A shift in relationships
Prof. Dr Werner Reinartz holds a chair in retail and customer management in the Faculty of Management, Economics and Social Sciences at the University of Cologne. He is also the director of the Institut für Handelsforschung e.V. (IfH) which is based at the university. In this interview, Professor Reinartz talks about the current and future role of retail.
Question: Professor Reinartz, has retail already experienced its golden age or is this yet to come?
Answer: Institutional retail – in other words, classic retail companies – are facing huge challenges. Well, in the saturated markets at least. Forms of retail are changing. An increasing number of manufacturers now have their own retail operations and are competing with traditional retailers. Stationary retail and online retail are joining forces to form a multi-channel retail strategy. The cost of transactions and information acquisition is falling and consumers are taking on a more active role. In short, retail is now a more dynamic concept. Some market stakeholders are having trouble with this, and change and refinement are almost continuous. In some areas, established stakeholders are even disappearing from the market.
Question: Is the wholesale industry also exposed to these problems?
Answer: The challenges for the wholesale industry are similar. In my opinion, the trend is more towards the after-sales service sector. The provision of services after goods have been sold is increasing in importance. It is contributing towards company differentiation and the enticement of customers – additionally, these after-sales services are far more effective in that regard than a simple change in the product range. METRO Cash & Carry is already aware of this trend and is now offering additional services, for example, home delivery.
Question: Will retail have to search for trade outside of the saturated markets?
Answer: In emerging markets, such as China, India, Indonesia, Russia, Brazil and the Middle East, development is extremely dynamic, that’s for sure. Though, we must not forget that this development is taking place over a shorter period of time. In other words, it will take a much shorter amount of time for these markets to become saturated and for institutional retail in these countries to be faced with similar challenges to the ones seen in Germany. The evaluation of future potential is different if we observe retail as a function, and not as an institution.
Question: What does that mean?
Answer: There are five functions of central importance to retail: first of all, retail creates the need for logistics. Second, it creates product ranges. Third, it provides information for consumers. Fourth it allows financial transactions and, last but not least, retail also provides services once the sale has been completed. One particular retailer may disappear from the market, but these functions will continue to exist. Retail will therefore prosper to the extent that it exploits its own functions better than other market participants.
Question: Is that not the case at the moment?
Answer: Certain companies are very successful in this regard. Amazon is successful because it offers such a huge range of products and provides comprehensive information on these products. In doing so, it creates added value. However, relationships between market participants are undergoing great changes. Consumers inform themselves, manufacturers deliver products directly, logistics service providers bring the goods to consumers’ doorsteps, and other companies safeguard the financial transaction. The question is: what’s left for retail?
Question: And what is left?
Answer: In my view, retail can continue to play a significant role if there is a change in perspectives. Retail must pinpoint what customers value in order to consistently appeal to their interests.
Question: Could retail act as a kind of customer advocate?
Answer: For want of a better term, yes. However, many companies are still clinging on to the old way of thinking that states that either they profit or their customers do. The fact that both sides can profit is still inconceivable for many.
Question: Who is leading the field in this particular respect?
Answer: Pharmacy chain "dm" is the first company that comes to mind. Almost unnoticed, this company has managed to really appeal to its customers. How has it been able to do this? Through its conviction that customer loyalty and customer potential increase if consumers feel comfortable in dm stores. That’s why dm only has half-height-shelving, even though higher shelves would increase their revenues in the short term. That is also why the lighting in dm stores is brighter, even though this leads to higher energy costs. Everything is geared towards improving customer comfort inside the store. And this is something that is noticed – more un-consciously than consciously. Customer satisfaction and identification increase as a result. Obviously, some of the extra expenditure has to be recouped through the pricing structure, but the positive effects for the company are mainly due to exploiting customer potential and increasing customer loyalty.
Question: Has the influence of retail on our daily lives increased or decreased?
Answer: This is a difficult question to answer with regard to retail as a whole. The influence of certain market participants has definitely increased. These include Apple, Amazon and Aldi, which have all established remarkable brand loyalty among their customer base. Or a company like Zara, which has accelerated the cycle of renewal in the fashion industry thanks to more efficient logistics: a new collection is on the Zara shelves every two weeks. Coffeehouse chain, Starbucks, has established itself as a "third place" separate from the home and work. Customers go to Starbucks because they know exactly what they are going to get – and that is a nice feeling.
Source: METRO GROUP
More details: A short history of trade