How drones will change retail as we know it

We can wait until they take control, or train them to be our slaves.

A New York City taxi medallion sold for $241,000 in April — less than one-fifth of what the cab-ownership tags were going for just four years ago. Car sharing robbed the cab network of its inefficiency. The cab drivers are still in denial, protesting the depletion of their retirement fund.

Can drones do to brick and mortar retail what car sharing did to cabs?

Maybe we’re overreacting.

A decade ago, everyone said online sales were going to destroy brick and mortar retail. Not much happened. Online sales are still only 8% of all retail sales.

Too soon?

Well, online sales did take down several retailers. Thanks to the internet, we could download a book or music instead of walking over to the store. The biggest blows were delivered to categories that could be digitized.

Retail that wasn’t digitally downloadable survived.

The Targets, Macys didn’t take a hit like Blockbuster and Borders Book Stores. People still enjoyed shopping and impulse buys.

But even that’s going away. Let’s start with the shopping experience.

Shopping at big box stores is like walking down commodity aisle with products made in the Far East. People want to know where their products come from, just like they want to know where their food comes from. And the margins just don’t work for big box retail. Every year we’re seeing change in consumer expectation chip away at the profits. Gap Inc, owner of Gap, Old Navy and Banana Republic has reported seven straight quarters of sales decline.

Meanwhile independent book stores have grown by 66 percent since 2009.

Independent retail is winning. Too soon to call?

Indie retail offers a great in-store experience.The products are unique. Well curated. The store owners add the personal service and recommendation.

A problem facing retailers is customers could easily enjoy the experience and then purchase them online, but that’s where the power of instant gratification kicks in. People want things now. Customers want to walk out wearing that statement piece. Not two weeks or even two days from now.

Now imagine that problem goes away.

If you could visit the store for the in-store experience, look at products and then get them delivered to you by the time you get home. This is as close to an impulse as it gets.

Who do you think is well positioned to do that? Look up in the skies, five years from now. Drones will be able to deliver products to your door in less than 15 minutes.

Don’t like the product? Leave it outside your door. A drone will pick it up. While the technology is only available on Amazon Prime, it can get ubiquitous pretty soon.

Lots of companies are thinking about it — WalMart, Target — pretty much all of the big box retailers, says David Shearer of commercial drone startup Kespry.

Amazon already teased it with a Superbowl commercial. It will remove of the inefficiencies of human delivery. It’s also scalable.

Although it’s not going happen anytime soon.

The main issues are air traffic control and safety. What happens if a motor fails on a flying drone, or if navigation goes nuts, or a drone flies into passenger plane airspace?

“FAA Part 107 is the big one that governs drones for commercial operations. Very little chance of being able to fly drones in downtown SF right now, as it’s within controlled airspace of a major airport (SFO)”, says David.

But it’s only a matter of time. These are problems that will be figured out with advancements in technology and mapping safe routes. When it does happen, retail will change. The only reason to stock a product was to satisfy the customer’s impulse buy. When that need goes away, what other competitive advantage do you have?

“When that happens, that’s it! Time to throw in the towel,” says David Auerbach, owner of tech lifestyle store Dijital Fix.

While Auerbach speaks in jest, there’s truth to it. If you are thinking, oh, that will never happen, think back to that cab driver in New York and how his life changed in a few years.

How drones will change the life of an indie retailer

Imagine it’s 2020

  1. The need for stocking inventory will disappear. A drone stationed at a South San Francisco warehouse with a speed of 50mph will be able to cover the 49 mile radius in San Francisco in less than an hour. Four warehouses in the four corners of SF, will reduce that time to 15 minutes.
  2. Shipping services like SHYP will be able to use the Amazon platform to create an even more powerful drone delivery network. Autonomous delivery-as-a-service.
  3. A roaming network of self driving warehouses and drones will add even more speed to the system. Two minute delivery. Less than the time it takes to checkout at a retail store.

This is what a modern indie retail store could look like:

  1. Store owners cease to be “stockists” since drones will remove the need to stock product.
  2. Stockists will have to behave more like event managers. People love experiences, remember? They will need to curate the right products and and bring in the crowds. This will lead to an increase co-promoted events with makers.
  3. Indie stores will be a venue for launching new products. Some retailers are already doing this. Rare Device regularly hosts art shows with makers. Jill Lindsey curates intimate corporate events at store in Greenpoint. Check out @raredevice or @jilllindsey
  4. Instead of buying goods wholesale, stores will charge a rate display the products. The rate will depend on time of year, size of the product and and set up time.
  5. The 50% wholesale markup will be irrelevant. Selling will operate with a service fee for each transaction charged to the producer.
  6. Store owners will be able to charge a door fee for customers to check out limited edition goods and exclusives and share the fee with makers.

What transactions will look like:

  1. Customers will will pay for products at the register and add a time for delivery. It could be 15 minutes or 3 hours to meet the time they get home. This is how goods like furniture delivered. Difference is instead of two days or 8–10 weeks, the statement piece will arrive in 10 immediately.
  2. Returns will be simple. The drone will pick up products from your doorstep and return the products back to the store. The amount will get automatically credited to your account.
  3. Designers all over the country will finally have a level playing field regardless of where they create. The midwest will see a maker resurgence.

Drones will be a boon to independent retail. They will remove the risk of unwanted inventory. Retailers can go back to doing what they like to do best. Curating, staging and trunk shows. Shipping and stocking isn’t the most fun part of Indie retail anyway, it’s like book keeping or doing taxes.

While on one hand we worry if drones will destroy retail, they may just swoop down and save the independents.

Interested in working with more stores despite the drone threat? To participate in our monthly buying rounds, join us here.

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