The E-Commerce Gold Rush Is Over: Why Brick and Mortar Is Back

I’ve long maintained that no, Amazon is not killing brick-and-mortar stores or offline commerce. Neither is the Internet at large. The Internet is just another byproduct of what business has been dealing with since the dawn of time: Disruption.

Granted, the Internet is a particularly massive disruption, but it merely shifts rather than kills. Business models, products, services and industries continues to adapt and evolve as they’ve always done. Just on a much more significant scale, and brick and mortar stores are no different. Amazon is no more killing local businesses or brick and mortar stores than laptops are killing desktops.

If anything, a fascinating Wall Street Journal article highlights a trend that may shock small brick and mortar store owners: Brick and mortar is making a comeback. What’s prompting this resurgence is something I predicted years ago, and something that the article itself notes:

“The New York company is among several specialty web retailers shifting to brick-and-mortar stores after finding the pool of online buyers is only so deep.

Over the years I’ve worked with a number of struggling retailers and brick and mortar stores who have seen E-commerce as an easy way to subsidize their physical storefronts or even as a reason to phase out their storefront altogether. On paper it sounds pragmatic: Overhead costs plummet and there’s no more dealing with leases or landlords. You can do much more automation so there are fewer staffing and administrative issues to deal with (the latter part is debatable, but separate topic).

In practice, the problem with E-commerce is that all of a sudden you’re not competing with local or regional competitors. You’re competing with the entire Internet. If we assume you ship statewide in the United States, you’ve just opened the floodgate to hundreds or thousands of competitors all offering similar products or services to you. If you ship nationwide this issue gets multiplied tenfold.

Remember when Amazon was killing brick and mortar storefronts? Your e-commerce store is now directly competing with Amazon online, not to mention the huge brands investing millions of dollars in sales and marketing. In short, when it comes to big brands an online store phases out some of the unique advantages of a physical storefront in favor of competing with Amazon on their turf.

This problem also applies when it comes to visibility. With a physical storefront, if you’re lucky you’ll be able to have a visible location that people can see from the road or sidewalk. Even if you’re off the beaten path you can take advantage of Google Places or similar services, which are much easier to rank more highly in than organic search engine results. There’s less competition when working out of a storefront, and storefronts often provide unique experiences that it’s difficult to replicate when shopping unless unless you have the money to make it happen.

Ten years ago this wasn’t as significant of an issue because the barriers to building E-commerce stores were breaking down but still present. Now someone can set up a rudimentary Internet store in ten minutes. Between PayPal stores, affordability of dedicated platforms like Shopify and altogether free platforms like WooCommerce you’re competing with everyone who has a computer, a working Internet connection and half an afternoon to set up a list of products for sale.

Consider this analogous to being a YouTuber. Everyone wants to be a YouTuber now. Back in the primitive, pre-SnapChat yesteryear of 2008 the concept of YouTube stardom was a relatively new concept. It easier to reach large audiences and fewer people were making videos. Now you’re competing with every ten year old who has a webcam, a microphone and a few afternoons to record the occasional vlog. Now it’s damn near impossible to make millions PewDiePie style on YouTube, let alone the mythical six figures touted by thinkpieces extoling the virtues of being a YouTube star. Even if you do “make it” most YouTubers at this level are working themselves to near death.

It’s the same problem with e-commerce. Now that everyone is doing it, everyone is competing for the same customers. Which, despite E-commerce being a juggernaut, may surprise you in terms of how much of the market those customers represent:

“E-commerce is taking share but it’s doing so more slowly than I think we thought when we launched,” Mr. Gilboa said. “If we were just to focus on online at this time, we’d only be able to address about 3% of the overall eyewear market.”

This is an increasingly common realization for such startups. Despite the rapid growth of online retail over the past 20 years, it accounts for just 10% of all shopping in the U.S.

This is what I call Facebook Syndrome. It sounds eye poppingly lucrative to say that there are a billion Facebook users, except there’s a problem: That’s still a relatively small percentage of the 7.5 billion people on Earth. How many of those non-Facebook users are your potential customers? Everyone discovered that putting all of your eggs in a single basket with Facebook was a bad idea back in 2011, and now the same process is repeating itself with e-commerce.

This saturation also applies to advertising. Back in 2010 and 2011 the highly demographic-based advertising on social networks pioneered by Facebook was a relatively new concept, and it was easy to reach large numbers of people. Now?

Ben Lerer, an early-stage investor in numerous retailers including Casper and Warby Parker, said that three to five years ago there was “a gold rush” of direct-to-consumer companies that bought cheap online ads, largely through Facebook. “Now it’s gotten harder,” he said.

And as more e-retailers have entered the space and fought for ads directed at similar customers, rates have jumped. Facebook has reported that its average price per ad has more than tripled since the start of 2014, though rates vary widely depending on the type of ad.

This is again analogous with YouTube. Market saturation for both e-commerce and YouTube video creation is through the roof, making it difficult for people to individually monetize it.

I agree with Jeffrey Raider, who in this article says that the future is a mix of digital and in-store when it comes to retail. The fact is that there often are middle grounds between old and new technologies; you don’t have to either resolutely cling to one or dive headfirst into the other. This is something the music industry learned the hard way when it had to be dragged kicking and screaming into the 21st century, and only after Napster had popularized the concept of digital downloading in a way that left the record labels racing to catch up.

E-commerce won’t save you, or be the gold mine it’s often lauded as in thinkpieces. What will save you is doing what works for you – be it some mixture of online or in store and a lot of work either way. As Philip Krim also notes in this article, “The biggest barrier to growth is really awareness.”