Old Retail New Retail WTF?

By roy tavenor

Humans were born to shop.

That's why retailing became the biggest industry globally.

Today, retailing is an industry in crisis, undergoing massive disruption from online marketplaces like Amazon and Alibaba. Asia is emerging as a retail powerhouse, yet most retailers are focused on the US, UK and Europe.

7 billion shoppers don'

• Language: English
• Publisher: tavenor pty ltd
• Release date: Nov 4, 2020
• ISBN: 9781922452283

Book preview

The term New Retail is attributed to Jack Ma, founder of Alibaba. In an official letter to shareholders in October 2017 Jack had this to say :-³

Commerce as we know it is changing in front of our eyes. E-commerce is rapidly evolving into ‘New Retail.’ The boundary between offline and online commerce disappears as we focus on fulfilling the personalized needs of each customer.

At the time of the Alibaba float, their media release mentioned the word ecosystem, 160 times. Did anyone register what Jack meant by New Retail? At the time, possibly not. But now, a few years later, the term has taken on more significance as the Alibaba mega business continues its unabated growth.

One view of life is that New Retail is winning the war at the expense of Old Retail. To a degree that is true., but in my search for more meaning behind both new and old retail, I uncovered stories that I had never heard before, despite the fact that I have worked in and around retail for my entire career which started in 1972.

Old Retail – when did it start?

AD1400

Retailing as we know it today has its origins in Europe during the 1400’s, and was most likely driven by the need of individual consumers to buy in small quantities. It was a turbulent time – in. the 1300’s the Black Death pandemic had wiped out over 50 million people in Europe – half of the population! Yet out of this chaos emerged a generation of great innovators, scientists, doctors and artists – including Leonardo Da Vinci, Galileo, Kepla, Copernicus and Isaac Newton.

In past centuries traders and wholesalers were the main players in commerce, dealing in large volumes of goods and selling them direct to other businesses. Today we call that B2B. The exception was royalty (B2K) and the landed gentry who had the means and the scale to purchase in volume from traders and wholesalers. In the 1400’s, consumers had to shop in local markets or buy their daily needs from small street vendors or direct from farmers. The more fortunate amongst them produced their own food off the little land they owned. It took a few hundred years for market traders and street vendors to evolve into small shops – what we still call Mom and Pop stores today. Many trades developed into small retailers – spawning what we collectively call butcher, bakers and candle-stick makers. The guilds that were formed by craftsmen like potters, glassmakers, silversmiths and jewellers started to morph into retail establishments that sold their wares direct to the public.

However, there was no question about who held the power in retailing. It was the large importers, traders and wholesalers controlled the supply chain purely on large volumes, buying power and their deep pockets. It was nearly 300 years later that the first large retailer was founded.

AD1700

In London in 1707 Fortnum and Mason opened their first department store – serving the more fastidious and well-heeled folk of that fine city. F&M are still a force in UK retail today as any visitor to London would attest.

AD1800

The early 1800’s we saw the emergence of small family owned grocery stores and general traders. This was the era when Britain was often described as a nation of shopkeepers. The corner grocer became an institution. This form of local retail thrived for at least two more centuries throughout most of Europe, UK and the US – and soon spread to their distant colonies in Asia, Africa and Australasia.

In the mid 1800’s many large retailers emerged around the world, especially new department store operators. They tended to spring up where new wealth was being generated by agriculture, commerce and mining. The gold rush that broke out in countries likes the US, South Africa and Australia, was a good example of how retailers could thrive on the back of economic booms. Around this time we saw new department stores emerge. Harvey Nichols (London in 1817), Macys (New York in 1858), Saks 5th Avenue (New York in 1867) and Sears Roebuck (Chicago in 1886) in the US and Bon Marche (Paris in 1852) - were a few that were to go on to bigger and better things. At least until 1994 - but more about that later.

The first department store in Australia was David Jones, opened in 1838 and it’s the oldest retail brand still trading today. Harris Scarfe, also still trading today, was founded in Adelaide in 1848 and has traded continuously since then – surviving bankruptcy in 2001. The business has had 4 different owners since 2001– only to be placed in receivership again in 2020. Experts think this might be the last roll of the dice.

Then there is Sears Roebuck. I find this story of particular interest because Sears, in its prime, was possibly the first retail disruptor – more than a century before the word became popular. Sears changed the face of Old Retail and became the first New Retailer of the 19th Century.

