Unimart: a new format to replace retail

Unimart: a new format to replace retail
Bonuses for those who are bold and enthusiastic:

- market capitalization of Walmart's size for the pioneer

- long-term prosperity for the second explorer

- struggle for survival for the third to (about)the eighth participant

- regret about missed opportunities for the rest
  1. Unimart: Amazon without in-house sales function
  2. Unimart: for vendors and customers
  3. Unimart: the economy of format
  4. Unimart: active sales without salesmen
  5. From retail to Unimart: a transformation road-map
  6. Building Unimart: external resistance
  7. Building Unimart: internal resistance
  8. Why hybrid shops and marketplaces have no future

 

1. Unimart: Amazon without in-house sales function

Unimart is like Amazon with its logistic service platform for independent suppliers minus its own trading business and enhance a bit as it's explained below.

In other words, Unimart is a unified logistic platform WITHOUT the trading function.

There is a large urban agglomeration. And there is an inexpensive spacious warehouse (a shed) in the suburb which is a logistic hub of the required capacity. The order pickup points are located throughout the city and suburb. The vehicle fleet is numerous enough to service the order pickup points and to deliver orders from the hub.

The logistic platform comprises only the warehouse hubs and vehicle fleet. The order pickup points are licensed (franchised) to small businesses or large delivery services operating under their own brand names.

There are not any salespeople at Unimart, nor phone operators, account managers, financiers, analysts, accountants, obscure people from development departments and other more than replaceable staff.

There is not any administrative personnel whatsoever. Homo sapiens employees keep on working as warehousemen/drivers until commercially viable robots able to replace them are developed (in 3-7 years).

The operating staff will be completely eliminated after some time.

Counterparties of all kinds are only communicated with via the website (and its extensions like a mobile app, etc.).

There is also an API available for third-party applications.

Despite the fact that no human mind is involved in the operations, Unimart will be able to provide customers with an unprecedented level of services in terms of their number and quality.

The network of hub sheds can be naturally scaled up geographically for any number of large cities.

Unimart is an inexpensive enterprise in terms of investments. A greenfield project of Unimart of certain logistic capacity costs less than any other trading business of known format.

Since no people are employed, the operating cost goes to zero, as compared to other formats, covering the costs of fuel and electricity bills. The IT infrastructure is already available.

In terminology of Cybernetics (which is the SCIENCE of control), the Unimart is a black box of which we only know its input and output and have no idea of its internal organization.

Input interfaces for suppliers and output ones for customers of competing unimarts will be standardized, while benefits provided by their internal organization will determine their competitive advantages. It's like a database management system of any developer that can now interact with any third-party application using SQL, or data exchange interfaces of autonomous cars offered by different manufacturers that will be unified in the near future.

So how it's all going to work until the next industrial revolution. It could be the mass application of 3-D printing, or the end of humankind, or something else.

We will later show how the wise application of the Unimart concept can change the existing retail. Or will eliminate it, to be precise. In all these cases, the need for distribution of goods as such drastically diminishes.

 

2. Unimart for vendors and customers

Retailers and distributors will become obsolete and history.

Unimart’s operators will offer a package of delivery services directly to manufacturers for delivering their goods to customers and payments in cash back to them.

Unimarts themselves will NOT sell anything at all. On a perfectly competitive market toward which we are swiftly driven by the Internet and online business developments, the profitability of trade goes to zero.

The Unimart's revenue comes from commission fees (as a percentage of turnover, to put it simply).

The business arrangement with vendors is as simple as ABC: all that is needed from a certain John, a private manufacturer of some stuff is to visit the Unimart's website, to register, to fill in the delivery note form, to pay a pledge by PayPal and to receive the address of the nearest hub and the time he is to be in the freight area No.X. John delivers his stuff and gets back down to his business.

As an option (for extra pay), John's stuff can be picked up by a Unimart's forwarder. All the other tasks are accomplished automatically by the Unimart's software: entering the item into online catalogs, distributing across the operator's network, making payments to the John's bank account as sales are made.

How can John ever dream of selling his stuff nationwide, let alone the global Internet and getting his goods shipped to the client the next day or even the same day they are ordered?

