At first glance, the workings of the retail world may seem simple: Companies sell goods that people want, and consumers buy them. But behind the must-have products and slick advertisements is an intricate network of supply chains, investors, markets, data, and consumers that together influence whether a retailer succeeds or fails. Complexity science, it turns out, has much to offer the retail sector — particularly as more historic brands go into bankruptcy, and the industry’s disequilibrium increases.
Especially useful to the retail industry is network theory. “If you think about a physical retailer, it really is very well described by a network — you have to get goods to those places as efficiently as possible,” says Michael Mauboussin, Chairman of SFI’s Board of Trustees and Director of Research at BlueMountain Capital Management. “The traditional retailers have moved into e-commerce, and e-commerce has moved into physical stores,” Mauboussin notes. This shift makes a network analysis of the retail sector more challenging, but also increases the potential impact of this approach.
Another area where complexity science could benefit the retail sector is in understanding how companies scale. SFI Distinguished Shannan Professor Geoffrey West’s work on scaling and company mortality could be applied to the retail sector, for example. “I’d be really curious to see [if] mortality in retail is any different than in any other industry,” Mauboussin says. “Is birth, or death, different than in other industries — and if so, why? That’s important if you’re an investor.”
Complexity science could also offer insights into one of the most elusive aspects of retail: How trends start and spread. One study, co-authored by former SFI Postdoctoral Fellow Duncan Watts, highlights how preferential attachment behavior can impact the popularity of songs. Newer work, co-authored by SFI External Professor Stefan Thurner, examines the interplay between elite-driven “top-down” changes in tastes and “bottom-up” changes driven by less socially prominent groups.
SFI is delving more deeply into the complexity of retail in a September 12 Topical Meeting in San Francisco, CA. The meeting is organized by SFI’s Applied Complexity Network (ACtioN) and will be hosted by Shopify. More information about SFI’s Applied Complexity Network and the September 12 meeting can be found online at santafe.edu/ACtioN