RIT Retail Expert Predicts ‘The 21st Century Store,’ But Who Will Survive?
Professor Eugene Fram says electronic retail technology will help lead the way
Feb. 10, 2009
by Marcia Morphy
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Saks is offering 70 percent reductions in luxury merchandise. Amazon’s new electronic reading device, Kindle, will cause disruptions in book publishing.
The downward trend has arrived, with retail bankruptcies, employee layoffs and consolidations escalating daily—affecting manufacturing, service and wholesale firms, says Eugene Fram, emeritus professor of marketing at Rochester Institute of Technology’s E. Philip Saunders College of Business. (Fram also holds one of RIT’s highest awards for outstanding achievements, The Presidential Medallion, which only has been presented to selected organizations and individuals about 65 times in the last 30 years.)
Fram’s perceptive analysis presents an intriguing picture of what might develop early in the current century. He refers to it as the coming of the “21st Century Store.”
“Its development will come from the ‘demise’ of the current structure, the development of new electronic retail technologies and the need for infusions of huge amounts of risk related venture capital,” he says.
Retail in Upheaval
Fram sees the current retail upheavals as the final engagements of the “Battle of the Retail Giants.” This has been a major competitive retail struggle, beginning about 1990, between large well financed and well managed retail organizations fought for market share. It resulted in the merger or acquisition of some, closure of others and many chapter 11 bankruptcies.
- At the national level, Federated Department Stores, now Macy’s, acquired May Company stores.
- At the regional level, Home Depot and Lowe’s forced Wegman Super Markets to close its subsidiary 17 store home improvement chain, Chase Pitkin. This chain struggled for 10 years against its larger rivals before surrendering because it couldn’t negotiate for the same volume discount levels as its larger competitors.
- Best Buy is reported to be seeking to acquire some of the closed Circuit City locations.
- Fueled by the well-reported decline in consumer interest in acquiring more material possessions, Fram predicts: We are on track to reducing the retail head count to a few large retail chains like Wal-Mart, Target, Barnes & Noble and Costco.
- Also likely to survive are some regional chains like Fry’s and Magnolia which have strong regional brand recognition.
- John Zogby, the well known pollster, has concluded that consumer buying interest will continue to decline, along with a counter increased emphasis on both environmental and financial savings.
“These trends will only accelerate as environmentally oriented high school graduates become adult purchasers,” Fram says. “One luxury CEO has remarked that his customers are now looking to their closets for apparel instead of looking to retail stores for the latest fashions.”
Wheel of Retailing
“The Battle of the Retail Giants is ending, but there are still a number of convulsive skirmishes to come as bankruptcies, mergers and acquisitions activities continue at least through 2009,” says Fram according to his analysis. “Then there will be a stable retail period in which only the surviving giants will prosper along with some smaller retail chains, which offer unique merchandise and/or very friendly consumer services. Reduced numbers of retail locations will be the norm as consumers become less focused on material acquisitions.”
Fram predicts the “Wheel of Retailing,” at some point will then be introduced, showing the way to the evolvement of a new innovative form of retailing—“the 21st Century Store.” The wheel, a strategic model formulated in 1957, traces retailing history back to the 1800s and concludes that every new form of retailing begins with discount strategies of low prices and limited services. As time passes the retail institution then moves upscale through costly services.
“For example, department stores in the latter part of the 1800s enticed consumer to shop for low prices only supported by limited services,” Fram explains. “These organizations offered fewer services than the smaller country stores. They then added more costly services, such as delivery, and subsequently evolved into modern department stores we know today.
“Similarly, discount stores, beginning in the late 1940s, offered low price and limited services to compete with the established department store. They were followed by the category-killer stores and the big box operations as the discount strategy became more widely accepted.”
Back to the Future via Technology“Technology will help lead the way to the next innovative form of retail store,” Fram says.
- “Operating costs will be substantially reduced by RFID chips, self check-outs, completely automated supply chains, automated grocery purchasing, virtual apparel purchasing and electronic dressing rooms. Some of these technologies are already available in their infant stages.”
- The department store could be a new type of retailer with electronic support that allows the customer to virtually see herself quickly in a garment. If purchased, the garment can be delivered within a few days at a discounted price from a central warehouse or at a regular price if taken home directly from the store.
- Huge cost savings could develop if large retail chains could reduce inventory-carrying costs by delivering merchandise from a small group of central warehouses instead of from a myriad of individual retail store locations.
The 21st Century Store
Fram advises business executives to look to technology to help retailers to make the next major moves as the Wheel of Retailing revolves again in the 21st century.
“But the installation of the new technologies will be costly and risky,” he says. “Many instillations will require huge capital costs which will need venture capital support because of the developmental risks involved, and the poor current performance of much of the retail industry.”
Fram believes the 21st Century Store will appear along the lines suggested by the Wheel of Retailing strategy when venture capitalists once again substantially support retail change.
“But how can basic human needs for touching, feeling and smelling the merchandise be factored into the new model? Or have we reached the point of human development where these needs are significantly declining?”
Editor’s Note: For interviews, Eugene Fram can be contacted directly at his office (650) 391-9015, cell (585) 732-6817, or firstname.lastname@example.org.