Transparent inventory & the rebirth/death of retail

The Times reports this morning on smart retailer Nordstrom making its inventory in warehouses and in stores transparent so a buyer who’s dying for a purse can find it nearby (for immediate gratification), or from the warehouse (for convenience), or at the last store that has it (which will ship to her).

The earlier rendition of this was BestBuy or B&N making it possible for customers to find whether an individual store had an individual item via their web sites; that’s not quite as easy as saying, “wherever it is, just get it to me,” but it was an important step in this direction.

The next rendition of this will be, I think, enabling the customer to search across multiple retailers and order. That will give us what Dave Winer tweeted this morning that he wants: “I wish there was an Amazon store in midtown Manhattan, where I could buy anything that is available for same-day delivery. I’d go there now.”

Well, if Amazon did that, it would be gigantic, expensive, capital-intensive, inventory-filled Wal-Marts peppered all across the country; it would be expensive to build and it wold lose the efficiency and profitabliy that Amazon enables.

But the virtual version of what Dave wants is possible with transparent — and open — inventory, enabling customers to ask, “Who has this item nearest me at the best price? Then I’ll go get it or get it delivered to me today.”

Ah, price. There’s the rub, of course. Such a network would make pricing transparent. It pretty much already is. We can search across individual retailers or use the likes of Froogle and get the lowest prices. There lies the downfall of retail’s margins, taking out the ability to arbitrage opacity in pricing. Now add transparent inventory and the ability to get the item at the lowest price now and the value of retail brands sinks as does its profitability — in an already tough-margin business.

I could imagine a new service — from Amazon or an entrepreneur — that says: Tell me what you want, Dave, and I will tell you where you can find it or I’ll get it to you. That’s the new value-add for those who want to touch an item or get it immediately. The other value-add is support and service (see: Best Buy’s Geek Squad). Putting boxes and shelves and waiting for people to buy them while carrying the cost? That no longer adds value; it only increases risk.

Retail is going to get ever-more efficient. Independent bookstores were killed by the more-efficient box stores. Box stores were wounded by Amazon and the internet. Amazon could be injured by a local value-added retail search-and-delivery service. All this is fine for the customer: more choice more quickly at lower prices.

But I think retail could be headed the way of newspapers: into a pool of endless pain. All over America, I see empty retail shells: the former Circuit City, the closed book box, the folded mom-and-pop. I think there’s much more of that to come.

This is what transparency — in price and inventory — can do to a market.

  • http://www.gulpmedia.com Jeff Rosen

    Jeff-

    You know that I’m a fan but…here’s an excerpt from my post last night.

    Allow me to give you an example of how transparency has already worked for everyone. I am not an academic. I am using first hand experience, so please forgive me if I am short on details.

    Prior to the mid 1980’s, if you wanted to purchase a new car, your options were to buy it outright, finance it with a traditional bank loan or, if you were lucky enough to be a professional, lease it. Leases were little understood pieces of financing back then and were reserved for a very small percentage of the population. They were known as “non-disclosure” contracts. This meant that the consumer was unaware of the capitalized cost of the vehicle. The buyer knew what their monthly payment and buyback were going to be, but had no clue what they were actually being charged. The dealerships and finance companies loved this. They could actually over-charge for the car and get away with it. At the same time the auto industry was struggling to survive (remember…this isn’t the first time Chrysler has been bailed out).

    Cars became more expensive and automakers needed to find alternative ways to finance these large purchases. They looked to leasing. Just as consumers were being lead to utilize this relatively understood financing method, states became increasingly suspect of these non-disclosure leases, eventually forcing financial institutions to adapt “full-disclosure” contracts. The banks attempted to resist, the dealers complained and the manufacturers balked, suggesting it would inhibit their ability to sell cars.

    The result…

    New cars became affordable again. The manufacturers and dealers sold more cars with higher profit margins, while the banks that provided the financing took in record revenue. Chrysler repaid its government loan and had a relatively successful two decades.

  • http://www.gulpmedia.com Jeff Rosen

    How was your first day of class?

  • http://scripting.com/ Dave Winer

    Jeff, I just want it for NY, not for all other cities all over the country.

    I don’t think any other American cities get the service NY gets, local same-day delivery. That means that all the items are warehoused locally. I’d also like to be able to shop in a retail outlet. Instead I went to B&H, another of those places that is both retail and physical, and only in NY. (See also: J&R.)

    There *are* advantages to living in NY. I’m almost beginning to not notice them, but reveled in the convenience when I first moved here.

    I also read the Nordstrom’s piece in today’s times and feel it’s totally rational.

