Ecommerce and The New Business Model

Posted on July 15, 2019 at 08:12 AM

Ever wonder why your local mall is empty, closed, or converted to restaurants and game centers? It’s because retail has really changed over the past twenty years. And the change is more than just a shift to online shopping.

It’s a shift in values that is much larger than most people realize. Malls are the artifacts of World War II. The first malls were built shortly after the end of the war, initially conceived of as a community center. A place where people could come together for shopping, social interaction, and cultural activity.

We’re way beyond that now.

The Death of Shopping Malls

When malls first opened, people wanted mass-produced goods. After a generation of scarcity, the US experienced an economic boom, and people were ready to acquire as much “stuff” as they could afford.

According to worldatlas.com, the competitive environment that malls face today is different from that faced during the early years when the main competition was the downtown business districts. Currently, most of the best locations are no more.

Our Modern Economy

Despite some downturn and rough patches in the US economy, abundance has given families a different set of priorities. Millennials and Gen Z want quality over quantity. They want convenience at low prices. They want transparency, authenticity, and environmental responsibility.

Brick-and-mortar retail stores have a shrinking place in this new value system.

Companies like Casper Mattresses and Harry’s Shave Club offer just that. They, like so many new companies, operate primarily online. These and similar brands seem to be advertising on every marketing avenue with great success.

Unpacking Casper

The Modern Business Model

The typical business model (manufacture product, stock product, sell product, repeat) is changing. Online stores and subscriptions seem to be taking over. According to Forbes, the subscription eCommerce market has grown by more than 100% percent a year over the past five years, with the largest retailers generating more than $2.6B in sales in 2016, up from $57.0M in 2011. The average person is subscribed to 3 to 4 video streaming services alone.

Casper Mattresses

Casper is a mattress you order online without ever trying it, and it is delivered to your home in a small box that, when you open it, reveals a full size (or larger mattress).

Their hook is you can sleep on the mattress for 100 nights, and if you decide you don’t like it, you can just call Casper and they’ll send someone to pick it up.

There are no stores (although now that Casper’s success has spawned a half dozen competitors and thrown the entire traditional mattress industry into disarray, the company is thinking of opening a few).

Harry’s Shave Club

Harry’s Shave Club is a subscription razor blade company that literally gives away the razor as long as you keep ordering the blades, and it, too, is only available online. How is this financially feasible? Harry’s bought its own razor blade factory so it could preserve quality and undercut big brand prices simultaneously.

If you are on social media and you are in their target market, you may already have ordered glasses from Warby Parker or apparel from Everlane, Bonobos, Betabrand, or Allbirds.

All Birds

Allbirds

Allbirds are all the rage among venture capitalists in Silicon Valley. They are walking, running shoes made of merino wool. The company that makes them is committed to producing environmentally friendly footwear.

Betabrand

Betabrand makes crowd-funded men’s and women’s apparel. Famous for its Dress Pant Yoga Pant, it, too, is based in San Francisco. It holds design contests in which the design that gets the most votes (a vote is a pre-order) gets manufactured and sold through their site.

Warby Parker

Warby Parker, an eponymous brand made by a New York-based company named JAND, gives away a pair of eyeglasses for every pair it sells. Before you buy, you can try on five different pairs of glasses of your own choosing in the comfort of your home and send back the ones you don’t like. The glasses are mid-market in price.

woman wearing glasses

Warby Parker’s story sums up this new trend:

Warby Parker was founded with a rebellious spirit and a lofty objective: to offer designer eyewear at a revolutionary price, while leading the way for socially conscious businesses.

 Every idea starts with a problem. Ours was simple: glasses are too expensive. We were students when one of us lost his glasses on a backpacking trip. The cost of replacing them was so high that he spent the first semester of grad school without them, squinting and complaining. (We don’t recommend this.) The rest of us had similar experiences, and we were amazed at how hard it was to find a pair of great frames that didn’t leave our wallets bare. Where were the options?

It turns out there was a simple explanation. The eyewear industry is dominated by a single company that has been able to keep prices artificially high while reaping huge profits from consumers who have no other options.

We started Warby Parker to create an alternative.

By circumventing traditional channels, designing glasses in-house, and engaging with customers directly, we’re able to provide higher-quality, better-looking prescription eyewear at a fraction of the going price.

Warby Parker’s story affirms the changes in the retail industry. What these brands have in common is that they are part of a fast-growing new trend called Direct-to-Consumer, which seeks to cut out the costs of intermediaries in the traditional garment or lifestyle business (everything from distributors to real estate leases) by selling only through eCommerce.

Cost is only one part of the direct to consumer equation

Another aspect is environmental sensitivity. For the most part, these brands use recyclable or use environmentally friendly materials and packaging, and integrate a form of philanthropy in their strategies.

Bombas, for example, promises to give away a pair of socks for every pair you buy. Marketing itself as the most comfortable socks you will ever wear, Bombas has grown so quickly that it has already given away ten million pairs of socks to homeless shelters, after finding out that socks are the most sought-after articles of clothing of the homeless.

The third innovation in this new form of retail is transparency. Everlane promises exceptional quality, ethical factories, and radical transparency about its fabrics.

And the fourth is convenience. Quip, an electric toothbrush that costs $25.00 as long as you subscribe to its quarterly replacement bristles, is only available online and schedules your replacements so you don’t even have to think about them.

Taken together, these new brands are truly extraordinary in how differently they envision the traditional retail process. For future generations, convenience and environmental responsibility will replace the mall experience.

Brand Logos

 

High Risk Companies

Most online businesses are considered to be high-risk companies, which typically means that the business will incur various restrictions and very high credit card processing fees that will adversely affect the bottom line.

Double Whammy

Unfortunately for these high-risk online companies, many consumers purchase their products with high rewards credit cards, which leads to exuberant credit card processing fees that eat into a company’s profits.

Businesses Can Recover CC Processing Fees

There’s an easy solution: by passing those fees onto the consumer via a surcharge, companies can recover those fees.

For today’s consumers, a transaction fee is meaningless. They are used to paying for convenience; they pay to have their toothbrushes and their food delivered, their movies streamed straight into their homes, and their cars purchased from a kiosk.

We founded SurchX to enable niche innovators such as the aforementioned companies to succeed against the big kahunas. We aim to improve the way retail is done.

 

 

Announcement: Winner of the Thompson Reuters RegTech Startup Competition

Posted on Nov 05 2019 at 12:18 am

Of the hundreds of companies from all over the world that were nominated to participate [...]

Read More

How to Start Surcharging

Posted on Oct 28 2019 at 10:49 pm

Ever since merchants won the class-action lawsuit in 2013 filed against Visa and Mastercard, demanding [...]

Read More

8 Benefits to Price Transparency with Surcharging

Posted on Oct 14 2019 at 8:54 am

Customer Service Means Respect: Each year businesses spend countless hours and dollars on customer service [...]

Read More