25 August 2012

The collapse of big box stores may be opportunity for local business

The urban landscape is changing due to the growth of e-commerce.

In the past, the arrival of Big box stores in cities and regions, particularly Wal-Mart, meant the demise of many local businesses.  They could not compete with the prices or the variety of goods offered by big box  stores. Even further back, we witnessed the virtual elimination of the local grocery stores being overtaken by large retail supermarkets and convenience stores. 

Looming now on stage right  is the specter of e-commerce , which I assert will lead to the collapse of many Big Box stores as mentioned in my earlier blog entry (http://mcadamsfatih1.blogspot.com/2012/08/collapse-of-big-boxdepartment-stores.html  .)  It has the potential to also further add to the decline of local business.

We can all bemoan the demise of local business or their favorite Big Box  or department store  (i.e., Circuit City, Montgomery Ward). The reality is that e-commerce is changing the local landscape and its influence will not decline, but grow.  

 It not mere speculation to anticipate that there will be the vacant spaces where Big Box stores once stood and isolated local business locations which could not compete with e-commerce will vacate their locations  This is also set in the background of an economy where wages are stagnant or declining.

The fact is that no physical store can compete on price basis with the Internet.  Internet ‘stores’ do not have the need for local employees, buildings or onsite inventories to serve their customers. They need only a website, warehouses and employees to facilitate the movement of goods from the warehouse to the customer.  Amazon.com is the best example of an Internet store that has prospered in this new environment. 

Should it be a surprise that Big Box and department stores will soon be history in cities? No.

In the midst of the competition from other stores, the growing e-commerce and more efficient communication/transportation, Big Box stores started a decade or more to cut costs  by only hiring part-time (who were often unknowledgeable about the store’s products) and relying only on the variety of merchandise and prices ignored that they were becoming increasingly vulnerable to a entities that could offer lower costs and the same variety of goods—the Internet.   By eliminating service, they have lost the last element that would make them locally competitive.

Who will survive and what will be the opportunities?

Similar to other economic shifts, some remnants will survive and new entities emerge.  For example, there are still blacksmiths, but only for those that are recreational horse owners and  who own horses for racing.  

The litmus test for those big box/department stores that will survive and the element of new local retail establishments?  Service!

Service has become the hallmark of many national big box stores and surviving local business  This is apparent in Lowes, Home Depot, Office Depot and others.  These entities will survive, but those that do not focus on service will not.

For local entrepreneurs, this means opening up businesses that straddle both the world of e-commerce and their local connection.  

What goods do people want service to help them make purchase decisions?  Cameras, clothing, computers, washing machines, refrigerators, automobiles, home improvement, tires etc. .  Customers have shown in the past that they value stores which have employees  with expertise to help them make decisions in these purchases.  

Local independent business which are not attached to a product line could interact with customers directly or indirectly through the Internet or mobile devices to ascertain their needs. They could search for the best prices, deliver the good and offer service in the future on a local basis. The key is a local personal assistant in purchasing. 

In a future blog entry, I will address what local governments can do to mitigate the aftermath of the exit of big box stores and their role in facilitating local entrepreneurs.

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