A long time ago in a galaxy far, far away… (retail) humans and many species of (online) aliens co-exist with robots who assist their routines. Travelling between planets takes place offline as well as online. The same goes for shopping, where retail spacecrafts range from small starfighters called mom & pop shops to battle stations such as the moon-sized Death Star (called Zalando).
A mystical power known as consumption, an energy field created by all living things, binds the galaxy together. Those for whom this power is strong are able to perform various superpowers such as luxury spending, indulging or bargaining.
The mystical power is fed by two knightly orders at conflict: the Retail Jedi, peacekeepers of the high street who act on the light side of consumption and in the ‘real world’, and the Online Sith on the dark side who eliminate competition by the means of huge capital influx and tax evasion.
The Retail vs. Online Battle
Apologies to Georg Lucas for twisting the Star Wars plot to fit our own world. It’s shocking how little we had to adapt the Wikipedia entry to match today’s retail reality. Let’s listen to our two knights Norbert and Guido cross their lightsaber over retail vs. online.
Zalando Connected Retail is aggressively marketing its service for all types of high street retailers, promising to transform their business into the bright digital future. And until the end of Q1 2021 even without any charges. It is a honey trap and the last nail to the coffin of retail formats like independents, verticals, brand and department stores. They should all resist and not fall for the trap!
You can’t blame Zalando for smart marketing. The question is, does Zalando Connected Retail do any good for brands & retailers? I think it can, but it depends very much on where you stand in your development as a company, financially and digitally.
If you are strong in both areas, you look at Connected Retail as just another distribution channel to test. If you desperately need every single sale because you are fighting to survive, every sale contributes to your cash flow. Sure, that may not be enough to save your company any more. But is Zalando to blame for that or someone else?
Of course it’s tempting for retailers to get the chance to reach millions of additional customers. But serving Zalando’s online customers risks spoiling the service to your own loyal customers. Stores are planning, ordering, displaying for the millions of Zalando customers? No, you do all this for your own retail business as that’s the only thing you fully control. Additionally, you will face the pricing problem: There will always be someone offering exactly your product cheaper.
I understand the emotions. But in the Connected Retail programme it’s Zalando who shares their traffic so brands and retailers can benefit from it. Yes, this is not charity but a smart strategic move. After all, every online sale is one less offline sale. Smart brands and retailers will see it for what it is, and the rest will hopefully gain some learning.
But with Zalando Connected Retail all brands and retailers across the country are competitors. The past has proven, that you can co-exist with brands expanding with their own retail stores. But only as long you don’t overdistribute. Otherwise it kills brands and retailers because they forget the most important thing, to cater to their own loyal customer.
I tend to believe that there is no such thing as overdistribution, as brands like Nike, LEGO or multibrand retailers like Decathlon demonstrate. If your consumer proposition and business model is strong, you persevere and grow for many years to come. Similar to Covid-19 infecting humankind, if you have worked on your company’s health over the last few years, you have a good chance to get through this.
Apologies for the polemic, but before retailers strengthen the Death Star further, aren’t there more intelligent ways to improve digital competence? Zalando Connected Retail turns beautiful stores into distribution centres, while retail consumers wait in store because staff is busy packing online shipments? Look at the food delivery drivers waiting in the restaurants while you try to dine as a guest. No, that is not what I want my retail experience to be like.
Very true, me neither. But advanced retailers and brands have handled store shipments before, and most were happy to have the flexibility to ship from store while stores experience downtimes and online is booming. Already pre-Covid many high street stores had unproductive dead areas, huge basements or empty top floors. I strongly believe that post-Covid is the time where brands and retailers will finally rethink their role and services, and how they want to operate.
If you are happy to feed the predator, go ahead as that’s what Zalando Connected Retail is. Give them one of your most important assets, your data – be it customer or product sales data, categories, sizes, and so on. In my experience, that used to be one of the things you never gave up to the competition.
Welcome to a shared economy where North Face co-brands with Gucci and C&A taps into Zalando’s online customers. I question whether Zalando truly gains insights that they don’t already have. And it enlarges consumers’ choices in products and pick-up (home delivery or pick-up in store). Even for retailers, Connected Retail is a chance to provide a loyal (Zalando) customer an outstanding retail experience, something Zalando cannot offer.
In the end, the high street retailers participating in Zalando Connected Retail will be killed by the Death Star in five steps:
- Zalando will invoice for every order generated. The free trial period will be over rather sooner than later.
- More than 50% of your deliveries will be returned by the Zalando customers, with you paying for delivery and return.
- For a better ranking on the Zalando store, you will be invoiced for marketing spending.
- Zalando has received your customer and product data = the invisible invoice.
- One day, the last loyal customer will be lost to Zalando = mission accomplished, coffin closed and nailed. You will be closing down your store and Zalando opens another (lossmaking) outlet in your former space.
A strong statement, but much of what you blame Zalando for, is true for online in general and often driven by consumers’ convenience. And we both love those services too. Nobody is going to turn back the clock. Whether by 2030 uninspiring online multibrand will rule, or rather online savvy and beautifully serviced offline retail concepts will entertain and sell best, remains to be seen.
And the Future in Retail and Connected Retail?
We leave the battle here. Like with Star Wars and Disney, the online vs retail saga may continue for a few more years. And like with the Sith and Jedi, not all is simply black and white in retail and online either. Everyone on that particular battlefield will have to find their own role and future.
Above all: May consumption be with you.
About the Authors:
Norbert Steinke had a successful career in retail, while pushing for brands’ online distribution. He is now an advisor to investors, both financial and strategic. Read more of his work here or connect with him on LinkedIn.