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The singular competitive reality of retailing over the past 30 years has been consolidation. From convenience stores to food stores, big-box specialty stores to warehouse clubs, the big have gotten bigger, while retailers from mid-size regional players to mom-and-pop operators have seen their fortunes wane. A decade ago, nearly 500 public retail companies were in North America; today, we are down to fewer than 300.
Consolidation has been driven by a brutal form of economic Darwinism. Retail is a business that lends itself well to sizable economies of scale. Those companies who were the first movers down the long path to greater efficiency extracted a compelling competitive price advantage. That advantage generated greater volume at a lower cost-per-unit sold. The resulting profitability growth in turn made expansion easier. The result was a productivity loop.
No single company understood and implemented the productivity loop better than Wal-Mart. Combining state-of-the-art information technology with world-class distribution skills, Wal-Mart drove down their costs as a percentage of sales and became a major driver of retail consolidation.

Wal-Mart and the Lilliputians
Wal-Mart now faces a host of unprecedented challenges that many of their direct competitors do not just as their own torrid pace of top-line growth has slowed. They are the most frequently sued company on the planet, averaging 15 new lawsuits every day. Like Gulliver being restrained by the Lilliputians, Wal-Mart repeatedly has faced local opposition when trying to open new stores. The alliance of union, environmental, and anti-globalization activists has forced Wal-Mart chairman Lee Scott to begin to articulate the Wal-Mart case to the public.
At the same time, consumers are becoming more polarized and fragmented as a group. The differences in product and shopping preferences among young and old, rich and poor, married and single, Caucasian and ethnic, and urban and ex-urban are becoming greater. These consumers are seeking products and services that are authentic and unique to their communities. One size of retailing no longer works for a growing segment of the population.
Add to that the explosive growth generated by the power of technology that is transforming retail into a network-based system that in the future will have the ability to deliver personalized services and products on an individualized basis.
This technological transformation will enable retail to return to what it once was -- a personalized business where the consumer was treated as an individual, where his or her needs were well known and understood by the business, and where a long-standing personal relationship existed between the business and the customer. Look at other more information-intensive industries like media, entertainment, or music. In each case what was once a fairly consolidated business has fractured into hundreds of different market segments, more often than not served by many more businesses than a decade ago. Where the airwaves were once dominated by the Big Three -- ABC, CBS, NBC, now there are hundreds of channels appealing to ever-smaller market niches.
Finally, smaller businesses also have the advantage of being able to give their workers a sense of ownership in the business. In a business where service is an important performance dimension and the availability of quality workers is shrinking, having associates who act like owners is an important advantage. It is this combination of technology, consumer, and labor trends that will produce a more decentralized, less-consolidated retail business.

Implications for Food Retailing
Over the past decade, traditional food retailers have steadily lost market share to Wal-Mart, Aldi, and other price-focused retailers. Food retailing is often on the leading edge of retail industry developments. If there is a case for deconsolidation, food retailing will likely be the first place we see it happen.
Technology will enable suppliers to work with a broader array of retailers, and supply them with a more diverse mix of products. RFID will enable food retailers to either stock more variety on their shelves, making selection for the consumer even more difficult, or operate smaller stores.
And yet, the fastest-growing product segments are in the "niche" product areas like organic and natural foods, ethnic-oriented categories, and nutraceuticals. Farmer's markets have proliferated as consumers look for retailing that offers a more local and authentic value. The store of the future is a smaller box that is closer to the customer, with a product mix that is more finely crafted to the local market.

Implications for Convenience Stores
Convenience stores underwent a massive wave of bankruptcy and consolidation beginning in the late 1980's. The industry that has emerged from that wave of bankruptcy is more technologically sophisticated, better managed, and more focused than the pre-bankruptcy industry. The recapitalization of the industry led to a wave of new store openings in the 1990's. The new stores are cleaner, better lit, and larger than the industry average. And, despite who owns them, many of these new stores look alike. Brand differentiation in the convenience store business has been lost in the process.
Because of their size and location, convenience stores are well positioned from a real estate point of view to take advantage of the trend towards deconsolidation. The bad news for convenience stores is that many other types of retailing are going to be competing for their turf and chasing their customers. The convenience store of the future has to break out of the current cookie cutter mold to craft stores that deliver convenience beyond gasoline, nicotine, and caffeine to a broader set of consumers.

Implications for Mass Merchandisers
There was a time when hundreds of mass merchants were on the retailing scene. Every major city had its own locally grown, family-owned mass merchant. Over the past 30 years, the industry, from department stores to discounters to big-box retailers, has been transformed via a dramatic consolidation process. In virtually every mass merchandise category, what remains are just a handful of large, extremely
efficient players.
Differentiated mass merchandise almost seems like an oxymoron. And yet, as the consumer base grows ever more diverse, the opportunity for mass merchants to develop offers that are unique to these different consumer segments grows in parallel. With the aid of technology, the ability to deliver a highly differentiated mass-merchandised product grows as well.
In time, RFID will enable mass merchants to either stock more variety on their shelves, making selection for the consumer even more difficult, or operate smaller stores. The mass merchant store of the future is more likely to be a smaller box that is closer to the customer, with a product mix that is more finely crafted to the local market.