Part One: The History of E-commerce and Brick & Mortar Retail: Examining 2000-2020
This is Part One of a Three Part Series Discussing The Death of Retail. It is a transcript of a conversation between Neeraj Kulkarni, James Li, Mike Lichter and Dave Donars. The conversation was recorded on June 2nd, 2020. This first segment discusses the history of e-commerce, digital integrations and customer centrality. We look at examples from Amazon, Walmart, Marriott/Westin and, of course, Nike.
Neeraj Kulkarni is a brilliant problem solver and has worked with some of the largest companies in the world. He is President and Chief Data Scientist of CIEK Solutions, an analytics consulting firm. Ciek uses a collaborative analytics practice to help brands solve their most complex issues.
James Li is a media analyst and data-driven story teller with a strong background in omni-channel growth marketing, Mar-Tech product development and campaign performance analysis. He is also the Co-host of Peak Money, a new weekly podcast he created with Dave Donars.
Mike Lichter is an incredible strategist who embraces both his analytical and creative gifts. Mike is driven to help make the world a wee bit better. Mike is also the Co-Founder of the consultancy Freehand Circle with Dave Donars.
Dave Donars background is in product development, marketing strategy and data science. Along with James Li he is the co-host of the new podcast Peak Money. Dave is also Co-Founder of the consultancy Freehand Circle with Mike Lichter.
Dave Donars: Today we're going to talk about the death of retail.
James Li: Finally...
Dave Donars: Let's begin this story in the year 2000: The new millennia was 20 years ago, so it's a good cutoff point for us. At that time, the size of all e-commerce in the United States was about $27 billion dollars. In contrast, brick and mortar retail was $2.9 trillion dollars. So, e-commerce represented roughly 1% of the entire retail pie.
From $27 billion dollars in 2000 to today, e-commerce has grown to $600 billion. That's a phenomenal 2,122% growth. During the same period brick and mortar retail grew to $5 trillion, which is about 76% growth. So if these two sectors were individual stocks investors could invest in--bet on e-commerce. For every dollar in, you would have gotten $212.00 back. For every dollar put into brick and mortar, you would have got $1.76 back. Both are positive, but e-comm has much better results.
The death of brick and mortar retail includes a lot of familiar, tried-and-true names. Continuing to go by the wayside in just the last 16 months are:
Toys ‘r Us
Modell's Sporting Goods
But I think the best way to tell this story is through Amazon and Walmart....
James Li: I think those are good proxies to understand the totality of e-commerce versus more traditional retail. Just look at the growth of Amazon versus the growth of Walmart, or the lack of growth of Walmart, it's pretty clear that online businesses have an edge in retail.
Compared to 20 years ago, e-commerce can now offer an entire ecosystem. Traditional brick and mortar retail simply hasn't evolved at the same click. As e-commerce has evolved, they've gotten better and truly honed their craft. Traditional brick and mortar has stayed stagnant.
Dave Donars: Or gotten worse…
James Li: And that’s hilarious because if I was a business watching someone eat more and more of my lunch every day, I'd find a way to compete. It’s the nature of the game. Yet, in a lot of ways-- maybe even just by definition--traditional retail just never got the message and they've been suffering for it for the last 25 years.
Dave Donars: I read last year about Target stores in, I think, Ireland which have Amazon lockers in the lobby of their stores. There's not a more Neville Chamberlain-esque surrender to the enemy statement than that. Back in the 80s and 90s, the story about Walmart was of the big guy in the room crushing supply chains and pushing local mom-and-pop retailers by the wayside. That story was called “The Walmart Effect”. When examining the raw data it becomes very clear Walmart did consolidate supply chains to a large extent.
In the United States there are roughly 300,000 “general stores”. That includes pharmacies, grocers, big box retailers, department stores, convenience stores and dollar stores. Just a place where consumers can pick up a variety of goods and/or run errands.
