Monday, 20 February 2012

Death of Retail


It was like a grave yard. Copley Place, a large shopping centre 2 train stops out of the Boston CBD. Admittedly it was a week day but the place was like some plague had hit and all the shoppers had simply vanished. Today is Sunday, part of the Presidents Day long-weekend public holiday here in Boston and the shops were packed. I saw this and thought there was hope for bricks and mortar retailing in America then I realised that to bring the shoppers out, the stores were having a massive 30% - 50% across the board sales. Then it dawned on me that this is what happened in Australia pre-Christmas last year. Everything has to be on sale all of the time just to get the customers in. This strategy is flawed and is the slow death of retailing. If you drop your prices by so much, your margin is gone and you start the downward spiral to going broke. How are you going to pay the high shop-front rents?, the lease on the flashy shop fitout? and all the cost and floor staff infrastructure that you have? You can't, and you will eventually will go broke. You can't compete with the lower cost structure that on-line retailing has. On-line retailing doesn't need the expensive store fitouts, the over-paid, under servicing sales staff, they don't need to rent high priced retail floor space, a large warehouse in a non-descript back-street location will do and an army of lower paid production staff. A shop front retailer will be doomed if they think they can just compete with on-line retailing head-to-head by just cutting prices. Your cost model will not sustain it.

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