Brick And Mortar Retail Is Not Dead: Don't Believe The Critics

May 24, 2017 10:45 AM ETBBBY, BBY, TGT, WMT, W, AMZN26 Comments
Kario-Paul Brown profile picture
Kario-Paul Brown
73 Followers

Summary

  • Online only retailers cannot compete. Costs are too high.
  • Amazon will not kill the competition.
  • Differentiation is key to survival for the small players.
  • Omni-channel is the way of the future.

I believe, as many do, that the retail industry is evolving, but I don't believe that online only retailers will kill brick and mortar. Consumer preferences are clearly changing, and more customers prefer to shop online. However, certain questions arise. Is an online only model more competitive than doing both (omni-channel model), and can brick and mortar retailers become omni-channel retailers without losing competitiveness? The facts as they stand today lead me to believe that brick and mortar is here to stay, and online only retailers aren't.

Online Only Retailers have no Competitive Advantage

Online only retailers are trying to use current technology to eliminate the cost advantage created by years of merchandising and logistics experience. They won't, not with today's technology. Every tangible product uses some square footage of space and requires equipment and people to move them around, whether that product is in a store, a warehouse or a vehicle. Online shopping does nothing to change the volume and the speed at which goods are sold, and therefore the same amount of space is needed along the value chain. Sure, you may need a smaller number of stores to accommodate the "new way" of shopping, but if the volume and the speed at which products are consumed remains the same, the products must be stored in larger warehouses, larger stores or both. While there are cost advantages to consolidating warehouses, that potential efficiency is not exclusive to online retailers, and so omni-channel retailers will gain efficiency as they optimize their own stores. In fact the ability to ship from a store gives brick and mortar retailers a cost advantage, given that their stores are already close to major population centers. Online shopping also does not provide an exclusive ability to predict customer orders better than brick and mortar retailers. As such inventory balances along the supply chain of the online only retailers will likely not be any lower than

This article was written by

Kario-Paul Brown profile picture
73 Followers
Founder, CEO KPB & Co - Value InvestorOver the last decade, I have had the opportunity to test, and refine an investment philosophy rooted in value, a strategy practiced by Warren Buffet and other notable investors. This experience culminated in the launch of my holding company KPB & Co which holds a diversified portfolio of assets with superior economics. I currently hold a MSc. in Financial Economics, an MBA, and over 6 years of professional investment experience covering EM fixed income, and equity.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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