There are 4,753 Walmart's in the United States. So for about every 40 stores there is one Walmart. A 1 to 40 ratio is representative of pretty serious consolidation so “The Walmart Effect” seems to be true. But starting starting in the year 2000 through 2019 consolidation has just taken on a life on its own. There are just 77 Amazon distribution centers in the US. So for every 4,000 stores in the United States, there's just one Amazon.
Bezos took what Walmart did and improved the model exponentially. Amazon accelerated Walmart’s model by 100-fold. Remember that $600 billion e-commerce figure? Amazon controls 47% of that $600 billion pie.
James Li: It's kind of crazy how ridiculously big all this is. We always knew Amazon was big sense, but when you actually attach numbers to it one sees they're literally the size of whole countries Wow.
Mike Lichter: Well, when people start talking about antitrust laws and your name keeps coming up that is a pretty good indication…
James Li: ...that your company is the Death Star, right?
Neeraj Kulkarni: At the same time, we have to remember it's not just Walmart or Amazon that has done well in the e-commerce space. Think about brands. Brands are focused on customer centricity. Right? And that's important whether it's offline or online. Which brands manage to reach out and engage their customers? Which have integrated their offline and online experiences? Have they made shopping more consumer friendly and experienced better for their loyal customers?
Direct-to-consumer brands like Allbirds or Zappos or even large retailers like Nike, which has several stores--look at their online shopping experiences. Both offline and online are so integrated and in sync with what their brand message. They make fans experiences seamless and extremely rich. Looking forward, that seamless experience in both offline and online is the most important shopping experience for both Brick and Mortar or e-commerce,
Dave Donars: Neeraj, what's your favorite example of a good seamless experience? What brands are doing well in that space?
Neeraj Kulkarni: Look at what Nike has done, specifically during the recent COVID quarantine. They stopped charging subscription fees for their Nike Training Club (NTC) premium service. NTC is literally meant for coaches, professional athletes and trainers. There are actual subscription fees but during COVID, Nike made NTC free for everyone. Nike saw a more than 200% increase in downloads and app use--people looking at the workout videos, training programs and expert tips. There is some evidence NTC usage has translated to their business online. And I'm pretty sure when Nike opens their stores again, in the near future, their customers are going to be really happy with what they did during this specific time-frame to provide great training tips--which coincidentally showcase Nike’s best-in-class products.
Air Jordan and Nike also started a fund to help the Black Lives Matter movement. So they are doing all of these things during an extremely tough crisis to make their loyal fans ‘sticky’ (stick with them and engage with them both offline and online). That's what I mean by customer centricity: brands that are honestly trying to improve their customer experiences. Offline or online--it doesn't really matter as long as it's integrated. Nike is a great example.
Another brand that comes to mind is Marriott and Westin because they started providing work from home video conferencing backdrops. They started offering virtual design consultations and interactive room planners through their website. Marriott is starting to integrate both their offline and online experiences. Going forward customers will be more aware of the brand--their new furniture offerings and experiences. So I think those two just come to my mind. But I'm sure there are several other brands apart from the Walmart's and the Amazons, or some of the bigger retailers we are talking about.
James Li: Neeraj makes a good point with Nike. I just didn't think he was gonna make that specific point. Because I think Nike has always had a pretty phenomenal online experience. I buy way too many shoes. Whenever a Nike shoe drops, it's an online event. Nike just released a bunch of new Jordan and it’s announced beforehand. Fans get a countdown clicker and have to stand in line, essentially, in a queue through their specialized app, When consumers purchase through the app they get you a special little poster which shows a shoe, a little shareable Instagram photo that you can post. That experience is very good. However, I do give them kudos about their in store experience as well. Nike has done a bunch of really cool stuff regarding their brand, like the higher end Jordan store called Flight Club which has rare, specialized shoes with these crazy rare colorways.
It's almost like walking through a little curated shoe museum.
Read Part II of our Death of Retail Series where we discuss the current state of play, the impact of Coronavirus and the brick & mortar value proposition.