North American retail stores are closing at an alarming rate. In October 2017 Bloomberg reported, “Sears Canada Inc. plans to liquidate its remaining stores with the loss of about 12,000 jobs”. (Stratton) The retail landscape is changing rapidly and brick and mortar stores are increasingly finding themselves unable to keep up. What if I told you, however, that the answer to the future of retail business had already been implemented by your local gym decades ago? What if I told you this gave you more flexibility as a business and could cause patrons to be more loyal to your brand as well? Businesses will implement this to have flexibility and stay afloat in the ever-changing marketplace. This is why I believe that one day most retail purchases will be made using internet-based subscription services.
It’s fair to say Blockbuster didn’t see it coming. When Forbes remembered the rise of Netflix and the fall of Blockbuster they reported that Blockbuster had the chance to be on the cutting edge of the future of television for what in hindsight would be considered a drop in the bucket of fifty-million dollars. (Satell) Grace Allen wrote in the Journal of the International Academy for Case Studies that, “Netflix believed that streaming was the future of the company”. (Allen) Netflix looked to the future, while Blockbuster thought they had come so far they would never go away. After they failed to see the writing on the wall, they decided to join the game late and copy the Netflix model. According to a study by the University of Texas, Blockbuster lowered their prices to remain competitive with Netflix. Netflix responded matching the price and what was already set in motion could not be stopped. (Wooldridge) Spotify saw the same potential in the music industry and now streaming music services are one of the most common ways to consume music. However, local gyms beat music and television to the game, and they hold the answer to the future of retail business.
If you sign up at a local gym for a membership you pay a fee whether or not you attend the gym and use all the equipment. Whether you workout every day before the sun comes up, or once a month after you hit the fast food drive-thru one too many times and start to feel guilty; the gym gets to keep your membership fee. Now, maybe having a gym membership won’t cause you to workout more often, but they are on to something. Amazon charges ninety-nine dollars a year, billed yearly for their Prime service. This gives you access to their video streaming service, and free two-day shipping, among many other benefits. According to a study by Michael A. Cusumano, a professor at MIT, this brought the online retailer 6.8 billion dollars in revenue in 2016 from the 70-80 million prime members. (Cusumano) It’s this subscription that allows Amazon to be profitable. In Richard Price III’s 2010 study, “Cash Flows at Amazon.com" the subscription fees collected would have been one hundred percent profit after expenses. (Price III) There are two ingredients that make the subscription model viable for businesses so that they can have more flexibility. The first is a membership charged monthly or annually so that the business has revenue coming in whether patrons are shopping there or not. The second is to make certain parts or products only available to members to encourage them to sign up. The key to a successful business is to find a void in a market and fill it. Think Costco or Sam’s Club style memberships for businesses such as Target or Shopko.
Now some may not like the idea of subscription services. People admittedly would refrain from joining memberships of retailers that are too similar or have too much overlap because it would not be beneficial for the consumer. Vlad Savov, a writer for The Verge lists a few reasons you won’t find him in Amazon’s prime customer database in his article, “Why I’m never signing up for Amazon Prime”. First, he points out that deals are bad both for consumers and suppliers with the exception of selling off of “seasonal goods” to free up space for next seasons goods. He also references the effect that mega-businesses such as Amazon and Walmart on local businesses. Then Mr. Savov observes the effect delivery services have on the environment, a valid point. However, to close the article Vlad Savov admits, “I don’t expect anyone to follow or join me in resisting Amazon’s primal pull toward Prime”. (Savov)
Competition is good for business. Anywhere business is not challenged by competition to deliver a quality customer experience the customer is the loser. Therefore, the natural thinning of the herd, in a business sense, is good for the consumer. It assures that the supplier or business owner is held to a standard of excellence required of patronage. It also assures that you are offering something only you are able to deliver. Much the same way that Jay-z only makes his music available on his own streaming service, Tidal. This is where the subscription model hits its stride; it causes shoppers to spend more at the business they are a member of. Business Insider reported that members of Amazon Prime, “Spend an average of $1,300 per year with the retailer, nearly double the amount spent by non-member customers”. (Braverman) So not only would businesses pocket membership fees, which should be an amount that offsets the discounts they offer, customers spend twice as much at their business than they would otherwise. Local business is founded on a relationship and one of the unfortunate side-effects of major businesses succeeding is local businesses taking a hit. This would be solved by offering tax breaks to local businesses who had less than a certain amount of locations and employees. However, it would be unfortunate to forget that the hundreds of employees at locations of stores such as Target and Shopko are also people with families that earn and spend money in the community and drive the local economy. One place Mr. Savov and I agree wholeheartedly is the effect that delivery services would have on the environment due to more planes in the air and delivery trucks on the ground. This would be a problem that would require a solution from businesses such as UPS and FedEx who own and operate the vast fleet of trucks and planes that deliver packages to your doorstep.
Michael A. Cusumano states, in reference to the benefits that companies like Amazon offer to members, “The free services are costly but encourage customer loyalty and seem to drive long-term sales growth”. (Cusumano) Successful businesses are constantly moving forward, the internet is the modern-day version of settlers moving west. This leaves business owners a choice to make. Blockbuster or Netflix? Which will your business be? Will you move forward into the future and adapt to change within the marketplace? Will you look for what is to come? Or will you stand your ground and go the way of Sears, Kmart, Tower Records, and countless other retailers stuck in the old way of doing things. If you find yourself saying, “We have never been done things this way before” it might be time to peacefully bow out of the business world, or you can accept that the future is coming without asking us for permission, and it is an opportunity to get ahead of the industry and advance your business into the future.