AD1894

By 1894 Sears had a number of department stores in major cities, and set their sights on the hundreds of cities and towns that were springing up all over the North American continent as the railroads and stage coaches opened up communication and trade to the country. Instead of opening more stores, Sears decided to expand their fledgling direct mail business into a giant mail order catalogue of 300 pages or more, contained a bewildering array of products from corsets to farming equipment.

This was a revolutionary strategy at the time as it gave access, for the first time, to a wide range of affordable merchandise to millions of shoppers who lived in small towns and rural communities who had limited options in their local shops. Not only did Sears achieve wider geographic distribution, they also made a major social impact on African-American customers who were previously excluded from shopping in whites-only stores in what were very racially intolerant times for the US. What followed in the wake of their catalogue success was a rapid expansion of their retail store network. How did they decide where to open stores? You guessed it – they opened up in the cities and towns that accounted for the highest mail order sales. Customer analytics at work – more than a century ago!

The combination of two channels – stores and catalogues – was very successful. It was possibly the birth of multi-channel. By the late 1960’s Sears had become the world’s largest retailer – as well as a financial powerhouse through their credit and financial services business. All that success did not make them immune to the laws of nature, however. Adapting to changing times is a good survival strategy – and evolution is an unstoppable, natural phenomenon. But like many species before it, Sears today faces extinction.

AD1916

One retail sector that had seen little change was food. Who could possibly replace the corner grocery store? The answer came from the founder of a small store in Chicago with the somewhat quirky name of Piggly Wiggly. They disrupted food retailing by introducing something quite revolutionary - self-service. Thus was born what we today call the supermarket. Customers did all the work, were free to move around the store, select their goods and pay at the exit. Counters were replaced by racks of fresh produce and dry groceries – and staff moved from behind the counters into the store to pack shelves and serve customers.

Another big change was in the customer experience. One can only imagine how fundamentally different this customer experience was, compared to being served by your local grocer across the counter. In our design practice we often refer to different forms of customer service experience. Old style grocers offered Face to Face service. Supermarkets introduce the idea of Shoulder to Shoulder service – where staff mingled with their customers.

In 1916 a retailer called Kroger, an old style grocer, launched their first self-service store, no doubt after observing Piggly Wiggly’s success. Kroger had already been a pioneer in food retail. They were the first to introduce an instore bakery and instore meat department – a direct threat to the traditional small high street retailers. In 1913 they offered home delivery using Model T Ford cars. By 1929 they had opened over 5,000 stores. A good determinant of a New Retailer is their ability to scale – and I believe Kroger was one of that elite breed – nearly a century ago. Today Kroger is the largest US supermarket chain, and is second only to Walmart as a general retailer. Australia was soon to follow suit.

Let me relate a story told to me by my good friend Don Fraser, until recently RED’s Advisory Board Chairman, a director of Safeway in Australia, and a doyen of our supermarket industry. It was Don’s father who opened the very first self-service grocery store in Australia shortly after WW2. Located in Brisbane, this was the store that in 1946, inspired the founder of Safeway Supermarkets in Australia, Bill Pratt, to convert his independent grocery store in Frankston into his first supermarket. From humble beginnings, Bill’s vision became a huge success when he attracted the Safeway brand to Australia in 1963 with the assistance of Don, who had worked for Safeway US as a young trainee manager. In later years Safeway was to be acquired by Woolworths, as part of their drive to become Australia’s leading supermarket chain.

AD1950

In the shadow of Sears Roebuck, the Chicago based retail giant, another New Retail contender opened in Bentonville, Arkansas in 1950. The store was called Walton’s Five & Dime – and the founder was one Sam Walton. Sam had a vision to disrupt the department store model by building a discount retail business. I wonder if he could have imagined that Walmart would soon overtake Sears as the biggest retailer on the planet? By 2019 Walmart was the world’s biggest company by revenue with global sales in excess of US$500 billion.

AD1956

For centuries retailers had located themselves in markets or on streets. In the late 1900’s shopping arcades become popular as shoppers could find a number of retailers conveniently located in one precinct. It was only in the Fifties that we saw the first modern shopping mall. It was called the Southdale Center and opened in Edina, Minnesota in 1956. This was the first large retail precinct to contain hundreds of retailers in a single air-conditioned location, under one roof.

The architect was Austrian born Victor Gruen who was later to became famous for a principle that caused much controversy. The Gruen Transfer (or Gruen Effect) was a term used to describe the deliberate manipulation of shoppers, through the use of layout, décor, lighting, music, visual merchandising and marketing. The Gruen theory held that consumers would lose their sense of reason and succumb to the tempting offers made to them by retailers in the mall, therefore spending more money on impulse purchases and items they couldn’t afford, or didn’t need. Herr Gruen denied any wrong doing, but the shopping mall had arrived. Another example of New Retail perhaps?

