Several weeks back I was asked to write an article for a then 'soon to be launched' new business blog for 99 Designs.

Coincidently, around this time, I had several spirited discussions with a friend over an article on E-Commerce that had appeared in one of Australia's major business newspapers.

I was frustrated by the overly one sided tone of the story, effectively stating that E-Commerce in Australia was growing very slowly and that major retail brands and their landlords had little to fear 'now' at least from the growing threat that online shopping would one day become.

Now, while the one sided nature of this story shouldn't have been a shock (its source information was provided by parties directly connected to big retail) I did feel that the alternative point of view, that is that online retail is growing rapidly (in some verticals significantly faster than is being reported) and that it is a much larger threat to traditional retail in the short term, is not being reported.

At least thats how I see it.

I decided then to focus my story for the 99 Designs Business Blog on the very real and very immediate threat to traditional retail that online shopping presents.

The article follows...

Customers will shop anywhere, anytime.

It’s something all business owners know, and has given rise to all sorts of weird and wonderful ventures. But, a business located in one place and only open sometimes is missing out on a world of potential customers. An important distinction is beginning to emerge with the rise of online shopping: the retail experience is becoming divided based on factors such as utility and experience. Whilst online stores deliver great utility (pricing, availability, etc), they tend to lack experience. The traditional touch it, feel it, surround yourself in it, sensory aspect of the shopping experience is sorely lacking online… but for how long?

Currently, physical retailers who focus on enhancing and delivering experience by making their customer service a key value proposition continue to buck the online trend and bring customers back, but it appears that soon it will not be enough.

Lets look at bookstores. For all the media hype, niche and independent book stores still continue to do well. Example: Tattered Cover in Denver Colorado just celebrated their 40th birthday, and deliver a “book buying experience” including specialist catalogs, cafes to meet up in, and author talks and signings. However facts are facts, booksellers days are most certainly numbered as online shopping begins to flex its muscle, and its only the traditional players that ramp up the experience meter that stand a chance.

According to Hitwise, currently 7-8% of all U.S. shopping is conducted online, with other major markets (UK and Australia) showing dramatic growth and similar figures. This growth is due to the customer exposure provided by online shopping opportunities, despite recent attempts everywhere to quash online shopping’s impact on traditional retail. In this climate, pure online retailer upstarts such as ASOS plan to challenge the supremacy of big box retail players. Playing the utility card by adding safety incentives such as unconditional returns and by focusing on customer service, online entities are pushing the boundaries of what people would consider buying online.

For the time being, retailers embracing both online and traditional storefronts are perhaps best positioned to ride this wave. Australian retailer Haul maintains a highly integrated online and physical store presence allowing them to take advantage of a global reach for their online operations. This translates into a good volume of sales coming via that channel, while still maintaining a local grassroots customer engagement via their physical store which helps them build buzz and street credibility: keys to the success of their service offering.

Keep in mind, it may be slightly premature to declare main street completely dead in the water. A recent report titled “Main Streets Across the World” by Cushman & Wakefield showed that 81% of countries surveyed had retailer rent prices increase in the last year. It will be interesting to see if physical demand remains strong in the face of the growing online presence, or if statistics are just lagging behind reality.

Small businesses need to realise that the benefits of global choice for customers also translates to a global customer pool for them. Looking forward, be ready for a rise in flagship retail stores complimented by robust online platforms (pioneered by companies such as Apple). Additionally, for niche retailers with limited product ranges, developing an online shop with global reach with a local storefront is their recipe for success.

Using techniques to place emphasis on paying for experience to offset the “try here, buy there” trend will be one of many ways to flourish. Examples of this are already being modeled by retailers selling ski boots where a “fitting fee” is charged to customers wanting to try on boots that is refundable against purchase.

The fact remains that whilst the verdict is in and online shopping is here to stay, the current impact on the physical retail is still being significantly understated (mainly by those interested in maintaining the status-quo). It is safe to say that a move towards online buying (as a percentage of overall retail spending) will continue to outpace expectations, and the day that online shopping will overtake traditional main street is coming much faster than many think. Physical businesses best begin learning the online world if they wish to grow and maintain their current relationship they so enjoy with their physical customer base!

The complete version of the above story including reference links and imagery can be found on the 99 Designs Business Blog

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