By Andrew Gordon It stinks to be on the wrong side of the disruption divide.
Just ask Sears. The Limited stores. Payless. Bebe stores. And dozens others.
They’ve either filed Chapter 11, or they’re closing dozens of stores.
It’s going to get worse before it gets better.
AlixPartners is predicting that this year will bring the highest number of retail bankruptcies since 2009.
A new report just came out from S&P Global Market Intelligence. It names 10 retailers it finds most at risk over the next year.
Wait a minute… Isn’t the economy going pretty strong?
Isn’t job growth soaring?
Isn’t consumer confidence near a 16-year high?
This should be the best of days for retailers.
If they weren’t getting disrupted from all sides, perhaps it would be.
As it is, retailers are in big trouble.
Not all of them, mind you. Some are doing quite well.
You should know which is which.
The Disrupted and the Disruptors
The retail sector is rapidly splitting into two groups.
The disrupted retailers are the older companies – the ones with a lot of stores. They’re fighting for their lives.
The disruptors are the online companies.
They’re asset-light enterprises. Instead of owning stores, they own websites. Instead of running factories, they contract out. And instead of maintaining huge inventories, they use the latest advances in data technology to track customers’ buying trends and keep inventories light.
As you’d expect, the older retailers are developing online operations to battle the newer tech-savvy companies on their own turfs.
Easier said than done.
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How Disruptors Upend Markets
In The Innovator’s Dilemma, Clayton Christensen explains that even the best-run “established” companies can do everything right and still lose market share to younger companies with fewer resources.
Why this is goes to the very nature of disruption and why, as an investor, you need to start paying close attention to these disruptive market conquerors.
The vast majority of mature companies do something that completely makes sense but also leaves them with a potentially fatal weakness. They focus on their biggest and most profitable customers – who are usually at the high end of the market.
Again, as they should. But many do it at the expense of their lower-end customers – either taking them for granted or overshooting their needs. These segments are less profitable… with lower margins… and with a higher likelihood of brand loyalty getting trumped by lower prices.
It’s these low-end segments that are targeted by new companies offering “good enough” products or services. Then, slowly but surely, the young retailers improve their offerings and move upmarket. If they can keep their competitive advantages in things like price and user experience – and many are able to – then incumbent companies like Sears and Macy’s will have trouble keeping even their high-end customers.
A Marker to Exciting Opportunities
Retail isn’t the only place where disruptors threaten older companies. It’s everywhere you look. Healthcare. Financial services. Transportation. Hospitality. Business and marketing.
Investors can look for them as markers to some of the most exciting investment opportunities around.
It works in both directions. Investors should also use disruption to identify those poor companies being disrupted. Invest in …read more
Source:: Investment You
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