I am inundated with top ten lists (or top 12 lists) of retail giants that couldn’t hack it in the modern world. Blockbuster, KB Toys, Tower Records, and Borders seem to be the 4 horsemen of the retail apocalypse. They are the harbingers of retail death that foretell of a world in the near future where you will no longer be able to stop in and grab a gift for your nephew on the way to his birthday party (I hope you’re better at planning ahead than I am). In an interview with Sarah Lacy of pando.com, Marc Andreessen stated, “Retail guys are going to go out of business and ecommerce will become the place everyone buys. You are not going to have a choice.” Clearly the end is nigh.
Are these soothsayers correct? Is it the end of shopping as we know it? I don’t think so, and here’s why:
1. This isn’t a zero sum game: There is no rule that segregates traditional commerce from e-commerce. Best Buy, for example, reported a 15 percent growth in online sales in 2013 and expects to reach $4 billion by 2016. Wal-Mart did $10 billion in online sales last year and expects that to grow by 30% this year. On the other side of the coin, online retailers such as Bonobos, Etsy, and eBay are opening brick and mortar stores to enhance customer experience. Even Amazon CEO Jeff Bezos has expressed an interest in physical store locations.
2. E-commerce is expensive to operate: Online sales channels are operating at a disadvantage in the modern “I want it and I want it now” world. In order to get your fancy new Galaxy S5 cordless battery charging case to you in a reasonable amount of time, companies like Amazon need to operate very huge and very expensive fulfillment centers and they need to offer their wares at rock bottom prices in order to convince you to wait the two days. As a result, Amazon typically has around a 1% operating margin, as opposed to the 6% - 10% margins that traditional retailers tend to operate at. Furthermore, even with the low margins, they do not beat out retail on prices a good portion of the time. A recent study by Kantar Research found that a basket of goods purchased at a Wal-Mart supercenter came in at 16% cheaper than the same mix of products at Amazon.com.
Despite Mr. Andreessen ‘s doomsday prepping, retail giants and strip malls aren’t going away any time soon, but that doesn’t mean that brick and mortar giants can sit on their laurels and continue the status quo. To successfully ride this wave of disruption and remain relevant to consumers, brick and mortar retailers are going to have to develop new business models that deliver online customer experiences that meet or exceed buyer expectations. This includes pricing, product descriptions, reviews, secure payment, customer service/support, etc. Opening these new ecommerce channels while keeping the physical doors open and lights on will require an increased awareness and visibility into what they have, where they are, what they need, and where they want to go. Somebody’s going to have to ask the question “How are we going to reconcile the existing legacy system with the new ecommerce requirements?” Just as important – somebody is going to have to answer that question. Does your organization have the means to define the current state as well as lay out options to achieve the future state?
The 4 horsemen of the retail apocalypse do not foretell the end of retail, but they do serve as a warning to others about what happens to those who ignore the digital revolution. Of course, there are going to be risks when entering any new market. Success isn’t guaranteed. But if we can visualize the necessary steps to bridge the gap between where we are and where our customers are going to need us to be, while understanding the risks along the way, we can take control of our destiny. Personalized and interactive shopping experiences, as well as a melding of the physical with the digital, will dominate the future.
What are you doing to prepare your organization?