Retail consultant Jonathan MacDonald tells Sean Fleming why established retailers and newer entrants to the market alike face huge challenges in the immediate future
Over the last 10 years the old retail order – with all its familiar, established hierarchies and roles – has begun to erode.
Customers can create brands, they can be retailers, and everyone is a customer. Those that understand this are more likely to prosper, and those that do not may be increasingly lost. But if you think keeping abreast of change means you need a fully functioning crystal ball, you’d be mistaken. Likewise if you think only the old order is in jeopardy of being disrupted.
Many of the challenges facing retailers are very much in the here and now. They are not dots on the horizon and dealing with them needs to become a priority in the present, not something to be left to the future.
These are some of the opinions of Jonathan MacDonald, consultant to global retail brands, author and, in his own words, international speaker on perpetual change and how to think differently about the future of business, society and technology.
MacDonald has been a keynote speaker at retail events and conferences for years, and has robust views on retailers continuing to make mistakes and put themselves on the path to increasing irrelevance. Fighting off upstart market entrants requires courage, fortitude and – in most cases – a change in strategy, MacDonald argues.
“There are 184m people using Etsy.com each year, the same amount as eBay . That means customers now can be retailers, and what’s more on Etsy, for instance, customers can create their own brands,” he says, illustrating how the old rules no longer apply.
“A customer that has become a retailer, or even a brand in their own right, on something like Etsy could have more traffic than most of the world’s retailers could dream of having on their site; the entire scope of the value chain has been democratised.
“The people, those lowly people at the far end of the value chain, they’ve now got production, manufacturing, distribution, logistics, sales and marketing, and retail loyalty. They can do new product development and fund it through Kickstarter. They can do production and manufacturing through the maker movement. They can do sales and marketing through Twitter and Facebook groups. Ordinary, regular people can actually create all of these value chains for themselves.
“This is something I refer to as involvism – using the power of the crowd, working with it, learning from it. Currently, tapping into the power of the crowd is seen as the Tesco Clubcard or the Nectar card. That is how we embrace the crowd. Let me tell you, that is not embracing the crowd.”
Cold comfort farm
For the likes of Tesco or Asda it’s not easy to offer lovingly crafted, niche products when the likes of Lidl, Aldi and the pound shops are breathing down their necks. But this is about more than just price – MacDonald sees it as an example of an entrenched outlook that needs to change. Because sticking to what retailers know, and what has worked in the past, is the easiest fall-back position.
“Change is the enemy of the competent,” MacDonald asserts. “The people who are competent don’t really want to change too much, and ironically today is the slowest pace of change we’ll ever experience. So we have competent and comfortable people in organisations that have a track record of huge success with, or in the face of, exponential change. That provides an extraordinary challenge in terms of how you can reconfigure a company’s operations to suit (a) a legacy of comfort and success and (b) an environment of exponential change.
“These are rival sons pitted against each other. They are in absolute conflict; it’s not yin and yang.”
Faster, pussycat! Sell! Sell!
The long R&D and market testing cycles of old are a luxury few can now afford. Plucky startups have to be able to outrun established businesses. The same is necessarily true for those established players hoping to avoid being outflanked.
It’s no longer an option to spend six-to-12 months refining a strategy, a further 12-to-18 months in development, aiming to hit the market three years later. In 2015, companies operating at that speed will be out of date by the time they launch. It’s hard for big companies to be agile, yet in retail big is an important word.
“Size matters in retail. It’s all about big decisions, big bets, big money, big launches, big hope, big fail, and big blame,” says MacDonald. “What we actually need to do is start lighting small fires because none of us really knows what’s going to happen next. So we need to light small fires rather than keep going for a huge, great big bonfire.
“I’ll give you a real tangible example. Tesco’s big bet came from Philip Clarke who said the problem of declining profits and market share was because of the way the stores were laid out. He said to the market, ‘I’m going to fix Tesco by spending £1bn on refurbishing my stores.’ And it turned out that that wasn’t the problem and nothing actually changed.”
Consider, if you will, the process of producing things – they could be physical goods, they might be services – and then getting them to the customer. On one side you have supply, on the other demand, and in the middle you have the production, delivery and assorted intermediaries. In the last few years, if there’s one subset of service providers within any economic model that has proved ripe for disruption, it is the intermediaries.
“Traditionally, in the hotel industry there was a hotel operator and there were people who wanted to stay somewhere,” says MacDonald. “Then Airbnb came along and said, ‘Hold on a minute, the greatest concentration of rooms in the world are in people’s houses, and there’s a huge demand from people to earn money, so why don’t we remove all intermediaries, such as hotels?’
