Different Cliffs, Different Bottoms, Different Parachutes

There is a kind of confusion that happens anytime there is a major historical conjuncture where histories of failure and crisis which have independent roots happen to coincide. Because they coincide, they become part of the same “event”, and by becoming part of it, they genuinely aggravate each other and create an accelerating feedback loop of disaster and collapse. Once that happens, you don’t have the luxury to pick apart those separate histories and imagine how they might be resolved in their own terms any longer. But somehow it seems important to me to remember when there is a massive collision of three or four trains that they came from different places and were originally heading towards different destinations.

Looking at the current economic global economic crisis with this in mind, while the drop in consumer confidence and its impact on consumer spending is now firmly fused to the massive failure of the financial system, I think it’s important to keep in mind that some of the foundations of mass consumption in the U.S. were already showing serious strains well before the public heard about subprime mortgages.

Here I’m not merely referring to levels of credit card debt or the use of home equity to fuel consumption. I think the entire dominant architecture of retail consumption that took shape in the 1990s would have been in some degree of crisis by the end of the 2000s no matter what. Looking back, it’s going to be hard for future economic or cultural historians not to lump in the failure of stores like Circuit City or KB Toys with the Millennial Depression or whatever it is that we’re going to end up calling this whole event, but I actually think many of the retail failures reported in the last six months might have been coming no matter what.

Some of the issues that I think were already visible by 2000 among North American retailers:

1) Saturation of retail outlets. It isn’t just Starbucks: I think we had hit a point in the early 2000s where most communities simply didn’t need any new retail. But much as in the residential market, there were a lot of developers and construction firms that were built around the constant addition of new units, often without taking older retail out of the picture.

2) Saturation of product. Here I’ll agree with my colleague Barry Schwartz and many other critics of contemporary consumer culture: too much choice on store shelves, too much informational noise in the system, too many options and too much duplication, from cheap non-durables all the way up to big-ticket durables.

3) Failure to adapt to the affordances of online shopping. Not just too much choice, too much of it a false choice. Too many shell-games going on where manufacturers bought up shelf space in large brick-and-mortar stores and filled it with variant forms of the same product while those same stores failed to keep deep back catalogs of goods or to stock “long tail” items that might make shopping at that store a real destination experience. Back when a store like Borders first appeared, before Amazon, it was a place you’d drive to just for the depth and variety of their catalog. I remember taking a special trip to the one that opened near DC precisely because it had so many books across so many categories. I freely concede that brick-and-mortar stores now, whatever their size, can’t compete with Amazon’s catalog. But most of them have completely given up entirely on having a selection that goes beyond the last six months of product. This leaves those stores with an increasingly small customer base if they’re selling in communities with substantial online access: they’re selling to the people who can’t shop online, who won’t shop online, or they’re selling to people for impulse purchases of the latest merchandise where there is some value to physical presence or some special attraction to immediacy. (The latest Harry Potter, the newest DVD). Add to this that a great many big retailers still do not seem to recognize that many consumers now use the Internet to do price comparisons. I’ve heard informally from people that some of the chains liquidating in the last six months have taken product off the shelf, marked it *up* by 50% or 100% and then marked it down again to the price it was selling at before the announcement of closure. Yes, this is an old trick, but honestly, it works much more poorly in an environment where price comparisons are easier to come by.

4) Blind acceptance of the Wal-Mart model: squeeze the suppliers, reduce the quality, reduce the price, and hire a poorly-motivated minimum wage labor force to man the cash registers. Maybe this works for Wal-Mart, at least when it is going into retail spaces where the main competition are sleepy small-town Main Street retailers with small inventories at high prices. It doesn’t work in areas saturated with suburban retail clusters and malls. It clearly didn’t work as a model for a store like Circuit City and I don’t think it’s working for other retailers like Home Depot, Best Buy, and so on. Most of these bigger outlets and chains are now vigorously unpleasant places to shop in, pretty much the opposite of the spectactorial grandeur of mass consumption at the end of the 19th Century. Workers in these stores often know almost nothing about the merchandise they sell and have almost no desire to actively sell it to anyone. Many large retail outlets are laid out indifferently or confusingly, and have all the problems with the diversity and selectivity of their stock that I’ve described above. In a lot of cases, short-sighted middle management has added to the problem by requiring sales staff to aggressively push unnecessary warranties or robotically attempt to encourage customers to acquire consumer loyalty cards, to make the experience of shopping intrusive or unpleasant.

