From ‘Economies of Scale’ to ‘Scale of Economies!’
The principle behind making money from ‘economies of scale’ is to produce high volumes of products, which reduces the individual unit cost. The more you make and the more you sell the greater the margin and the greater the profit.
‘Economies of scale’ profit is made in the buying process.
The principle behind making money from ‘scale of economies’ is to generate the highest demand for your products in the local economy surrounding your shop, or the potential local economy around your digital touchpoints, by creating added-value within those communities, through creating a positive relationship with the customer base of those economies.
‘Scale of economies’ profit is made in the selling process.
The more collaboration of actions and ‘generosity of spirit’ you give to the local economy, the stronger the relationship and the higher the demand for your product, and the more people will be willing to pay for your product. Profit is made from the selling process. Cash is generated locally at the selling point, and not just achieved remotely in the buying process.
Too much stuff
The unbelievable quantities of merchandise being created by the volume model is becoming too much for even this materialistic world of voracious consumers. Desperate dynamics of product rotation and marketing campaigns have attempted to prop up a system that increasingly cannot sell enough product volumes at any margin to make a retail profit.
Too much stuff for customers
Too much stuff to keep, to wear, to dispose of. Too much stuff for consumers who have become increasingly aware of the damage to the planet caused by the production and the disposal of their possessions.
Too many stories of modern slavery and worker exploitation in the quest for lower costs. Too much plastic in the sea and too much wildlife and environments suffering.
After COVID more customers than ever have seriously questioned the volume of goods they consume and resolved to buy less. The renewed awareness of what is important in their lives does not, for many, include the same volume of possessions.
The shifting of the supply & demand model
The Supply & Demand model is shifting dramatically to a substantial over supply situation. The re-balance has already seen the demise of a considerable number of retailers focused on the volume model.
Irrespective of how important ‘Economies of Scale’ are to your business model, all retailers must re-focus on the ‘Scale of Economies.’ The strategic shift is moving away from one that is solely focused on ‘making a profit from buying’ to one of ‘making a profit from selling!’ The physical retail business priority is evolving from just the places where retailers buy, to the places where retailers sell. This brings us back to the true art of retailing itself.
‘From Economies of Scale to Scale of Economies’ is an extract from the book ‘Meaning in the Retail Madness: How to be an Essential Retailer.’ by Tim Radley.
If you would like to read more about the new ways that retailers are working with suppliers, how to develop different kinds of inventory, the importance of a ‘passion supply chain’ and how retailers are finding ways to leverage the opportunities in customer communities, then you can find all of this and more in ‘Meaning in the Retail Madness.’
Available worldwide across all amazon platforms and popular online booksellers from Waterstones, Blackwell’s & Foyles to Barnes & Noble and The Book Depository.
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