The End Of 'Product Real Estate'

August 6th 2013

It's almost become cliche to observe that the retail sector is in trouble. However, virtually every industry is having to reinvent itself and innovate to stay relevant in a world with changing market dynamics, models of communication and delivery as well as tastes and values.

In fact, what's really going on is that most businesses no longer know what business they're even in. And it is the speed at which they acknowledge the death of previous structures and models and build what's next that will determine who survives and who gets swallowed up or simply goes away.

During the war years and those preceding them, the retail industry was broken into a couple of distinct groupings - Staples, which were available at owner operator style corner stores, and Discretionary Purchases, which our grandmothers typically bought online (or by catalogue and the post as online was known at the time).

Big "mall-style" retail was mostly left to imposing department stores in city centers and competition was fairly light on.

Later, in fact for the past fifty years or so, retail has been in the "product real estate" game. They bought or leased land, stored your future clothes, or toys or personal care products on that land, then charged you a premium for the rent. As most retailers chose to locate themselves in high traffic areas, the rent was steep and therefore, so were their prices.

Layers of service were soon added and now we all happily pay $3.50 for a cup of coffee - black, no sugar!

Then, as the digital revolution started to engulf pretty much every form of commerce, the game shifted to inventory and database management - hence Amazon's success.

Retailers could now house your future products on cheap land, hire cheap labour, get you to look up the items on their database, offer you little or no service (or else get you, the customer, to review and take responsibility for the quality of the product) and of course prices came down and we learned to wait for our purchases again. Nanna would be proud!

Retailers, such as John Lewis in the UK, soon realized that some people would pay a premium for immediate access to their purchases and so services like "click and collect" emerged and digital natives got to experience the novelty of picking up their purchases from a store. (Gasp!)
And so here we are. Standing at a crossroad wondering what's coming next.

But before we look at what's next, we need to look more closely at what we're actually selling - because if all we're trying to shift is cheap cotton clothes knocked out of ethically-challenged sweat shops in Bangladesh, then we are indeed, in trouble.

The truth is, we stopped purchasing "products" a long time ago.

We no longer live in an age of NEED in the First World, we live in WANT. Survival, at a hunter gatherer level, is for most of us assured or at least achievable. No one died for a lack of the latest trainers or a smart phone app (although it can't be long before they come with a pocket defibrillator kit built in).

What that means is, most of what we sell has a second currency in play - an emotional exchange is taking place. This emotional exchange is what provides most of the value in today's retail environment. The margin is rarely in the component parts of a product, it's now located in the intangible.

This is the key issue most retailers, in fact most businesses, miss and it is essential to define the business model we build for the future.

As a result, we spend most of our time cutting our margins, moving our products online whilst lowering our service offering, developing innovative delivery systems, trialling interactive purchasing models, building pop up stores, and offering premium "get it now" pricing. Which is all brilliant and certainly these experiments are part of the discovery process for building the next iteration of your business. But what is really required is building a business on more than product real estate and novelty and digging in to what intangible value we provide and developing new ways to provide it.

So, a few questions for retailers to ruminate on:

1. What is the emotional exchange I have with my customers? In other words, what am I really selling? What value do I provide?
2. Who are my real competitors? That is, where else can they get this emotional exchange satisfied? (HINT: Your real competitors are rarely who you obsess about.)
3. How else can I deliver this emotional exchange in store?
4. How can I deliver it offline, in a way online can't deliver?
5. And how do I translate it to online in a way that builds loyalty, ease and frequency?

Obviously these are complicated questions and the kind of issues The Impossible Institute usually investigates in deep dive workshops, but their necessary considerations for all of us if we want to stay relevant and to innovate in the right directions.

The truth is, all of us who are engaged in business are in the business of creating identities that people buy, buy into and then use to project themselves into the social world. The businesses that understand this are the ones whose stores, sites and affiliates are filled with customers looking not just to purchase and buy but to align with, help define and defend.

To book Dan Gregory please contact Ode Management on +1 877 950 5633 or email enquiries@odemanagement.com

For further information on Ode team or to enquire about making a booking for your next conference or event please contact the friendly ODE team

Asia/Pacific

  • +61 2 9818 5199
  • info@odemanagement.com

United States

  • +1 877 950 5633
  • enquiries@odemanagement.com
The End Of 'Product Real Estate'
Go To Top