The Information Revolution in Retail
by Peter Drucker (Managing in a Time of Great Change)
Wherever I went in Europe in 1993-Britain, France, Germany, Italy, Belgium, Austria, Switzerland--I heard the same lament: European economic unification is at a standstill in manufacturing and finance. But in retailing, where no one expected it, economic unification is galloping across Europe.
Ten years ago, Aldi, a food discounter, was still purely German; now it is in seven European countries with some 3,300 stores. Other food discounters-German, French, Danish-are expanding with similar speed across Europe, from Spain to Norway. Sweden-based Ikea now dominates Western Europe's furniture business and is opening stores in the former Russian satellites. Italy-based Benetton (women's fashions) and Britain-based Body Shop (toiletries) are becoming market leaders in one European country after the other.
The internationalization of retailing is by no means confined to Europe. Japanese retailers, both food and nonfood, are rapidly expanding in China. Ikea and Benetton have nearly as much market penetration in the United States as they have in Europe. America's Wal-Mart is set to cover Mexico with Sam's Clubs, while Toys "R" Us is pushing aggressively into Japan.
Most of the earlier retailers who went multinational tried to improve slightly on what retailers in their "host" countries were already doing quite well. This was true of Sears building traditional Sears stores in Latin America in the 1950s or German Tengelmann and Dutch Ahold buying established supermarket chains in the United States in the 1970s and early 1980s. But the new mutlinationals are revolutionaries, rejecting the very assumptions that most retailers still consider Holy Writ.
During the past half-century, "shopping center" has become almost synonymous with "successful retailing." And the bigger, the better. But the new retailers shun shopping centers. They build freestanding stores or go into "minimalls" that contain only a handful of shops. "The shopping center," a top executive of one of the fastest-growing European discount retailers said to me, "submerges the personality of the individual store into the anonymity of the parking lot." And the new retailers aim at a sharply profiled personality and a clear market niche.
The new retailers rarely speak of "reengineering"--to them it sounds too much like manufacturing. But they constantly redesgn operations. Indeed, many redefine the entire business.
Wal-Mart's success, for example, rests in large measure on its redefining retailing as the moving of merchandise, rather than its sale. This led to the integration of the entire process-all the way from the manufacturer's machine to the selling flooron the basis of "real-time" information about customer purchases. As a result, WalMart could cut out three tiers of warehouses and a full third of the costs of traditional retailing. But Wal-Mart still carries a full assortment of goods, and that means thousands of items.
Aldi has reengineered operations in much the same way. But it also has cut its assortment to the six hundred items that, its research showed, are all a household buys regularly. Each item has been designed by Aldi, is made to its specifications, and is sold under its own brand name. As a result, it has doubled or tripled sales per square foot of shelf space--a retailer's basic capital and cost center.
Spar, another German deep-discounter, is going further still. It will carry only the two hundred items a household buys every week. Another fast-growing European retailer will apply the same principle a different way. Its deep-discount "clubs" will carry only the two hundred items needed for special occasions--a birthday party, a wedding, an anniversary--and absolutely nothing people buy regularly or often.
Ikea can sell at a low price because it realized that half the cost of finished furniture is final assembly. Provided that parts are meticulously engineered and instructions crystalclear, even mechanical morons can do the final assembly.
Everybody in retailing talks of service as the key to success, if not to survival. So do the new retailers. But they mean something different.
For traditional merchants, service means salespeople who personally take care of an individual customer. But the new retailers employ very few salespeople. Service to them means that customers do not need a salesperson, do not have to spend time trying to find one, do not have to ask, do not have to wait. It means that the customers know where goods are the moment they enter the store, in what colors and sizes. and at what price. It means providing information.
But service for the new retailers also means getting cus tomers out of the store as fast as possible once they have made their purchases. A European superdiscounter is studying a technology that eliminates the checkout counter. When a customer has decided to buy an item, she puts her credit card into a slot on the shelf and does so as many times as she wants packages or bottles of a particular item. There is no shopping cart. Her purchases are packed and waiting when she is ready to leave. All she has to do is to check the goods and sign a prepared credit-card slip.
Ray Kroc, the founder of McDonald's-the first, the most successful and the most multinational of the new retailers-is reputed to have said, "A mother with two small children does not come to our store because the hamburgers are delicious. She comes because the restrooms are clean." This is often considered pure whimsy. But it was meant to express a radically new concept of what "shopping" means. What customers-at least a good many of them-want is not shopping that is enjoyable, but shopping that is painless.
The retail store was invented in the late seventeenth century-first in Japan, shortly thereafter in Western Europe. From its very early days it has been based on three assumptions: Shopping offers the customer-especially the housewife-perhaps the only way to have a little choice, to make a few decisions, to have a little say and a little power. Second, it offers the housewife the only break from the monotonous and dreary routine that the Germans call "The Three K's": Kinder, Kirche, Küche (children, church, kitchen). And, finally, the retail store offers access to the world to people whose information otherwise consists of inane chat over the back fence or at the sewing circle.
The retail store has, of course, changed many times over the past three hundred years of its existence. But traditional retailers--department stores, shopping centers, hardware stores, supermarkets, shoe stores-by and large still accept the traditional assumptions, if only subconsciously.
The new retailers, however, reject them. Their prototypical customer has a paying job, if not a career. She has many occasions to choose and to make decisions, most of them more interesting than what to cook for dinner. And even if she never leaves the house, she has unlimited access to the outside world through the telephone and TV screen. Shoping is no longer a satisfaction to her. Its a chore.
The department store-the success story of the early twentieth century-is slipping everywhere. Shopping centers and supermarkets-the success stories of the past halfcentury-are at best holding their own. The new retailers are rapidly expanding. Still, there are signs that theirs, too, may be a fairly short-lived success.
Retailers now talk of "shopping without a store" through interactive TV. They talk of "virtual reality" in which the customer in her own living room "walks" through a simulated shopping center on her computer screen, "tries on" a blouse, and orders by pushing a few buttons.
The technology for all this is available and is increasingly less expensive. And there are quite a few signs that a substantial number of customers are becoming receptive to it. There is the upsurge in catalog sales in all developed countries-"nontech" shopping without a store. In the United States direct selling over cable TV has been successful for costume jewelry, for instance; in some affluent suburbs interactive TV also works for selling ready-to-heat "gourmet" meals. In more and more beauty parlors women "try on" and "adjust" different haircuts on a TV monitor, deciding which style suits them best.
Shopping without a store is thus no longer science fiction. But it is still speculation (and a lot of hype). But even without any new technology, retailing has already changed.
The changes are having profound effects on advertising, on consumer-goods manufacturers, and on the structure of the economy. Retailing-rather than manufacturing or financemay be where the action is now.
“The greatest danger in times of turbulence is not turbulence; it is to act with yesterday’s logic”. — Peter Drucker
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