Module 1: Introduction to Retailing
The Evolution of Retail
What you'll learn to do: Analyze the evolution of the retail industrySince its birth, modern retail has significantly changed over time. It is hard to imagine many of the changes that occurred in the 1800s as well as the 1900s as we weren't alive at that time! However, some of you might be familiar with some of the changes in the 1970s and the 1980s. Just think about how retail has evolved in the last decade. There has been a dramatic increase in the amount of consumers who shop on computers and mobile devices. Forrester reports that by 2022 e-commerce sales will represent approximately 17% of total retail sales, up from 13% in 2017. As a result, retailers are improving their online presences and integrating traditional brick and mortar and e-commerce experiences for the consumer.
Discussing the origins of retail can help you understand how major trends change the ways retailers operate.
- Describe the overall change in the structure of the retail industry over the past 60 years
- Discuss the role information systems have played in the changing retail industry
- Explain why a willingness to adapt is essential to a retailer's survival
Historical Changes in RetailPrior to the 1800s retail was predominantly made up of local merchants who provided full service to customers, think of the classic “general store” in any old western movie. This full service often included offering credit, repairs, and offering one-on-one services to consumers to explain the features and benefits of products. Yet, breakthroughs in manufacturing during the industrial revolution lead to a marked increase in affordable quality items. In the early United States textile industry factories began to manufacture their-own ready-made clothes. Affordable blouses, frocks, pants and shirts flooded the market and these ready-made garments sold quickly. The quandary facing mill and factory owners was how best to market these items.
Two retail options existed at that time. The first, involved selling items directly to consumers through company-owned stores. The second option involved employing a commissioned agent in which a company agent would be responsible for delivering manufactured goods to shopkeepers who, in turn, would sell them. The question facing manufacturers and merchants was which option best suited their needs? Customers let it be known that they wanted ready access to a wide assortment of reasonable priced items, and that they were willing to pay a pretty penny for this service. Shoppers’ demands posed an interesting challenge to manufacturers and shopkeepers alike which lead to a new form of retailing: the department store.
Business historians often credit a Parisian retailer named Aristede Bouciaut (1810-1877) for developing the first department store. Called Le Bon Marche, this establishment featured the latest fashions and accessories within a spectacular setting. Early 19th century U.S. retailers from Boston to Richmond and from New York to Chicago quickly adopted Le Bon Marche layout and services and the modern department store was born. Large downtown department stores in major metropolitan city centers dominated retailing well into the post-war era.
In the 1950s, over 4,000 department stores operated nationwide with many new stores opening in suburban areas. Yet, by the mid-1960s, over half of the post-war department stores had closed their doors. This was especially noticeable in medium-sized U.S. cities many of which only had one or two downtown stores. The next three decades prompted further department store closings.
During the 1970’s many department stores closed and were replaced by discount department stores, shopping centers and large malls which soon accounted for 35% of the entire U.S. retail market. Discount department stores in particular, represented the fastest growing part of this phenomenon with annual profits exceeded $20,000,000,000. Customer loyalty soon became a relic of the past. Savvy new shoppers were more than willing to sacrifice the amenities of downtown department store for cheaper prices. Self-service stores with long check-out lines, indistinguishable departments and aisle upon aisle of items of picked-over garments became the norm, not the exception to the rule.
Fast forward to the 1990’s where the utilization of the Internet drastically impacted the retail industry and continues to drive product and marketing innovation to this day. The Internet has transformed how retailers and consumers view the intersections of product, place, price and time. Shoppers now have nearly unlimited access to an unprecedented assortment of products and their purchases are not restricted to a physical "bricks-and-mortar" place or store hours. With a few clicks shoppers can compare prices of goods faster and more efficiently than before. Furthermore, retailers recognized that e-commerce allows for the optimization of inventories while selling a wide range of profit margin goods.
Online shopping allows consumers to directly buy goods or services from a seller over the Internet using a web browser. Consumers find a product of interest by visiting the website of the retailer directly or by searching among alternative vendors using a shopping search engine, which displays the same product's availability and pricing at different e-retailers. As of 2016, customers can shop online using a range of different computers and devices, including desktop computers, laptops, tablet computers and smartphones.
An online shop evokes the physical analogy of buying products or services at a regular "bricks-and-mortar" retailer or shopping center; the process is called business-to-consumer (B2C) online shopping. When an online store is set up to enable businesses to buy from another businesses, the process is called business-to-business (B2B) online shopping. A typical online store enables the customer to browse the firm's range of products and services, view photos or images of the products, along with information about the product specifications, features and prices.
