News Releases - December 23, 1998 TOTAL
WAR: online buying’s assault on the store presented at the Int’l Mass
Retail Association Financial Executives’ Conference is an insight into how location
based retailing will radically change in a wired world. Borsuk used military planning blunders
from World War II to illustrate why superior location provided little defense against
adversaries using unconventional strategy. The
German blitzkrieg simply went around the impregnable Maginot Line. Singapore’s seaward facing defenses were
useless against an enemy advancing over land and few believed the Japanese could project
themselves over thousands of miles of ocean to attack a remote fortress. Borsuk urged the mass retailers to
consider the historical parallel. The growing
role of information technology in daily life changes lifestyle. Many will find the desktop the shopping venue of
choice. Online buying erodes the traditional
strengths of mass merchandisers based on convenient location, wide product selection, and
every day low prices. A fundamental change in
the sales channel matrix portends a deterioration in the store’s financial
performance. Borsuk also cautioned the mass
merchandisers to prepare for the emergence of bundle buying within two years. Bundle buying gives the online customer the best
of the super drug and grocery store and the warehouse club.
Pricing will be hyper-competitive along with free delivery on most orders. The stealth competitors may come from the off-line
world or through a trusted intermediary. Again
mass retailers face the prospect of in-store sales migrating to cyberspace. In response, mass merchandisers have to
rethink their store based sales strategy to leverage the online sales channel. Reformation requires an emphasis on shorter-term
leases with multiple options, downsizing some stores into showrooms, opening fewer new
stores and reducing the number of stores within an existing trade area. Developing a profitable online presence requires
senior management to fully embrace and nurture the online sales channel. The merchandisers must also enthusiastically
employ the new sales channel. Finally, the
retailer’s strategic transformation needs to keep the real estate team as a full
partner. On October 30, Borsuk chaired a
breakfast roundtable at the ICSC Law Conference in Nashville to discuss retail leasing
strategy for a wired world. Participants
included in-house counsel for three national retailers and other attorneys representing
lenders, developers and property owners. During
the discussion one in-house counsel acknowledged online buying’s cannibalization of
only a small percentage of in-store sales would adversely impact store profitability. Several other conference sessions highlighted
Internet shopping as a topic for consideration by traditional retailers and owners. On November 19, Borsuk addressed
institutional investors in Toronto on the question of retail property investment risks
resulting from Internet shopping and the shifting demand for retail space. Highlights from the talk included a case study of
consumer electronics retailers likely to get “amazoned” and their need to change
location based selling strategy. Borsuk also
commented on the increased risk to investment fiduciaries from not grasping how online
buying changes location based retailing. Finally,
he noted cyberselling is accelerating academic interest in reforming the sales channel
matrix at the store’s expense. For
example see Professor Hamel’s interview in the Financial Times (London) October 22,
page 9. Borsuk’s paper Millennium
Madness: Online buying takes the shop out of shopping is attached as a PDF file. Next February Borsuk will participate
in a panel discussing “The Net’s Impact on Retailers” at the ICSC Southern
California Idea Exchange in Long Beach. Panelists
include Ms. Lauren Freedman of the E-tailing Group. {“http://www.e-tailing.com”} The Real Estate Transformation Group
advises landlords, retailers and lenders on property strategies for the information age. In addition to consulting, Mark Borsuk is a retail
leasing broker and real property attorney practicing in San Francisco. Contact Mark Borsuk, Managing Director
at (415) 922-4740 / FAX 922-1485 / Copyright © 1998. All Rights Reserved. Mark Borsuk. News Releases | Articles | Upcoming Talks | Memorable Quotes Copyright ©1995 - 2001. Mark Borsuk. All rights reserved. Disclaimer notice |
