Commentary

The Obsolescence Of Brick-and-Mortar

raidersofthelostark Web sites will replace brick-and-mortar stores within five years. I realize that's a bold prediction, but here's why.

Brick-and-mortar retail stores selling everything from clothing to high-ticket items like flat-screen TVs will turn into warehouses where consumers can touch and feel the merchandise. Web sites, supported by search engines and site search, will become the cash cow for the retail store. Advertisers will have more of an opportunity to address consumers because many will spend the time online that they would have spent in the store. Tracking sales and pulling in data from social sites to target consumers with specific ads, coupons and discounts will become much easier for marketers.

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Google has already begun to turn the search results page into a comparison shopping engine with Product Extensions, detailed in a post on the Clix Marketing PPC Blog. Product Extensions marries a retailer's AdWords campaigns with the product feed from its Web site. The feed contains images, prices and detailed product information via Google Base.

Clix Marketing CEO David Szetela says moving sales online is inevitable. "It's not only feasible, but it could be driven by the brick-and-mortar stores," he says. "No one wants to ship around a big LCD from one warehouse to another. They would much rather ship it to a consumer."

While online sales growth has slowed since 2003, overall sales continue to rise. Online sales during the months of November and December 2009 are expected to climb 8% to $44.7 billion this year, compared with 2008, according to Forrester Research.

There are several reasons retailers would want to move sales online. For starters, it's less expensive to sell that way. Retailers can stock less inventory. Most well-run online sites pass on the order to a fulfillment house or manufacturer. That can mean 100% margin when drop-shipping the order, says Sucharita Mulpuru, Forrester principal analyst.

Sales on the Web have been outpacing store sales for several years. In fact, online divisions of multichannel retailers typically outpace their brick-and-mortar counterparts by between 20% and 30%, Mulpuru says. "It should be cheaper to transact business online," she adds. "You don't have to pay for visual merchandise or for physical stores."

Chris O'Neill, retail director at Google, says this year retailers took a more aggressive approach on Cyber Monday, moving bargains and sales online earlier than in prior years. Consumer electronics, which accounts for roughly 28% of all online sales, should reach about 35% within two years, he says, citing data from Forrester. Some Web companies, like Amazon, are as much about excellence in the supply chain as they are about marketing and customer service, O'Neill says. "It's a story that covers many important business points," he says. "Retailers like Wal-Mart pioneered something called cross-dock. Amazon has figured out how to do this in the ecommerce world."

Cross dock saves a step in the distribution process when items received at the warehouse get unloaded from the truck. Instead of being stored at the warehouse, the merchandise is immediately prepared for shipment to another location, such as the consumer's home.

And, notes O'Neill, "You will start to see more retailers tap into trends like printable coupons -- not reacting to it, but riding the wave by understanding what this really means."

Commerce will grow up with its consumers. The trend toward multichannel sales powered by search engines can be found in the lexicon used today by teenagers. O'Neill says that when teenagers talk about their phone or buying something online, they don't talk about their mobile phone, or ecommerce. Teenagers don't differentiate between buying online and buying in a brick-and-mortar location.

EMarketer Senior Analyst Jeffrey Grau says store-based retailers will compete more aggressively against Amazon and other pure plays in 2010 as they turn to the Internet as a source of growth. "They must be envious of Amazon's strong 2009 sales growth figures," he says.

14 comments about "The Obsolescence Of Brick-and-Mortar ".
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  1. Ruth Barrett from EarthSayers.tv, December 1, 2009 at 12:53 p.m.

    Going from an overall 8 to 10% sales online to "replace brick and mortar" is a bit on the extreme side. Amazon is just now going head to toe with WalMart, and it has taken Amazon nearly 15 years to be big enough to even play against WalMart. Granted the Web is used to research products and plays a critical role in the buying process, but, really, replace?

  2. Susan Fantle from The Copy Works, December 1, 2009 at 1:05 p.m.

    I agree that the Internet may become a bigger source of income for retailers and is the biggest source of growth. But there are still lots of people and businesses who want or need something immediately and going to a brick-and-mortar retail location is the only way to get it. Also there is a social aspect to shopping that is very much part of this country's culture. I think online shopping is bringing about dramatic changes -- but I disagree that all brick-and-mortar stores will turn into warehouses.

