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CHAPTER 2

The End of Scarcity

“To my mind the old masters are not art; their value is in their scarcity.”

—THOMAS A. EDISON

Whether you are an economist or just applying simple common sense, you know that supply and demand largely determines how markets operate and which companies ultimately generate customer and shareholder value. If an item is of high customer value but is difficult to get, prices go up—and typically so do profit margins. Conversely, even when a good or service is highly desired, if it’s too readily available there may be little or no opportunity for a solid economic return.

At the intersection of customer wants and needs and the ability to meet them in unique and highly relevant ways lies opportunity. The first time we encounter a newly launched product or try a novel experience that moves us, it may be fascinating or even rather memorable. Yet once something becomes ubiquitous it tends to become uninteresting. What’s abundant is no longer special. But where strong consumer desire meets scarcity we find potential: the potential to win—and keep—customers, to drive profitability, to be remarkable.

Much of the luxury fashion industry takes advantage of this phenomenon. The most in-demand new item from an iconic fashion house retains its elevated image largely based on scarcity, much of it quite deliberate. Part of the intentional scarcity is the sky-high price point, which limits the number of people who can afford it. The other component is very narrow distribution, where only a small and select number of retailers carry the items.

The Hermès Birkin bag is a case in point. Since its introduction in 1984, Birkin bags, which start at over $10,000 (and can go much higher based upon materials used and degree of customization), have grown to be among the most sought-after fashion items globally, often commanding high markups on the resale market. Hermès reinforces the bag’s exclusivity through artificial scarcity, limiting production so that there is a waiting list and restricting sale to only a handful of stores. If Hermès were to decide to dramatically lower the price and greatly expand distribution, the remarkability of the brand would be undermined considerably.

Although few brands are as powerful and iconic as the most rarefied luxury companies, historically what we might call “managed scarcity” has been a component of many retail brands’ core strategy. Manufacturers generally chose the retailers they allowed to carry their products, seeking to balance consumer reach against over-saturation of distribution that would dilute their brand image and put too many of their retailers into head-to-head competition with each other. Another strategy employed by many premium brands (Sony, Bose, et al.) involves strictly enforcing the sale of their product at their manufacturer’s suggested retail price (or MSRP). While the price might have been suggested, it was well understood that retailers that broke from this pricing discipline might well forfeit the brand.

Retailers historically have employed several principal strategies to use scarcity to their advantage. The first is how they manage their store expansion, seeking to strike a balance between reaching the maximum number of customers while making their physical location a must-visit destination. Private-label (or “house”) brands by definition are those that can only be accessed at a given retailer’s store. Similarly, many organizations have invested in private-label cards tied to their store loyalty programs, “forcing” the customer to use the retailer’s payment method to rack up loyalty points (which often could only be redeemed at their sponsoring retailer’s locations) and gain exclusive access to special events and limited-time offers.

But over time many of these scarcity advantages began to erode or become less effective, as consumer choices and alternative substitutes abounded and became more accessible. Market forces and more empowered consumers make it increasingly difficult for retailers to dictate their terms.

More and more, what was once scarce no longer is. This new abundance helps explain why so many in retail are struggling today. To understand the underlying forces driving disruption, it’s worth taking a quick look at how important aspects of scarcity have disappeared completely, have become much less powerful, or have fundamentally redefined the basis of competition.

Media Are No Longer Scarce

Older readers will remember the media landscape of our youth. We grew up with three national commercial broadcast networks, one public network, and a handful of local TV channels. Radio was either AM or FM, and essentially all of the stations were local. Many folks got a daily local newspaper delivered to their door and subscribed to a handful of magazines, most of which were published monthly. The most popular magazine for many years was TV Guide, a weekly magazine that listed which TV shows were on and when.

