For a long time the advantage of leading retailers was their size. They were able to buy goods cheaper, because they bought large volumes. They had lower overhead costs because they operated many stores with centralized structures. They had large marketing budgets to run expensive advertisement with a lot of it on TV. Their sales were continually rising.
But suddenly the party was over. Much smaller retailers are snatching away market share from the big guys. According to an article in the Economist, large consumer packed companies (CPG) lost 3% market share between 2011 and 2015. What happened?
Why small retailers gain market share
- Online marketing is much cheaper and reaches more and more people. At the same time people are watching less TV. The advantage of big marketing budgets is declining.
- Through outsourcing of the production and online distribution, it’s easier for small companies to enter the market.
- Small companies are often more flexible and understand better to keep up with the pace of their fast changing customer preferences.
- Consumers willing to spend more for a certain product tend to prefer smaller brands. Traditional big brands are the shops for basic, cheap products. According to Deloitte one-third of American consumers, would pay at least 10% more for the “craft” version of a product.
The Need to Change
All this has provided a big opening for smaller firms. The retail industry seems to enter a new world. Now there are multiple opportunities to navigate around the competition for brick and mortar stores as well as online shops.
The key for retailers to take advantage of these opportunities is to be brave enough to put everything aside that was once important and rethink and redefine the business completely. Last month Target announced that it will commit more than $7 billion to adapt to the rapidly evolving customer preferences. Everything from pricing models and store design to the retail experience and customer relation needs to be questioned. Standing still is not an option and boldness in this marketplace will be rewarded. Jazzyjobber will be part of this journey and welcomes everyone to join in.
- Invasion of the bottle snatchers; Economist 2016: http://www.economist.com/news/business/21701798-smaller-rivals-are-assaulting-worlds-biggest-brands-invasion-bottle-snatchers
- TargetCorporate, February 2017: https://corporate.target.com/article/2017/02/financial-community-meeting