By Jane Genova

Amazon is the textbook example of achieving the unthinkable by continually pushing beyond the traditional boundaries of a business. Originally a digital platform for selling books, Amazon entered the sectors of grocery shopping, television production, cloud computing, logistics and film. That “blurring of boundaries” provides unique opportunities for all retailers. But it also entails pitfalls. This article analyzes both.

Drivers for reimagining an industry

Transcending the traditional parameters of a business or a sector is nothing new. In 1995, university researchers Charlene Nicholls-Nixon and Dale Jasinski published the article “The Blurring of Industry Boundaries” in the Oxford Academic. They cited as drivers deregulation, globalization, breakthroughs in science and the importance of information technology.

What is new is the necessity of strategically managing a business open to continual redefinition. McKinsey refers to that in its study as “competing in a world of sectors without borders.” Retailers have to assume their competitors are already experimenting with crossing the usual lines of a business. Technologies, ranging from the cloud to artificial intelligence, facilitate the transformations. Also, customers expect a seamless purchasing experience, even if it involves a variety of industries.

In addition, the late Harvard Business School professor Ted Levitt warned industries to ask themselves: What business are we really in? If the railroad industry had answered “transportation,” it might have acquired auto and airline companies – and not have gone into decline. The traditional retail establishment selling outdoor merchandise, when asking that, could answer: enhancing the outdoors experience. That could open the door to fusion with industries ranging from RV leasing to firearms.

 

From health care to shipping containers

Already, there has been a broad range of examples in how retail fuses itself with other industries. Well-known is the integration of the traditional drug store with both primary care services and insurance. The business outcomes have been encouraging. The J.D. Power U.S. Pharmacy Study found that customers using both the pharmacy and the health care services had a 26% higher satisfaction than those who did not, and they spent more. After CVS purchased Aetna for $69 billion, both the health care and the insurance components increased market share.

There is also the evolution of the store into a media company. Service consultant Jabil documented that instead of outsourcing digital services, paid media and advertising, retailers are “owning” that specialized expertise. Department stores like Nordstrom have full-service fitness centers. And retailers are partnering with shipping container suppliers such as SteelSTORED for guidance on setting up mobile pop-up stores and portable warehouses. Those provide gateways into entering other industries. Often, those in other industries have insight into customers that retailers do not.

The new frontier

However, for all industries the blurring phenomenon is in its early stages. Deloitte declares this as “uncharted territory.” Essentially, retail is structured as a 20th century industry. That potential for revenue, profit, and customer excitement will keep increasing as multiple boundaries shift simultaneously. Those could include gee-whiz developments in technology, manufacturing entering direct sales, mergers and acquisitions, upstart competition, developments in supply chains, changing customer expectations and new regulations.

Five fundamentals involved in crossing the lines

Given that boundary blurring essentially is fresh terrain, there are no absolutes or best practices. However, there are fundamentals. Here are the key five:

Remaining in the adjacent zone. Essentially, that will entail finding fits with the retailers’ core competence (main revenue source). A military surplus retailer could stumble badly fusing with an upscale industry such as luxury travel.

Structuring and managing. This could require the guidance of a management consultant, an expert on business structures such as corporation formation and joint ventures and a lawyer for contract law and compliance with regulations.

The options are fluid. Within the store, there could be a simple temporary or more permanent partnership of shared space or kind of mixed use. The firearms retailer tries out leasing square footage to a collectibles dealer. Or it could be a more formal contracted strategic partnership. If so, what entity will be in control? According to human resources expert Breezy, 60 percent to 65 percent of strategic partnerships fail. There could be a formal merger, as with CVS and Aetna.

Rethinking the business model. Airbnb reinvented the lodging industry through the business model of not owning real estate. Frequently, retailers have to develop a fresh business model to mesh with the new partners. One could be a shift from being stationary to 100 percent mobile when fusing with another kind of business such as construction.

Embracing the necessary technology. Crossing lines could involve bringing all the businesses together in a real-time data and messaging ecosystem. That could range from the cloud to artificial intelligence. If military surplus crosses the line to fashion stylistics, then the virtual reality of the metaverse might kick in. The tough nut to crack is integrating systems.

Managing relationships. Different industries attract and socialize types of professionals who may be very different from retailers. For instance, those in technology have their own lexicon and operate on fast time. There is always a sense of urgency. Those in insurance could be preoccupied with process. And those assisting with shipping container logistics for mobile warehouses could be oriented toward the industrial trades.

The challenge is to be able to engage and connect without the retailers losing their own unique identities.

Four common mistakes

The terrain of crossed lines is filled with failures. A major cause is underestimating the competition, at the time. If that is strong, maybe there should not be fusion with another category of business.

The leader in office supplies, Staples blurred that boundary by entering consumer electronics. It ignored that Best Buy “owned” that business at that time. Since it reduced the space for its traditional product line, some regular customers went elsewhere.

Another common error is choosing the wrong partner to dance with. In a store within a store arrangement, Staples entered the sale and activation of smartphones. That telecommunications supplier did not stock the iPhone.

A third, as happened when Walgreens partnered with Theranos, is not understanding the technologies and not investing in the expertise necessary to bridge the knowledge gap.

That brings us to the fourth: failure to do adequate due diligence. After all, retailers are involving themselves in what to them are unknowns.

Lessons from survival

Retail’s edge is that, ranging from the introduction of ecommerce to COVID lockdowns, it has had to continually adapt to survive. That puts it in a position of strength for identifying and exploiting opportunities in the blurring of boundaries in business.