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The secret to creating a $20bn physical retailer in the digital age

Traditional retail isn’t dead – if basic principles are firmly in place.

NRF 2018 – the National Retail Federation’s annual conference, or ‘Retail’s Big Show’ – saw tremendous focus on everything about the customer: understanding the customer, customer experience, customer data, customer service and more.

Given the technology on display at the event, it’s easy to imagine that we could know everything about the customer. Any retailer would have the technology to provide the most intimate details about the buying habits and shopping behaviours of their customers and targets.

Yet one presenter took a step outside shopping data to point out that, between 1970 and 2014, the middle income bracket has shrunk dramatically – and many retailers may not have taken this on board when it comes to customers.

Shopper behaviour might, therefore, be changing for more reasons than just the advent of the Internet. Case in point: Dollar General, a $20 billion company with over 13,000 stores across the US. This brick and mortar chain is growing so fast, opening new stores at such a pace that, within a short time, there will be more Dollar Generals in the US than McDonald’s. Added to that is the presence of Dollar Tree, another $20 billion discount chain with over 13,000 stores across the US, and Family Dollar (owned by Dollar Tree), a $10 billion company with 8,000 stores.

This tells us three things:

1. Traditional brick and mortar retailing isn’t dead

Instead, there is a large segment of American society living on a relatively low income that appreciates the availability of discount products in a nearby store. Others do too. In fact, the presenter of the demographic data told a story of budget-conscious Americans from all walks of life visiting these discount chains. But the Dollar General phenomenon proves that traditional retailing is alive and well where it serves a need.

2. It’s not always about Amazon

There is a world out there of people who don’t purchase online; they aren’t Amazon Prime members; and they don’t have Google Home installed. There could be any number of reasons to explain this, but the bottom line is that not everyone shops online. So the best business model may not be the one that tackles Amazon; it might be the one that side-steps Amazon.

3. Legacy retailers are architects of their own demise

The meteoric rise of Dollar General and the others underscores the utter failures of chains like K-Mart, Sears and JC Penney. They have no one but themselves to blame for their inability to remain relevant to a significant portion of our population. The first stores forced to close will be those that don’t “delight the customer” (a phrase heard often). And what that means for a large part of the American population, according to the success of these discount chains, is getting basic retail principles right: clean, well-run shops with attentive and courteous staff offering demonstrable value to their customers.

Given the flux the sector is in, a focus on retail fundamentals would go a long way. Technology certainly helps, but only where the basics are firmly in place.

Contact the consumer team


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