Future of Retail: The Bifurcation of Retail and the Speed of Disruption

Hi everyone, it's Brian Walker, CEO and founder of Retail Doctor Group and thank you for joining us on our future of retail podcast. Steve Dennis um is really a true global retail influencer, wonderful author for those who've read some of his work, leaders leap, remarkable retail um and a podcast host himself. Steve is also the owner of Sageberry Consulting, very renowned consulting practice. Good morning, good afternoon, Steve. Nice to see you again, Brian. Thanks for having me on. — You speak of the bification of retail. I love the term. — How do we summarize that? What does that mean? It's a wonderful word, but I'm trying to understand what you mean by it. Well, I've been criticized for using it a little bit too much, but I guess I started down this path uh well, I started to notice the phenomenon, but I guess I started talking about retail's great bifurcation probably about 10 years ago, maybe a little bit more because what I was noticing and what I mean by it was really this split where success was being seen more and more it seemed at two ends of the spectrum. And in fact there's a deote study that quantifies this uh subsequently better than I could. But really it was this idea that lots of growth, lots of success was being found really on more the value, convenience, price end of the spectrum. So that's I guess most easily thought about uh with retailers like Walmart and Amazon but others. And then success and store growth being found really at the other end of the spectrum, which was not necessarily luxury, but really more premium, more specialty, more focused kind of retailers. And then this kind of vast, messy, murky, boring, whatever you want to call it, mediocre, middle. That was where most of the troubles in retail were starting to occur. And then I really think since that 10 12 years ago whenever I first got onto it I I've really only seen that accelerate — and we'll continue to accelerate into the future. I suspect we talk in a similar vein. It it's interesting where we look at the way scale the role of technology clearly um — really exaggerates the momentum of some of these larger organizations at some level. — Absolutely. Yeah. And at the other end, we're seeing we would say the renissance of the curated localized retail. — Yeah. Right. — And what you talk about in unremarkable retail, we're probably a little bit more colloquial and call it the fat middle as such, — but differentiation is getting increasingly challenging. — Yeah, it's interesting. I mean, at one level, this is probably pretty obvious, and I don't want to make this a history lesson, but if you go back 20, 30 years, I think in most countries, certainly in yours and mine, you had a lot of success with kind of the category killer style retailer, a little bit of everything for everybody in a general area. Uh, but of course, way back when, 95, 96, 907% of all retail was done in a physical store. So if you wanted to see that great assortment for the most part I mean there were obviously you know e-commerce has been around for a while mail order cataloges have so this is not a black and white statement but that was really interesting to be able to see kind of the long tale so to speak of re you know the way we talk about it for the last couple of decades you know you had to go to a physical place to see it and that works great really more on as you say on the scale side where it's kind of all everything for a low price Uh but when you start to get into other categories and maybe you want that depth of merchandise well once the internet came along that was increasingly less interesting. So actually trying to be a little bit of everything to everybody has started to become being really nothing powerful for anybody. And so I think that has really pushed the polls or pushed this bifurcation forward. So when we talk about unremarkable retail, that's fairly self-evident and I think you capture that well. — Going into the future, what does remarkable retail start to look like? Well, I think one of the points and this uh you know and I'll get a little bit more to your future question, but you know the other thing I started to notice was in a world of incredible choice, you know easy access 24/7 uh ability to get products uh information becoming ubiquitous. I think the pressure that put on retailers was how do you deliver even greater customer value because when you were limited to choice largely physically then you could just be very good and often still win the customer's world. So this idea of remarkable I use it as I think you know I use it in the more commonly accepted way of something unique differentiated

