Survival of the Fittest

Retailers must evolve to meet customers’ ever-increasing demands.

February 2011

The retail industry is “going through the biggest transformation ever,” says Robin Lewis, CEO of the Robin Report, a publication that serves top retail executives. In his recently published book The New Rules of Retail (Palgrave Macmillan, 2010), Lewis and coauthor Michael Dart predict that half of all retailers and brands face extinction during this time of great consumer upheaval. How do you ensure your survival?

Profit: Why do retailers need new rules?

Lewis: Never before have consumers had so much power and been in such control of all commerce. They have such enormous selection, and with globalization and technology, they are a keyboard tap away from anything they want—even when they are on the move. Consumers are demanding way beyond what they’ve ever demanded before, from customization and affordable luxury to sustainability efforts, and more. They are forcing retailers and brands to seek out new strategies to compete and win, which in turn is driving new business models.

Profit: So what do retailers need to do to succeed now?

Lewis: There are three major new rules. First, a business has to emotionally connect with the consumer. There’s been a lot of research in neuroscience showing that the human mind releases dopamine in anticipation of an event or an experience and it will drive us to that experience. Starbucks customers will travel two miles to get their fix when a coffee shop may be right across the street.

Imperative number two is a new phrase we coined: “preemptive distribution.” In this totally overabundant, overstuffed world, where consumers have instantaneous access to literally hundreds of equally compelling choices right at their fingertips, businesses must figure out how to get to that consumer faster and more often than competitors. Apparel chain Zara gets 17 annual customer visits, while the traditional department store gets 4. That’s because twice a week they have a new line coming in that their customers don’t want to miss.

You can’t do the first two without number three: value chain control. Now, that doesn’t mean you have to own your value chain, but you have to control it. If you look at what the winners are doing, they’re seeking control of their value chain so they can deliver those experiences and get to those consumers faster and more directly.

Profit: What are your predictions for the future of retail?

Lewis: There’s no way of knowing what percentage of the world of commerce is going to be done on mobiles or through social networking and so forth—it’s just beginning. We believe bricks-and-mortar will survive, but it’s going to be in a whole different business model. Today, businesses can use technology to pinpoint their customers’ behavior in specific areas and zip codes. So a business like Best Buy can open two different stores: one in a boomer neighborhood, and one in a yuppie neighborhood. Yuppies are more tech-savvy, so the whole layout of the store would be different, with lower service and more-sophisticated merchandise.

Also, you won’t see the old big store with a lot of stuff in it in the future. It’s going to be a big emporium of experiences. There’s going to be a lot of events, restaurants, things to do there. But there will also be boutiques inside, featuring great brands, the way JC Penney already leases space to Sephora and Mango. And these stores will be really customized to where you’re living and what you like.