What if They Gave a Sale and Nobody Came?

August 8, 2018|Posted in: Uncategorized

There is one central problem with capitalism that people don’t seem to get–and I don’t mean on a philosophical level. As a rational, logical system for basing an economy on, capitalism has a fatal flaw: in order for it to work, people have to keep buying stuff.

I bring this up because I was trying to think of some place to eat and realized how many of my favorite restaurants have closed in the last year. Café Rouge is gone, Kuleto’s closed last year, and Hawker Fare shuttered its doors about 6 months ago … but the one that really got me was Pasta Pomodoro. They had, like, a dozen locations here, and at least that many more around SoCal–all gone.

It doesn’t really surprise me. I mean, I wish they were still open, but I’m not shocked that they closed. You know why? Because people are fickle, and their tastes change. It never ceases to amaze me how many establishments–not just restaurants, but merchants in general–seemed to base their long-term business plans on “Gee we had this many customers this year, I bet we have more next year!”

Newsflash, folks: things happen. People change, tastes change, competition moves in, customers move on. You can’t remain static and hope to compete.

Having said that, it’s not a picnic for companies who DO try different things: they may change up their offerings … but that comes at the risk of alienating regulars. They may open more outlets to expand their footprint, which can bring in additional customers … but that means it will take more resources to just to maintain the status quo. And even monster retailers like Starbucks and McDonald’s have found there is a limit to how much you can grow before hitting a saturation point.

There is also the option of growing one’s product line … but that only works if you can find a market for your new merchandise or service, which is close to impossible if there are already market leaders. Say you’re a company manufacturing paper products, for example; maybe you want to expand into disposable diapers. That’s not a stretch for your skills or facilities, but you’re going up against Kimberly-Clark and Procter & Gamble right out of the gate. Good luck with that.

So maybe you try to find a completely new product to sell. Not an easy road, either–but even if you do, you again have to be able to sell it … and keep selling it. That’s a struggle, even for the big boys.

Look at Amazon: they’ve sold some 50 million Alexa-capable devices–good for them, right? Except for two issues: one, not everyone wants or needs Alexa–eventually those sales will top out. And since it’s hard to image people trading in Echoes like they do smart phones every couple of years, once that market hits saturation, Amazon will need another income stream to make up for flagging device sales.

And that goes straight into Problem Two: by most accounts, Amazon isn’t making much of a profit per device sold. The devices themselves were a type of loss leader to usher in the next new wave of retail: sales over voice-enabled devices.

According to a USA Today article a few months back, purchases made through Google Home, Amazon’s Echo, and the like are projected to leap from $2 billion to $40 billion by 2022″as technology improves, U.S. consumers become more comfortable and the speakers become nearly as commonplace in homes as a flat-screen TV.”

To date, it’s been like a party where no one received their invitation: according to The Information–citing reliable accounts from Amazon insiders–only about 2% of the people with Amazon’s Alexa intelligent assistant have made a purchase with their voices so far in 2018. Of that 2%, roughly 90% didn’t try it again. That means that the percentage of owners who do any kind of ongoing voice shopping is considerably below 1% … statistically, it’s pretty much zero.

So let’s review: as a company, it’s ridiculously difficult to bring a new product to market, and even if you have the resources to pour into doing so, there’s a better-than-average chance no one will buy it. It’s also costly and demanding to open more stores … and again, even if everything goes well, establishing additional locations necessitates even more growth–which has a limit point. In fact, none of the ways of selling more product are without risk, and all have some sort of governor on how high you can go.

And we haven’t even talked about all the other “out of the blue” things that could cripple your plans, like natural disasters or friendly fraud. But none of this addresses the real, serious problem with capitalism:

What if we just get tired of buying stuff?