Wednesday, January 5, 2011

Demise of the retail dinosaurs?

Some of Australia's largest retailers are calling for a change in tax laws to reduce the difference between their prices and those of online competitors, particularly those from overseas. So far retailer's appeals have rightly earned little sympathy. These corporate heavies seem to think that a ten percent saving from avoiding the relevant tax makes the difference between in-store and online shopping. They seem determined to insist that consumers shop on retailers' terms. Instead, what we may be witnessing is the death of a business model and the triumph of a new one with far reaching repercussions.

The essence of traditional high-street retailing consists of attracting customers into visiting a store in a convenient location and making the experience so rewarding that they will come again. But the rents for such real estate are high and every square meter has to be used to maximize returns. There is a whole science behind how retailers use shelf space and shop layouts to boost sales. The simple physical stature of the average human sets limits on  shelving, and that is just the beginning. The alternative model - filling online orders from a warehouse in a low-rent area on the urban fringe - has a lot going for it. Retailers can stock more goods per square meter of floor space because shelves can extend much higher and there are no inefficient hierarchies of good and bad shelf space. These benefits are further multiplied if automated retrieval systems are used. The benefit for consumers are lower prices, greater product variety and choice. A good website is also much easier to use and search for product comparisons and information than it is to get reliable information from shop-floor staff who are often just school kids on holiday jobs with little idea about what they are selling. 

A wider shift away from antiquated bricks and mortar retailing to online shopping would free up valuable inner-urban real estate for housing, cultural and leisure activities or public space. The death of the retail dinosaurs could be the birth of a better urban landscape.

Image: Cobalt 123

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