Was Darwin Wrong About Retail?
By Richard Heyman, SVP & CIO, Gordmans [NASDAQ:GMAN]
The most prevalent view of evolution dates back to 1859 when Darwin published ‘On the Origin of Species.’ Darwinism states that evolution occurs gradually, over long periods of time via a process called Natural Selection. However, in 1972, two distinguished researchers, Stephen J. Gould and Niles Eldridge, had the audacity to question Darwin, publishing a competing theory called Punctuated Equilibrium.
Unlike Darwinism, their theory predicted long periods of evolutionary equilibrium disrupted by punctuated mutations. These mutations, if successful, would effectively create a new branch of a species, causing the old one to die out so quickly as to hide any evidence in the fossil record that the two ever coexisted.
Could Darwin have been wrong about retail? Certainly, our equilibrium has been disrupted. A new species of retailer has risen that has proven to be so dominant that it threatens the very existence of traditional brick & mortar retail that has existed, relatively unchanged for generations. Is retail as we know it undergoing a mass extinction?
Unlike the invertebrates that lived hundreds of millions of years ago, we humans have a capacity for change. Given a bit of bravery and an appropriate sense of urgency, we can adapt rapidly to a new environment. However, as foretold in the geologic record, incrementalism will not suffice; big problems demand meaningful solutions.
The theory of Creative Destruction also substantially describes what we are experiencing in the retail sector.
A successfully implemented digital strategy should make a company more agile and responsive to the needs of the market
In 1942, economist Carl Schumpeter espoused that innovation (i.e., mutations) create new opportunities that fuel the economy. However, in the process, these innovations can effectively destroy entire industries, causing them to become extinct. Examples include the omnipresence of digital photography and the demise of the film industry. Kodak and Polaroid defined an era but are today mere shadows of their former selves. Netflix almost single handedly destroyed the video rental business and helped usher in the age of media streaming.
The retail industry as we have known it, exists today under the specter of multiple threats. Consumer tastes are changing as some are choosing to spend less on possessions and allocate more of their income to experiences. The decline of the middle class has put pressure on the retailers that serve it but has buoyed the fortunes of others, especially those in the off-price segment of the market. To state the obvious, the eCommerce channel, led by Amazon, continues to explode.
Retailers that ignore the inevitable may fall victim to disintermediation as technology allows suppliers to establish direct-to-consumer relationships. I would even submit that ultimately the likes of Amazon are at risk given that they act essentially as middlemen in the supply chain, albeit exceedingly efficient ones.
Developing a cogent digital strategy is more than just a technological exercise. It needs to be rooted in a deep understanding of the market, an organization's position within it (current and desired) and operational alignment. We must also recognize that the concept of digital extends beyond the marketing function and the transition from historical mass-marketing vehicles to more directed email, text, mobile, and social media platforms. Digital strategies must address every aspect of an organization from how a company engages with its customers to making the supply chain faster and more nimble. A successfully implemented digital strategy should make a company more agile and responsive to the needs of the market.
What retailers face is not, “death by a thousand cuts.” Multiple incremental and tactical initiatives parading as strategic will not alter most companies’ trajectories. Instead, the times mandate a bold and unfettered analysis of an organization’s most valuable assets, what it can bring to the market that others cannot.
We must resist the tendency to confine discussion of potential strategies by perceived limitations. Refusing to consider every option will only serve to seal one's fate. A process founded in Appreciative Inquiry might yield better results. Rather than working to solve the problems of their current model, retailers must focus on leveraging their strengths and have the courage to shed their liabilities. As someone once told me, “Focus is choosing what not to do.”
While trilobites were one of the first successful animal species and roamed the oceans for over 270 million years, it doesn't change the fact that in the end, they disappeared in a relative instant.