Retail's Deconstruction Eruption

I recently interviewed the principal of digital agency, Coexist, which has developed a platform that layers commerce capabilities onto the popular blogging and photo-sharing platform, Tumblr. Our conversation got me thinking about how hunter-gatherer platforms such as Tumblr, Pinterest, and Instagram are continuing a deconstruction and recontextualizing movement that is now manifesting in retail. Just as users of these platforms have turned appropriation and reassembly into an art form, the retail world is busting up, dissecting, and recombining elements that once seemed destined to remain in their original contexts forever.

For example, showrooming is really just the deconstruction of the previously self-contained in-store shopping process. Thanks to mobile apps, retailers’ walls are now permeable, and shoppers are researching, comparing prices, browsing, and purchasing at any time or place, and in any sequence.

Not long ago, retailer acquisitions involved retailers taking big bites of others and digesting them thoroughly. A prime example is Federated’s 2005 acquisition of May Company, and its subsequent decision to make its crown jewel, Macy’s, its national moniker. In contrast, Walgreen’s recent moves represent deconstruction at its finest. When it acquired Duane Reade in 2010, rather than swallowing the chain whole and folding it under the Walgreen banner, it maintained a separate Duane Reade banner, and wasted no time in deconstructing and relocating select assets. First up was Duane Reade’s DR Delish private brand, which Walgreen plugged into its stores simply as Delish. Duane Reade’s Look Boutique concept was also brought over to select Walgreen stores, as a major vault into the highly-competitive beauty category. The next phase will see Look Boutique serving as a home for brands that Walgreens plucks from Alliance Boots’ portfolio, after having taken a stake in the UK health and beauty group in June.

Retailers have taken to deconstructing their portfolios in order to blow out high-margin opportunities and grab bigger market shares in key categories. Best Buy is looking to open an additional 100 Best Buy Mobile stores, even as it shutters 50 of its big box locations, and its decision to carve out mobility products from the mix in its mainline stores may have been one of its best to-date. Best Buy Mobile stores currently generate 30 percent of the company’s profits, at a time when it is struggling to hold its ground with its legacy businesses.

Only a few months ago, Amazon seemed on track to becoming the ultimate virtual generalist. These days, it’s usurping Walmart as the opportunistic category killer to watch. Walmart has famously disrupted multiple categories that already had homes in its stores, including grocery, toys and entertainment, simply by paying more attention to them. Amazon’s recent rash of category-crashing plays in gaming, action sports, and apparel has it leveraging event marketing, sponsorships, and celebrity tie-ins to seize market share in offerings that would otherwise have stayed buried in its massive marketplace.

Clearly, the monolithic past of retail is splintering. Today, the parts, and how they can be moved around and reassembled, are more important than the whole.

This article originally ran on the International Licensing Industry Merchandisers' Association (LIMA) website.

newmarketbuilders exclusive: Adding Fuel to the Fire

Fuel sales have become a hot spot for supermarkets and big box retailers of late, and the independent and small chain gas stations that are being pushed out of the market are not too happy about it. An independent gas station owner has filed suit against Safeway, claiming that the retailer is selling gas below cost in violation of California’s Unfair Practices Act. Meanwhile, Kroger is backing a bill that will make it a whole lot harder to bring such suits to court in the future.

If Kroger has its way, potential litigants would have to determine the price of every item that is sold in conjunction with a fuel purchase and factor in the costs involved in selling the items in order to prove that the fuel was sold at a loss. This would make it practically impossible for anyone who values their time and money to pursue a lawsuit.

A growing number of retailers, including Costco, Sam’s Club, Safeway, and Kroger, offer deals that either tie fuel purchases into those made in the main store, or link them to club and loyalty card membership. Safeway’s Club Card program, for example, offers three cents off each gallon of gas to holders of the card, and additional discounts kick in depending on grocery purchases. 

Whether wrapping fuel into value-loaded schemes or using fuel as a loss leader to lure customers to the main store, the field of fuel sales has become a battleground and now, a global retail game-changer.

In the UK, supermarkets now account for almost half of gasoline sales, with Tesco’s 15 percent share leading the pack. Brian Madderson, chairman of RMI, which represents petrol retailers, claims that unfair and predatory pricing is forcing the closure of 250 to 300 independent operators each year. Madderson is fed up with retailers using gas as a loss leader and stated in this week’s Telegraph that his organization wants “to stop supermarkets from selling petrol as if it was a can of beans.”

But why should anyone give a can of beans how retailers market gas? Protecting fuel retailers by making gas promotions off-limits for everyone else is like prohibiting Wawa, Sheetz, and other convenience retailers from promoting their food offerings lest they steal market share from grocers, or quick serve restaurants, or, these days, even drug stores.

And what about alternative fuel solutions?

A growing group of non-fuel retailers including Walgreens, Giant Eagle, Kohl’s, Ikea and, yes, Kroger, have installed electric charging stations in their locations. Walgreens plans to install them at roughly 800 locations nationwide this year, with the goal of becoming the biggest retail host of chargers nationwide. Walgreens charges for their chargers – In Florida, for example, the stations will impose a rate of about $2.49 an hour, which is more than the cost of charging up at home but still less than half the cost of gas for comparable mileage, according to the company. Kroger, on the other hand, is making its recently-announced North Texas charging stations free for the first year, and then converting to a pay system in 2013. That would seem to be the epitome of a loss leader, and yet no one is protesting.

Do you think that retailers should be able to tie gasoline prices to other purchases? 

Carol Spieckerman's Right Brain on...Dollar Stores' Pharma Forays

In her latest contribution as a Retail Wire panelist, Carol comments on dollar stores' (she thinks inevitable) forays into pharmacy.

Here's what she had to say..

When Walmart announced the Walmart Express format launch, I saw pharmacy and site-to-store as its major points of differentiation against dollar stores. I guess we can cross one of those off of the list. Given dollar stores' massive scale, drug stores have plenty to be worried about, but they are getting hit on all sides. One reason why drug stores are doing their own version of "the blur" by expanding further into food, prestige beauty, etc. Until others' small formats start spreading, dollar stores will grab pharmacy market share. Scale plus convenience equals a powerful advantage.

Read the rest of the discussion

What's in it for Walmart and others? Read Carol's article on Walmart's Pick, Price, and Push strategy from Walmart SVP of Health & Wellness, John Agwunobi's presentation.