The retail industry is an ever-evolving industry, and investors need to see where it will evolve in the future and find those retail formats and related companies that can better act as "middlemen between producers and consumers" and match the production capacity of producers with consumer demand with greater efficiency. Coupled with a reasonable or even excellent valuation, you can find the next excellent investment opportunity in the industry.
The special author of this journal is Chen Jiahe.
The so-called retail refers to the distribution of goods produced by producers to the majority of individual consumers. Retail is an industry with a long history and many new ideas.
It is said to have a long history because the retail industry has existed since there was commerce: it is probably one of the oldest industries on the planet. And with the continuous advancement of technology, the retail industry, which has a history of thousands of years, is still evolving today.
So, what is the core meaning of the retail industry? How has the retail industry evolved historically? What is the law of evolution? How can investors profit from future evolution?
The core meaning of the retail industry
Historically, the retail industry has come in many forms. Before these different shapes, let's answer the question: What is the core meaning of the retail industry? What is the common purpose of these different business forms?
From the emergence of markets thousands of years ago to today's latest online shopping, the core meaning of all retail industries is only one: relying on the level of social development at that time, with the highest efficiency, the products produced by manufacturers are distributed to consumers.
If you understand this core meaning, you will understand the evolution of the entire retail industry. When human technology changes and social forms change, the smartest retailers will find the business opportunities and cover the original retail means with a more efficient retail method, so as to improve the efficiency of goods from producers to suitable consumers.
In this way, the retail industry has undergone an evolution. And as the retail industry reached its highest efficiency at the level of social development at the time, its evolution came to an end. It is not until the level of social development changes dramatically again with the development of technology that the next evolution of the retail industry will come, delivering goods to consumers with greater efficiency.
With this at the heart of "maximum efficiency allocation" in mind, let's take a look at how the retail industry has evolved historically.
Bazaar: An ancient retail format
In the long history of commerce, bazaars were once the most popular form of retail. But today, the market has basically withdrawn from people's lives, and only some markets with a very long history still exist in the countryside and the urban-rural interface, and some have become local tourist attractions, such as the Shahe Market in Beijing, the March Street in Dali, and so on.
Why did the market, which has gradually faded out of life today, once flourished in those days? The reason for this is simple: historically, the market was a retail format that was more suitable for the production and consumption conditions of the time.
In the era of the market, the retail industry has the following characteristics: the producer's production capacity is relatively low, large-scale production is not possible, and the products are relatively simple; Consumers have limited spending power and are relatively affluent in time; The retail industry is too small to sustain the survival of specialized stores; The level of social development is not enough, and there is no professional retail distribution system; Consumers are mostly farmers, and there is no special need to go to work from Monday to Saturday.
In this "low-power" consumption environment, the market became the best choice at that time. At an agreed time, small producers gather in a specific place with their belongings, and consumers wander over. More often than not, the small producers in the market are also consumers: people often take something home after selling their products.
In today's Panjiayuan thrift market in Beijing, we can still feel the retail form of this market. At the same time, because the product cannot be standardized, the buyer must also do it himself, and go down one stall by another: after a trip, the things are not bought, and the number of steps of the WeChat movement can dominate the list.
For thousands of years of China's economic history, markets have accounted for the majority of the retail industry, which is inseparable from the predominantly agricultural economy for thousands of years.
As society gradually entered the industrial age in the 20th century, the retail format that had been around for thousands of years was finally replaced by a new format: the store. Instead of the market, the store opened the curtain on the evolution of retail over the past 100 years. Since then, with the rapid development of technology and productivity, and the rapid changes in social life, the evolution of retail has embarked on a fast track.
Shops from the industrial age
After entering the industrial age, stores began to replace the market as the mainstream of the retail industry. And this evolution is supported by the powerful productive forces of the industrial age, first of all.
With the birth of mass production products, along with the economic development, the scale of the retail industry began to become huge. At the same time, the population of the industrial age was concentrated in cities, and the density of living began to increase.
At this time, stores with more concentrated merchandise placements and more specialized operating hours replaced the market and evolved into the mainstream of retail.
Since society developed much faster in the industrial age than in the agricultural era, the evolution of the retail industry has become even faster. In the agricultural era, the form of the market can last for hundreds of years, thousands of years without major changes, for example, the propaganda slogan of March Street in Dali is "a thousand years to catch a street, a street to catch a thousand years". But in the industrial age, the composition of the store continued to evolve.
