Fred Rosenfeld imagines the effect on the market if certain things came to pass.
While nervously waiting for holiday sales results, I took a few minutes to ponder the “what if’s.”
Imagine if JCP is successful:
The consumer will be reeducated that the high/low game is just a game. Phony sales will no longer work and the business will be run on real margins and real retails and real performance standards. No more “out the door” pricing. Vendor/retailer partnerships will become true partnerships. Selling to the department stores will consist of making a deal and then sticking by that deal. The world of chargebacks and markdown demands will be gone. Shop concepts will become the norm. Vendor shops will become the only way to do business in volume-priced department stores. Vendors will need the financial wherewithal to support these shops, making it more difficult for small, creative, entrepreneurial startups. The power balance will shift to the larger vendors and away from the retailers. Department stores will become portals to the vendor shops, including private brand shops. Differentiation between stores will be more difficult to ascertain. Profitability will no longer be measured by sales per square foot as space will be allocated to entertainment centers.
Imagine if internet sales become dominant:
Brick and mortar stores will become inconsequential. The huge regional malls will be redundant. The B and C level malls will simply become economic graveyards. A few small units will become showroom facilities. Unemployment will jump dramatically as there will be no need for store personnel. State and local tax revenue will be reduced, not just from sales tax but also real estate and payroll taxes. Margins will improve as these expenses will be eliminated, but customers already expect free shipping, at a real cost to the retailers. Brands will expand their direct-to-consumer presence and bypass both retailers and internet portals. Customer service and those retailers who specialize in it will be superfluous as shopping becomes all about the digital experience. Creativity and uniqueness will be lost. A garment that sells based on touch and/or fit will lose its advantage.
Imagine if a politically driven trade war breaks out:
Many Asian countries, primarily China, manipulate their currency, which drives down the cost of product imported from these countries. With the rhetoric of the past election and an unpredictable Congress, the U.S. labeling a country “a manipulator” could very well start a trade war and dramatically increase the price of imports. Political pressure will create quality of life standards, meaning we source only from those countries with minimum wage levels, guaranteed benefits and true child labor restrictions (the recent fire in Bangladesh serving as a focal point). This will dramatically increase average unit retails, most specifically at lower price levels, putting a great burden on that consumer. It will therefore seriously cut into retail sales and margins. Sourcing will come back to the Western Hemisphere, meaning not only will Mexico, Canada and the Caribbean become relevant, but apparel manufacturing can return to the U.S. These will be low-wage jobs and an infrastructure that no longer exists. Unfortunately it would likely mean that workers producing in the U.S. will not be able to afford the products they make…
While I doubt that all of this will happen, I do believe that some of it will, and is, even as I sit here and daydream…
Fred Rosenfeld is an industry consultant. He can be reached at firstname.lastname@example.org