Besides, the adjustable automatic pricing tools are available for John 24/7 (and there is also an option to set prices manually), as well as the option to fine tune the goods distribution algorithm. John can adjust the prices for his stuff whenever he likes and they can be instantly (and free of charge) displayed at all unimarts operated by the same company.

The Unimart's analytic algorithms will continuously process a huge array of fresh data on millions of SKUs circulating across the logistic network and provide the seller with the most relevant (for the task of either minimum time for sale or maximum profit from sale or matching other parameters) pricing and product offering strategies. Such service is provided free of charge and with maximum accuracy.

When our John realizes that it's too exhausting and time consuming to set parameters manually, he will mark the checkbox "Run in automatic mode" to enable an intelligent managing system to maintain an optimal mix of parameters constantly and accurately, so that John can focus on his core business mastering his stuff production.

The slogan for the seller's solution reads: "Just create. Let us bother with the rest."

What should a Chinese manufacturer of antiques do? Exactly the same thing.

However, he will use the Chinese interface of the Unimart's website and deliver his fake antiques to a local forwarder's warehouse. Or he can order a goods pickup service from a forwarder to ship his goods ex works.

Sony or, say, Xiaomi will act the same way.

At vendor's discretion, their goods can be offered on many websites (or on one website exclusively) by the unified Unimart's managing system using an open API.

Those sellers preferring an exclusive approach can run their own branded order pickup points, while orders are packed in seller's branded packages at a hub warehouse, so that the client does not even know about Unimart's involvement.

How are the same goods from different suppliers offered at different prices going to sell? By applying a FIFO approach, but only by the price of the goods and not by the time of their delivery — the lowest-priced goods are first out. Given a natural desire of suppliers to get money as soon as possible, this approach ensures the lowest prices on the market which is one of the most important (but not always crucial) reasons for the customer to take a decision.

What is about the warranty? Receiving and processing warranty claims is an embedded function of the unified solution. Its costs are covered by suppliers.

In its turn, the Unimart offers its customers a range of very reasonably priced goods ready for delivery that CANNOT be offered by any retailer of the existing format.

 

3. Unimart: the economy of format

Depending on the level of automation (warehousemen/drivers is a bottleneck for the time being), the cost to turnover ratio for the Unimart ranges from 4% (as of now) to 1% (in 5-7 years). We speak of the total cost for the Unimart of delivering an item from its manufacturer to the customer.

For you to compare: this figure for traditional retailers like Best Buy amounts to 20%. I was surprised to find out that Amazon reported the same value while looking through its financial statements. The "new economy" turns out not to be that new.

It's a 4% cost vs. 20% cost. The five-time difference in the operating cost indicates the inevitable decline of the obsolete retail. Setting a target for the Unimart's net profit margin at incredible 10% results in 14% Unimart's commission fee for the sellers (the profit of 10% + the cost of 4% as of now). Thus, the Unimart can be very profitable while offering prices which can make a traditional retailer go bankrupt.

 

4. Unimart: active sales without salesmen

Elaborating the ideas integrated into the multilevel loyalty program described earlier.

Parameters for the multilevel bonus program are set so that proactive smart users can get a good income.

Over time, the Unimart will gather a whole army of independent seller-promoters with some remarkable features:

  • they are not paid for their efforts as the cost of incentives for the MLM network is initially integrated into the business model (and this cost is one (or several) time(s) lower than the cost of operating a traditional in-house sales department); this cost also DOESN'T depend on the number of program's participants and the levels they take in it.

  • they are proactive as their income depends on their activity

  • they are highly motivated as their network segments grow over time and generate more income for the same amount of efforts; the return on time spent is enormous

  • they aggressively compete with each other as the Internet removes all barriers to competition (in terms of location, time, race, sex, health condition, appearance, etc.), and thus all possible communication channels are employed

  • their freedom and creativity are not constrained by any bureaucracy as these freelance sellers work for themselves.

Proactive and successful sellers who want their business to grow are provided with a platform to establish their own business: a template for an Internet store which is connected to the Unimart's IEM System with access to a tremendous database of goods available for delivery. The Internet store can be hosted on any domain, be of any design, offer any goods at any prices (except for dumping ones).

There is no doubt that soon we will see the results of this evolution in the form of new sales and promotion models so original and efficient that they leave the ideas of arrogant sales guru far behind.

