Wednesday, April 15, 2009

Collaboration, Open Business Practices: Counter-Intuitive to Most Traditional Retailers

In traditional department and specialty stores, boutiques and catalogs, the business mantra has always been to capture “share of wallet” or customers and their loyalty by offering some type of competitive advantage—unique product, great location, fabulous surroundings, convenience, unbeatable customer service, better pricing, exclusives on designers and products, close-outs or discounts, and the like. Negotiating with vendors for carrying certain fabrics or colors, designers or collections, even for picking up out-of-season merchandise could be fierce. The Macy’s/Gimbel’s rivalry has become the stuff of legend and has defined the retail business even before the rise of the great department stores.

Collaborative organizations, open business practices, and other new methods of building businesses are, in fact, anathema to most retailers. These methods as outlined by Wikinomics, What Would Google Do?, and a host of other books appearing in book outlets are for most retailers counter-intuitive. Why risk sharing anything that might give you a competitive advantage with anyone, let alone a direct competitor?

Finding a competitive edge for retailers has always been a challenge. In a world of instant verbal and visual communications via internet and digital photography, the prospect has become daunting. Even couturiers can hardly keep a collection together during a season. Just hours after a collection debuts on the runway, manufacturers have already copied the best, which might even appear in a store in just over a week. The result: the consumer gets the “look” at a fraction of the price, and the retailers offering it cashes in before a more traditional retailer can even receive the product in store. The “look” is almost immediately passé. Adding more pain to the process, the imitators have become so good at knocking off originals that many consumers don’t even seem to care if they have the genuine article or not.

With an increasing number of outlets for product—also due to the internet, which has a comparatively low barrier to entry—companies can quickly react to new products and, in the case of low-cost copiers or rip-off artists, can undercut and under price new, hoped-for best sellers. Of course, copying best sellers is nothing new, but the speed with which it’s occurring is startling. Add in a lingering recession of a magnitude unseen since the Great Depression and price becomes even more of a determining factor in choosing product, as we have seen more and more retailers scurrying to lower pricing even on the better floors.

In-store retailers have always been slow in adapting to new technology. Take most retailers’ failure to embrace CRM and database marketing as a means of communicating with and offering better targeted products to their customers as an example. But attempting to push an outworn 19th century business model into the 21st century will for most retailers simply be a prescription for bankruptcy.

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