With the many changes in the economy, everyone seems to have a different prediction about about what kind of retail landscape will remain after the tremors of the recession dissipate. One view is that the future is in single branded stores run by vendors. In this scenario, small independent specialty stores cannot survive because of the following three reasons:

  1. Credit will be unavailable

  2. They will have little or no leverage with the big vendors

  3. They will not be able to out-bid the major vendors for prime retail space

Although there has been a boom in single branded stores over the past decade, there are definite reasons to believe that the independent specialty retailer sill flourish. My belief is that the credit shortage is a short term adjustment in the credit market and soon there will be lenders waiting to cash in on the demand for credit from viable borrowers.

The second assumes that the big branded vendors are the only future of retail. My view of reality is that the major brands may be the past of retail. Branding is expensive and requires a significant marketing effort. That expense must be added to the cost of the products. One lasting remnant of the recession, once it is finally over, will be a switch to value on the part of the marketplace. That value orientation combined with the speed of knock offs and the high value offerings of many smaller vendors will challenge the dominance of the big branded vendors. That is not to say there won’t be some vendors that will survive in retail but there will be just as many that don’t. Manufacturing apparel is less expensive than retail. Retail requires a major investment into a very different world of real estate, sales forecasts,strategy, leadership, management, training and cash flow planning.

Third, if the big vendors bid up the cost of prime retail rents, they will have to add those costs to their merchandise. Again, value would dictate that higher prices and lower value will not be a winning combination. If it were, you would be seeing a flood of vendor leases flooding the retail market rather than a flood of empty boarded up stores in many malls and location. The following are merely two scenarios that specialty retail may follow to not only survive, but thrive. No one knows exactly which paths the world will follow but these scenarios make sense with the changes we are witnessing. The biggest challenge that specialty retailers have to wrestle with is a lack of any unified leadership. The biggest threat to their survival is their reluctance to view themselves as one group with common challenges, goals and obstacles that will best be overcome together rather than fighting one another. Independent specialty retailers will survive and prosper by working together to challenge the vendor stores, department stores, internet and other retail competition. The new scenario for the future will emerge over time but the following two are not only possible, but waiting to happen.

Scenario One

Unemployment in the U.S. has reached 9.5% and is climbing. Among US born blacks and Hispanics unemployment is 24.7% and 16.2% respectively. Unemployment among immigrants is about 11%. This high unemployment begs for an answer and specialty retailers may be one solution. Cottage industries have grown up in many spots around the world. People with skills in knitting, sewing and even clothing design work at home to produce goods that are then sold on the market. These people tended to be stay at home moms, older workers etc. With all this pent up potential to work, retailers can revive the “specialty” label that was lost. When the mom and pop store began to carry the labels that the department stores carried and the brands that could be purchased everywhere, they no longer were specialty stores but rather, competitors in luxury commodities. If the mom and pop store can no longer compete with the major branded vendor then he needs to find another strategy that cuts into the market share the branded vendors have. The future of retail is not with the major branded vendors! The future of retail may be in creating a new, unique and effective private label offering based on putting this pent up labor pool to work producing luxury items that are below the radar. Customers will be attracted to value, specialty goods and a private label that is more than slapping your label on over priced commodity items. The challenge is to supply a reliable market for value rather than just provide a high priced commodity This scenario gives the specialty retailer the ability to go vertical just as the big branded vendors are going vertical!

 

Scenario Two

The retailer’s expertise is in buying and selling. A vendor’s expertise is in design and manufacturing. If vendors are looking to get into retail, they are entering a strange new world that they truly do not understand. The investments in infrastructure and the management of a retail staff are very different. The tight balance of costs, management of a market, and selling effectively are all different skills that are not intuitive. When you look at the expertise of both the vendor and the retailer respectively, there is a marriage waiting to happen. Split the supply chain in a different place so the mom and pop retailer may benefit by utilizing his unique skills and expertise while the vendor can accomplish his mission much more effectively.

Long ago the grocery industry figured out that the store is the best place to sell the goods and the manufacturer is the best one to provide the goods. Each vendor “owns” a certain amount of shelf space and has representatives that come in periodically and restock shelves, arrange displays and monitor their space. The grocer waits on the customers and handles the daily stocking and sales. It is time for the retail community to look at this same scenario.

Vendors, rather than opening their own store, must evaluate the opportunity to “purchase” shelf space in the existing retail store. The inventory would be owned by the vendor until it is sold and the vendor would be responsible for keeping the right amount of goods in the store in order to be profitable. No longer would there be an open to buy in many classifications on the part of the retailer but the vendor would now be responsible for his open-to-supply! The beauty of this is there is less investment and risk on the part of the vendor AND there is no credit required for the retailer to stock the shelves. Marketing could be a joint effort that provides synergy. The vendor can market his goods and drive business to the store. The store can market to drive traffic to the store too.. The vendor would have reps that, instead of selling at trade shows, travel to the stores in each town or area to teach the local staff, monitor the inventory and give input back to the vendor or planners to hone the Open to Supply budgets as well as develop the assortment plans with the local retailer input.

Both of these scenarios are feasible. There are many other scenarios that are feasible as well. None of them is without bumps in the road and and challenges that will require coordinated leadership to develop and effective management to implement. There are many other potential ways for specialty retailers to emerge from this recession stronger and more viable for the new market and I welcome others to add their scenarios to this blog. As long as the big branded vendors assume the future will be like the past and they just need to continue their direction, we will be heading into the age of specialty retail! Our goal and mission is to stay abreast of the various options and opportunities and work with clients, industry groups and retailers to assure the future of specialty retail.