The first to appear was a small grocery store. These shops are not very large, but they are open every day and have a special staff, which is a big improvement over the previous market.
Later, with the further development of productivity, there were more and more categories of goods, and consumers' spending power became stronger and stronger. At this time, the retail industry has undergone two evolutions: the category and scale of retail have increased significantly, and at the same time, commodities have begun to transform from simply meeting functional needs to containing more leisure and entertainment attributes. As a result, two new retail formats were created by clever merchants: large department stores and supermarkets.
Compared to the previous stores, the newly evolved retail format of the large department store has made huge improvements in scale, variety and display: the merchandise has become more numerous, more interesting and better-looking, the dazzling array of goods is dizzying, and the exquisite display counters are as eye-catching as a treasure cabinet.
In the early years of the industrial age, when productivity was relatively low, the new retail dynamics brought about by large department stores were hardly supported by the level of social development at that time: producers did not have as much supply of goods, and consumers did not have the money and leisure to go shopping.
While large department stores meet people's demand for high-end, improved consumption, the birth of supermarkets provides a new retail format for more abundant daily life. In the book "Rich America: The Autobiography of the Founder of Wal-Mart", we can see how this business format was born as Americans' spending power gradually increased.
The thrust behind the birth of the supermarket is multifaceted, and these thrusts come from the progress of social production and consumption capacity in the final analysis. The three main types of thrust are listed below.
First of all, factories equipped with assembly lines began to produce large quantities of multi-category goods; Second, consumers' spending power has risen, and at the same time, transportation has begun to improve, allowing people to carry more goods at a time, especially for those who drive. Third, the progress of material life has led to the beginning of a "cang-la-li etiquette" and the theft of store items has decreased dramatically (although it has never been extinct). With the decreasing probability of theft, the anti-theft measures of traditional stores with special personnel guarding the counter are no longer cost-effective due to their higher labor costs and slower shopping efficiency.
As a result, under the combined effect of these social progress thrusts, supermarkets have replaced the original stores and evolved into the mainstream of the retail industry together with large department stores in terms of satisfying people's daily consumption life.
Convenience stores' counterattack
Up to now, our descriptions of the evolution of the retail industry seem to be progressing towards "a better economy, richer people, and a bigger retail industry." But what's interesting about retail is that its evolution isn't always one-way: the advent of convenience stores is a good example.
After decades of widespread use in department stores and hypermarkets, convenience stores began to pop up in cities, the most famous of which was the 7-Eleven convenience store. In the book "The Essence of Retail: Providing Lifestyle Solutions for Customers", we can get a good sense of how convenience stores are meeting the needs of a new generation of customers.
On the surface, convenience stores seem to have evolved from department stores and hypermarkets back to small, primitive grocery stores: smaller stores and fewer assortments. But in fact, convenience stores are completely different from earlier stores, they do not intend to meet all the consumption needs of consumers, but only meet a small part of consumers' needs for the most time and efficiency: such as buying a snack, buying a pack of tissues, buying a cup of coffee, eating a lunch box, and so on.
There are also social reasons behind this seemingly reverse evolution, or "counterattack": urban residents, especially white-collar workers, have become more powerful in spending, and the demand for convenience when shopping is far greater than cost-effectiveness (convenience store products are often more expensive than supermarkets); The emerging white-collar class in the city has more time to go downstairs to shop, while the factory workers who leave early and return late obviously do not have such convenience; As social development has led to smaller families, the convenience stores in close proximity have helped these consumers because they have to do everything on their own at the same time.
From the development of convenience stores, we can see that although convenience stores have lost their advantages over the original supermarkets in terms of quality and category, it seems to be a degradation of retail efficiency, but because it better meets the needs of consumers for "convenience", and at the same time, consumers' demand for "convenience" has risen sharply with the development of society, so convenience stores have become a new direction for the evolution of retail.
The evolution of retail in the information age
When the industrial age entered a mature period, and the retail format dominated by department stores, supermarkets, and convenience stores entered a stable period, people once thought that the evolution of the retail industry would come to an end. As everyone knows, with the advent of the information age, the evolution of the retail industry has entered a more exciting era.
