Customer-centric vs. Product-centric Retailing
At heart, retailing is trading. The very first retailers were traders, and the very best retailers have always been traders. Traders buy and sell, buy and sell, buy and sell… and then buy and sell some more. The notion of retailing as trading emphasizes the importance of turning inventory over.
Every retailer is focused on sales, and rightly so. The instinct to maximize sales, however, is often coupled with the instinct to always have in stock whatever a customer might want. Trading gives way to stocking, leading to slower turning inventory. Inventory has a funny way of consuming available cash. There’s always something to buy, and what seems like a good reason to buy it; new items, new categories, broader assortments, greater depth of stock.
The concept of trading versus stocking is a good way of thinking about customer-centric retailing versus product-centric retailing.
Customer-centric retailing begins with a trader’s question, “What will my customers buy from me?” The emphasis is not on what the retailer carries; rather it is on what he can sell. The emphasis is on existing customers; how to increase frequency of visit and how to increase conversion rate and dollars per purchase for each of those visits. The focus is on continually updating the offering so there’s always something new and fresh for the customer to see, and a quick inventory turn so there’s an on-going incentive and urgency to buy now.
Product-centric retailing, on the other hand, starts with a stocker’s question, “What products do I carry?” The emphasis is on what’s stocked, on carrying a full-line assortment that includes everything and anything a customer might anticipate finding in such a store. The emphasis is on new customers, expanding the customer base, on continually finding fresh feet for a relatively static assortment. All too often the hook to bring customers in is promotional discounting, and as such there’s little urgency to buy now.
For independent retailers, who primarily focus on discretionary goods, the temptation is often to stock, but the money is in trading. Stocking tends to consume free cash flow. Trading tends to generate free cash flow. The very best independent retailers are customer-centric, beginning with the question “What will my customers buy?”