I have read multiple articles lately about the impact on offline businesses of online retail. I know this topic has been kicking around for a while, however these articles got me thinking about the future of retail.
When I was young, my family shopped at a range of local butchers for our meat. Slowly, we started buying many of the basic items at a large supermarket. The quality was not quite as good, but when cash is tight, how do you ignore a 20%-40% saving.
Pretty much everyone else did the same thing and most of the butcher shops closed down.
Some of them survived and thrived however, on the back of specialization – providing goods or services that the supermarkets couldn’t (or didn’t want to) compete on – specialty items, game, restaurant supply, super high-end steaks etc.
So the world turns, business models change – you get on board or you get left behind.
But what do you do when your business competes with huge online retailers who can sell everything you sell, for less?
Increasingly, customers are using offline sales options for research, and then buying online. I know this isn’t new – electronics shoppers have done this for ages – but as more and more products move online, and western economies remain gloomy, the habit is spreading to other retail products.
This article, in the NY Times, is about booksellers pulling their books out of Amazon. The company in question sells children’s books, mostly through a network of sales agents who sell to friends and contacts. The sales agents talk about introducing people to the books, almost closing the sale, and then losing it because the buyer jumped on amazon and saved a few bucks.
What’s the solution to that problem? The sales agents are already doing everything that consultants recommend – building relationships and offering service that the online retailers can’t match. The publisher’s solution is to not offer their books to amazon, and not deal with wholesalers who try to sell the books online. The publisher accepts lower sales numbers, in order to not have to compete with amazon. Will it work in the long run? Maybe.
In Australia, clothing stores floated a proposal to charge a ‘try on’ fee for people using their change rooms. This fee would be deducted from purchases, to discourage people from trying on clothes to nail their correct size, and then leaving to order the product online.
Predictably, industry consultants told the retailers to focus on ‘building relationships’ instead.
Building relationships is the right advice. The theory of Obligation tells us that if a salesperson goes out of their way to provide great service, the customer feel obligated to make the purchase (or will at least feel bad about ordering the product online). Similarly if you can establish a personality for your brand that can connect with consumers, they can begin to see as a ‘friend’.
But is it enough, when an online retailer has EXACTLY the same item for less?
Will clothing and bookstores go the way of butchers and corner-store supermarkets – selling specialty or convenience items for people who don’t mind paying more? It is a tough call for a retailer – in the face of shrinking sales – to ponder the option of hiring better, more expensive staff, or investing in the training required.
And what if your product simply isn’t suited to that new world? Do you focus on cutting costs and staff to maintain your margins, or focus on discounts, until the shopper’s additional time and effort to go online is no longer worth it?
Is some of this simply a symptom of the global economic crisis?
Shrinking budgets are forcing people to ignore obligation theory (they accept feeling bad because saving money makes them feel better).
Maybe it’s just me, but I go into a bookstore, or a clothing shop, because I need to buy something urgently. Instant gratification is a powerful force. I can have the book I want now and be reading it tonight, or I can go home and order it online and wait a couple of days for delivery, spending those days wondering when my book will turn up, just to save a few dollars.
When money is tight, people will make that sacrifice, and plan ahead for purchases. But when the economy picks up again, will shoppers return to offline purchases and instant gratification?
Maybe retailers just need to learn how to play a new game.
Seth Godin seems to be driving sales with a strategy of offering an ebook for free for a certain amount of time. This creates a flood of great reviews (everyone loves free) and puts the books into the bestseller lists. Once the normal pricing clicks back on, the books already have enough momentum to generate sales. It’s a great model, but doesn’t work if everyone does it.
As an interesting side note: living in India, Amazon can take a long time to deliver and shipping charges can be ridiculous. The local alternative for books, Flip Kart, is fast and efficient (even offering cash-on-delivery) but lacks the research tools that Amazon offers. The result – I have often used Amazon for browsing, viewing ratings and pictures and reading reviews, but then purchased the item from Flip Kart.
Now that I read on a Kindle, however…