Whether you are an economist or just applying common sense, you already know that supply and demand determine how markets operate and which companies ultimately will generate customer and shareholder value.  Once something becomes ubiquitous it tends to become uninteresting. What is abundant is no longer special. But where strong consumer desire meets scarcity, we find potential and opportunity: the potential to win and keep customers which will drive profitability and make us remarkable.

Many of the high growth digitally native brands such as Wayfair, Casper, Chewy and more can offer both great service and value pricing because their investors will accept margins (for now) that are far below historical industry standards.  Pressures to demonstrate a path to sustainable profitability are escalating.  But for the time being, venture capitalists have allowed many of the disruptors to deliver incredible customer value, fueling larger revenue growth. Not exactly an even playing field.

Physical retail is not dead, just different.  As an example, Dennis has been referring to Sears’s prolonged descent as “the world’s slowest liquidation sale” for quite some time.  On the other hand, quite a few well-known retailers failed to get the “retail apocalypse memo”.  Brick and mortar dominant brands such as TJX, Lululemon, BJ’s Wholesale Club, Dollar General, and many others are all profitable and continue to open physical stores. Together, they have announced plans to open many hundreds of stores per year.

Regional malls and their department store anchors have actually been on the decline since the late 1990’s, when Amazon’s annual sales barely eclipsed the revenue of just one of the nation’s top-producing malls.  The first wave of disruption actually came from the national expansion of big-box category killers and discount mass merchandisers.  The most recent wave of disruption has come mostly from the rise of off-price and dollar stores.  While it is convenient to blame Amazon, the growth of online shopping is only one piece of the puzzle.

The hybrid nature of store and on-line shopping is here to stay and the role of physical stores will continue to adapt to that reality. Many stores will continue to be in service to their traditional roles of presenting and stocking merchandise for the customer to look at and take home. Others will be part marketing center, idea center, product showroom, and/or order fulfillment and returns center.  The dividing line between ecommerce and physical store sales is far less clear than it used to be. The differences between retail’s winners and losers are, however, clearly diverging, a fact which was made even more apparent by the Covid crisis.  The market continues to bifurcate, and the collapse of the boring, mediocre, undifferentiated “middle” is accelerating.  

Far too much of retail is still filled with tired old ideas and a failure to pursue innovation. Many of the retailers filing for bankruptcy, or closing large numbers of stores have barely changed in over a decade. The same old mistakes, made by the same old people, particularly an overreliance on deep discounting is repeated year after year.

Mr. Dennis states what we have all felt ourselves, that an “awful lot of retail looks and feels pretty similar. Virtually identical storefronts and websites. Look-alike promotional signs. One-size-fits-all marketing campaigns…Department stores in particular have been swimming in a sea of sameness for decades.”

The retailers that are struggling usually have both strategic and executional issues.  They often sit in the middle of the price spectrum, offering neither great product value and convenience nor anything unique from a product, experience, or service standpoint. They sell fairly average “safe” products to the great masses of the population. A little bit of everything for everybody, nothing special or remarkable for anybody.  They apparently cling to the hope that a slightly better version of mediocre will turn out to be a winning strategy. These brands act like they are still in business. Dennis states that “They think that some customers will actually miss them when they’re gone. I see dead brands. And they don’t even know they’re dead.

”Switching over to Amazon, Dennis believes that “Amazon’s ability to sustain hyper-growth over the long term will increasingly be driven by more aggressive investment in physical retail.” Amazon has been experimenting with and expanding various “click-and-collect” operations. At the end of 2020 it had more than 2800 Amazon Lockers across nine hundred U.S. cities.  Amazon private label brands are also a big opportunity for their growth.