Reinventing the mainstream retail business model

Until recently, Retravision was a highly successful business. It fell into trouble recently, following the collapse of its Southern Division.

Formed in 1961, Retravision was born out of the Radio Electrical TV Retailers Association, whose members saw the opportunity to capitalise on the benefits of greater purchasing power available from the formation of a combined buying group. Following a successful start, the founding fathers developed a growth strategy designed to avoid the trap of over investing in capital intensive overheads and instead, invited entrepreneurs to set up their own, independent stores.

This strategy not only reduced risk, it also offered the opportunity to enhance customer loyalty as the inherently close proximity to the customers across urban and regional stores enabled greater community engagement. Retravision succeeded with this tried and trusted business model for many years. Their value proposition: Right place for price and advice every day.

But what happened? The successful business model developed in 1961 didn’t change, but the world certainly did. The problems faced by Retravision are not theirs alone; they are representative of a deep-rooted problem that is being experienced by many businesses in Australia and across the world. With an over reliance on what was successful in the past, many businesses have failed to respond to the continually emerging and significant changes that abound in technology and society.

The imperative for change is significant, not only must business models change, organisation change must commence with the way managers think, and respond to new forms and formats of competition. To compete in today’s business world suffering executives must force themselves to reframe their perspective and then, literally find a way to reinvent their business in a way that delivers value propositions that are more in tune with the customer of 2012 than those of 1961.

In defining new business models executives are well advised to include a definition of the way in which they can differentiate their value propositions from competitors. Loyalty programs, community engagement (eg. conduct of “how to” cooking, home improvements, etc.) and entertainment are all ways to build a relationship; but that is rarely enough to deliver a sustainable competitive advantage.

An appropriate business model will include a unique value proposition as well as a method of capitalising from relationships. In maintaining a sustainable competitive advantage, businesses will also need to maintain their viability through continual renewal. In retail and in many businesses, if all you have to offer is friendship, low prices and convenience you will always be vulnerable to competition.

One example of a retail business that has succeeded in demonstrating a sustainable competitive advantage is The Ark, a women’s fashion retailer based in Melbourne. The Ark founders were successful in developing a unique value proposition as demonstrated in its business model, which includes the production of a “limited edition” product range; where ownership of design and manufacture allows the company to continually respond to, and largely influence customer demand.

Offering contemporary (fashionable, but unique) designs, The Ark describes its value proposition as: “The Ark wishes to keep understanding and educating our valued customers positively. Our staff has skills in the areas of design, patternmaking, eCommerce, wholesale, customer relations, graphics, marketing, sales and accessories to bring (our customers) the best”. They also demonstrate a clear focus on the customer: “If you’ve lost confidence in your body and its ability to make you feel good, indulge in the often hilarious but always informative WORKSHOP YOUR SHAPE nights. Here the staff themselves strip down to the bare essentials to help you understand how to make the use of the best bits and disguise the less loved parts.”

Contrast this with Retravision: the right place for price and advice every day and another Melbourne based fashion retailer, Brown Sugar. Established in Brighton, Victoria, Brown Sugar has great products and presentation formats; it also designs, develops and manufactures its own fashion collection. Their value proposition though offers little in differentiation: “Providing high levels of genuine and personalised customer service”. Heard that anywhere before? Brown Sugar has closed 24 out of 40 stores since January 2011.

Developing a business model that defines a sustainable competitive advantage through a unique value proposition isn’t easy, harder still is its implementation when one is found.

There are however strategic and management tools and techniques that can help get you to first base. An example is a model referred to as Blue Ocean strategy; this helps managers to explore opportunities in new market spaces through the simultaneous pursuit of differentiation and low cost. Defined as “value innovation” (in product, service, or delivery) the Griffith (NSW) based Cassella wines deployed these principles to make their yellow tail wine brand the fifth largest in the world; they now sell more wine to the US than the whole of France combined.

Paul Hunter is the founder and chief executive of the Strategic Management Institute (SMI) a membership organisation that provides certification to strategy practitioners through its Certified Strategy Practitioner (CSP) accreditation programs. The SMI will be running a strategy master class in June and a half day seminar on the above topics in July. Details at www.smiknowledge.com.