The big news in the UK business sector this week is that the high street music, voodoo and game retailer HMV has gone into receivership. This won’t be a surprise to many people. Back in 2007 I noted that HMV was the most shorted stock on the London stock exchange and many similar businesses have also gone bust in recent years (Game in the US and Zavvi in the UK spring to mind).
However, this news is a reminder of how comprehensively online (particularly Amazon) is winning out over traditional retail in some verticals. As I see it the key axes of competition in retail are range, convenience, and price and the varying success of online versus offline in different sectors can be explained by their relative strengths and weaknesses along these three dimensions. Products that can be delivered digitally work best online because range can be infinite, digital formats and distribution are now much more convenient and much cheaper than their physical antecedents, and that is why highstreet music, video and game retailers have suffered so much. Clothes are an intermediate case – range can be much larger online, and ordering online is more convenient than visiting a shop, but not being able to touch and feel the clothes or try them on prior to purchase leads to high returns which are a significant inconvenience. In furniture shopping in physical stores still mostly win out because delivery and returns of large items are highly inconvenient.
Amazon, the poster child of ecommerce success, excels on all three axes. They have an amazing website where one-click purchasing makes buying amazingly convenient , the Amazon MarketPlace gives the largest range imaginable, and they work incredibly hard to keep their own costs down so their prices to consumers can be low.
The obvious takeaway from this for other ecommerce companies is to innovate to improve their offering on these three dimensions. Many fashion ecommerce companies, most notably Zappos, have addressed the convenience issue by making returns much easier, and now they are looking to reduce the number of returns by using technology to help people work out which clothes will fit before they buy (virtual changing rooms, if you will). Ecommerce entrepreneurs in other verticals could look for analagous opportunities.