Disrupt Yourself

For a quick case study on disruptive markets affecting independent retailers, the jewelry industry just needs to look at the video industry.

In the mid-1970s, Betamax and VHS were introduced to the market. Over the next 30 years, we experienced the birth, explosion, disruption, and death of an industry.

I had a summer job working for a small Chicago retail chain that sold billiard tables. The billiards business wasn’t exactly hopping, so the owner expanded the business to other forms of home entertainment. We introduced VHS and Betamax machines, and learned to hook them up, set the clocks (!), and program them to record television. A few short years later, movie studios began releasing movies for home viewing. Billiard tables disappeared from our stores completely, replaced with racks of rental movies and home recording technology. The company was rebranded as a video chain, and we shot up to 14 stores.

Around that time, I moved to one of our suppliers. Right away, I was tasked with stocking the first two Blockbuster Video stores with the ideal movie rental inventory. In the years that followed, Blockbuster systematically wiped out most independent video retailers with its expansion strategy. As video prices dropped low enough for consumers to buy them (instead of just renting), I was recruited by another company to launch its video catalog business. Then came DVD, which made Netflix possible (if you recall, Netflix’ original delivery system wasn’t digital – it was the US Postal Service). Cheap, ample movie fare without leaving your home (not just Netflix, but also cable channels) ultimately killed Blockbuster.

The history of the video industry offers several important lessons for those of us considering our next moves in the jewelry business. Here are a few of them.

1. Don’t Be a Purist (Unless You Can Differentiate It)

Being a purist isn’t a formula for consumer success. In the video world, there were constant, fraught battles between the Beta and VHS camps. People took sides. It’s OK for consumers to take sides in that type of battle, but not business owners. Video store owners and studios (suppliers) who took sides instantly eliminated a large percentage of buyers. The lesson? Give consumers what they want in as many ways as they may want it — unless you can turn your niche into a powerhouse of differentiation.

We see this today in the jewelry industry, as people take purist stances relative to product. Lab grown diamonds, ethically sourced and made jewelry, silver jewelry, plated jewelry, hand-made jewelry, crunchy-funky-designerly jewelry — these are things that consumers want to buy and many retailers still refuse to sell. If you’re not such an upscale jeweler that you can differentiate on that premise (question: have you sold more than two $50k items so far this year?), you should be feeding the quacking ducks rather than running around looking for swans.

2. Adapt Adapt Adapt

My boss at the billiard chain was in his 60's when he transformed his stores from selling billiards to selling video — at the time, a bold bet on technology. I watched him continue to adapt to the changing marketplace, keeping his eye on the news and his ear to the consumers. When he got in financial trouble from his rapid growth, he sold the chain of stores to a large music chain and cashed out at just the right time.

On Mastery. Your Mind Doesn’t Want the Slack You’re Giving It

His adaptability is what kept him young, kept him profitable, and gave him an excellent retirement. It wasn’t without struggle, but he made more right decisions than wrong decisions due to his ability to adapt.

3. Don’t Just Expect Change. Anticipate It.

Sort of the inverse of #2 — don’t ever count on things staying the same. If you’re not always thinking about what’s next, you won’t remain relevant.

Just last year, a retailer was quoted in an article (in the Centurion Newsletter? I can’t find it now) as saying that he’d rather retire than work this hard. If retirement is a desirable option, that’s great. But if it’s not – either because the funding isn’t there or you just don’t want to stop working yet – then it’s important to accept that change is accelerating. As someone commented in a very lively conversation on Facebook today, “the things we all have to know now are staggering.”

I don’t know about you, but I’m not fond of just covering my face and hoping my boat makes it through the rapids. I’d rather act. And that means being a student of business; reading, researching, learning, testing, failing, and trying again. Anticipating change is far more empowering than resisting it or just getting swept up in it.

4. Your Business Model Can’t be Static

Your business model is the design for your business. It includes how you sell, your revenue streams, product types, which customers you target, and how you are financed. When technology disrupts an industry, the most powerful response is at the level of your business model, not just at the level of product selection and pricing. In fact, the most dangerous response to a disruption is to cut prices.

Video started out as a rental industry. Then it became a sales industry. Then it became DVDs in the mail, and finally it became digital online delivery. Blockbuster failed to convert its model quickly enough to compete with Netflix. Netflix started with mail delivery, but always intended to switch models to online delivery as soon as network speeds were high enough.

Right now, retail store owners and operators are asking the question “what’s the future of retail?” The smart ones are looking at how to change their models, not just product selection or in-store experiences.

5. Embrace Technology to Become a Disrupter

Technology is at the heart of much (though not all) business disruption. Netflix leveraged a bet about where technology was going (online digital delivery of large files) to start a business, and they won. Today’s entrepreneurs must be students of technology.

Tough Love for Executives with Delayed Technology Development

Have you drunk the Kool Aid that makes you believe that you’re too old to become technologically literate? It’s time to get off that drug and recognize that if you have the smarts to run a business, you have the smarts to stay on top of what’s happening in the tech world. It’s not inability, but will, that keeps most people from embracing this aspect of their businesses.

Disrupt Yourself

Years later, after I had left the video business and gone into consulting, I returned to Blockbuster corporate for a year-long assignment. Same store sales and rentals were down across the country, Netflix had become a real threat to them, and they needed something new. After completing our initial analysis, my partner and I wanted to examine their business model, but that’s not what corporate leadership wanted. Instead, they doubled down on product, going after a different, nichier, video product category. In a chain of stores that was already saturated with too much video inventory, they saw product as a way out.

Yes, hindsight is 20/20. But that’s why we have case studies. Disruption, once a word that suggested something out-of-the-ordinary, is now the norm. So as Jack Welch said long before the rest of us really got it, find a way to disrupt yourself. Well, he actually said to do it before someone else does it to you. It’s too late for that, but not too late to get creative. The fact is, nobody really knows what the future of retail is yet. That leaves a lot of opportunity on the table for smart self-disrupters. Might as well be you.

##

Andrea Hill is the owner of Hill Management Group, with several brands serving the jewelry industry. She writes frequently for trade and business publications, has a monthly column in the MJSA Journal, and posts regularly The Werx Blog.