eTail Eating Retail? Why Ecommerce Will Own It All
Amazon’s Whole Foods Acquisition a Bellwether for Brick-and-Mortars
While it’s unlikely anyone saw Amazon’s acquisition of Whole Foods coming, no one should be surprised either. Let’s put it this way: it was considerably more likely for Amazon to have acquired Whole Foods rather than the other way around. Never mind that ecommerce is growing at a rate of 17% every year. It is significantly easier for an ecommerce business to go into physical stores (i.e., omnichannel) than the other way around, and it all starts at the core.
Ecommerce businesses strive to build lean, self-tuning, and scalable operations, a self-inflicted limitation from having smaller margins. Because of that, they are less likely to invest in non-digital operations. Ecommerce companies excel at transaction and fulfillment while maximizing profitability.
Brick-and-Mortars (B&Ms), in contrast, are required to invest fixed costs in physicality of the buying experience. They rely on our imperfect psychology to entice a buying moment. B&Ms offset the costs of physical experiences by marking up prices. B&Ms, theoretically, should excel in compulsive buying (because when you see it, you want it), customer service (people are more likely to buy from a face) and packaging (increasing the amount bought).
In the ecommerce world, it’s too easy to lose a sale because of the amount of options out there for the consumer. How ecommerce companies work with suppliers, how they maximize their warehouse and shipping, and how they optimize processes can easily be adapted to stores. The last mile is just an extension.
Streamlined Flow of Goods
B&Ms have to stock their stores’ inventory, which comes from an expansive supply chain. To do so takes on either major capital investments or credit. Either is fraught with the risk and waste of unsold goods. Systematically, it’s a different logistical design than ecommerce, often involving planes, boats, trains, semi-trucks, and cross-country drivers that are paid by the mile. B&Ms also have limited floor space, meaning unsold goods have to go on clearance, to an outlet, or destroyed.
Alternatively, ecommerce companies can take on inventory or become hybrids in terms of working with suppliers through a more online-marketplace model (e.g. carry some evergreen inventory, drop ship the rest). Ecommerce can also get away with fulfilling through third-party providers because of the quantities. And as far as “floor space,” it’s unlimited – just a click or search away.
When an ecommerce company finally does establish a B&M presence, that store is essentially just another destination it might ship to. The profitability, simply due to transport, should be higher than a native B&M.
Buyer Experience Expectations
Netflix didn’t just kill Blockbuster. That was just the mini-boss. Netflix rewired our brains to expect content without physical media. Amazon, likewise, has given us everything from A to Z with extensive data on what to buy based on reviews, suggested alternatives, frequently asked questions, and discounts. If it doesn’t exist on Amazon, there’s a good chance it may not exist. Data, like everything else, often leads to the best answer to a problem.
The converse is that physical buying hasn’t changed much. Walking into a store is virtually the same experience it was when marketplaces appeared at the dawn of commerce. Additionally, you have to trust who you’re buying from, they have to be accessible and available to answer your questions, and, most importantly, they have to have what you want or need. Then you have to wait in line to pay. Given how busy we are as a society, that’s a significant investment of time for the buyer and filled with risk. Unlike a Hollywood movie, most people don’t have time to try on dozens of dresses with the store manager while bringing a friend along to make salty comments about the choices.
Apple has shown that it can streamline much of the in-store experience by adopting from its ecommerce stores. The ability to make appointments, pre-pay, and simply pickup is a translation of the ecommerce experience in the physical store, but it stills gives the consumer a chance to ask questions or get help.
Niches Can Be Validated
Ecommerce businesses can prove the viability of a niche at scale with fairly low investment or friction to launch. If you’re a sock enthusiast or if you want to capture your personality in your socks, there’s a good chance Target probably doesn’t go as deep. However, clicking over to HappySocks.com, you may have a better chance to find some unique item that screams “you.”
Alternatively, to open a physical store that specializes in socks (without starting as an ecommerce success first) is quite esoteric and risky. They exist, of course, but they’re unlikely to scale in a very profitable, extensive way.
Hope for B&Ms
B&Ms can still capitalize as they move towards omnichannel models, though it will take some rethinking.
- Streamline internal operations – Operating lean isn’t just good business, it’s absolutely essential in the digital landscape. Employ technologies that automate repetitive and error-prone tasks to improve the efficiency of the operations.
- Win over suppliers – Whether it’s through improved supplier communications, early payments programs, or connecting better with international suppliers on their own terms, having strategic, loyal relationships with suppliers can create opportunities that make an eTail foray potentially easier.
- Future-proofing – Recognize software is a service, not a product. It is meant to be agile and adaptable. Even Amazon is constantly innovating how to source, how to buy, and how to ship.