Retail empires, such as Walmart, Macy’s, and Sears, are coming to a slow yet imminent end – but not for the reasons one may initially assume. Their demise has nothing to do with a failure to secure suppliers or running short of products to sell. Instead, their impending fall comes as a consequence of the very business structure that had once made them so powerful. Built in an era where being an empire was the only sure path to power and competitive dominance, companies such as Walmart and Macy’s are products of an age where to be successful as an organization was to be inherently isolated, preeminent, and monolithic. An age where cornering a market was only possible after infrastructure development, aggressive marketing spending, and massive capital investment. In the post-Internet era however, retail empires are steadily giving up ground to retail networks. Due to poor sales in the 2016 holiday season, Macy’s announced that it would be closing 68 stores nationwide, a move that would lead to a loss of over 10,000 jobs. Furthermore, according to CNBC, the company plans on investing $250 million of the projected $550 million annual savings from these closings into its digital business. Macy’s is just one retail empire on the long list to close down a number of its brick and mortar stores; Toys R Us, JcPenney, and Michael Kors –among many– have also announced sweeping closures. In short, as summarized on a Clark Howard Radio show, “retailers on this list are closing stores because they’re not giving people what they want in terms of things like price, fashion and selection. As a result, shoppers are increasingly turning to online and discount merchants for better deals.” There are some who still favor the “retail empire”, such as Heather Chaplin, who in an article for the New York Times, writes, “With online shopping, making purchases has become an algorithm-driven, frictionless experience of terrifying efficiency. [...] Online retailers cater to this utilitarian drive, and we in turn forget there are other ways, that there is value in a pleasurable experience even if no item is delivered the next day.” The term “empire” has come to refer to an archaic form of commerce, excluding new technologies necessary for success in the modern economy of today. What’s more, It’s becoming abundantly clear that networks, not empires, are the retail and service models of the future. For example, Airbnb, now merely nine years old, will annually put more people in more rooms than the Hilton Hotel chain. Smartphone connected Uber cars now outnumber yellow cabs in New York City. Empires are rooted in ownership and control; therefore, they scale very slowly and are inherently capital intensive. Also, due to secrecy in terms of innovation efforts, empires adapt to changing consumer and market dynamics at a sluggish rate. And because so much energy goes into simply sustaining the empire itself, it depletes energy that could be spent for innovation and adaptation, thus beginning a downward spiral of value. Networks, on the other hand, are structurally lean and scale rapidly. For the most part, they operate transparently and collectively, and are more fluid, flexible, and adaptable to change. And because networks demand less energy devoted to maintaining infrastructure, they can dedicate more of their energy to their business model, leading to success for the network as a whole. Can retail chains transition from autocratic owners of empires to collaborative operators of platforms and ultimately evolve into networked businesses? It’s not impossible yet unlikely; the empire mentality runs deep in these old era companies.
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