What will it take for ecommerce to overtake physical retail, and what else would change most if that happened?
Experts in Protocol's Braintrust see changing consumer habits — mandated by coronavirus protocols or not — as a key accelerator in digital commerce.
Managing Partner at Forerunner Ventures
In my mind, the best retailers navigate ecomm and physical retail hand in glove. Digital commerce offers convenience, while physical retail offers experiences, and consumers look for both. I candidly don't think of them separately but as a dual-channel play, necessary to meet consumer demands in a 'I want what I want, when I want it' world.
That said, this is quite a week to pose this question. With the above in mind, something like COVID-19 might be a very unique example of something that would propel digital commerce to overtake physical. In most scenarios, when the fear of COVID-19 passes I would anticipate consumers to generally go back to business as usual; however, if this scare lasts for an extended period of time, it is possible that new habits will form, changing the landscape and balance longer term.
CEO & Co-Founder at Chicory
In the grocery world, and perhaps applicable to other industries, there are two primary things that need to happen. The first is that logistics need to become profitable. In other industries, where manufacturers can sell directly to consumers, this has already happened. In grocery, people aren't looking to buy one package of sausage from a manufacturer. So the retailer will fulfill the last mile and will need to figure out a profitable model by lowering costs or increasing revenue elsewhere in the chain. Second, the online experience needs to become better than the in-store experience. For food that is hard to do. And even for other goods it's hard because people like the "act" of shopping.
A very real scenario where ecommerce overtakes in-store buying is with something like the coronavirus. We are seeing massive changes in consumer behavior (both mandatory and voluntary) where people are afraid to go outside and are ordering online. If this sentiment even partially prevails after the panic dies down, we could be seeing the start to an ecommerce-dominated world.
Whichever way it happens, if ecommerce overtakes in-store purchasing, the largest change we would see is in merchandising. The billions of dollars that brands spend making sure their product is in the right location and that there is proper branding and signage around their product will need to be repurposed. This has downstream effects for both the retailer (merchandising fees are re-allocated) and in-store merchandising companies that will take a hit.
Managing Partner at Revolution Ventures
The gravity pulling sales from physical to online is increasing, and this crisis will amplify that. With ecommerce becoming a lifeline for consumers bound to their homes, the percentage of retail sales made online will spike, and the potential to convert consumer outliers who have never bought online will create unprecedented opportunity for ecommerce companies.
Amazon is seeing skyrocketing demand, and many of our VC-backed ecommerce portfolio companies set records last weekend even as the rest of the world tasted commercial and financial armageddon. But online sellers that do not control their supply chains or delivery networks are exposed, evidenced by the suffering of the direct-to-consumer marketers sourcing product from China and Amazon's prioritization of handling its own inventory. Yet even those well-positioned companies who control their supply chains remain at risk if their workers or facilities become infected — a growing concern as industrial cleaning supplies reportedly become scarce.
Still, the product has to get to the front door. Shallower-pocketed on-demand sellers without W2 delivery workers are subject to the dark side of the gig economy, fighting over a diminishing pool of workers as Amazon increases hourly wages for its delivery workers. Beyond retailers, second-order effects will be felt by landlords who are already being petitioned for rent abatements by retailers who have shut their doors. Longer term, landlords will be subject to the same market headwinds faced by their underlying retailers.
Even as major brands announce temporary store closures and analysts downgrade highly leveraged businesses that will have trouble servicing their debt in the crisis, there will always be a role for physical retail — particularly when the benefits of proximity or the joy of experience outweigh the convenience of shopping from home. But for those ecommerce companies with the infrastructure to fulfill during this crisis, the future of an online-dominated world is now. And, unfortunately for physical retailers who do not have strong online/omnichannel operations, the opposite future is coming sooner than they expected.
CEO at Osaro
Apparently all it took was a global virus pandemic. We're there, essentially.
CEO & Co-Founder at Roofstock
It seems like only a matter of time until ecommerce comprises a majority of retail sales. In 2015, ecommerce comprised about 7% of total retail sales. Since then it has gained about 1% per year, and in 2020 experts estimate it should be on the order of 12% (likely higher now with the impact of COVID-19). I would not be surprised to see this trend not only continue, but potentially accelerate, with ecommerce overtaking traditional retail volumes by 2050.
Why this inexorable march? Consumers are voting with their feet; or, more correctly, perhaps, by their diminishing desire to use them. Shopping online allows rapid and immediate comparisons of products and prices from retailers all over the world. Increasingly we are used to abundance and choice, and being presented simply with the goods a retail store has available in inventory seems inherently limiting to many. Also, shopping online gives us an ability to browse and buy when we have the time and are in the mood, which often is at night or perhaps during lunch hour when it would be difficult to make it to a physical store. A store that is effectively open 24/7 that sells anything is indeed a powerful proposition!
If this trend continues, expect to see fewer retail stores and more massive distribution centers … and, ultimately, fleets of autonomous delivery vehicles sharing our streets and skies.
See who's who in Protocol's Braintrust. (Updated March 18, 2020)
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