From Slate:
H&M is good at making amazing frocks for the Met ball, but it’s less good at making money: The company’s profits for the first quarter of this year were down 69 percent, and it effectively ran out of cash in 2017. Cue the “pivot” headlines!
The latest pitch from the fast-fashion retailer, covered as a “pivot” in the Wall Street Journal earlier this week, uses lots of trendy buzzwords like A.I. and big data. The general idea is that by “using algorithms to analyze store receipts, returns and loyalty-card data,” H&M will be able to “tailor merchandise in each store to local tastes, rather than take a cookie-cutter approach.”
Stripped of its techno buzzwords, this is the old idea of localization, as laid out in a 2006 Harvard Business Review article by Vijay Vishwanath and Darrell K. Rigby. “The era of standardization is ending,” they wrote. “Smart retailers and consumer goods companies are starting to customize their offerings,” as part of a broader move “from standardization to localization.”
This is a formula that can work. Look at Waterstones, in the U.K., a bookseller that faces just as much competition from Amazon as Barnes & Noble does in the U.S. But while B&N is struggling, Waterstones is thriving. The difference: B&N is trying to compete by offering wine and big windows; Waterstones, by contrast, brought in a dusty old-fashioned book guy, James Daunt, whose first order of business was to empower store managers and give them almost total freedom in terms of which books they displayed where. No two stores would look or feel the same; all of them would reflect local tastes and mores. In 2017, its profits soared 80 percentfrom the year before.
. . . .
Daphne Howland, a contributing editor at Retail Dive, uses the example of a shopper who buys two jars of imported French honey every year—honey almost no one else wants. If she’s an important customer, or if the fact you stock that honey makes her love your store and keeps her coming back even when she isn’t buying it, then it makes sense to keep on carrying that honey. That’s the kind of decision that humans can make easily but that A.I. still finds very difficult.
Localization is a real thing and has been for as long as there have been shops: Shopkeepers know their customers and stock what those customers want. The difficulty comes when it’s attempted by global chains like H&M that rely on huge economies of scale and the ability to distribute identical goods to thousands of stores around the world. The bigger that a chain becomes, the more its sales are going to be a function of its global brand, rather than its idiosyncratic local stock keeping decisions. A.I. is not going to change that.
In the long run, local retail, imbued with deep local knowledge, is actually very well placed to thrive in a connected digital economy. Despite the rise of Amazon, most shopping is local and always will be. And for all of big data’s power, there’s something deeply inefficient about companies like Amazon or Unilever shipping razor blades hundreds of miles to my door, when they’re easily available at the drugstore across the street.
. . . .
In other words, local retail has the ability to disrupt Amazon more than Amazon has the ability to disrupt local retail. The “retail apocalypse” is not a function of Amazon, it’s a function of America having built vastly more retail square footage per person than any other country in the world. In shopping malls, a lot of that retail is doomed. But in neighborhoods, retail will always be profitable at a reasonable rent.
Link to the rest at Slate
> Shopkeepers know their customers and stock what those customers want
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I don’t think I’ve ever seen that kind of “shop.” The only people I ever interact with are minimum-wage register-flunkies who won’t even make eye contact. Even in places I go frequently, I almost never see the same one twice.
The people who would be making the decisions as to what to put on the shelves, I doubt I’ve ever seen at all.
It’s the same myth as the little bookshop around the corner.
Those folks need to get out more.
The problem is that the OP is confusing “should” and “is.”
Localization is last decade.
To get ahead of the curve you need to be thinking personalization, which is where a lot of product sectors are headed for the next decade. Which is why user data is so valuable to the likes of Amazon and Netflix.
If you’re just starting to localize in 2018, you’re hopelessly behind the curve. In retail, you need more granularity than that to prosper.
Set up a straw man – knock it down. Doesn’t prove your point in an argument or in reality. Just in Strawland.
“most shopping is local and always will be. And for all of big data’s power, there’s something deeply inefficient about companies like Amazon or Unilever shipping razor blades hundreds of miles to my door, when they’re easily available at the drugstore across the street.”
First, the razor blades are not crreated at the drugstore across the street – they come from somewhere, and are ordered.
Second, I haven’t been to a store in years. Any store except UPS to ship a package to one of my kids.
Nobody makes global companies have the same number of razor-blade packages in each store – that should be determined by how many are sold. Big data makes it much easier to supply local stores with just the right amount of whatever it is.
Big data and big computers are much better at customizing what is sent to stores – if their managers are allowed to know their neighborhoods. It’s the misuse of big data that’s the problem – and that comes from the top.
‘Reasonable rent’ is what kills publishers located in Manhattan and B&N stores in malls. Call that the straw dog for the straw man.
Ha! That caught my attention, too!
No. The razor blades did not materialize within the drugstore across the street. They were manufactured, perhaps in China, and shipped to the warehouse of the company under whose brand they will be sold. Then they were shipped to various distributors. From one of the distributors they likely went to the warehouse of the company owning that drugstore, then to its local distribution hub, and then to your local store.
How is that more efficient than going from the manufacturing plant to the brand company to Amazon to the end user?
Razors? At drugstores?
Quaint.
The 21st century has things like the Dollar Shave club that let you subscribe to regular monthly shipments at some pretty low prices.
Want efficient?
Look at this:
https://en.m.wikipedia.org/wiki/Dollar_Shave_Club
“But in neighborhoods, retail will always be profitable at a reasonable rent.”
So, H&M’s plan is to open up, stock and staff thousands of little stores in ‘everybody’s’ neighborhood? And have everything anyone might want in each and every store no doubt … (and they must not have noticed all the places closing down to low sales and rising rent around here …)
Radio Shack did that at one time.
And I used to shop there, but not often enough to keep them in business it seems. And they didn’t have ‘everything’ I needed/wanted for the prices I was willing to pay.
So just how much ‘fast-fashion’ does this retailer think each neighborhood can want or afford to shell out?
I’m not a clothes horse (no offence to those that are 😉 ), but even if I were I wouldn’t be able to keep some high-end store going.