It’s been over ten years since Amazon opened up shop in the US, and just around ten years since its UK affiliate opened. We’ll use Amazon as our benchmark for the first truly successful model of retailing over the internet, and how it’s impacted retailing in general, and in the UK in particular.
Online retailing (the so called “new economy”) offers several advantages over traditional “brick and mortar” stores – but also has some interesting side effects and drawbacks (many of which are being addressed by technology). While Amazon wasn’t the first – in the UK, it was a men’s magazine offering pinups as the first historical case of “Internet commerce”. Amazon was the first to have a significant impact on retailing as we know it.
The major advantages of an online shop are in reduced overhead; you have a web page that displays your products in a shopping cart software solution, rather than having to pay for display space, and employees to man the register. Customers do all the data entry needed to make an order, and your software can be configured to hold that order information for repeat customers.
As anyone who’s run a retail business is aware, the cost per square meter of retail ready space is nearly triple the cost per square meter of warehouse space; even after the initial up front expenditures of creating an online shop, the reduced operating costs should (in theory) make for a more efficient business.
To pull in business, most online retailers employ discounting; Amazon is one example of this, with many hardback books priced at 10% to 15% over wholesale, which translates into a cover discount of 30% or more. Other shops, such as overstock, take remaindered lots of products and do much the same thing.
What this has done to brick and mortar businesses has been illustrative of market dynamics at work: Low prices dominate over everything else, and consumes vote with their credit cards. Entire market segments are rapidly shifting to online shopping models, most noticeably in items that are “commodity” products, like books.
Another retail segment that’s been eliminated by online stores is music and entertainment retailing; Apple’s iTunes store is now the number two music retailer in the world; it and Sony are the only two music retailers gaining market share. The old record shop on High Street may become a thing of the past in short order. Similar pressures exist with books; although the iPod for books has not yet materialized (Amazon’s Kindle may be a first step towards that).
What’s left on the retail tier are shopping experiences where customers want to see, touch or try on products before buying them: Clothing and similar merchandise is one such, as are shoes. Automobiles are another place where customers have proven to be wary of shopping online. Likewise, grocery shopping, in spite of several attempts to make an “online grocery store” has resisted all attempts to go into a realistic online market; look back a decade, and you’ll see a lot of attempts to “New Economise” lots of traditional market segments, and while we remember the ones that worked (insurance, books, music), most people barely recollect the failures.
While online shopping has re-shaped retailing, the transformation has not yet completed.