Articles

Online Retail Is Like A Modern Day Gold Rush - With Just As Many Casualties & Calamities.

There’s no doubt that when big money is involved, self-interest, hypocrisy, deceit and greed become the values set that dominates. When the surface appearance is that of a modern day gold rush, the ‘cowboys’ stampede into the territory with all the sophistication and grace of a bar-room free for all. All looks great until more than one cowboy wants the same thing and then it all ends in tears. Truth is left cowering in the corner behind the piano player ducking for cover.

Online retail is a gold rush – much of it for fool’s gold and speculators fantasy. And cowboys don’t want any rules or restrictions from stopping them making a grab for the spoils.

But online retail as we know it today has some fundamental flaws and must comply with the most fundamental law of economics – if it isn’t economically sustainable, it won’t be sustained.

The current GST argument applying to online sales is – how can I put this sensibly – stupid. Either we have a consumption tax as a fundamental part of our taxation system that applies to all consumption or we don’t have one at all and we adjust other forms of taxation to compensate. Governments don’t repeal taxes. Therefore the only issue will be finding an efficient methodology of applying GST to all online purchases made by the citizens of this country in the same way as they pay for all their non-online purchases.

But the biggest issue by far is the out of control freight train called ‘distribution’.

Brand wholesalers will inevitably be forced to pull their heads out of the sand and re-think distribution methodology as the 20th century paradigm has well and truly been smashed. Driving too many physical sales outlets right up against online retailers selling exactly the same item will only result in negative returns for everybody.

In electronics retailing for example, we are seeing more and more pushback from physical retailers who will no longer invest in store fit-out or new service features when all they do is educate a customer in their store who then goes and shops the item on price alone online.

Of all the unsustainable economic truths about online retail this is the biggest. Especially when physical retail’s role in educating the consumer, allowing them to sample and try the product and to buy it on the spot still represents more than ninety percent of retail sales dollars but is rapidly becoming a recipe for going broke.

Online sales growth is only matched by the speed of mutation to multi-platform / cross channel electronic commerce such as mobile retail and IPTV retail. But these will only compound the problems. In order to survive physical retailers are being forced to investigate strategies like verticality, own brands, blended multi-channel, onerous cost reduction and worse.

E-commerce will mature and the paradigm will eventually evolve into something better for everyone. In the meantime think about how you put your wagons in a circle to protect your business. You might like to start by sending some smoke signals to your brand wholesaler!