Is Retail Impotent?

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 The news of sluggish holiday sales has The New Yorker’s James Surowiecki writing about the “steady erosion of a retailers’ power.” It’s worth quoting at length:

“Retailers are undeniably good at the tricks of their trade. So why has retailing gotten so hard? In part, it’s because of imitation: when one store hits on a useful gimmick, competitors copy it. But it’s the Internet that’s made the biggest difference, albeit not in the ways we often think. People once believed that the Net was going to transform where we shopped—that it was going to make physical stores obsolete. It hasn’t: even today, online sales are roughly three per cent of total retail sales in theU.S.What it has changed is how we shop, for a simple reason: it has created informed shoppers.

In the past, retailers could make profits from what economists call ‘information asymmetry’: sellers knew much more about prices, quality, and value than consumers did, in large part because good information for consumers was either hard to obtain or just not available at all. Today, it’s easy to research and comparison-shop, and most consumers do it for at least some of their purchases.”

That sounds about right. Although I think the proximate cause of this season’s slowdown has more to do with economic conditions than with a new wave of savvy consumers. However, longer-term, I think Surowiecki is right. In the Internet era, any strategy that hinges on consumer ignorance is ultimately doomed to failure. (You can, however, fool some of the people some of the time. Like these people.)

As Surowiecki notes, a lot of retail strategies — how products are assorted, the timing and duration of sales — have been undermined by the Internet. But that’s not to say the situation is beyond remedy. Surowiecki writes, “Soon the only hope of turning a profit will be to offer good value for money. What a radical concept!”

Given that the Internet has not initiated a wholesale shift away from brick-and-mortar shopping (and I, for one, was pretty sure it would), I think the odds are good that retailers will gin up new sources of value.

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