etc but that's always been important but you know how I use it more of the way Seth Goden does in his book Purple Cow something that people will really talk about but part of that is how do you really do something powerful how do you have that emotional connection um and so I think the more choice uh becomes exacerbated the more that uh particularly in an era where agentic commerce is coming about, you know, when you're using AI in various ways to try to find that best choice. Well, if you're just slightly better than average, you may not even get noticed in the first place. So, I think it's become more and more important to be truly remarkable, to amplify the wow, as I like to say it. But I think as the world moves forward at least to the extent we can predict where it's going it only becomes even more and more important. So this is another kind of bifurcation which is you know these supercalers which are a little bit of everything you know that can become a race to the bottom or it's almost impossible for you to win because if you don't have that the scale of a hyper market or the scale of some of these other you know Amazon and others how you get any sort of competitive advantage. So you really got to get out of the middle and you're pushed if you're more to the kind of specialty side. Well, what is that point of differentiation? What is that incredible customer value? And I think that's both about narrowing your customer focus, but then really distorting the value for that set of customers. And the retailers that get into trouble, they either try to out Walmart or out Amazon and that's impossible or they just don't create enough differentiation because they're not customer focused enough or even if they are they're not delivering enough value. Now that value might be incredible environment, unique assort. I mean there's lots of ways you can deliver that really and it's probably not just one thing but a set of things. So, so you got to aim higher in the value you deliver. And then I think just in terms of keeping up, you have to move faster or you're just likely to fall further and further behind. — This moving faster I do want to touch on, but one thing I think is sort of evidential and a bit of a lens into the future. As you know, in your country there's over a million registered retail establishments of varying sizes. — Yeah. And over 40% of all US retail trade is done by 10 of those retailers, Walmart, Costco, Amazon, and so forth. — Yeah. — So the other 60% share 999. 9,000 or thereabouts, — right? Yeah. And so if we glance into the future and we think about this biopication where this is all going and as population density increases per capita spend will remain pretty static in that mix. — Yeah. — There has to be imminent shakeout doesn't there moving into the — Oh for sure. And it's actually a little bit worse I think in some respects in the way you because in the last couple of years if you look at incremental growth over 50% of the incremental sales growth has gone to only three retailers. So this content I call it the great concentration seems to be going on. Now that's sales uh I think if you were to do it on a profit basis it would be even worse. Um and then you also have an incredible concentration in e-commerce growth. for example, Walmart growing at something like uh I think it's 22 23% in e-commerce. — Um so yeah, it's a real challenge and I think when um many markets are faced with still continuing inflation issues, if you've got a high fixed cost base as if you're, you know, physically retail dominant, obviously that's a big component. you're not able to move that top line and maybe you're getting squeezed on labor costs, uh, occupancy cost, freight costs, you name it. Uh, yeah, I it's going to force more and more retailers out of business. Um, I think unfortunately, uh, we've been seeing that for a long time, at least in this country. I mean, we've seen quite a lot of store closings. Uh, but we're also seeing a lot of store openings. So I mean it really is a tale of two cities where the powerful winning retail formats are growing much faster than even the average retailer much less the lagging retailer. So it's a very fraught uh period I think for retail in many countries. Yeah. And one other point that comes to mind here, I think if I think of the Amazon model and the Walmart model and so forth, the product per se is not the central differentiator. The sort of the points of difference are speed prime web engine services in Amazon's example, the building of this partner network, the integration of technology, — right? So I think scale is driven by

other factors than the classic retail. Retail product is almost the enabler to move into people's homes. And I think in the US uh is it over 60% of residents are prime subscribers for example. — Yeah I think it's even a little bit higher. Yeah. You know, it's funny. You might get uh next time you're in this country, you might get beat up because I often get push back from uh some of my friends in merchandising who say it's all about product. And I'm like, well, that's demonstrabably not true. I mean, I'm not saying product is not important. And — clearly for certain types of retailers, — it's way more important. But the way you point out, I mean, we can it's not hard to come up with examples of retailers, as you say, that differentiate on things other than product. products necessary, but it's not sufficient. As well as things like uh bottled water where the same water more or less or the same wine can have very big price differentials, you know, uh skin creams like there's so many products that the product features themselves. Customers can't even tell the difference and there's huge price differences. So