The Future of Offline Commerce

April 27, 2016

Over the past two decades, Amazon had a fantastic rise to become an online consumer packaged goods retail superpower (Alibaba has had a similarly fantastic growth rate, but is out of the scope of this post). Pressure from Amazon is forcing traditionally offline retailers to not only to offer online storefronts, but also match prices or hold flash sales and offer fast shipping to compete.

At first glance, Amazon's scale may make it seem an impossible commerce adversary, able to undercut its retail competitors through economies of scale. However, for many markets, particularly apparel, there is a large consumer preference to "try before you buy". Likewise, consumer electronics, particularly those that can be difficult to set up, prone to errors, or feature complex interfaces (such as IoT, smartphones, laptops, etc.) may gain a competitive advantage by offering in-person support at retail chains. Apple was a pioneer in this area, and since that time, others have followed the same strategy.

Fast same- or next-day delivery is also rapidly changing consumer expectations of online shopping, and may present an opportunity for brick-and-mortar retailers to gain a competitive advantage over their online counterparts. Amazon Prime, which pioneered same- and next-day delivery, is not nearly as well equipped to enable that level of distribution as existing brick-and-mortar outlets. Strategic distribution of outlet stores near population centers, paired with staff on-hand and fast local shipping options from Google Shopping Express, UberRUSH, and TaskRabbit, enable these stores to create a shipping and distribution system that rivals Amazon's.

So how will retailers respond? I believe that storefronts will slowly morph into showrooms, allowing users to test or get support on products, but that purchases will be performed primarily online. Floor space in stores usually reserved for duplicates of stock on display may be re-purposed as miniature warehouses or distribution centers, enabling rapid same-day shipping of products to customers. Many users may prefer to have their new products shipped directly to their home, rather than carrying them out of the store. One fashion company, Bonobos, already does not allow customers to take the clothing they try in-store with them, requiring the order to be shipped online instead.

The showroom model allows companies to leverage their existing storefronts as a same-day distribution network, while simultaneously preserving the customer benefits of in-person support, fitting, and customer browsing that Amazon has been unable to emulate, at least for now. Amazon's plans to open physical storefronts show an interest in this model, and I believe that major brick and mortar retailers will act quickly to update their strategy towards a showroom model in the next few years.