“Imagine what would happen in retail if you removed all the intermediaries, such as delivery, distribution, and logistics people; take them out of the equation and instead think in terms of a seamless link between the product and the buyer.
“I was speaking to an audience of food retailers in Chicago and I said, ‘Think about what would happen if 50% of your production took place inside people’s houses. Just digest that, write it down.’ No-one wrote anything down, it was like having a staring match with several hundred people – they were all just looking at me. No-one wrote anything down. No-one was thinking, ‘This is an opportunity.’”
The quick and the dead
It’s less than 10 years since Amazon unveiled its first Kindle. Up until then, Amazon was the world’s largest retailer of physical books. Why did Amazon decide to compete with the very things it was selling? After disrupting booksellers, Amazon disrupted first books and, more recently, the publishing industry itself. What’s left, ultimately, is that link between the reader and the book.
The lesson here is that retailers that set internal challenges are less likely to be disrupted from the outside. Yet it’s not just the old, established retailer that needs to beware of resting on its laurels, MacDonald says.
“The companies that were shaking things up, like MakerBot (3D printer makers), are themselves now being disrupted because many of them have slipped into a comfortable way of thinking,” he says. “Whereas companies like Foodini, who are 3D printing food – pasta, chocolate, whatever – they’re way ahead.
“But I think that any company has the ability to disrupt itself, provided that its mindset is one of bravery, courage, vision and understanding – and that’s the difference.”
The quick and the disrupted: innovation labs
Whether you think the skies will be full of parcel-laden drones, or Oculus Rift will mean we’ll never have to leave our homes again, you’re unlikely to find anyone who doesn’t believe innovation is at the heart of the future of retail.
In the carrier world, DPD is one of the leading lights of technology-enabled delivery; every drop is accompanied by text alerts, and one-hour timed slots are the order of the day. Little touches like this help DPD maintain an enviable reputation in its market, and earlier this year it announced an initiative called Last Mile Labs, where it would fund tech innovations for last-mile delivery problems.
One of the stand-out retail names doing this is, of course, John Lewis . The company’s JLabs initiative acts as a hothouse for tech startups with interesting retail applications. Not all will see the light of day, and back in September, JLabs announced it was awarding £100,000 in funding to a company called Peeple, which had also won a contract to sell its internet of things-based peephole that lets you use your mobile phone to see who is outside your front door.
The way JLabs works is to invite entrepreneurs and startups to apply to become part of a business accelerator programme. It then facilitates mentoring and support, as the participating businesses develop ideas, and ultimately pitch to win not just the £100,000 but to work with John Lewis.
Last year’s winner was a firm called Localz. The company makes a micro-location app, which effectively uses your mobile phone as a beacon to trigger alerts and actions depending on where you are. Other big names in retail are also getting in on the innovation act. River Island has been trialling virtual and augmented reality as a way of letting shoppers try on clothes digitally. Adidas and Japanese retailer Ikebukuro have similar projects on the go, using body scanners that create a virtual changing room environments. Asda has been looking at using unmanned stores.
Perhaps one of the most bizarre retail tech innovations this year was Alibaba’s Smile to Pay demonstration by its founder, Jack Ma, at the CeBIT tech fare. Using facial recognition, your online purchases can be automatically paid for when you smile at your phone. Ma himself said at the time: “It’s not the technology that will change the world, it’s the dreams behind the technology that will change the world.”
Which, by a roundabout route, leads us back to the labs approach, as favoured by John Lewis. A 150-year-old retailer, famed for a long-standing tradition of stability and service, is unlikely to find the entrepreneurial zeal needed to be innovative – to dream. However, it has the resources to create a structure that operates outside of its usual parameters within which new rules of engagement can flourish.
The benefits to John Lewis are many. The company gets to be first to market with new ideas, and benefits from that in a very clear and direct commercial sense. But the company also gets to cast a new light on its brand and position itself as an enabler of innovation – a latter-day John the Baptist of the bearded start-up world, as it were.
But retailers also, and this is significant, get to limit exposure to failure. In the case of Peeple, there were five other finalists pitching at the culmination of the last JLABS cycle. Finding the time, people and money to develop six new potentially viable ideas, and then jettison five of them, all in the space of six months, would unleash havoc within most businesses.
Innovation is a double-edged sword. Fail to innovative and companies leave themselves open to disruption from aggressive market entrants. Throw too much resource at innovation, however, and companies risk disrupting day-to-day operations, with nothing to show for it.