Economics

The Future of Retail Is Bigger Than Amazon

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Amazon will be responsible for nearly half of all e-commerce in the United States during 2019. Critics such as Sen. Elizabeth Warren (D–Mass.) allege that the company "squash[es] small businesses and innovation." They believe government antitrust action is needed to save retail from being totally subsumed by Prime memberships and brown boxes. Yet their dystopian vision fails to account for the boutique retail renaissance simultaneously happening in cities around the world.

Stores selling a single product category, such as butcher shops or model train stores, used to be common, but this pattern of shopping disappeared as first big-box and then e-commerce retailers started offering a vast array of goods at lower prices in a single location.

There was much handwringing over the trend away from specialized retail, but as Philip Oltermann observed recently in The Guardian, a new wave of small retailers is popping up in cities such as Berlin. Oltermann visited a shop selling nothing but live ants and ant terrariums, many designed by the 30-something proprietor himself. It operates as a showroom, a place to display boutique products that are then shipped from off-site to the consumer, thus saving money on retail space and inventory overhead.

How is that store able to compete against Amazon, which sells ant farms at a lower price point? The key is that it bridges the gap between online and offline life. When you order a terrarium from a seller who is clearly obsessed with his own product, you're buying that person's expert knowledge in addition to his unique wares. Contrast that experience with buying an ant farm on Amazon, where the expert is replaced with an algorithm and a few hundred reviews from random strangers. Amazon may tell you which terrarium was bought by the most people and how they felt about that purchase at a moment in time, but it's a poor substitute for true expertise.

Perhaps you think Amazon will crush specialized retail because consumers value cost and convenience over expertise. So it once seemed with Barnes & Noble and Borders, two corporate Goliaths most people thought would permanently crush independent book-selling Davids by offering lower prices and wider inventory.

Nobody in the late 1990s imagined that an internet startup would eventually topple those giants by beating them at their own game. Nor did most think Amazon's ascent would lead to a revival of independent bookstores—but it has. According to the American Booksellers Association, the number of such shops climbed from 1,660 in 2010 to 2,470 in 2018.

The future of retail is not an Amazon monostore, although Prime may replace big-box retailers, dominate certain categories of products, and appeal to the most price-conscious of consumers. But alongside Amazon, we are already seeing a new wave of hyper-specialized stores selling goods to consumers looking for expertise and a boutique shopping experience.

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  1. I’ll tell you what else… Stores like Ant-Guy pop up all the time.

    What they don’t do is stay around for very long.

    Ant Guy reminds me of the SNL “Scotch Tape Store” sketch.

    1. I once got into a verbal pissing contest with poster’s at Trout Unlimited Forum. the moderator/TU employee endorsed Amazon Prime’s free distribution of Trout Fishing videos. I said hold on, by suggesting TU members could enroll in Prime and get some free stuff he was in fact recommending the death of the retail fly fishing shops. My logic is that once someone pays the fee they are going to get their monies worth by buying fishing equipment thru Amazon rather than a bricks and mortar retailer. Outrage ensued.

      I even told them how a brand manager working in a cubicle for $150k could decimate a entire industry without having ever dropping a hook in a stream. Again more outrage.

      indeed Amazon could buy one national fly fishing retailer out of petty cash and own the entire fly fishing world. Like Whole Food but at a much lower volume Amazon could be the dominate player. Not huge by Amazon standards but huge in that market.

      and unlike margins of e-commerce Amazon could actually enjoy high margins in a affluent industry.

      multiply that by all the sectors that small in terms of volume but with healthy margin business are subject to Amazon predations and u see a strategy.

      meanwhile back at TU its people and its members will gleefully cut their own throats.

      1. Except that trout fishing, for some, is about status and ego. And like businesses that also cater to patrons with similar desires (hair salons, art galleries, “upscale” anything), buyers are looking for the experience as much as the take home results. Fly fishing shops in expensive resort towns are not competing with Amazon.

        (And I realize that the actual fishing activity is not the same as the gear shopping activity.)

      2. Don’t have trout here but I do fish the lakes around here. For me part of the fun is going to Gander Mountain in the spring and picking out new gear. Plus I can get ammo and look over the gun selections.

        Funny about ant farms. Bought one for my granddaughter last year from Amazon. Also a butterfly kit that comes with the caterpillars. She likes insects. Cool that I can by stuff for the kiddos and have it shipped right to them.