that's about, you know, branding more than as you say supply chain, fulfillment, uh technology advantages for sure. And I think you know the other thing just to kind of come back on a point I was making earlier if you're one of those you know whether we're whether it's 40% as you mentioned or whether it's 80% or what however we think about all the other retailers that aren't those supercalers. Well then what do you need to do to just even maintain kind of the table stakes levels of customer experience of supply chain efficiency? I mean that is really daunting and you know fortunately there are some ways uh from SAS providers, Shopify I mean there are ways to kind of neutralize that but it does frighten me to think of what it takes to keep up with the absolute best in retail in many areas. — One other topic that links to this into the future and we're seeing it now with the Walmart AIC type deals over here in Australia. We've got Woolworth doing deals with Google such that — um if I'm a supermarket shopper, I go onto my AI agentic search. It determines where the product is from Worth in this example. Links up to menus, — um delivery, — the whole nine yards. — And I'm not actually doing business with Woolworths per se. I'm doing it with an aentic AI intermediate. — Yep. And what that ultimately will start to do, I suspect, is start to compress range. It'll start to determine what I will buy. In will come predictive solutions and so forth. And so and obviously all that entails if we look into the future, Steve, it changes the dynamic of the classic customer retailer relationship, doesn't it? — Potentially. — Oh, I think right. I think the well I guess my disclaimer is I think things are moving so quickly and I do not pretend to be an expert on aentic AI. So with that caveat I'll be a little uh cautious about how far I lean forward on this but I mean I do think that it's hard not to see how this sort of technology in various iterations isn't fundamentally transformative perhaps in a way that the advent of e-commerce was. Now I still think just as I've said about e-commerce uh and push back against this idea that everything's moving online which you know people have been saying that for a long time and at least in this country we're still at about 20%. And physical retail has continued to grow. So the answer is it depends a lot on the nature of what you're shopping for the kind how much you value brands etc but — human experience — I think yeah right so there's but there's no question the potential is enorm you know potential for disintermediation uh as we like to say some of us like to say I think is enormous and I would be if anything I think it leads more to the collapse of the unremarkable middle for multi-line fine retailers in particular because if there isn't something fundamental about your business model like I'm not necessarily I'm not saying that Amazon and others won't come under pressure but I think if you've got relationships with certain retailers and it becomes your default you still may end up buying a lot in that style of retailing. Uh so I think agenic commerce lends itself to more uh I used to work in luxury uh Neiman Marcus and of course we had a lot of personal you know sales associates that behaved as personal shoppers and put outfits together. Well the ability to automate that as well as some people either don't I mean not to get into the weeds on this but you know many cases the personal shopping model works better for the very top tier customers because the sales associates want to spend time on the big spenders. Well, this kind of

democratizes that aspect of it, but also a lot of people are intimidated by the process of dealing with. Well, now you just sit at home or on your phone and make this happen uh not only — uh you know as well as was previously available but in many cases much better because of the speed of it and the ability to you know iterate through uh options. So I think it's very significant. I think we're very much in early days. I'm not about to predict who the winners are going to be uh in this uh you know it's inevitable that there'll be advertising models. I mean I think we're already starting to see that and so that — that changes the game or shifts the way it might evolve but yes it is that was a long wayed way of saying it's huge. I don't think it is going to change everything as — some people I often say you know hyperbole is the greatest thing ever and there's a lot of hyperbolic statements but uh it is it is massive and I uh I think anybody who is not spending a lot of time trying to understand what it means for them and experimenting is very likely to get left behind. Well, it's interesting. You know, we have retailers still grappling with legacy point of sales systems and data consolidation and collap, you know, so at a primary level getting that data sorted — and really understanding the topic of agentic AI is absolutely leans into the future. You touched on Steve and sort of the last point that I want to chat to you today about was this concept that we would call time as a currency. Mhm. — And we've observed this idea of time. Now if we start to see and I don't think it is by the way that speed is a