A data provider’s view on the ‘Retail Apocalypse’

When I first began sharing our plans to build a data analytics company for the physical world, almost a decade ago, many people – especially pre-seed angel investors and early employees – voiced concerns that the offline consumer world is rather limited, even shrinking. More specifically, certain questions and claims kept coming up:

  • Don’t you think the digital world is going to kill the offline world?
  • Why would you start a company that serves a dying market?
  • Sooner or later EVERYTHING will move online.

And of course, the press loves promoting this narrative too. Stories that speak of the demise of brick-and-mortar consumerism – especially retail – are prevalent in industry forums, academia, and the media. Over the last decade in particular, experts and commentators claim that it’s only a matter of time before most consumer activity shifts online, while anecdotes of famous retailers going bankrupt and grim images of empty shopping centers bolstered this apocalyptic storyline.

image of empty store with "store closing sign"

Despite this recurring narrative, intuitively, I just wasn’t convinced.

While I try to avoid predicting the future, it’s hard to imagine a world where people don’t want to meet for coffee, eat at restaurants, take their families to amusement parks, vacation in hotels, or explore the world through travel.

Certainly, the way we consume physical products and services is significantly changing with certain retail categories moving largely online. But the future of physical world consumerism isn’t about how we buy our socks and laundry detergent. It’s determined by the experiences people seek.

Metaverse or not, can you imagine a world where experiences and services like these go online and leave nothing behind that can only be captured in the physical world?

A data company’s physical world market

Honestly, even with my own more optimistic assessment, since launching Placer, I’ve learned that I also underestimated the scale and endurance of physical world consumerism.

As we gained traction and refined our understanding of its many verticals – restaurants, consumer packaged goods, leisure, civic institutions, private equity, aviation, to name a few – we witnessed an ecosystem of real-world players that is far bigger and more sophisticated than we imagined. 

These companies and institutions form the backbone of our economy and society. 

This snapshot offers only a general, top-down flavor of the physical world market a data analytics company like Placer can serve.

What the data says about the physical world retail

Of all the consumer sectors in the physical world, retail is often cited as undergoing the most radical change. Here’s what’s been happening in US retail over the last decade:

We can use this data to draw some conclusions:

  1. The vast majority of retail still takes place in the physical world.
  2. The breakdown between overall online and offline retail has gradually shifted in favor of online by around 1 percentage point per year over the last decade.
  3. The pie itself continues to grow. In 2021, retail and food services sales in the US (offline and online combined) reached over $7.4 trillion – a 20% increase on the $6.4 trillion in pre-pandemic 2019. Alongside online increasing its proportion of the pie, the dollar size of offline’s slice continues to grow substantially.

Additional important points:

  • Don’t split hairs over the exact online-offline breakdown. There are many ways to look at it. But whether it’s US Census Bureau e-commerce figures or data from a private source like Statista, sales or spend, sentiment or dollars – they all show the same approximate split and same gradual trend.
  • There are infinite subplots behind the macro picture:
    • In-person music and video retail rocketed ahead of the trend and went almost completely online over a decade ago.
    • Car washes have totally disregarded the trend and remain 100% in the physical world. 🙂
    • Grocery retail is significantly behind the trend at 8-10% online in 2020-21
    • Apparel retail has shifted online 3-4X over the trend and is now close to a 50:50 split.
  • Not apocalyptic, but still significant. While the gradual shift towards more digital retail is nothing close to terminal for the physical world, the changes are substantial. For example, the 1.8 percentage point decrease in offline retail sales from 88.8% in Q3 2019 to 87% Q3 2021 equates to $31 billion of sales lost by brick-and-mortar retail in one quarter alone.

    Within certain retail categories, this means the closure of physical stores, jobs lost, retail spaces yet to be repurposed, and even companies going bankrupt. These resulting hardships felt by individuals and communities should not be overlooked.

Change is opportunity

There’s a massive opportunity for innovators and investors to focus on understanding and identifying how physical-world consumerism is evolving in order to determine where to invest time and energy into the right solutions.

For example, the retail and CPG industries have understood that consumers don’t want a binary choice between an exclusively digital or real-world experience, but rather access to the best of both worlds

In response, retail categories like home improvement and apparel no longer even acknowledge sales as being either offline OR online. Instead, they embrace holistic, omnichannel strategies such as online-to-offline commerce, “click and collect” (which evolved into “curbside pickup” during the pandemic), and DTC-led models that rely on showrooming and other increased physical world brand presence. (Check out Placer’s 2022 Retail Trends Forecast report for more on this.) 

A huge amount of technology and data is required to help companies execute these new strategies successfully. For our part, Placer’s mission is to develop a Market Intelligence Platform providing companies with maximum visibility and understanding into what’s going on at their locations.

(You can read about the solutions Placer is building for physical world intelligence in this post.)  

Other key technologies include in-store augmented reality, imagery and sensors, self-service and contactless technology, mobile-integrated in-store experiences, edge computing, cloud-based POS, and lots more.

Bottom line – there are boundless opportunities for technology and big data in particular to help guide the brick-and-mortar world through its response to changing consumer demands. 

Enjoyed the read? Questions, feedback, or ideas? Click here to contact or follow me on LinkedIn.

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