What’s Next for Retail

While a tech geek at heart, retail has always fascinated me. Many close family members work in apparel sales and brick-and-mortar retail and retail is the bedrock of the American economy. Current U.S. Retail Spending has nearly eclipsed $1,400 trillion (see below).

Source: The Census Bureau of the Department of Commerce
Source: Marketplace Pulse Research

A Little History:

In 1983, Gap brought on Mickey Drexler where he later became CEO in 1995. He invested heavily in Gap’s brick-and-mortar stores to build a customer experience through big dressing rooms, and fancy photographs on the walls. He believed (and turns out he was right!) that customers build their strongest associations of brands in-store, not on TV ads. His rival at the time, Levi Strauss & Co. made the exact opposite bet. They invested heavily in TV commercials because they believed it would build strong brand equity. Drexler built the best stores, but Levi’s had the best commercials. There was a clear winner in this battle between rivals:

Source: Company Financials

What about now:

Two days ago I received a notification that Macy’s (NYSE: M) was dropped from the S&P 500 as its Market Cap dipped below $1.5 billion. The company has lost about 70% of its value since the beginning of the year and about 80% within the last 12 months. This got me thinking: is the paradigmatic shift from brick-and-mortar to multichannel e-commerce occurring before our eyes?

What’s to come:

They are investing heavily in brick-and-mortar because the future of zero-click purchasing, perhaps through voice, is nearing. Amazon wants to establish a multichannel retail scheme where you can browse in their stores, but ultimately you will either be ordering through Alexa or receiving goods and sending those that you don’t want back without any communication. This way Amazon can optimize your consumer preferences. In 2017, after having acquired 460 brick-and-mortar retail stores with $13.7 billion (Whole Foods Acquisition), Amazon’s warehouses were within 20 miles of 45% of the U.S. population. Amazon’s brick-and-mortar strategy is to be within striking distance of the vast majority of Americans so they can order through Alexa or minimal clicks and receive whatever they want to hoard in an hour. While Voice as a percent of search was only 16% in 2016 its expected to grow to 50% by the end of 2020 (Source: L2).

Source: Mawdud Choudhury
Source: Canalys

Recent Economics graduate of the University of Chicago, pursuing a career in private markets technology investing.

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