August 01, 2013
by Hil Davis, Co-Founder of custom clothier J.Hilburn
How the traditional retail world’s paradigm shift from multi-channel to omni-channel will impact direct sales forever
Traditional retail is broken. There is limited store-opening growth as middle to smaller markets cannot justify the four-wall investment. It is under attack from e-commerce competitors, customer show-rooming, social commerce models and even direct sales.
I do not believe traditional retail is going away like venture capitalist Marc Andreessen believes it will. Some retailers will get left behind—think Borders and Circuit City—and some will reinvent themselves and morph into the next-gen retailer. Regardless though, the management teams, boards and investors will require each retailer to keep a foot on the gas and pursue top-line growth through any model or channel.
And just like they did with e-commerce, they will look around at existing distribution channels and start testing them for success.
In fact, this is evident in traditional retail’s paradigm shift from multi-channel retail (bricks and mortar plus e-comm) to omni-channel. So what does omni-channel really mean? No one really knows what the final definition is, but right now what it means is traditional retail is beta-testing new growth models and shifting the cash they spend on store openings into these beta tests.
And one of those growth models is direct sales. Traditional retail is coming our way, and I think the first traditional retail presence will occur in the next two to three years. Once traditional retail experiences the power of the direct sales model, they will go “all-in.”
The future of retail is bricks, clicks and personal sidekicks!
I believe the biggest benefit of this shift will be the legitimization of direct sales as a distribution channel.
This reminds me of a similar shift that took place in franchising in the late 1980s. Franchising was considered a lesser distribution channel by the consumer and the traditional business world. Then the restaurant and retail industry realized the benefits of the franchise model from the limited-to-no capex to low fixed operating costs, to highly visible and consistent revenue.
Traditional retail embraced franchising. Fast-forward to today, and franchising is considered to be a legitimate channel and has attracted higher and higher quality operators and leaders.
I believe direct sales will undergo the same transition as traditional retail embraces direct sales’ low fixed operating costs, limited-to-no capex, and visible and semi-consistent revenue. The churn is where they will struggle, but I see this declining as the channel is “legitimized” in the consumer’s mind.
This will create a significant growth opportunity for current and potential direct sales companies driven by the possible number of customers and distributors direct sales can reach. Think of all the markets that direct sales can reach but a traditional retailer cannot due to lack of ROI.
I think there will be an exciting and powerful fusion between the two worlds. Direct sales will bring knowledge about how to successfully tap into and scale people’s behaviors and motivation, while traditional retail will bring operating scale and discipline, world-class marketing/branding, and massive technology investments.
I have always believed and said that direct sales is the most powerful business model in the world. It is like franchising on steroids. Yet there are very few billion-dollar direct sales companies, which has never made sense to me because there should be more billion-dollar companies in direct sales than traditional retail.
I think the infusion of the best of breed traditional retail practices and their mass-market appeal with the people knowledge of direct sales will propel direct sales to the next level of growth.
Just think of the power of local plus social from direct sales wrapped around the brand and marketing of a traditional retailer with physical stores to support the distributor.
Now add a layer of tablet technology in the home, plus the data that can be captured and mined to deliver a very curated and personalized customer experience: in person, online or at the store. Retail will never be the same.
Direct sales is the last mile to the home. Every brand and every retailer wants to own this last mile. Direct sales already does.
A marriage between traditional retail and direct sales will solve both industries’ needs. Retail needs growth and wants to own the last mile. Direct sales needs customer legitimacy, world-class branding and marketing, and major technology investments.
This marriage is not a 1+1=2 outcome; rather, the outcome is exponential. The addition of direct sales to traditional retail creates a fusion of all the distribution channels, creating an omni-channel approach.
Most importantly, this changes the customer experience from a channel-driven industry mentality to a holistic customer experience.
Retail becomes agnostic to the channel. Retail becomes customer-centric, leveraging all the channels, online and offline, to deliver a highly curated and personalized customer experience.
Hil Davis is Co-Founder of custom clothier J.Hilburn.