Retail: Retail's Final Frontier?

The combination of “just-in-time” inventory management and real-time strategic marketing allows online merchants to quickly respond to current events that may impact their customers — in days, hours or even minutes. Contrast that with the months it takes for a traditional merchant relying on a traditional supply chain to respond.

Main Street Can Survive
We’re not suggesting that Fifth Avenue, Rodeo Drive and Main Steet U.S.A. will be boarded up or turned into retirement communities for former retail mavens and their consultants. But there is a glut of retail space, with more stores closing all the time.

We do believe that online marketing will become the predominant retail model, because it just makes sense. A large retail marketer we work with operates about 1,000 stores generating approximately $15 billion in revenue — $11.5 billion through its stores and $3.5 billion over the internet. We calculate that if it were forced to sell its internet volume through its fixed distribution system, the increase in cost for more stores would be roughly proportionate (i.e., about 30 percent). That’s a serious hit to the bottom line.

Fewer Stores, More Web
Conversely, from a margin optimization standpoint, this retailer would ideally like to have fewer stores — perhaps 250 to establish its brand — and generate a much higher share of sales via the internet. In fact, the company recently announced the closing of some 150 stores this year, with 500 more closings planned over the next couple of years.

While it seems safe to say that the century-old love affair between the American consumer and the retail store is on the rocks, it would be a mistake to short-sell personal consumption. After all, personal consumption accounts for some 70 percent of the American economy. The difference is that the economic crisis has driven shoppers into an “essentials-only mode,” which may last a good while.