Today, this lack of selection and immediacy almost seems laughable. Media choices have exploded and fragmented exponentially. There are now many hundreds of TV stations and much of radio is delivered digitally. Many people get their news from social media platforms that scarcely existed a decade ago. And millions of blogs, vlogs, podcasts, and so on create the opportunity for virtually anybody to be their own publisher. Some of the most popular and influential media channels of yesteryear are either gone completely or in serious trouble. Not only are media choices far from scarce, much of the content is now available immediately on demand and on devices we have on our person, not just in our home or office.

Information Is No Longer Scarce

For a good chunk of my retail career, a customer who wanted to get product information had four basic options. First, they could run around to different stores to talk to salespeople (or do a firsthand inspection on their own). Second, they could glean information from various relevant brands’ advertising. Third, they could seek input from friends, families, or neighbors. Last, they could rely on a print publication like Consumer Reports.

Needless to say, much of this information was of questionable reliability. In the vast majority of cases it was anything but comprehensive. As for understanding the “fair” price to pay, there really was no practical way to run a comparison. In virtually all cases the gathering of truly useful information was either impossible or a major hassle.

“A wealth of information creates a poverty of attention.”

—Herbert Simon

Today we face a veritable tsunami of information, and our challenge is often how to separate the signal from the noise. A shopper can readily find a vast amount of data and perspectives from a plethora of sources, including fellow shoppers. Most retailers’ websites contain highly detailed product information pages, and many now include customer reviews, demonstration videos, and the ability to do side-by-side product comparisons. Sites that aggregate product or service information like TripAdvisor, eBay, and Rakuten do much of the same but typically add the ability to compare products across different retailers. There are seemingly endless product review sites, expert blogs on just about anything you can imagine, and “listicles” of every conceivable iteration.

Years ago it was hard to feel truly empowered by information. Today the consumer holds most of the cards.

Access Is No Longer Scarce

Before online shopping existed, the stuff you could buy was pretty much limited to the stores in your town. If you lived in a big city, you usually had a decent range of options. At the other end of the spectrum, if you lived in a rural area, your options were quite restricted. Sure, you could drive to the big city, but most of the time that wasn’t practical or would be reserved for special occasions. Mail-order catalogs could meet some needs, but product offerings were narrow, delivery times long, and shipping costs could often be prohibitive.

Access was also constrained by the hours you could utilize available retail locations. The 7-Eleven might be open much of the time, but most stores had far more limited hours and many weren’t open on Sunday.

Today, most consumers have access to just about anything they might want from just about anywhere in the world just about any time they want. Since the advent of smartphones we no longer even need to go to our home desktop or office workstation to gain access. Access is often at our fingertips almost everywhere we go. And we don’t have to worry about a particular store’s hours or whether they happen to be open on Sundays. The internet never closes and we can now shop anywhere, anytime our smart device is with us.

Not only has access expanded radically and been digitally enabled, many of the channels are different. Shopping is often embedded in news, blogs, and other content, and many social media sites (Facebook, Instagram, et al.) are now effectively retail shopping channels.

Choice Is No Longer Scarce

Even if you were fortunate enough to have a wide variety of stores near your home or place of business that were open reasonably convenient hours, most of them didn’t carry a big enough selection to meet your ideal needs or desires. Just carrying a breadth of in-stock colors and sizes remains an issue for even the largest stores in the largest markets. If you were in a smaller market, your choices were far more limited.

By comparison with traditional brick-and-mortar models, where premium location rents and the cost of distributing inventory across many locations constrained how much product physical retailers would stock, it is much less expensive to carry inventory in an e-commerce warehouse. This gave rise to new business models like Zappos, which could dramatically increase its assortment compared to a local department store or shoe specialty store. The growth of marketplaces, and the advent of direct-ship models from manufacturers’ warehouses, also greatly expanded the availability of products.

Today, in many circumstances, choice is no longer constrained by how many aisles the various stores within a reasonable drive time contain. The aisles are virtually endless, and the long tail of selection is often taken for granted. Choice is now so abundant that even the most idiosyncratic of tastes can be satisfied.

