February 27, 2009, 12:00 AM

The "D" word foreshadows the "E" word

If this is a depression, we are entering a period during which the E word (for efficiency) reigns supreme. It has enormous consequences for retailing.

Ten years ago this month, when we published the first issue of Internet Retailer, we were swept up like almost everyone by the dot-com phenomena. One year later, when it became painfully evident that the e-commerce market was being inflated by a lot of hot air from Wall Street bankers, we made the difficult decision to stick with our e-retailing publishing venture even as publishers who followed us into the market pulled up stakes when the dot-com bubble burst.

Now it’s clear that the Masters of the Universe bamboozled investors again-only this time on a more breathtaking scale. Like drug pushers, they convinced local banks that mortgages could be a lot easier to make with Wall Street money, and they sold investors around the world on the notion that these obligations were fully backed by assets and could be packed like sausages and traded over and over so that in the end no one could tell that the assets backing them were grossly inflated. They did the same debt peddling, securitization, excessive trading and over-valuation with all forms of commercial real estate, including shopping malls and other retail outlets. Eventually the whole country was infected by this debt-based binge-buying and trading mentality until all assets were overvalued-from equities to oil-and the bubble of the last decade made the 1990s dot-com bubble look positively puny. Madoff and Stanford aside, we’ve all been victimized by a more subtle Ponzi scheme infecting our entire economy.

Now that this bubble has burst and no one save the government has the borrowing power to keep the economy from deflating, some analysts are conceding that it’s time to use the D word to describe what’s going on. And if this is a depression, we are entering a period during which the E word (for efficiency) reigns supreme. It has enormous consequences for retailing.

Like so much else in our economy, store-based retailing became hugely boated by an unquenchable thirst for building and acquiring. Scores of chains are so overbuilt and inefficient that they have had difficulty sustaining themselves without continued debt-based growth. So last year, when retail sales merely stopped growing, Circuit City, Linens ‘n Things and other regional chains dissolved, unable even to raise the debtor-in-possession loans to finance Chapter 11 reorganizations. It goes without saying that with General Motors, Citigroup and Bank of America on the ropes, we had best be prepared for more failures of less efficient retail chains. They will vanish like undeserved executive bonuses.

The Masters of Efficiency are the ones who will prosper in this economic collapse. Certainly, the most efficient retail chains, like Wal-Mart, will be among them, filling part of the void left as weaker chains disappear. But as we enter our second decade of covering e-retailing, we believe that well-run e-commerce operations will be the most efficient retailers of all and will greatly expand their share of retail trade. They respond to customer needs more nimbly, scale their operations to demand more quickly and fulfill purchases more efficiently than most stores can.

Founded in 1925, Chain Store Age magazine survived the Great Depression by focusing on the retailers who survived it-emerging national chains that were more efficient than the thousands of independent merchants who could not make the grade. Now the chain store seems more vulnerable in today’s depressed economy, and we look forward to covering another decade of growth for web-based merchants who are ushering in another new age in retailing.


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