The Coronavirus Will Accelerate Retail's ‘Collapse Of The Middle’

2020.04.10

For retailers struggling with failing consumer value propositions, the coronavirus pandemic could not have struck at a worse time. Just as many are running out of meaningful cost reduction moves and are in desperate need of profitable top-line growth (and the cash it brings) to invest in more than a timid transformation, much of physical retail is now grinding to a halt of difficult-to-determine depth and duration.

For highly leveraged retailers, prospects for near-term recapitalization appear bleak. For newer disruptive brands, many of which need to raise cash to fund operating losses and/or fuel store opening plans, the ability to raise significant private or public capital on favorable terms looks rather shaky. For any retailer that sells fashion-sensitive or seasonal merchandise, each week of declining traffic adds to the pile of coming markdowns.

Dramatically shifting consumer demands and preferences, combined with the radical reduction (or elimination) of many shopping factors that were once scarce—availability of information, product choice, distribution access and more—have laid bare the weaknesses of many once-powerful and iconic retailers. Good enough no longer is. We have to choose remarkable.

This bifurcation of retail, this widening gap between the industry's haves and have nots, has been occurring for years. During the past decade in particular, success has mostly been found at either end of a spectrum. At one end—despite claims of a retail apocalypse—retailers offering remarkable value in product and convenience have been growing sales, profits and store counts. At the more premium and experiential end, plenty of specialty and high-end stores are experiencing considerable success. Poor or stagnant financial results, bankruptcies and mass store closings are largely concentrated among those trapped in the mediocre middle.

For many years now, I have been highly critical of those retailers that essentially watched the last 20 years happen to them and who think that a slightly better version of mediocre will be their salvation. For a retailer that has a significant customer relevance problem, cutting costs and closing stores en masse is likely to only accelerate a downward spiral.

As I write in my new book, Remarkable Retail: How to Win & Keep Customers in the Age of Digital Disruption: “Before much longer the middle may be hollowed completely. Until then retail's great bifurcation is likely to continue unabated. Too much real estate is still chasing too few dollars. Many over-leveraged, under-capitalized retailers still over weak value propositions and may soon face a real reckoning. The macroeconomic pressures driving trading-down behavior won’t end anytime soon, while the rich continue to get richer. The disruptive forces that are pushing down prices and, particularly in cases like next-day and same-day delivery, driving up the cost of business will squeeze margins to the point of no return for many poorly positioned retailers. The power the consumer holds will not allow many just-good-enough retailers to sustain market share, much less ever achieve adequate financial returns.”

As I wrote that chapter last fall, a possible recession was very much top of mind, but a pandemic was certainly not. Regardless, the prospects for unremarkable brands were still poor; they were running out of time, and many were underestimating—as they and continue to—the radical changes required to command consumer attention, build trust and engage customers in memorable and profitable ways.

Beyond the as-yet unwritten story of the ravages of this outbreak and the magnitude of its tragic human toll, the spread of the coronavirus seems certain to accelerate the collapse of the middle and push many other weak retailers (and the industries that serve them) over the edge.

source: Forbes

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