The retail industry has been evolving and shifting since the early 1800s when “mom and pop” stores were the norm. The emergence of department and catalog stores in the mid-1800s transformed the industry, because these stores not only sold items but also provided entertainment events, demonstrations, and lectures that attracted newly wealthy customers. The advent of new technology in the form of the cash register in 1883 and financial charge cards revolutionized the industry in the 1920s. The 1960s brought mass merchandisers like Walmart and shopping malls, and e-commerce stores like Amazon have further changed the industry.
While the retail industry has undergone several changes over the years, the current era of e-commerce has been a particularly disruptive inflection point. Companies that fail to respond effectively to these changes will find it challenging to remain competitive.
One example of a company that failed to respond effectively to the rise of e-commerce is Bed Bath & Beyond. The retailer shifted its assortment a bit, tried to hone its promotional pricing, and targeted its marketing. But it just couldn’t compete with the assortment found online, nor the customer convenience of e-commerce, nor with many of the low prices. It never found a coherent response. Bed Bath & Beyond filed for bankruptcy in 2023.
In contrast, PetSmart responded to the rise of e-commerce when it bought it biggest online competitor, Chewy and recognized the need to broaden its identity to include grooming, pet hotels, veterinary services, dog training, and more. PetSmart recognized that pet owners wanted a single place to trust…a go-to resource for the sometimes difficult and confusing role of raising a pet. It understood that pet owners had both functional and emotional outcome needs, such as finding merchandise for very specific needs, having services provided by a place they could trust, and feeling reassured that they’re making wise decisions. By continually researching the needs of the pet owners, it found outcome solutions that continue to sustain the business at healthy levels today.
Evolution is also happening in other industries. Just think of the dying movie business. It’s hard to get someone to pay for a ticket to a movie, when a few months later the film will end up on a streaming service that costs less for a month of streaming movies than the single theater ticket did. While Disney shares its box-office revenue with the theaters that play its movies, billions in revenue simply won’t come in anymore. That means movie companies need to cut expenses while also balancing which films will still make financial sense in theaters.
To stay competitive and relevant in the face of the ever-changing industry environment, small businesses need to adapt to their industry inflection points. There are three lessons from the retail inflection point evolution tale:
- Industry evolution eventually comes to every business. You might hold out for a while, but you need to formulate a coherent response using market testing to identify industry inflection points. Maybe you embrace the changes and buy into it, or you might change your business model to win customer loyalty in new ways, but you have to respond.
- An effective response stems from first deeply understanding the customer. A good way to do this is to view them from the perspective that customers/clients don’t buy products/services, they buy outcomes/aspirations or they “hire” to solve a problem or reach a goal. This means knowing the full range of their needs, including ones adjacent to your current business arena.
- Inflection point testing involves different solutions that focus on the customer’s priorities first and adapt your business model to suit. You can optimize your current offering only so long, but eventually, you need to re-orient to what the customer really needs today.
Businesses that fail to respond to industry changes will find it challenging to remain competitive. Strategic inflection points (changes that alter the taken-for-granted assumptions underlying a business model) can feel sudden. In reality, however, they tend to build up slowly, gathering momentum until the transformative shift becomes clear. When these shifts occur, companies tend to fall into three categories:
- Those that have missed the inflection point entirely. These firms often shrink or disappear, as seen in the internet-fueled retail apocalypse.
- Those that realize an inflection point is underway and place a huge, last-minute bet on catching the wave. This sometimes works, as seen in Adobe’s dramatic shift from selling shrink-wrapped software to software on a subscription-only basis.
- Those that have placed a number of small bets over time to position themselves to take advantage of shifts when they happen. These investments are, in effect, options companies can exercise once the new landscape is more clearly in view. For instance, Echolab has evolved over decades from a company that created a better way to clean hotel carpets to one that is involved in a number of opportunities with clean water management, taking advantage of the inflection point of increased demand for environmental sustainability.
The challenge for business leaders is seeing an inflection point coming…so they aren’t required to make a last-minute costly pivot. Also, they need to plan about how to bring the organization along into the post-inflection point world? The key to these questions is to have well-honed ways of challenging the underlying assumptions behind a particular belief or idea to avoid blind spots, cognitive biases while promoting critical thinking.
