Management: Plenty of action on the shelf

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The Independent Online
Wherever I went in Europe in May and June I heard the same lament: European economic unification is at a standstill in manufacturing and finance. But in retailing, where no one expected it, it is galloping across Europe.

Ten years ago, Aldi, a food discounter, was still purely German: now it is in seven European countries with some 3,300 stores. Other food discounters are expanding with similar speed across Europe. Sweden's Ikea now dominates Western Europe's furniture business and is opening stores in the former Russian satellites. Italy's Benetton and Britain's Body Shop are becoming market leaders in one European country after another.

The internationalisation of retailing is by no means confined to Europe. Japanese retailers are rapidly expanding in China. Ikea and Benetton have nearly as much market penetration in the US as they have in Europe. America's Wal-Mart is set to cover Mexico with Sam's Clubs, while Toys 'R' Us is pushing into Japan.

Most of the earlier retailers that went multinational tried to improve slightly on what retailers in their 'host' countries were already doing well. But the new multinationals are revolutionaries, rejecting traditional assumptions.

During the past half-century, 'shopping centre' has become almost synonymous with 'successful retailing'. And the bigger the better. But the new retailers shun shopping centres. They build free-standing stores or go into 'mini-malls' that contain only a handful of shops. A top executive of one of the fastest-growing European discount retailers said: 'The shopping centre submerges the personality of the individual store into the anonymity of the parking lot.' And the new retailers aim at a sharply profiled personality and a clear niche.

The new retailers rarely speak of 're-engineering', but they constantly redesign operations. Many redefine the entire business.

Wal-Mart's success, for example, rests in large measure on its redefining retailing as the moving of merchandise, rather than its sale. This led to the integration of the entire process - all the way from the manufacturer's machine to the selling floor - on the basis of 'real-time' information about customer purchases.

As a result, Wal-Mart could cut out three tiers of warehouses and a full third of the costs of traditional retailing. But it still carries thousands of items.

Aldi has re-engineered operations in much the same way. But it has also cut its assortment to the 600 items which, its research showed, are all a household buys regularly. As a result, it has doubled or trebled sales per square foot of shelf space - a retailer's basic capital and cost centre.

Spar, another German deep-discounter, is going further still. It will carry only the 200 items a household buys every week. Another fast-growing European retailer will apply the same principle a different way. Its deep-discount 'clubs' will carry only the 200 items needed for special occasions - a birthday party, a wedding - and absolutely nothing that people buy regularly.

Ikea can sell at a low price because it realised that half the cost of furniture is final assembly. Provided that parts are meticulously engineered and instructions crystal-clear, anyone can do the final assembly.

Everybody in retailing talks of 'service' as the key to success. So do the new retailers. But they mean something different.

Traditionally, service means salespeople who personally take care of a customer. But the new retailers employ very few salespeople. Service to them means that customers do not need a salesperson - they know where goods are the moment they enter the store, in what colours and sizes, and at what price. It means providing information.

But it also means getting customers out of the store as fast as possible. A European super-discounter is studying a technology that eliminates the checkout counter. When a customer has decided to buy an item, she can pay for it by credit card at the shelf. Her purchases are packed and waiting when she is ready to leave. All she has to do is check the goods and sign a prepared credit-card slip.

Ray Kroc, the founder of McDonald's - the first, the most successful and the most multinational of the new retailers - is reputed to have said: 'A mother with two small children does not come to our store because the hamburgers are delicious. She comes because the restrooms are clean.' This is often considered pure whimsy. But it was meant to express a radically new concept of shopping. What customers want is shopping that is painless.

From its very early days the retail store was based on three assumptions. First, shopping offered the housewife a little choice, the way to make a few decisions. Second, it offered her a break from the monotonous routine that the Germans call 'The Three K's': Kirche, Kinder, Kuche (church, children, kitchen). And, finally, the retail store offered access to the world to people who were otherwise largely confined to the home.

The retail store has, of course, changed many times over the past 300 years. But traditional retailers still accept the traditional assumptions, if only subconsciously.

The new retailers, however, reject them. Their prototypical customer has a paying job, if not a career. She has many occasions to choose and to make decisions, most of them more interesting than what to cook for dinner. And even if she never leaves the house, she has unlimited access to the outside world through the telephone and television. Shopping is a chore for her.

The department store is slipping everywhere. Shopping centres and supermarkets - the success stories of the last half century - are at best holding their own. The new retailers are rapidly expanding. Still, there are signs that theirs, too, may be a fairly short-lived success.

Retailers now talk of 'shopping without a store' through interactive television involving 'virtual reality'.

The technology for all this is available and increasingly less expensive. And there are quite a few signs that a substantial number of customers are becoming receptive to it. There is an upsurge of catalogue sales in all developed countries. In the US, direct selling over cable television has been successful for costume jewellery, for instance. In more and more beauty parlours women 'try on' different haircuts on a television monitor.

Shopping without a store is thus no longer science fiction. But even without any new technology, retailing has already changed. The changes are having profound effects on advertising, on consumer goods manufacturers, and on the structure of the economy. Retailing, rather than manufacturing or finance, may be where the action is now.

The author is a professor of social sciences at the Claremont Graduate School in California.