I have just returned from a visit to Chile which gave me an opportunity to study retail trends in that region of the globe. I discovered the hardware stores of my early childhood, stores that were independently owned and full from floor to ceiling with hardware items. A real treasure trove to the hardware fanatic.
Alas, this type a store in most parts of the world is now a distant memory for most of us, but is it time again to rediscover those retail gems and do they have a future? I believe this time is coming back again.
The good old days
Whether you owned a hardware store, corner food shop, Garden centre or clothes shop, in my childhood the independent stores flourished. They provided all we perceived as excellent customer service plus you can often find that unusual item you are looking for. Convergence then took over in retailing.
Convergence is when smaller companies get bought out by larger and larger businesses. This often continues until you have one or a very small number of large players in the marketplace. The result of this process is that larger businesses tend to want, and need to buy from larger supply companies and supply chain management becomes ever more critical to the overall system. This inevitably results in large companies reducing the local range of products as they become more globalised.
The Tipping Point
As this process of convergence develops there eventually comes a point where divergence again takes place. This is where local enterprises find they can develop niche markets that are focused on local products. In many parts of the world the point of divergence has occurred in the retail sector. The results have been the emergence of farmers markets, delicatessens, repositioned Garden centres, gourmet shops and so on.
The key to success is knowing when the tipping point occurs and having a strategy to grow your business as an independent when it does occur.
The divergence stage does not mean the elimination of mass retailers. The converse is true. Consumers in the first world still want a one-stop shop that provides for a wide range of their needs and wants. Divergence deepens the width and depth of the range plus provides an extra experience for the consumer.
Some of the keys to benefiting from the divergence stage in retailing include:
Sourcing local products that the multinational retailer is unable to provide. Not only should you source local products but ‘local’ should also be a key part of your marketing strategy. This could include locally made crafts, fresh produce, specialist items all played material.
Becoming famous within a narrow range of goods, but also wide and deep within that range in the selected niche. You will need to become famous for the unusual, not the mass-market items. Bread shops, handmade local produce, microbreweries, confectionery shops and Garden plant retailers are some retail examples from around the world that have been successful at doing this.
Ensure the service and services you provide to and for the customer are exceptional. You will need to mystery shop retailers who provide the same products as you do within your catchment area, as well as other retailers who your consumers would visit when they shop the other products outside your category. Having mystery shopped the competition you can then develop a service and services strategy that is the very best your consumers will experience within their shopping experience.
Being niche retailer is not a license to make money. It is a profitable experience, but remember every product has a price barrier and you need to price point your products based on what your consumers believe are the price barriers. Get wrong annual price yourself out of the market very quickly.
Location is still a critical consideration. The general trend in the divergence stage is what’s called ‘cluster retailing’. This is where the divergent retailers cluster around the key mass-market player in their field or cluster together in a lifestyle retail group to become a lifestyle destination in her own right.
Not all retail industries are at the divergences stage. In my opinion the pet retail industry is still going through the convergence stage, whilst the food retail section is definitely going through the divergence stage of the evolution. Plus there are geographic differences to consider. In Chile the convergence stage is only just starting in the hardware industry, whilst in the USA, the hardware sector convergence stage is very mature and divergence, is in my opinion, about to take place.
Everything goes in cycles
People often talk about things going in cycles and this is particularly true in retailing. The only difference is that, in the first world countries especially, the cycles have sped up rapidly.
This is due to the push to globalisation in the Eighties and Nineties. Cheap fuel, changes in tariff barriers and consumers demanding, for example strawberries all year round, changed the dynamics of retailing.
Consumers will still demand strawberries all year round from the large major supermarket chains but will also visit the farmers markets in season for the freshest juiciest strawberries on the planet and the ‘lifestyle experience’ a farmers market provides.
My Chilean hardware store may still have a future, and who knows, may flourish in the years to come.
WOW John this was a very timely article, has helped me heaps!
Posted by: Jason | October 12, 2006 at 02:42 PM