Nimble small- to mid-level retailers steal share from larger, traditional chains

Think online is the biggest challenge traditional retailers face? Think again.
Since 2010, volatility—a measure on disruption in the retail industry—has increased 250% , resulting in $200 billion more of retail sales being "traded" among competitors, according to Deloitte's  “Retail Volatility Index" (RVI). And that volatility is now being driven by fragmentation of market share as small and mid-level players collectively steal share from traditional retailers. This stands in contrast to the consolidation of the big getting bigger, which has driven the industry for the last 100 years, Deloitte said.
"Traditional retailers are being subjected to death by a thousand paper cuts where the competition is no longer the big box retailer across the street, but rather a myriad of new players – this represents a sea change for the industry," said Kasey Lobaugh, principal  and chief retail innovation officer, Deloitte Consulting LLP. "Conventional wisdom might also say the loss of share by traditional retailers is simply an online vs. bricks-and-mortar battle, with traditional retailers losing the e-commerce game – which our research also shows to be untrue."
Out of the top-25 brick-and-mortar retailers, sixteen have robust and growing e-commerce sales that have consistently outperformed the broader e-commerce retail market. Between 2010 and 2015, these brick-and-mortar retailers grew their e-commerce business by an average of 20.9%, compared with a 15% growth rate in the overall market – indicating these retailers are actually taking share from those others who operate in the e-commerce space.
"On the surface, the broader retail market appears tepid, but underneath that surface, there is a lot of commotion," said Jacob Bruun-Jensen, principal, Deloitte Consulting LLP and co-author of the study. "When measured at its full depth, the market has become highly volatile and increasingly fragmented. Rather than a give-and-take among the top 25 retailers, there are numerous forces at play, and share is no longer just changing hands and consolidating with the big retailers."
Barriers to entry have fallen which has fueled fragmentation. Fragmentation in particular gives smaller retailers the upper hand in the market as they focus on niche products and experiences compared to the big retailers who cast wider nets. 
However, not all is lost for larger retailers. Deloitte found that while the top retailers who offer the most differentiated product and experience (versus those who compete more so on value and convenience) show the highest compound annual revenue growth rate and margins, substantially beating the broader market.
For more information about Deloitte's Retail Volatility Index, view the full report.
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