There’s no question that the Internet has changed a lot about the way we do business and how we communicate with one other. From the rise of social media to the dissemination of current events, there’s been a true phase shift in our society over the past 25 odd years.
In her latest address in Winnipeg, CEO of General Electric Canada, Elyse Allan, said that “you can either be a disruptor or be disrupted,” meaning you can either be ready to take advantage of the next big thing, or you can get left behind. It’s a lesson some industries have unfortunately had to learn the hard way.
One that is often cited is Blockbuster Video. Less than 25 years ago, there were 9,100 stores across North America, renting movies and video games to loyal customers. Things were hunky-dory until a little company called Netflix came along. At first, Netflix mailed movies to people, cutting out the need for a storefront.
They soon took advantage of Internet streaming and a wide selection of movies rivalling Blockbuster’s, with clear advantages like instant access and never being out of stock. This ease of use and innovation helped Netflix gain over Blockbuster slowly but surely until Blockbuster was reduced to just 12 stores (albeit, nine of them are doing very well in Alaska). Meanwhile, Netflix enjoys huge revenue and has started film production on the back of their technology. This shows that industries and business models can be completely flipped on their head if they’re not ready for changes in technology or society.
It’s not the first time it happened and it likely won’t be the last. So which industry is next for a shakeup? It appears to be the big box retail stores.
You’ve likely seen stories of its effects: closures of local electronics stores, hundreds of closures of former household names like JCPenney and Sears, mergers between big brands — you name it. This was all in the name of staying afloat. What is driving it specifically?
Amazon and ecommerce is mainstream
The most popular answer for why these businesses are being affected is that ecommerce is taking a bigger slice of the retail pie.
It’s more than Amazon, though. While it is an undeniable major player with more than 30 per cent of all ecommerce transactions and more than 50 per cent of the growth in ecommerce this year, the options that are offered all over the Internet have had a diluting effect on the retail world.
The ease of shopping from your mobile device also means less of a need to go into an actual store, unless you need the item immediately.
This is a societal shift that has cascading effects, pushing down retail. People — especially young people — are choosing to spend their disposable income in restaurants and the faux-luxe experiences that are becoming more available, as part of a trend to experience and share more with friends and family via social media.
This income overlaps with what they earmark for other products, and it lowers the percentage spent on physical items even as revenue grows.
This aligns with those retail stores that are actually weathering the storm. Stores that continue to see success, like Apple stores, offer a unique experience that cannot be found online.
High costs with too much debt
In addition, the cost of operating brick-and-mortar locations combined with significant staffing budgets creates a ripple effect. In order to pay for these costs and still bring in profit at the end of their fiscal terms, big box businesses often have to build that cost into their prices. This gives another advantage to ecommerce businesses, who only need to operate a warehouse — and in some cases, only part of a warehouse.
Some big box stores have gone as far as price-matching online businesses in order to stay competitive. The impact this has on the bottom line becomes even greater in a race to the bottom. An inability to pay the debts associated with the costs of overhead, staff and keeping up with ecommerce has had a dramatic effect on traditional retail’s ability to survive.
Signs of life
Brick-and-mortar retail will likely not die altogether, as the amount of money being spent in the market is actually growing, albeit very slightly. Instead, it will likely consolidate in specific juggernauts like Walmart or Loblaw.
Alongside staples like Walmart, there are forward, low-cost fashion stores that seem to be pulling ahead. As well, dollar stores are burgeoning in these times and it appears consumers are becoming more choosy about getting value for their dollar. You’ll likely see more and more stores adopt a showroom model, to reinforce that value.
It appears to be more of a disruption than an apocalypse, but businesses who do not adapt will be left behind and unfortunately, left hurting.