Will Brick & Mortar Re-emerge Post Pandemic?

by: Jaffer Ali

What follows is a series of tweets I posted on 12/28/2020 as part of my process of thinking through the past year. My Twitter handle is: Jaffer Ali – @Jaffer22915438

1/ Online retail is getting huuuge press on its response to the pandemic. But a dirty secret is that few online retailers are actually making profits. Those flush with VC/PEG money have *invested* in growth and not profits.

2/ We have been online retailers for 20 years and have known hundreds of online retailers. Few actually understand their real costs. And those subsidized with other people’s money mistakenly believe they can just turn a knob to become profitable once they achieve “scale”

3/ Simply wrong in 99% of the cases. Scale has emergent costs not originally input into their spreadsheet driven models. When the subsidies run out, they usually go on life support… and one after the other have gone bust.

4/ I am an advocate of online retailing, but that does not make us blind to the challenges that are emerging. What are these?

5) The competitive landscape is filled with retailing dilettantes who do not understand online retailing save deploying capital to grow. These competitors distort the landscape (see “free shipping”)

6) Sales tax compliance ads costs. Doing customer service properly is often thought of as a cost and when looked at it thus IS COSTLY. We see C/S as an opportunity and thus reduces “cost”.

7/ Shipping…shipping..shipping. These costs have outpaced just about all other costs. Once again, a clear majority of online retailers do NOT have a handle on real costs. Those outsourcing fulfillment to 3rd party companies are also clueless as to real costs.

8/ Most online retailers use LTV (lifetime value) metrics to guide their acquisition strategies. Another clueless practice enthusiastically promoted by every media owner and agency. Results in overwhelming fragility.

9/ Online retailing is experiencing crushed margins and addled business practices (which mightily contributes to crushed margins).

10/ All of the above are some reasons WHY I believe we will see a re-emergence of brick & mortar entrepreneurial shopkeepers once the pandemic subsides and commercial real estate bleeds out. Brick & mortar stores are only 3% of our sales now. We would like to see it hit 10%.