strategy ultimately as time compresses, experience compresses, margin compresses, and it's ultimately a race to the bottom. And so retailers that can think fast and slow into the future, I think would be better positioned. — Sure. — We don't have same day delivery for Rolex, but we do for groceries, — right? — And it's that sort of thinking and I'm interested in your view on this idea of everything getting faster. Ultimately, that's just a baseline entry for many categories. — Yeah, I guess I have a few thoughts. I mean, first I don't uh, you know, the example you use where people, you know, oftentimes I just push back where people say, you know, convenience is everything and then the same people a few months later say experience is everything and I'm like, well, which is it? Well, the answer is it depends, right? Speed is incredibly important in certain things and some very famous retailers are famously not speedy at all. Right? People are waiting for Birkin bags for a long time and standing in line at the Apple store. So uh and those are you know Hermes, Apple I think are you know top five most valuable retailers on the planet. So uh and with enormous margins. So anyway but I think one is you have there are a few things I think you have to accept uh or understand and probably accept and act on which is the pace of change for the most part is only accelerating. I would generally believe that the world will be more different in the next 5 years than it was in the past 15. And so now that won't be true for everything. Um so uh what I talk about and it's the subtitle of my second book uh leaders leap is transforming at the speed of disruption which begs the question what do I mean by the speed of disruption and the answer is you have to understand that for your own particular neck of the woods. If you were in the fast fashion business, as an example, Tamu and Shien became multi-billion dollar brands very quickly and in many cases uh really hurt some of the traditional fast fashion type of players and others. Um I usually uh use my dry cleaner as an example. I think the speed of disruption in the dry cleaning business is quite slow and so I don't think they need to be spending a lot of time maybe on robots or something, but they don't need to be spending a lot of time in AI. I don't think that's likely to disrupt the dry cleaning business very much. So, you really have to understand, you know, your mileage may vary. The speed of disruption for your business really varies. But if you're not I think the overall leadership point is if you're not really paying attention to the speed of disruption and you're not kind of opening the aperture in terms of things that might be disruptive to you know famously uh you know I'm sure a lot of your listeners are familiar at least generally with the innovators dilemma. You know so many companies that get disrupted by insurgents that come from outside the industry and approach the solution in a very different way. you know in this country Blockbuster in the video game retail business was completely disrupted by Netflix which was a startup you know 15

years ago or 13 years ago whenever they started. But anyway, I think you have to open the aperture. You have to be very creative about things that could change. You have to be paying attention to how fast things are happening. And just because things like generative AI are happening very quickly, doesn't necessarily mean you need to jump in full boore. That being fast, being built for speed is not the same as being reckless. But understanding the risk of moving slowly is a things a lot of retailers that have gotten into trouble have fundamentally misunderstood. And the thing I worry about a lot and again if this idea that change tends to be happening more exponential than linearly. It's very easy to get behind and it's more and more difficult to catch up in many areas if you don't. So you really need to get this right. That doesn't mean be first mover. Like I said reckless. That doesn't mean leap on the bright shining object. You know, I spent a bunch of time 20 years ago working on Second Life and MySpace strategies. Well, that was, you know, turned out not to be a big uh big thing. And a lot of people spent a lot of money on metaverse strategies. You know, that has turned out not to be such a big thing. So, just because something gets a lot of hype and maybe even getting some investment interest doesn't mean you need to jump all over it. — Steve, there is one last question. If you're a board member or a CEO and you're you know you might have a $50 million plus business for the sake of the discussion — and you're listening to this podcast and you're leaning into all the topics that we've talked about — some are timeless differentiation the wow factor as you rightfully say uh all those are timeless but faced with technology faced with a generational change of consumer change faced with emerging better and better competition What's one or two things you'd say to think about into the future? — Well, one thing, and I hesitate to mention this, is are you really customer centric? obsessed? Whatever. I mean, I lots of companies say it. Uh, very few do that. Well, so I would be really