The Sound of Dinosaurs

A couple of weeks ago a bicycle retailer in Melbourne closed up shop and called on the government to restrict damaging internet retailers. Now many people will see this event as a consequence of increasing competition from the internet. But the real story is not simply a matter of the internet competition, the deeper issue is about a fundamental shift in the economic value of skills and expertise of retailers, and the increasing maturity of consumers.

The bike retailer is such a good example of the self-delusion the retail industry is facing. It is the sound of dinosaurs complaining about evolution. The lack of GST for retail purchased under $1000 has become the scapegoat for the industry, but if there is any form of retail that is least impacted by international internet sales it is bulky goods such as bicycles. A quick scan of Ebay reveals that cheapest shipping of a single bike from the US is around $300 and UPS can charge in excess of $1000, so no-one is going to buy a bike from the net just to save up to $100 on GST! 

So let’s assume that what has really killed the Melbourne bike retailer is competition from local internet retailers, who are probably buying their stock from exactly the same wholesalers, and paying more or less the same GST.  The internet retail has no retail premises to pay rent for, probably orders stock on demand and doesn’t need any retail sales staff. How can the bricks and mortar guys compete?

Well they can’t. That is the point. The only thing that keeps them going is inertia and consumer habits. Which means that there can be no gradual decline here; once consumers make the switch to internet shopping it is over. Now retailers think that they can charge a premium because they offer “service”. Retailers argue that sales staff know the merchandise and can offer customers advice to help them make the best decision from a wide range of choices.  They used to complain that people would come into the store to find out about a product and then go online to purchase. What rubbish. 

The internet is full of real experts. People who buy the products, use the products and are happy to share experiences and provide feedback without any self interest. Good sales staff may know how to sell, but no sensible consumer with the internet at their disposal would trust the advice of a salesperson. No retailer argues about being the primary source of advice for consumers any more. 

For any significant purchase a consumer is going to walk in to a retailer with a good idea on exactly what they want to purchase, and what price they expect to pay. The most common question a retailer will get now is simply “do you have it in stock at the advertised price?” Except for impulse purchases the only real service that retail provides is immediate availability. And if a consumer is willing to wait a day or two for delivery they are almost certainly going to be able to get a significant discount. 

This is the current state of retail, but this is not a status quo that can be maintained indefinitely. As internet providers squeeze retailers the inevitable result is that retailers will carry less stock, which will make them even less relevant. As internet providers gain market share they will have more power over wholesalers to provide stock on demand, so ordering from a retailer or an internet provider will result in much the same process, waiting for the wholesaler to ship. 

There is no strategy for retailers to turn this around, and for many types of products and services traditional retail outlets will have no future. Quite frankly consumers are better off in the long run developing the habit of product research and price comparing, rather than indulging in impulse purchases that retailers depend on.