  3. David Culbertson from LightBulb Interactive, December 1, 2009 at 1:39 p.m.

    Was this column sponsored by Fedex and UPS? :-)

    Nope, won't happen. Do you recall the dot com bust fueled by the over hyping of e-commerce sites like pets.com and toys.com? I buy my cat food at the grocery store. I buy TV's in person after researching them online then trying them out in the store.

    And for many women, shopping together is a primary social activity.

  4. Pam Piccola-fales from Digitas LLC, December 1, 2009 at 1:49 p.m.

    Couple reasons I disagree:

    - People need things now. I'm fine with waiting few days for my new TV, but for less-expensive, more personal purchases (clothes, household necessities), I'm impatient.

    - You go through the trouble and expense of building an amazing, interactive website experience. It's almost like touching the object. The shopper uses your site to find what they want...then hops over to a product search engine and buys it from a bare-bones site for 20% less.

    - Less opportunity for cross-sell. Yes, sites like Amazon have amazing recommendation engines, but brick and mortar layouts force people to physically interact with other items they may not have been considering, which may not have any relation to their planned purchase (think IKEA's path layout).

    I think this only has a real chance to succeed if the offline showroom and online website are integrated -- I pick my item in the showroom, then the friendly sales associate helps me put my order in right then and there. That way I can't just use the showroom, find what I like, and then buy from the lowest-price, no valued-added seller online. Plus, I'll see things I wasn't even thinking I needed. It also satisfies that innate desire to touch and feel items (especially tactile ones like clothing, bedding, etc.) that no website can ever truly reproduce.

  5. Paul Miller from North American Publishing Co., December 1, 2009 at 2:40 p.m.

    For a different take on the future of brick-and-mortar retail, I suggest you check out a three-part series I ran in my magazine, All About ROI (formerly Catalog Success). You can find these articles at the following links:
    Part 1:
    http://www.allaboutroimag.com/article/maximize-internet-s-best-tools-because-fixed-asset-distribution-becoming-dinosaur-407657_1.html
    Part 2:
    http://www.allaboutroimag.com/article/smart-web-tactics-replacing-dumb-store-methods-don-t-dumb-part-2-3-410010_1.html
    Part 3:
    http://www.allaboutroimag.com/article/how-some-stores-could-evolve-digress-into-showrooms-part-3-3-410644_1.html
    -Paul Miller, editor-in-chief, All About ROI magazine

  6. John Jainschigg from World2Worlds, Inc., December 1, 2009 at 2:42 p.m.

    I have to agree with the majority of commentors. We exercised this meme rather thoroughly in the late 90s.

    The writer raises, but doesn't fully flesh out an interesting point, however. There certainly have been supply-chain and retail optimizations as the result of online commerce, and these processes will continue to reshape online shopping, the store experience, the "fulfillment experience" (i.e., actually getting the product), and the universe of social tropes around consumption (including stuff like "social shopping," "the mall as teenage hangout," and "the long-term experience of brand allegiance/ownership").

    The technology that really ties this together is _not_ the flat web-as-we-know-it, but stuff like telepresence and immersive virtual worlds, which can (for example) recreate a sense of interacting with the product, enable the aleatory engagement of a real-world shopping experience (where you run across stuff you didn't know you needed and buy it), and reify the whole social buzz of shopping with friends within a larger dialogue about style and the semantics of consumption. And meanwhile, preserve ALL the benefits of online: massive cost-savings, negligible carbon footprint, simple tie-ins to business process and fulfillment infrastructure and flat-web online presence, always-on availability and personal safety (i.e., you can go shopping in a virtual world at 3 AM, meet fascinating people from Asia/Europe/Wherever, and not worry about being followed out into the parking-lot by a creep).

  7. Joann Chokrach from The Wits, December 1, 2009 at 4:12 p.m.

    hmmmm ... I heard these same predicitons in the 1980's when the shopping networks appeared on Cable ... then again in the late 1990's when retailers began "building" their virtual presence. No doubt the same predictions were made in the late 1800's when mail order catalogs came on the scene.

    Didn't happen then, and it won't now.

    In my opinion, anyone who makes a statement that the WEB is going to replace "brick and mortar" is focusing on "virtual dollars" and ignoring the needs of their customers ... a stratedgy, history has shown, that ultimately leads to failure.

