By Gary Hoover
I have been in love with retailing since I was a teenager. My parents would take us kids to big cities where my mother – always a shopper – would drag us through the giant department stores. Places like Marshall Field’s State Street store in Chicago, Hudson’s in Detroit, and Macy’s on New York City’s Herald Square were among the greatest retail enterprises in history. They were also the largest, at about 2-2.5 million square feet (50 acres) each. They were giant circuses, full of life, energy, cool stuff, and happy people on both sides of the counter.
That led me to spend a life studying, understanding, and practicing retailing. I first spent many years hanging out in stores and asking questions of staff and managers and observing customers. That was followed by two years picking retail stocks on Wall Street, two years as a department store buyer, three years in strategic planning and merger & acquisition work for a big retailer, and two years planning and managing shopping malls. Lastly, seven years building the first chain of book superstores: BOOKSTOP, which stretched from Miami to San Diego when Barnes & Noble acquired the company for $41 million in 1989.
For me, retailing has a certain magic.
It is one of the most competitive parts of our economy – a tough business, sometimes with pencil-thin margins. When big retailers like Kmart, Circuit City, and Linens ‘n Things go down, there is no talk of bailing them out.
We have a tremendous open canvas upon which to craft our enterprises, with few barriers to entry. To open a store all you need is rental space, some vendor credit for inventory, and a sales tax permit. Everything you do – what you pay people, where you buy your goods, how much you charge for them, where you locate your stores, your pricing policies – is up to you to decide, and an open book to your competitors which often include the some of the world’s largest companies, including Walmart, Walgreen’s, and Costco. My friends in high tech say, “Why would you ever go into a business with no technology, with no patents or intellectual property, with no legal protection of your ideas and innovations?”
And yet, several of the wealthiest families in Europe derived their fortunes from retailing. Mexico’s Carlos Slim Helu, often listed as the wealthiest man in the world, earned a lot of his fortune in retailing. Warren Buffett loves to invest in retailing. If Sam Walton were alive today, he would be worth almost as much as Bill Gates and Warren Buffett combined. In such an intense, unpatentable, competitive, low-margin field, how can this be? Is it really magic?
And into this madhouse, this turmoil, come all sorts of new curve balls. The rise of Amazon and e-commerce. The arrival of the iPod to largely replace record stores and the eBook to possibly replace bookstores. Now shoppers walking through your store, comparing prices on their smartphone, and “clicking-to-buy” from your competitors. How will retailing meet these challenges? Will the Internet cause retail stores to perish? How might retailers use the new technology to better serve their customers and survive?
I have given substantial thought to all these issues, and discussed them with multiple consulting clients. Here are the key ideas I would use to anchor thinking about the future of retailing:
2. Man is a social animal. And women! (I think Aristotle pointed that out.) Most people do not really want to stay home all day, do their shopping online, order their food online, and have all their “human touch” through Facebook. People are looking for reasons to come to your store! Retailers must deliver an experience (a human experience) that they cannot get at home or online.
3. Over 90 percent of all U.S. retail sales are done in bricks and mortar stores and dealers – that number is dropping by about one percentage point every four years. If you take out the giant categories of food and automobile retailing, the bricks-and-mortar share is still above 80 percent. Even if the rate of change accelerates, people will still spend the bulk of their money in physical stores 30 years from now.
4. No algorithm or advanced math or technology can take the place of the human eye and mind. Enterprising technologists offer retailers more and more “cool tools.” You can put in systems that use video and other means to track customers as they walk through the store, and then give you the data on their movement. But thousands of dollars spent on such systems cannot compare with a good merchant walking the floor, observing and talking to customers. Data is useless without intelligent interpretation.
5. As has always been the case, great merchants will take advantage of the latest technology. Mail order retailers were the first to use rural free delivery in the 19th century, supermarkets were the first to adopt bar-code scanning, shopping center developers were among the first to take advantage of the new Interstate Highway system in the 1960s. Likewise, great retailers will know that technology is important. But, technology is irrelevant unless it does something to make your customers’ lives better. Millions will be spent on technology by retailers who will lose out to competitors with less expensive but more effective ways of serving and engaging their customers.
6. True merchants will be people who love customers and love merchandise. I served on the Board of Directors of Austin’s homegrown Whole Foods Market, Inc. for five years. I have since watched that wonderful company create tens of thousands of great jobs as it has grown from $10 million in sales to over $10 billion. Sometimes people ask me what they do that is so advanced and revolutionary and I answer, “They love their customers, they love their products (food), and they share their love of food with their customers. It is nothing new. You could have found it in the middle ages in the marketplaces of Venice and Florence, Constantinople and Cairo, Paris and Beijing.” Of course Whole Foods uses technology; of course they have developed new and innovative ways of encouraging their teams and engaging their customers. They sleep not on their laurels. But it isn’t about machines and numbers so much as it about people and their caring for each other. Which can be a bit of magic.
Gary Hoover is a serial entrepreneur based in Austin, TX, and regularly hosts entrepreneurial classes that are open to the public. For information about upcoming classes, visit www.hooversworld.com
Listen now: episode 7 of #AskaCEO is all about the CEO's responsibility to manage executive leaders. How do you manage a VP of marketing, for example, if you've never done a marketing function? #CEO #leadership podcasts.apple.com/us/podcast…
Have you been to one of Amazon's 4-star stores? Texas's first opens today in Frisco. dallasnews.com/business/retai…