Business lunch: how retail is changing :)
Old retail is 80% analog. This consists of: the physical store, staff, customer service training, etc. What you’d expect walking into a Saks or Macy's. And it's about 20% tech: computers, cash registers (POS systems), mobile shopping, Google ranking, apps, hiring social influencers, Instagram, etc.
Today, the retailers that are well positioned, growing, and 'hot' carry the opposite equation: they're 20% analog and 80% tech.
The retail equation flipped from favoring analog to tech over the last two decades--not exactly overnight but still faster than most had expected. Online sales have grown over the last two decades by double digits each year and Amazon rose out of obscurity to become the world's most valuable company. Most retailers took a 'wait and see approach' and struggled after the recession of 2008. During this time, brick-and-mortar stores that are 'analog heavy' got left behind and lost their value. Today, store owners report to me that when they want to sell their business, there are few or no buyers. Yet, Zola (an online gift registry retailer) and other tech-heavy players are receiving venture capital (VC) funding in the millions of dollars. Zola—with just ONE pop-up store—has sucked up $140 million in VC funding. Its primary purpose: hire web designers, engineers, etc. and build towards the new 80% tech role. Zola's job is to minimize the other 20% and open as FEW physical stores as possible.
Consider this: If you went back to 1999, could you imagine a 'retail’ business that has the goal of NOT opening any stores? That's the goal in 2019. The value paradigm has shifted: instead of 80% analog and 20% digital, it's now 20% analog and 80% digital.
Indie stores often have zero budget to ‘retrain’ and join this digital world. For many retailers, it might as well be 1905 and the market is telling horseshoe makers to re-skill and get a job designing engines at the Ford headquarters. How quickly can an analog business change its ways?
Please consider these 80% analog - 20% digital companies:
Saks 5th Avenue
New York Times
Compare the above businesses to the new digital replacements who follow the 20% analog - 80% digital path:
Which set of companies above has a higher value? In which would you invest? Which group of businesses do customers use daily from around the world via their phones? Which set has borrowed millions of dollars to bet on the 20-80 paradigm?
If analog companies don't flip their equation to digital, they may end up like Sears, Kodak, Xerox, Blockbuster video, or Toys R' Us. To be fair, Walmart and many other large retailers are trying to move to digital--but why did they have to suffer so badly before they did so? Gump’s could’ve invented Amazon. Kodak could’ve invented Instagram. Sony Music could’ve invented Spotify. Hyatt could’ve invented Airbnb. To paraphrase Steve Jobs, if anyone is gonna put you out of business, try to make it: you. Innovate before others steal your future.
While Zola and other big tech companies may have high venture capital valuations, they still have to pay back the investors' money. Zola has to pay back $140m (which it likely will seek to do via an IPO). These tech players will need to show their investors that customers want a 20-80 digital world long term. Maybe customers want a 30-70 or a 40-60 digital split. Whatever equation shoppers choose, Bridge will be there to help retailers bridge this gap. Bridge provides tech solutions and online marketing leadership that retailers need to move closer to today’s market paradigm.
How can I, you, and our industry better flip to digital?