‘Physical stores aren’t going anywhere. E-commerce is going to be a part of everything, but not the whole thing.’
Jeff Bezos, 20183
In fact, we would argue that as technology continues to break down the barriers between online and offline, those retailers without a physical presence are the ones looking vulnerable today. Gone are the days when pure-play online retailers could boast lower overhead costs – and consequently lower prices – due to foregoing physical space requirements. The structural economic advantages once held by online-only retailers have disappeared.
Back in 2015, Natalie authored a report predicting that pure-play e-commerce would largely cease to exist by 2020.4 This was met with a degree of scepticism at the time, the most notable of which was perhaps when the very well-regarded Alex Baldock, then CEO of Shop Direct, publicly rebutted our claim in his speech at a Retail Week conference.5 But would you expect the boss of a pure-play e-commerce retailer to do anything other than to make a case for pure-play e-commerce?
Today the notion of moving ‘online to offline’ has become a justified trend and even has its own acronym: O2O. Since our report was published, we’ve seen dozens of prominent, digitally native brands make the leap into the physical realm. The most notable of these are e-commerce giants Amazon and Alibaba which, through the launch of new retail concepts ranging from tech-infused bookstores to checkout-free supermarkets, are sending a clear signal to the retail community that their vision of the future very much includes physical stores. And this goes beyond the odd flagship store – online retailer JD.com is looking to open 1,000 stores a day in China.
Jack Ma, founder of Alibaba, has since taken our initial prediction one step further with his belief that ‘pure e-commerce will be reduced to a traditional business and replaced by the concept of New Retail – the integration of online, offline, logistics and data across a single value chain.’6
In this chapter, we will explore the factors driving the online to offline trend, how Amazon specifically is shifting gears to take on bricks and mortar retailing, and how the accelerated convergence of physical and digital worlds will require retailers to adapt their own business models.
Before we dive into the O2O trend, it’s important to understand the broader convergence of physical and digital retail. Consumers today are genuinely channel- and device-agnostic. ‘The consumer does not care about online and offline,’ says Terry von Bibra, Alibaba’s General Manager of Europe. ‘No consumer in the world gets up in the morning and says, “I’m going to buy some shoes online”, or goes into an electronics store and says, “I’m going to buy a refrigerator offline”. The only people that care about that are the people that sell shoes or refrigerators.’7