Opinion: Improving is not winning in retail

The roll call of failed or struggling retailers is growing: Toys R Us, Maplin, Poundworld, Carpetright, Mothercare, House of Fraser. Many more will be added.

In the long view, retail has always been an industry of creative destruction. Assets have repeatedly turned into liabilities as independents gave way to chain stores, department stores to category killers, high streets to malls, specialists to mass merchandisers, and now physical to digital. Few retail brands thrive for more than a generation. Of the world’s top 10 retailers twenty years ago, only two remain in that list today.

But for every struggler, I can name you a winner. Somehow, Aldi, B&M, Lidl and Primark didn’t read the news that physical retail is dead. Holland & Barrett, Lush, Mountain Warehouse or Smyths Toys forgot that specialist retailers are being devoured by Amazon. Harrods and Selfridges didn’t get the report on the death of the department store. Someone needs to tell Ikea, The Range and Screwfix that home spending is slumping. And Asos, Boohoo, JD Sports, Jigsaw, Joules, Missguided, Quiz, Superdry and Ted Baker have never heard of “peak stuff”.

All these winners are absolutely clear who they target, and what they do for their customer. All are rigorously dedicated to that focus and resist the temptation to overextend or stretch away from their core.

Conversely, many less disciplined retailers got hooked on growth beyond the point of diminishing returns. They opened more and bigger stores, proliferated ranges, and chased after less profitable and less loyal customers. While eking out the last drops of growth, the market was moving away from them. They lost focus. And now in response, we see too many of them have the same business plan (it doesn’t deserve to be called a strategy), and it’s essentially a plan to correct the unfocused overextension of the past. Close or shrink underperforming stores, rationalise ranges, simplify promotions, return to the core customer, get multichannel working, reduce overheads. These things are necessary but they only postpone the day of reckoning.

I say these things are not strategies, because they do not represent choices. “We are going to make our store estate fit for the future, speed up our supply chain and cut inefficiency” are vitally important things to do, but do not make up a strategy because no-one could reasonably argue for the opposite. No choice has been made of what — and what not – to stand for.

Ikea succeeds because the entire business model is structured around solving one very clear purpose for the customer – help me get my place kitted out today. If you need that apartment you just rented or your kid’s new student digs to be ready for moving in, it does the job quicker and better than any alternative.

Aldi succeeds not only because it provides great value, but because it is simple and quick to shop. No customer has a mission called “I really need to spend forty minutes battling round a superstore today”. Aldi strictly protects this advantage through its one-in-one-out ranging.

Burberry has a vision to become the brand of choice for one core customer group – luxury millennials. Investment is targeted on the channels that carry the most influence, social media is central to brand building, while distribution ensures immediate gratification.

Customers want to bring these retailers into their lives because they fulfil a unique purpose better than anyone else.

Many retailers are following urgent, and overdue, action plans. But improvement is not winning. Only those with a clear customer purpose, uniquely well executed, will survive. Most will not.

This article first appeared in Retail Week, 18 June 2018 (external link)