Retail takes it up the tail (the Long Tail)
February 6th, 2006
I’ve just been catching up on Chris Anderson’s much-discussed Long Tail idea (stemming from Clay’s paper). The ramifications are numerous… in a nutshell, because the internet allows for such efficient distribution, the tail never goes to zero and the area underneath it is valuable. Danny Sullivan of SEW gives an interesting analysis of the long tail as it relates to search, and the LT blog has much more detail for those interested.
Given that everyone and their grandmother has posted thoughts on the LT, I haven’t posted anything on it. Yesterday, though, I bought a printer at Circuit City and now I can’t resist throwing my oar in.
With the rise of online shopping and particularly eBay (that LT poster child), I’ve been saying for a few years now that offline retail is dead, or at least dying. Enter Circuit City. While enquiring on the cost of the inexpensive $50 printer, the sales chap told me that the required USB cable was extra and cost $20. This set my head spinning – how could they charge $20 for a fifty cent cable? Clearly they are making up margin on secondary items while competing on primary products.
Retailers become Manx cats….
I posit that traditional retail outlets will be forced up the tail by e-commerce and become increasingly like convenience stores… with customers only going there if rushed for time. And, as more and more shoppers go online, retailers will be forced to stock fewer and fewer high-demand items, becoming more like convenience stores. Except they’ll also have to make up margin, so they’ll have to stock higher margin products as well.
So now I’m struggling with the following questions:
- If this is correct, what happens to Walmart, which lives in the middle of the tail?
- Will it bring back the small store world, each stocking a few high traffic, high margin items?
Time will tell. If anyone has more perpective on retail and the long tail, I’d love to hear it, or point me to stuff you’ve seen!
Entry Filed under: Internet & Technology
5 Comments Add your own
1. Jon | February 8th, 2006 at 9:13 pm
While retail has certainly gone through vast changes in the last decade, with no doubt more to come, the “Brick and Mortar’ business are here to stay.
First, many people still don’t trust the internet. They are fine to buy books and DVD’s, but buying high-priced electronics still give people cause for concern. (this is slowly changing)
Second, while in a struggling economy people are more cost conscious and may be swayed to the lower costs of e-commerce, there are still always going to plenty that need the instant gratification. The feeling you get when you spend weeks, months or years saving for that one item, and then the feeling you get when you hand the money to the cashier and take that item home.
Third, while many of us can’t stand pesky sales people, the smart ones do serve a purpose. They give you the verbal affirmation that you are buying a good product, they let you touch it, they show it side by side with others and if you are lucky they tell you the pros and cons. Now most of this is available online but hearing it from someone’s mouth, delivered with a smile, is a completely different experience.
As long as we remain a society of skeptics that crave gratification, and we continue to trust man over machine, we will ensure the survival of the ‘brick and mortar’. But there is no doubt changes are still a foot. “An educated consumer is our best customer” is Syms’s long-running slogan. But really it is the un-educated that the retail business craves.
2. Dan Murphy | February 16th, 2006 at 1:36 am
I read through the Long Tail piece and veered from one opinion to the other all along the way. I guess my conclusion is that there is more than one type of customer, and they will respond to things like price and choice in different ways (at different times), and so depending which sector of the consumer population you are considering, the argument for the Long Tail seems obvious or fatuous.
We can start with one incontrovertible given. That is, the concept of entropy (the 2nd law of thermodynamics which states that “disorder will always increase in a given system”) can be clearly observed in consumer markets.
Excuse me with my UK perspective, but this is where I live. We first noticed the disintegration of our prescriptive, rigid retail supply chains around 1990. Customers started to demand more choice, they deserted some of our traditionally unbreachable retailers. There are lots of socio-historic arguments for why this happened, and these are still developing. The one I like is that there was some cataclysmic shift in the behaviour of crowds around 1989 which generated massive levels of dissatisfaction in our customer psyche. When you look at 1989, this seems to have some veracity – we saw the fall of the Berlin wall, the ousting of Ceaucescu; the release of Mandlea; the fall of Thatcher; Tianenmen Square; and so on. All in a very short space of time. I guess consumers watched all this and asked themselves “hey, how come I can’t get pepperoni AND pineapple on my pizza?”
SO, over the last 15 years, with the explosion of webretail, surely we should have seen the appearance of the infinite tail? Well, no we haven’t. We have seen the death of the local specialist stores, replaced by Tesco. We may have the illusion of choice but in fact it is shrinking year by year.
I think the reason may be that whilst a proportion of our consumer markets wants and demands choice, this segment is shrinking. Those who are happy with Tesco (or WalMart) are in the expanding (!) majority.
