Hi RP'ers. A friend of mine who is the editor of a gemological trade journal
asked me to write a story about retailing and the internet. This is not
specifically RP but it got me thinking how I could run a virtual custom jewelry
store, interactively designing a piece of jewelry using CAD, in realtime with
customers anywhere in the world. This may come to be sooner than we think.
Internet Retailing:
Today and Tomorrow
3-12-99
by Steven Pollack
The first trend I see in retailing as a consequence of the massive shift towards
online buying, is the disappearance of the retail/wholesale distinction. Almost
any product can be sold on the Internet by the wholesaler/manufacturer at prices
that a traditional retailer cannot meet because of higher overhead costs.
Take diamonds for example. I am a small custom jeweler who buys maybe $80,000 in
diamonds from two or three different dealers. I limit myself to a few dealers so
that I gain some importance to them. Because I buy in “volume” I get wholesale
prices. What is to keep the dealer from selling through the Internet, to the
public, at my cost, at obviously higher volumes? Maybe they would do so at a 5%
premium to cover the few deals which go bad, but that still underprices what I can
profitably deal diamonds for.
The dealer benefits by accessing the retail market and also by collecting C.O.D.
from the customer. And the transaction security issue will eventually be solved
by some enterprising company which will act as a local transaction hub. Maybe
Kinkos will offer such a service.
This brings me to my second trend which is that the dealers who are financing the
jewelry industry with 30/60/90 day terms, may re-evaluate whether these terms are
justified. In other words this new distribution may cause wholesaler financing to
dry up for the industry.
This brings up the question of what the retail reaction to this will be.
Predictably, retailers will have to buy in volume from the cutting centers at 20%
back of wholesale, the margin traditional wholesalers work on. Therefore, we will
have retailers becoming wholesalers and wholesalers becoming retailers which
supports my first trend of the distinction between the two ending.
The third trend I see is a shakeout in the number of retail/wholesale entities
that can be supported by this leaner marketplace. The more that prices drop on
commodity items such as diamonds, watches, basic mountings, and basic items, then
there is less profit to support overhead for all organizations dealing to the
public. This will cause consolidation so that this drop in profit can be made up
in volume by a fewer number of organizations.
As the internet reaches a 20% to 50% market share for all retail sectors, a fourth
trend will emerge in the form of a real estate crisis. Internet run businesses do
not need retail space and retailers with retail space may not necessarily need
more space to support the increase in volume brought about by their Internet
division.
In fact, the fifth trend I see, with increased bandwidth in the future, is the
lack of need for physical retail locations at all. Right now, 56K is very slow.
Cable Modem hookups and DSL lines are now available at up to 600K. When
technology allows for downloads of 6Mps(6000K) then real-time interaction will be
achieved as this is the speed of video. Imagine yourself in a movie quality
video, REAL-TIME, interacting with the customer. You could show them pieces in
3D, draw sketches for custom pieces in real-time, show the customer the piece on a
female sales associate(and probably have the technology to meld the customers face
with the sales associate body for a realistic experience). The only difference is
the customer being able to physically feel the piece yet I wonder if that will be
worth so much markup as a freestanding location would require.
Does the transaction really dictate that the buyer and seller be in the same
location when movie quality real time virtual interaction is available? This is
not technology that is so far off in the future either. The video quality already
exists, bandwidth will be solved within the next five years. Are you ready to
compete with the low overhead of a virtual showroom in your competitions’
basement?
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