The Doom and Gloom Media has been busy announcing the impact of the EvilEconomy on retail. Stores are closing. Retailers are going bankrupt. Blah blah blah. The question I have is, are YOU surprised to hear this?
We are web entrepreneurs. In a down economy, we do well. In an up economy, we do well. There are different reasons in each case, but over the past 10 years the Internet retail economy has grown. Are you surprised to hear that offline retail is having trouble? Where did you think the sales were coming from?
Black Friday comes in late November. Think about that. From January until late November, off line retailers run a loss. They recover in late November, and turn a profit during the holiday shopping season. The credit system crashed and now those retailers are closing because, well, because they need someone else’s cash to keep them afloat for the first 11 months of the year. About that “surprise” thing…
We are on the web because it is profitable. We enjoy the web because the infrastructure supports business. Our efforts marketing on the web can be compounded. We can build momentum. Companies like Zappos can start with shoes and move on to clothing or eyewear or salt grinders as it tests positive. Smart business is possible on the web. I don’t know a single web entrepreneur who would sit back and lose money from January until November, confident of catching up and turning a profit based on November-December holiday sales. Necessity is the mother of invention. Monetization models have evolved in response to that need to turn a profit and monetize the potential.
So when an industry research group says to expect 70,000 retail store closings in 2009 (or 150,000), where is the surprise? Where is the opportunity?
Everywhere around you, provided you are on the web.
I chose those words carefully. If you are on the web, you understand the web retail model. That might give you the smarts you need to succeed in the down economy off the web as well as on the web. That’s right… being on the web gave you what you need to succeed off the web. Sucks to be an offline retailer right about now, right? No clue about surviving on the web? I think it always sucked to be a business that accepted a late November break even point. Or it should have. And now that the piper has to be paid, those retailers get the bill.
Web entrepreneurs can go after the markets formerly served by offline retail, as it makes sense to do so. If 150,000 retail stores shutter in 2009, society will see some changes. Some things are still broke, and given new needs waiting to be filled, someone will fix them.
A few observations:
The Credit Card System is Broken: too few players are taking too much of the profits. It supports too much fraud. It stifles innovation (such as in the area of micropayments). It’s too complex (for merchants) and too expensive (for merchants) while being too restrictive (to consumers) while supporting abusive, irresponsible behavior (e.g. banks). We need to throw it out.
The Shipping System is Broken: Whatever you want, you can buy it online as long as you pay shipping fees, which are set any number of ways by multiple profit-sharing partners, using a few often dysfunctional shippers. My small box from Gary’s Wine in New Jersey to Seattle was quoted at $5 using Fedex. It took 20 days to arrive. A check was sent from Texas to Seattle (again via Fedex) with a tracking priority. The FedEx driver noted it was delivered to “other than the addressee” and surprise – I never got it. An “investigation” by FedEx resulted in an assurance to me that the driver had in fact delivered it to the right address, despite his own initial admission, and despite the name of the signature not matching anyone working at the true destination address. FedEx doesn’t care. It doesn’t have to. The consumer has no choice but use the shipper the merchant offers. There are only two. The merchant has no choice but accept the promise of the shipper. Would I have accepted a $15 shipping cost added to my little box of wine accessories? Gary’s would much rather worry about shipping cases of premium wine all around the country than my $30 order for wine gadgets.
Quality Brands are Poorly Represented on the Web: Would you buy a Rolex watch from a web vendor? Would you pay full price for a Louis Vuitton handbag over the web? What about a high-quality leather belt? Or perhaps a better question for today might be, is it more likely that a $90 black belt sold at Macy’s today is actually worth $90, or that a $90 black belt purchased from a web site is actually worth $90? Target that issue.. it’s a need waiting to be filled. The best we can do today is ask the consumer to either travel to Macy’s on the one day per year that belt is marked down from $150 to $90, or place a bet that the $70 belt seen in a picture on a web site is actually a good belt, accept the associated online purchasing risks, pay the $10 shipping charge, and accept the risk of an additional $12 return shipping cost if it isn’t what we wanted. The time we actually get a great $90 belt for a total cost of $80, we wish we had ordered two for $150 (but alas… it is too late). Is that efficient commerce?
I could go on. I won’t, but some industry analysts should. Stop predicting that stores running a debt 11 months of the year are likely to close, and start working on analyzing the support systems for the NewCommerce we are left with. We need to better understand how it will evolve to fill needs. How it needs to evolve to satisfy us.
There is so much room for innovation on the web. We’ve barely begun to tap into the potential. Stop marveling at the mystique of the “long tail” theory and get to work as a merchant. What happens when the local store can’t compete on anything that actually is-as-it-appears-to-be (because it is a safe, discounted sale over the web), but does well selling everything that is likely-not-what-it-appears-to-be when viewed online? Mitigate risk offline. Mitigate risk online. Serve a need. And if you can’t think of any of my needs except my need to buy holiday gifts, well, then you probably don’t deserve to be a merchant.
Expand that collapsing retail economy to the landlords passing on market rates because they still hope to find tenants willing to pay bankruptcy-inspiring retail rates per square foot. Expand that collapsing retail economy to the New Jersey malls who insist on $6000 per month for a powerless aisle cart, with a reservation on the months of November and December (so they can still bid it out for the holiday season). A whole collection of misguided players in the established retail industry are in for a surprise if this credit crunch holds out long enough for the rest of us to innovate without the help of the banks, credit card vendors and politicians.
By the way, why are we still trading decimal dollars through a corrupt banking system, paying high fees for the privilege? Why can’t my buying power, transferred across the web to me from others, and subsequently put to work by me (on the web) in similar trade, avoid moving in and out of that corrupt, expensive banking system? Why oh why are we so willing to hand a portion of the proceeds to Visa or MasterCard or Bank of Whatever? Don’t answer that.. re-ask it of your local congresswoman. And re-ask it again every time they nickel and dime you on currency conversions, late fees, shortened grace periods, rising default interest rates, and annual fees.
Sometimes change is good. Stop marveling at it and get busy riding the wave. Ask yourself, what have you go to lose?