When Tony Hsieh founded Zappos in the late 1990’s, he wanted to create a marketplace for smaller retailers to sell online. But by the mid-2000’s, the company had pivoted to a more traditional reselling model, stocking inventory and taking control of each transaction. Everything worked out for Hsieh, but the story underscores the deep challenges which face technology companies that seek to corral the collective selling power of America’s smaller retailers.
But Shopify, a Canadian company that provides tools for retailers to sell goods online, has found success where Zappos and others failed. Today, over 100,000 small businesses use the technology to sell goods online, and last summer the company raised $100 million in new venture capital to push into a much larger brick-and-mortar retail market. In August 2013, the company launched a tablet-based point-of-sale system to compete with Square, Shopkeep, and a number of deeply entrenched legacy providers.
This May, Street Fight will take a look at the companies, technologies and ideas that are shaping the way we buy and sell goods in the real world. We will unpack the implications of an increasingly connected local shopping experience, and begin to help you understand where malls, main streets, and other physical marketplaces fit into the future of retail. To kick-off the series, we caught up with Harley Finkelstein, chief platform officer at Shopify, to discuss the blurring line between e- and local commerce.
The “future of retail” hasn’t changed much in the past decade. How close are we to realizing that omni-channel experience, where we can move seamlessly between online and in-store, which only Apple has seemed to capture?
Nearly 150 years ago, John Wanamaker was the first to create what was the shopping mall of today, and in many ways we’ve spent the past century iterating off of that concept. There was a bit of a glimpse of hope toward the end of the 1990s, where you saw Webvan and others try to innovate. Unfortunately, those projects imploded with the Dot-com crash, and you had this sort of nuclear winter until very recently.
I believe that the next five years is going to be the most exciting five years of retail of the last 150 years. While we haven’t seen a meaningful adoption of this omni channel commerce that we all talk about, we’re starting glimpses here and there. In terms of crossing the chasm into the mainstream, I think we’re just getting started.
In the late 2000’s, it seemed that ecommerce, and remote buying, would eventually consume the retail industry. What’s changed over the past decade, and how does Shopify fit into that evolution?
Our vision of the future of retail is one where online and offline kind of working together in unison, in harmony — in that it doesn’t really matter where the transaction takes place. Whether it’s in a store or if it’s online or it’s using a mobile device at a farmer’s market, retail is retail and the future of retail belongs to consumer choice. We had done a really great job of democratizing online commerce. But last year we turned our attention to democratizing the rest of commerce — the trillions spent offline.
Technology may shake up industries early on, but often it eventually reinforces economies of scale and leads to a few dominant leaders in the market. In the battle between big brands and small business, are independent retailers better or worse off today than a few years ago?
I actually think it’s more conducive for the small and medium-sized business (SMB) market. Here’s why. First, a small retailer is far more agile. They can fix problems faster and try things quicker. They don’t have to go through rounds of iterations and rounds of approval processes. Yes, the future of retail belongs to consumer choice; but, I also believe that small businesses are really going to explode and grow very, very fast in this new retail world that we’re living in.
A few years ago, there were sizable economies of scale. Larger retailers which had access to capital and had a lot of people to do the work, were at a marketable advantage. But today, technology has has democratized retail to a degree. Meanwhile, a lot of the big box retailers are actual at a disadvantage since they have a ton of red tape and may not be able to move fast enough.
There’s obviously a lot of talk about “omnichannel” selling in the brand community. In your research, how often do small retailers sell through both an online and physical property?
Before we launched point-of-sale, we started asking our merchants how they sold and about 30 percent of our merchants had told us that they sell offline, as well as online. Now offline doesn’t necessarily mean brick-and-mortar like they have their own store. It could mean they go to a pop-up store or they sell at a farmer’s market or a trade show or something like that.
But we did it because of merchant demand. Our merchants were asking for these sort of things. And in some cases, they were using one system to accept mobile payments. They were using another system to do point-of-sale. They were using a third system in Shopify to sell online. They were forced to keep three different inventory databases and three different CRM databases and three different sets of accounting and financial books. That didn’t make sense.
When you look back at the experience of building tools for both ecommerce and local buying, what’s different and what’s similar?
A big part of the issue was that we just didn’t know much about offline retail. So ever since watching point-of-sale, we’ve done a number of different experiments. We did an experiment in Ottawa and Toronto called “Popify,” where we took a really incredible storefront and we brought in online retailers and really observed and studied the way they transacted and connected with their customers in a physical location just to really understand more about offline retail.
But in terms of the product itself, retail is retail. You have customers. You have inventory. You have accounting and you have marketing. You have all these different elements. For the most part, the transition has been really thoughtful and it took us some time because we wanted to do the right thing. I think we’ve accomplished that.
One of the critical differences in the local retail industry is that technology companies aren’t painting on a blank canvas. There’s are massive and entrenched legacy sector which has served these small firms for years. How do you convince a small business owner to leave what’s familiar for something new?
Small businesses haven’t just invested capital in their existing legacy POS systems, but in some cases, they’ve had their entire company trained. They don’t only spend money. They’ve also spent time and energy really incorporating or integrating their POS system into their business.
So that question comes up. Is it worthwhile changing? Even if you’re not happy with your current system, it’s already there? The truth, I think, is that’s changing very rapidly. The demands of even the most traditional retailers are changing. And frankly, they’re all looking at the Apple Store as a shiny example of what brick-and-mortar retailer experience should be.
Steven Jacobs is Street Fight’s deputy editor.
Find out more about the future of retail at Street Fight Summit West, where top execs from Shopkick, Qualcomm and Westfield Labs will discuss the retail experiences of tomorrow. Click here to buy tickets.