A Fresh Opportunity for Niche Retailing?

Jan 25, 2005

By Al McClain

It’s no surprise to anyone in the retailing industry that traditional grocery store market share dropped from 44 percent in 1993 to 35 percent in 2004, mainly due to increased competition from Wal-Mart. What is more surprising is to hear Carl Steidtmann, chief economist at Deloitte Research, posit that the retailing industry will de-consolidate over the next ten years, and that niche retailers will experience the greatest growth.

At the FMI Midwinter Conference on Monday, Mr. Steidtmann noted that Wal-Mart is now growing at a pace of around 10 percent versus 30 percent as recently as 1996, is increasingly encumbered by lawsuits (to the tune of 4500 in 2002) and local opposition, and are starting to become promotional, even though their strategic advantage is EDLP.

Meanwhile, consumers are becoming polarized in several areas: politically; married vs. single; young vs. old; and rich vs. poor. Ethnic minorities are growing as a percentage of the total. The population is growing heavier but in denial about it.

Big business, in general, has not responded well to the changing needs of the populace. For example:

  • eBay, rather than an existing retailer, created perhaps the world’s biggest e-commerce center.

  • Netflix has outmaneuvered Blockbuster by offering greater selection and convenience.

  • In traditional grocery, much of the growth is in non-traditional areas such as natural and organic food, ethnic-oriented categories, and nutraceuticals.

  • Large retail developers often plunked mega-malls into diverse neighborhoods, which would be better served by smaller centers with niche shops catering to a variety of needs.

The net, net is Mr. Steidtmann believes retailers need to decide which end of the value chain they are on: be big, efficient, and drive costs down; or be part of their communities, provide great service, and succeed in niche areas. He sees more growth in the latter and thinks the store of the future will be smaller, employ fewer workers, be better connected to consumers, and be unique to its area.

As many retailers have become generic, large, and impersonal, there could be a big opportunity for new or small retailers to come in and cater to specific groups by recognizing and marketing to those consumers’ needs. Examples of companies who’ve done this might include Starbucks, Harley-Davidson, Dell, Chico’s, and Nike. While these aren’t all “small” or even “pure retailers,” they are companies who’ve identified very specific unmet consumer needs and met them.

Moderator’s Comment: Which retailer have you seen recently satisfying unmet consumer needs? What specifically are they doing to effectively compete with
larger competition?

The lately maligned Krispy Kreme is still an example of an innovator offering a unique (and some would say better) product than their competition. They
offer hot, just-made product, allow consumers to see the manufacturing process, operate clean stores with “retro” looks, and sample frequently. Once the low-carb phase passes,
and if they get their financial house in order, there is a lot of room for growth.

Al McClain – Moderator

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