tag:theconversation.com,2011:/uk/topics/online-retail-1640/articlesOnline retail – The Conversation2024-01-01T20:33:58Ztag:theconversation.com,2011:article/2154422024-01-01T20:33:58Z2024-01-01T20:33:58ZWhat is dropshipping? 6 things to consider before you start dropshipping as a side hustle<figure><img src="https://images.theconversation.com/files/556502/original/file-20231030-23-sz3v30.jpg?ixlib=rb-1.1.0&rect=0%2C24%2C8192%2C5432&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/young-woman-shopper-consumer-receiving-parcel-2093630602">Shutterstock</a></span></figcaption></figure><p>You buy a new phone case from an online retailer. The phone case arrives safely at your house, the online retailer makes a small profit and everyone is happy. </p>
<p>But the phone case didn’t come from the retailer’s premises. It was sent directly from the manufacturer. The only thing the online retailer did was take your order and organise for the factory to deliver the case to your home.</p>
<p>This is “dropshipping”: where an online seller organises to have purchased products sent to buyers directly from the wholesaler or manufacturer, rather than sending it themselves. Many see dropshipping as, if not their main business, then as a valuable side hustle to help bolster income when the cost-of-living crunch is making it hard to make ends meet.</p>
<p>In other words, the seller doesn’t own a warehouse of products ready for shipping. They’re a middleman. They organise delivery of products to customers without taking physical possession.</p>
<p>Dropshipping may sound like an appealing side hustle to help offset the cost-of-living crunch but there are downsides, too. </p>
<p>So, what do you need to know before you become a dropshipper?</p>
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Read more:
<a href="https://theconversation.com/temu-chinas-answer-to-amazon-is-already-australias-most-popular-free-app-what-makes-it-so-addictive-212463">Temu: China's answer to Amazon is already Australia's most popular free app. What makes it so addictive?</a>
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<h2>There are pros and cons</h2>
<p><a href="https://www.statista.com/statistics/1264272/dropshipping-market-size/">Dropshipping has doubled since 2020</a>, and is expected to double again by 2027. </p>
<p>Websites with e-commerce features are also increasingly affordable, and since the barrier to entry for starting a dropshipping business is low, it has become a popular method for making extra money.</p>
<p>Dropshipping eliminates “inventory costs”, which includes things like: </p>
<ul>
<li><p>buying the products upfront</p></li>
<li><p>paying warehouse rent, and </p></li>
<li><p>paying staff to package and ship. </p></li>
</ul>
<p>Since dropshippers don’t need to hold any inventory, they’re able to offer a wider selection of products to sell. Low startup costs also make dropshipping more accessible to a wider range of people than traditional businesses.</p>
<p>So dropshipping has clear advantages over traditional methods of selling online – but it’s not all rosy. </p>
<p>The main problem with dropshipping is loss of control over the delivery and fulfilment process. </p>
<p>If a problem with delivery arises, it can be more difficult to resolve. Is the problem with the manufacturer? The warehouse? The delivery service? Sometimes it can be unclear and take longer to address than the customer would like.</p>
<p>This can threaten the seller’s ability to offer superior customer service. </p>
<p>Here are six things worth knowing before you launch into dropshipping as your side hustle.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/556499/original/file-20231030-15-dmuy5h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A person types on a computer keyboard" src="https://images.theconversation.com/files/556499/original/file-20231030-15-dmuy5h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/556499/original/file-20231030-15-dmuy5h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/556499/original/file-20231030-15-dmuy5h.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/556499/original/file-20231030-15-dmuy5h.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/556499/original/file-20231030-15-dmuy5h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/556499/original/file-20231030-15-dmuy5h.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/556499/original/file-20231030-15-dmuy5h.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Websites with e-commerce features are increasingly affordable.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/image-mans-hands-typing-selective-focus-95538487">Shutterstock</a></span>
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<h2>1. Supplier reputation matters</h2>
<p>Dropshipping isn’t new – brands in the late 1990s were doing it. But with this maturity has arisen opportunities for fraud. </p>
<p><a href="https://ipic.ca/english/blog/dropshipping-a-gateway-for-the-sale-of-counterfeit-goods-2021-06-25">Counterfeits, knock-offs, and general quality issues</a> are worryingly commonplace in the dropshipping world. </p>
