Tuesday, July 29, 2008

Bricks and Mortar Apocolypse, Now?

The real world is in a pickle while the virtual world is humming along nicely. Could we be nearing a tipping point when the Internet finally does take over? Perhaps. If traditional bricks and mortar commerce does get a comeuppance, it may be for reasons we never expected.

Let's look at the evidence. Retail has been in something of a downturn for some time. But lately there has been an acceleration, almost a panic in some areas. The reason is the spiking price of gasoline. The quick run-up in gas prices this year has sent a cold chill up the spines of consumers. The more that chill gives them the shakes, the less they drive. The less they drive, the less they shop. Well, at least the less they drive to shop.

Shopping is America's real pastime. Shopping and buying are what keep the economy moving. If shopping grinds to a halt, buying will take a tumble and we might just "drive" ourselves into a economic depression - by not driving.

The problem is that we've structured our society on driving to get places. Look at any recent real estate development. It's a mile of houses followed by a mile of strip malls, a mile of offices, and tucked out of the way where you don't have to see them is a mile of factories. There aren't that many places now where you can walk to the corner pub, grocery store or even an ice cream shop. Forget hoofing it to any of the big box retailers. They carve out huge swaths of landscape so that an acre of store can have acres of parking. Movie theaters, sports fields, and even churches have all gone with the model of big buildings surrounded by huge fields of asphalt parking lots.

There's no getting from point A to point B without a car. It's too far to walk and, in most places, public transportation is spotty at best. Gasoline gets put in those cars every week or so. The cost of that gas gets put in your face. I'm not so sure that $3, $4 or even $5 pump prices are all that traumatic in themselves. It's the $50, $75, and $100 fill-ups that stop the hearts of motorists and start them thinking about changing their ways.

Driving is down over the last year by a couple of percent in the U.S. That's pretty significant considering that the population is increasing. What's happening is that people are less casual about cruising around, burning gasoline, and then hearing the gas station pump click up, up, up. They're thinking about their route and mentally planning paths that include the necessary stops without a lot of randomly going here and there.

That's smart, efficient and good for the environment. But it's not so good for retail establishments that benefit from impulse shopping. A shopper might not think "Oh, I should stop in and pick up a book," when their more efficient travel plan doesn't give them a chance to see your store and plant the thought.

But people love to shop, right? You bet. That hasn't changed. But now they're doing more shopping in front of their computers instead of behind the wheel. You don't get the touchy-feely experience with e-tailing, which might be overrated for a lot of products. That's especially true if you are just buying replacements. How much hands-on do you need to buy more office supplies? Furnace filters? Specialty toothpaste? I regularly order all of these online.

For major purchases, such as cars, appliances and computers, people are shopping online even when they buy locally. What might be thought of as product research is the process people used to go through visiting every retailer in town and talking to all the salespeople. Now they may make their decision online and then make a bee-line to the store with the best advertised price. Or they may decide to buy that new flat screen TV or cell phone online and have it delivered.

Many traditional businesses have seen this coming and opened parallel stores online with the same stock as you'll find in the retail establishments. Some, like Circuit City, give you the option of having your purchase delivered or picking it up at the store even though you've ordered online. Major chain stores have hedged their bets with the dual online/offline approach. If local shopping takes a dive, online shopping can take up the slack. Chances are that the products are stored in the same warehouse anyway.

That doesn't work so well for strictly local establishments that aren't part of a national distribution chain with a massive e-commerce support system. Many, if not most, local merchants have put up business Web sites without online ordering. These give locations, hours, phone numbers and perhaps current specials. They're the electronic equivalent of phone book and newspaper ads.

If the downward trend in miles driven continues, it could mean a come back for local delivery service. Instead of calling the local butcher or haberdasher like in the old days, customers may browse and order online. The merchant would then make delivery rounds, but in a updated version of the old horse cart. Think plug-in hybrid or natural gas fueled delivery trucks. This may sound like a zero-sum game, but it's actually more efficient for one delivery vehicle to run a circuit around town than have every customer drive to the store and back to pick up their one little order. If said deliveries are made in electric vehicles that are recharged from the grid overnight, fuel costs could be measured in pennies per mile.

This model is already working for some restaurants, sans the fuel efficient vehicles. The fancier ones often use SUVs that burn a ton of fuel. The little pizza shops still use beater cars that drip oil in your driveway. But both high and low end restaurants have made the jump to online ordering as a replacement for phone-in orders. Online, you have the opportunity to present a complete and up to date menu. No additional clerk is needed to handle the extra business because customers themselves take care of order entry.

If the idea of online ordering coupled with local delivery sounds like an idea that popped with the tech bubble of the 90's, it may have been that those pioneers were just too early. What's different now is that gasoline prices have gotten to the point where people no longer go running out on a whim for this, that and everything else. Couple that with highly efficient delivery vehicles to keep delivery costs low and the window of opportunity opens for more merchants to integrate online shopping with their bricks and mortar operations.

The other thing that's changed in the last 10 years or so is that consumers have become very comfortable with the Internet, including online retailing. Its not unusual anymore to be noodling around on a laptop computer while watching TV in the living room. You may well be placing an order at Amazon.com, while missing an ad for a similar product running on your local TV station.

There's no doubt that bricks and mortar retailing will continue to garner a major share of consumer spending. By supplementing traditional walk-in business with online shopping and perhaps free or low cost delivery, retailers can benefit from the Internet rather than see their business base erode to online e-tailers.

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