Winner Take All
June 26, 2017 | By John Cumbelich
The internet has been described as The Great Disruptor – a name that those of us in retail have no trouble appreciating. And it’s true that retail sales have been moving away from traditional stores and toward online shopping at an increasing pace. Yet this disruption has also created fascinating growth opportunities within the traditional world of bricks & mortar retail as well.
Much more than simply disrupting how retail is organized, the internet has nurtured excellence in retail, and done so far more effectively than any other form of competition. When competing against the internet and its seemingly endless array of choices, a retailer’s only door to the future is through the delivery of a consistent, high quality offering. If pricing, quality, customer service, and return policies at the store don’t match the high standards available via the internet’s numerous outlets, there’s little if any reason to jump in the car and make the trip anymore.
In his seminal work, On Origin of the Species, Charles Darwin elegantly termed the process of evolution as Survival of the Fittest. Isn’t fitness exactly what the internet has imposed on the world of retail, often leaving only two, or sometimes just one major retailer, one excellent retailer, to compete in each category with the online competition. In sporting goods, The Sports Authority and Sport Chalet have given way to Dick’s. In pharmacy, Eckerd and Longs Drugs gave way to CVS and Rite Aid, which now seeks to merge with Walgreens, shrinking the category further. In office products, Office Depot and Office Max seek to merge, while Staples downsizes. Circuit City, HH Gregg, and Radio Shack were bested by Best Buy. The list goes on.
For those brands whose offering is truly outstanding, the internet offers an invaluable service. It clears out the competition. Unemotionally, effectively, and relentlessly.
When JC Penney closes a store that’s down the street from Marshalls or Ross, or when Sears folds up shop near The Home Depot, or when The Sports Authority shutters a store that’s proximate to Dick’s, sales invariably rise for the survivors. This fittest become the fattest. Thank you internet.
The byproduct of this winner-take-all meritocracy is an expansion of the leverage of the winners, who gain bargaining clout with suppliers, landlords, and vendors, as their peers succumb. Far from being traditional retail’s saboteur, the internet is something more like its referee. The excellence referee.
In the short-term jobs are indeed lost, buildings vacated and loans defaulted. This is the disruption for which the internet is often smeared – even though impacts like these all took place with regularity long before we had the internet. But just as importantly, a more capable group of surviving retailers remain, whose sturdy businesses and internet-resistant offerings yield measurable benefits to consumers in terms of pricing, quality, and satisfaction.
The late news of Amazon’s intent to acquire Whole Foods represents a fascinating opportunity for an internet retailer to work its alchemy in a retail category – groceries – that is by most accounts the least consolidated of them all. The highly fragmented grocery industry is an unmatched target for internet-driven disruption because of its massive annual sales, regionalized turf and long bench of competitors. When we contemplate both the economic scale of the opportunity, and the relative disorganization, it’s easier to understand why Amazon chose the grocery industry as a next theatre of operation. Charles Darwin might remind us that Amazon’s move is not so much retail revolution, as evolution.
About John Cumbelich & Associates
John Cumbelich & Associates is a San Francisco Bay Area based firm that provides commercial real estate services to Fortune 500 retailers and select owners and developers of retail commercial properties. The firm's expertise is in developing store networks for retailers seeking to penetrate the Northern California marketplace and the representation of premier Power Center and Lifestyle developments.