Retail Bloat

By Jonathan Puddle
on March 28, 2015

Future Shop is no more! Customers and employees turned up to work today surprised to find all stores closed across the country, with the news breaking shortly after that Best Buy (who own Future Shop) are closing 66 stores immediately, and rebranding 65 others into Best Buy locations. It seems there was very little forewarning. 

On Monday last week, Faith Family Books also closed their doors with similar suddenness, in their case due to the bank stepping in to liquidate their assets. It's been quite a week, in my personal retail circles.

Unlike many who proclaim doom and gloom over the state of Christian bookstores, and the wider retail industry (citing the collapse of Sears, Mexx, Jacob, Target, et al) I'm not especially surprised, nor do I feel like we're threatened and heading into collapse ourselves. For a couple of reasons. 

First of all, all the data indicates that Canadian retail is growing healthily. New large malls continue to open, existing facilities are growing, and there's a wealth of new, smaller companies carving out niches for themselves that are doing very well. Frank and Oak, for example, are killing it. There's money to be made for people who are doing it right. What appears to be happening is that Canadian market has become profoundly inhospitable for those who are not doing it right.

Second, with the possible exception of the spate of Christian bookstore closings, just about all the other major closures are the result of very obvious and preventable flaws. Target failed to differentiate itself in the market from day 1, it's supply chain was so broken that getting and keeping inventory hardly worked, and buying all the locations of a bankrupt department store (Zellers) is kind of like buying your own burial plot when you're a healthy young person... there are better ways to invest!

Mexx and Jacob both became guilty of a lack of innovation, too much focus on their day to day operations, and failing to move fast enough. I loved Mexx clothes, but I can't remember any time when a Mexx retail experience left me feeling... anything.

Sears and Future Shop fell prey to retail bloat, and I feel that this is fundamentally what's put most Christian bookstores out of business as well. Sears built a huge retail empire, relying upon people's loyalty, their lack of better options, and a selection of high-margin items, and didn't have eyes to see when each of these factors of their success changed. Retail loyalty went out the window for department stores and big box stores thanks to the ever increasing pricing battle, with online price matching and so on. Better options could be the definition of the current retail landscape, with Walmart, Costco, Amazon, and all kinds of other retailers offering the same products with better prices and (often) more convenience.

High margin items are great... so long as people are still buying them. Future Shop relied so heavily on TV sales, something that worked in the early to mid 2000s when everyone was replacing their analog TV sets with digital and HD screens... but now we're good, and the upgrade cycle has slowed down. The same thing happened with DVD sales... as long as people were replacing their VHS collections with DVDs, the DVD market boomed! But as soon as everyone was done replacing, and all the studio's back-catalogues had been released, the market began to slump (which was blamed on piracy, of course).

The Christian retail landscape has been burned for making exactly the same mistakes. The most blame has been leveled at Amazon, followed by iTunes in a distant second. I've said it before elsewhere, and I'll say it again... I don't buy it. It's not Amazon that put your store out of business, it's your lack of innovation, lack of forward motion, lack of differentiation, and lack of awareness of the changing market.

For us in Attwell Books, the cash cow used to be DVD sets of conferences and events. We could record a Catch The Fire conference live, burn DVDs, print the artwork and all in realtime have the entire DVD set available on shelves by 11pm on the last night of the conference. It was an epic machine, and profit margin was around 90%. In 5 years we probably did $2 million on that line of products alone, which is insane. Insane is also what people said when we started to ramp down our production process. While 90% profit sounds great, producing these DVD sets required 3 full-time staff, a whole room full of machinery which was often breaking down, and long, arduous hours for a handful of employees. As our conference attendance began to contract, and as DVD sales began to slow, we pulled the plug on the whole show. It was a sweet ride, but it couldn't have gone on forever.

People sometimes still tell me we should be producing those, since they were so profitable... but that's exactly the Sears mindset that has failed. Today, all of our videos and conferences are available for free, on YouTube, where we have 16,000 subscribers and 3 million views, on 2000 videos. 1.5 million minutes of video have been consumed in the last 28 days alone. People are interacting with our brand online more than ever before, and our reach is massive compared to what it was in the days of DVD sales and online video memberships. While that doesn't translate to direct income (we've earned a grand total of $100 from YouTube advertising), it means our brand reach and influence is enormous, which has knock-on benefits one every other initiative we undertake.

My point is this: in this industry, you can not rest on your laurels in any capacity. You have to keep innovating, keep finding ways to differentiate yourself, and keep listening to customers and watching the industry.

This weekend I'm in Ottawa for the first meeting of a new Catch The Fire church plant. The Salem Christian bookstore in Ottawa recently closed after 35 years. We set up a book table for those attending the meeting, and did $700 business in about 2 hours. That was just me, 2 boxes of books and CDs, a laptop and a smartphone. I'll be back in the office on Monday prepping for our big youth conference, for which we've brought in a new line of clothing, refreshed our existing clothing section, removed our kids toys, and updated our displays. As soon as the conference is over, we'll be repainting all our fixtures, and starting a massive Facebook marketing campaign. And also meeting for 2 days to rethink our next 24 months strategy.

If you want to play Canadian retail, especially Canadian Christian retail, you've got to stay sharp, my friends.

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