arrows-Sometimes, my column is triggered by a news item; often, one specific encounter within our industry is the inspiration. But there are times when little bits of information from the world at large start sticking together and I sense a change in the Force, so to speak. Call it taking the pulse or sampling the zeitgeist, but I’m noticing some interesting patterns in the collective predictions from the pundits of the greater economy.

Disintermediation is the five-dollar word some economic gurus are using to describe a trend almost inconceivable 10 years ago: cutting traditional banks out of the lending and credit card processing revenue stream. The intermediaries—to put it simply, the banks—are now competing with a new class of financial companies. In lending, there are several startup platforms designed to connect micro-lenders directly with those in need of capital. Two significant ones are Lending Club and Prosper. Rebecca Lynn at TechCrunch reports that Lending Club has passed all the SEC and regulatory hurdles and seems ready to take off. While working the SEC process, it took five years (until 2012) to hit $1 billion in loans. By 2013, the company had reached $2 billion. And, at the time the article was posted in July, it was $4 billion. Prosper is taking off, too, and projects $2 billion in loans this year.

Although that’s still chump change in a multi-trillion-dollar economy, it’s only two examples. Aggressive companies like PayPal/eBay are also lending (PayPal Working Capital, Kabbage) and, of course, crowdfunding sites like Kickstarter, Fundly and Indiegogo have helped to raise millions to launch companies and consumer products as often as they’ve funded films and video games—all by connecting the actual investors directly to the project.

At the same time, PayPal, Square and Intuit have made significant inroads in credit card processing. Square’s partnership with Starbucks is only the highest-profile example. Thousands of small businesses (mine included) have jumped from old-school processors to these new providers. In my case, I openly thank PayPal Here for saving me several thousand dollars over the last couple of years in processing, shakedown “compliance” fees and equipment costs. If you haven’t looked into one of these “alternate” processors, I urge you at least to check it out and see if your business would benefit.

Just as a herd of startups work to gleefully cut the banks out of a chunk of their traditional meal ticket (Hey, if they take enough, maybe the banks won’t be too big to fail anymore and we won’t have to bail them out next time!), another shift in retail is also rearing its head: the withering of the big box.

Although there has been a lot of talk about the “death” of the format, most of it has centered on the predictions of pundits or the travails of a single company, rather than careful analysis. But near the end of July, Goldman Sachs released its review and specifically cited Walmart and Target as examples of a format whose time is up. The review states the case directly: “Shoppers are increasingly turning to the Web or to smaller, more conveniently located stores, cutting into the market share of big-box retailers” (italics mine).

This isn’t news to Walmart and Target. Certainly, Walmart has noticed that same-store sales have fallen in 12 of the last 20 quarters (according to tracker Retail Metrics). I’d call that a trend, particularly because the company’s aggressive enough to have tried everything it could think of to reverse the statistic. Yet, the drop continues.

The two companies have experimented with smaller-format stores and aggressive Web offerings, but so far it seems neither tactic has shown significant promise. Time will tell: I agree that they’ll have to change—but I wouldn’t count them out just yet.

But what does this mean for our industry? First of all, it gives us the opportunity to join the disintermediation party. (I can’t decide whether that sounds like a political party or a rave.) We can save on card processing and explore new capital sources. Once I was putting all my credit card transactions through PayPal, I had a track record that allowed me to apply for (and receive) a micro-loan through PayPal Working Capital, which doesn’t access credit history…just your PayPal history. (To find out more, go to and search for the program.) It wasn’t huge—but it was enough to start the recovery.

By using “outside” sources to help our businesses, we can be ready to take advantage of the next step—the one I italicized above—of consumers turning to smaller, more convenient stores. I noticed several years ago that my in-store traffic was devoid of one of the banes of my 1990s retail existence: the nickel-and-dime price grinder. Thankfully, most of those folks seem to be trolling the Web for the lowest prices on the planet, and good riddance. Those customers had cost us too much time and margin even if we got the sale, and I firmly believe we’re better off without them.

The customer we CAN capture is the one described by Goldman Sachs: the consumer looking for convenience. I’m seeing more customers grateful that I can pleasantly and efficiently take care of them. They’re what I think of as “backlash customers.” They’re willing and able to buy on the Web, but they value the convenience, connection and assistance of the face-to-face environment. They like what I’ve repeatedly referred to as “concierge-level service.” And, yes, they’re willing to pay for it—at least in relation to Internet pricing.

They’re also the customers who need help—with selection, usage, lessons, repairs or simply advice. The downside for some businesses in our industry is that we have to re-think what “service and selection” means to these consumers. We need to stock what they want, not just what makes us the most money. We have to spend a lot of time educating, rather than just ringing up sales. And, finally, we have to make our store environments inviting, comfortable and friendly. This is our biggest challenge, but it’s also the future of small-store retail.
Even Goldman Sachs seems to think so.


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