The thing that just may actually kill brick & mortar retailing
It is considered hyperbolic to say that brick & mortar retailing is facing an existential threat. After all, the conventional thinking goes, surely we just mean it will evolve into something different, not literally die.
I mean at risk to literally end. End to the point of becoming a novelty you gawk at, in the rare occasions you come across it. Sort of like you do when you see people riding the horse carriage at Central Park, and it seems so exotic that we forget that the very street we’re walking on was once filled with horses (and horse manure). We forget that for centuries, any other means of personal long-distance transportation besides horses would have been unthinkable.
And then, in 1885, Karl Benz invented the automobile. And within less than 50 years, tractors and cars were able to “dislodge the horse from farms, public transport and wagon delivery systems throughout North America” (1)
Within less than 50 years, a whole way of existence that, for centuries was the only game in town for private and public transport, was replaced with another that delivered the same ultimate value — arriving at one’s destination, safe and sound — only much faster, safer, more affordably, and with fewer strings attached (you don’t need to feed and house your UPS delivery person at night, do you?)
Sometimes, something so much further ahead comes along, that industries, trades, an entire way that people perceive their world radically changes. And while it doesn’t happen literally overnight, it happens quickly.
It’s fair to say 35–40 years is about how long it should take to alter a way of life altogether, whether it is for the telephone to become popular, or cars to overtake horses. My guess is that the reason it is 35–40 years is that 35–40 years is about how long it takes for the youngest adults of one generations — those already in their early 40’s at the time new, life-altering innovations are introduced— to largely die-off and for the “the old ways” to die with them. And mind you, I’m not suggesting innovation doesn’t have any impact for 35 years, certainly it does. I’m saying that’s about how long it takes for the truly old ideas to be completely eclipsed by the new, to the point of the old rapidly becoming a novelty.
But it takes less time for the writing to be on the wall.
By “1947, researchers began theorizing that a mobile telephone was possible.” By 1910, a mere 25 years after Benz’s first automobile was introduced, the American Review of Reviews published an article that started with this prescient sentiment:
That the passing of our friend the horse is only a question of time, few, will, we think, be disposed to deny.
It didn’t end with this sentence. The whole paragraph was spot on. It pointed out the general public had already turned against horses, even as the leading voices within the horse-breeding and agriculture industries believed that “the horse-breeding industry has nothing to fear from the increase of automobiles, and that the country in which machinery was most used would have greater needs of horses than ever,” despite clear statistical evidence suggesting otherwise. (2)
Well, that prediction didn’t quite come true, did it?
And guess what. We’re at a similar moment now.
“On April 30, 1993, the European Organization for Nuclear Research (CERN) put the web into the public domain, a decision that has fundamentally altered the past quarter-century.” (3)
The internet was born.
That was just a little over 26 years ago.
Tick-Tock. Tick-Tock for brick & mortar retailing.
Time will tell. But here’s my view: Brick and Mortar retailers — particularly local and regional grocers and specialty retailers— have less than 5 years to figure out how to survive, or there will be mass extinction of brick and mortar retail.
Will my words also be viewed as prescient 100 year into the future?
There are multiple reasons why brick and mortar retailing is under such duress, and none of them fit into a nice, neat box of sole or even primary culpability. It’s not one thing or one person.
But if I absolutely had to pick one “Karl Benz” of our moment, and the one date, it would be Jeff Bezos and the year 1994.
It was in 1994 that Bezos, a hard-working wall street banker, a man not yet 40 years old, quit his job and started Amazon. He explained his reasons this way:
“The wake up call was finding this startling statistic that web usage in the spring of 1994 was growing at 2,300 percent a year. You know, things just don’t grow that fast. It’s highly unusual, and that started me about thinking, “What kind of business plan might make sense in the context of that growth?” (4)
You know how old Karl Benz was when he invented the car? About 40 (5).
What Jeff Bezos discovered is what we are all beginning to experience now, as I wrote above vis-a-vis automobiles versus horses: Online retailers can supply goods much faster, safer, more affordably, and with fewer and fewer strings attached than brick and mortar retailers.
I don’t blame Bezos any more than pigeons should blame Alexander Bell. But the way he capitalized upon innovation changed the world of retail forever.
So much else is putting wind in the sails of online retailing and shopping at the expense of brick and mortar retailing and shopping. Thanks to the global economy and the supply chain it enables — the cost of nearly everything has plummeted (6) except the average hourly earnings and cost of benefits for employees and except the cost of commercial retail real estate space in major cities. It so happens that wages, benefits, and real estate costs profoundly stress brick and mortar retailers’ Profit & Loss statements and balance sheets. Who knew.
Then there’s also the rapid proliferation of a somewhat liberating, somewhat terrifying gig economy to the point that “approaching 54 million Americans — over one-third of all U.S. workers — ha[s] done freelance work in the past year.” (7)
Some people take the view that the demise of brick and mortar retailing is no big deal for the economy. I’m not one of them. Brick and mortar retailing is vitally important, not just for the economy, but for a free and open society.
That is because brick and mortar doesn’t just provide goods. It provides jobs. It provides an opportunity for face-to-face interaction between humans, including those from different cultures, backgrounds, ages, sexual orientation and the like. Interaction between humans is somethings 74% of consumers agree is important, though if you dig into those numbers, you find that for half of consumers, seeking interaction has more to do with people feeling unsure of their ability to operate or interact with digital assistants, like cashierless checkouts, versus a desire for human contact.