 

5. From retailer to Unimart: transformation road-map

Informing buyers of the available assortment of products is a main challenge for a large online seller offering a wide range of goods. It is luck if even one of ten customers is aware of the full product range.

Declaring the availability of 100,000 SKUs cannot help with actual sales, all these SKUs are useless unless customers know about them.

Large brick-and-mortar retailers tackle the issue by optimizing the merchandise display and customer's path at the store.

Online retailers attempt to solve the issue by optimizing the catalog's structure and the way it displayed on the website. There are also attempts to customize the interface including the catalog for individual visitors. The result of this efforts is disappointing.

This problem is global and so fundamental that not many even realize it.

The cost of the problem amounts up to a half of sales (i.e. +100% of potential sales) even for goods of the highest margin. Advanced users do not waste their time for navigating the catalog and use the search function instead.

But this function is not a universal solution — the user should know in advance that the product of interest is offered by the store and has to try searching different product descriptions. The loss in net profit can several times exceed the actual figure.

Advanced users do not waste their time for navigating the catalog and use the search function instead. But this function is not a universal solution — the user should know in advance that the product of interest is offered by the store and has to try searching different product descriptions.

In current circumstances, the task of displaying the product assortment of a large online retailer with a wide product range cannot be efficiently solved.

As we believe, a solution may be found externally by rejecting the idea of using a unified website as a trading platform and shifting to a cloud of independent specialized websites. How does this concern the transformation of retail into the Unimart? Be patient: "All roads lead to Rome."

To simplify the issue, let us assume that we run an online store named Retailer offering a wide product range. Its website address is retailer.com.

Stage 1

Unrelated product categories of the top level are separated into individual websites (retailer-cosmetics.com, retailer-electronics.com, retailer-travel.com, etc.)

Apart from enormous increase in perceived assortment, there is also a higher flexibility for the promotion strategy for each website starting from online ads and ending with search engine optimization.

Stage 2

The separated websites become genuine strategic business units (SBUs) and all commercial functions are delegated to them, i.e. a divisional organizational structure is established as GMC did when it was led by Alfred Sloan. The infrastructure and cash flows are centralized in the HQ.

The sales, product offering and pricing functions are delegated to SBUs headed by independent executives.

Stage 3

Establishing collaboration with third parties. It may be an Internet store selling cosmetics. It is granted access to API to communicate with the Retailer's IEM System (inventory, orders, delivery data, etc.)

The third party's website communicate with the Retailer's system in the same way as Retailer's SBUs. At this phase, third-party stores sell Retailer's goods shipping them from the Retailer's warehouse and compete in some way with retailer's SBUs offering the same goods.

Orders collected by third-party stores are picked up at Retailer's pickup points (normally) or delivered by the Retailer's delivery service (which can be given some neutral name, though it doesn't matter). Orders collected by large third-party stores can even be packed in their branded packages.

Advantages for third-party stores are obvious: all their troubles and risks are eliminated, they can use their discretion to implement their commercial and marketing ideas.

It's an unbelievable opportunity for a newly established small business.

Restrictions for third-party stores at phase 3:

a) Only the goods offered by Retailer can be sold
b) Goods are often unavailable in the Retailer's warehouse

The latter problem pertains more to underdeveloped markets with weak competition. These gaps are responsible for the loss of 30-50% of potential sales. In other words, the goods which customers are aware of and want to buy are merely unavailable. The impact on the profit is obviously catastrophic (not for all sellers). However, there is a separate article about the automated management process related to IEM.

Stage 4

Third-party stores are allowed to deliver their goods to the Retailer's warehouse and to implement their own pricing and distribution strategies.

Retailer itself no longer sells anything; this function is performed by third-party stores and Retailer's SBUs. A logistic platform, the first component of the Unimart is ready.

Stage 5

The second component of the Unimart is added. Retailer's own SBUs are either sold (including brand names for their product categories) or liquidated.

Done.

Some notes about names. It's obvious that a brand name for the parent Unimart must not be anything to do with the Retailer brand. The question is that at which stage the Unimart emerges — at the third, fourth, or last, and what the optimal marketing tactics to promote a new brand is.

However, these details greatly depend on the actual situation.

