The Disintermediation Hit List

  • Dr. Avtar Singh Sehra , CEO at Nivaura

  • 07.05.2021 06:00 pm
  • capital market

Disintermediation. For as long as value chains have existed, shifting marketplace dynamics have left some players cut out of the competitive action. At times slowly, and with the advent of digital, at times overnight. To examine disintermediation, let’s look at a well-known retail brand, one you may guess with the following clues. 

For starters, it’s a company known for an early ability to get consumers what they want almost instantly. From tea caddies to garden sheds. Books to bras. In its country of origin, this company was the first to generate one billion dollars in sales through mobile devices. The retailer, with a brand name that pays homage to Greek mythology, has a well-known logo with a graphical flourish resembling a smile. 

If you guessed Amazon, you guessed wrong. Argos is a UK-based retailer and an institution with a half-century track record of delivering goods quickly. Founded in 1972, it was an innovator, and seemed to presage the future of retail. From the start, the company had brick-and-mortar stores that lacked showroom appeal. Instead, they featured catalogues consumers perused for a wide range of items that could be ordered from clerks then retrieved from the back of the store, and in most cases, delivered on conveyor belts to the front of the store. Its popularity was a harbinger for internet shopping. Furthermore, being based in almost every major town and city in the UK, they were closer than many to achieving the “instant last-mile strategy” that Amazon is pushing for now - buy now and have it delivered to your door on the same day. However, it took Argos years after Amazon became a retail hegemony to change. 

Now the company has shifted to a fulfillment strategy aimed at positioning them to go head-to-head with Amazon. But it’s easy to imagine that if they’d only moved faster from analogue to digital, the company with the Grecian name starting with “A” on everyone’s lips as the digital leader would be Argos, not Amazon. So, although they haven’t perished as many predicted a decade ago, competitively, they are a shadow of what they could have been had they acted faster. 

Takeaways for capital markets

So, these are retailers we’re talking about. What does this mean for capital markets? Well, there are concrete examples that can be taken away. Here are three of the biggest:  

  1. Disruption isn’t necessarily about destruction, it’s about atrophy: Big players may not lose their entire business. But their dominance in the value chain will shrink as myriad Fintech players eat away at their position and profit. So, in the case of Argos, the company still enjoys what is by any standard a healthy P&L. But compared to what could have been, you could argue their performance is anemic at best.  

  2. Understand what you are, and what you’re not: Too many companies, faced with digitalization, try to retread themselves. “We’re a tech company now!” becomes the corporate battle cry. But tech is only the enabler of competitive distinction, not the distinction itself, unless of course, you are a tech company. If Argos had unleashed digital at its dawn, it would have only magnified its mission statement: “To be the most trusted retailer, where people love to work and shop.” 

  3. Tech is nothing more than doing what you do best, optimally. Sometimes that means opening up new markets with existing technologies. Other times it means delivering new technologies in existing markets to provide the same services in a more efficient way. Again, Argos is a prime example. They had all the key capabilities in place and market opportunities. But if the company had harnessed the internet, developed or partnered on other capabilities, they could have established one-day delivery to anywhere in the country, and potentially even built a virtual high street through Argos, so you can access any high-street brand and cut costs in terms of store fronts.  

From blockbuster to bit player

When the business press explores disintermediation through technology, one of the biggest poster children that arises is Blockbuster. Thousands of screen lengths have been dedicated to parsing how the brand was, well, a blockbuster performer that failed to react to the tech wave and was ultimately rendered extinct. (Actually, there remains one outlet in Bend, Oregon, down from 9,000 at its height.) 

But for most companies, failing to digitize won’t likely send them into competitive oblivion. In some ways their fate is worse: Disintermediation will render them a bit player on a stage they once headlined as their offerings are relegated to commodities. Their value will shrink as they move from steering the market, to fighting to maintain a presence in it.


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