The Brand Business Model for many established brands and retailers has sadly not been enough to deal with the Next Normal
It’s failed to stop many closures even before the pandemic, and Covid has only accelerated this trend.
Are the “old” failing and the “new” winning?
(Note : The terms “new” and “old” used in this article to describe brand business models, rather than the age)
As we are moving into the “Next Normal” with unprecedented pace, no one is immune to the new realities. However, we are also seeing new players winning with new business models, and innovative approaches.
Is this just Darwinian cleansing at play? Or, because the “old” can’t learn “new” tricks. Or is it even a “New emperors without clothes” hubris?
Many believe retail’s DNA – high transaction intensity, short planning cycles and low growth/low margin – makes changes and innovations difficult. This could be true, but this could also be seen as an excuse, if you consider “new’ players have proved otherwise. Maybe it is rather some long held retail tenets and business models becoming outdated, and less in tune with the “Next Normal”?
For example, how much management time and resources are we investing on “location, location, location”, “brand experience”, “retail is details” and “focused on core”, compared to the efforts we spend in seeking out innovations, and new business models?
Are you adjusting the old business model or creating new?
Many brands are arguing over the right product colours, detail store displays, weekly jaw ratios, and same comp store sales in endless executive hours, and look at their business models at the ritual annual board strategy review for only a few.
The baggage of BAU (Business As Usual) models and metrics are overpowering. Many BAU business priorities and agendas are still driven by branding gurus, established designers, seasoned accountants and battle-hardened store operators. Many of them may not have the relevant skill sets or right motivations to explore new business models.
If you sell furniture on the internet, for example, you could feel more like a tech company than a retailer. Ultimately it is the brand business model that maters, not the product, brand or stores.
But most of us love old “furniture”, often too much. Make no mistake by holding on to the past for too long. Accelerated by the pandemic, consumers are now more willing to switch brands, channels, locations, and are seeking new definitions in availability, value, and convenience.
It is not the strongest (brand) that survives, nor the best (product). It is the one with the right business models that adapts to the Next Normal. With that in mind, focusing just on product, branding or sales growth is no longer enough. Increasingly it is about resetting your business models by anticipating the Next Normal.
Rethinking Business Models with First Principles
The core of the brand and retail industry is to offer products to consumers (people search product). In the old world that is either in a high street store or a google ad. But increasingly this is reversing to “product-search-people “ when data and AI rule what offer consumers get to see. Especially when digital native generations (“Gen-Z”, and generation WFH) meet digital native retailers.
So, how to rethink brand and retailing? Like with many life and business problems, think in First Principles (from both physics and philosophy perspectives) by boiling down the problems into most its fundamental truths. If the core of retail is about connecting the right products with the right consumers/users, the most basic brand elements are users, products, and touch points. The First Principles Thinking Model (FPTM) is all about how to maximise the values of these basic elements, and link them into a new business model.
However, like most things in life, it is never easy to distil old practices into the underlying truths. First Principles lead us to re-examine our very “soul”, and challenges life-long assumptions, beliefs and thought processes.
Resetting the Business Model
Nevertheless, there are many “new” brand business models maximising the potential values of the basic elements by leveraging their brands, capital, skills and technologies.
Just in September Daniel Zhang (Alibaba CEO) unveiled the Xunxi Intelligent Factory in the World Economic Forum. Xunxi factory has brought a fully digitized new manufacturing model to life. A video link is here.
In October, Ms. Dai Shan, a partner of Alibaba Group, presented in a press conference with an outfit selling in Taobao for 68.8 RMB (around 10 USD). In her view, “ the brands can now focus on refining products. Just like artists, all other traditional tasks such as material sourcing, design, logistics, financing and marketing can be completely through fully managed digital solutions. This division-of-labor between brands and platforms is key to direct-factory models (C2M)”
Alibaba could integrate Xunxi factory with its TMalls, Toabao livestream platform, last-mile delivery, Ant Financing , and Alipay in a full suit of cloud based solutions, and potentially offer SaaS /PaaS (Software as Service/Platform as a Service) model for the apparel industry. In this model, anyone in the fashion apparel industry no longer need to build or own these capabilities anymore, you can now just subscribe and pay for these services as you need basis.
All players in apparel fashion value chain, from factory, sourcing agents, brands, retailers, supply chain operators, to apparels marketplace, could either compete with or enable by this SaaS /PaaS model. This model will empower new startups, digital native brands, and small players to compete more effectively, and taking business away from the established players. Obviously, this ambition does not limit to only apparel industry’s and will extend this model to other product categories.
Many other businesses maximize the potential values of the basic retail elements (users, products, contact points ) with their brands, capital, skills, acquisitions, and partnerships. For example:
- IKEA became a major mall and retail park developer with its expansion into Ingka Centers
- Simon Property Group, US largest REIT, plans to reset its business model with a series of brands acquisitions
- Walmart intending to acquire a 7.5% stake in TikTok “to create the marketplace of the future”.
The “ old” is more about cumulating incremental improvements, which surely is a must for any business. But if without a relevant business model, this could also risk of cumulating incremental relative declines, or slow death.
So, what is your business model strategy? Looking for incremental changes, or resetting your business model to face the Next Normal?
About the author:
Yoon Wai Leong is a seasoned business practitioner, with more than 20 years of experience in managing global organizations in China and South East Asia, merging the best of the East and West