Thread by @minethatdata

1 - So now we learn that Rite Aid is eliminating 20% of the corporate work force.

The omnichannel thesis is crumbling all around us. What is happening instead is what I would call "bifurcation".

retaildive.com/news/rite-aid-…

2 - Of course, there are unique circumstances to Rite Aid, but their story is not fundamentally different than Macy's ... eliminating unproductive stores (ultimately ceding business to somebody else).

3 - As technology takes over, people become less important. You have fewer stores, and you have fewer people.

I joke about this, but the future is a CEO sitting in front of a dashboard, pushing buttons, while technology and vendors pick up the slack.

4 - But back to bifurcation.

Old-school businesses are splitting into pieces, frequently two pieces.

5 - The customer file is splitting into two pieces. There are hyper-loyal customers, and they generate a disproportionate amount of profit. I see it in all of my project work. A tiny fraction of customers delivering a huge fraction (almost all) of the profit.

6 - Then there is everybody else ... the vast majority of customers who buy once and walk away.

This dynamic causes stores to appear to be empty (and truth be told, they are empty). No amount of omnichannel wonkery solves bifurcation.

Read this tweet:

https://twitter.com/evanier/status/1105869339918426119

7 - Bifurcation has been happening among stores for the past 15 years, and is accelerating.

You have 20% of the store portfolio that generates all of the profit ... and 80% of the store portfolio that essentially does not matter. At all.

8 - There is no amount of omnichannel strategy or customer experience theory or channel synergy that solves the structural problem of 80% of the store portfolio becoming meaningless.

None.

It's over. Those stores bifurcated from the rest of the portfolio.

9 - Macro business trends (in the case of Rite Aid it's CVS / Walgreens) cause stores and customers to bifurcate. Stores and Customers split into two pieces ... small % delivering all of the profit ... large % providing busywork and meaningless results.

10 - You're going to hear the experts tell you about solving this problem by encouraging loyalty.

What would cause the Walgreens customer (or Walmart customer for that matter) to switch prescription loyalty to another company?

11 - In other words, for loyalty efforts to work, you first have to acquire enough customers to make sure that you have enough potential loyal customers to make loyalty programs work.

And that's not going to happen.

Loyalty efforts will fail as well.

12 - There's a structural problem in retail (shared traffic is dying) ... in the case of Rite Aid, that's not a problem.

There's a core problem in retail (merchandise) ... in the case of Rite Aid, that's a big problem. The merchandise isn't sufficiently differentiated.

13 - So we have to deal with several issues simultaneously.

(a) Differentiated merchandise assortment.

(b) Bifurcated customer base.

(c) Bifurcated store portfolio.

(d) a/b/c resulting in far fewer employees (and fewer stores), which lead to fewer customers.

14 - The secret to pulling out of this mess is to dazzle your best customers so that you keep cash coming in the door, while closing lousy stores, while investing any available cash in new concepts and in merchandise excellence ... all while assuming you keep your job.

15 - For most traditional retailers, the future includes trimming 50% or more of the store portfolio. Yes, that sounds drastic, but it is coming.

A handful of winners get to keep on truckin'.

And there will be an enormous opportunity for new retail entrants. Enormous!!