Retail Parks and Digitalization: Evolution or Revolution?

By Moritz Felix Lück

Digitalization is by no means a new topic. Strictly speaking, it began when computers entered into economic life. You should always keep this in mind if you feel like a person running from modernity. The economy’s and society’s flight from digitalization mainly results from three factors:

• Disorientation by a topic whose complexity no one person can even begin to comprehend completely
• The digital industry’s success in spreading the notion that an irresistible and complete revolution encompassing all spheres of life in every field has broken out and is rolling through society
• Capital markets looking for the “next big thing”

Digitalization, quite prosaically, means that digital technologies can, but need not, have a long-term impact on economic life. One aspect of digitalization is that digital technology is always just a tool for a business model, a process, etc. Technology is not an end in itself.

Wished-for “disruption” vs. status quo of “creative destruction”

The current PR and trend word “disruption” is not used distinctly in discourse in Germany. Real disruption means existing business models are completely restructured or destroyed. This occurs less often than is claimed. Much of what is changed by digitalization is more akin to “normal” changes—“creative destruction.” The latter states that “the new” breaks the previous, cycle-like movement that has hitherto characterized the economy, enabling dynamic, sometimes sudden development.

It is helpful to reflect on digitalization with another, traditional conceptual pair: revolution vs. evolution. Both concepts mean the same thing as disruption (revolution) and creative destruction (evolution). Referring to revolution and evolution allows us to gain a new perspective on the current discussion. It becomes harder to assert that you have to think about revolutionary approaches, business models, and technologies—across all industries and companies. If, for example, more than 50% of companies claimed that they were dealing with revolutionary concepts, hardly anyone would believe that. In addition, evolution can also progress in big jumps, not just in small steps.

For example: is online retail, whether through pure players or multichannel, at a disruptive/revolutionary level? As always, the assessment depends on which criteria are applied and what is compared with today’s conditions. Those who have argued for years that online retail is disruptive essentially refer to three aspects as destructive (disruptive/revolutionary) cores or arguments: a) convenient shopping from the sofa and home delivery, b) much more choice, c) ubiquity (spatial availability).

Classic mail-order companies like Otto, Quelle, and Neckermann already had the business idea of shopping comfortably from home, home delivery, etc. At their peak, their catalogs offered much more choice than a single, brick-and-mortar trader. There has only been one major change: That online retail now offers even more choice, since you can buy from almost anywhere in the world. How many people today actually make use of that in Germany (revenue share), is another question. Classic mail-order companies also offered contemporary ubiquity—people could send in order cards at any time or, in later years, order by phone—though not 24/7, that is true. In this respect, online retail has brought a real extension.

The last, very factual argument against the idea of retail disruption is that stationary trading remains the dominant model. The latest edition of Deloitte’s “Global Powers of Retailing 2017,” among others, shows this: Only 8 of the world’s 250 largest (in terms of sales) retailers are pure online players. Moreover, only 12 of the 50 largest e-retailers worldwide are pure online retailers. The share of traditional retailers’ sales coming from online trading is increasing—but a revolution it is not.

The best demeanor for dealing with digitalization is one that is calm, fact-based, and sober. The connections are so complex that simple approaches cannot explain them. It is generally enough of a challenge to improve your business activities in the face of continuous evolution. Evolution, moreover, also requires constant changes, at times even large ones. In order to do this, you must be willing quickly to throw old habits and (apparent) certainties overboard when needed.

Where the digital industry really is disruptive

One important aspect among many that can be learned from the digital industry is its culture of trying things out, using dynamic-iterative development processes, and the realization that you often learn fastest when you try things out and are aware that the risk of mistakes can be an opportunity.

In the words of Samuel Beckett: “Ever tried. Ever failed. No matter. Try again. Fail again. Fail better.” To understand failure as necessary and to incorporate it firmly into processes and methods—that is revolutionary. Many industries, including commercial real estate and its players, can learn a lot from this approach.

You can read more on the subject and how the advance of digitalization is influencing retail parks in the upcoming issue of ACROSS.

Follow ACROSS

Share this article