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For the Future of Retailing Look to the Past

Posted on : 28-12-2009 | By : Frank Eliason | In : Brands, Business, Customer Service, Retailing

Tags: , , , , , ,

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This weekend I watched Biography of Home Depot on CNBC. It was a fascinating look at a company and the founders that created a new concept that would become a category killer in the home improvement industry. What struck me was not the success of the brand, but really the founders that created the concept. The TV special concentrated on Bernie Marcus, Arthur Blank, Pat Farrah, and investment banker Ken Langone. The story goes like this:

Bernie Marcus was born in Newark, New Jersey  who worked with his father to pay for college.  He received a degree in pharmaceutical studies.  He later worked in a pharmacy but found his true love to be in the store with the Customers (this is why I really connected to the Bernie).  Art Blank grew up in Flushing, New York and graduated from Babson college

Well once there was a retailer named Handy Dan, where Bernie Marcus was eventually hired as a senior executive.  Art Blank worked at the same retailer just outside of college, working his way up through the ranks.  Bernie promoted Art to his staff .  Later, after Daylin corporation, the owner of Handy Dan, filed for bankruptcy, Bernie and Art fought to maintain the success for Handy Dan.  They continued to grow the company, but a dislike grew between Bernie and Sandy Sigoloff, the CEO for Daylin.  One day Sandy brought Bernie into a conference room with many suits and a stenographer.  This was the end for Bernie, Art, and Ron Brill (the first Home Depot employee).  There were many accusations, but I think it is safe to say false ones.  Anyway, I am not judging that.  After this Bernie started making phone calls to contacts he made, one of them being Ken Langone.  Ken convinced him this was the best thing to happen and he should follow his dreams.  They found a strong merchandiser named Pat Farrah, and the group set their sights on Atlanta.  That is where Home Depot was born.

Many of you may not know, but my background when I was younger was in retail management.  I have always had love affair with the direct Customer contact environment that retailing has.  I have long watched what worked, and what was a failure.  In my lifetime I have seen this changing environment, great management choices, very poor ones and many going out of business.  I remember working in the home improvement business when Home Depot was entering the area I live.  You could easily see why it was a category killer.  The same was true regarding the expansion of Walmart.  I have seen many that simply could not keep up.  Of course through this expansion other companies built themselves up as strong competitors to both Walmart and Home Depot.  I also think the time will come where another company changes the game and places these companies at risk.  But who and how?

Many have said the future of retailing is Amazon.  I agree Amazon has been a killer of many products, especially books and DVD’s, but I think for many other products people want more.  This post was inspired by the Home Depot founders, but I know I will not have my Ken Langone to help secure the large amount of financing necessary to recreate the retail landscape, so I thought it might be fun to throw it out here.  As I have watched retailing for years, I know there are certain keys to success.  The first key is amazing Customer Service, which I am not too sure many retailers currently do well.  Second is convenience, which the web has made much easier.  Third is atmosphere, which some retailers do very well  by reducing clutter and making it easy to shop, but most fail here too.  Fourth is a strong dedicated team that understand the products and how best to utilize them.  The original Home Depot did all of these well, but as time went on some of these things drifted away for them.

So what can we learn from the past? Well the internet boom for online retailers is not as new as you think.  We have seen this before, but instead of the net, it was the catalog.  The internet may have killed off the paper catalog but it still created the same category, just instead of dominance by Sears or J.C. Penny, the dominating force is Amazon.  During the catalog boom, a new style of retailing emerged with names like Best, Basco, Service Merchandise and many others.  They were known as Catalog Showrooms.  In these stores you could see the merchandise, and if you wanted to buy you would fill out a slip (seems silly today) and it would magically come through the belt.  This allowed for Customers to touch and feel the merchandise prior to buying.  A key for many purchasing items, especially higher end merchandise.  I can easily make the case that Circuity City was also a catalog showroom, just without much of a catalog.  The original, successful Circuity City was a showroom with various merchandise with excellent sales people to help you out.  Customer Service was the name of their game and they did this very well in the early days.  Later, as they faltered in other areas, Circuit City also did this concept well with their web business and picking up your order within 30 minutes.  Unfortunately for Circuity City, and many of these other retailers they tried to shift there model to something they were not.  I saw the end when Circuit City left the appliance business and tried to build a self service area in their stores for software and other computer products.  This, just like similar changes made at other retailers, caused them to alienate employees and their own Customer base.  Questioning what you are as a business will alway set you up for failure.  As these companies made changes to their model, instead of setting themselves up for a boom during the early years of the internet retailing, they simply went bust.  Many of their names may still be around, but they were purchased by companies that simply wanted to build websites using the name, nothing more.

So what would the future of retailing look like?  The concept would not be very different than what you see at Amazon.com for the web.  The only major differences would be the showrooms.  These would be placed at strategic population centers, similar to the placement of Ikea stores.  These centers would have showrooms to play with the merchandise, high tech transmitters for purchasing and service personnel to truly help those that want it, when they wanted it.  While in the store you would have full access to reviews of Customers from the website, as well as competitive information.  These centers would have easy pick up of merchandise for those that order over the web and would like quick gratification.  Merchandise ordered in the store would be delivered in the same manner.  These facilities would also serve as the mail distribution centers for items purchased on the net to be shipped.  To maintain lower shipping costs, items would ship from the nearest facility to the Customer.   A key learning from successful online retailers, like Zappos, they must offer an easy to understand and fair return policy.  Thanks to companies like Amazon, there is amazing technology for picking merchandise in a fast and efficient manner.  This structure also helps reduce shortages and theft, creating a better retail investemnt.  The showroom would be a clean, very friendly place to browse.  It would not have the typical brick and mortar retailer mentality of ‘pile it high and let it fly.’  This would be a place Customers would love to shop.  Sales people when requested, but not the car shopping experience of running over the moment the prospective Customer is in your sight.

This is not a revolutionary idea, in fact you do not need to look far to find similar concepts.  The Apple Stores have revolutionized retailing for Apple products.  Apple had a problem, no retailer sold their merchandise well.  They also did not wield the power to change the model at existing retailers, so they went one step further, they build a model that would work.  They utilize high tech equipment to make the experience great for everyone that visits, yet they do not try to oversell the Customer.  You know if you visit, help is there if you need it, but if you just want to play with the computers you can do that.  Of course I know when I play with the latest and greatest Macs, I almost always want to leave with one.

For those that believe internet shopping is the future, I agree, but it is only part of the equation.  Many brick and mortar retailers have tried to incorporate web sales into their existing business , but, in my opinion, not very successfully.  Best Buy offers it, but someone has to go out on the floor to try to pick the items.  Walmart will ship items to the store, but you have to wait for them to get there.

Retailing is not very difficult, as the founders for Home Depot proved.  Find out what people want, and deliver it in the way they would like to receive it.  Retailing is just like social media for business, there is no reason to over think it.

It is time for someone to build the new way of shopping from the ground up, but, even before looking at the present, review what you can learn from the history of retailers long gone!