5) Saturation of personal ownership, particularly leisure and cultural goods. For example, the music industry, with its obsession about piracy, doesn’t seem able to bend its head around the possibility that another problem they have is that older music consumers may simply have hit a point where they don’t need or want any more music–that they’ve assembled the back catalogs of work they really like and are now vastly more selective about what they might want to add, limiting to new work that they enjoy or the occasional addition of older work. Or maybe they do understand it, hence the constant drive towards new formats with the insistence on sabotaging their compatibility with old formats. This is the only thing a lot of culture-industry and leisure-goods manufacturers get now: steal back the old stuff of durable quality that we foolishly sold to people and require them to buy new stuff where we stick in some expiration date or limitation on its use–rather than attending to the production of new material that might motivate many consumers to a purchase.

If one of the goals of stimulus is to get American consumers shopping again, then I think it’s going to take some substantial changes to the entire retail landscape for that to be more than a momentary upward blip in a relentlessly downward spiral. And at least some of those changes will involve rethinking the size, scale and ubiquity of retailing. Brick-and-mortar shopping needs to move back towards smaller but more knowledgeable and invested sales staff who are better compensated and respected for their work. It needs to offer better choices from a genuine diversity of goods, to build back catalogs and long-tail selections on the shelves, to look for local or variant producers. Retailers have to stop trying to manipulate information asymmetries about price, availability and quality to their benefit, and have to start investing in standards and regulations that improve the conditions of manufacture.

This ultimately means lower aggregate sales and fewer retail jobs, in all likelihood. But it’s the only stable long-term foundation for mass consumption that I can see. I’m absolutely not one of those critics of consumerism who basically loathes it from start to finish: there is a great deal to like about late 20th Century material culture in the U.S. and Europe, quite aside from the fact that consumerism is now the heart of the only global economy we can plausibly imagine. Retailers need to think about what’s gone wrong in the part of the economy that they control, and fix it independently of the fixes being aimed at the financial sector. If they fool themselves into thinking that Circuit City is the fault of Citigroup, then don’t look for the consumer economy to have a healthy revival regardless of what happens to toxic bank debt.

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16 Responses to Different Cliffs, Different Bottoms, Different Parachutes

  1. David Chudzicki says:

    If one of the goals of stimulus is to get American consumers shopping again, then I think it???? going to take some substantial changes to the entire retail landscape for that to be more than a momentary upward blip in a relentlessly downward spiral.

    I’m no libertarian, but it does seem to me that one thing government infusions of money generally do is motivate people/institutions not to change. It makes the old way work, when the old way doesn’t really work. Maybe there’s a way to put money into something that facilitates purposeful changes, but I certainly don’t see that happening here. Or with the car bailout (which goes to quality, and probably some of the other issues you’re talking about).

    Also somewhat related: I really can’t figure out why economics is always talked about in terms of growth. Who expects anything to be able to grow forever? I wish I had more knowledge with which to think about this, but I really want to know what shaped the perspectives of people who talk about growth as the goal.

  2. Laura says:

    I agree with David about the growth factor. I’ve never understood Wal-Mart’s or Starbucks’ strategy to literally be on every street corner. That’s some serious saturation.

    I personally hate shopping most of the time. I wish bookstores were more like Salons where I could sit with a book I just purchased and contemplate it. A bookstore I really like is City Lights in San Francisco. It allows for impulse buys not of just the most recent publications, but of a wide variety of product you might not even find easily perusing Amazon. That said, I have had a couple of good shopping experiences that perhaps the rest of the world could learn from. I like Ikea, but it, too, is becoming more like Wal Mart, but I do like experiencing all the rooms there and not just looking at shelves of product.

    When we went shopping for our couch, we went to many furniture stores and actually, most of them were quite pleasant experiences. The salespeople would ask us what we were looking for, point us in the right general direction and seek us out later without hovering. We were given good information, but were allowed to make our own decisions. I’d say it was a medium sell, but that was good for us. And the quality of the product was good. It wasn’t super high-end (because we can’t afford that), but good. And I think I’d like to see more of that–good quality products at reasonable prices. I feel like I’m stuck with either cheap crap from places like Wal Mart and Target or super high-end stuff from the boutique shops and there’s nothing in between.

  3. AndrewSshi says:

    I’ve kind of had similar thoughts in the mid-aughts as well. The main thing that I’ve noticed has been that I often visit a town that has a large outlet mall, and that mall seems to have been getting progressively less crowded since 2000, which makes sense in light of the fact that you can only add so much capacity to a system.

    I’m going to have to nitpick about your putting Best Buy into the list of stores that follow the “Wal-Mart model.” Every time I’ve been, the staff have been knowledgeable and helpful, and most stores I’ve been to have been well laid out. In fact, I think that some of your personal tastes might be influencing your thoughts on what’s wrong with retail, but that’s a longer argument (I kind of *like* big-box stores).

