The future of shopping means the end of retailers?

The future of shopping means the end of retailers?

I’ve been working in the retail sector for most of my life, and have spent the last few years working in online retail (ecommerce), and its funny how things I have warned about or predicted are starting to actually become reality.

Predictably during the Covid Pandemic, online shopping became a lot more popular, especially as people were encouraged to “stay at home”, and many “non-essential” businesses were forced to close their doors.

But even before the pandemic and the lockdowns, there were signs that change was brewing in the future, and the pandemic became a ‘great excuse’ to push forward with plans.

“Bricks and mortar stores”

The band Blur in their track “Bank Holiday” from their 1994 “Parklife” album lamented how “all the High Streets look the same”. And it is never more true than now. Take a look at any typical High Street across the country, and all you see now are the same “big corporate” brand names. I bet your local High Street has at least one or two of KFC, McDonalds, Subway, Starbucks, Costa Coffee, dotted among various charity shops, if you’re lucky you may have an Iceland, Boots, WH Smiths, Wilko, Poundland, Poundstretcher, or B&M, and for good measure you may have a Co-Op, Costcutter, Londis, Nisa, Tesco Express or Sainsburys Local.

Good independent businesses are hard to come by now sadly.

When it comes to bigger retail parks, once again, you often see the same brands and stores, but one thing you’ll always notice is that these retail parks are usually ‘based around’ a big supermarket, whether that be ASDA, Sainsburys, Tesco or Morrisons.

People find the “big supermarkets” to be ‘convenient’ because they can get most of everything they need from just one place. And the perception is that everything is cheap and that people get ‘value for money’. Which in some cases is true, but often isn’t the case.

What we’re also seeing in recent years are a lot of ‘big name’ brands closing down their retail stores, and either switching to online sales only, or merely becoming ’boutiques’ within other larger retail department stores.

‘Traditional’ High Streets in town centres are dying off, with many units sitting empty. Many smaller businesses can’t afford the high rents and business rates that get charged, and even some bigger companies are struggling, hence why many stores and branches get closed down.

So, all the High Streets look the same, mainly a mix of takeaways and charity shops, while the bigger retail parks and shopping centres are just clones of each other.

Online Retail

Online shopping has been growing over the years, and as I stated in the opening part of this article, the pandemic has taken things to the next level. Your local hat boutique or home furnishings shop may have been forced to close during the lockdowns, but shoppers were still able to buy such “non-essential” products online and have them delivered ‘safely’ to their door.

Many High Street retailers who were previously averse to the idea of online deliveries soon changed tactic; for example clothing retailer Matalan only ever used to offer ‘click-and-collect’ from their stores on their website, however they soon added in home delivery options.

Amazon of course benefitted hugely during the ‘lockdown’, and saw significant growth in sales.

So where is online retail heading now?

“There will be one shop…”

As I pointed out in the opening, I’ve been working in ecommerce for several years now, and the above quote was something that was said to me a few years back now.

Anyone who remembers the old Road Runner cartoons, will remember how his adversary Wile E Coyote always had a selection of traps, bait and other contraptions (dynamite, TNT, bird seed etc) that were all supplied by the ‘ACME Corporation’.

Now just imagine if there was a real-life corporation that sold everything under the sun that you could ever need, and you’ll see that is Amazon!

Up until a couple of years ago, it was always the case that Amazon was a retailer, that offered a platform for third-party sellers to sell their goods on, the ‘Amazon Marketplace’. Obviously, Amazon sells and fulfils many products itself, while many third-party Marketplace sellers play second-fiddle, and only get a look-in when Amazon itself is out of stock.

What is slowly starting to happen now, is that Amazon is taking back control of its catalogue, and making it difficult for retailers and distributors to create and list products for sale, unless they are the ‘owner’ of that brand.

It has also become apparent in recent months that Amazon is also now ‘dictating’ the prices that sellers can offer for products.

Amazon has an advantage over other marketplace sellers, as they can ‘bully’ manufacturers and distributors (their ‘vendors’) into supplying them direct at the lowest possible cost price, which then means that other sellers struggle to compete against Amazon’s selling price.

Over the last few years, online retail became a ‘race to the bottom’, and many marketplace sellers lost out on margin while trying to compete for the ‘buy-box’ on Amazon.

It’s worth reminding people at this point that third-party Marketplace sellers pay a commission fee of 15% to Amazon for each sale. Of course, Amazon itself doesn’t charge itself any such fees. So Amazon wins either way, either it sells a certain product itself and makes profit on that sale, otherwise it takes 15% from the sale that any Marketplace seller makes, which leaves the seller itself with very little profit.