As we all know, the social development of the information age is not achieved overnight, the breadth, depth and precision of information continue to improve, the society continues to improve, and the retail industry continues to evolve. The evolution of retail in the information age mainly follows two basic main lines: the continuous enrichment and accuracy of information, and the simultaneous changes in society.
First, as more and more information becomes available, the retail industry will be able to provide more and more nuanced services. For example, in the information age, more detailed information was provided at the beginning. In the industrial age, merchants did not know which customer wanted which product, so a large number of goods produced could only be piled up in department stores and supermarkets for everyone to choose for themselves.
This retail model may seem like a wide variety of things, but in fact, procurement is not very efficient: everyone has to run a big circle on their own to buy the goods they need. As a result, as detailed procurement demand information began to appear in the information age, online shopping began to rise rapidly, and began to replace the previous retail model with higher shopping efficiency.
With the advancement of the information age, more information began to be generated, and the retail industry also underwent more evolution. For example, real-time location information allows consumers to better purchase goods around them, and credit review information improves the quality of retail.
Let's look at another main line, that is, the social changes that have occurred in the information age. This thread is comparatively more complex and more difficult to grasp.
For example, when the number of couriers increases, retailers find that they can make these couriers sufficient to help customers go to the nearest physical convenience store or retail store to buy things. This relatively more expensive, but more convenient way of online shopping is a bit similar to the "online convenience store" in the information age.
However, if the number of couriers is insufficient, that is, without the development of the ordinary online shopping industry in the early stage, this kind of "online convenience store" will not be able to develop. What can be used as evidence is that in some counties with smaller economies, due to the lack of express delivery business and the insufficient number of couriers, even traditional online shopping may not be able to guarantee home delivery, and this new type of "online convenience store" is impossible to talk about.
From the perspective of the development of the information age, we are still standing in the early stage of the information age, and the development of various technical means will inevitably emerge in an endless stream in the future, and it is even difficult to develop them. From this point of view, the evolution of the retail industry in the information age has only just begun.
For example, although consumers can now provide very personalized demand data, the producer side is still stuck in the production situation of the big industrial era. A consumer may be able to give the size they want, such as a chest circumference of 115 cm and a sleeve length of 58 cm, but in the end, the manufacturer still gives a choice of only a few sizes such as XL, L, and M. As a result, consumers who buy clothes can either make do with them or have to find a tailor to modify them.
There are many reasons for this distance between standardized production and individual needs: the thinking of producers is still stuck in the industrial age; Production capacity has not advanced to the point where it is possible to customize products for consumers (the advent of AI and precision manufacturing may change this); Consumers' spending power is not yet strong enough to buy customized goods.
However, with the further development of the information age and the further improvement of social productivity, more personalized retail methods will emerge in the future.
How to invest in the retail industry in the future?
In the face of the ever-evolving retail industry, how can you make a good investment? First of all, it must be admitted: Charlie Munger once pointed out that investing in the retail industry is very difficult. The reason behind the difficulties lies precisely in the continuous evolution of the retail industry.
Since the retail industry is essentially a middleman, and excellent retailers are a bridge that connects producers and consumers better and more efficiently, the emergence of many technologies and information means can make the efficiency of this middleman better. And only retailers who grasp this change will be able to gain a foothold in the next retail era.
Once a retail company is reluctant to change, or misgrasps the direction of change, it will lose in the next stage of evolution. Sometimes, a retailer's success in the previous period can even become a stumbling block in the next phase of its evolution. It's easy to cling to the successful models of the past: if you look at the successful online shopping platforms today, how many of them have evolved from the successful department stores or supermarkets of the past? We'll get the idea.
The frequent evolution of the retail industry as technology and society evolve means that investors investing in the retail industry also need to understand, keep up with and grasp this evolution.
But at the same time, more evolution also means that investors may be able to seize more investment opportunities when they really understand the direction of the retail industry and find companies that can expand their territory in the retail sector in the future. Historically, good retailers, such as Walmart Inc. and Amazon Inc., have made excellent investment targets.
Therefore, for the first in the retail field, investors must see the direction of the future evolution of retail, and find those retail formats and related enterprises that can better become the "middleman between producers and consumers" and complete the matching between the production capacity of manufacturers and consumer demand with higher efficiency. This, combined with a reasonable or even excellent valuation, can lead to the next great investment opportunity in the ever-evolving retail industry.
The author is the chief investment officer of Jiuyuan Qingquan Technology).