    One other note I’ve got is that this is all kind of irrelevant to me unless one of the relevant search committees chooses to do the right thing in the next few weeks and allow me to do my part to restore liquidity to the banking sector.

  4. Timothy Burke says:

    I think Best Buy briefly had a corporate moment where they invested in trying to train up their staff and improve their stocking, where their leadership was really clear that this was the future. But honestly? I’ve been in four different BBs in the Philly area recently and I’ve seen a striking decline in the levels of floor staff attending to people and knowing what they’re talking about, and I’ve found that their stocking of product is getting really weak in a number of areas. I seriously thought about buying a laptop in the one closest to us about six months ago and I couldn’t beg, borrow or buy the attention of the guy working the computer area for over 30 minutes, and when I did, he turned out to barely understand what a computer is, let alone be able to answer my specific questions.

    Keeping a retail staff well-trained and motivated is hard, and very few of the big chains have managed it consistently.

    In many ways, I like the concept of big-box stores: I’m certainly not one to argue on behalf of how small stores on Main Street were just great before the big-boxes came along and killed them. Even with bookstores: the truth is a lot of small independent bookstores sucked and deserved to get wiped out by Borders and B&N.

  5. Timothy Burke says:

    To clarify, by the way: I don’t think the federal government has any meaningful role to play in fixing the problems of brick-and-mortar retail. The retailers are the one who will have to fix things, pure and simple. Either someone builds a better model or the people who presently own the chains will figure it out and reform the way they do business.

  6. AndrewSshi says:

    Well, I haven’t been to Best Buy in a while, so things might have changed since I’ve been there. Or who knows, it could be a regional thing. But my last big ticket purchase there (my laptop) was a wonderful experience, and I’m a fan of their DVD selection.

  7. fridaykr says:

    Nice summary of contemporary retail failures. However, I
    I think that the retail trends you identify are inextricably tied to many factors, including the rampant leveraging, both individual and commercial. At the risk of simplifying, easy credit insulated retailers, for a time anyway, from the consequences of their poor strategies. Now it looks as though it is time for some businesses to fail.

  8. Timothy Burke says:

    I think that’s absolutely right: nobody had to build a better way to retail because the money kept rolling in even if you were selling low-quality merchandise in giant indifferently organized warehouses with a badly-paid and poorly-trained sales staff. But it doesn’t matter what happens next: I don’t think consumers are going to go back to whipping out the plastic with abandon and ignoring how dysfunctional most retail has become.

  9. AndrewSshi says:

    I have a couple of more thoughts to add on this. First off, none of this is good news for the PRC.

    More importantly, I think that there are some models for what you envision in retail staff. If you look at bookstores, college student hangout coffee shops, and record stores (at least up until a few years ago when people quit paying for music), in all three instances you have (had in the case of the last) retail jobs that pay peanuts, but for which competition is extremely fierce. As a result, the staff is far more engaged than in something like a big-box store. Of course this is possible partially because many of these jobs are worked by people who can draw on the Bank of Parents and don’t really *need* the money. So its hard to scale that model up.

    One possible way to scale this model up would be to have retails jobs outside of management be seen as something more than “holding pattern” jobs. That could possibly be done by increasing pay (say, starting staff out at eleven-ish dollars an hour and having regular raises), but then such an increase would put a *lot* of pressure on payroll.

    I think that the retailers who are best poised move to a better model would be stores like Best Buy, since you at least remember them having a not-sucking moment. After all, there are a lot of electronics enthusiasts out there–if you paid them more than most retail employees and gave them the chance to be able to get employee discounts on their techno-toys, you’d have a dream sales force.

    Again, I think a lot of the issues with employees is that it’s just hard to get really motivated staff when a retail job is usually seen as a stepping-stone to a “real job.”

    And I kind of agree with everything you said about supply chains.

  10. Timothy Burke says:

    Right. The supply chain thing is big. Look at what’s happening to *anyone* who makes peanut butter now. You can’t even say, “Well, we’ve got a good-quality supply chain, even if everyone else is Wal-Mart all the way”, because catastrophic failures are going to affect your sales as well. This is where the phobia about regulation has turned around to bite business itself in the ass: production standards that are not merely voluntary are a tide that floats all boats, if they’re done properly.

    I don’t care for Starbucks’ coffee, but I would say that they do a good job nurturing a welcoming environment in quite a few of their branches–pleasant employees, etc. At least some of that probably comes from compensation and benefits, not just training. A place like Best Buy would be a lot better off if it concentrated heavily on hiring people who really know their tech or their product and who have some good social skills and then paying them accordingly, as valuable employees, maybe reducing floor staff if necessary. Better to have fewer better people and make their jobs something they’d like to keep in the longer haul.