I have been fortunate enough to visit the Southdale Centre. By today’s standards it is quite small and not very imposing, but it is undoubtedly a part of retail history. Not far from Southdale you can visit the Mall of America – at 4 million square feet or 450,000 square metres of space and over 500 retailers, this is still one of the world’s largest shopping malls. Minneapolis has often been the centre of much retail innovation – spawning stores like Best Buy and Target. The city is worth a visit for any student of retail.

AD1994

Riding the post war Baby Boom, many new retailers were to emerge, especially in fashion and specialty retail, but none that I would place in capital letters. But in 1994 the world changed. A major disruptor emerged, named after one of the world’s largest rivers – more because of its size than the speed of its flow. The new player, Amazon, set out on a slow, but inexorable journey to change the face of retailing as we knew it. They did so by giving access to a massive range of merchandise at affordable prices to millions of shoppers – along with an effective home delivery service. I find it a little spooky that Amazon emerged exactly 100 years after Sears launched their catalogue business. There have always been disruptors in our industry!

AD1999

Retail disruption was not the exclusive preserve of western nations. A sleeping giant in China was about to flex its muscles. This quotation from Alibaba’s web site says it all. Jack Ma was the first to put into words what we now to refer to as New Retail. ⁴

Alibaba Group was established in 1999 by 18 people led by Jack Ma, a former English teacher from Hangzhou, China. From the outset, the company’s founders shared a belief that the Internet would level the playing field by enabling small enterprises to leverage innovation and technology to grow and compete more effectively in the domestic and global economies. Since launching its first website helping small Chinese exporters, manufacturers and entrepreneurs to sell internationally, Alibaba Group has grown into a global leader in online and mobile commerce. Today the company and its related companies operate leading wholesale and retail online marketplaces as well as businesses in cloud computing, digital media and entertainment, innovation initiatives and others.

AD2018

Amazon rapidly grew from an online bookstore to become the 7th largest retailer in the world by 2018. In 2015 Amazon started to open book stores, and in 2017 acquired the struggling bricks and mortar retailer, Whole Foods. In 2018 they opened their first cashier-less Amazon Go store in Seattle. In 2018 Sears filed for Chapter 11 bankruptcy.

By 2018 Amazon founder, Jeff Bezos, had a personal net worth of over US$150 billion, making him the world’s richest man. By 2019 Jack Ma was one of China’s richest men with a personal wealth of US$39 billion. In 1894 Sears was a New Retailer. By 2019 they were almost extinct. The gap between Old Retail and New Retail can be expressed in billions of dollars. It is worth knowing the difference – don’t you think?

Why did Sears fail? Perhaps they underestimated the power of Amazon? Did they lose touch with their customers or did they choose the wrong business model? Maybe they opened too many stores? Why did they not learn from their past success and resist change? The answer is probably a combination of all these factors – but the chances of being a disruptor twice in one century are pretty slim.

The First Network

Sears Roebuck, Montgomery Ward, Abercrombie and Fitch and the many other retailers that rode the mail order wave in the latter part of the 19th Century, could not have done so without one of the biggest developments in commerce. You could say it was the US Mail that was the first network to make it possible for retailers to communicate directly with their customers.

How did the mail network work? It was a collection of inter-connected telegraph machines and post offices – supported by a team of coaches, despatch riders and, later on, steam trains to carry the goods deep into the rural communities of the US. Today we might call that an analogue network. Back then it would have been considered a modern miracle.

For the first time retailers were able to communicate with their customers, without stores, and distribute their products to every corner of the US. In other words the first network made it possible for 19th century retailers to be disruptors. Here is a lesson worth remembering.

Retailers who embrace technology are more likely to succeed.

I believe this principle will not change – no matter how technology evolves in the future. It is how Amazon disrupted retailing in 1994 – using the latest network of our generation – the Internet.

Let’s travel back to the 19th century to explore whether any other factors changed the face of retailing. Founded in 1852, Wells Fargo was one of the first logistics businesses in the world. For many decades they held the monopoly on the delivery of parcels, mail and gold dust all across the vast North American continent. In 1869, for the first time, railroads connected the US from East to West and opened up a new logistics network that was breathtaking in its scale and speed of execution.

