Wednesday, May 22, 2024

Why Ecommerce Will Inevitably Dominate Retail.

January 2, 2020 by  
Filed under Money/Business, Weekly Columns

( Glimpsing the future is fraught with difficulty. We live in an uncertain world where random things can happen and then interact, producing outcomes we never imagined were possible. Who would have thought, for instance, that too much lending in the subprime mortgage market would nearly lead to the collapse of western civilization itself? 

There are occasions, though, when the writing is on the wall. The eCommerce industry is a case in point. Most retailers are worried, but they aren’t currently in the throes of existential dread. Yes, online retailers are gobbling up business and growing double digits every year, but they’re starting from a low level, and eventually, the high rates of growth we’ve seen will peter out. They’re just not sustainable UNLIKE in the mobile sector at this time. 

The argument sounds convincing at first blush. People, they say, will always want to inspect goods for themselves in a physical store, not rely on digital images conveyed through a pixelated screen. But economics has a funny way of coloring the decisions that people make. While it is true that the majority of shoppers would prefer to inspect goods before buying them physically, all things held equal, nothing in the real world is ever “held equal.”

Consider this: when people buy goods online, they don’t have to engage in any expense going into town, looking around the mall, and then carrying home the item that they want. Instead, it arrives at their front door in a parcel with the minimum effort expended. Also consider the fact that when they order online, they don’t have to wait in queues or put up with other customers. As you can imagine, this is shopping heaven for some people and is why they make the decision to use their mobile devices to complete their online shopping. The eCommerce and mCommerce world, in particular, is thus seeing rapid growth – click here to see just how they are taking over the retail world.  

The real driver of the growth of eCommerce won’t be the experience, though: it’ll be the price. Second hand pallet racking and automation are already bringing down the cost of fulfillment. In the future, engineers will continue to develop systems that reduce the price further. 

Meanwhile, other companies are investing heavily in drone technology that will be able to autonomously deliver packages to people’s homes without a human ever being in the loop. Deliveries could become free across the board. 

These changes aren’t trivial. They will enable eCommerce firms to do what they’ve struggled to achieve so far: undercut their brick-and-mortar rivals consistently. 

Cutting prices is the end-game for the eCommerce industry. If they can eliminate the retail element embodied in the price of goods, they’ll develop an even more significant competitive advantage. If prices are 20 percent lower online that they are in-store, people will forgo their preference to physically inspect products. Suddenly, pictures and reviews online will become “good enough,” and customers’ preferences will flip. Malls will die, and the internet will become the shopping portal of choice. 

It sounds extreme, but the 2020s are right at the knee of the curve. Online retail comprises about 15 percent of the total retail market. If that triples in the next ten years – as it is predicted to do – traditional retailers will experience extreme financial stress. Many will have to adapt their business models or die. 

Staff Writer; Brad Jones

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