The death of traditional retail. Really?
A few weeks ago, Marc Andreessen predicted the death of traditional retail.
From an economic perspective, this statement makes sense: online retailers enjoy significant costs and capital advantages compared to physical stores. With their high fixed rent and labor costs, traditional retailers have tiny profit margins. While today anyone can open up an online store on Shopify or Tictail in a few minutes, opening a physical store requires important upfront investments. Furthermore, by eating an increasing share of total retail sales, e-commerce players are putting even more pressure on their already highly leveraged offline competitors.
Interestingly though, over the last couple of months, there have been numerous articles about some of the most innovative e-commerce players opening stores. In November, eBay experienced with a social pop-up store in London while Etsy did the same in New York. Bonobos, originally a pure online brand, has partnered with Nordstrom (one of the biggest department store company in the US) and is now opening “guideshops”; Fab, the “online Ikea” said that for them the question was not whether they would open a shop in NYC but when. Even Amazon is considering different ways to get more “physical”.
Opening a pop-up shop or a flagship store is certainly not the same thing as growing a retail chain but online players going offline is an interesting trend because it shows a more complex picture of the future of commerce than e-commerce replacing everything.
Several arguments can explain the opening of stores: marketing, branding, logistics, etc but eventually, I believe it all comes down to create the best shopping experience for the customer. The “experience” is one of the three things that matter to shoppers. The two others are “great products” and “great prices”. Today, you can find anything you want online and you are also likely to find the best deals online. But the shopping experience is still very different compared to offline. There are things that are inherent to physical commerce that online commerce has not yet managed to replicate; for example, instant gratification (enjoy the product as soon as you buy it), tactability (experience the product by touching it), relationship with the vendor (although Zappos has being incredibly innovative here). Software-based companies will continue to innovate in those areas but there are things you just can’t change.
My biggest problem with the statement supporting the future death of traditional retail is that it only takes the economic perspective and assumes that shopping is a burden. This is not true. In many cases, shopping is a social activity. Many families and friends go shopping on a Saturday as an activity not because they have to. To some extent, we can compare the rise of e-commerce to the one of Facebook; by connecting us with friends like never before Facebook became an important part of our social life. However, it hasn’t stopped us from going to bars to socialize and I don’t see this changing in a foreseeable future. It’s just the same for shopping.
Retail is certainly going through massive changes and technology is the main driver behind those changes. Marc Andreessen is right when he says we are only at the beginning of the revolution and that the landscape will dramatically change. But I bet that stores will still be part of this landscape.
