Common Currency: 'Big Box' retailers feel pressure well known in downtowns towns
Our vocabulary to describe the world always lags behind our experience of it, as it takes some time before trends and shifts in behavior are generally noticed, described and eventually embedded in popular culture.
A Google search of the word "e-commerce" (an 18- year-old word) yields 455 million hits. "Cyber-Monday"(an 8-year-old word) yields 231 million hits. So, what is this year's new business buzzword with a paltry half a million Google hits? It is the new word "Showrooming." If you are in retail, you already know what this means.
The years between 1978-2008 will be recorded as the age of the "Big Box" retailer, when a unique period of economic circumstances created an irresistible momentum for this behemoth category in retail merchandising.
The story of Home Depot provides the bookends for this era of hyper-growth in the "Big Box" retail category: In 1978 Home Depot opened its first store. Over the next 30 years they opened 2,245 more.
In 2007 at the height of the housing boom Home Depot opened 200 new stores in one year alone. Then in July 2008 the price of oil hit $147 a barrel, the economy collapsed, and the age of the "Big Box" retailer was over.
In 2010 Home Depot opened just one new store and then switched to a strategy that halted growth in real estate to focus on store level efficiency and customer service to better protect its profit margins.
That first Home Depot store in 1978 was followed quickly by the emergence of Costco and Best Buy in 1983 and Circuit City in 1984. The race to build the "Big Box" chain store was on. So what created the age of the "Big Box" retailer category, and what caused it to come to an end?
In 1981 International Business Machines introduced the IBM 5150 personal computer. Although slow and ridiculously expensive by today's standards, it quickly became the computer of choice for business applications.
In 1982, China liberalized its economy and opened its doors to trade by offering dirt cheap labor to the world. The price of oil in inflation-adjusted dollars in 1982 was $90 a barrel because of the Iran-Iraq war, but the price of oil would steadily fall for the next 15 years to $10 a barrel as late as 1999.
The "Big Box" retail business model was built upon a three-legged stool: Cheap labor in China, cheap fuel to transport goods and new information technology that was, at the time, available only to those who could afford the substantial upfront investment.
These factors created competitive advantages in supply chain management and merchandising that smaller competitors could not match. The economics of product distribution from factory floor to suburban warehouses only slightly disguised as retail outlets was irresistibly compelling.
But today, wages in China are rising, fuel is not cheap and ubiquitous information technology has turned what used to be a competitive advantage into a competitive nightmare for the "Big Box" retailers.
E-commerce was born when Amazon and consumer banking went "on-line" in 1994, quickly followed by eBay in 1995. Two years later, in 1997, m-commerce was born with the introduction of the first mobile-to-mobile payment transaction on a wireless- enabled Coca-Cola vending machine.
But it wasn't until 2005 that the "Big Box" retailers really started to realize their competitive advantage might be slipping away. The term "Cyber-Monday" was invented that year to describe the surge in visits to online shopping websites on the first Monday after the Thanksgiving holiday.
For the first time, noticeable numbers of consumers skipped a visit to the "Big Box" store to shop online. (And a lot of them were doing it from their desktop computers while supposedly at work!)
And now comes "showrooming," the phenomenon made possible by the proliferation of smartphones, where consumers can visit a "Big Box" retailer and try out all the new gadgets, compare products, get advice from sales people, and then use their mobile phone apps to find the cheapest online price and do it shamelessly while standing in the store in front of the poor hapless sales person.
All that investment in real estate, inventory, sales staff and floor product that once created pricing power and a competitive advantage is now suddenly a huge cost burden when faced with consumers armed with perfect price information and online retailers with a 10-15 percent pricing advantage.
Home Depot is doing just fine, thank you very much. But large brick and mortar retailers such as Best Buy and others are now feeling the kind of pressures that small town retailers have been under for years.
In response to customers "Showrooming" instead of shopping, the push is on to enhance the in-store customer experience with more exclusive products, better service and other enhancements to the customer experience such as the addition of dining, arts and entertainment to the mix.
Hmmm..... Kind of sounds like what we have been doing in downtown Park Rapids for the last five years.
Alan J. Zemek is a Park Rapids area developer and author of "Generation Busted: How America Went Broke in the Age of Prosperity." You can follow his blog, or comment on this article on his website, www.genera tionbusted.com.