The core problem facing many retailers is channel obsolescence. It’s driven by the proliferation of consumer choice and rapid market segmentation. For many the infusion of value selling ecommerce competition has resulted in the commoditization of several categories, compressing margin and shrinking contribution required to support a physical distribution model created in the days before ecommerce. These businesses become locked into excessive overheads, unable to “right size” their fixed costs as quickly as consumers shift channels. Closing unprofitable locations is a good first step, but it only delays the inevitable unless management invents a new customer experience and a profitable financial model to support it.
I’m a person that believes in fundamentals over façade. Success isn’t a byproduct of sophistication, it occurs over time as a result of properly executed fundamentals. When management explores transformational strategy it’s critical to strip away all the façade to understand the model’s mechanic at the most fundamental level. Only then can you identify the similarities to other successful models—gaining essential insight. Each retailer is constrained by unique circumstance, separated only by the distance of the transformation required. It doesn’t matter if you’re selling fashion or fast food; you face many of the same financial challenges to your model.
A fast food company, Taco Bell, taught one of the great lessons in transformation decades ago. As they stripped away the façade from their business they confirmed a nearly identical model to McDonalds, Burger King and emerging fast food competitors selling Mexican cuisine. All businesses required a similar physical footprint, which meant they were all constrained by the same real-estate investment. The same investment created the same financial drag on the model. Each business dedicated a small percentage of the footprint to customer seating with the majority allocated to kitchen space. As they searched for a competitive advantage to ignite growth they also were challenged to solve another problem. Their model required staffers to prepare large quantities of messy ground beef in the morning that soiled their uniforms by the time lunch rolled around. Consumers were turned off by the disheveled look of the employees.
And then the insight occurred. They realized their model was also similar to a catered office cafeteria. It was a moment of epic transformation. By outsourcing the food preparation they eliminated the need for a kitchen and dramatically reduced the physical footprint and corresponding investment. Food prepared at a remote location would be delivered in warming trays and Staff would now become cleanly clothed assemblers of menu items. Suddenly they had reinvented a model that not only slashed cost and reduced investment, but opened the door to thousands of locations not accessible by their competitors constrained by large footprints. Taco Bell went from a small and struggling fast food business to exploding with seismic growth. How will you transform your retail business? For more ways to think outside the taco, visit my website at shawstrategy.com