There are other pressures on the tail. The cost analysis carried out elsewhere suggests that the web erodes the costs of storage and distribution and thus allows the lenghtening of the tail. From a storage point of view this may be true (big warehouses and 3rd party consolidation). Distribution is a diffferent question – it costs the same to deliver a book to Mrs Miggins, whether that book is the Autobiography of Paris Hilton or the Arguments of Wittgenstein. There is also the more complex “lifecycle cost” of retail products – a model which shows that the higher the proportion of your range which is being introduced or delisted at any given time, the higher the overall cost burden both centrally and operationally. This is why so many retailers struggle to reduce the number of options or “fringe” products – because they know it drives cost and complexity into the business.
I worked with a Drinks Retailer who has 2,500 stores. All their customers like to see an expensive choice of single malt whiskies, presented on a pale beech display stand, locked up with chains. Well, the store managers tell us this is so – the problem is that hardly anyone buys the stuff. It is so far down the tail you need binoculars. The stores assure us that it is a “lynchpin” product, ie if we don’t stock it they will go elsewhere to buy their 6-packs and Marlboro Lights. It’s the cheeseshop argument which says “we have to stock 250 different cheeses so my customers will come to buy their cheddar”.
I think there is an element of truth in the “window dressing choice” which retailers have to offer. There is not much point in running stores which only stock the best sellers. Paco Underhill (”Why we Shop”) explains it brilliantly when he points out that we don’t buy products, we shop from ranges. So we won’t go buy a suit from a shop that only sells one type of suit. Even if its the one we want.
The otehr comments around cultural impact – how the growth of dozens of TV channels enriches our culture, I’m not sure about this. I look at the hundreds of “lifestyle” magazines (= celebrity gossip) and TV cable / satellite channels on UK telly, and I have to say the phrase that keeps occurring to me is “dumbing down”. These channels are not showing historical documentaries or political debate, or even biography. They are about police traffic videos; or drunken holidays, or Judge Judy (at least Judy teaches us right from wrong, and what the “preponderance of the available evidence” means, so I’ll give her that).
But more choice = cultural enrichment? Nah. give people what they want and by and large you end up with towns full of Tesco and WalMart. This is what we see every day around us.
What about the depth and variety of competition, enabled by the lowering of cost along the tail? Are we seeing this? Not really. If we look at the retail sectors where choice (or “back catalogue”) is really important – music, books, wine, etc, we see the established specialist retailers disappearing like water down a plughole. HMV, Waterstones, Ottakar’s, MVC, Unwins – these guys are all struggling with their store estates. The reason is that so few people want the back catalogue, they only want the top ten, ie what everyone else (or Paris Hilton) is reading / listening to / drinking. This is why Tesco can step in and say “hey, we’ll offer books / wine / CDs, but ONLY the top 50. Nothing else”. And guess what? Customers are flocking to them, and the old guys with all their choice, knowledge, and service, are compaining that the supermarkets are killing their business. Hey, you’ve been Tesco’d. The concept of the “generative model” was outlined above – this seems to be what’s happening on the street. Be careful out there.
We also have the different models of consumer choice – ie, what is it they are basing their decision on? We know that there are a number of key reasons why people buy this or that from you or him: these are price, quality, choice, design, convenience, service, and so on. We also have the influences of “commoditisation” (I don’t care where I get it from) to “distress” (I need to right now) which complicates the traditional “decision tree” quite a bit.
The segment of consumer markets which bases their purchasing decision solely on Price is growing hugely. The “Value” or “Discount” sector (Matalan, Peacocks, Primark, etc) is growing hugely in the UK – trebling in 5 years whilst the rest of the retail sector struggles to remain flat. The polarisation of the mid market (to the discount or luxury ends) is accelerating, and it’s not just that customers are moving from retailer A to retailer B, they are becoming totally unpredictable and traditional customer segments are breaking down. The woman who shops in M&S, or Hobbs, or some other “high quality & price” outlet is now happy to walk over to Peacocks and buy some t-shirts for her kids. She can be seen on every UK high street, carrying both bags without a shred of shame. 5 years ago, we would never have seen this.
Our traditional retailers just spent the last 25 years building their business models based around stable, predictable, prescriptive, homogenous, and loyal consumer markets. They bought from low cost sources on long lead times; they filled up their stores with the same stuff, and sat back to watch their customers come and buy it. Now they have to respond to “fast fashion”, they have to provide local store ranging, they have to provide more choice, better service, and so on. And the model they have just finished building, supported by the multi-million ERP system which has just been implemented doesn’t have a chapter called “unpredictable consumer demand” in the manual. The cry of “It’s not fair” can be heard echoing through the high street of every town in the UK.
So our customers do demand more choice. But our retailers aren’t moving terribly fast to provide it. Why not? Because whenever we given them more choice they immediately choose Paris Hilton’s biography.
3. Dan Murphy | February 17th, 2006 at 1:15 am
I think the previous comment is total rubbish, obviously written by someone who overrate his opinions and knows nothing aout the subject. And was probably drunk.
4. Kirk Daly | March 6th, 2006 at 12:21 pm
I’ll second Dan’s (second) comment. And his spelling is apawling.
5. James Murphy | April 19th, 2007 at 1:41 pm
Bollocks
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