<p>Choose a reputable supplier with clear systems and processes to control product quality and eliminate copyright infringement.</p>
<h2>2. Choose a local supplier</h2>
<p>To remain competitive, delivery speed is key. If your target audience is in Australia, shipping from foreign soils won’t cut it – the delivery times are too long.</p>
<p>Consumers are willing to wait to receive their products on some occasions, but most of the time consumers want it now. </p>
<p>Choose a local, reputable supplier to minimise delivery times.</p>
<h2>3. Don’t assume quality</h2>
<p>One of the biggest mistakes dropshippers make is not physically inspecting products before listing them for sale. </p>
<p>Dropshipping enables sellers to offer a wider range, since shelf-space isn’t an issue. But that may tempt you to keep adding new products to the catalogue. </p>
<p>The quality of products from dropshipping suppliers varies considerably, and what looks great on screen might look very different in hand. </p>
<p>Selling poor quality products means more customer service requests, and ultimately consumers start to associate your brand with poor quality. </p>
<p>Always get a new product sent for physical inspection before listing them in your sales catalogue.</p>
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<a href="https://images.theconversation.com/files/556500/original/file-20231030-21-h130m6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A man looks disappointed when he opens a package." src="https://images.theconversation.com/files/556500/original/file-20231030-21-h130m6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/556500/original/file-20231030-21-h130m6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/556500/original/file-20231030-21-h130m6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/556500/original/file-20231030-21-h130m6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/556500/original/file-20231030-21-h130m6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/556500/original/file-20231030-21-h130m6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/556500/original/file-20231030-21-h130m6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Selling poor quality products means more customer service requests.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/worried-young-hispanic-man-received-wrong-2311006365">Shutterstock</a></span>
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<h2>4. Develop a relationship with your supplier</h2>
<p>The best way to resolve potential delivery issues associated with dropshipping is to build a strong relationship with the supplier. </p>
<p>Many suppliers do not offer support services when things go wrong. These suppliers should be treated with caution. </p>
<p>Developing a strong, collaborative relationship with a willing supplier makes service failures easier to deal with.</p>
<h2>5. Stand out from the crowd</h2>
<p>Doing business online is not easy – all your competitors are just a click or a tap away. Dropshipping is common, and many other websites are selling the same things as you, potentially from the same supplier. </p>
<p>Standing out from the crowd is key. Differentiate yourself from other dropshippers by servicing niche markets and offering superior after-sales support.</p>
<h2>6. The customer sets demand</h2>
<p>Don’t add more and more products to your catalogue until you’re offering everything under the sun; this sets you up for failure because you end up offering everything to no-one. </p>
<p>Specialisation is key. Find an easily reachable and sizeable audience and stick to what they want, not what you <em>think</em> they want. </p>
<p>Careful attention to sales data will help clarify what it is your customers are telling you they want.</p>
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Read more:
<a href="https://theconversation.com/accc-says-consumers-need-more-choices-about-what-online-marketplaces-are-doing-with-their-data-182134">ACCC says consumers need more choices about what online marketplaces are doing with their data</a>
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<p class="fine-print"><em><span>In 2019 Brent Coker developed the Wear Cape app - a high engagement content production and seeding app designed for agencies specialising in influencer marketing strategies.</span></em></p>Websites with e-commerce features are increasingly affordable, and since the barrier to entry for starting a dropshipping business is low, it has become a popular method for making extra money.Brent Coker, Lecturer in Marketing, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2098192023-07-20T12:31:46Z2023-07-20T12:31:46ZUPS impasse with union could deliver a costly strike, disrupting brick-and-mortar businesses as well as e-commerce<figure><img src="https://images.theconversation.com/files/538363/original/file-20230719-19-vsufa7.jpg?ixlib=rb-1.1.0&rect=16%2C0%2C5514%2C3689&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Placards are part and parcel of a protest.