Brick-and-Mortar Retailers Shift to E-Commerce

Forbes Magazine describes the Bonobos-Walmart deal as comparable, and even greater than, the Whole Foods-Amazon acquisition.

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The largest brick-and-mortar retailer in the world, and coincidentally the largest employer in the United States, Walmart, is currently undergoing proceedings to acquire fashion retailer, Bonobos.

This acquisition, valued at approximately $310 million, reflects recent pivots in merchandising enterprises to become more receptive to the growing technology-savvy consumer market; this comes in response to the industry-wide dip in consumer demand. Today’s consumer is well-informed through unlimited access to the internet, values time and efficiency, and is perfectly capable in, and often prefers, creating connections through virtual means.

Retail Bubble Bursts

Bonobos is an example of a vehicle to appropriately revolutionise the fashion merchandising industry and make the transition to online retail more smooth. The 10-year old company works to provide a fitting room of sorts for online fashion sites, so that the customers may try on clothes offered by the sites to check for proper fit and style. Once a costumer is happy with his selection of garments, he may place an order online, to have it shipped from a distribution centre. Gone are the days that the consumers must spend hours mindlessly milling around a clothing store in hopes of finding a simple garment; Bonobos solves online stores’ problem of not providing a means for the customer to be absolutely certain in their purchases, and also allows for customers to receive the quick and efficient service they now desire.

This is acquisition is particularly interesting because it represents an industry-wide shift in consumer demand and, in response, an active effort by suppliers to reach a new adjusted equilibrium. Consumer preferences to technology have and must be taken into consideration.

Thinking Like an Economist

Consumer demand is determined by the amount of time, energy, or money a person is willing and able to invest to receive a certain good or service- in this case, clothing. Demand is shifting because of the increased amount of information at the consumer’s disposal, and it is decreasing because of a generational higher valuation of time. As Simeon Siegel, a retail analyst in Nomura Instinet remarked,

“E-commerce and technology have absolutely changed the rules of the game and given massive amounts of power to the consumer… People walk around with their phones in their hand to tell them the best model and the best price.”

Many retailers have been unable to pivot their selling strategies and have thus been forced out of business. Guess, Victoria’s Secret, and Abercrombie & Fitch have all had to reduce their brick-and-mortar productions by a large amount.

The second relevant economic concept is the shift of labor demand and supply. Labor supply in the merchandising market has been relatively unchanged in the last ten years, and is in fact the largest sector for jobs in the United States and Europe, employing millions especially in entry-level positions. However, the observable technological revolution of recent years has shifted the demand for these jobs, and these entry point positions are the first to be replaced by machines. This past month of March saw an unprecedented loss of retail jobs: 34,700 across the United States, more than in the great recession of 2008. Perhaps most interesting is that statistics have shown a rise in consumer confidence and a decrease in general unemployment; thus, it seems that the decrease in merchandising positions and decline of malls are due to a systemic, not frictional or cyclical, change.

The graph above provides empirical evidence to reinforce the idea that traditional merchandisers are flailing while online retailers are flourishing.

Applied economic intuition reveals that technology cannot simply be faulted for ‘destroying’ jobs; it should also be credited for creating jobs in other sectors (which demand more educated, innovative, and skilled labourers).

Shifts in Strategy

Walmart’s move to acquire Bonobos is an exemplary example of a forward-thinking strategy by a traditional brick-and-mortar retailer. The Wall Street Journal recognises that corporations must understand three important lessons to remain competitive in today’s market:

1. Data is King. Walmart is effectively examining current consumer demands and rich data to readjust accordingly. This will be leveraged once this proposed shift to an online platform is completed.

2. Personalisation and atomisation yield profits. In providing “guide shops” for fitting and style, Bonobos adequately eliminates excess supply and allows Walmart to provide supplies exactly as they’re demanded, thus enhancing customer and producer experience.

3. Legacy tech won’t cut it. It is necessary for companies to become fully immersed and fluent in their own technology. Acquisition is perhaps secondary to building a personal technological system, as it will most likely prove difficult to fit Walmart’s exact business model, and thus will be difficult to adapt to change in the future.

All signs point to the necessity for large corporations, like Walmart, to adapt to a changing consumer market by leveraging technological resources. It is a pattern that will drastically change job opportunities, and will favour educated labourers by replacing entry-level positions.

Thus, in this acquisition, Walmart will trade off equality for efficiency, and even still this may only be a short-term solution. Taking the economic concepts of supply and demand and the Wall Street Journal’s three points in mind, it may prove most beneficial for Walmart and other large corporations, and their current employees, to adapt to technological advances by developing a personal atomisation system; this would allow for the companies to create internal training and professional growth opportunities and still competitively cater to the dynamic needs of their customers.

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