honest about, you know, do you know enough about the customer? Are you acting on it? Uh, are you treating different customers differently? Those kinds of things. Um, but I think the other ones are understanding your relationship to risk. Um, not that I came up with this, but I often talk about safe is risky. Uh, in a world that's changing very, very fast. Going slow and steady is often the riskiest thing of all. But I think most cultures are wired to think more incrementally. And we assess, you know, we do spreadsheets and scenario planning to decide whether we want to do something. But often in the conversation is well what's the risk of not doing something in this area. So your relationship to risk I think is very important to understand and then I think you know two other things I guess I'll say quickly. is — it's more important to be uh or to move to a more agile model and I don't necessarily mean sort of agile software development but you know is your do you have enough agility in your operating model because when things are changing very quickly and it's hard to know what the future looks like you have to build agility into your operating model and you know that's always been important but I think you know the lessons from co are you know obviously pointed out some of the issues with very fixed supply chains and the But I think that's a more holistic thing. And then the last one, but it's related is do you really have a culture of experimentation? And I wrote something the other day uh which is stolen from my book which is what I call ABT uh A always BBT testing. You know, always be testing. And but the thing is to do it intelligently like ha have lots of experiments but also be able to really be able to measure them and stop doing things because I see this a lot things live beyond their useful life and I often say quitting is underrated like that's the smartest thing to do if it opens you up to do other things but also when things are working do you have the ability to really put fuel on the fire so to speak and I see that a lot too where organizations are trying enough but then it's like oh we don't the budget to scale this and you know and then you get into a big argument and then you just get stuck. So that's — I think that's very true and you know my very similar view of this is that we're trying to innovate trying to meet the future stay with the pace of it or ahead of it however we perceive but we're using constructs board governance risk executive reporting uh P& Ls etc that come out of another generation — that were all about control effectively about control — and so the antithesis of innovation and risk is control. — Yeah. And I have a little slight I agree with that very much and I have a slightly different um frame which I get

about I get out a little bit in leader leap which is and I used to open uh some keynotes I was doing a few years ago where I bas I won't go through the whole thing but basically I was saying you know is it possible that basically that what got you here won't get you where you need to go but also then the real you know sort of provocation on that is not only will it not you know the skills and capabilities you had. Not only are they not so relevant, but they might actually get in the way of you making the changes you must. And I think that really causes boards and leadership teams to really get honest about what they're doing and is it's serving them well. You know, it's sometimes I sound a little bit like a self-help guru, but you know, or a therapist like, well, how's that helping you relying on that? But I think it's really it takes a certain amount of self-awareness and challenge to yourself but also to your team of like well why do we keep doing that and are there other things or other voices or other ways of doing things that might actually really help us and so yeah I think a lot of what made certain I just you know talk about from a individual leadership standpoint I think a lot of things that have made various executives really successful just don't serve them very well and may be getting in the way. So I think it's a great conversation to kind of have your with yourself do a little bit introspection but I often recommend in leadership teams like that's a great topic whether it's a strategy retreat or a quarterly review or a weekly staff meeting whatever to really talk about that and that makes you have to be vulnerable to do that right because you have to admit you're wrong maybe or you have to like you have to get really honest with yourself and that's not usually the kind of typical thing that you see in a lot of corporate cultures. — So what a terrific session. Now, I know that we'll probably have two episodes out of this, but I'm thinking also we'll have to get you down under, as you would say, into Australia and uh do a little bit of a tour because this is absolutely phenomenal. And greatly appreciate, I hope everyone's enjoyed this as much as I have, Steve Dennis. Um, and do please read Steve's wonderful books, Remarkable Retail Leaders Leap. Um, this is a man whose opinion I deeply respect and Steve, thank you very much. — Thank you. Well, the this honor is mine and I really appreciate you having me on.