Friday Feb 01, 2013

The Metamorphosis of Retail

This isn't a Kafka knock-off story about a retail associate turning into a giant bug, although the conclusion could be just as hideous.  I have always thought that the airline industry illuminates the way for retailers in some aspects.  I saw kiosks and QRCodes used at airlines before I saw them in stores, for example.  And airlines invented loyalty programs.  I appreciate the customer service and perks I get from my airline, and I wish I would be treated similarly by my retailers. But regardless of how much I spend with a retailer, I'm always treated as any other member of the herd, with the exception of high-end boutiques and possibly departments stores.  An article by Jeff Katz suggested that retail is following the path of airlines, and it gave me pause.

Katz, a former airline industry executive, points out that airlines determined that their customers are driven by price more than any other factor, so they have lowered their prices and stripped down service accordingly.  Then they let their customers pay for the things that matter to them, basically relying on add-on services, like preferred seat and bag fees, for profit.  The retail landscape isn't that much different with today's customers myopically focused on price.  Traditional retailers can't expend the effort and dollars to provide service to customers that whip out their phones and buy from a lower-price competitor (hello Amazon and eBay) that has less overhead.

Marc Andreessen, co-founder of Netscape and venture capitalist, has been trumpeting the coming downfall of brick-and-mortar stores based on the fact that the overhead doesn't allow them to compete with online retailers.  And while I understand where he's coming from, I don't agree at all.  Competition has and will continue to cause retailers to change.  Traditional brick-and-mortar retailers are leveraging new touchpoints (notice I'm staying away from the dreaded "channel" term) and understanding how to provide greater personalization.  (Whenever I receive coupons from Target, I just have to wonder exactly how much they know.)  And while the technology exists for my pre-teen daughter to order clothing and shoes online, she will never do it.  She enjoys shopping too much.

Back to the airline industry... Retailers have the technology to track every interaction with me, and they can even personalize offers based on my patronage, their inventories, and the state of the local economy.  So just like I know my fellow passengers in row 20 (the exit row on MD-80s) each paid a different price for the exact same flight, we could be moving toward personalized pricing in stores.  And why stop there?  Browse the aisles, use a dressing room, make a return -- all might someday have fees associated.  (Remember re-stocking fees?)  Of course those fees will be waived for their most loyal customers, plus we get to use the express checkout as well.

So will consumers put up with the airline-ification of retail?  In some ways they already have. Just look at big-box, rock-bottom price, self-checkout stores.  The associates are about as friendly as TSA agents, and yet we still buy because we are so driven by lowest price.  Do you pay a fee to enter a Costco or Sam's Club?  Yes you do.  This Kafka "monstrous vermin" is starting to look pretty scary.

Fortunately, there's enough room in the retail industry for bare-bones retailers all the way up to personal shoppers and many points in between.  Retail is not going to die, nor is it going to merge with USAirways (although American Airlines might).  It is definitely going through major changes, most of which will benefit consumers. Every retailer has the opportunity to stake a claim to their market, their brand, and their offering. They are differentiated on price, service, and experience.  Some will neatly wrap my purchase in tissue-paper while others will charge me for a shopping bag.  Its all good because I make the choice.

So we'll take some lessons from the airline industry, but we'll also avoid some of their mistakes.  I look forward to the opportunity to tune my shopping experience to fit my needs, both online and in stores.


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