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Tue December 18, 2012
Innovation Hub 12/22/12: The Future of Shopping
- Howard Anderson: senior lecturer at MIT's Sloan School of Management
- Gina Keating: author of "Netflixed: the Epic Battle for America's Eyeballs"
- Pai-Ling Yin: assistant professor of strategy at MIT's Sloan School of Management
As of Nov. 2013, Massachusetts shoppers will notice an unfamiliar addition to their Amazon.com receipts — tax — the state's 6.25 percent sales tax, to be exact. Why the shift? Massachusetts has been losing revenue from residents who buy products tax-free online — an estimated $387 million in 2011 alone. That's a lot of books. And clothes. And gadgets.
The numbers show that online retailers are changing the way we shop. But only a select few can claim that they always knew online shopping would rule retail markets.
As the online bubble grew in the late 1990's, the prognosticators — particularly those in the tech industry — thought their revolution would change everything, including how we shopped.
At first, this seemed ridiculous. Especially when the excesses of the bubble exploded on companies like Pets.com. But what if the prognosticators just got slightly ahead of themselves?
Online Retail Reigns
After all, the aforementioned Amazon, king of all online retailers, is now worth $110 billion. Compare that to Macy's, which is worth $16 billion; JCPenney, which is worth $4 billion; and Sears, which is worth $5 billion. Amazon could swallow them all whole.
Amazon’s might has had a measurable impact on the retail market. Bookstores have had a rough time — with the huge chain Borders, most notably, shutting its doors. Howard Anderson from MIT's Sloan School argues that this is because shopping can be unpleasant.
“Shopping is not pleasant. It’s painful,” Anderson explains. “What’s your time worth? Is it worth 10, 20, 50 dollars an hour? To go to any physical store, and pick up something, and take it back takes an hour. So whether I am buying food, or whether I am buying Apple computers, or whether I am buying music — that pain, especially at this time of year — becomes onerous.”
Eliminating Consumer Reluctance
Companies are even encouraging people to cyber-shop for things they have traditionally been reluctant to purchase online — like clothing. Until recently, shoppers were reluctant to buy items that have to fit your particular body online. How have companies been able to overcome a customer’s reluctance? Zappos, the tremendously successful online shoe store now owned by Amazon, put customers at ease by removing the fear of a “bad buy.”
“They make it very easy and convenient for the shopper to buy the shoes — maybe buy multiple pairs of them — try on the one that fits, pick that one, and send the rest back,” says Pai-Ling Yin, also at Sloan School of Management. “But I think another thing that Zappos tapped in to is the ability of the Internet to be a two-way communication device. So if you go on their website, for all these shoes there are often many reviews from customers …They have videos where people demonstrate and show you all the angles of the shoe and actually put it on for you so you can see it on a person.”
Providing an array of information, along with the risk-free ability to buy multiple sizes and products, allows the customer to feel safe purchasing even a traditionally tricky item, like shoes. But Anderson predicts that not all brick and mortar stores should be quaking in their boots.
“For some things we will always go do a store,” Anderson explains. “I need a mattress — I don’t care what you say, mattresses are big and bulky, I am going to go to a store and lay on that mattress, I can’t do that in a cyber world.”
But even for the “safe” stores, competition will be fierce — Amazon is testing out same-day delivery in 10 cities right now, eliminating the inconvenience of waiting for a product that might drive some shoppers to physical stores. The result — even stores that stay in business may lose a portion of sales to online retailers.
“I think we’re coming to a position where every day will be Cyber Monday,” Anderson predicts.
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