Ecommerce – lessons for bricks and mortar organisations

In 2018, Toys ‘R’ Us became a casualty in a retail sector that is overbuilt and struggling for relevance. Industry leaders are contracting in the western world, and in the US an estimated 200 million square feet of retail stores will be closed over the next few years.

In the case of Toys ‘R’ Us, private equity paid $7.5 billion in 2005, in part to acquire the chain’s property. Many Toys ‘R’ Us locations were in strip malls, where they were anchors. As category killers are replaced by Amazon, Zulily, Zappos, Wayfair and others, malls are creating more entertainment centres featuring upscale cinemas, bowling alleys and even fitness boutiques.

Lesson #1: Choose your acquisitions carefully; even the savviest buyers get burned when they overpay for assets.

Perhaps the most interesting part of the Toys ‘R’ Us saga was the response of the company’s vendors after it announced its exit from the toy business. MGA Entertainment, a modestly sized toy manufacturer led by Isaac Larian, attempted to raise enough capital through crowdsourcing to save one of its largest customers. Armed with an employee-made viral video, the company raised over $800 million. Yet Larian seemingly fell short as a viable buyer.

Lesson #2: Funding sources are transforming overnight.

Banks are under attack from untraditional competitors and will be disrupted by blockchain and other technologies. In the future, companies will have untraditional alliances with investors, funders and crowds.

This effort was remarkable for several reasons. The lines have blurred among customers, vendors and competitors. On the heels of the announced CVS-Aetna merger and others, we are in a period of rapid vertical integration. Retail and wholesale as channels are under attack.

When testifying before Congress in April 2018, Mark Zuckerberg couldn’t name a primary competitor. Facebook actively competes with a couple of dozen competitors in the different sectors it serves. We are at a point where manufacturers, wholesalers and retailers need to rethink their value propositions and go-to-market strategies.

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