        Don’t see what the fuss is about. Government needs to stay out of this.

    2. Reminds me of Marge’s “curse of the adorable little store” subplot from The Great Phatsby Episode of The Simpsons. The only person productive and gainfully employed in The Springfield Hamptons is the boutique shoppe sign painter. Almost everyone else is housewives bored to insanity and passing the time by hoarding, repurposing, and peddling junk to each other.

  2. I had occasion to visit the local small-appliance parts and repair store a while back. As he was helping me with the parts I needed, I asked the proprietor how business was doing.

    Not well. He is the one of the last such retail sources in the county, and even then he is struggling. Between Home Depot et. al. eating the biggest share of the common parts, and big parts chains like Grainger getting the lions share of the rest, he makes due in the niche in between – people who need parts now and can’t wait and who have older appliances common in the area. In other words, he exists via local specialization. But online sources are about 1/3 cheaper.

    With nearly 2 million people in the county, that’s a pretty big population for just one or two stores. I’m not sure how less populous locations are going to survive. I could have bought my part on amazon for about $75. But I gave him $110 for the convenience and to preserve local expertise. I don’t think that’s gonna be enough, long term.

    Sure, you can make a go of it in Chicago with a small specialty shop… but how is that gonna work out in the 90% of the nation that isn’t a large metropolitan area?

    Retail is definitely changing… and mostly for the better. I can get just about any product offered anywhere in the world delivered to my door – sometimes within hours. And for less money. That’s all to the good.

    The really big surprise for me has been the demise of retail clothing stores. I never suspected that people would go to Amazon for clothes and shoes.

    1. Amazon is raising its prices and boxing out independent 3rd party sellers to give priority to major brands who pay for the privilege.

      Amazon has a bunch of great ideas and their website makes shopping easy. Sometimes big companies just lose the touch because they are too big and do not roll with change or pick bad strategies.

  3. It’s no secret that Amazon has become a much more sophisticated, complex, and competitive environment over the last few years.

    Between content, inventory, search advertising, display advertising, video, keyword research, catalog management, pricing, competitive analysis, reporting, and a litany of other consideration, brands like appointbox on the Marketplace can easily get overwhelmed.

  4. Nor did most think Amazon’s ascent would lead to a revival of independent bookstores—but it has. According to the American Booksellers Association, the number of such shops climbed from 1,660 in 2010 to 2,470 in 2018.

    A number of these independent bookstores have a collective online presence (Alibris.com) to compete with Amazon. If you’ve ever wanted to purchase an original edition of the Wealth of Nations, someone there will sell it to you ($235,000 for the 2 volume set).

  5. Yes, let;s not forget that even (relatively) tiny businesses often have an online presence. When I was in a specialized segment of the retail musical instrument industry forty years ago, the “biggies” (at least compared to us), all had thriving catalog businesses from which often made more money for them than their “brick and mortar” stores. As I look at the same businesses today, most of them are still there, but now their catalogs are “online.”

    And the easiest way to get into the modern version of a “catalog” business just might be by utilizing Amazon.

    1. A lot of people seem to miss this, probably 80% of the stuff I buy from Amazon isn’t even sold by Amazon, its sold by a small business and fulfilled by Amazon logistics

      1. Yeppers. Probably 40% of the stuff I purchase isn’t even “fulfilled” by Amazon, but is shipped from the store’s inventory. Just as our catalog items were back in the seventies and eighties. Amazon, for them, is simply a way to reach a much, much larger market. I recently ordered a model of a Ford Tri-motor. I found one easily, on Amazon. It was shipped from a store in Germany.

  6. One thing missed here is that Amazon actually helps small business if they want to sell online. Many of the things Amazon sells are not “Shipped or Sold” by Amazon. They are some other company that does pay for the use and service of putting their products on Amazon. In the end, I can’t see how this isn’t good for every one. The smaller company may not make as much off of each item by selling on Amazon but they reach a much bigger population.
    These business can keep a store front open doing this, making more margin by selling local and make more gross selling everywhere.

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  8. Amazon and other online retailers demand payment in a way that
    identifies the buyer. And if the product is physical, they require a
    shipping address. For these reasons, I shun online retailers. I buy
    in physical stores and I _pay cash_.

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