Finally, there are some bonuses for those who are bold and enthusiastic:

  • market capitalization of Walmart's size for the pioneer

  • long-term prosperity for the second explorer

  • struggle for survival for the third to (about) eighth participants

  • regret about missed opportunities for all others

It must be emphasized that the outline described above does not require large investments or carry any significant risks (if nothing reckless is done).

On the contrary, the implementation of each next stage results in increasing profit.

 

6. Building Unimart: overcoming external resistance

Large vendors will try to ignore a new sales channel for as long as possible.
There are several reasons for this: from laziness of office fat cats avoiding any actions to corruption of the vendor – distributor – retail chain occupied by people accustomed to 6-7 digit bribes.

That is why the new format will be developed by small manufacturers (small for their local markets, not on the global scale) which have few chances to succeed in the current market configuration.

When the fat cats feel uncomfortable at their positions due to obvious decrease in their market shares, they will come to the Unimart and stand in public line.

Besides, the new format may be a perfect supporting measure for small business globally. And it doesn't require any tax benefits or governmental programs.

 

7. Building Unimart: internal resistance

Employees who are no longer required (responsible for supply, sales, administrative tasks, etc.) would oppose the transformation which threatens their jobs.

Given the potential of such employees to sabotage the idea, the transformation becomes more and more unfeasible.

This will be the case, if a frontal attack is made.

As it was demonstrated by one of the greatest military theorists of the past century, a frontal attack is a particularly bad idea for any human activities.

In this case, a successful side attack should be employed as follows: the SBUs separated at Phase 2 are incorporated by their executives (one or another form of managerial buy-out).

It is not necessary that the executives acquire 100% of shares. It's important that the amount of shares owned by them would be enough and sufficient to motivate them to work for the benefit of shareholders.

The cost of buy-out doesn't matter much. Future benefits resulted from the transformation will compensate for any one-time potential loss.

As well as hidden treasures.
As we believe (or rather feel), commercial theft in a properly managed company accounts for 1-3% of company's turnover. If the SBUs are duly incorporated, these funds will quickly return in legal turnover.

The impact of this can be hardly assessed but it will undoubtedly be positive for both business processes and shareholders.

Another reason for this is that the multiplier of loss due to theft will be eliminated; a fraudulent employee stealing $1 can make a $10 loss for shareholders.

 

8. Why hybrid shops and marketplaces have no future

Retail in its general form will certainly survive. Every new format doesn't displace the previous ones completely but rather takes a significant part of their market share. Street vendors have been known since ancient times. Modern shopping malls are similar to ancient marketplaces. Even ridiculous department stores are still alive.

Popular ideas spoken about by analysts today that the industry development is seen as traditional stores extending into online sales are total nonsense.

Hybrid shops are NOT at all viable in the long run. They are "bridging species" between the last stable state (hypermarkets which made a revolution in retail in 1960's) and the next retail format — the Unimart.

Unsuccessful attempts to go online made by world's leading retailers like Walmart/Carrefour were well predictable. Otherwise results would be surprising.

Let us look at marketplaces using the example of Alibaba Group.

What benefits for manufacturers does their marketplace provide? It's merely a popular online bulletin board with a payment system. The customer can get access to small Chinese manufacturers and a poorly organized product catalog. That's it.

Nothing else.

The Alibaba's marketplace was initially an online store for Chinese having low computer literacy.

The success of the Alibaba's marketplace is entirely attributed to low computer literacy of people in China in 1990's. Being unaware of alternative options, millions of Chinese crowded this marketplace and made it popular.

It is noteworthy that Ebay which is a well done counterpart to the Alibaba's marketplace failed to become so popular. And it could not because of the high level of U.S. market development and high educational level of Americans. The core business for Ebay is still sales of used and rare items which are of low interest to traditional retailers. Ebay can't really compete with Walmart or Best Buy.

The functions implemented in such marketplaces as Alibaba or Ebay are only a part of the Unimart's set of functions. Moreover, these functions implemented at the Unimart are far more advanced.

About Amazon. Amazon can be even more profitable and transformed into the Unimart if the company abandons its own sales function.

The in-house sales function (which is of greater priority to the company) negatively impacts the number of vendors which consider Amazon to be their only sales channel.

Whatever the company says or guarantees, this cannot help to solve the issue. As Jack Trout used to say: "Marketing warfare is conducted in a small, dark and close place, inside the head of Homo sapiens."

October 20, 2016 by John Galt