    But I don’t want a compromise, I want an Amazon retail experience.

    • http://www.gulpmedia.com Jeff Rosen

      Dave,

      I can certainly relate.
      I spent many years living in NYC. I think it’s why I’ve turned out to be an impulse shopper, needing instant gratification for my purchases. I’ll always go get it now, rather than wait.

      I was more focused on the Nordstrom’s angle. There are lots of examples of how industries that tried hard to remain opaque, failed at doing so and still ended up huge beneficiaries. Wall Street is another example. The deregulation of commission rates in 1975 set the stage for Muriel Siebert and fostered a wave of retail investing. NASD enforcement actions to make ECN’s more transparent led to tighter spreads and more liquidity as did steps by the NYSE. It is the return to opaqueness that I think is now scaring people away from Wall Street (flash orders, dark pools, algorithmic trading, etc.)

      I’m not sure if you read my original post http://gulpthis.tumblr.com/ but these excerpts are part of a broader discussion related to the media and marketing industries and how they should embrace transparency in order to revive their failed online business models.

      Regards,
      Jeff Rosen

  • dave

    What if this pricing strategy applied to our healthcare decisions?

    I’ve had a cell phone for 10 years now. When I first got it, I had a phone that could remember 100 numbers but it was mobile, big advantage. It did have an annoying bunch of drop offs, but it was tolerable. 1000 minutes for $125.

    fast forward to 2010. My phone has far fewer drop offs, 2000 anytime minutes are $99, texting is free, I can take pictures and video and can remember 999 names. All this is done with for less real dollars than 10 years ago. I know when I mention healthcare it sounds political, but i don’t mean it that way. Information is moving too fast…i really would like to see the healthcare system freed from the shackles of being tied to your job or mandated by a government entity.

    If Jeff’s post above isn’t alesson, I don’t know what is.

    • http://www.gulpmedia.com Jeff Rosen

      Maybe then “service” would have meaning.

      Anyone who calls an industry dead or a dinosaur just fails to see the next monumental shift in HOW the future business model looks.

      Journalism isn’t dead, just the business model. I don’t care how many individuals you throw at breaking news, someone who has experience in the topic and can offer proven, expert opinion is far more valuable to me than Joe Shmo who broke the story with his iPhone, regardless of how entertaining it may be for that moment. I think Gordon Crovitz opined on this very topic about 18 months ago, comparing newsprint to radio.

      My argument is this, if we can democratize the pricing of digital media through the use of transparency, content creators and artists with the most talent will monetarily benefit from having the highest demand.

      Medicine is far too complex for me parallel and my knowledge of the industry is zero, therefore I can not comment. It is also a “need” and not a “want”.

      All the best,
      Jeff Rosen

  • http://timwindsor.com Tim Windsor

    One thing that’s made retail a lot more transparent for me is the Red Laser app on my iPhone:

    http://itunes.apple.com/us/app/redlaser/id312720263?mt=8

    Sometimes I use it as a wish list — just scan the thing I’m considering for possible later purchase — and sometimes it’s a comparison-shopping tool. But either way, it’s taken a lot of the mystery out of retail.

    Now if it could tie into a same-day Amazon delivery service or a real-time bid system where retailers offered their best price once I scanned the item, it would be even better.

  • cm

    Quite a bit of extra price mark up comes from inertia. Even if a search front end finds you a better price, how far are you prepared to drive to save an extra dollar? While the cost of moving around on the internet is decreasing it is still non-zero. Are you prepared to log off Amazon and log in to B&N to save a buck off a book? If you’re buying from places that charge shipping and handling then those costs need to be factored in too.

    The ultimate for these price search places is when they start to take the order for you and act as an agency: one place to shop, sign up and pay. You pay them and they then handle all the downstream dealing. You might get some sort of choice matrix of price vs delivery vs financing (on big ticket items).

    There are of course quite a few products and services where this won’t work properly. Car dealerships for instance. They’re already hurting because customers will test drive a car at their local dealer then scrounge the internet for a low price. That’s not a sustainable model. Perhaps showrooms will end up being run by the manufacturers .

  • http://www.sw4.de/ Stefan Wild

    Do you know about Shutl (http://shutl.co.uk/)? That’s a London-based service that offers 90-minute delivery (or delivery on a specified hour) with cooperating shops in the London area.

  • http://www.culturahq.com Jason Lorimer

    Interesting post.
    I wrote something along the same lines earlier this year called Big Box Retail is Dead – http://blog.culturahq.com/post/526029436/bigboxretailisdead