  8. Steve Barnes, December 1, 2009 at 5:05 p.m.

    Chicken little said it best, "the sky is falling, the sky is falling!"

  9. Rick Short from INDIUM CORPORATION, December 1, 2009 at 5:20 p.m.

    "Web sites will replace brick-and-mortar stores within five years. I realize that's a bold prediction, but here's why."

    These "bold" words were published by Laurie Sullivan in Media Post Blogs' SEARCHBLOG today. In her piece, Laurie continues on and indirectly describes TEHAN's, a really cool old "catalog store" or "catalog showroom" that existed in the Utica, New York area for many years. You probably had something similar in your hometown. She writes:

    "Brick-and-mortar retail stores selling everything from clothing to high-ticket items like flat-screen TVs will turn into warehouses where consumers can touch and feel the merchandise."

    Tehan's was way snazzier than a warehouse, it was a nicely-appointed retail store, with clean and orderly glass shelves, stocked with one each of the very same items that appeared in their thick catalog. And everyone in the area possessed the newest issue of that catalog. We all pored over it, in search of medium- to high-end birthday presents, gadgets, or household appliances.

    Once our selections were made, we went to the showroom to see and touch each item. We then made our selection, filled out a form, and presented it to a clerk who went into the back warehouse. Minutes later, our item bounced along a small roller conveyor into the hands of the cash register clerk with whom we completed our transaction.

    Well, Tehan's is gone. And you know what we do today. One reason Zappo's is so popular is that they offer free shipping (both ways) and free 365 day returns so we can see and touch each item with little consequence.

    Tehan's "issues" were that we had to use only their (relative to the internet) limited catalog, and we had to drive all the way over there (can you believe it!?!?!?). The internet's issues are that we can't see and touch items (unless they also happen to be stocked in a local store, or a friend has the same item) and we have to wait several days to take receipt of the item (thank goodness for overnight delivery!).

    Might we see the return of "catalog showrooms" to display items for sale by major internet retailers in the next 10 years? I guess that we will for really mainstream consumer items - maybe even an Amazon Store. And, in a reverse manner, some retailers might become catalog stores, supported by central distribution - in support of a new online retail model. But I doubt we'll see such a service for business to business (btob, b2b) shopping in the near future. From indium dot com/rickshort

  10. Sarah Simmons, December 1, 2009 at 8:19 p.m.

    I agree with Laurie and really don't think she meant that brick and mortar stores are going to disappear. They are just going to play a different role in the purchase process

  11. David Ricketts from N-A, December 2, 2009 at 4:57 p.m.

    Sorry, but when the writer states that:

    "Advertisers will have more of an opportunity to address consumers because many will spend the time online that they would have spent in the store. Tracking sales and pulling in data from social sites to target consumers with specific ads, coupons and discounts will become much easier for marketers"

    I can't help but feel like they are arguing that marketing runs the company. That would be up there with letting the accounting department dictate product development (e.g., GM).

    This all starts to echo the hot air that inflated the tech-bubble in the late 90s - how content would drive the value of media or how new advertising $$s would magically appear to pay for all the additional infrastructure costs of supporting online. Fact is, there was very little new money, just a lot of shifting priorities.

    No matter how slick the marketing execution, bad products, poor delivery, damage in transit and the only recourse being lengthy chains of email correspondence will continue to drive customers to bricks and mortar stores long after we stop reading blogs on computers.

  12. Jerry Foster from Energraphics, December 3, 2009 at 5:10 a.m.

    It costs at least $20 to deliver something reasonably heavy or perishable to someone locally. This isn't feasible for purchases under $200.

  13. Karin Oliver-Kreft, December 3, 2009 at 8:25 a.m.

    Even if the web increases in sales, there will always need to be showcases for people to interact with products before they buy. People who do make a final purchase online often go to the brick and mortar store first before they finalize their purchase decision, to see the product, touch it, make sure that the 2-D image seen on the screen meets expectations.After all, how many times have you seen a product onscreen and thought it would be wonderful, only to be disappointed?

  14. Mike Byg from www.storecatch.com, December 3, 2009 at 2:54 p.m.

    Retailing won't go away. The physical act of 'shopping' is too much fun. However, retailers must learn to play the game the way their internet brothers do. Embrace how to sell to 20 and under crowd who don't leave their house.

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