    Another thought: start distributing some of the managerial decisions–for example, if you build a highly-trained, well-motivated sales force, start giving them a bigger say over what gets stocked on the floor–figure out a way to pool collective knowledge inside the company’s sales staff about product, encourage them to develop knowledge about what’s coming, build their relationships as sales staff to suppliers. Try to thin out the middle of the company as much as possible, cut the layers between senior management and sales staff. The more responsibility and autonomy that retail staff on the ground have, the more stake they’ll have in the company’s business over the long haul–if they’re appropriately compensated and rewarded for that. But this won’t work if it’s just B-school middle management voodoo bullshit, if it’s just p.r. covering up a reality that sales staff are treated as disposable units, or if the people who get a managerial responsibility are the drones rather than the folks who really know what the product is and how to sell it.

  11. Bill McNeill says:

    One nit with AndrewSshi’s last comment: the three retail models you mention–bookstores, college student hangout coffee shops, and record stores–are all shops that convey social cachet to the staff. You’re willing to work for peanuts at the local record store because that’s what the cool kids do. This won’t scale to selling TVs and lawnmowers.

  12. Timothy Burke says:

    Important point. But, on the other hand, almost any commodity potentially could be sold by people who know it well and know something about the end users. Another business that I think has mostly done a good job of creating a sales culture that works, for example, is Trader Joe’s. In fact, Trader Joe’s is really interesting because seems to have handled its nationwide expansion surprisingly well in many respects. Generally it has a smallish footprint, very carefully selected stock, good pricing for good quality, and the staff usually know quite a lot about what’s in the store and seem generally pretty happy to be working there. I’m sure some of that is showmanship, but still, it’s a model to look at.

  13. dmerkow says:

    Great discussion of the retail situation. The irony with Circuit City of course is that they fired all their well-paid tech geeks about 3 years ago, because it supposedly cost them too much money. Instead they shifted to the Walmart model of low cost, low quality help. They also made a big mistake in abandoning white goods about 5 years ago.
    One of the challenges with moving to a better kind of retail is that it became the great vacuum cleaner of employment for folks between jobs, those lacking skills for regular work, those laid from manufacturing jobs, and those with a need for income without serious time or intellectual commitment – I’m thinking of here of students of all ages – high school up through grad school.
    I’d add that the lose of the owners of smaller retail establishments has done real damage to the American middle class. Running a small retail business was a good way to be an entrepreneur for centuries basically and that all started to disappear with a vengeance in the 60s.
    Supposedly Macy’s is going to try a variation on letting folks closer to the store floor choose the merchandise. I speak from a couple years at Macy’s, siblings at OfficeMax, Circuit City, JoAnn Fabrics among others.

  14. Doug says:

    I was trying to remember whether it was Circuit City or Best Buy that did the big layoff thing. Thanks dmerkow! That’s the point where it would have been good to hang a few MBAs, pour encourager les autres.

    The deeper challenges are all there, too. Even 15 years ago, when I was in the business, bigger book chains could profitably sell certain books for less than what independents had to pay for them wholesale. There was some kind of class action suit by the independents, but it didn’t go anywhere. Now that Amazon has been doing to the chain superstores what they did to the independents long ago, it’s hard to see where things go next.

    And of course giving more power to people closer to the customers means that people higher up in the hierarchy will be giving up power. Long odds, I would think.

  15. Arashinomoui says:

    Interesting thoughts, especially as I’m about shoulder deep in a marketing case analysis for Sear Canada. As much as I want to rail against the acceptance of Wal-Mart marketing tactics, as far as it goes within the Canadian market for department stores, Wal-Mart has forced out all but Sears Canada and Hudson Bay Company since it entered the market in 1994. The discounter market is huge and monolithic, and due to the growing wealth disparity, the options aimed at the middle-income customer are folding because price and convenience are such a huge factors.

    Which also answers why there are so many Wal-Marts and Starbucks, someone looked at the polling and market data and saw that the two key factors for most market segments that Wal-Mart is concerned with is convenience of location and price. Quality and service rank a distance 3rd and 4th, if I recall the article correctly.

  16. SamChevre says:

    But, on the other hand, almost any commodity potentially could be sold by people who know it well and know something about the end users.

    That was the pre-Nardelli Home Depot model. Most of the floor workers were semi-retired tradesmen–so if you went to the plumbing section, the guy to talk to was a 60-year-old with bad knees who’d been a plumber for 40 years.

    Why anyone thought this model could be improved is beyond me.

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