Is the end of bricks and mortar retail approaching?
In the most recent episode of TEN’s Shark Tank, John McGrath talked in depth about the rise of online retail versus bricks and mortar. I thought the topic was worth exploring more, because the jury is still out as to what is the most effective business model for retailing.
Before RedBalloon was started back in 2001, I looked at all sorts of online business opportunities. One thing I noted was that it needed to be revolutionary. Most things at the time were evolutionary, like Greengrocer.com – a great site, but you could still walk down the street and buy your milk. I asked myself the question, “What is it you can’t do, unless you go online”. And the rest is history.
You might know that we sell experiences, but we also have an ‘offline’ retail arm where we sell gift cards in department stores. A lot of people wonder why we choose to sell in store, when we have a successful online business. The truth is there are people who are spontaneous and want to be inspired by what they see, so we need to be available wherever gifting decisions take place.
On Sunday night we met Megan from Freckleberry who has a great wholesale business. I know her business well because she has been a supplier to RedBalloon for a long time. Working with wholesalers, and her own online store means she is one step removed from the customer experience. Megan wanted to move into retail, and had an idea for a concept store with party facilities for children. Now that is a completely different business model, with a whole set of different regulations (not to mention cost structures!).
In working out the numbers, we helped show Megan that the concept store was thwart with danger and that if she went through with it, she’d be looking at a 20 per cent loss per year (and that was if everything went right!). Given she had a good business already that still has plenty of growth potential, retail seemed to represent a distraction from the main game.
Research shows Australians continue to spend more money buying online at the expense of traditional retailers. According to NAB’s latest Online Retail Sales Index, we spent a record $16.6 billion online in the year to January 2015, up 9 per cent year on year. As consumers, we’re increasingly shopping online and making fewer trips to stores. Success in retail will be determined by customer experience. It has to be really worth someone’s time and effort to battle the traffic, find a parking space and tackle the crowds.
I know my colleagues at RedBalloon enjoy the online experience at The Iconic. They are able to order an outfit online, can choose the option of having it delivered within three hours, try it on as soon as it arrives and can send it back free of charge at the post office next door (minus the three-hour fee). It doesn’t get much more convenient than that. And every time you purchase, The Iconic is learning from your actions and working to improve your customer experience next time you purchase. This is something that traditional retailers struggle to do, even with big data projects.
The latest stats from Forrester Research show 56 per cent of consumers have used a mobile device to research products at home before purchasing in store. 38 per cent have used a mobile device to research products while in store. So people could be trying things on – but then buying online anyway. Retailers are rapidly becoming display centres.
I suspect a hybrid model will evolve, where people travel to stores to touch, feel and sample products. In-store ‘curators’ will help consumers make the purchase online, and instead of having to lug the purchases around they’ll be delivered to your home or local collection centre.
It is wonderful to see that Megan evolved her offering after listening to the insights from the Sharks – and has chosen to develop her own hybrid: a chocolate experience that can be delivered to someone’s home.
This article first appeared in BRW in March 2015