The popularity and pervasiveness of online shopping shows no signs of slowing down which is putting traditional retailers in a unique position. How can brick-and-mortar stores integrate e-commerce strategically and successfully? In what ways will online retailers emulate brick-and-mortar stores as seen in the trend of popular online stores opening pop up shops for customers to shop in person. By having a better understanding of past industry trends and challenges, modern retailers can learn from their successful predecessors while also blazing a new trail forward.
Highly Recommended Additional Resources
- The History of Retail: A Timeline infographic
- Understanding the History of Disruptions in Retailing
Information Systems in RetailInformation systems are the tools, hardware and software that help retailers achieve success in a dynamic environment. They serve several functions including planning, inventory control, managing budgets and sales goals, and also with point of sale transactions and logistics.
Let's take a brief look at some of the most frequently utilized information systems in retail.
Inventory management software (IMS) is a software system for tracking inventory levels, orders, sales and deliveries. It can also be used in the manufacturing industry to create a work order, bill of materials and other production-related documents. Companies use inventory management software to avoid product overstock and outages. It is a tool for organizing inventory data that before was generally stored in hard-copy form or in spreadsheets.
One aspect of IMS is Asset Tracking which is when a product is in a warehouse or store, it can be tracked via its barcode and/or other tracking criteria, such as serial number, lot number or revision number. Systems. for Business, Encyclopedia of Business, 2nd ed. Nowadays, inventory management software often utilizes barcode, radio-frequency identification (RFID), and/or wireless tracking technology.
Let's take a look at an example of how one retailer, Lululemon, uses RFID.
Here are some other quick stats about RFID:
- RFID allows retailers to improve accuracy from 60 to over 90% due to monitoring stock more often and efficiently.
- Lululemon accuracy improved to over 98% as a result of using RFID. Employees in store are also able to check inventory levels with the customer standing right there!
- RFID tags are utilized now more than ever in retail: Growing from 3 billion tags in 2014 to almost 8 billion in 2017
- Target rolled out RFID to all stores in 2016 and used more than a billion RFID tags in the process.
CRM (Customer Relationship Management)Customer relationship management software looks at data about current and future customers to help a company understand the customer better in hopes of retaining and building customer relationships.
Customer Relationship Management systems capture the following details to help retailers drive sales and gain a better understanding of the consumer:
- Contact Details: Name, email, social media, how customer learned of company
- Personal Profile of Customer: Family info, hobbies, group memberships and associations
- Sales history: What have they purchased in the past? How did they pay for the item? How did they respond to certain advertisements?
- Customer Communication: This includes any time a customer speaks with a company representative.
- Customer Feedback: Companies typically get feedback by asking customers to fill out surveys.
Let's take a look at the case of Target that lost customer's trust due to a breach in data and what they are doing to gain some of that trust back. Although Customer Relationship Management is critical in understanding the customer there have been recent cases in which personal customer data has been breached causing concern industry wide. Can you think of any other cases in which personal customer data has been breached and what the company did to regain trust?
Accounting Information SystemsAn accounting information system (AIS) is a system of collecting, storing and processing financial and accounting data that are used by decision makers. An accounting information system is generally a computer-based method for tracking accounting activity in conjunction with information technology resources. The resulting financial reports can be used internally by management or externally by other interested parties including investors, creditors and tax authorities. Accounting information systems are designed to support all accounting functions and activities including auditing, financial accounting & reporting, managerial/ management accounting and tax. The most widely adopted accounting information systems are auditing and financial reporting modules.
SummaryWhen first introduced computer based information systems were controlled by third parties that the retailer hired to do analysis. This was also due to the size of rudimentary computers that could take up an entire room and require teams to run them. As technology advanced, these computers were able to handle greater capacities and therefore reduce their cost. Smaller, more affordable minicomputers allowed larger businesses to run their own computing centers in-house and the began to decentralize the computing power from large data centers to smaller offices. In the late 1970s, minicomputer technology gave way to personal computers and relatively low-cost computers were becoming mass market commodities, allowing businesses to provide their employees access to computing power that ten years before would have cost tens of thousands of dollars. This proliferation of computers created a ready market for interconnecting networks and the popularization of the Internet. High speed networks and enterprise software has enabled all aspects of the business enterprise to be combined together to offer rich information access encompassing the complete management structure. Managers can now access a MIS remotely with laptops, tablet computers and smartphones.
The widespread adoption and usage of MISs is closely related to advancement in modern technology and innovations. As MIS continue to change and become more accessible they play a larger role in the day-to-day life of the retail industry. MISs allow for more internal management, meaning there is less of a need to hire out side of company to do data analysis. Less man hours are needed to do complex projects or filing of paperwork since it can be done electronically and easily completed in store.
