28 December 2019

Death Spiral

Old school transactions...

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The Main Street retailer says, “I sit in my store all day and wait for customers to come in and buy my inventory. My selection is limited by space constraints, I have fixed costs that include employees, rent and the costs of that limited inventory. My business relies on you to come in, try things on/out and pay for them… here.”

The online seller says, “I have a tiny staff to serve a town of a million, not a few thousand. My “inventory” is virtually unlimited because most of the time I don’t have to pay for it until I have an order from the buyer, but my rent and other expenses are tiny. I don’t need to sit in my virtual store and wait for customers to show up. And so what I sell costs a lot less...both relatively and actually.”

The local retailer depends on two distinct groups of people for the survival of his business:
  • Folks who needed or wanted hands-on service, the ability to touch and/or try things on and the chance to chat
  • People who didn’t demand those things but had no choice because there were no other options
When online showed up, the second group defected… quickly. With only the first group remaining, most local retailers are doomed.

Worse?

Retail is just one of the traditional businesses or means of generating income.

It’s not the only 1 under assault.

The answer isn’t to figure out how to be the cheapest... you can’t. The answer is to figure out alternative, non-correlated income streams.

Can you guess which one I prefer?