Sociologists, however, would tell you that preserving human connection maintains the thread of commonality that keeps civilization well… civilized, and that “social interaction is critical for mental and physical health.”
Presidential candidate Andrew Yang may sound crazy saying that “automation will replace jobs and bring Great Depression-level unemployment and unrest to the country,” (8)but in truth he is about as “crazy” as the American Review of Reviews was back in 1910 about cars and horses in the face of the expert opinion of the time. Andrew Yang is not the least bit crazy, he’s prescient.
But in my view, we’re not there yet, and we need to never get there. Brick and mortar retailing’s value is so great to civilization that we should view the threat similarly to how we view a nuclear threat: It’s an existential threat to our way of life. And we can’t dither.
Because the thing that can ultimately kill brick and mortar retailing is dithering and handwringing by brick and mortar retail executives.
If you or your spouse or your company are in brick and mortar retailing, or you supply goods or services to brick and mortar retailers — from widgets to insurance to software to landscaping — and you’re not ready to retire in the next 5 years, I assume I’ve scared you just about shitless. I don’t apologize for that. You should be scared shitless. I am.
Let’s use that fear as motivation.
My company, iControl Data, delivers cloud based software to the retail supply chain that provides visibility into a particularly difficult to see and manage aspect of it: Direct store delivery.
While all of us appreciate having access to a fresh bottle of milk, loaf of bread, head of lettuce or ice-cold bottle of beer, few of us appreciate the significance of the direct store delivery supply chain that provides it. Accounting for nearly a quarter of retail sales and over half the profit for grocers, the direct store delivery supply chain is vital — but complex, and disjointed, and the priorities and interests of its participants are misaligned as often as they are aligned.
At iControl, we seek to help retailers address this problem through providing all members of the value chain with access to information; the opportunity to hold themselves and value chain partners accountable; the chance to take action —proactive or corrective; and the chance to accelerate recognition of outcomes (fail fast, or ride the wave).
Without better visibility and extensive collaboration among the Direct Store Delivery value chain members, everyone is operating at a deficit. Raw material producers are guessing, manufacturers are guessing, distributors are guessing and retailers are guessing.
Only one party isn’t guessing: Consumers. Consumers don’t guess, they act. They make decisions. A decision is a derivative of the word decisive. And the reality is that today’s consumers are — if nothing else — exceptionally decisive. And their patience can be measured in fractions of seconds, aided by technology (9). We have even gotten to the point that the business community holds the view that consumer impatience is a virtue.
Is it? I’m not sure. I think there’s a fine line, and we just may be ready to cross it, if we don’t recognize that some things — like brick and mortar retailing — are worth a heck of a lot more for the sum of their parts.
But golly gee, if we don’t get our act together, that won’t matter. Market forces don’t have a moral compass.
Recent data suggests, rather shockingly in my view, that “50% of the retailers say their systems are not capable of the levels of localization that modern retail customers demand”, and 53% report that their company is “reluctant to change” (10). Perhaps more shockingly, RSR Research reports that 50% believe the industry’s reliance on data is… destroying the “art” of retail.
I suppose a similar analogy would be that printing press destroyed the “art” of handwritten manuscripts and proclamations. The only response to this would be, no shit, Sherlock. But when you’re facing existential threat, you either evolve, or you die. You don’t vacillate and half-measure your way to a solution.
Why is it that human nature requires so many of us to first deny something is happening, then rationalize why it is happening, then excuse why it’s happening, then rationalize why it won’t be that bad even as it’s happening, and only then accept it, before finally trying to fix it (often, when it is verging on too late). We’re seeing this now with climate change, but we’ve seen it before. People used to risk their lives and freedom just saying the world was round once, remember?
But I can’t think of a single time in the history of innovation where dithering ended up being the right call. The cost of delaying innovation is far greater than the cost of action and the longer one waits, the harder it is to recover, if it is even possible at all. The cost of change should not be used as an excuse reason not to act. In fact, “a declining-price paradox suggests that the more the price of the investment is subject to future reduction, the more urgent it is to invest in this technology immediately” (11)
The cost of change should not be used as an excuse or a reason not to act.
What does all this mean for brick and mortar retailing, and the rest of us whose livelihood depends on the well-being of brick and mortar retailing, and society at large that depends on the positive impact of brick and mortar retailing on civility, moderation, modernity and collaboration?
It means we must we willing to look past our narrow and typically selfish and even greedy definitions of success, and demand that our value chain counterparties (and regulators) do the same. We must ignore (and depose) any leader who believes that preserving the “art” of retailing supercede the need to preserve retailing itself. We must make investments together, share the risk, and share the rewards. We must take calculated risk, and find the right partners and partnerships to nurture.
And most of all, we must do it now.
Benjamin Franklin’s old saying — whether or not he actually said it is a different question — is as true today as the day he (supposedly) said it in 1776. Franklin’s saying is as applicable to brick and mortar retailers today as it was for the Founding Fathers then: “We must all hang together, or surely we shall all hang separately.”
Tal Zlotnitsky, president & CEO of iControl Data, once was a copy editing intern with trade publication Association Trends. During his three months there, the publication did not win any copy-editing awards, though he did his best