A useful way for leaders to gain perspective on their assumptions is by using Clayton Christensen’s idea that companies are selling “jobs” to be done. He argues that rather than thinking of customers buying products and services, it is more helpful strategically to consider the outcomes customers want; in effect, they are “hiring” products and services to achieve those outcomes. What becomes clear when looking through this lens is that outcomes can be achieved in many ways and do not always conform to traditional industry boundaries.
Having identified a coming shift, leaders can experiment with ways to help their company take advantage of it. As they make these small bets over time, they can increase their commitment and shift resources to those areas in which new models are changing the status quo.
A good example of seeing inflection points and reacting to them is LEGO. Did you ever stop to think about those little plastic bricks that usually end up as either a magnificent creation, or a pile of pieces? The LEGO brick, as it exists today, is over 67 years old this year. On January 28, 1958, the company patented its iconic design and I think it’s fair to say that it was a hit. Few toys have had the same kind of lasting impact on both children and adults.
Of course, the plastic brick the company is now known for wasn’t the first toy the company made. In fact, its first toys weren’t plastic at all, they were made out of wood. The bricks, however, are what made LEGO a household favorite. There is something about the ability to build whatever you can imagine that makes LEGO different from other toys. This ad, from 1968, is a great example of exactly that. “LEGO… the thoughtful toy,” the headline reads. Those three words “the thoughtful toy,” can make the case they encompass so much of what makes LEGO so beloved as a toy–and as a brand.
LEGO’s brand, even then, was that it’s a toy that facilitates “learning through play.” It’s not just something you do to waste time, it’s something that lets you take an idea in your head and make it real. That hasn’t changed. LEGO bricks aren’t just a thing you “play” with. They are a toy, of course, but they are a toy you imagine and build with. And, that imagination doesn’t stop just because you reach some arbitrary age.
The other lesson is just as important. It’s not just the purpose of LEGO bricks that hasn’t changed. The LEGO brick has been around for 65 years in its current form. Sure, the company is always creating new sets, and adding new pieces and technology, but a LEGO brick today will always fit with one from 1958. That’s the reason the brand has been so beloved for so long, because it has been intentional about making sure its toys can be passed along.
Bringing the organization along into the post-inflection point world requires a clear and compelling vision of the future and a roadmap for getting there. This vision should be communicated effectively throughout the organization, with a focus on engaging employees at all levels and encouraging their participation in the change process. It’s also important to create a culture that values experimentation and learning, where employees are encouraged to take risks and try new approaches. This in a nut shell describes the culture of inflection point testing.
To ensure that the organization is prepared for the future, it’s essential to develop a robust talent strategy that includes attracting and retaining the right people with the skills and competencies needed to succeed in the post-inflection point world. This might involve retraining existing employees, recruiting new talent, and partnering with outside organizations to access specialized skills and knowledge.
Another key factor in bringing the organization along into the post-inflection point world is to develop a strong digital strategy that leverages emerging technologies to drive innovation, improve efficiency, and enhance the customer experience. This might involve investing in new systems and tools, building digital capabilities in-house, or partnering with external technology providers.
Spot the industry inflection points, lean into them, understand the customer, and adapt – this is how to survive and thrive while less nimble rivals just fade away. PetSmart is joined by other survivors like Walmart and Best Buy as companies that adopted this playbook and continue to grow. Bed Bath & Beyond goes the way of Circuit City, Toys R Us, Sears Catalog, Blockbuster Video and many other once-fabled names into retail history.
Ultimately, the success of any business in the face of industry evolution depends on its ability to stay ahead of the curve and anticipate change. This requires a combination of strategic foresight, inflection point testing, critical thinking, and effective execution, along with a willingness to challenge assumptions and embrace new approaches. By staying agile and adaptable, businesses can not only survive but thrive in the ever-changing retail landscape. Practice inflection point testing and you can minimize the effects of the evolution that is coming to your industry.
If you are planning to start a business or are thinking about scaling an existing one, be sure to read the ebook “Customer Centric Business Planning: A Guide to Optimizing Your Business for Maximum Success”. It is an essential book for business owners, managers, and entrepreneurs looking to leverage real-time insight to start and improve their business operations. Learn how proper customer centric business planning can assess risk and opportunity, and create an actionable roadmap for success.
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