In 2018, retail e-commerce sales in the United States totaled $504.6 billion, according to Statista. By the same graph, these numbers are expected to increase. Rising alongside these sales are considerable fears that online shopping is killing brick and mortar retail, and a slew of high-profile downsizes and bankruptcies in recent years seem to support that theory.In 2018, retail e-commerce sales in the United States totaled $504.6 billion, according to Statista. By the same graph, these numbers are expected to increase. Rising alongside these sales are considerable fears that online shopping is killing brick and mortar retail, and a slew of high-profile downsizes and bankruptcies in recent years seem to support that theory.
Is the impact of e-commerce on brick and mortar business so negative? Arguments can be made for both sides, and there are compelling e-commerce stats to back them up. In order to make accurate predictions about what the future holds for both e-commerce and physical stores, we must first understand the origins of e-commerce.
A Short History of E-commerce
E-commerce has a surprisingly long history, stretching back even before the first web “browser” as we know them. It has developed alongside other internet-based industries and become a powerful part of online and physical business. Today, creators and entrepreneurs everywhere can sell them around the world, thanks to e-commerce.
The First Online Transaction
The first e-commerce transaction was completed in 1971, 19 years before the first web browser was invented. It was conducted over a network between two universities — the Stanford Artificial Intelligence Laboratory and the Massachusetts Institute of Technology — between students organizing a sale.
The Dotcom Boom
The first commercial website in the sense we know it was created in 1992, two years after the creation of the World Wide Web browser. But e-commerce moved slowly until 1995, when the US National Science Foundation lifted its ban of commercial enterprise operations via the internet. That year, both Amazon and eBay were founded, and the first internet-only radio stations appeared.
The Dotcom Bust
In 2000, the bubble burst, and an era of rapid, unchecked growth in internet-based companies came to an end. Companies began to go bust mere months after entering the stock market, investors began to panic, and the Nasdaq would drop by 78% through 2002.
It was a disaster for companies and investors alike, but not for everyone. Companies that were resilient enough to survive the crash began to consolidate and took a greater share of the industry.
The Aftermath of the Dotcom Bust
The companies that survived the dotcom bust, like Amazon and eBay, went on to dominate the e-commerce industry. The bust was a major setback, but the survivors learned their lessons and forged ahead.
It didn't take long for those companies to recover. In 2002, eBay acquired PayPal for $1.5 billion. Companies like Wayfair began to enter the market, selling products through individual targeted domains to reach very specific markets.
The early 2000s also saw the boom for China's biggest e-commerce player, Alibaba, and China's sudden growth in the digital market began to make global waves.
What Makes E-commerce so Important and How Big Has it Become?
Here's one of the best e-commerce stats that exemplifies the market dominance of giants like Amazon: in 2015, Amazon alone accounted for more than 50 percent of e-commerce growth. In total, this growth accounted for nine percent of all retail sales the year before. Due to the sheer volume of e-commerce transactions that take place on Amazon alone, it is clear to see why they have become the go-to storefront for a vast majority of online sellers, competing with one another to get to the top of Amazon's search results.
Since then, e-commerce has continued to grow, which has had an adverse effect on brick and mortar retail outlets.
What e-commerce trends are responsible for driving the growth of the industry?
- Better Consumer Experience: E-commerce provides a number of consumer-friendly innovations that are extremely attractive to some shoppers. Amazon, for example, provides user-reviews; a way for people to evaluate products independently of marketing. For users, it's a way to crowdsource quality control, talking to one another about what is and isn't worth their hard-earned money.
- Convenience: E-commerce also relies on the fact that people will often pay extra for convenience, happily putting down shipping fees if they don't have to leave the comfort of their own home to acquire items.
- Customization Data: E-commerce's true power lies in something a little more difficult to nail down to any specific feature. It's personalized and convenient while being able to reach so many more people than physical stores ever could. This is partly thanks to development in data gathering and analysis technology.
- Customer Tracking: E-commerce is trackable, and savvy brands use this to their advantage to provide consumers with exciting content and advertising that speaks to their needs.
Common Myths About the E-commerce Industry
With all the hype about e-commerce, it's easy to assume that it's going to continue disrupting industries and growing exponentially… But remember the dot com bust?
There are many misunderstandings and myths about e-commerce, and they can be dangerous. Amazon didn't turn a profit until 2001, and their profit margins have always been below retail industry standards. However, volume accounts for their wild success.
Contrary to popular belief, customer acquisition is extremely difficult and can become costly in a digital market. Digital advertising has become such a crowded space that getting noticed, even on the major platforms like Facebook or Google, is very difficult.
Another common myth is that the advanced technologies helping to drive online sales are strictly available to e-commerce businesses. However, brick and mortar stores can absolutely make use of the advanced inventory management and customer experience innovations available to businesses of all shapes and sizes through software services.
Relying on unchecked growth is what got investors and businesses into so much trouble in the 1990s. E-commerce is a vital part of today's marketplace, but it requires careful and strategic implementation and operation. It shouldn't just be tacked onto a sales strategy “just because everyone is doing it.”
Is E-commerce Destroying Brick and Mortar Retail?
The short answer: no.
The long answer is that the impact of e-commerce on brick and mortar retail is more nuanced, with a blend of both positive and negative effects. E-commerce trends, in general, have brought about a market correction that punishes unchecked growth, just like the dotcom boom. Abandoned malls, the closing of massive stores, bankruptcies — these are the signs of irresponsible growth. E-commerce happens to be a force that is furthering this correction, but the fact is that brick and mortar retailers are surviving. The internet is killing the boring, uninspired, change-resistant brands. The brick and mortar businesses that are dying were often unsustainable anyway.
