On the Floor

It hasn't been easy being a small, independent retailer for a long time. Malls caused major disruption to the classic independent retailer shopping experience and drew people away from downtown cores. Then Walmart and other discount retailers arrived on the scene, driving down margins and accelerating the hollowing-out of many retail-centered urban areas.

Unfortunately, the outlook is looking even more challenging. Retailers are starting to experience significant changes driven by the widespread adoption of smartphones. Plans by e-commerce giant Amazon to introduce extremely rapid shipping pose an even larger threat - one that will likely destroy many traditional retailers and require painful adjustments for many others.

Consider some of the changes caused by mobile technology, as outlined by Google's Mobile Playbook:

• Mobile search is transforming the behaviour of retail customers: ninety-four percent of smartphone users have searched for local information; seventy percent called a business after searching; sixty-six percent visited in person; and ninety percent acted within 24 hours.
• Poor or absent mobile websites a major turnoff: most small retailers don't even have a mobile site, and yet, 57% of smartphone users say they won't recommend a business with a poorly designed mobile site.
• Showrooming: forty-five percent of consumers use smartphones for in-store product browsing and research. Thirty-nine percent of walkouts, where people leave a store without purchasing anything, were influenced by smartphone usage.

These issues, although challenging, are minor in comparison to the threat that Amazon poses. Amazon has long shipped its products from huge distribution centers that are located far from urban centers, in a bid to avoid having to charge sales tax. But it is changing its strategy.

Amazon now plans to build distribution centers near large cities like NYC. Its aim is to offer next-day shipping by default, and same-day shipping for a minor additional fee. It is accomplishing this with a combination of massive scale, speedy and optimized e-commerce, and robotics.

Imagine ordering a product when you get into the office in the morning and having it arrive that afternoon. That scenario destroys one of the most compelling reasons to shop locally, namely, instant gratification.

Amazon is rolling this out in the US for now, but the GTHA, as one of the largest population centers in North America, is unlikely to avoid Amazon's attention. Target is currently investing more than $50 million on expansion in Hamilton alone, and Walmart is investing $450 million across Canada.

This area has the customers and the transportation network needed to make Amazon's strategy just as successful here as I believe it will be in the US.

There are, of course, strategies that local retailers can employ to win over mobile customers, and perhaps head off Amazon. But I'll save that discussion for a future blog post.