There’s no doubt that technology and the internet have affected general retailing more than anything else in 50 years. After all, it wasn’t that long ago when owning a retail store was a straight-forward concept; there were three markets – upper, middle and lower – and consumers fitted nicely into each category.
Actually, it was the other way around; retailers structured their business around the three consumer demographics and everything worked quite well back then. Stores only had to compete with each other and usually your competitors were down the street or in the next suburb.
Business really wasn’t that tricky... until the middle market began to shrink.
I first noticed that the middle market was shrinking more than a decade ago. There had been a shift where the centre was being squeezed at both ends and retailers who had been catering for the middle market, which was dominated by the middle-class, were now finding themselves in no man’s land.
I remember the exact day; I was due to meet a (sports) retailer at his store and while I was waiting I observed something quite interesting about his display. While we were having a coffee I mentioned that I noticed that his football boot range started at $50 and then jumped to $200, with almost nothing in between.
He smiled at me and explained that 90 per cent of sales were at either end, with very little in the middle. The $50 boots were sold mainly to parents because their kids would quickly outgrow them and the more expensive boots went to anyone else.
“Sure, I might miss out on a few sales at the $100 price point but it’s not worth carrying all the extra stock to gain a few sales,” he explained. From that point on I began to watch the middle-market and, from that day I reckon the middle market has continued to shrink.
Perhaps the best example of that is the one-size-fits-all approach favoured by large department stores. This approach has stagnated as shoppers split into those who were happy to sacrifice service and (some) quality for price and those who knew what they wanted and were happy to pay more for it.
Right around the same time, internet shopping started to gain traction. Remember those first cries from ‘experts’ saying that bricks-and-mortar retailers were doomed, that they served no purpose and would all disappear?
The high streets and shopping centres would all close as we all went online for goods and services. Bunkum, I shouted back.
If I recall, the doomsayers believed shopping was a necessary task only performed for convenience and an online world would take over. Presumably these ‘experts’ also thought people only dined out at restaurants for nourishment!
The new consumer
That aside, what the internet did do was allow people to check and compare prices even when price was not a shopper’s primary motivation. It also armed them with more information than they’d ever had, even if it wasn’t always accurate or understood.
Diamond jewellery stores know this all too well – the 4Cs might be easy to google but not necessarily easy to understand.
Jewellers quickly discovered that arguing with these new ‘expert’ consumers was fruitless and many storeowners complained endlessly about the so-called ‘internet researchers’. Only the smart retailers noticed, or at least realised that the new internet researchers were standing in their store in front of them. They hadn’t bought online!
The smart retailers took advantage of the increased opportunities created by having these new consumers in their store, even if it needed a new sales approach.
The largest impact on business caused by the internet has been to reduce margins. And the jewellery industry has not escaped this, especially in diamond product.
The fact is, once e-commerce became widely accepted, margins simply couldn’t stay where they were.
Just as a shark eats what it likes when it likes, and shows no feeling or empathy towards its prey, the internet isn’t concerned about how long you have been in business, where your store is, what it looks like or how great your service is. It just doesn’t care about any of those things!
The internet is concerned with data, making price comparison – which is a form of data – easier than ever before. All retailers have had to learn to live with the internet and the new competition in various forms, that it has brought which means you can either compete on price or devise an alternative strategy that includes a unique product or service offering.
If you don’t want to be eaten alive and don’t want to compete on price, then don’t go swimming with sharks. Jewellers who choose the former should not complain about margin erosion while those that choose the latter will need to devise their own unique selling propositions which, believe it or not, is not that difficult in the jewellery industry.
Helping jewellery retailers is the fact that price is not often the primary motivator for shoppers, especially at the upper end. Jewellery is purchased for many reasons, most notably love and emotion, and this gives jewellers an edge over other retail categories.
Additionally, new technology like CAD/CAM and 3D printing has created large efficiencies in custom-made product, helping many jewellers to reinvigorate their businesses – they now have USPs and can position themselves in specialised markets away from internet comparisons.
So, as we end 2015, a decade after we first covered the decline of the middle market, I believe jewellers will have to opt for one of two businesses models: stores that resell third-party products like branded jewellery – these have become showrooms for other people’s goods; and stores that offer a range of unique items, designed specifically for their customers.
There is nothing wrong with either model; however, they will increasingly require different skills and expertise. They are chalk and cheese.
If you choose to be the former – a reseller of other people’s product – then you need to learn to live in a market where price is always paramount. This means other people (suppliers and consumers) will control your margins because you are simply a middleman.
In other words, your business effectively acts as a conduit between the product owner and the consumer; your store is a delivery mechanism. Music and books stores along with hardware and appliance stores have always been that because they have nothing unique to offer customers; they resell other people’s IP.
Alternatively, you can choose not to swim with sharks to avoid competing solely on price by creating your own products and services with the aid of advanced technology, much of it courtesy of the internet. The middle market still exists it’s just that it’s much smaller than it once was so the aim is to target your business appropriately.
Trying to be everything to everybody is not the right answer, as the department stores have learned.