When you run out of retail highway
Opening new stores is all about execution. You need to DO stuff. The core skill is project management. When you run out of geography, you run out of growth. It is easier to run your business through the copy machine.
But as your top-line growth slows gradually, your expenses don’t (the copy machine is still running). So your sales keep growing (slower and slower) and your expenses grow faster and faster. That is a recipe for disaster.
Running out of highway is inevitable.
Then the focus shifts to ideas, to innovation, to productivity, to marketing. Away from projects, to opportunities. From the easy, ‘busy’ work to the hard grind of squeezing little bits of incremental improvement from every process and re-thinking or re-inventing or scrapping processes.
The focus moves from internal capacities and needs and processes to the customer needs and journeys. From ‘our map’ and our capital, to ‘their map’ and their money. We move from footprint to brand. We move from logistics and distribution (supply) to demand and leverage.
In the new world, we need to learn to live with 2-3 per cent growth (marginally better than inflation), and break the addiction to growth.
We have spoken previously about ‘margin convergence’; the idea that traditional retailers will have to learn to live with lower margins and that e-tailers will eventually have to increase their margins in order to start producing some returns for their investors. (Amazon being the exception that proves the rule.)
Just like traditional retailers run out of geography, eventually e-commerce will run out of new customers too. There are only so many people in the world, after all.
And the pendulum will swing back and the value of ideas, and innovation and strategy and commitment to change and flexibility and willingness to take risks will again be in vogue.
When your plane runs out of runway, slowing down is no option, you have to accelerate to get lift-off, as scary as that may be.
Dennis Price: Co-founder at www.yearone.solutions