Amazon has also been busy rolling out its “Brand Registry” program, which invites companies to register their brand name with Amazon, which also then is Amazon dictating who or who cannot offer products for sale from certain brand names.

I’ll come back to this later, but you might already have an idea of where this is heading…

The evolution of eBay

When it comes to online retail marketplaces, eBay has been around for a bit, and started off as an auction site, a “trading post” where people could sell off their unwanted items and buyers could bid on them.

Even eBay has been evolving over the years, and has become a good, strong platform for retailers to offer goods for sale to customers all around the world.

It’s worth pointing out that at the time of writing, eBay itself is very much a ‘platform’, and unlike Amazon doesn’t offer products for sale itself.

However there are some changes that eBay has made in the last couple of years which do raise some eyebrows.

Since its separation from PayPal, eBay now offers itself as a ‘payment gateway’, so rather than buyers making payments to sellers directly, this is now being ‘managed’ by eBay themselves, ie a buyer makes payment for their purchase to eBay, who then pays the seller when the sold item is dispatched.

eBay is also like Amazon getting into involving themselves more with brands, and product catalogues, whereby eBay is building its own database of products, that sellers can list against.

eBay very much wants to move towards a system of “authorised sellers” for certain branded products, and is also encouraging and working with ‘big brands’ to offer their products for sale direct to consumers via eBay.

Can you see where this is leading yet?

Other online marketplaces

There are of course other marketplaces that are trying to challenge the likes of Amazon and eBay, each with their own unique selling points.

One UK based marketplace we have dealings with at work is OnBuy, who have enjoyed some enormous growth in the last couple of years.

They sit nicely between eBay and Amazon; like eBay they bill themselves as a platform for sellers to list products on (not competing directly as a retailer), but like Amazon they use a product cataloguing system, where sellers list offers against the same product.

They already have a number of ‘brands’ offering their own products for sale to buyers, which other sellers cannot list offers against though.

This is becoming much clearer now?

Cutting out the ‘middlemen’

The so-called “cost of living crisis” has seen the prices of many products rise significantly in recent months.

Fuel price increases, driver shortages, etc etc.

The ‘traditional’ route-to-market looked like this:

Manufacturer ‘X’ makes product ‘Y’ and sells it at a cost of £50 to distributor ‘Z’.

Distributor ‘Z’ then offers this product to its resellers at a cost of £75.

With various other costs taken into consideration, resellers then offer product ‘Y’ to consumers at an RRP (recommended retail price) of £129.

I don’t know what product ‘Y’ costs manufacturer ‘X’ to produce, but lets face it, they can make more money if they can sell it direct to the consumer for £129.

There is obviously a cost of logistics involved, in transferring product ‘Y’ between distributors, resellers and end-consumers.

That cost could presumably be reduced, if product ‘Y’ is stored in central distribution or fullfment centres, and then dispatched via courier services direct to consumers.

By skipping out the ‘middlemen’ – ie distributors/wholesalers and retailers – ‘big brands’ can actually make more money by going ‘direct’ to consumers’ themselves.

Of course, one job that retailers provide to these ‘big brands’ is to provide customer service, ie to deal with product queries and returns, but what would it entail if these big brands decided to do this themselves?

There would be a cost involved of course, but as we see elsewhere, this aspect could easily be outsourced to call-centres or customer service teams based in India or the Far East.

The end result is that brands can actually offer their own products, direct to consumers, at less than the RRP, and still make more money than they do at present. The ‘spin’ of course is that these big brands are helping to ‘drive down the cost of living’ by lowering the price to consumers of their products.

In the above example, consumers can now buy product ‘Y’ direct from the manufacturer for ‘just’ £119, instead of £129. Distributor ‘Z’ ends up going out of business, and so do its resellers, as they can’t compete.

It’s already happening…

There are two things already going on here.

Amazon and eBay are going to end up as two places where either big brands are selling their own products direct to consumers, or only ‘authorised sellers’ are allowed to list such products for sale.

‘Big brands’ are already setting up their own online stores – in conjunction with the likes of Shopify – in order to sell their products direct to consumers.

Retailers are not part of this future. We are seen as ‘parasites’ sucking away profits and margins.

You either shop with Amazon or eBay, or direct from the brand’s own website.

That’s the stark reality that is coming…