Friday, December 26, 2008

The brick and mortar crumbles

Buried inside this Financial Times piece about dismal holiday retail sales is the following notable nugget:

Amazon shares rose 0.4 per cent to $51.78 after the online retailer said the holiday period had been its best ever.

This trend will continue into the future. Online purchasing is, by far, the least costly method of shopping for both customer and seller. The online seller does not need to pay sales staff to man a huge box store (with huge leasing and "physical plant" costs of its own), and that cost savings is passed on to you. The customer saves money and time shopping online, and gets lower costs due to seller efficiencies and also because of increased competition. After all, the entire online world is at your fingertips, when shopping online.

The downside of shopping online is generally shipping costs and lack of immediacy. Sometimes brick-and-mortar operations also excel in customer service and item exchanges, but increasingly this is less true. Brick-and-mortar retail outfits rarely repair items online, and try to keep their inventory as thin as possible. For that reason, when problems arise, the customer must deal directly with the manufacturer (with associated phone calls, shipping and RMA delays) rather than the brick-and-mortar store. That experience will be the same for the customer, whether or not the item was purchased online.

Given the cost savings and greater amount of available information online (product details, customer reviews and ratings, etc.), shopping will trend more and more towards online. Brick-and-mortar stores, for many product categories, will be no more than product showrooms where customers browse and interact with brands, rather than purchasing.

Gift shopping such as at Christmas time, in particular, is typically an exercise known well in advance, and can therefore be accomplished online in advance of the event. Customers that have time to research online, purchase online, and wait for package shipment will be drawn towards online retails for much of their gift shopping.

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