How to survive in retail

There is no disputing that retailers are operating in a very different and much more challenging world now than they were even a decade ago.

While it’s easy just to say “do more online selling” or “refurbish your stores”, the harsher realities of competing with the online giants bring a number of commercial concerns to contend with.

One of those harsh realities is price competition. I know one retailer who tells the story of accidentally pricing a product on their website at £1 instead of £10, only to find a giant online competitor selling the product for 80p a day later.

While online competitors are using automated algorithms to undercut every price point for every product, retailers are held to account for gross margin and profit delivery. So brutal is the resulting price competition that more than one specialist retailer has experienced their online rivals selling at prices so low they are below the wholesale rate at which the retailer can buy the product themselves.

Retailers need to develop strategies to cope in this new competitive environment. While this may seem like an impossible task, the worst strategic response to low-cost competitors is to hope they go away. Even if one pure play competitor vanishes, another will spring up. Price-based competition and internet-facilitated price comparison is here to stay.

There are five strategic responses to this price competition. Not all of them will apply in every market, but thinking through the pros and cons of the various options has proved to be a valuable exercise for worried retailers.

If a customer wants a product that is in short supply or a product to consume right now, that presents an opportunity for a sharp retailer to take margin. That’s why prices are often higher in motorway service stations, for example. Consumers don’t want their coffee or chocolate bar delivered tomorrow; they want them now.

A clever extension of this strategy has seen WHSmith consistently grow profits in some of the toughest high street categories imaginable. It has exited categories where it stood no chance of competing and has instead focused on selling products where it has a real ‘last retailer standing’ advantage.

It might sound obvious to price differently when you have an availability advantage, but too many retailers operate fairly undifferentiated pricing strategies and miss opportunities like this all the time.

If the first strategy is about finding occasions when a product is in short supply, an obvious alternative is to make sure that the product you sell is not identical to the one your online competitors are selling. In many retail categories there are opportunities to have a different variant, an own-label offering or to raise the pace of innovation, making sure that a high percentage of what you sell is new to market and not subject to the same online price comparison. Too many retailers have been content to sell the same basic list of products as their online rivals and yet, as fast-moving consumer goods businesses have demonstrated with their strategy of constantly updating product formulations and packaging, innovation is a strong defence against competition.

One way of using scale for a large retailer is simply to buy a lot of a product and therefore have a lower cost-base. Against the internet giants, though, this can be hugely challenging. There are other ways to make scale pay, however. A retailer with a big customer base can enlist those customers to support it by, for example, encouraging them to leave reviews, tips and other useful information on its website, making that site stand out in online searches.

The idea that millennials buy experiences and not products is a lazy stereotype. But there is a grain of truth in the adage too. In a world where we all have access to the same broad set of products, consumers end up looking for more interesting ways to enhance the experience of owning those products. That might be connected to the buying experience. Many gamers will queue to be the first to buy a big new game at midnight on the day it launches. That’s not really because it changes the game, but because it creates stories they can tell afterwards and makes them part of a social-media ‘event’.

What transient, tweet-worthy experiences can you create in your business to make the experience of buying from you richer than simply clicking a button?

Perhaps the ultimate way to create experience is to tailor the product to the customer. For decades, personalisation has been the preserve of high-end shopping. If you wanted a suit cut for your body shape, a holiday designed around your interests or furniture built to fit your house you needed to be a big spender. But new technologies have changed all of that. What does that mean in your industry? If you sell your products in small, medium and large you are very vulnerable to online competitors doing exactly the same.

How can you bring the personal touch and differentiate your business from the crowd?

As we’ve seen, there are no easy answers to aggressive price competition from new online entrants but there are options for retailers. They all involve changing the nature of competition – essentially moving the competitive goalposts – or using detailed analysis to find margin opportunities that a business might historically have missed.

The realities of competition for today’s retailers are not for the faint-hearted. The lessons from today’s most successful brands, however, provide a beacon of hope that vibrant high streets are still within our grasp.

• How to survive in retail
  Business & Management Magazine, Issue 277, September 2019

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