Managing in a time of great change

Europe 1993, Britain, France, Germany, Italy, Belgium, Austria, Switzerland – all with the same lament. European economic unification is at a standstill in manufacturing and finance. But in retailing, where no one expected it, economic unification is galloping across Europe.

Ten years ago, Aldi, a food discounter was still purely German, now it is present it seven European countries with 3,300 stores. Other food discounters – German, French, Danish – are expanding with similar speed from Spain to Norway. Sweden based lkea now dominates Western European’s furniture business and is opening stores in the former Russian satellites. Italy based Benetton and Britain based body shop are becoming market leaders in one European country after another.

The internationalisation of retailing is by no means confined to Europe. Japanese retailers both food and non-food, are rapidly expanding in China. Ikea and Benetton have nearly as much market penetration in the United States as they have in Europe, America’s Walmart’s is set to cover Mexico with Sam’s clubs while Toys ‘R’ Us is pushing aggressively into Japan.

The new retailers rarely speak of “re-engineering” to them it sounds too much like manufacturing. But they constantly redefine operations. Indeed many redefine the entire business. Wal-Mart’s success, for example rests in large measure on its redefining retailing as the moving of merchandise, rather than its scale. This led to integration of the entire process – all the way from the manufacturer to the shop floors. Real time information about customer purchases cut out three tires of warehouses and the full third of the costs of traditional retailing. Yes, Walmart carries thousands of items. Spar, another German discounter is going further still. It will carry only 200 items that a family will purchase every week. Another deep discounter will carry only the 200 items needed for special occasions, nothing which is needed to be bought regularly or often. Quite different! Ikea can sell at a lower price because it realised that half the cost of finished furniture is final assembly. Provided that parts are meticulously engineered and instructions crystal clear, anyone can do the final assembly at home.

For traditional retailers service means salespeople who personally take care of individual customers. But the new retailers, service means salespeople who personally take care of individual customers. But the new retailers employ very few salespeople. Service to them means that customer do not need a sales person do not need to ask and do not have to wait – customers know whether the goods are the moment they enter the store, what colours, what sizes, and at which price. Service to them

means providing information.  But service also means getting the shopper out as fast as possible.  There is no shopping cart.  When a customer want a particular item she just puts her credit card into a slot on the shelf and does so many times as she wants the particular item.  Her purchases are packed and waiting when she is ready to leave.  All she has to do is check her goods and sign a prepaid credit card slip.

Ray Kroc, the founder of McDonald’s the first, the most successful and the most multinational of the new retailers is reputed to have said, “A mother with two small children does not come to our store because the hamburgers are delicious.  She comes because the restrooms are clean”.  This is often considered to be pure whimsy.  But it was mean to express, a radically new concept of what “shopping” means.  A good customers want shopping that is painless.

Shopping without a store is not science fiction.  But it is still speculation and a lot of hype.  But even without any technology retailing has already changed.  The changes are having profound effects on advertising, on customer good manufacturers, and on the structure of the economy.  Retailing rather than manufacturing or finance, may be where the action is now.

Today in 2006, as we read Drucker, we can only be astonished by his breadth of vision, his objective realism and his gripping predictions.  The management of change is a subject that has been undoubtedly the principal preoccupation of management thinkers in the last few decades. To quote Drucker, “It is not so very difficult to predict the future.  It is only pointless.  What is always far more important are fundamental changes that happened though no one predicted them or could possibly have predicted them”. 

Excerpt from Practice of Management by Peter F Drucker