Convenience Is No Longer Scarce

Having worked in several direct-to-consumer and home-delivery businesses, I have to laugh about the hurdles we faced even in the fairly recent past. Could we deliver furniture or home appliances in under a week and shrink our promised delivery windows from four hours to two? Should we charge a premium to get a package delivered in two or three days instead of the usual five to ten? Could we recover most of our expenses through our delivery charges?

Given how much has changed in the past few years, at some point we will probably stop calling 7-Elevens and their brethren “convenience stores.” What made them convenient was largely that they were open twenty-four hours a day and were likely closer to your home and office than most stores. Today that notion seems increasingly anachronistic.

Besides being able to order virtually anything we want 24/7 from a device that is practically tethered to us, we are benefiting from a revolution in convenience. Products that used to take weeks to get delivered can often be delivered the same day and sometimes, with the advent of Prime Now from Amazon, within an hour or so.

Products that had few, if any, viable options (or were prohibitively expensive) are now routinely delivered by retailers or delivery services like Uber Eats or PickUpNow. And lead times on custom products continue to shrink.

What former J.Crew and Gap helmsman Mickey Drexler calls “the de-schlepping of retail” is now a key driver of e-commerce growth. Consumers increasingly choose to have big, bulky items like pet food, bottled water, and large multipacks of toilet paper delivered instead of hauling them home in their cars or minivans or via public transportation.

Subscription services help make sure that our wardrobes are current (Stitch Fix and Trunk Club), that we have a new head and battery for our ultrasonic toothbrush (Quip), that we don’t run out of razor blades (Harry’s and Dollar Shave Club), and many more.

While voice shopping is still in the early days of adoption, instead of pulling out our phones or getting on our laptop, more and more of us are simply telling Alexa and Google what we want, and before we know it, products show up at our doorstep.

Connection Is No Longer Scarce

Before the turn of this century, if you wanted to track down a long-lost high-school friend or figure out your genealogy, you were likely going down a rabbit hole. If you wanted to update your parents on what was going on in your life, your options were a (potentially expensive) long-distance phone call or writing them a letter, which would take days to arrive.

Today, many of us have hundreds, if not thousands, of Facebook “friends” and/or social media followers. Response time can be virtually instantaneous via SMS and direct messaging within the various platforms or Snapchat, WeChat, and the like. Rich media with sharing functionality not only allows for vast networks with rapid iteration, but enables a new depth of connection when augmented by photos, videos, and sound files.

We can (and should) argue about what this all means for emotional health and the development of certain social skills. But the redefinition of what “connection” means over the last few years is profound and undeniable. The boundaries that limited connection between individuals and brands have come down, and much of the friction, be it in cost, time, physical distance, or complexity, is now gone. We can source the wisdom of crowds to get feedback on just about anything, understand the price we should pay, glean advice on whether we look good in an outfit, get help determining the best dish at that restaurant to which we have never been, and so much more. We can tweet to a company customer service Twitter handle to voice a concern. Via an app we can almost instantaneously get connected to possible mates, find someone with whom to share a taxi, or see who is attending the same concert or play.

For retail, this shifts power away from brand-controlled marketing to individuals and those who build community influence. The new and far more detailed information availability is supercharged by the new forms of connection and empowers the consumer in previously unimaginable ways. The emergence of the sharing economy (think Uber, Rent the Runway, Poshmark) creates entirely new sources of competition for traditional retail models.

Cheap Is No Longer Scarce

Discount mass-merchandise chains, warehouse clubs, and outlet stores are hardly new. But the spread of “value”-oriented products and services has accelerated greatly. Whereas the availability of value-oriented merchandise once largely depended on whether you had a Walmart or dollar store near you, the internet changed everything. Today just about everyone in the developed world has a discount store on their phone or tablet.

The friction involved with finding the best price has been eroded in multiple ways. A simple Google search does a pretty good job of serving up useful information and a world of inexpensive choices. Various browser extensions will scour the internet to find the lowest price or even notify us when the price of a product we covet drops. The Groupons of the world offer all sorts of deals and offers that were previously difficult to come by. Offers of 10 percent off simply for a first order or for subscribing to a retailer’s emails are hardly in short supply.

