth it to try to reach everyone all at once. There’s not much benefit to targeting when you can sell something to anyone. And if you can be everything to everyone, you might as well be everywhere. However, this was constrained a lot by availability of goods. With the rise of the mass merchant came – not coincidentally – the rise of the connected supply chain, but for a long time, it wasn’t so easy to source globally and deliver locally. In this model, the store was the engine of growth, and it was fueled by supply chain prowess – both of which required investing in and owning some fairly intensive assets (stores, warehouses, trucks, sourcing offices, inventory, etc.)
The New Way
Technology has flipped this model on its head. Digital-native brands have taken a completely different path to growth. These brands are using digital connections to tap into a tribe of people who share a common passion, and then building the global connections to reach those people wherever they are in the world. They source globally out of the gate, because technology has made it easier than ever to connect suppliers with buyers no matter where they are in the world, and supply chains and logistics are sophisticated enough to figure out how to get those goods where they need to go without being prohibitively expensive. An entrepreneur with an idea and an internet connection can design, source, and manufacture without any of the assets those activities used to require.
These digital-native brands are not focused on being everything to everyone. And they don’t care about saturating a geography, because they don’t need nearly as many assets to grow via online as they would if the store was the engine of their growth. Yes, many of them are opening stores, but they’re doing it in a far more considered way, and with different expectations for what the store will do for them. In fact, many of them express a store strategy that is more about driving consumers online than it is about capturing demand in the store itself.
Instead of everything to everyone, digital-native brands are much more focused on being genuine, authentic, and passionate about one thing – beauty, or sleep, or sneakerheads, or celebrity fashion. Through that passion, and a digital presence that knows no physical or geographic boundaries, they are able to reach an audience that is far more widely distributed around the world. It’s how something like K-pop can go from a thing in one country to worldwide fame in 5 years or less. It’s how parents around the world can suddenly sympathize with each other about their Fortnite zombie children.
Digital-native brands with such a narrow passion-driven focus arose in part in response to the decline of the value in being “everything to everyone”. Today, it’s actually less valuable and more difficult to execute that strategy, because no one can compete with the breadth of assortment that is available online. Infinite assortment is only a tab away on a browser.
And with digital connections, it’s not only easier to find people who share your brand passion wherever they are in the world, it’s also easier to serve them. In fact, it’s easier to find and serve those people around the world, than it is to try to leverage success with one group of people locally into success with a different group of people – with a different passion – locally. An essential element of the success of these digital upstarts is their passion, and the authenticity it lends them in reaching their audience. By definition, serving everyone in every way lacks a certain conviction, and it’s far easier to communicate conviction in a digital medium than it is to convey universal appeal.
The Death of the National Retailer?
There are some categories of goods that do not lend themselves to the digital-passion road to growth. Food, for example, outside of luxury food items, is inherently local, and in fact in some countries there is a distinct preference by consumers for it to be even more local. Drug stores at their core serve a market that is heavily regulated and not so easy to break beyond a country’s laws or borders.
Beyond those categories may be a different story, however. In the US, the companies that have benefited in the past from global supply chains now find themselves fending off digital-only competitors who are using that logistics maturity to avoid needing to own the assets in the first place. And the “mass” market has been pretty thoroughly routed. Dead category killers still leave holes in strip malls – only recently has a local strip mall in my part of the country filled in a hole left behind by Circuit City, a brand that went under in 2008.
In the world of department stores, Sears plays out its last chapter, staggering like the zombie it is past the graves of Bon-Ton and Montgomery Wards and a host of other regional brands. Next-generation department stores like Neighborhood Goods and next-generation category killers like b8ta are not positioning themselves as “the best brands for everyone” but as digital/physical platforms that upstart brands (usually coming from the digital world) can use to launch themselves. They’re part infrastructure, part marketing agency, part curator – “the coolest, newest brands you can’t find anywhere else”. In that environment, it’s not so inconceivable to imagine that there will never be another locally-grown multi-brand retailer to take Sears’ place.
A New Center of Retailing Gravity
And global dynamics are shifting as well. eMarketer is projecting that China’s retail market will surpass total retail sales in the United States in 2019 for the first time ever. Not only will it be the first time China surpasses the US, it will be the first of any countries to do so. There is enough weakness in China’s growth that the country may not be able to maintain its top position in the short term, but this certainly is only the beginning of something that will be a long-term trend.
Just the plain demographics of China speak to how much this shift is only the beginning. There are 400 million Millennials in China, more than the population of the US and Canada combined. And by 2024, they’re projected to control, as a single cohort, almost as much consumer spending ($5.4 trillion) as US total retail sales today.
With those kinds of numbers, it’s hard to argue that a retailer today could achieve tier-one stature without having to go through China to get there. And those digital-native brands are finding it easier than ever to reach China, assisted by the powerhouse Alibaba, which increasingly is making money off of helping non-Chinese brands launch into the Chinese market. And Chinese consumer preferences, as they travel the globe, are shaping local offerings too, from simple things like paying a Las Vegas taxi with Alipay, or finding luxury brands like Gucci staffing Chinese language speakers in a store decked out from ceiling to floor in red (a high-preference color in China) – in a mall in Australia designed to serve Chinese retail tourists.
A New Kind of Resiliency
To be global out of the box, digital-native retailers and brands need a different kind of competitive capability. Where assets and efficiency dominated retailing in the 20th century, flexibility, digital connections, and the ability to scale globally fast (without investing in assets to so) are the defining characteristics of high-growth retailers in the 21st century. Traditional retailers who are contemplating digital transformation need to be thinking about their paths to growth in this context, as much as in the context of physical vs. digital or technology transformation as part of the customer experience. Where you find customers will change, as will the geographies you serve and how you serve them.