Will Digital Brands Spell The Death Of The Physical Store?
In a season eight episode of The Simpsons, the super-rich Mr Burns loses his entire fortune through bad investments. Having lived a charmed life, Mr Burns ventures outside to do his own shopping for the first time – and he’s faced with walls of confusing products.
Mr Burns’ shopping scene is a solid gag – but it also works to retrospectively illustrate the nature of online shopping. It underscores how you can frantically order products without ever stepping into the real world. Which begs the question: is eCommerce actually primed to replace traditional retail?
Global eCommerce sales rose 23 percent to $2.290 trillion in 2017. Without context, that’s a massive number. In real terms, it actually relates to 10 percent of total global retail sales. By 2021, it’s estimated that online sales will hit $4.479 trillion and 16 percent of global retail share.
While a slew of confused, bug-eyed, Mr Burns-inspired shoppers are highly unlikely, consumers are going increasingly digital and ultimately it will affect physical stores. But to what end?
Will Amazon have a monopoly on eCommerce?
Unsurprisingly, Amazon continues to dominate the eCommerce landscape, with 43.5 percent of all US eCommerce sales. Sales topped $196 billion, including third-party sellers on Amazon’s marketplace.
eBay is second with $30.66 billion, a drop of one percent of market share, while Walmart and Apple are in a constant tussle for third.
While many online retailers are flourishing, they’re not likely to replace physical stores. With the exception of Amazon, it’s still an open market and the online/offline divide varies widely from sector to sector. Technology or clothing are obvious online buys, whereas the online grocery share is struggling at a measly 2 percent.
The real world impact is notionally limited but malls are a solid comparative point as they have been the hallmark of the American shopping experience for years.
Malls are given a rating by property consultants from A++ to C, based on factors like sales per square foot, geographical location, and maintenance. Investors take these ratings at face-value to make decisions over how secure a mall is. The theory suggests that a C-rated mall is more likely to struggle than an A++ mall.
This graph from Thomson Reuters Datastream makes an interesting point about A rated malls: big-name brands can’t rely solely on their name as a USP, especially with online stores prepared to make big plays for market share.
Essentially, they need to disregard the importance of ‘name’ and focus instead on a strong offline/online omnichannel solution that puts the customer first.
Again, Amazon is the key disruptor. For Black Friday 2017, Amazon opened the doors to its ‘Home of Black Friday’ pop-up experience in London. Based in Soho Square, Amazon furnished a townhouse with five uniquely themed rooms and over 100 curated Black Friday deals that were shoppable through its app.
In essence, Amazon intended to own Black Friday with an ‘anti-store’ and it did, picking up plenty of global coverage for its stunt.
A question of agility
While eCommerce may not be a ‘bricks-and-mortar’ killer, it represents a unique threat: fail to be agile and large retailers will disappear.
Online shopping and the internet at large have given consumers more power and it’s put them first in a consumer-centric ecosystem. Essentially, it’s a new world order and retailers need to adapt or they’ll struggle in an evolving market, especially as eCommerce giants like Amazon and Alibaba can afford to be ruthless.
Indeed, Alibaba is a megalith with an unrivalled brazen streak. Singles’ Day, on the 11th of November, is an annual shopping ‘holiday’ invented by Alibaba in 2009 and it’s the biggest commerce day in the world. The night before, a four-hour, celebrity-filled gala kicks everything off. It’s audacious and over-the-top, but it generates billions on Alibaba’s eCommerce platform.
However, the buck doesn’t stop with online as Alibaba is looking to expand the shopping goldmine into physical space with more than 1,000 smart pop-up stores opening across China. In 2017, Alibaba opened a store in Beijing’s hip Sanlitum area, merging savvy technology and a streamlined consumer experience.
But that’s not all: as part of its ‘new retail’ strategy, Alibaba is also planning to open 30 Hema supermarkets in Beijing to further improve its share of the market. The end-goal is to create a one-stop environment where consumers can shop, order groceries for delivery, and eat in-store all via an app that’s part of the Alibaba ecosystem.
It’s an impressive vision and the true hallmark of agility. Alibaba isn’t just reacting efficiently, it’s creating an environment for its online and offline ventures to thrive.
While eCommerce may represent a threat to traditional retailers, it’s also a huge opportunity with the true vantage being in agility, metrics, and an omnichannel solution.
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