By David Dorf-Oracle on Mar 12, 2015
I highly recommend watching NYU professor Scott Galloway discuss the Four Horsemen, but its the first 7 minutes that really interest me. In that time Scott lays out a case for why pure-play retailers are doomed. He states that retailers that focus only on e-commerce will either have to open stores or face going out of business. (And I suppose there's a similar fate for traditional retailers that fail to adopt digital.) He notes that retailers like Fab, Guilt, and Net-a-Porter are failures while retailers like Warby Parker, Rent-the-Runway, and Bonobos are thriving by opening stores. "Stores are the new black in the world of e-commerce."
I was with Scott until he turned his attention to the big-kahuna of e-commerce, Amazon. With $6.6B in transportation costs but only $3.1B in shipping fees collected, Scott claims Amazon's model is not sustainable (see his chart below). Once the cheap capital dries up, Amazon will be forced to open stores in order to stay competitive.
I disagree. Not because the logic is flawed, but rather because Amazon is not a typical retailer. I believe they could be profitable if they wanted to but instead choose to continue investing in widening their competitive moat. Not only is their retail business state-of-the-art, but their investments in AWS, tablets, payments, IoT, etc. are complementary and help to diversify the business (yes, they can do both). Amazon is not your typical pure-play.
Scott rightly points out that the future of retail is represented by Macy's omni-channel model. Using stores as showrooms, distribution centers, and customer service portals where the digital and physical are intertwined is the way forward. Consumers will continue to shop at stores, but stores will also serve as pick-up points and shipping centers. The graph below from Scott's presentation helps to show the momentum of click & collect, an important.aspect of this new model.
Traditional retailers that leverage their stores alongside digital can absolutely compete with the likes of Amazon. Stores are not going away -- they are just transforming to serve customers in new ways.