CANNIBALIZATION IS THE BUZZWORD AND THE CONSUMER IS KING, BUT THE DAY-TO-DAY PRESSURE TO CUT COSTS WILL SQUEEZE STORE CHAINS: 'RETAILTAINMENT'

By Published on .

As we reach the end of the 20th century, retailers find themselves in difficult straits. The nation has some two to three times as much retail capacity as demand dictates, and the landscape is littered with retail bankruptcies -- Caldor is in liquidation and more chains are on the brink. Some analysts express concern that Kmart Corp.'s and even Sears, Roebuck & Co.'s heralded turnarounds may be on shaky ground.

Over everything looms the knotty challenge of the Internet. The success of Amazon.com and eToys in the 1998 holiday season gave retailers enough of a scare that this year virtual storefronts will be as mandatory as Christmas wreaths.

The new buzzword for retailers, as well as for their manufacturers, is "cannibalization." Jupiter Communications lays it out this way: Less than 10% of online commerce dollars in 2002 will be incremental sales, with 90% coming from other, traditional channels.

Or as Joe Nehmen, senior VP-operations, Tanger Outlet Centers, Greensboro, N.C., put it: "If you don't eat your kids, someone's going to eat them for you."

At the end of the century, retailers from Tiffany & Co. to Wal-Mart Stores are preparing to make critical changes to the way they do business, even risking some bloodying of their traditional relationships with vendors.

Inspired by the Gap's vertical success story, retailers increasingly are expanding their own private label offerings and backing their own brands.

At the same time, manufacturers -- the Cliniques and the Levi Strausses of the world -- are beginning to sell directly to consumers via the Net, competing with their retail friends in both the real and virtual worlds.

So how will successful retailers adapt in the next century? Most experts are reluctant to predict much beyond the first decade, but they do agree on a few trends.

First and foremost, the new era will be one where the consumer really will be king. For the retailer, "the critical competency will be around the customer instead of the inventory or the merchandise," said Karl Haller, an analyst at PriceWaterhouseCoopers.

Mr. Haller sees a future where surviving department stores will not have departments, but rather will become showcases for shoppers online and off. Profits will come not from merchandise but from warranties, service and financing.

Successful retailers will provide consumers with ready-made answers: They will make decisions for them -- for example, placing dresses and matching jackets, watches, necklaces, bracelets and scarves all together in interesting assortments, not scattered on different floors of massive buildings, according to Gregory Chislovsky, president of consultancy Bel-Aire Associates.

For advertising agency executives, Ellis Verdi, president, DeVito/Verdi, New York, urged: "Part of the message has to be to deliver the solution."

For some retailers, the answer is to find ways to bring people out of their homes and into anold-fashioned store for an entertaining experience.

Perhaps the culmination of the "retailtainment" craze today is Sony Corp.'s experiment in San Francisco, officially named the Metreon, a Sony entertainment center, which the company intends to roll out in urban centers worldwide.

Here, in this block square complex, Sony has developed a whole-egg branding play. A bank of movie theaters allows the Metreon to show off Sony films. Its cameras, computers and video equipment are slickly displayed in shops on other levels. Laced in between upscale food court offerings are mini-theme park attractions, such as a cyber-bowling concept called HyperBowl, a children's section based on Maurice Sendak's "Where the Wild Things Are" and a few eclectic specialty stores, such as the Discovery Channel store.

For others, the solution is moving aggressively into the world of co-branding and Web partnerships. Typical is the tale of Williams-Sonoma. Just a year ago, the kitchenware retailer stubbornly vowed to stick to its time-honored method of marketing and selling, mostly through its prized mailing lists.

But then, rather quickly, everything changed. Rejecting an offer by Starbucks, which is seeking to turn its coffee sales into a "lifestyle" brand, Williams-Sonoma belatedly figured out there are deals to be made on the Web. It linked up with other dot-coms, such as Della & James, which offers bridal registry services accessed by several stores. And it prepared a launch of its own major Web site, while signing on to be the official partner of Conde Nast's food site, Epicurious.com.

All that on Internet time: About half a year.

But no matter how they respond, the pressures on retailers will inevitably cut deep. Consumers will increasingly have access to information that can help them make intelligent buying decisions. Gone are the hidden margins. Gone are the inflated margins. Gone are the wholesalers, the mass merchandisers, the cataloguers, the online pure plays, the single-channel merchants. Retail experts believe multichannel retailing will be the only way to survive.

Not surviving quite as well will be the department store sales staff, whose jobs face extinction, just like those in the U.S. manufacturing segment before them.

Expect to see a struggle as politics comes into the equation to attempt to protect jobs and franchises. As much as Americans loathe the automobile dealer, the dealer association is determined to find a new niche for them in the new century. The same goes for liquor distributors, who already are moving to prevent small wineries from shipping vintages across certain state lines.

And don't forget the tax man. Online retailers are using the freedom from some state sales taxes to offset shipping costs, but most experts don't expect that to last many more years.

One result, said analyst Michael Silverstein of Boston Consulting Group, is that retail will experience a major consolidation of space.

The specialty store, which has had a 20-year run, has another 20 years left in it, he said. New types will emerge in the future, likely to be targeted to customers specifically by age, lifestyle and price point.

The biggest change, he said, could be the decline of mass market TV, by 2010 reaching only 30% of adults. Those advertisers reaching the other 70% through specific micro-channels may well be compensated on a fee-per-inquiry basis.

"The net result," said Mr. Silverstein, is that "only valuable eyes get paid for."

The retailers who want to win in the next century must offer more personal meaning to the consumer relationship. Bert Flickinger, a consultant with Reach Marketing, says retailers are "not simply trading with people, but building an

In this article:
Most Popular