The Evolution of Retail

The retail industry is undergoing major transformations driven by new technologies and the changing needs of the consumer. Here, CGT Publisher Albert Guffanti asks Bruce Twery, director at Clarkston Consulting, to share his insights on the evolving consumer realities, how those realities will affect the retail industry, and what manufacturers can do to realize future growth.


What is driving the evolution of retail?

Twery: It used to be that brands held all of the power in the consumer products industry. Then, the retailers – especially the ‘Big Box’ chains – held all the cards. Now, that balance of power has shifted squarely to the consumer. This new consumer is empowered – primarily through online and social channels – with nearly limitless options on their path to purchase. They can stroll the aisles of the ‘brick and mortar’ stores, vet their options with their friends through social media and then go online to find the best price. The internet retail format is a disruptive innovation which has created consumers who are educated, socially engaged, and demanding. The industry is coming to recognize that the experience they offer, whether in stores or online, must be centered on this new consumer reality.  Inevitably, everything upstream will change.


What impact does this “new consumer” have on the retail environment?

Twery: In category after category, the internet format is consuming nearly all of the growth in retail. Online sales have surpassed $200 billion a year in the United States and their total share of the retail market is approaching 10 percent. While Amazon reported 30 percent growth over the past year, Wal-Mart and other leading retailers could only manage growth in the 2 percent to 3 percent range. Every unit sold online undermines the scale economies of the traditional retail environment. Perhaps today’s dominant retailers would do well to review Clayton Christensen’s research on how disruptive innovations tend to push well-managed companies from atop their markets.

As the internet format grows, we will see a continual evolution of ‘brick & mortar’ stores. Just as the corner hardware store gave way to The Home Depot and Tower Records gave way to iTunes, today’s retailers are destined for significant change. They will become multi-media showrooms where shoppers can test-drive products in the store, but then buy them online. They will become distribution centers for consumers to pick up items purchased online. They will also become destinations; a place for consumers to have fun and network with other consumers. Department stores – as we know them now – will likely not exist in five years. In a world characterized by ever-present internet access, highly personalized offers, slick smart phone apps, and same-day delivery, who is going to shop for uninspired products in a department store?


How will all of these changes affect the manufacturers?

Twery: Consumer product manufacturers must incorporate this retail evolution into their operations. As traditional roles evolve, manufacturers and retailers will increasingly compete for the new consumer, challenging many conventional go-to-market strategies.  

Trade promotions will see a major shift. A massive expense, trade spending will be reevaluated as retailer dominance of the value chain declines. Manufacturers will have a greater voice in the scale and uses of this significant investment.  

Analytics will continue to be critical. Marketers are already wrestling with how to gain insights from the shopper’s increasingly visible path to purchase. As the weight of shopping activity shifts online, manufacturers should not miss the opportunities to gain consumer insights, assess sentiments, monitor new product introductions, and predict the effectiveness of marketing tactics.    

Supply chains must evolve as well. No longer distributing solely to the ‘Big Box’ retailers, manufacturers will need to distribute their products through additional channels – especially direct-to-consumer – working with third-party partners. This growth will inevitably drive operating costs up. Manufacturers should plan for supply networks that are flexible enough to deliver products to many more locations – locations that are chosen by the new consumer.