The decline of service in sales

I was listening to an article this morning from The Wall Street Journal on (by the way, a great way to get the front page in the morning) when it dawned on me that I was hearing more evidence against value-priced retail.

Circuit City, one of the early leaders in value- priced near-warehouse electronics was a well regarded by the investment and retail community in the early and mid 1990s after getting their new name in 1984 (previously it was Wards company, founded in 1949 by Samuel S. Wurtzel). Their catch was to offer below-retail priced electronics with a good selection and "helpful" salespeople. At the time, information was not available on the internet and most people got their education (such as it was) about electronics by going in to a local store. As such, the ability of a salesperson to appropriately explain the difference between two models and to steer you towards the most expensive model on the floor was a key portion of their success.

However, in the 1990s, with the advent of the internet and the explosion of information sources and comparative data being available to every consumer (there are free libraries for people who don't have internet access, you know), a shift started to occur moving people towards stores where they could find the lowest prices and the greatest selection. As such, the warehouse stores started to blossom. Whether in the office products industry (Office Depot, Staples, and Office Max), consumer electronics (Best Buy), or general everyday products (Target, WalMart), the emphasis moved towards pricing and availability, instead of knowledgeable customer service representatives.

In the case of Circuit City, this culminated in a move earlier this year to cut its highest paid sales reps in order to reduce overhead costs. These were their highest performing reps, but that didn't matter, because the company realized that the customer's interest was in purchasing value-priced products at their stores.

To be sure, there is still a segment of the market where people who know what they are doing are respected, but they are generally at the boutique stores and chains who charge list price. Generally, the customers who know they are lost and have the money to spare use the services of those companies and are willing to pay for them.

This entire situation ties in with my previous comments about disintermediation, because the Circuit Citys of the world will gradually come closer to the Best Buys (as they already are doing) and eventually the main benefit of these stores is their ability to ship goods quickly, due to their locations. Who knows, when we see some more of these channels putting bigger pressure on the manufacturers to own product in the channel, we may see manufacturers forward-deploying product in warehouses where they drop ship product directly to customers, annihilating the current distribution model for all but the botiques, where a relationship of trust convinces a buyer to pay more to get what they really want.