We should abandon physical retail immediately, but we can’t

Retail

One of the most significant effects of digital technology’s advance is that it reveals the flaws of today’s society. It forces us all to realize how little sophisticated, efficient and well functioning our modern world actually is; to understand how much of our every day’s “operating system” is not based on smart and forward-thinking planning, but on historically developed traditions and approaches that were designed based on past socioeconomic and technological limitations. Some people are scared by these insights. I am excited about them, because they raise awareness. Awareness is the necessary first step in order to remove those weak points and to create a better operating system for society. Here is a recent example that illustrates my point:

Recently, an extensive survey among German shoppers, conducted by several organisations affiliated with brick and mortar retail, showed that e-commerce threatens local retail in cities (article in German). Because of that, the German retail lobby demands an end to laws that prohibit physical stores to open on Sunday’s and public holidays. The sector’s representatives hope that this will bring back some of the revenue that has been lost to online shopping sites.

While pushing for the right to open stores even on Sundays and public holidays makes a lot of sense, one has to wonder if the brick and mortar managers really believe that such a move would help to fight e-commerce in the long run. Even more importantly, the question arises why we even think about keeping physical stores alive, considering that there is a massively more attractive solution, thanks to the Internet.

Let’s have a look at how the system of century-old local retail works:

  • Real estate in various different locations, often in downtowns, shopping centers and remote (but easily reachable) malls, is being occupied by stores.
  • These stores stock their shelves with goods, hoping that supply will meet demand and somebody will buy. Sometimes this works out, but other times items are lying around for weeks or months.
  • If a store belongs to a chain that has several branches, multiple items of the same type of product will have to be stocked in each of those branches.
  • People from all around the city or region take cars or public transport in order to reach those locations, creating traffic jams, emissions and large crowds during peak times.
  • Some people find what they came for, or they make impulsive purchases. Others walk/drive home with empty or no bags.

Until very recently, this system was the only way to satisfy the average customer’s shopping needs. But then, the Internet and e-commerce arrived.

Let’s have a look at how the system of e-commerce works:

  • People buy products online, avoiding participation in creating traffic jams and emissions.
  • Goods are stored at massive warehouses located at strategically critical locations around the country. The focus on a few central locations and the quick turnaround of goods decrease the number of in-stock goods sitting around waiting to be purchased, which can contribute to an overall more sustainable production.
  • Goods are shipped directly to the customer. With intelligent logistics and shipping routes, many customers can be served by the same delivery vehicle, minimizing congestion and emissions.

Comparing both approaches and putting nostalgia and social aspects aside (which I will get back to further down), there is little objective reason to suggest that local retail in its current dimension should survive. At least in the long run. In the short run, there certainly remain some issues: Some types of goods are still more suited for being purchased at the physical store, for example clothes. Delivery can take a few days, but some consumers want immediate reward or even have an urgent need. Also, working conditions at online retailer’s large warehouses are notoriously bad. But all these problems will be gone in a couple of years: Software advancements will make even the most “offline” products suitable for online purchases (there are several startups developing virtual “fitting rooms”). Delivery options will get increasingly wide-ranging, including near-immediate shipping with the help of self driving trucks and drones. In the large distribution centers, robots will take over all the human labor, ending headlines about inhuman treatment of workers.

Happy end? Not really. Sure, ultimately e-commerce will turn out to be superior to local retail in every single regard, leaving the need for physical stores to showrooms, service locations and niche and hobbyist shops that act more as social gathering places than points of sale. But there is one major obstacle that prevents us as a society from celebrating the replacement of a fully inefficient, unsustainable and outdated solution with a much better system:

Our social and economic operating system is not compatible today with this new approach. Shopping zones and mega malls act as centers of consumption and gathering, turning people into consumers, seducing them into buying products they did not plan to buy, pushing the GDP forward. Furthermore, local retail directly and indirectly creates hundreds of thousands of jobs. The inefficiency of the brick and mortar system is a huge job machine. E-commerce cannot compete here. The incentives to reach massive scale and to automate are too big.

And that leads us back to my initial remarks: The Internet brought us e-commerce, and e-commerce is a deeply improved version of local retail. For the many reasons mentioned above it would make lots of sense for leaders and decisions-makers to actively pursue a strategy of replacing mainstream local retail with e-commerce. But while, if being honest, we have to admit how flawed the old approach of retail looks compared to e-commerce, we cannot create policies acknowledging that yet. Because our society’s operating system is essentially built around the old approach.

But as I wrote, awareness is the first step. While the discussion about how to keep brick and mortar alive probably will go on for some time, I am convinced that the number of people who realize that our future in a digital age requires changes to the core of how our society and economy works, will grow steadily.

Somehow we have to find a way to decouple economic and socioeconomic prosperity from the dependency of having millions flocking into physical stores, livening up cities through consumption, and thereby creating jobs. We won’t have too much time to figure that out.

(Photo: Flickr/mallsecrets, CC BY-SA 2.0)

4 comments

  1. This article is more an expression of a point of view, instead of a controversial investigative article. Why didnt you even try to find a single point pro physical retail stores? There is plenty of them, but instead you dismiss everything at once with plattitudes like “tradition” and “nostalgia”. dont blame the concept of retail stores for what bad practices came out of multinational corporations abusing it…

    • I think you misunderstand the point of the post (which in that case is my failure of bringing it across properly): Of course there are many different reasons why in specific situations local retail serves a purpose. But if you look at the big picture, it does not make sense as a means of acquiring goods in a scenario where the majority of purchase needs can be fulfilled better from the convenience of one’s home, with less negative impact for the environment. For the reasons mentioned in an article.

      The point of this post is not explain the differences of local commerce and e-commerce (this has been done a 1000 times), but to show how a new way of doing things makes the old way of doing things look rather bleak, and how we as a society are unable to respond properly to it because of how our economy and social system is structured.

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