Prime Time for Brick-and-Mortar Retailers
As most retailers will tell you, or as you have personally witnessed by the consistently closing doors, the extraordinarily successful brick-and-mortar retail economy of the 20th century has become a casualty of the internet.
Most fitting, on Amazon Prime day, we recognize Amazon as the continuing, unstoppable force in this steady disruptive march against retailers. Millions across the globe currently click away to cash in on epic deals from their homes, offices, and mobile. The clock ticking on 30-laser-focused hours on cashing in and then countless more to share the spoils on social media.
American Enterprise Institute fellow and economist Mark J. Perry attributes Amazon’s overwhelming success to "the incredibly disruptive effects Amazon is having on the retail industry as it revolutionizes retailing, supply chain management and delivery, with a laser-like focus on creating value for consumers."
This massive online retailer has repeatedly entered market after market and slashing prices. Delivering products virtually anywhere overnight, from its network of strategically placed warehouses. Netflix and others are replicating this same success in entertainment and other industries, continuing to turn traditional retail industries on end.
Is this a bad thing? Well, yes and no. To the larger, traditional store retailers relying on antiquated business models, a profound yes. But for upstart retailers, the future is very bright.
Future of E-Commerce
E-commerce is growing at a rate of 15% a year escalating past the brick-and-mortar retail shops’ much deflated 2%- to 3%-a-year growth. The future growth potential of e-commerce remains enormous as it has only just reached the 8% mark of all retail sales. Existing and new businesses entering the e-commerce market have wide open spaces and plenty of room to grow.
May sound a little familiar if you think back some 40 years to retail brands that may not have gone online, but they most certainly expanded the current method of delivery and point of sale.
Retail Historically Evolves
All too familiar Sears and Kmart disrupted the retail industry with the introduction of the product catalog, catapulting them past typical storefronts of the time. Shortly thereafter, Kmart and Wal-Mart edged into the changing market by inhabiting the booming postwar suburbs selling discounted goods to blue-collar families.
Thanks to technology, innovation, and demographic changes, we have once again witness to another such transition, leading into something new and better for these current times.
[bctt tweet="(Brick-and-mortar) isn’t dead, it’s evolving,” says Perry Kramer, Vice President at Boston Retail Partners" username="Luxepros"]
“[Brick-and-mortar] isn’t dead, it’s evolving,” says Perry Kramer, Vice President and practice lead at Boston Retail Partners. For the most part, the 2016 holiday season brought higher overall sales, but many companies saw their best sales online, where margins are smaller from the healthier margins enjoyed by traditional brick-and-mortar, he explains. Retailers that have adapted to the new model are thriving.
E-Commerce, Not all Things to all People
Retailers are not dead, it’s the new model that is the future of retail. Joanna Arhontis, author of The New Retail Revolution: Bricks and Mortar Stores are not Dead Just Different, explains “Brick-and-mortar stores have not embraced online. They have tried to take their stores and put them online and have left out the experience. They don't quite understand how to engage with the customer like we do in-store. We have to bring that to life online. The consumer needs the retailer to engage with them.”
Retailers in their haste to create an online presence and close brick-and-mortar addresses failed to consider what makes shopping fun or fulfilling in the first place. Retailers like Restoration Hardware are on the right path to figure this out. Their showroom stores provide inspiration and style guidance but “they’re not really selling anything there,” says Ken Morris, principal, at Boston Retail Partners. “It’s like a giant 3D real-time catalog.”
All is not rosy in online sales. Although online sales are much healthier than local retail, the profit margins are much smaller and online commerce is plagued with counterfeit selling. Amazon is taking steps to protect big brands from nefarious practices by brand gating. As a result, the rule-abiding sellers are paying the price with hefty gated commerce charges. Online stores that want to sell top brand names like Adidas, Levi’s, and Microsoft, are being required to pay one-time nonrefundable fees ranging $500-$5,000 per brand along with meeting additional performance checks and other qualifying requirements such as sourcing a percentage of their product direct from the manufacturer. Many online retailers source their product from 2nd party retailers who have access to bigger budgets and larger bulk stock. This direct disconnect between the online retailer and the manufacturer negates the gating requirements.
E-commerce retailers that want to rely solely on online sales will have to private label their stock or follow the brand gating requirements. Clearly, this makes a hybrid e-commerce/brick-and-mortar business model very desirable going forward.
The rise of e-commerce has in fact disrupted brick and mortar retail, but in the end, retail in any form will be the winner. Blending the strengths of both models will bring the consumer tremendous new value, new job opportunities, and entirely new industries. Who knows, we may be on the cusp of an extraordinarily successful consumer economy of the 21st century.