The Barbell Effect is a phrase common to investing, where investors split their investment portfolio between startup companies on one end and mature companies on the other. The idea is to balance the weight, and risk, on both ends so the portfolio looks like a barbell.
Jim Blasingame, the Small Business Advocate and author of The Age of the Customer: Prepare for the Moment of Relevance, has applied the concept to retail. It explains how companies that are innovating and moving to the ends of the barbell are prospering, while every one left in the middle is getting squeezed. Jim explains,
The Barbell Effect occurs when entrenched, legacy practices are disrupted by forces like new technology, innovations, and shifts in demographic behavior, like when people stop going to malls. Those industry players who fail to adapt to the shift are forced to retreat into the contracting middle, the bar. Those who adapt will prosper in the bell ends, where most customers are going.
Jim and I talked about the retail Barbell Effect on his syndicated radio show recently. The middle is where once great brands go to die, as faster, more innovative and more relevant brands take over the prime ends of the barbells. Jim is quick to point out that the Barbell effect is the result of the pressure is arising from new and evolving customer expectations which is pushing growth to the ends of the barbell, not the cause.
The Barbell Effect turns the traditional bell curve upside down. The Barbell Effect explains why retail aimed at the middle-market, what used to be at top of the traditional bell curve, are failing. Big Box retailers like JC Penney, Macy’s, Sears, Kmart, HH Gregg and Staples, are shuttering stores in the hundreds this year, while numerous mall-based, once thriving chains such as The Limited, American Apparel, BCBG, and Abercrombie & Fitch, are doing the same. They have lost relevance to customers.
“The pressure creating this retail barbell is arising from new and evolving customer expectations,” Jim says. “That new expectation isn’t about unique products, lower prices or better services. It’s the most powerful relevance advantage in The Age of the Customer: saving time.” After all, time is the ULTIMATE luxury, which means customers don’t have to spend precious time going to the store and searching the aisles for what they want.
Today shopping in a store is no longer a necessity, “built around a 150-year-old legacy model of customers walking into stores to buy stuff,” as Jim says. It is a choice and offering more, cheaper, increasingly irrelevant stuff isn’t the answer to the Barbell Effect’s death squeeze. Why do they end up there? Because the customers have moved on and they haven’t.
Barbell Effect creates new opportunities — Away from the middle toward the two ends
But Jim points to the opportunity evolving from the Barbell Effect, “It has two fat ends – the bells.” He continues, “On one end of the retail barbell are disruptive companies like Amazon, Google and other purveyors of the online experience. On the other end are small ‘Main Street’ businesses that understand that the online, digital model cannot fulfill all the expectations.” He calls this the analog bell and its power is found because, “One hundred percent of customers who demand digital are themselves 100% analog.”
Analog retail is high-touch retail that puts the customers first and foremost. Analog retailers understand that their success is determined less by WHAT they sell, and more about HOW they sell it. Big retailers are on the wane, not because they haven’t adapted technology faster, but because they have failed, and failed miserably, in the high-touch world of analog retail. “Amazon can’t scratch one analog, high touch itch,” Jim says and increasingly neither can Macy’s, JCPenney or Sears because they abandoned the personal connection with their customers based on the incorrect assumption that high tech and big data was the answer.
The ultimate irony of the Barbell Effect is that disruptive companies that prospered in the high-tech bell, Amazon, Warby Parker, Bonobos and others, now recognize the limitations of their end of the bell and so are rapidly advancing on the analog end by opening stores.
The good news is that due to the retreat of the big boxes there is a high-touch vacuum to be filled. The key: realize that today retail is a people business, not a product business anymore.
Help to capture more sales from the analog customers
Despite retailer’s rapid advance in omnichannel initiatives, it’s been a bleak few years for retailers. Despite the millions mainstream retailers have invested in e-commerce, Amazon rules at the digital end of the barbell. Retailers’ great opportunity to prosper lies at the analog end with high-touch retail that excites shoppers looking for a more personal, authentic shopping experience.
Jim Blasingame’s Age of the Customer will prepare retailers for the moment of relevance and how to use it to drive sales.
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