In the mid-’90s, during the height of Silicon Valley’s first dot-com boom, German software engineer and entrepreneur Stephan Schambach invented the obscure concept of “online shopping carts” and built the first e-commerce software, called “Intershop Online.” Today, it is the backbone of all shopping websites.
While online shopping was already changing the entire economy, the coronavirus pandemic, which forced nearly all physical retailers to close up shop for months, put the transition into hyperdrive. During the three-month nationwide quarantine, countless mom-and-pop stores were wiped out of existence; large retail chains were forced to downsize and permanently close stores; and several already struggling brands plummeted right into bankruptcy thanks to the last straw that was COVID-19.
As a result, e-commerce has become a primary economic driver as retailers across spectrums count on it to keep business flowing during the ongoing pandemic—and probably for the foreseeable future.
In a recent interview with Observer, Schambach, who now runs a retail-focused software provider called NewStore, shares his thoughts on the challenges and opportunities facing retailers and how shopping will feel different for consumers in a post-coronavirus world.
Most American retailers aren’t prepared for a post-coronavirus world.
Like what we’ve heard from other industry experts, the pandemic is going to accelerate innovation for the retail sector exponentially. “The retail environment we’re experiencing now will accelerate the trend to run stores as part of an integrated digital strategy,” Schambach said. “Things that would normally take 10 years to happen will now take place in 10 to 12 months.”
Schambach noted that many well-known specialty retailers in the U.S. operate by a “multichannel model,” rather than an “omnichannel” system. “They have stores and they have a website. But there’s really no connection between these channels. For example, buy-online-pickup-in-store could take several business days,” he explained. “The reason is that it’s technically challenging to make these channels communicate with each other in real-time.”
Currently, most large retailers rely on traditional enterprise software, such as ERP and POS, to manage the supply chain. “Implementing a new solution like these usually cost a couple million dollars and an average of five years to deliver results,” he said. “It’s obviously very expensive, and five years is too long for retailers to wait in the current environment.”
Mid-size retailers will face the most difficult time in overhauling e-commerce system.
“There isn’t a single formula for all brands,” Schambach said of survival plans for retailers after the pandemic.
“If it’s a really small business and family-run, they will figure out how to restart and survive in most cases,” he continued. “Big brands, if they are financially healthy and have a product being sold worldwide, can also get through it. The medium-size brands are really the ones that are going to have the least opportunity to restart without major changes—especially those in the growth stage [meaning unprofitable] with external funding. They have this cost structure that depends on outside funding. Once that stops, they won’t be able to operate.”
Buy-Online-Pickup-In-Store (BOPIS) is only temporary.
Since the coronavirus lockdown, almost every major retailer in the U.S, from Nordstrom and TJ Maxx to Nike and Sophora, has offered expanded BOPIS service in a bid to retain customers who are used to shopping in stores but can no longer do so. And there’s a general consensus among industry experts that this new way of selling and buying things will permanently change retail even after the pandemic passes.
But Schambach begs to differ. “BOPIS is a temporary fix,” he said, before going on to explain that providing this service alone is neither enough to meet customer demand or financially beneficial to a business.
“It’s just not enough; customers expect way more than that,” Schambach said. “You already need a significant digital infrastructure to build a BOPIS system. But what’s really essential to brands is to move from the old multichannel model to a direct-to-consumer model that can flexibly use its inventory between physical stores and online channels.”
There will be fewer stores on the street. And shopping there will feel more like shopping online.
“One thing I’ve heard from retailers a lot lately is that they don’t want to come back [from the pandemic] with the same inventory level,” Schambach said of the future of retail. “They want to keep 30 to 50 percent less inventory in stores. Many brands want fewer stores, too, primarily using them to represent the brand, instead of as sales channel.”
To consumers, that means there will be fewer stores in malls and shopping districts (on top of the effect of permanent store closings due to bankruptcies.) The shopping experience will be different than what we are used to as well, as reopened stores are expected to keep social distancing measures in place for at least a while.
“Shopping in stores will feel a lot more like e-commerce,” Schambach predicted. “You can still see and touch the merchandise, but you might find yourself order from your cellphone more often (because of reduced inventory level) and using e-commerce payment methods, such as PayPal, Google Pay and Apple Pay.”