What is a retailer?
– co-founder and director, eCommera
The traditional heart o shopkeeping is the symbioticrelationship between retailersand suppliers: retailers buy romsuppliers and sell to consumers.The Internet has disrupted thisrelatively happy equilibrium. Inits place is emerging a complexspectrum o relationships thatundamentally alter the ways inwhich retailers operate.
Responding to a radically dierent retail modelcan appear a minefeld o complexity, laden withthreats and challenges. But or those who cangrasp what is happening and work out how to playin this new arena, there are abundant opportunitiesor growth on a previously unimaginable scale.This article helps to unravel the new economic
reality of retailer-supplier relationships to help you:•
Understand the unbundling o retail
Navigate the new landscape
Identiy what is needed to execute successullyThe unbundling o retailThe starting point to understanding the new retailmodels is a clear recognition o how retailing hastraditionally worked, and what the undamentalchanges are. These can be distilled into two criticalaspects: the relationship between retailers and
suppliers, and the economics of start-up, trading
The way it was… interdependent retailersand suppliers
Britain has a worldwide reputation as a nationo shopkeepers, with the earliest retailers beingindividual cratsmen who sold what they made.The industrial revolution had a dramatic impact
on retail. In every category (with few exceptions),
technology transormed the manuacturing,distribution and promotion o products.
Economies of scale and scope fuelled the roll-out
o chains, and the expansion o department stores.In turn, this catalysed consumer demand – peoplenow worked in industry, had disposable incomeand were exposed to, and inuenced by, trends.
Retailers innovated, and the early 1800s saw the
invention o retail norms now taken or granted,
including xed prices, self-service and returns.
Products became standardised and branded.Crucial to the retailing evolution has been the corerelationship between the two ‘lead actors’ in theindustry – suppliers and retailers.
(whether brand owner ormanufacturer) typically took a combination
o product development, manuacturing,supply chain and marketing risk.
took property, stock andoperational risk.Geography provided the backdrop and stimulateda symbiotic relationship – suppliers neededretailers to reach critical mass and gain access tocustomers. Retailers needed suppliers to give themsomething to sell and to dierentiate themselvesrom the competition. Moreover, geographyprovided riction that allowed competing retail
propositions to co-exist.
Some players, such as Singer sewing machines,were brave enough to do both roles but mostplayers tended to specialise. Facilitating this corerelationship was a whole ecosystem o supportingactors, including malls, concessions, ranchises,wholesalers, agents and importers.
The way it was… store economics
The retailer-supplier relationship also shaped
retail economics – the retailer’s P&L and cashcycle. Each category’s economics were inuencedby myriad actors, including: its supply chain;its product commoditisation and liespan; andthe relative retailer/supplier power. Every retailerhas developed and adapted its margin structures,payment days, and supply chain – category bycategory – to make these economics work.These decisions have driven the working capitaland proftability o each store. The predictabilityo retail growth has allowed a retailer’s cashrequirements to be managed as their business
scales (see gure 1.)
The Trading Intelligence Quarterly.The unbundling o retail
45 days working capital
Day 0Day 45Day 90Product receivedSupplier paidProduct sold 4x stock turnAdapted rom Amazon’s presentation at the Credit Suisse Convergence Conerence,June 10, 2009.
Figure 1: Typical retailer cash cycle