The modern day MIS continues to help managers, workers, and shoppers have successful interactions. A MIS assists companies to identifying areas that can help the company improve its business processes and operations. Companies are able to identify their strengths and weaknesses due to the presence of revenue reports, employees' performance record etc. Since an MIS uses a wide array of data it allows managers and decision makers to accurately and efficiently manages all types of labor and products in a retail setting to increase business value and profits. Benefits of using a MIS include making it easier to track items and products in the supply chain, reducing inventory, reducing labor costs, and establish and maintain good customer relationships.
Adaptation in RetailIn previous sections we discussed the changing retail environment from a consumer and technology point of view. Think about the shifts in the retail industry from the modern day department store to the shopping mall and online shopping. As you consider those shifts also think about how you, the consumer, has changed over time. Do you shop differently then you used to a year ago or even a decade ago? What have been some of your biggest influencing factors? What has been a dramatic shift for you in retail? Lastly, think about how retailers must adapt accordingly to stay relevant to the consumer.
Let's look at examples of retailers that have failed to adapt and why. Some of these examples will be more recognizable than others.
Blockbuster VideoBlockbuster had long history in retail. It was founded in 1995 by David Cook who later sold the company for $18.5 million in 1985. A mere four years later the company was purchased by Viacom for $8.4 billion and soon after went public. So what led to the demise of Blockbuster? Late fees! In 2000 alone Blockbuster received $800 million in late fees and customers hated paying them. Netflix was then founded as an alternative to Blockbuster and the company posted losses of $1.6 billion.
What was once a phenomenon and a huge success deteriorated very quickly. The customer moved towards the competition and even though Blockbuster eliminated late fees in 2005 it was already too late. Blockbuster was too slow too adapt and make those changes that were needed to stay relevant in the eyes of the consumer and to the industry as a whole.
Borders BookstoreOnce a thriving retailer, Borders filed for bankruptcy in 2011 and closed all of its 400 locations. What led to its failure? They carried everything from music to movies and even e-readers yet they still struggled to fill their stores with an assortment of products that consumers wanted.
From 2001 to 2008, they also outsourced their website to Amazon to create an online presence but, it wasn't enough because they were offering the wrong kinds of products. For example, they continued to offer consumers CD and DVD assortment without consideration of the customer's strong response to online entertainment.
Toys R UsThis is one of the more recent examples of a retailer that failed to adapt. Let's take a look at why. As you watch this video, keep in mind how this impacts the retail industry as a whole. We will discuss human resources a little later but, keep in mind the effect this has on employees as Toys R Us had to lay off over 30,000 employees. In addition, Toys R Us sold 15% of the toy market which had significant effects on toy manufacturers who may have relied on the company for up to 20% of their total sales. Toy manufactures had to figure out how to make up for those lost sales or, if they couldn't, find a way to cope with the loss.
Three scenarios above demonstrate how failure to adapt can often lead to the demise of a retailer. However, there are numerous others and as consumer's preferences continuously change this will always be a challenge in the industry.
Ways to AdaptSo how can retailers adapt? How do they change along with the customer? Let's take a look at some of the options they have.
Keep up with customer's shifting preferences and tastesTrends, music, behavior... These are all things that keep changing but they also have a major impact on how the consumer shops. Remember that 84% of customers use their mobile phone to shop while in store. Nordstrom is a great example of a company that is able to keep up with those shifting preferences. The customer today wants speed, transparency, and control. Nordstrom offers the customer the opportunity to reserve items they want to try on before arriving at the store.
Stay in regular contact with your customerA McKinsey Global Institute Study found 85% of retail companies are using social media for marketing as opposed to 66% for other companies! There is a great opportunity to maximize this platform by getting to know the customer, what they like, and what they don't like. It's also a great opportunity for customers to provide information on new products they would like to see from your company.
TorontoVaporizer.ca, an online vaporizer and accessory store, is a great example of staying in touch with the customer. Their sales representatives are in constant communication with customers via phone, email, and online chat to gain data on what people want.
Integrate brick and mortar, online, and mobile shopping experiencesCustomers want to buy online, pick up in store, and also have the ability to return to the channel that is most convenient. Retailers such as Wal-Mart are now utilizing 'scan-and-go' technology that allows the customer to scan items as they are shopping. JCPenney, Urban Outfitters, and Anthropologie all now have mobile devices such as iPhones and iPads available in store to allow customers to make credit or debit card purchases without going to an actual kiosk. The end goal is to make it easier for the customer to shop seamlessly.
Personalize the Shopping ExperienceThe customer no longer wants a one-size-fits-all approach when they shop. Retailers can create that personalized experience by gathering data on customer behavior and spending power and using that information to further develop products and experiences that are of interest to the customer. Take a look at the brief video below from United Sweets to understand how they were able to successfully integrate POS and customer management systems with their loyalty program.