Retail industry challenge explained by the Smiley Curve

Date: 15/04/2019   l   Category: Retail

Until 2016

The Smiley Curve above shows what globalization did to profit margins as the world globalized. Value chains broke up. Brands designed in home country, manufactured in China and retailed in Dubai. Each business entity captured value. Retail prices were 20-30% above the home country. Healthy retail margins of 65%. Supply chains were exclusive. Customers accessed brand from one source – local exclusive retailer.

 

Smiley Curve changed from 2016

E-commerce splintered the supply chain giving access to consumers to shop the world. Price visibility enabled consumers to buy anywhere in the world. The second Smiley Curve shows the reduction in value-added of retailers as customers accessed brands further disaggregating the supply chain.

Traditional retail return on capital fell precipitously.

Solution, from 2019

Retailers have to accept the new reality, believe that global supply relationships have changed, their power over customers is over, and recognize that customers are digital natives. Then visualize what their business should be like if they were creating it greenfield today. And work to transform the companies into a new design.