The Strategist

Bain reveals the most profitable retail business models

06/11/2019 - 12:08

According to Bain consulting company, almost 30% of retailers in the United States will find themselves at risk of bankruptcy or absorption by competitors in the near future. Researchers believe that in order to avoid such a scenario, retailers need to urgently adapt to the new realities of the market and build promising business models.

American consulting company Bain&Company has released a new study on the future of retail. The company experts warned that up to 30% of current US retail market players may go bankrupt or be absorbed by competitors unless they urgently address the most pressing issues such innovation, policies for analyzing consumer behavior and demand, and change their business models.

“The range of potential threats for the entire industry is very wide, but we believe that some retailers still have enough time to develop a winning approach to doing business,” said Marc-André Kamel, Head of retail market analysis at Bain & Company. And vice versa: “Those whose positions are already strong now will have to move even faster to maintain their competitiveness.”

Bain identified five most promising business models for retail market participants. According to researchers, those who cannot integrate into the rapidly changing market architecture are already in grave danger.

The first such model is the “ecosystem”. It embraces companies that create a holistic platform with the widest range of services for consumers - from actually buying a product to reading information materials about products, market, fashion, communicating on these topics, etc. An integrated approach should be applied not only to consumers, but and suppliers of goods, logistics companies delivering purchased items, and payment operators.

At the same time, researchers note that even companies that have already built such a business model should stay alert. They cited the example of eBay, which is already losing its position under the onslaught of Amazon in the US and Alibaba in Asia.

The second promising business model is the “fight for volume”. Retailers professing such an approach are able to outpace their competitors due to faster penetration into new market segments and introduction of the latest technologies. At the same time, experts believe that retailers who choose such a model should be constantly on guard, following the latest trends and diversifying revenue sources.

The third business model is the “price champion”. This model is used by companies such as Aldi, Lidl, Costco and other discounter networks, which build their business model on a combination of minimal costs for almost everything and minimalistic stores, which allows them to offer products at the lowest cost. Such retailers should expand their presence in places with a low level of penetration of discounters, constantly monitor cost minimization and innovations in the field of product mix.

Another promising, albeit niche, business model, is the so-called "fellow travelers." This relatively small retailer group is leading in areas such as product design and development, but inferior in logistics, IT systems and holistic market analysis. Such “fellow travelers” need cooperation with other companies. In exchange, they can offer their capabilities in product design and development and obtaining or take advantage of the qualities or capabilities that they themselves lack.

The fifth and final promising business model for the retailer is the “regional gem”. Such companies may be inferior in increasing the volume of trade throughout the market, but they have an advantage in certain, sometimes key regions, which allows them to compete with larger players. According to Bain researchers, the main danger for such regional leaders lies in the growing popularity of online commerce, which could seriously undermine their position in the field.


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