The US Parcel Post service lagged behind these private operators, launching their first service around the US in 1913. Logistics carrier, UPS, was founded in Seattle in 1907 as the American Messenger Company. Their messengers ran errands, delivered packages, and carried notes and baggage. UPS made most deliveries on foot and used bicycles for longer trips. They also delivered trays of food from restaurants to homes. An early form of Uber Eats existed in Seattle in 1907. The same city was the birthplace of Starbucks in 1971, and in 1994 Seattle saw the arrival of Amazon. It might be a good idea to keep a close eye on this innovative city in case they are working on the next big thing.

The Second Network

Following many decades of direct mail marketing, new media emerged and thrived – including television, press, outdoor, cinema, magazines and radio. But it was not until the birth of the Internet, that retailers were able to talk to their customers one-to-one. This second network paved the way for a the next evolution of retailing – e-commerce.

From its humble beginnings as the Arpanet, a private computer network for researchers, the Internet became commercialised in the late 1980’s and was publically accessible to consumers globally by 1990, barely 28 years ago. Perhaps Sears executives did not take this new development seriously enough. Who could have guessed that it could be one of the causes of the failure of one of the world’s retail megaliths.

In 1990 Sears were still opening new stores, but lost their top slot as the US’s biggest retailer to Walmart. In 1990 Sears also pulled the pin on their iconic mail order business, and only in 2000 did they seriously launch their online business – sears. com. Clearly it was too little – too late. Having been founded on the back of the First Network 150 years ago, Sears evidently did not plan for the impact on their business of the Network of Networks – the Internet. I do not want to dwell on the Sears case study alone, and there were many other factors that contributed to their demise, but they are an example of an Old Retailer failing to migrate to New Retail - and their story provides us with many learnings and insights.

So far we might be able to put some definition around the term Old Retail.

Here is my version. An Old Retailer is a long established, large, slow moving business with multiple sites, an outdated business model and a resistance to change. In every market you will find them – Old Retailers facing extinction. For those with an interest in the depressing topic of store closures, have a look at the weekly reports on coresight.com. This week’s report takes into account the added impact of COVID-19 and Coresight forecasts that in the US and UK there will be 15,000 stores closed in 2020 – compared to 9,500 in 2019.

Retailers need to listen to Bill Gates’ advice about the future.

I believe the concept of the New Consumer is more fundamental than Jack Ma’s vision of New Retail. Who is the New Consumer? It very much depends on the market you in which you are trading. If you have stores anywhere in the developed markets like the US, UK, Europe, Japan, South Korea, Australia or New Zealand you may well have a demographic problem – a serious one.

Controversial US economist and trend forecaster, Harry Dent, has made a career out of the analysis of cycles in economics in a significant downtrend in consumer expenditure. He bases much of his analysis on the demographic projections and age distributions of the populations of these countries. Harry’s Spending Wave curve shows clearly how the categories that generated huge retail sales growth in the past due to the effect of Baby Boomers, are now in sharp decline. Retailers in fashion, homewares, jewellery, furniture and electrical goods are the most affected. The underlying reason is that consumer expenditure differs by age cohort and life stage. Most developed countries have aging populations which means that the majority of the population is reaching the lifestage when spending on consumer goods declines quite dramatically. The patterns are very similar across all these countries, the most alarming one being that expenditure on many categories like fashion and homewares peaks around the age of 57 years.

Changes in Consumer Spending

I recommend Harry Dent’s book titled The Spending Waves for more detail on his insights on consumer expenditure trends and changing demographics are affecting economies around the world. ⁵

As I had already studied Baby Boom demographics for several years and knew that they peaked in spending between age 45 and 49. I later found that the more exact peak and correlation was 46 years. Definitely a Eureka! moment. I nearly fell off my chair. That discovery has since become known as my Spending Wave! It’s allowed me to make eerily accurate long-term forecasts (although, by itself, it’s not a perfect tool – there is no such thing).

But there is another important trend, not unrelated to the Spending Wave, which is the shift in consumer expenditure, over the past few decades, from products to services. In Australia, for example, since the mid 1970’s, the proportion of consumer expenditure on goods relative to services has changed from 65% to 35%. It is logical that as consumers age, they acquire less and less stuff. Downsizing is a natural tendency for people reaching their fifties and sixties. Aging baby boomers are less likely to follow the latest fashion trends – and will have lower discretionary expenditure on a whole range of consumer goods. Thankfully the presence of grand-children does mitigate this trend to spending less.

In your sixties you will be more likely to be travelling, dining out, spending money on healthcare, entertainment and home maintenance