eCommerceEconomics

Physical retail is on the wrong side of history … and what to do about it.

By December 31, 2010 February 28th, 2017 No Comments

In case you missed it, Bloomberg’s Pimm Fox did a worthwhile interview today on the outlook for US retail with veteran retail industry analyst Howard Davidovitz.  In this insightful interview, Davidovitz throws cold water on the notion of a sustainable recovery for physical world retail.  Just as we are seeing a hollowing out of the middle class — as described at length in a post-Thanksgiving blog post —  mid-market retail is also having a tough go of it. One key reason: online retail is eating a lot of what remains of offline retail’s shrinking lunch.

Implications for Retailers
With the exception of businesses that deal mainly in perishable goods (e.g. Whole Foods) and high-end retail (Tiffanys, etc), physical world stores with no integrated online strategy look to me like sitting ducks.  Slowly but surely, they will have to contend with the mounting array of forces that are going to squeeze their bottom lines:

Static or Falling Revenues

  • Shrinking median consumer discretionary household income
  • Rising competition from online competitors
  • Mobile applications for in-store price comparison

Rising Cost of Goods

  • Rising producer prices
  • Rising fuel prices (oil just crossed $90/barrel again)

Fixed costs for rent, core labor, and business compliance

In theory, commercial rents should come down to prices where they would attract new tenants who then invest in tenant improvements and marketing. However the  economics of those properties make it unattractive to enter into long-term leases at the lower lease rates where the market will clear.

How local retailers can compete nationally and globally
The outlook for local economies remains challenging at a time that state and local government budgets are stretched. For many businesses this is what I call a “deer in the headlights moment”. The deer — or business owner — either adapts quickly or gets run over.  A lot of local businesses are not adapting. After depleting the owners’  savings, and/or trashing their credit, many of them will get run over.

Online retail is no panacea for the simple reason that online sales is not easy. To win, online businesses need competitive advantages.  This is one of the main reasons why Epik has pursued a strategy of developing segmented retail stores that are built on category-defining domain names for that specific category.  The domain name, when combined with useful content, is a significant competitive advantage.

The reality is that there are still a tremendous number of offline businesses that have yet to execute a viable online strategy.  This is where a great domain with an integrated eCommerce solution makes a great deal of sense.   By integrating product domains with a fulfillment solution, domain owners are well-positioned to help local businesses to become more effective at selling nationally and globally.

Case Study: Combining Physical presence with Online Sales
My wife’s business, NaturoMedica.com, is having a record December and a record year.   Their core business is serving (mostly affluent) consumers with personalized medical care.  They are finishing their third year of very robust growth at a time when most peer companies in medical services are struggling.  They also sell a lot of products — medical-grade supplements — which are usually sold to these same consumers who come into the medical clinic.

During 2011, Natromedica will also launch an online presence utilizing two strategies: (1) an online business to be called Naturologie.com, and (2) a dropship network that supplies sites that are built on category-defining domain names.  What is worth noting is that (1) the physical store, the online store and the dropship network will all utilize the same inventory, and (2) the online retail operations are built on the same technology as Epik eCommerce.

Epik eCommerce is a core growth engine for 2011
What is unique about Epik’s eCommerce platform is that it is truly turn-key for the owner.  For businesses that are already established offline but need to make the leap to online, it really does not get any easier.

For domain owners who don’t have a supply strategy worked out, Epik offers a turn-key solution based on dropshipping.  With dropshipping, there is no inventory and customer returns. The margins are not as high as sales from inventory, but with dropshipping it is possible to have a large selection from day one. As revenues grow,  owners can choose whether to begin inventorying products, or sell to (or partner with) an established offline supplier.

To learn more about Epik eCommerce, visit our detailed information site here.

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