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Startup of the Week [Episode 3]: Evolution of Retail

Happy Black Friday, Cyber Monday, Discount Tuesday, Something Wednesday…

Over the last several years, I’ve paid attention to some of the trends affecting the retail industry. One particular trend that clearly stands out is its movement away from brick-and-mortar locations to a purely online presence. The movement is evident when I’m visiting shopping centers around town. The two closest shopping centers to my house have no retail stores except for groceries and a CVS. Instead, all of the occupied spaces are filled with service-based businesses. For example, one of the shopping centers includes two banks, two hair salons, a wellness center, dog grooming, multiple restaurants, a dry cleaner, dentist, and UPS store. The other shopping center less than a mile away is about the same. Why are there only service-based companies left?

The most common argument I hear about the reason behind this trend is Amazon. It goes something like: brick-and-mortar stores have higher expenses that just don’t allow them to compete with the similarly priced items on Amazon. Services, for the most part, have been sheltered from competition online. However, existing retail strategies could not compete.

And this argument is true in the simplest form.

However, the thing I find most interesting about the fall of the brick-and-mortar retail store is that it primarily was the result of firms using existing retail strategies despite the quickly evolving value proposition of customers. Doing it the same way or slightly different than the way you did it in the past is not a sufficient way to adapt to the rapidly changing environment. As a result, we lost them.

I took my kids to Toys R Us right before they closed. I doubt they will remember it. One reason is that they are still pretty young. However, the second and most important reason is that there was nothing worth remembering. If there is nothing worth remembering, I’ll just buy it on Amazon.

I think this lack of innovation and customer development in the brick-and-mortar retail industry has opened the door for entrepreneurs to try new and innovative ways to create significant value for customers despite the higher cost of operating these types of locations.

Even the brick-and-mortar killer Amazon is getting into brick-and-mortar game. Why? Because they see where innovative ideas and business models can capture the needs of customers and create the value they are willing to pay for. Not every need and value a customer has can be captured by an online store. The difference is that they are not doing it the same way others did it in the past. For example, Amazon Go is their new convenience store model that eliminates the need for people manning cash registers. Instead, it uses a series of cameras to track what you decide to purchase. As a result, they are able to reduce one of the high costs of this type of operation.

It makes me wonder why it took Amazon, an online store, to come up with this technology when all of these other retailers were complaining that they could not compete with them. They could have done it, but they didn’t.

There are a lot of ideas floating around about how to change the brick-and-mortar retail industry. I can’t forecast what will work and what will flop. A lot of these new ideas and models are still going through a customer development process. However, I do think we will see a revitalization of brick-and-mortar retail, but it will be different in most ways. And those difference will be good because they will mean that companies have figured out how to deliver better value to customers. We end up being the recipients of these value-creating endeavors.

For this week, I am highlighting Taylor Romero’s company Spruce Labs (see the video and website below to see what he is doing). While I think their ideas and models will continue to go through several iterations as they respond to feedback from their customers, I like the underlying strategies of this company to use technology to change the experience of shopping at a brick-and-mortar location. Is it a value proposition that resonates with everyone, probably not. But they’re not trying to be the Amazon of everything for everyone at this time. They won’t have something for everyone. Instead, they are more like an Amazon of books. But being an Amazon of books isn’t a bad place to start.

Check out Taylor Romero’s TED talk to see what he did when his wife wanted to launch a boutique. Hint: they are trying to do it different than what was done in the past. Also, see more at sprucebot.com

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Researcher | Entrepreneur | Mentor | Investor | Director CSUSM Innovation Center

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