MIKE WALDEN COLUMN: What’s the future of retailing?

Published 9:19 am Friday, January 22, 2021

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One of my most enduring memories as a small child was the weekly shopping trip with my mother. This was in the early 1950s, and my parents lived in a small home in a rural area of Ohio west of Cincinnati, just down the road from my grandparents’ farm. The nearest town with any reasonable amount of shopping was five miles away. Today that’s not very far, but my Mom didn’t have a car. My father used the only vehicle we had for his daily trips to work.

Mike Walden

So on Thursdays — which was shopping day — my Mom would put me in a little red wagon and pull it the half mile to Carsh’s grocery store. Carsh’s was a typical “mom and pop” store so prevalent in those days. Not only did Carsh’s sell food products like meat, eggs, bread and cereal, but if you needed some fabric, nails or stationary, Carsh’s had those too. On the way back home, the groceries took my place in the wagon.

Buying groceries has undergone many changes during the last seven decades, and stores like Carsh’s, which was family owned and run, are harder to find. They’ve been replaced by supermarket chains or rolled into “big box” stores which sell everything. At the same time there’s been the rise of specialty stores that cater to particular products and tastes.

Yet there’s no doubt the most revolutionary recent change in retailing has been cyber-buying. The U.S. Department of Commerce defines cyber-buying, or as some call it, e-commerce, as “sales of goods and services where the buyer places an order, or the price and terms of the sale are negotiated, over an internet, mobile device, electronic network, electronic mail or comparable online system.” Translated, we use one of our tech devices to buy something.

Cyber-buying was almost non-existent a decade ago, accounting for only 4.5 percent of retail sales. The latest data for 2020 show it now accounts for 16.5 percent of retail sales in 2020. That’s an amazing almost four-fold increase within a decade.

It may surprise you that cyber-buying “only” accounts for 16.5 percent of all retail sales. This relatively low rate has two implications. First, it means consumers still buy most of their products and services in the traditional way, by visiting stores and shops. This is a big reason why there’s been so much concern about brick and mortar stores during the COVID-19 recession, because those stores are still the main way consumers make purchases.

Second, the fact that cyber-buying accounts for a seemingly low 16.5 percent of retail sales means it has plenty of running-room to grow. In fact, if cyber-buying expands in the next decade at the same rate it has grown in the last decade, by 2031 it will be the way 60 percent of retail sales are accomplished. Cyber-buying will also be strengthened by the fact that as time marches on, more individuals will have grown-up using computers, smartphones and other modern tech devices. Cyber-buying will be as natural to them as rotary phones were to me.

As cyber-buying grows, it will also change. Shoppers will still be able to visit a website, compare products and services, then click and buy as they do today. But there will be three big enhancements to cyber-buying that will be applauded by some, however received skeptically by others.

The first is drone delivery. Cyber buying often comes with delivery. Most such delivery today is done using vehicles on the roads. Drones are small, light-weight machines capable of flying short distances. They avoid congested roads and are perfect for delivering packages. At the end of 2020 the Federal Aviation Administration finalized new rules regulating the flights of drones. Experts think these rules will allow drone delivery to quickly expand and add a new dimension to the advantages of cyber-buying.

The second enhancement will be use of AI, short for artificial intelligence, by cyber-buying companies. One of the aspects of the technology revolution is the ability of companies to collect all kinds of data from people buying their products and services. The companies know what we buy, when we buy and how often we buy.

The development of AI, which is just a fancy term for programs predicting behavior, will increasingly allow cyber companies to anticipate our shopping needs. For example, a cyber supermarket will know the kinds of cereal the Waldens buy, the size of the box and how many times a month we purchase it. Expanded to all of the Waldens grocery purchases, a cyber supermarket could fill our weekly shopping cart and have the products delivered to our door. The Waldens wouldn’t have to take the time and thought to fill out weekly grocery lists, nor would we need to drive to the store to purchase them. In the future, the delivery may even be met by the Waldens robot, which accepts the groceries and puts them away.

The third new development for cyber shopping will be virtualization. Virtualization allows a person to stay where they are, but have all the sensory (sight, hearing, taste, touch, smell) experiences of being somewhere else. Think about how this could be used with vehicle shopping. I stay in my home but “test drive” vehicles virtually. The one I pick is then delivered to my home.

I know much of these predicted developments, like AI and virtualization, sound like science fiction. But I remember when Dick Tracy’s wrist watch with audio and video capabilities seemed far-fetched, but now we have them. I’m not sure I’m ready for the new retailing world, but do I have a choice? You decide.

Dr. Mike Walden is a William Neal Reynolds Distinguished Professor in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook and public policy.