Retail predictions for 2018 included - as they did for the past few years - personalization, direct-to-consumer, experiential shopping, use of robots, chatbots, social media, artificial intelligence, etc. Some even say that cryptocurrencies like Bitcoin will be the big driver.
The thing is, retail is a boring business. As much as there is innovation on how customers shop, and what products get made, at the end of the day it is about supply and demand. Some retailers have the products customers want, some don’t. Those who do grow, those who don’t eventually go bankrupt.
The big shift over the past decade has been the growth of online retail, both in the US and in other countries like China, which most recently has resulted in store closures, and what many like to call “the death of retail”. Bloomberg wrote that “In the U.S., retailers announced more than 3,000 store openings in the first three quarters of this year. But chains also said 6,800 would close.”
It is easy to read this, and take it as a sign that offline retail is gone tomorrow, and that online retailers are here to rule. And yet US e-commerce is not even 10% of all retail.
Hilary Milnes in “Fashion is flooded with direct-to-consumer brands, but few will scale” at Glossy wrote:
“This degree of hubris — like claiming, ‘The store is dead, we’re charting a new evolution of retail!’ — has come back to haunt these founders,” says Loose Threads founder Richie Siegel. “If someone today tries to pitch the Warby Parker for belts, I’d hope they’ll be asked to leave.”
While reading the news of thousands of stores getting closed, and the success stories of companies like Warby Parker, it is easy to make a mistake that this is what the future of retail will be. It looks great on paper, it checks a lot of boxes for the future experts are predicting, but it would be hard to find more than a handful successful companies like them.
Nasty Gal, once one of the most exciting clothing retailers, went bankrupt in 2016 after raising $65 million in venture funding. Lauren Sherman of Business of Fashion found many reasons why in “Nasty Gal: What Went Wrong?” The business had a cool brand, but other things, like profitability, start to matter at scale.
Brands are interested in this the most. Brands care about the retail experience, brands want direct-to-consumer relationships.
However many customers unsurprisingly often put price as the most important thing. To them it doesn’t matter if they are buying from a brand directly if they can get it cheaper on Amazon. And this is why, despite the aging website, thousands of scam sellers, millions of counterfeit products, and dozens more issues Amazon continues to grow. Most estimates put Amazon at 45-50% of all US e-commerce.
Half of Amazon sales is from the marketplace. There are 140,000 sellers with over $100,000 a year in sales on the Amazon marketplace. Based on simple math that is at least $14 billion in sales a year. The actual sales of all marketplace sellers is ten times that at $140 billion.
Every one of the marketplace seller business is a boring business.
The point is most sales in e-commerce are not coming from social media, curated experiences, or direct-to-consumer. Most sales are instead from retail like it was for thousands of years - putting products in front of customers. This is what Amazon, Walmart, eBay and others do.
This is not to say that online retail is not changing, and adopting new methods. But it would be a mistake to over exaggerate the impact they are making. Many of new ideas are expensive, hard to do at scale, and often only work in specific niches.
Retail works best when it is boring, and profitable.
