When I heard the news or Amazon + Whole Foods and followed by Echo Look + Wardrobe , it shook my basic comfort in retail models. Although we are yet to see these innovations take main stream, the pace of change and the underlying customer shopping changes are definitely there.
So, I started to think about what would actually tip the traditional retail – I am calling it the Store-Plus model because all the retailers who went multi-channel were basically offering a plus to their stores.
When I look deeper, the Store-Plus model is sustained by 3-8% Net Margin. This is to say that with apportioned costs, each store gives 3-8% Net Margin. Imagine if the topline falls due to any of the disruptions – the costs won’t go down linearly. Even the inventory carrying costs won’t go down linearly because you need to have some basic stock levels to interest walking in customers. So, I figured that all it would take to tip this model is a 3-8% general reduction in topline. If a customer visits a certain format of store 10 times, he only needs to do one of those visit’s shopping in the new innovative fashion.
When I brought this topic up with some, I was told that Retail has been through cycles before too – but my retort to that is that this is no cycle. If it were a cycle, the basic customer erosion of one retailer would be within the traditional retail eco system and go to another retailer. But what’s happening today is a fundamentally different purchase alternative. I think we need to acknowledge it and incubate for it.