</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/UPSLaborTalks/80443caf79fb48a894d4acfd6de53333/photo?Query=UPS%20teamsters&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=67&currentItemNo=7">AP Photo/Brittainy Newman</a></span></figcaption></figure><p><em>Talks between the International Brotherhood of Teamsters and UPS over a new contract <a href="https://www.cnn.com/2023/07/05/business/ups-teamsters-negotiations/index.html">fell apart on July 5, 2023</a>. The union and the shipping and logistics company are <a href="https://www.freightwaves.com/news/ups-teamsters-talks-collapse">blaming each other for the collapse</a>, which occurred a few weeks after <a href="https://teamster.org/2023/06/teamsters-authorize-strike-at-ups/">97% of UPS’s Teamsters voted to strike</a> if the Teamsters and UPS don’t reach an agreement by midnight on July 31.</em></p>
<p><em>Without a deal in place, <a href="https://apnews.com/article/ups-strike-teamsters-biden-delivery-cb586d2f6160a92cda9318d6290ac8ea">more than 300,000 Teamsters will stop working</a> on Aug. 1. It would mark the delivery service’s <a href="https://doi.org/10.1177/0160449X9902400106">first strike since 1997</a>.</em></p>
<p><em>The Conversation asked <a href="https://scholar.google.com/citations?user=g_BdG-cAAAAJ&hl=en&oi=ao">Jason Miller</a>, a supply chain scholar at Michigan State University, to explain how likely it is that this will happen and what to expect if it does.</em></p>
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<img alt="A uniformed employee sits in the driver's seat of a truck with UPS written on the side." src="https://images.theconversation.com/files/538368/original/file-20230719-25-2rc536.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/538368/original/file-20230719-25-2rc536.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/538368/original/file-20230719-25-2rc536.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/538368/original/file-20230719-25-2rc536.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/538368/original/file-20230719-25-2rc536.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/538368/original/file-20230719-25-2rc536.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/538368/original/file-20230719-25-2rc536.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Upward of 300,000 employees could take part in a strike.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/UPSLaborTalks/8d7eac1a06f94afc932a2cecab27a173/photo?Query=UPS%20teamsters&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=67&currentItemNo=28">AP Photo/Michael Dwyer</a></span>
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<h2>What are the reasons for this impending strike?</h2>
<p>Before the talks collapsed, both sides had been negotiating extensively on a new five-year agreement that <a href="https://www.usatoday.com/story/money/2023/07/11/ups-strike-2023-impact/70400086007/">would cover about 340,000 unionized UPS workers</a>.</p>
<p><a href="https://www.fleetowner.com/operations/article/21269359/freightmarket-ripples-ahead-of-possible-ups-strike">The delivery company has agreed to some of the Teamsters’ demands</a>, pledging to:</p>
<ol>
<li><p>End a two-tiered wage system in which part-time workers earn an average of about US$5 per hour less than full-time workers;</p></li>
<li><p>Make <a href="https://nmaahc.si.edu/explore/stories/15-year-battle-martin-luther-king-jr-day">Martin Luther King Jr. Day</a>, the third Monday of January, a paid holiday;</p></li>
<li><p>Stop requiring UPS employees to work <a href="https://apnews.com/article/ups-strike-labor-contract-teamsters-3438edf86cb006a1685e29822399a4d9">overtime hours on their days off</a>;</p></li>
<li><p>Add fans and install <a href="https://teamster.org/2023/06/teamsters-secure-air-conditioning-for-ups-fleet-in-major-tentative-deal/">air conditioning in many trucks</a> to improve cooling.</p></li>
</ol>
<p>The primary remaining sticking points concern <a href="https://twitter.com/CNBCOvertime/status/1678505073641390080?">part-time workers</a>. The Teamsters dispute UPS’s claim that part-time workers earn an average of $20 per hour. Teamsters President Sean O’Brien instead says they’re paid “<a href="https://twitter.com/Teamsters/status/1678799645336543233">poverty wages</a>.”</p>
<p>The Teamsters further want part-time workers to have earlier access to health insurance coverage and pension plans and a clearer pathway to full-time employment. The union also seeks to resolve safety and health concerns and “better pay for all workers,” as well as obtaining “<a href="https://teamster.org/2023/06/ups-pleads-to-keep-bargaining-with-more-money-teamsters-demand-more-progress/">stronger protections against managerial harassment</a>.”</p>
<p>The impasse comes after two years in which UPS posted record profits. The company cleared <a href="https://investors.ups.com/sec-filings/annual-filings/content/0001090727-23-000006/0001090727-23-000006.pdf">$12.9 billion and $11.5 billion</a>, respectively, in 2021 and 2022. The company <a href="https://investors.ups.com/sec-filings/annual-filings/content/0001090727-20-000005/0001090727-20-000005.pdf">nearly tripled its net income</a> from the levels seen in 2018 and 2019 of $4.8 billion and $4.4 billion.</p>