Another factor—though one of questionable long-term sustainability—is the significant subsidization of quite a few “disruptive” business models by investors to the great benefit of consumers. Amazon was able to deliver low product pricing for years because its investors valued growth over profits and because its Amazon Web Services business—the division that provides cloud-based computing support to other organizations—is a huge cash cow. For many years it lost money in its more well-known retail division. Only recently has Amazon started to generate meaningful profits (though its margins remain below retail industry averages). It has also been able to offer superior and cheaper delivery options (and endure the high cost of returns) for similar reasons.

Amazon isn’t alone. Many of the sexy high-growth digitally native brands can offer both great service and value pricing because their investors will accept margins (for now) that are in many cases far below historical industry standards. As just one example, Wayfair, the rapidly growing online home furnishing brand, has been operating on margins that are markedly below its traditional competition. Its—I would argue—artificially low prices are a big part of why it is gaining market share. But Wayfair is hemorrhaging cash.

This imbalance won’t last. But for the time being, venture capitalists and other investors have allowed many of the disruptors to deliver incredible consumer value, fueling outsized revenue growth.

Everything, Now

Decreasing costs of computing power and the associated network effects have created a bountiful buffet of choice, much of it on demand, whenever we want it.

Before the internet, the shopping world consisted of a limited selection of outlets carrying a limited assortment of products that might work well for us, purchased at a hoped-for decent price, during regular store hours, delivered mostly on the retailer’s terms.

Not very long ago the typical customer journey might involve running around to a bunch of stores over a series of weekends and getting pressured by commissioned salespeople or flipping through magazines, Sunday newspaper circulars, or a stack of catalogs. Along the way we might get overwhelmed reading confusing technical product specifications or wonder whether it’s worth paying for more thread count or some other higher-priced option. We might get annoyed that the size or color we want is out of stock or that we could get what we want but have to wait several weeks to custom-order it. We might lament the fact that “all the good stores” seem to be in New York or LA or London. We might very well end up settling.

Today, the expectation is that everything can be had now. No compromise. No excuses.

As retailers seek to gain customers’ attention, engage in meaningful ways, and earn their trust, this is no small task. This new abundance forces us to rethink much of what made our organizations successful in the past. The scarcity that used to determine so many retail and consumer market decisions is now effectively over. Forever.

Good Enough No Longer Is

We could have an interesting philosophical debate about whether it’s desirable that so many of us have become weapons of mass consumption. We can make a good case for the many perils of an always connected, constantly distracted, FOMO-driven, social-media-obsessed culture. Real societal questions can be raised about the power and wealth that have shifted to an elite few in this age of digital disruption. But there is no denying that the diminishment of key elements of scarcity has changed just about everything that was once important in most businesses.

Not too long ago, plenty of brands could get away with good enough. Their focus was on scale, serving the peak of the bell curve, providing average products for average people. Yet when customers have vast information at their fingertips, access to just about anything they want, whenever they want, from wherever they want, why should they settle for average, merely acceptable, unremarkable, mediocre, or boring?

Not only shouldn’t they. They’re not.

Our mission—should we choose to accept it—is to build new sources of scarcity that can be proprietary to our brand. These days building scarcity around information, access, choice, and connection is hard, if not impossible. Most times scarcity in items that are cheap and convenient can only be maintained for a short time. For some brands scarcity is created and protected by highly defensible patents or natural monopolies—but for most retail companies this is rarely an option.

Instead, this new scarcity must be built around commanding attention in new, interesting, and memorable ways, creating incomparable experiences, and earning customers’ trust by knowing them better than the competition and delivering on a promise over and over again. Mostly, we need to create a brand story that moves them, that customers become enrolled in, and that they feel compelled to share, to spread, to (quite literally) remark upon.