Even as retailers continue to segment the eCommerce market in a number of ways (price, product category, ethnicity, language, etc), and have even started to introduce the concept of virtual reality on some of their user Interface options, we have seen the emergence of a counter culture.
E-tailers have started to open “pop-up stores”. Whether this concept is likely to continue or not is debatable, but it will have some important implications in the marketplace regarding pricing.
More than anything else, millennials buy stories, not products. The eCommerce revolution so to speak has centred around the millennial shopper, and in recent times, it has become obvious that consumers crave the touch. Accordingly, pop-up stores have become “touch points”, even as greater strides are made around VR.
Retailers who can get the hang of filling the space in a way that communicates the message of the brand, along with using the data purchasing patterns to line up products in a particular way, have experienced success. This experience is then augmented by quicker delivery times, and loyalty programmes that make the customer base “sticky”. This way, there is a merging of the best of the online as well as the offline world.
However, the pop-up store carries with it its own series of costs, which by definition limits the amount of discounting that can be offered to the customer. It is a phenomena that has gathered pace in recent years as prices have “raced to the bottom”.
With a combination of bundling, coupons, flash sales and similar discounting strategies, margins have continually been squeezed for the retail merchant. Even the entrant of noon.com has already sparked a price war, with mid- and smaller sized e-tailers slashing prices (even in cases where there was no product overlap!).
The desire for bargain-based shopping has been firmly ingrained into the online consumer psyche, and explained why there has been a 28 per cent higher closure of stores in the online space than in the traditional retail space in the last two years, according to a study by Stanford. This is despite store closures in the brick-and-mortar space making all the headlines. according to a recent study by Stanford.
We therefore have two cultures clashing into each other, with the upper tier brands starting to distinguish themselves with a greater emphasis on the message rather than the medium in the hopes that there is an end to price wars and margins stabilise.
At the other end of the spectrum, discount shopping models continue to proliferate, permeating the mid- to lower-mid segment and delighting the consumer in terms of prices and variety. But almost inevitably existing only in the online space. In Dubai, whichever of the two models that end up dominating the ecosystem, it appears likely that there will be continual pressure on mall rents.
Master communities (and community malls) that will cater to greater flexible store set-ups (with lower lease times) will likely emerge as winners as online stores continue to create “touch points” for the millennial shopper. But in an ecosystem where there is flexibility for repeated do-overs with minimal costs.
At the same time, it is these “touch points” across different categories (from beauty accessories to books) that will exert pressure on discount etailers to follow suit by either offering value propositions other than price (bundling with other categories, self-help “no-frills stores”, etc) and/or merge with some of their competitors such that they can compete on scale.
It is refreshing to see that after all the bubbling of creativity, there is at last a focus on the bottom-line. This implies that even as mall operators have to change their strategy catering to the new online stores and the millennial shopper, there is innovation that starts to exert stabilisation on profit margins. And it’s something that has been relentlessly squeezed over the past five years.
It is this innovation that will ultimately shape the course of the eCommerce industry over coming years.
The writer is the head of digital operations at GCP.
