Product range editing or assortment explosion?
Everyone talks about disruption these days and it’s entirely justified. Indeed, in some ways the word understates the real significance of what is happening. A shift in the relationship between supply and demand was already happening ten years ago, before online retail came of age and before the debt crisis emerged. However, these two very different phenomena have combined to accelerate this shift.
Supply outpacing demand...
Today, some 6 years post Lehman Brothers’ collapse, the retail landscape is radically different. And we believe the biggest difference of all is that the economics of retail have changed. After 6 six of virtually flat demand, capacity has continued to grow. Most people think of capacity in terms of brick and mortar. This is a mistake. Physical retail has actually contracted over the period. But online has added significant capacity resulting in far more mouths to feed from flat revenues.
The challenge to retailers goes to the heart of what retailing actual is. Retailers are middle men, selling a product that is generally made by someone else. The added value has traditionally been built around convenience, choice and service, delivering a shopping experience to a targeted group of customers who value what they get. They reward the retailer with a degree of loyalty. The retailer’s relationship with these customers is what the product supplier is buying.
So far so good. Then the internet comes along and challenges many of these fundamentals. In fact it allows the supplier to miss the retailer out entirely and go direct – to become the retailer themselves. This is becoming increasingly commonplace although most suppliers continue to stick to their end of the supply chain and sell through retailers. Even so, the sudden removal of walls to limit product proliferation and ability to communicate with customers at very little cost are posing challenges that are equally profound.
Product Range editing
In the market beyond commodity purchasing, a core element of the retailer’s added value must surely be range editing? Understanding the precise market you are addressing, what the want, what they do not want, and ranging accordingly. Rather like the cost of incremental emails, the cost of offering incremental product is seductively low, at least on the surface.
On websites more pages mean more content. The more internal links and opportunities for other sites to link to the retailer’s website, the better placed they will be in the big numbers game that rewards online retailers with a higher rank in Google. And this will help drive valuable pre-qualified search traffic which is likely to be researching a potential future purchase or looking to buy something they need/want now.
So the logic suggests that a bigger site with product attracts more customers. We believe that this misses the point, not just about what retailing is all about but more fundamentally about the nature of shopping. This is tending to commoditise the shopping experience and puts a massive dent in range editing.
Another major topic of retail discussions these days is personalisation, and the raft of technology which promises to deliver better targeting. It tries to solve the shopping experience challenge posed by product range proliferation by presenting what the retailer thinks you might like.
The bulk of retail growth across the developed economies over a number of decades has been wants-driven – the needs element has expanded modestly. Wants have been most effectively addressed by more specialised players and retail branding has been at the heart of this expansion.
While some are desperately trying to personalise, others are expanding ranges. In many cases it is the same companies doing both...
Retailers are in two minds about all this. While some are desperately trying to personalise, others are expanding ranges. In many cases it is the same companies doing both. To a degree, Google rewarding proliferation and scale is flying in the face of the key customer trend driving retail wants. Will convenience and scale deliver the value add and margins that range editing, great customer service and brand values once did?