Day 114 - The Fate of Retail

It's not at all clear what the long-term effect of the pandemic will be, but it's clear that there will be an effect and a big one. The biggest changes will come in aspects of society and the economy that were already under flux. In this note, I want to focus on retail and the restaurant industry.

Retail was already in free fall for many reasons, including the impact of Amazon, which deliberately focuses on changing people's shopping habits. Corona Virus has dragged a few new shoppers to Amazon. Time will tell if habits have changed permanently.

In the end, the competition between Amazon and "bricks and mortar" will boil down to economics. This is where my thoughts have been wandering lately. How is it possible for Amazon to ship a $6 package of Gatorade powder for free and compete with the local grocery store?

The answer seems to be in a shift of perception. When you shop in a "brick and mortar" store, you are basically touring their inventory. Maintaining that 'browsable" inventory comes at a significant cost. You need to track what people are buying to maintain a familiar arrangement on the shelves. You need to hold sales to flush out excess inventory. You need to throw out vast amounts of perishable items.

The Amazon model moves the inventory to a big warehouse outside of Calgary, backed up by complex algorithms that optimize what is stored where. Instead of browsing physical shelves, you browse online for everything from toothbrushes to computers. Amazon still faces situations where inventory can be over-stocked, but most of the slow-moving items are not stocked by Amazon at all. Amazon just acts in a logistic role - arranging to ship. Amazon also contracts logistics to a huge array of warehousing and delivery entities.

The way to see this is that Amazon has re-designed the process whereby goods are delivered from producer to consumer and done it in a way that could be more efficient than "bricks and mortar".

There are a zillion types of "retail". It's fun to take a look at different categories. Will, for example, Amazon kill the "big box" stores? At the moment, the Big Boxers (like Staples) are competing with curbside pickup and Amazon-like delivery. Will then eventually abandon the "browsable" selves? Will there be a platform for them to escape the stranglehold of Amazon? Will logistic companies broaden from Amazon to serve a whole category of "Big Boxers"?

Many retail outlets are franchises or other types of chains. The whole chain needs to re-think its emergence from the pandemic. To that extent do customers need to browse the store, touch, and feel the goods (the inventory)? In this area, I have a "science fiction" kind of idea:

• Imagine a service I will call "shapel.com". You use this to create a very detailed avatar of yourself, including very detailed measurements.
• You can shop online in a world similar to Second Life and try on outfits to see what they would look like on you.
• You can order the outfit in precisely the right size and style
• No-hassle returns that have become the rule in online ordering.

This personalizes the rather primitive web site format of Amazon and restores the browsing experience. In fact, I pictured this 10 years ago when I started fiddling with Second Life. That format is overdue for a major technical overhaul with the advent of cheap, powerful VR, but VR should not be needed to make it work.

The 3D "virtual world" experience allows "browsing" already familiar to Second Life shoppers.

"shape.com" data would presumably be held in a secure cloud service, so it could be made available to the "store" in a confidential manner. Nobody wants their measurements available to the public.

This format would be a serious challenge to "boutique" shops, but "augmented reality" could combine "real" and "virtual" stores. All the tech is here now. It awaits some imagination. The problem here is the likely collapse of the "Mall" format for boutique shopping.

I will add to this post later.