Those brands that make use of the technology that built e-commerce, and understand why e-commerce is such a powerful force can and will thrive, even while maintaining brick and mortar establishments.
The Future of E-commerce: How Industry Trends and Growth are Changing
Enough about the past. How is e-commerce expanding? Where is it going?
Well, we know that the projections for e-commerce global sales are growing, but if e-commerce isn't going to kill physical retail outlets, how does the industry develop?
In the U.S., storefronts like Etsy are giving individual makers, creators and artists access to a much wider market to sell their wares. Amazon and Google are continually refining their systems, and are introducing voice-first shopping technology so that users can make purchases without ever interacting with a screen. Monthly subscription “boxes” like Dollar Shave Club, Blue Apron and others are becoming huge hits. What else is in store?
E-commerce Around the World: Global Trends and Predictions
China is becoming an increasingly big player in the e-commerce scene, however, and its e-commerce platform provider Alibaba is much bigger than Amazon. It's a good idea to look at the innovations and experiments in China to get a better glimpse into the future of e-commerce. China is such a quickly growing economy, and their tech companies are exerting so much power over global markets that it would be unwise to ignore them.
For one thing, e-commerce platforms are being customized to suit small brick and mortar operations, giving mom-and-pop shops access to all the tech and power behind those platforms for a subscription fee. This outsourcing of retail logistics is a powerful tool for small businesses who don't have the budget to compete in the digital marketplace on their own.
China is also going beyond even same-day delivery; in some locations for food and grocery deliveries, they're fulfilling orders and sending them to the consumer's door in 30 minutes. This kind of speed and convenience requires a great deal of infrastructure — warehouses, advanced inventory management systems, and other quick delivery solutions. These are things that Chinese tech giants are rolling out, and their technology may serve as the basis for, or even become the providers of, these solutions in other parts of the world.
Sustainability in E-commerce
One of the major issues at the forefront of e-commerce is sustainability. Today's consumers are apt to be more interested in supporting environmentally and ethically responsible businesses, but supply chains are still massive producers of greenhouse gasses and waste.
E-commerce businesses can still do their part. There are a number of ways to reduce waste in your supply chain with the added benefit of reducing unnecessary costs. Using advanced data collection and analysis software can help implement a lean supply chain, resulting in a win for everyone involved.
Automation in E-commerce
Automation in the e-commerce realm, as in many industries, is highly visible in consumer-facing functions but has quietly progressed into more of the logistics and fulfillment processes. Many of the most high-profile experiments with e-commerce fulfillment automation involve Amazon's work on self-driving delivery trucks and autonomous delivery drones. These autonomous vehicles and drones will be dispatched from warehouses to drop items directly to people's doorsteps.
There are lesser-known places where automation is nonetheless extremely important, and, unlike self-driving trucks, already in circulation. Automated customer service in the form of chatbots is increasing in efficiency and effectiveness, and are adapting to be able to handle customer queries of many different kinds.
Automated marketing and outreach platforms are also becoming more popular, marked by the wide adoption of automated social media management systems and other marketing suites. Automated fraud detection is another vital part of e-commerce, where payment information is saved to account credentials and constantly monitored against foul play.
Automated purchasing is also appearing in brick and mortar stores, grocery stores and even restaurants, allowing customers to order and purchase items without visiting a register at all. Some Chinese furniture stores are now just experimenting with virtual and augmented reality to let customers see how products might look and fit in their home, creating a completely self-directed experience even inside the store, automated from the moment they walk in, to the moment they walk out.
Big Data and E-commerce
Data is one of the pillars upon which e-commerce stands. After all, the technology to transfer data from one place to another is the basis for its existence. Big data is an expression of modern-day evolutions of how we handle data; in amount and in the potential.
External Big Data: Marketing and Privacy
Data is the key to so much of e-commerce success. Tech companies are getting so good at acquiring and using data, in fact, that it's sparking privacy debates across the world. Data about how people use their social media accounts, what they look at, what they watch, listen to, buy and even what they post, is being bought and sold for use in advanced data-based marketing campaigns. These campaigns return specific, personalized advertisements to users that are based on their preferences, or inferred from their online activity.
Internal Big Data: Improving Operations and Value Chain
Big data has even more potential use in areas other than in marketing. It can be used to asses every aspect of a business's operations, analyzing how the value chain of a business affects profitability. E-commerce companies use the strategy of breaking down how business activities affect the value offered to the customer. This is an important cost reduction strategy, especially in an industry plagued by slim profit margins.
In basic terms, big data is allowing businesses to both collect and analyze greater amounts of information from a wider variety of sources. This allows managers to get a top-level view of operations by analyzing every step in the chain; how much it costs, how long it takes, what value it adds and whether it's the most efficient solution.
The Future for Big Data in E-commerce is Uncertain
With entities such as the EU regulating data use and consumer privacy more heavily, it's uncertain where big data fits into the future of marketing. The potential for big data can only be capped by ethical and legal regulation. Internally, big data can be used to assist and improve all operations that a business engages in.
Big Data Benefitting Small Businesses
Increasingly, we're likely to see business software providers packaging big data products and selling them to smaller businesses. The biggest players in the e-commerce space are already profiting from consumers' desires to support small or local businesses by selling access to tools and software; access to audiences and to technology. This is a strange, symbiotic relationship that seems to be becoming even more prominent as the technology behind those data solutions becomes more advanced.
Software as a Service Will Get Bigger
Businesses small and large are likely to rely on specialized data service providers moving forward to keep up with the demands of the retail market. Even brick and mortar stores benefit from e-commerce technology and understand that e-commerce is exposing poor branding, not killing physical retail. There's a lot to learn — and benefit from — as long as you're paying attention.