Digital disruption is something that’s often discussed as if it’s going to happen in the future, when in reality, it’s already happening right now, as we’re witnessing online shopping taking over retail. The disruption has become so significant that the future of physical stores is currently in play. Still, many people still prefer the traditional shopping experience.
The future is now
We all know that shopping has radically evolved because of the internet and smarthones. An Accenture study found that a whopping 84 percent of people check Amazon before buying something during the holiday season. Every year, more people embrace online shopping for at least some of their consumer needs. When even my Grandma has an Amazon account, you know retailers have to be suffering big time.
As a result, Amazon is growing much faster than retail giants, with even goliaths like Walmart feeling the heat from this disruption. In fact, Walmart recently completed its purchase of Jet.com for three billion dollars to better compete with Amazon.
Amazon isn’t your typical company
Fortunately for brick-and-mortar retail, online retailers, while they’re stealing market share from stores, aren’t exactly poised to completely eliminate the need for physical stores. In fact, Amazon has a huge problem: its razor-thin profit margins mean that it’s barely profitable, and will have to increase those margins to grow sustainably. Their strategy of pursuing growth without being concerned about actual profitability is worrisome to some investors.
In the meantime, retailers are attempting to stop the bleeding. They’re utilizing strategies pioneered by online retailers to try and lure back customers to the stores. In some ways, physical stores provide a fundamentally different shopping experience than online outlets, and someone’s ability to migrate online for their shopping needs largely depends on the item. You’re much more likely to buy paper towels online than you are a pair of shoes that you’d probably like to try on before you buy.
Then there’s showrooming, which amounts to a complete nightmare for retailers. Showrooming involves going to a physical store to check out your item of choice, and then ordering it online for a better price. For instance, you go to a store to try on a pair of shoes, and then get the exact same pair on Amazon. Today, retailers are finding better ways to combat the practice, but keeping some of these customers is eating into their profit margins.
Auf Wiedersehen department stores
Let’s face it, department stores seem like dinosaurs in a modern, digitally driven economy. A Moody’s Investor Service report found that operating income among retailers is expected to decline 11 percent this year, as consumers switch to more convenient and transparent online shopping.
As the competition heats up, the bloodletting among retailers continues. This year, we’ve seen the disappearance of an entire chain containing 460 stores, Sports Authority. Even Walmart is feeling the pinch, and is closing 154 locations in the United States. Aeropostale, Kmart/Sears, and Ralph Lauren also are shutting down many of their stores, largely because of gruesome competition from online retailers.
The digital disruption are here to stay, and online shopping will continually force retail business giants to evolve in order to survive. We live in the golden age of the consumer, where many of us greatly benefit from price wars between companies. Value and convenience is forcing this sector to be more responsive to the us, and we’re winning big.
Still, there are aspects of the digital disruption that have real costs that affect everyday people. Millions are employed in retail jobs, and when stores are closed, those folks are left without jobs. There are also many other negative spillover effects: there are landlords who end up with empty buildings, shareholders who are wiped out by bankruptcies, and many other individuals who end up with the short end of the stick.
Technology creates and destroys economic prospects. The bottom line: make sure you’re not left on the wrong side of the rapidly unfolding digital divide.