Why aren’t more small and mid-size retailers using the  on-demand business model?

On demand business model

While store-based retailing grew an anemic 1.4% in 2008, the 500 largest on-line retailers grew 11.7% in 2008.This is even after factoring in that eBay reporting that U.S. gross merchandise sales (excluding autos) dropped 7.7% last year to $21.6 billion.

Here’s the reason why, and how to apply the on-demand supply method to any retail business…

 Let’s say that like most Americans you live where the winter is cold. Gasoline is $4+ per gallon, there is snow or ice on the ground, and you have holiday shopping to do.

You can get into your 4 wheel drive that gets 14 MPG and drive in traffic to the nearest mall, risking your life on those icy roads.

The mall parking lot is very full, so you have to park a considerable distance away. You trudge through the parking lot in the freezing cold, fight the mall crowds, make your purchases over the course of four+ hours… Schlep your packages back through the mall parking lot in the freezing cold, put everything into your crossover vehicle and fight the traffic just to leave the mall parking lot…and then even more to get home, again risking a crash on the icy roads.

You get home, bring your packages into the house. You can gift wrap them now or find a suitable hiding place.

Now for the today’s consumer’s version of this story.

They go online. They can compare prices and see thousands of products in a few minutes, make their selections, even have them sent gift wrapped to the recipients in many instances. A few days later their selections arrive at their door, often at a perceived savings, because mall rent, store staffing and warehousing inventory is very expensive and didn’t need to be factored into the price.

Wow, now they even have more quality time with their family during the holidays!

This was the scenario for millions of Americans during the last holiday shopping season, when over 25% of all retail purchases are made in a 6 week period. More to factor in…the majority of e-tailers do not keep inventory. They have the goods drop shipped from the manufacturer/wholesaler/importer’s warehouse direct to the consumer. It has all of the e-tailer’s tagging and packing lists. When new goods or improvements, price reductions, etc are made they can make the changes with a few key strokes, not paying store personnel to make those changes and waiting for the latest and greatest products to arrive. They also can take instant advantage of post-holiday price reductions without selling stocked merchandise below cost just to unlock valuable dollars.

This is the future of retailing.

How can that small to mid-sized “bricks and mortar” retailer (the industry term used to describe retailers with a physical presence rather than being on-line) compete with the Walmarts of the world in today’s economy?

Well, one of my clients, a small chain of lighting stores now only shows samples in their showrooms and tells their customers that their order will come to their door within 5 days. They don’t have warehousing and inventory costs, they don’t get stuck with ‘dogs’ that will not sell until they are reduced below cost. They buy on demand.

They were so encouraged by the new business model that we developed with them with that they now opened a website carrying all of my products and it now accounts for 60% of their business, a business that grew 50% last year.

The future of retailing or the past, you choose. Can you spell D I N O S A U R ?