Why Ecommerce Companies Are Eyeing Brick-and-Mortar Retail

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smalltownLast year, online eyewear retailer Warby Parker did something that seemed like a step backwards: it announced that it would open a number of physical stores around the country. But the company was just the latest in a string of ecommerce firms to invest in physical locations. Bonobos, Frank and Oak and a handful of other online sellers have launched full-service brick-and-mortar stores in recent years, while eBay and Etsy piloted smaller initiatives in 2013 aimed at creating a bridge between their online marketplaces and the physical world.

With the bulk of retail sales still occurring offline, the rationale for ecommerce companies to consider local has always been compelling. But now, with more than half of adults in the U.S. owning a smartphone, the omni-channel vision, which many traditional retailers have envisioned for years, is quickly becoming a reality for both online and brick-and-mortar retailers. Macy’s has begun the process of merging inventory systems to allow customers to move seamlessly between in-store, mobile and online, while Amazon has invested heavily in creating a new local logistics infrastructure to support same-day local delivery.

In industries like fashion, where shopping and discovery are important parts of the buying experience for consumers, ecommerce startups like the Palo Alto-based Poshmark are planning for a local future. The two-year old company, which allows users to buy clothing from other users and from boutiques, has hosted a number of offline events for its users, and Manish Chandra, the company’s founder, says that local commerce will play an important part in the company’s strategy moving forward.

Street Fight recently caught up with Chandra to discuss the why ecommerce retailers are pushing into the local market, what the future of commerce will look like, and who will be the likely winners when it all shakes out.

Certain industries have proven to be more resistant to ecommerce than others. Where does fashion fit on the local vs. remote spectrum?
For the fashion shopper, discoverability — finding that specific item that you’ve been hunting — is way more important than price. So an omni-channel approach allows a local retailer to connect nationally and a national retail to connect locally. It becomes this simple experience for the shopper, where they can discover anywhere, buy anywhere, and fulfill anywhere.

If you’re a truly SKU-based retailer, where everything can be itemized, then ecommerce has an inherent advantage over local except for fulfillment times. But when it comes to discovery-based retail paradigms — industries like fashion, home furnishings, et cetera — then an omni-channel architecture has a significant advantage over any type of centralized model, whether it’s physical or online.

Let’s talk a bit about the events, which Poshmark has held for your users in cities across the country . From a marketing perspective, how do real-world events help drive engagement with an online-only brand? 
First and foremost, I believe that commerce is fundamentally a local phenomenon. Our users buy from the stores that are around them, so when we think about our local parties … they start with leading voices in fashion connected with local communities.

There might be a little bit of physical inventory at these parties, but most of the shopping is happening on the phone, and they’re really about facilitating discovery, and connecting our users with each other. The fulfillment may happen when they go home and ship the items out, but there’s still a lot of integrated local shopping happening. It’s a much different shopping experience, one that’s much more immersive, and in a classical sense, its something that’s very social.

Amazon has aggressively invested in building out its local logistics infrastructure over the past two years. Talk a bit about that strategy, and the role local logistics might play in helping ecommerce brands push into the local marketplace?
Local logistics is the one mile missing when you look ecommerce and the local experience. One of the key things with any kind of commerce, particularly when you’re moving things around, is logistics and fulfillment. Having mastered that from a warehouse-based system, Amazon is trying to attack the local delivery and fulfillment model.

It might be impossible for Amazon and others to simulate the immersiveness of the local market, but they can improve the efficiency of delivery. And Google and eBay are going after it as well because that last mile is critical. That’s an area we think a lot about even at our scale because we believe it will be critical to creating a long-term strategic advantage in any market.

The concept of omni-channel selling has been around for years. When does the term go from buzzword to reality? And are there certain developments that might accelerate its development?
Timeline aside, I think omni-channel is the wave of the future. With mobile, you carry our store with you when you walk in and out of a physical shop. That has a fundamentally, revolutionary impact on local retail. Going back to the original synthesis of what I’m talking about — discover anywhere, transact anywhere, and fulfill anywhere — you start to see something that’s very big and very transformative. It allows the physical retail store to be reinvented.

Today, if you look at a large brick-and-mortar retail store, it’s essentially a warehouse with the trappings of a front office. These new systems allow you to merchandize more or less items, and create a much different retail experience. Over the next decade, I expect new retail paradigms to emerge that will offer completely unique experiences to the customers, and those experiences will have a much higher margin impact per user.

They won’t be Amazon; and they won’t be Walmart. Distribution, fulfillment, and discovery will be much more distributed, which will allow these new firms to compete with the highly centralized model of companies that dominate retail online and offline today.

Given your view for the future of retail, where do existing retailers fit into the equation?
I think the model allows for that transition. If you look at a chain like Nordstrom’s, they bought an ecommerce retail company called HauteLook, and they’re already starting to cash in on this phenomenon. First, they’re expanding Nordstrom Rack as a retail platform. The second thing is that through HauteLook, they’ve been able to allow for reverse logistics so that online returns can be done in a physical store.

If you look at that as a platform, there’s so much innovation that can be done across a number of channels. However, in order to make it work, retailers have to do more than just recreate their front-end experiences. What we’re talking about is a distributed inventory logistics system, built from the ground up. In order to make it work, retailers must review and revise a lot of their core systems. The retailers who can do that will survive the transition; and, the ones who cannot will get destroyed in the process.

Steven Jacobs is Street Fight’s deputy editor.