The Survival Manual for the Retail Apocalypse | americaeconomia.com

1 December, 2017

Juan Manzanedo Andany is CEO and founder of Logisfashion, a multinational logistics operator specializing in the fashion and home décor industries. He has dedicated more than 20 years to this company, experiencing its internationalization process first in Europe; later in the USA, China and currently in Latin America. He studied business at La Universidad Complutense de Madrid and Cornell University, as well as having an MBA from IESE Business School.

“When we think about our establishments, we always keep in mind the technology and our integrated model of physical and online stores” (Pablo Isla, Inditex president.

December 12, 2016, the alarms sound at all of the most important retailers in Chile, on receiving the news that Amazon, the king of e-commerce has landed. In 2017, this was reinforced by the news of the arrival in this country of IKEA and of the French category killer DECATHLON. Just as this was happening I was participating in an e-commerce conference in Santiago.

My reflection during these weeks is that this is nothing new in Chile and this makes it a more competitive country. Walmart, H&M and others will keep on coming, but now the situation is accompanied by the so-called retail apocalypse: a trail of companies in the USA and in Europe that have gone out of business thanks to e-commerce.

The Matrix has already arrived

But, What do we know for sure about this “retail apocalypse” in Latin America and are companies here ready?

First: On a global level 80% of sales are made in stores, but this channel has become stagnated while digital is experiencing a double digit growth rate. What is difficult is that we are in the middle of a change. Like in the Matrix when Neo acquired powers over machines in the physical world just like agent Smith. Everything got more chaotic and entertaining.

And this is what is happening in e-commerce and in logistics. Should we bet on the real or the digital, on human beings or on machines? On the surface it looks like digital is winning, but both worlds need each other, and that makes things complicated. In fact, what has happened is that companies like Amazon and others have begun to buy up businesses with physical stores.

And believe me this goes far beyond having a webpage and doing e-commerce. The underlying theme is logistics and the behaviour of customers in this environment, between digital and physical, often without distinguishing in which of the two spaces we are. Just as occurs in The Matrix.

Retailers in the region are not ready to meet what is coming. The giants have invested (in Chile, Falabella allocated US$1,000 million), but the majority are linking the fall in sales to the economy or to currency devaluation. They are finding it more and more difficult to sell, unlike Zara, Amazon or Privalia, but they do not know why.

Break in case of emergency

The Matrix-style touchdown of e-commerce in the region will arrive sooner than later, as soon as the security and logistics problems are resolved. That is why this is an excellent time to prepare. The following are my recommendations or pillars to take into account in any sector.

  1. Put the consumer at the centre. This is no longer simply a speech for the benefit of shareholders or to jog your memory. The consumer is in control, not you. Repeat this to yourself a thousand and one times. The reason: we all have a shop in our pockets open 24/7. The consumer decides who to buy from, how to buy and where to have it delivered..and we want it now.
  2. Adopt multichannel. This affects logistics profoundly. We no longer talk about the online or offline customer, because it is the same person, influenced digitally. We listen to the customer through Big Data, using systems, and integrating channels to leverage this knowledge. We have to enter The Matrix, understand it and manage it for our own benefit.
  3. Use a pull not push model. You are not Steve Jobs. Put this sign up in your office: “You cannot dictate what people are going to buy.”. You have to manufacture and replace stock as dictated by trends, something you know when you are selling (pull). That’s where you realise what is working well and what isn’t. This forces you to have inventory nearby in order to restock quickly.
  4. Delivery is part of the product. Delivery is measured in hours. Amazon’s standard: two hours. Costs being equal, two hours is always better than 48. This will put pressure on logistics companies: inventory with a lot of stock replacement (slower and more expensive picking) and little depth, high peaks in demand, many low unit orders and therefore more complex returns management.
  5. You have to revolutionise your stores. The visit to your premises must be unique in order to justify it, or to the contrary the customer will do what Cypher did: prefer the fantasy of the Matrix. This also applies to online stores (user experience). This means novelty in products, and delivery and packaging of emotions, something where it is not difficult to beat Amazon.

Up to here we have only talked about threats, but there are also opportunities. The largest companies will have to rapidly discover their advantages, as when El Corte Inglés realised that it had a warehouse an hour’s distance from 90% of its website’s potential public, making it one of the most visited in Spain.

E-commerce generates spaces for SMEs that did not exist in the past. Job opportunities in the logistics sector are rising among the fastest (161% in the first quarter of 2017 in Spain). New jobs are being invented for which companies do not have qualified people and there are no university courses either.

This also generates negative externalities, like the rise in traffic in cities due to delivery of merchandise. In Spain for example the registration of new vans is rising at a rate of 20% annually. And this could be a problem, but yet again an opportunity, in a cycle that has no end.

So there is not a lot to think about. We all need to join this revolution, because there is simply no other option. How you do it and what will happen now depend on how you yourself specifically act, and if you know how to take advantage of this wave, the wave of the 4th Industrial Revolution.