The end of retail as we know it

Supermarkets will go, shopping malls will shrink and high street stores will move mostly online: Retail 3.0 will be a radically altered space, says Danny Rimer


The carnage on the British high street – and its Main Street US equivalent – is no blip. The cycle of decline, which has seen a run of recent closures of UK household-name retailers and a total of more than 200 medium or large retail businesses going bust over the past five years, is here to stay. Cash-strapped consumers, retailers squeezed by unaffordable rents and business rates, and, most of all, unprecedented technological disruption – led by rocketing adoption of smartphones and tablets – are combining to bring retail as we know it to an end.

Among the biggest changes I predict is the demise of the supermarket. With excessive and unwieldy property portfolios, including many aircraft hangar-size outlets, the supermarket giants have long since reached the limits of useful expansion and no longer really know what to do with all their space. For many of the biggest players it simply isn’t going to make business sense to stock aisles groaning with 20 or 30 different brands of toilet paper or detergent. Instead they are likely to have just a few generic brands in-store and ship all the rest of their customers’ household products directly to their homes, on a monthly or bi-monthly basis – a system which is easily automated.

As that shift happens, it will render miles of supermarket shelf space redundant and lead to them having drastically reduced footprints. Yes, people will still go to a version of “the supermarket” for essentials. But in our view, it will mostly be for fresh produce and prepared foods. Think Whole Foods or Marks & Spencer ready meals.

Gigantic sprawling shopping malls will shrink, becoming showrooms – in effect hubs for in-store displays, drop-off and collection points, and face-to-face customer services

And supermarkets aren’t the only stores that will go away. The explosion in online shopping shows no signs of slowing down. On the contrary, the UK’s online retail market is predicted to grow by about 10 per cent a year for the next five years, according to research by Forrester, to reach a total of £54.7 billion in 2017, from £41.8 billion in 2012. Nowhere is this more in evidence than in fashion. With vastly improved delivery networks, and free shipping and returns services, it has become commonplace for people shopping at e-tailers, such as Net-A-Porter or Zappos, to order four or five items they like, in three different sizes, to be dispatched to their homes or workplaces simultaneously. From those, they’ll select a couple and send back the rest.

It’s my belief that this system will be adopted by most fashion retailers, who will eventually do as much 90 per cent of their business online. After all, who wants to be jostled in a checkout or changing-room queue when you can browse and shop at will on a tablet, which now offers the highest quality product photography, rich information, peer reviews and social media integration. This will result in dramatically fewer bricks-and-mortar Zaras, H&Ms, Topshops and Miss Selfridges. It will also mean that gigantic sprawling shopping malls will shrink too, becoming showrooms – in effect hubs for in-store displays, drop-off and collection points, and face-to-face customer services.

Malls and shopping centres will also host growing numbers of pop-up stores. For example, one of our investments, Etsy – the online marketplace for handmade, vintage, and arts and crafts products – has been running pop-ups in outlets belonging to West Elm, the prestigious American homeware and furniture retailer. We expect to do something similar shortly with another of our investments, the fast fashion brand, Nasty Gal.

With malls and department stores looking for ways to drive foot-traffic, inviting hip new brands into their buildings will prove irresistible. From the online business’s point of view, it offers a quick burst of “real-world” visibility with none of the attendant long-term overheads.

So, as the internet lays waste to the traditional shopping landscape, what sorts of stores will remain? For one thing, we expect fashion boutiques to thrive, not least because the people who run them are so often brilliant curators, who spot and cultivate the brightest new talent. Customers will visit, get personalised help with their shopping and will probably sip coffee while doing so. They might even pick up an order they’ve placed online with another boutique, while they’re there. Similarly, we think there’s a bright future for retailers offering immersive experiences and fun activities. These might include grocery stores offering cooking lessons. You might then buy the ingredients in-store and cook for friends at home.

But in the end Retail 3.0 is really all about omni-channel: the seamless transition from in-store to online and everywhere in between, particularly on tablets. This doesn’t mean that bricks-and-mortar retail will disappear altogether, rather it will become just one channel among many that will allow us to shop however we want, wherever we are.

Danny Rimer is a San Francisco-based partner at leading technology venture capital firm Index Ventures who, in 2007, was featured in the Forbes Magazine Midas List of the world’s 25 best deal makers in venture capital