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Published: April 1, 1997

 
 

Conceptual Re-engineering at Nissan

So consumers are beginning to show signs of doing what any rational person would do: abandoning the places where there is aggravation and investigating new retail sites. They can sign onto the Internet and find information on manufacturer costs that can help them make a deal, or they can actually buy a car on-line. In the real, not virtual, world, they can go to one of the new car malls that carry several makes and models, and comparison shop -- without having to get into their cars and travel from one dealership to another. Or they have the alternatives of CarMax and AutoNation, used-car emporia.

Circuit City, the electronics chain, has proven it can adapt the techniques and facilities it uses selling computers and televisions to cars (CarMax). Wayne Huizenga, the brains behind Blockbuster Video and other endeavors, is capitalizing a national network of used (and new) car franchises (AutoNation) that will dwarf anything now in existence.

If the demise of local, family-owned dealerships seems unimaginable, just consider Circuit City's other business. Twenty years ago, if we wanted to buy a television, we went to the RCA or the Magnavox dealer. Even 10 years ago, if you wanted a computer, you went to the Apple or the I.B.M. store. There are no more Apple or I.B.M. or RCA or Magnavox stores. At Circuit City, the Sonys, JVC's, Mitsubishis and Magnavoxes are stacked together, organized by appliance, not brand. It is not unusual to see a 40-foot wall of televisions, all playing the same channel for comparison purposes. At Computer City, a competitor of Circuit City, the I.B.M.'s sit on shelves between the Compaqs and the NEC's. Across the aisle are the Macs.

A similar retail revolution has taken place in other consumer arenas: think about where you bought books, office supplies, hardware and tires 10 or 15 years ago and where you buy them now. Most of the old outlets either don't exist or are listing badly.

We have not experienced the retail revolution in the auto industry to that degree yet, but there are plenty of indications of a "shelf space world" to come, one in which customers will go to hangar-like structures to choose from row upon row of Nissans, Toyotas, Hondas, Chevys and Fords sitting side by side, like soap. In this world, the fulcrum of power between the manufacturer and the retailer would shift to the retailer, who would control inventory, ordering popular models and refusing unpopular ones.

 

Manufacturers would lose the benefit of a strong-selling product supporting a weaker one. Like packaged-product makers, auto makers could find themselves fighting each other for placement among the many other brands on the shelf.

In the short run, the competition may be good for consumers using only price as a measurement, but in the long run the manufacturers will have to consolidate their lines. There is a limit to how responsive a manufacturing company, even one that can significantly shorten its product-cycle time, can be to the abrupt cycle of short-term consumer/retail demand. Eventually, consolidation will most likely drive out all but the top three or four sellers in each segment, leaving consumers with fewer overall choices.

This treadmill-to-oblivion scenario is unappealing to the traditional participants: manufacturers and existing retailers. In the "shelf space" world, the retailers would change from entrepreneurs to warehouse managers, and manufacturers would continue to succeed only as long as they could maximize production flexibility and squeeze profits out of the margins. This revolution is perhaps a long way from being on an irresistible arc, but if we want to shape the future of the industry into some configuration that is "win-win" for consumers/retailers/manufacturers, we have to change.

 
 
 
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