IS BIG BOX RETAIL A DYING BREED?
You’ve seen the headlines. You’ve read the articles, blogs and various news feeds. Big Box retail is dying along with the American Mall. I find it interesting that we all play the blame game when another retail bankruptcy occurs. It was the Internet’s fault. Blame Amazon, blame mobile shopping, our customer is different, the market shifted, etc.
What we often fail to do as retailers is look in the mirror. Just my perspective and opinion, but it appears these are all convenient excuses, and at the end of the day what has killed Big Box retail and the malls has more to do with one of two things.
First, too many brands have over-expanded in their zeal to appease growth initiatives, their boards and shareholders. North America is a finite retail area – there are only so many profitable locations for growth. And what happens when the good markets are tapped? Retailers expand into bad ones to hit their quarterly number. That goes on for a number of years and satisfies revenue growth objectives for the market, but at the expense of profit objectives over the long run. The outcome? Inevitably, it means retail contraction, closing underperforming and unprofitable locations, consolidating the base, and focusing on greater efficiencies inside the four walls to drive profitability. Probably something retailers should have been doing all along, but certainly the harder road to take at times.
Second, for many failed retailers, the burden of debt had more to do with their demise than any merchandising strategy miss. Whether it was private equity money taken in a leveraged buyout or debt added to the business to fuel unprofitable expansion, the math simply did not work at the end of the day. Cash flow shortage in an inventory-intensive environment is a killer every time. Retailers run short on cash, stop bringing in fresh inventory, cut back on staffing, and watch their customers leave for better selection and service at their competition. Any retailer with a highly leveraged balance sheet has to execute perfectly, even in a strong retail environment. One slip can start the long, slow process to bankruptcy. And then we blame Amazon and the Internet because that’s the excuse culture we now live in.
And yet, our economic and job growth in North America continues to be driven by one thing – small business growth. Why does the growth of franchises and small business retailers continue to outpace Big Box competition?
First, small business owners and franchisees put their own money on the line when they invest in their start-up business. There is no greater motivation in life than if your own money, not someone else’s, is on the line. You wake up every morning ready to take action because you have to in order to pay your bills and put food on the table.
Second, franchisees and small business retailers are more nimble than their Big Box competition. They can change direction overnight to meet the needs and preferences of their customers. Make a bad buying decision? No problem – liquidate what you have and move on. When the Big Box competitors make a bad decision, it is usually backed up by millions of dollars in an inventory position that will take at least an entire season to work through. A cash flow killer that tells your customer you are out of touch with the market.
Third, franchisees and small business retailers own and operate their businesses in their communities. Their customers are their neighbors, friends and peers. Because of that, they must provide the best customer service and experience possible. They cannot afford to have a bad day, nor can their employees. It is their face on the organization, their name and reputation at stake in their community every single day. Providing a good experience is not enough – it must be exceptional.
Finally, there has been a shift to ‘shopping local,’ as customers have flocked to support community-owned stores where they receive better service and support than in the empty aisles of the Big Box competition. Franchisees and local store owners have embraced this movement, choosing to spend their marketing dollars locally on digital and local store marketing efforts to stay in front of their community and customers. It is truly the definition of a mutually-beneficial relationship, and it has long term benefits to both sides of the customer relationship. From supporting local schools and charities, to merchandising their stores with locally-based themes showcasing their customers interacting in their communities, franchises and locally owned and operated businesses better understand how to truly grow a meaningful relationship with their customer.
Is Big Box retail a dying breed? Not necessarily, especially if they focus on what’s inside their four walls and not what is outside. However, Big Box no longer services the every need of every consumer. The days of fighting to win in the chase to the cheapest are over. Customers have voted, and while price and value are still high on their list, what they truly crave is an honest, open and transparent relationship with the businesses they choose to support with their discretionary dollars.
In order to win this race, it will take a new, stronger and more personal relationship – who better to do that than your neighborhood store?