What does 2020 teach us about the future of retail? There will be a wave of consolidation to face up to “monster ecosystems”, believes Marc-André Kamel, head of the global retail department of consultant Bain & Co.
Monsters versus hitchhikers
First of all, there is nothing new under the sun. Trends already causing turbulence in the past, were given a lead role in 2020. During the pandemic, we may have spoken less about sociodemographic shifts, such as the ageing population and urbanisation, but those trends will continue over the following twenty years.
However, an element that did receive a great deal of attention was the disruption caused by “monster ecosystems”, such as Amazon and Alibaba. They are the big winners of the coronavirus crisis, although, according to Marc-André Kamel, others could win as well. The consultant at Bain & Co classified retailers in four categories for Harvard Business Review.
A first category is “regional gems”. Thanks to their close ties with customers and a decent price proposition, they do very well in their region. Kamel mainly thinks of players in countries where Amazon is not yet a leader, like Bol.com in the Benelux. Jeff Bezos, however, is trying to change this quickly.
Furthermore, the “hitchhikers”, another category, are typically doing well. They surf along with the success of the platforms by, for example, selling on them. The “hitchhikers” don’t have the strength and scale to fight, unlike “scale fighters” like Walmart, and therefore join the winners. The “value players”, such as Aldi, Primark and Action, continue to grow.
Not all innovation is sustainable
What characterises the losers? Strikingly enough, they find themselves at two ends of the spectrum. On the one hand, there are the “legacy laggards”, who limp behind because they carry an entire history. On the other hand, the less visible group of “unsustainable innovators” is also at risk. The latter are companies that launch something exciting into the digital space but have no real road to profitability. They either fail in the long run or get acquired by “scale fighters”, who learn from them. The best example is Jet.com, a failed Amazon competitor, eventually taken over (and discontinued) by Walmart.
The problem with the “legacy laggards” is they have to run and change their business simultaneously. Excluding the coronavirus, that is in itself a major challenge: pressurised by the market and shareholders, they are trying to reduce costs and maintain margins. This practice leads to less investment, which could exacerbate problems. Generally speaking, companies of this kind have to consolidate, or they will go bankrupt. A shocking reality, according to Kamel: in the United States and Western Europe, more than one in three retailers finds itself in that situation.
Team-up or fail
Can those who lag behind turn the tide? The retail specialist thinks so, as long as they truly know their customers: “Everything starts with differentiation and a value proposition tailored to the customer segment you want to appeal to.” So, step one is to identify your ambitions and, above all, your customers. Sometimes it’s a good idea to add services as well as products. Sometimes, it’s a good idea to start working with another company.
Putting all your hopes on the vaccine, and assuming that everything will turn back to what it used to be, is in any case very risky. Consumption in China has picked up quickly, indeed, but the Bain consultant points out that Gen Z is less materialistic. Knowing that between 2019 and 2024, Amazon will invest 100 billion US dollars more in IT in comparison to any other retailer in the top ten, you quickly realise it will never be a fair fight.
Kamel: “I think we are at the start of a major wave of consolidation in retail. Some companies will go bankrupt and disappear, but retail is sticky. Instead of failing, we will see companies coming together.”
