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I've been critical of Chris Anderson's long tail 'theory', which argued that "the future of business is selling less of more".

The quantitative evidence suggests that Anderson's thesis was a bit too aggressive. In most industries, from retail to music, the 'head' is still as important as it was decades ago.

Of course, this doesn't mean that there isn't a 'long tail' - inventories and catalogs of products that range from the less popular to the downright obscure.

Online businesses such as Amazon.com and Netflix have taken advantage of the miracle of ecommerce to offer items that consumer-facing brick and mortar businesses can't due to simple economics.

But is the recession going to change the economics of businesses like Amazon.com and Netflix?

The fourth quarter of 2008 was absolutely brutal to retailers in the United States and the situation doesn't look much better in the UK.

In an article earlier this week, the AP's Anne D'Innocenzio noted that retailers "are making drastic changes" as it looks increasingly likely that the economic downturn that has hit much of the world will keep consumers spending far less for far longer than many initially anticipated. Some even suggest that consumers will never spend as much as they used to now that the bubble of easy credit and cheap debt has burst.

Given that the holidays are over and there's no impetus for consumer splurging to increase anytime soon, retailers are rapidly overhauling their businesses in an effort to survive.

Almost every aspect of operations is being looked at and one of the ways that many retailers are overhauling their businesses is cutting out products that don't sell.

As D'Innocenzio observes:

"...the downside is that consumers who want something out of the ordinary — an olive green prom dress, for example — may have to look harder. Stores are rooting out offbeat, unpopular colors and styles, which will mean fewer choices."


That's the 'long tail', folks.

While it has to be pointed out that online businesses such as Amazon.com and Netflix don't face the same sort of pressures that brick and mortar retailers do when it comes to selection and inventory, warehousing lots of items that don't sell in volume does have a cost and as consumer spending falls off a cliff, I suspect that some pure play online retailers will be forced to make "drastic changes" too. After all, a sinking tide lowers all ships.

While this doesn't mean that you won't be able to find some obscure book on Amazon.com or a niche documentary on Netflix anytime soon, at some point maintaining extensive 'long tail' inventories might not make sense for even the most successful online retailers if the current environment does not soon improve, which I think is unlikely.

Again, the economics of online retailing are a bit different than offline retailing and many online retailers do have significantly more flexibility in many cases but there’s still far too much junk out there.

The reality is that just because ecommerce makes it possible to offer 'long tail' items, online retailers should still focus first and foremost on the items that drive the most business and offer the highest margins. As such, I think there are quite a few online retailers that would do well to consider making some common sense inventory cuts.

I for one think we can all do without Tony Little’s Gazelle. Getting rid of this would be a good start in my humble opinion. After seeing the Gazelle infomercial, who is going to disagree with me? I think even Chris Anderson would.

Drama 2.0

Published 21 January, 2009 by Drama 2.0

237 more posts from this author

Comments (2)

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Clive Hawkins

I don't particularly agree with your assessment, since online retailers are clearly different to traditional retailers and can take advantage of the long tail as there may not be any additional costs involved (dependant on their method of stocking products or direct delivery).

As the economic situation gets tougher, the popular products will need reduced margins to get a chance of selling in a competitive market, whereas it may not change the way that customers are looking for specific products - it's here that the online retailers have an advantage and can make a better margin, even on lower volumes. Yet selling 100 different items at a 30% margin is going to make more sense than selling 1 item x 100 at a 15% margin!

over 7 years ago

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Phoebe

It's worth noting that often the short tail is more expensive than the long tail. The latest blockbuster movie can cost more than $10 at the local theater. The new bestselling book is usually available only in hardcover. So tough economic times might actually encourage people to look down the long tail - at least to slightly older content that's available on DVD, in paperback, etc.

over 7 years ago

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