Reviving local retail through business model innovation
In the new Broadway-bound musical Hands on a Hardbody, ten East Texans seek to reverse their hard luck lives in a competition to win a Nissan truck. In one song, Used To Be, the contestants lament the loss of independent stores across Texas. “How will we know when we’re home,” the cast croons, “in a land filled with Walmarts and Walgreens and Wendy’s?”
The musical captures much of what is hurting in America, the retail landscape being but one example. Office Depot, Staples and Office Max for example displaced local office supply stores while Walgreens, CVS, Walmart, Target and other national chains displaced locally owned pharmacies. National retailers then pressured manufacturers for cost reductions, creating ruthless competition that’s driven every last penny and non-essential US job out of consumer goods companies’ cost structures.
The change from local to national had advantages. A developer friend relays how reservations for his hotel increased dramatically after licensing a national brand name and its reservation system. Walmart’s efficiency improvements measurably increased US productivity, an impact then magnified as companies copied Walmart’s supply chain practices. Poverty declined in China as its exports rose. Resilient independent stores became more innovative or retained a retro character to survive.
The employment impact of retail’s nationalization extends beyond manufacturing, however. High paying jobs initially shifted from Main Streets to the corporate headquarters of retail chains. Now, in the ultimate irony of fate, the big box retailers are losing jobs to Amazon’s automated systems.
The Amazon disruption is frightening as the chains are losing jobs when America needs every job it can get. Retail sales clerks and cashiers are the US’s top two occupations, employing 5.9% of all workers in 2011. Amazon, which captures 1/3 of online-shopping, employs only 1 worker per million dollars of revenue compared to 5 for big box stores and 8 for independents.
While searching for a bike rack recently, I discovered why Amazon is poised to outpace even Walmart’s revenue within the decade. I could get the exact product I wanted for $25 less, avoiding California’s high sales tax and a drive on the crowded I-5. Amazon’s competitive advantage rests in an unfair tax advantage and, lacking stores, lower cost structure.
Some economists have tried to put a positive spin on Amazon’s disruption by arguing that fewer jobs in retail will open the door to job growth in other, more productive sectors. But that supposition is based on a historical pattern that does not hold true for retail workers. (Reductions in US farm labor fueled manufacturing’s growth because farm workers could do manufacturing work. Retail clerks can’t fill today’s job openings, which are largely technical jobs.) No, I fear the loss of retail jobs to Amazon will merely be another huge hit to the US economy.
So how might we rev up the local retail sector? Let’s start by removing Amazon’s unfair tax advantage. Pine and Gilmore have the rest of the answer – move retail into an “experience economy,” one where customers buy an overall experience and attributes of the experience provide benefits, beyond product and service benefits.
Some classic examples of “experience” brands are American Girl, Harley Davidson and Starbucks. I argued in an earlier blog that Borders might have survived had it become more of an experience brand. Instead, local bookstore are filling the gaping hole left in book lovers’ lives following Border’s demise, a role that Amazon’s machines thankfully cannot fill. Local book retailers’ coffee shops, book clubs, reviews, book displays and ambience create a winning experience.
Experience is the fifth stage of maturity in an economy, according to Pine and Gilmore, with each stage bringing more value-add and profitability.
With “transformation,” the last stage, a company’s value promise involves meaningful personal change. The Buy Local movement is gaining legs as a transformation economy – people feel they are better citizens when shifting some of their spending to local retailers. Starbucks’ effort to create US jobs with its made-in-America “Indivisible” retail products moves Starbucks towards a transformative brand where Apple also sits.
Imagine if a San Diego bike dealer had reached out to me as a newcomer to its city, asking me to visit his store, where I’d be invited to join a bike group with other women or newcomers, making my life here feel far more connected. The benefits would have far exceeded any price premium over Amazon.
What economy are you operating in? How can you raise your game?