October 11, 2017 - Comments Off on The New Retail Ecosystem Needs Traditional Chains

The New Retail Ecosystem Needs Traditional Chains

Twenty years ago, I watched the movie You’ve Got Mail starring Meg Ryan and Tom Hanks and hated the fictional big chain Fox Books (owned by Hanks) for driving Ryan’s small, independent book store out of business. After the closing is inevitable, Ryan writes in one of their AOL Messenger exchanges, “My store is closing this week. I own a store, did I ever tell you? It’s a lovely store, and in a week it will be something really depressing. Like a Baby Gap.”

For years, the traditional retail chain has been the villain. Retail chains so big that small, independent stores can’t compete. They get squashed by the 600-pound gorilla who sits wherever he wants. But the fallout from the Toys “R” Us bankruptcy suddenly casts this movie in a new light. The big chain retailers are still 600 pound gorillas, able to drive the independent stores out of business. But now they are equally endangered, and the success of entire industries rests on their survival.

The mighty Amazons and Wal-Marts of the world have left the single category chains vulnerable.  However, it is imperative that these big chains do not die. Much like how the 600-pound gorilla is an apex predator in its ecosystem, single category chains are apex stores in the retail ecosystem. Traditional retail chains now anchor the brick and mortar shops by giving suppliers a place to sell goods at full price, year-round. They provide the manufactures with a place of resistance against the price wars indicative of the online and big box retailers. This explains the unwavering vendor support Toys “R” Us has been getting since its bankruptcy announcement last week. Toys “R” Us is the last remaining single toy chain standing. If they fail, suppliers will lose their last leverage point.

Isaac Larian, founder and chief executive office of the toy manufacturer MGA Entertainment, Inc. described the importance of the relationship, “Oh my God, they are very important, and people don’t understand. I’ve always said that is there is no Toys “R” Us, there is no toy business.” Larian said he has already shipped his holiday goods to Toys ‘R’ Us and will continue to do so, and he is one of many toy vendors saying the same. Why? Suppliers know that without Toys ‘R’ Us, the toy industry will topple.

The toy industry’s dependency on Toys ‘R’ Us as a single category chain is not unique. Best Buy holds up the electronic industry after the closings of Circuit City and HHGregg. Home Depot and Lowes share the responsibility in the DIY home improvement industry. And Barnes and Nobles now bears the cross after Borders’ liquidation. Without these single category, traditional retail chains there would be no single electronics industry; no single DIY industry; and no single book industry. In today’s world, it is a symbiotic relationship between small independent stores and big retail chains, rather than the competitive world of twenty years ago. The success of the small shop owner is directly tied to the success of the chain store. They need the chain retailers to survive, because without them there are no single category industries. Traditional single category chain retailers serve as apex stores in the retail ecosystem, supplier leverage points. Without them, entire industries would fall.

It turns out the big, bad Fox Books might just be the hero after all.

Jane Broadbent
Senior Strategist

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