Saturday, June 9, 2018

Start Looking Ahead

I was reading the article from Business Insider about the Boyd’s department store in Philadelphia last week and reflecting that the business model that reporter Mary Hanbury describes may have even greater importance to future business operations, and particularly start-ups, than it does to the present company. If you’re not familiar with it, and I wasn’t until I read the linked article, Boyd’s has been in operation on the same site for the last 80 years, and is currently being managed by the grandson and great-grandson of one of the brothers who originally founded the company. It’s a very upscale retailer that features personalized service, custom tailoring, and a great number of value-added services that may have been common in pre-WWII Philadelphia but are considered a specialty strategy today…

We’ve all heard this story before, of course. Consider any of the more outrageous customer service efforts you may have heard about Nordstrom’s, for example (nearly all of which turn out to be true, as it happens), or more specialized retailers like Tiffany and Co. Boyd’s has features like free valet parking, sales associates and personal shoppers who form lasting relationships with repeat customers, and alterations handled for free (with the cost of purchase) by a 39-person tailoring shop on the premises. The salespeople keep in touch with their customers with hand-written notes and updates on new products for sale – the level of service that people who don’t understand retail think they should always receive, but rarely want to pay for…

In a world where more and more department stores are closing, and the handful still in operation, it may seem amazing that Boyd’s not only maintains its operations but is in fact expanding, hoping to increase its sales to female customers by expanding the women’s clothing department. But where the article extols the virtues of Boyd’s as a throwback to a previous century and suggests things that current members of the industry could learn from their example, what struck me was that the company seems to have happened across the concept that will keep them running regardless of the competition from Amazon (or other online retailers) – and those are the lessons we should be examining…

For all that it can be incredibly difficult to execute correctly, let alone profitably, the basic concept of retail has traditionally been to find something people want to buy and put a large selection of it somewhere that those people already do. Firms following a cost leadership strategy will then attempt to gain an advantage by lowering their operating costs, increasing their profit margin and possibly by lowering their prices, while firms following a differentiation strategy will attempt to find reasonably cost-effective ways to add value for the customer. With massive advantages in overhead costs (they don’t have to build or operate a store) and inventory (they can and do have warehouses and distribution centers all over the world), Amazon can out-perform almost any cost-leadership competitor, and it is getting harder to find anything that will add sufficient value to interest retail customers in shopping in the real world…

But what if we came at the problem from the other direction? Just assume that anything we can buy can be sold online for cheaper, and anything we can make will be duplicated by the competition as soon as they can figure out how we do it; what’s left? Can we offer a unique product, custom-made or custom-tailored? Can we offer a service that isn’t possible for a web retailer? Can we offer a level of quality, either in product or in services, which can only be provided through a relationship business, between employees who know their customers? There was a time when a retail business could succeed simply by being the only place in a local area where a specific set of goods or services was available, but those days are gone; can we out-perform not just the competitor across the street but everyone on the Internet?

I’m not suggesting that any of these concepts will be easy to develop, let alone implement. But the more we consider the retail sector, the clearer it becomes that location, inventory control, and competitive prices are no longer enough. Just as the mercantile businesses of the 1800s were replaced by the national brands of the 1900s, this new century is shaping up to be a time where the competition is always present, and always has massive advantages in terms of volume, purchasing power, and breadth of product line. But if the folks running Boyd’s are anything to go on (and they’ve been right for 80 years so far) then retail isn’t going away any time soon. It’s just evolving into yet another new form…

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