Getting to the truth behind the one-stop shop

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Doctor’s surgeries, supermarkets, and travel agents are all one-stop shops – which should tell us that there are different justifications for one-stop shopping.

All kinds of businesses have aspirations to be a one-stop shop. When firms use this phrase, they mean that they hope to be the only retailer the customer needs for some range of goods and services. Telecommunications companies, investment banks, law firms all want to be one-stop shops. And when I set up London Economics, I wrote in our business plan that we would be a one-stop shop: all the economics you might need or want, would be available from a single source.

The archetype of the one-stop shop is the supermarket. Every week you come out of the store with all the groceries you need. Many people have fifty or more items in their trolleys. But few of us buy clothes or furniture that way. Mostly, you buy single items of clothes and furniture, and the goods in your wardrobes or on your floors will have come from many different suppliers. While there are Marks & Spencer and IKEA, there are also shops that sell only underwear or only carpets.

And there is no clear trend to or from one-stop shopping. Along with the growth of Marks & Spencer and IKEA has come the emergence of shops that sell nothing but socks and stores that sell nothing but sofas. Retail experts will tell you, in a sense correctly, that there is a trend both to one-stop shopping and to speciality retailing. Of course, the real trend is that good shops, both general and specialist, are taking sales from bad shops, both general and specialist.

So what do you buy from a one-stop shop, and what not? If we understood the answer to that question in the retail sector, we would know more generally which business strategies aimed at one-stop shopping make sense – and which are simply the prelude to costly and unnecessary acquisitions.

It is easy enough to see what distinguishes groceries from clothing and furniture. Groceries are less differentiated and have low unit value. The apples in Sainsbury’s are similar to the apples in Tesco, and it is simply not worth your while visiting all the supermarkets to pick the best buys from each: the costs of comparative shopping exceed any likely savings. Clothing and furniture are expensive enough to make comparison worthwhile and so differentiated that no shop, however extensive, could stock more than a small proportion of the range of imaginable products.

Supermarkets are not the only kind of one-stop shop. There are some shops where, although you buy only one item at a time, you tend to buy all your items from the same store. Your doctor’s surgery is a shop like that, although in other countries you will often take your ear to an ear doctor and your feet to a chiropodist. And even if you visit a particular travel agency only once, you will probably choose one which stocks a wide range of holidays and sells most forms of transport.

Different factors are at work here. You believe that the knowledge of you and your ear which the doctor gained when you consulted him about that will help him make a good diagnosis of what is wrong with your feet. And you don’t know, when you walk into the travel agency, which tour you want to take or which airline has the most convenient flight. So only a firm that stocks a wide range can provide the advice you need.

So one-stop shops are appropriate for low-value, undifferentiated goods; for groups of commodities where the same knowledge of the customer is relevant to many different items in the group; and for groups of commodities where the consumer is not very well informed about his or her requirements. Not many goods fit all of these criteria – one-stop shops selling confectionery, newspapers and tobacco have a different rationale from the one-stop shops which sell all the spectacles you might require. And one-stop shops are unlikely to be successful with differentiated goods of high value; where successive purchases are largely independent of each other; and where customers know what they want. Again, few products have all these characteristics; so customers want one-stop bookshops but do not mind the absence of one-stop car showrooms.

But as you list these factors, it is difficult to make a strong case for the emergence of a one-stop shop in telecommunications. Perhaps consumer ignorance points in that direction, but this will diminish. It is common, indeed, for one-stop shopping to give way to speciality retailing as the market for complex products matures; look at what has happened in the computer and information technology industries. The increasing transactions orientation of investment banking suggests a move away from one-stop shopping; the industry is becoming less like the family doctor, and more like a furniture store.

And while a private individual might well want a one-stop legal services shop, it is harder to believe a large corporation will. The product is not cheap, is differentiated, and you know whether you want a libel writ or a cross-border acquisition when you hire the relevant lawyer. Retail financial services probably do lend themselves to one-stop shopping (although the unit value of the transaction is large); but it is hard to see much advantage in a one-stop shop for utility retailing.

And what of London Economics? My thinking was that consumers mostly did not know what economics they wanted, or that they needed it at all. Maybe this article does something to offset that.

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