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.
A holy temple of consumption? (Photo: Jorge Fernández Salas)
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.
Norbert:
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!
Light, easy, tempting, a honey trap? (Source: Zalando)
Guido:
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.
Brands promoting their Zalando online success (Source: Zalando Connected Retail)
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?
Norbert:
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.
Only C&A may not need to worry that someone is offering their brands for cheaper (Source: Zalando Shop)
Guido:
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.
The future will show whether multibrand retailers on Connected Retail can last (Source: Zalando)
Norbert:
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.
Guido:
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.
Strong Zalando marketing or a true long-term partnership? Time will tell. (Photo: Zalando)
Norbert:
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.
Guido:
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.
Your perspective on Connected Retail, Market Places or retail and brand distribution in general, share it with us here
Norbert:
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.
Guido:
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.
Gucci going TNF or Luxury going hiking? Who knows, but a reality in post-Covid brand distribution (Photo: Highsnobiety)
Norbert:
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.
Guido:
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.
Are these the hands of one of the many mystery forces that drive the change in consumption? (Photo: Kaitlyn Baker)
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.
Master Yoda sketched by a consumption and star wars fan (Source: Wikimedia Commons)
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.
Guido Schild works in both worlds, online and retail. Today he coaches startups and grownups alike. Read more of his work here or connect with him on LinkedIn.
100% agreement with Norbert. What Zalando is selling here as win(customer)-win(retailer)-win(Zalando) is in reality the total capitulation of retail with its strong brands, which gives away everything, even the most sensitive data, and only makes Zalando stronger. The people never feel the devil, even if he had them by the collar! (Goethe)
I miss the view of the customer in your discussion, they are confirming by using the services, that they want these ways of shopping. The biggest topics you have to pay attention on are your brand rules and the transparency of your pricings.
Your thoughts reflect the current situation quite well.
Since I have come to know many different formats and brands in several European countries on the operational and consulting side, I see the following scenarios for the time after Covid 19:
-Brands and Formats that already before Covid delivered rather too much merchandise to the stores, may be forced from a cash flow point of view to let the platforms help??? them.
(Old) merchandise in excess and thus inevitably high mark down sums with insufficient frequency will otherwise lead to collapse.
– Brands with a high profile and many stores that have their own online presence but have only been able to generate sales above 30% have usually invested too little effort and good marketing in this area. Therefore, perhaps connection to platform for defined period and expansion of own online activities.
– Brands with many stores, especially those from the wholesale/retail sector, need to restructure their merchandise management.- Brands with many stores, especially those in the wholesale/retail sector, must reorganize their merchandise management. The proportion of merchandise that is “temporarily stored” in the in-house reserves ties up too many working hours, which are then no longer available for the necessary customer focus for cost reasons. Customer service is the differentiator between off- and online retail. The customer is the deciding factor, not the planned cost structure, which is out of balance due to poor merchandise management and high wholesale pressure.
– the return rates of a platform cannot be traded alongside in normal offline retail operations and are at the expense of customer service
Fantastic