How Long Before We Reach Peak E-commerce?

What are the natural barriers to e-commerce that cannot be transcended?

Retail is rapidly evolving, and many of yesterday’s storefronts no longer exist. Gone are the Woolworth’s, Radio Shacks and Montgomery Wards of a bygone era.

While we still have some people predicting the death of traditional brick-and-mortar storefronts, the reality is much different. Physical stores are hardly going away. Retailers like Apple, Costco, H&M and Aldi are not only thriving, but plan to open thousands of new stores. Overall, the retail industry continues to grow, despite online sales outpacing sales in physical stores.

E-commerce is making inroads, but it has taken about 25 years for online purchases to reach 10 percent of retail sales in the U.S. The changes happening in retail are far more nuanced than something we can derive from a single statistic.

The percentage of e-commerce sales varies tremendously by product category, from around 2 percent for groceries to more than 20 percent for apparel. The overwhelming majority of sales come from categories where products can be digitally delivered, like music, books and games.

In the late 1990s, many were predicting the demise of physical stores altogether. What’s more likely is that sometime in the future, we will hit peak e-commerce. That means we reach the maximum percentage of online sales — what some might describe as a hidden barrier — that can’t be crossed. With this theory, we wonder how long until we reach it, and how high will it go?

Is there such a thing as peak e-commerce?

Let’s start by asking what it would look like to have 100 percent of our retail purchases in the U.S. done online. There would be 10 times as many delivery vehicles on the road, and traffic patterns would be reconfigured. Malls, shopping centers and retail stores would no longer exist. Grocery delivery would eliminate the personal selection of perishable products. Local sales tax for cities would be affected.

If we consider the social nature of shopping and the number of places we frequent on a daily or monthly basis, it becomes hard to imagine a world without places like beauty salons, dog grooming or gyms. People still want social experiences from movie theaters, escape rooms, yoga, trampoline parks and arcades. Even if every purchase is made using a personal device, making a payment online is not the same as making the entire purchase online devoid of any retail experience.

I would be hard pressed to find an argument for e-commerce to ever go above 30 percent, but it may top out somewhere below 20 percent.

Are we facing a retail apocalypse?

There are still many who believe that shopping will ultimately be done online, that commercial districts with brick-and-mortar stores are doomed, and that anyone who doesn’t agree with them is a relic of the past.

On the other end of the spectrum are the physical store cheerleaders who think traditional retail will pull through because retail itself is still growing and after all the hype, e-commerce only represents a meager 10 percent of all retail.

Neither of these are safe assumptions in our rapidly changing world. Every aspect of the buying-selling process is getting rethought, experimented with and reimagined. Next generation retail pioneers are in the process of dissecting and reassembling concepts of ownership, product placement, purchasing environments, payment schemes, product lifecycles, delivery methods, the human-product relationship and even the value and nature of possession.

No one-size-fits-all formula

Amazon and other online retail giants have changed the way we access goods.

Amazon lacks the intimacy of talking to a salesperson, having a product demo happen in front of you, feeling the fabric, tasting the food, smelling the fragrances, laying down on a mattress, having a person help you understand your choices and personally testing the results.

By its very nature, retail will forever be a fragmented multi-option, multi-channel industry where the true innovators are constantly rewriting the rules of engagement.

Are shopping malls dying?

Even though regional malls and their department store anchors have been on the decline for more than two decades, the shopping mall industry is still quite viable.

The first threat to malls came in the form of big-box stores and discount mass merchandisers. The latest wave of disruption has come primarily from a surge of off-price and dollar stores. So while it's easy to point the finger at online shopping, it’s a piece of a much larger equation. At the same time, due to a surge in popularity, malls had gone through a rapid over-building phase and a correction of some kind was inevitable.

This is not to say that malls won’t close or be radically transformed. More than likely, malls will still exist in one form or another, but consumers will interact with them in radically different ways.

Forms of future retail that haven’t arrived yet

How will retail morph and transition over the next decade or two? Here are options that may be added to the list:

Driverless mobile shopping: The number one challenge of traditional retail has always been driving customers to the store. As we move into a highly mobile marketplace, businesses can drive to where customers already are. Personalized shopping, where a team of professionals show up at your door with specialty products, is a possible spin-off.

Retail as a service: In this scenario, products are not purchased, but simply used for a time and returned. This already exists on some levels but may be expanded in unusual ways.

Experts shops: People love to talk to the experts and find answers for those nagging questions.. The Apple Stores are a perfect example because each of their employees is an expert on the products they sell. 

Maker districts: Where customers witness the making of products being sold.

Docking shops: Docking shops will be designed so mobile businesses can “dock” and expand into a larger commons area. First envisioned for rural communities where the customer base is too small to warrant a permanent location, a weekly storefront in five or six communities might be a perfect arrangement. A mobile mall is another option, where mobile vendors show up and set up shop in new and different configurations each day.

How long before we reach peak e-commerce? After studying consumer dynamics and examining our human need for social interactions, I believe we will reach peak e-commerce by 2030 and peak somewhere around 20 percent.

Our current retail environment will transition to experience-based products with a heavy emphasis on shared connections. In a connected world, where information is fluid and transparent, retailers become actively engaged in the global conversation. If not, their customers will begin the conversations without them.

Categories: Sales & Marketing