New systems don’t necessarily kill old ones. They just stop them in their tracks. It’s an important distinction because it means that those who are accustomed to the old way of doing things have a choice. They can either stay put or find a new way forward. New systems work because they create new behaviors with much less friction, and these eventually become ingrained habits — better to be part of those new habits than to be left out in the cold. This message was recently hammered home for me, yet again, when reading observations about the shifting US retail landscape.
Michael Sivak of Sivak Applied Research recently shared his observations about the effect of e-commerce on traditional retail. They were based on raw data from the U.S. Bureau of the Census (e-commerce and traditional retail sales), Proquest (population), and the Bureau of Labor Statistics (Consumer Price Index)from 2015 through 2019. Less surprising was the fact that e-commerce sales in the United States are on the up, but it turns out that retail sales remain relatively unchanged. Sivak reached this counterintuitive conclusion by focusing on sales per capita, as opposed to total sales, and accounting for changes in the sales amounts adjusted for inflation.
In 2019, e-commerce was 11 percent of the total retail sales, which is remarkable when you consider that it accounted for a measly 0.9 percent of total retail sales in 2000. But e-commerce growth hasn’t killed traditional retail. It just sucked the growth out of the retail sector.
This reminds me of the situation with open source systems and Microsoft. I remember getting into robust conversations with folks on the extreme end of the argument who were certain that Linux would kill Microsoft. I argued that Linux would take away growth opportunities from Microsoft’s operating systems. Open-source software would siphon away growth from the software vendors. And the cloud would slowly and surely suck up all the growth from the enterprise and data center markets.
E-commerce rendered the limitations of physical space meaningless and made it easy for us to buy more things more often. Less friction, easier access to buy and now we are all Amazon Prime slaves. Naturally, most of us were happy to shift our dollars away from traditional retail to the Amazons of the world.
The cloud and open source have done pretty much the same thing. Many small players were able to tinker and try open-source software. It might seem obvious today, but one can’t understate the role played by MySQL, PHP, Linux, and other such open source technologies in making the web a universal phenomenon. The ease and convenience of the cloud have helped many an entrepreneur start her journey with nothing more than an idea and a credit card.
In order to move past the stagnation, the most obvious way to begin to grow again is to embrace the new way of doing old things. And this has worked well in the tech world. Microsoft has done a remarkable job of embracing open source and making it an underpinning of the company’s renaissance. It has taken the Windows universe to the cloud, and it is now a trillion-dollar company. It has embraced the new normal and taken the best of its past and applied it to its future — one that doesn’t care that all its money comes from shipping copies of software.
I suspect traditional retailers will have to do the same. They must — and many of them are trying to — become omnichannel players. However, the retail establishment may have to think a bit differently in order to find new growth opportunities. Rather than absorbing e-commerce, it needs to deliver what e-commerce can’t: experience, know-how, and the customer engagement that can only come from a physical presence. This approach is why Apple’s stores were such a stroke of genius. They made people feel attached to the company. Amazon’s purchase of Whole Foods is proof that physical presence matters — but it’s not necessarily what it used to be. To make it work, you have to find a new way to use it.