What’s next for retail?
“It is time to disintermediate the retailers.”
“Marketplaces will dominate because of network effects.”
“Physical retail is dead.”
“Brick and mortar stores are alive and kicking.”
It is amazing how often the dominant narrative changes. Commerce has come a long way since it’s early days and we are all wondering what’s going to happen next. Before I offer my predictions, how did this all start?
First Form — The Streets
We start our story in the early 13th century when merchants sold wares such as spices and medicine along the streets and hawkers peddled fish and fruits near the harbour. We soon realised the major shortcomings of this model-
- Shoppers were constantly badgered by eager merchants trying to peddle products
- Merchants had to push products as fast as possible because they couldn’t store them anywhere else
- Price wars were common because the competition was just next door
Second Form — The Corner Store
Merchants soon realised that storefronts gave them the perfect opportunity to solve some of these problems.
- Shoppers could take their time to evaluate the goods within the store.
- Retailers still had to turnover inventory if they wanted to stay in business, but they didn’t have to carry the leftovers home.
- The competition wasn’t as obvious
This model was still far from perfect. This was a time when the lines between storeowner, goods importer and/or exporter weren’t as clearly defined. Corner stores were selling what they could get their hands on
- Shoppers didn’t know what could or couldn’t be found in the corner shop
- Retailers had a lot of leftover inventory
Third Form — The Chain Store
Enterprising 18th-century merchants soon realised that it was better for business if they started specialising.
- Wholesaler or Retailer?
- Manufacturer or Distributor?
- Importer or Exporter?
For those who remained in the customer-facing retail trade, they were afforded two new advantages,
- Their offerings could now be more specialised with more dependable suppliers
- They could reliably scale their operations
Even though I find the entire commerce trade fascinating, we are not that creative as a species.
You can stop reading here because history is about to repeat itself in a different era.
What do I mean? Let’s call the era above Era 1.
How did Era 2 look like?
Well, malls started sprouting up, retailers started constructing larger stores, and they started replicating those stores around the world (calling them “Flagships”)
- Malls are not all that different from the streets. Malls give retailers the advantage of a relatively low barrier to getting started, and because of the concentration of merchants, shoppers gravitate towards them. Unfortunately, the same disadvantages exist, the issue of competition.
- Retailers leasing entire buildings for their merchandise is the default response to the intense competition in the streets.
- Flagship stores around the globe serve the same core function as chain stores- a larger footprint.
Enter the internet.
We thought it would be radically different. New technology with the promise of a new platform.
Here is how it has actually played out:
- Streets = Marketplaces
- Corner Store = Digitally Native Sites
- Chain Store = Digitally Native Brands opening up physical stores
Although there is a pattern, it is not as though nothing has changed. With new platforms, advantages shift and behaviours change. Think about what is happening at the edges…
I would focus on two platforms around how we communicate- text and voice.
(I do believe that AR or VR might be an actual trend in the future, but it still seems like it could be 5–7 years too early)