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Retailers are Struggling, Here’s Why

Via LinkedIn : The big retail story is definitely Target’s decision to retreat from Canada. This entails closing 133 stores, laying off 17,600 employees and absorbing US$2-billion in losses in its less than two years in the country. That figure is on top of the $7 billion rollout cost. Target is not the only casualty in Canada.

Canadians can look forward to less brick and mortar shopping. Sony is closing all 14 of its stores, Mexx 95, Smart Set 107, and Jacob 92. Staples is shuttering 225 stores in North America. Retailers in the U.S. are majorly scaling back. Office Depot will close over 500 stores, Radio Shack 200, Abercrombie & Fitch 180, Aeropostale 250, JC Penny 39, Wet Seal 338 and Coach 70.

This is a varied list of retailers but clearly general department stores, mid-priced specialty, and non-distinctive brands are performing poorly. And, of course, online sales are driving new consumption behaviours. Stores and websites need to be both compelling and experiential. The consumer needs a reason to visit, whether online or in the store.

Retail winners are the differentiated, the distinctive, and the disruptive. They do continual soul searching about what they should stand for, what their customers need, and where the growth and margins are. Dr Achim Berg, a partner at McKinsey & Company and co-leader of McKinsey’s Apparel, Fashion & Luxury Group, believes retail winners preserve their brand identity in the midst of changing consumer preferences, are redefining the role of the store, and are “creating a compelling omnichannel offer for consumers and a seamless online/offline customer decision-making journey.”

The biggest issue in retailing is that stores are basically going after the same customer and most are struggling with growing consumer sophistication. Shoppers research, compare prices and features and consult with trusted sources to make purchase decisions. Retailers that do not innovate or give consumers what they are looking for will fail to win the sale, even if they offer a cheaper value proposition. People are looking for overall value not price alone.

That was the case for Target. The simplest explanation for their closing in Canada was an inability to deliver on its tag line, “Expect more, pay less”. Incredibly, they refused or were incapable to adjust their strategy over a two-year period. Mike Flanagan, CEO of apparel industry consultancy Clothesource, could have helped Target in Canada, “I think what will really separate the winners from the losers is ruthless cost management, serious thought about tailoring ranges, sourcing and logistics to the needs of each market – and intolerance of foreign expansion plans whose results look like vanity projects.”

Retail is a tough, tough game and there are more casualties to come. Retail Industry reports Barnes & Noble will close 223 stores, American Eagle Outfitters 150, Deb Shops 300, Wolverine World Wide 80, Sears 235, and Pep Boys 63. The lessons are there but are not being applied except by a few like H&M and Zara who are both expanding. Starbucks too is adding more and more locations. They attribute their ongoing success to understanding people not “customers” or “consumers”. Howard Schultz summed it best when he said, “The challenge of the retail business is the human condition.”

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