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January 15th, 2017

The Weekly Archive: The Erosion Of Traditional Retail Is Accelerating

Here is a sentence that should scare the hell out of retailers:

“Everything that happened to newspapers will happen to retail.”

The statement is from a slide in Andreessen Horowitz analyst Ben Evans annual tech trends deck. And he’s not wrong.  For better and worse, retail has proven to be resistant to many of the charms of the digital age. Physical goods are not as easily disrupted as media.

But that is going to change. Soon and in a big way.

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In the digital age, retail works on some basic inefficiencies:

  • Expensive, fixed locations (retail stores).
  • Necessity to employ and train people to operate those locations.
  • Geographic lock in to a customer base at those locations.
  • Reliance on an outdated advertising industry.
  • Inability to compete with fresh, new digital approaches.

Let’s say you want to start a business selling mittens. Or kittens. Or linen. Whatever. With modern manufacturing, you have the ability to make as much product as you want and can sell. Would you open a storefront somewhere in a city and attract customers one at a time through local advertising and pay people to work in that store to deal with customers one at a time?

Or, could you eschew the traditional storefront, take advantage a wide range of digital opportunities (apps, email, websites, bots, voice platforms etc.) and build strategically placed distribution centers in or near major metropolitan areas. You can take advantage of machine learning and the digital advertising ecosystem to identify potential customers that might not even know they are customers and create new revenue streams with subscriptions, freemium models and so on.

The trend is moving towards the second option. New economies of scale are being created.

Nobody does it better than Amazon. You might not realize it, but Amazon is the number four retailer of clothing in the United States. Amazon’s potential is still massive. Ecommerce only makes up about 12% of U.S. retail sales … Amazon registers near 2.5% of all U.S. ecommerce.

Evans’ slides note that the old aggregators (retail stores and mega chains) are being broken up. New aggregators, based in the digital world, take their place. And as new models emerge, new consumer behaviors evolve over time.

Here’s an example of new consumer behaviors that are eroding traditional retail: I haven’t bought kitty litter from a store for months. I have an Amazon Dash button and Amazon Prime. I push the button when the litter is low and a 40-pound box of scented sand shows up at my apartment two days later.

Amazon has set the new model of retail … technology first, machine learning, mature distribution and logistics. Amazon’s model is changing retail in a similar manner to what Walmart did to the retail sector in the 1980s and 1990s by creating massive wholesale and logistics models sold through well-placed super stores.

The super store is losing its relevance. The Internet is now the super store. The Internet is not without its warts in the retail sector. Discovery is a problem. “The Internet lets you buy, but it doesn’t let you shop,” Evans’ slides state.

The erosion of traditional retail is similar to that of newspapers in that the method of decay follows the same patterns. Newspapers were more susceptible to the shift because their prime product, words and images, were easily transferred to the Web model. Retail has morphed more slowly because of the massive global chain has had to be completely reorganized. But, as Amazon has shown, the inertia of that reorganization is gaining momentum.

Did you know? Applause can help retailers navigate the changing ecommerce ecosystem. See what Applause can do for retailers here.

Weekly Archive Links Of The Week

PERSONALIZATION … through bots, apps, websites and voice platforms is gaining steam with machine learning at its heart. Good personalization starts with great design.

MACHINE LEARNING … and voice platforms are the engines that will personalize the Internet of Things.

INTEL …  and Qualcomm lead a group of technology companies that are trying to organize the massive morass of the Internet of Things.

PEOPLE … may not be downloading more apps, but they are spending a lot more time in them.

VIRTUAL REALITY …  faces a year of benchmarks and challenges in 2017.

ANDROID … 2.2 Froyo has finally kicked the digital coil. Only took seven years.

TOM WHEELER … outgoing head of the FCC, was seen as an unlikely ally for net neutrality. Yet, his commission was the one that set the open Internet rules under the Obama administration. On his way out the door, Wheeler makes his case for net neutrality.

NINTENDO … has a new device coming to the market called Switch, available for $299 on March 3rd.

APP.NET … a one-time popular Twitter alternative for tech insiders built by idealistic developers, is shutting down and open sourcing its source code.

AMAZON … will grow its U.S. workforce by 100,000 jobs. That’s a big signal that the erosion of traditional retail is accelerating.

ARC will be at the National Retail Federation’s “Big Show” in Manhattan this week. Find us and let us know what you’re working on.

Take deeper breaths, think bigger thoughts.

Dan Rowinski
Editor-in-Chief
ARC – The Application Resource Center