Retail Ecosystems
On my way home from work on Friday, I read a short article from McKinsey Quarterly, regarding retail trends -- specifically, the move from being product focused to retail ecosystem focused. This is a bit of old news -- the report was written in 2000 -- but you can already see the predictions bearing fruit -- both successes and failures.
What is a Retail Ecosystem? You'll find the phrase being used to describe many things, including the technologies being employed by retailers, to specific technology niches, such as RFID. Being a business strategy article however, the authors use the phrase to describe the move by retailers to focus on offering consumers "packages of interrelated products, services, and information." A hardgoods retailer for example, would expand its consumer offering by getting into the product installation business; or the tool rental business.
How does it work? Retailers build on their established relationship with consumers -- brand, product assortment, service, etc. This is not just diversifying -- this is diversifying into interrelated businesses. A retail ecosystem could focus on specific purchase occasions, lifestyle segments or life stages -- it basically tries to fulfill the purchase needs of its target consumer group.
What are companies creating retail ecosystems? It simply means more money for them at the end of the day -- "stronger top-line growth, enhanced margins, and closer customer relationships" -- results from owning a larger share of consumer spending and increased traffic. Growth in their established business of most retailers is either stagnant -- if there is growth, it is slow. For double-digit growth, retailers need to create an entirely new revenue stream that leverages on their established business infrastructure and doesn't require the same capital expenditure as would be required by a new business. The business infrastructure they could leverage includes physical retail locations, supply chain networks, supplier relationships, business expertise, etc. Consumers don't fare too bad in this deal either. They get "a very tailored range of products and services, increased convenience, a more satisfying overall shopping experience, and, in general, lower costs."
Who are building retail ecosystems? Quite a few well known companies: Wal-Mart, Loblaws, Home Depot, Canadian Tire, Kmart, Seven-Eleven, Carrefour, Best Buy, Circuit City, and many, many more. These companies have recognized that to succeed, they must stop focusing on promoting the brands of others, and promote their brand. The way to do that is to increase the breadth and depth of their assortment and deliver the goods where it's needed, when it's needed.
For some interesting related reading, check out:
The New Operational Dynamics of Business Ecosystems: Implications for Policy, Operations and Technology Strategy -- Iansiti, Levien.
What is a Retail Ecosystem? You'll find the phrase being used to describe many things, including the technologies being employed by retailers, to specific technology niches, such as RFID. Being a business strategy article however, the authors use the phrase to describe the move by retailers to focus on offering consumers "packages of interrelated products, services, and information." A hardgoods retailer for example, would expand its consumer offering by getting into the product installation business; or the tool rental business.
How does it work? Retailers build on their established relationship with consumers -- brand, product assortment, service, etc. This is not just diversifying -- this is diversifying into interrelated businesses. A retail ecosystem could focus on specific purchase occasions, lifestyle segments or life stages -- it basically tries to fulfill the purchase needs of its target consumer group.
What are companies creating retail ecosystems? It simply means more money for them at the end of the day -- "stronger top-line growth, enhanced margins, and closer customer relationships" -- results from owning a larger share of consumer spending and increased traffic. Growth in their established business of most retailers is either stagnant -- if there is growth, it is slow. For double-digit growth, retailers need to create an entirely new revenue stream that leverages on their established business infrastructure and doesn't require the same capital expenditure as would be required by a new business. The business infrastructure they could leverage includes physical retail locations, supply chain networks, supplier relationships, business expertise, etc. Consumers don't fare too bad in this deal either. They get "a very tailored range of products and services, increased convenience, a more satisfying overall shopping experience, and, in general, lower costs."
Who are building retail ecosystems? Quite a few well known companies: Wal-Mart, Loblaws, Home Depot, Canadian Tire, Kmart, Seven-Eleven, Carrefour, Best Buy, Circuit City, and many, many more. These companies have recognized that to succeed, they must stop focusing on promoting the brands of others, and promote their brand. The way to do that is to increase the breadth and depth of their assortment and deliver the goods where it's needed, when it's needed.
For some interesting related reading, check out:
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