<p>The Teamsters argue that these record profits mean <a href="https://teamster.org/2023/07/after-marathon-sessions-ups-negotiations-collapse/">UPS can afford to pay higher wages</a>.</p>
<h2>What should consumers expect?</h2>
<p>If unionized UPS workers do go on strike, many U.S. consumers will surely fear delays in the delivery of their online purchases. In my view, that’s a reasonable concern, given that <a href="https://www.nytimes.com/2023/07/07/business/ups-strike-retail-shippers.html">UPS handles roughly 25%</a> of all U.S. package deliveries. </p>
<p>The <a href="http://www.cnn.com/US/9708/20/ups.update.early/">1997 strike, which lasted 16 days</a>, took place when e-commerce was in its infancy. The Census Bureau only began to track that slice of the economy in 1999, when <a href="https://fred.stlouisfed.org/series/ECOMPCTSA">online shopping amounted to about 0.6% of all retail sales</a>. Today, consumers spend about 15% of their shopping dollars on e-commerce purchases.</p>
<p>If a strike were to happen, UPS competitors, including FexEx Ground and the United States Postal Service, <a href="https://www.linkedin.com/posts/jason-miller-32110325_supplychain-supplychainmanagement-ecommerce-activity-7084504099454390272-3iwR?utm_source=share&utm_medium=member_desktop">would likely be able to handle about 20%</a> of UPS’s deliveries because the industry currently has some excess capacity. </p>
<p>That’s due to delivery <a href="https://data.bls.gov/timeseries/CES4349200007?amp%253bdata_tool=XGtable&output_view=data&include_graphs=true">workers clocking fewer hours per week</a> today compared to the height of the COVID-19 pandemic. <a href="https://data.bls.gov/timeseries/CES4349200034?amp%253bdata_tool=XGtable&output_view=data&include_graphs=true">Parcel delivery demand peaked in 2021</a>, when millions of Americans were still social distancing. </p>
<p>If a prolonged strike happens, UPS could lose up to <a href="https://www.freightwaves.com/news/consultant-strike-could-cost-ups-30-of-diverted-volume">30% of its business</a>, experts warn, as <a href="https://www.freightwaves.com/news/fedex-advises-ups-shippers-to-get-on-board-now">customers switch to rival services</a>.</p>
<p>The risk of losing market share is leading many industry experts to believe that if a strike were to occur, <a href="https://www.fleetowner.com/operations/article/21269359/freightmarket-ripples-ahead-of-possible-ups-strike">it wouldn’t last long</a>.</p>
<h2>What about businesses?</h2>
<p>Roughly 57.3% of the packages UPS delivers <a href="https://www.freightwaves.com/news/tough-quarter-starts-the-year-for-ups">are shipped straight to consumers</a>. The rest go to retailers and other businesses.</p>
<p>Based on <a href="https://scholar.google.com/citations?hl=en&user=g_BdG-cAAAAJ">my years of researching</a> transportation operations and supply chain disruptions, I believe Americans should recognize that the impact of a UPS strike would stretch far beyond delayed delivery of everything from pet food to tennis rackets that they buy online.</p>
<p>A UPS strike could disrupt the availability of <a href="https://www.usatoday.com/story/money/2023/07/11/ups-strike-2023-impact/70400086007/">spare parts for cars</a> and <a href="https://www.npr.org/2023/07/12/1187354600/ups-workers-could-be-on-course-for-a-historic-strike-within-weeks">wholesale medical supplies</a>, just to name a few essentials. Consumers will also find it harder to get clothing and shoes in stores, as retail locations are typically replenished by parcel carriers. </p>
<p>The supply chain for manufacturing computer and electronics products would probably be disrupted too, according to <a href="https://www.census.gov/data/datasets/2017/econ/cfs/historical-datasets.html">my analysis of data</a> from the Census Bureau and the Bureau of Transportation Statistics that <a href="https://www2.census.gov/programs-surveys/cfs/technical-documentation/methodology/2017cfsmethodology.pdf">tracks how different industries transport products to their customers</a>. Farmers and construction companies trying to get spare parts for heavy equipment would see delays in those shipments, which might result in downtime that costs tens if not hundreds of thousands of dollars.</p>
<p>Consequently, a strike would leave many businesses scrambling to fulfill customers’ orders, which may force them to spend more money on higher-priced air freight shipping. </p>
<p>Even a 10-day strike could <a href="https://www.cnn.com/2023/07/14/economy/ups-strike-economic-impact/index.html">cost the U.S. economy an estimated $7.1 billion</a> , according to <a href="https://www.andersoneconomicgroup.com/potential-ups-strike-could-be-costliest-in-a-century/">Anderson Economic Group</a> – a research firm – making it potentially the costliest strike in U.S. history. These costs stem from the 340,000 striking workers losing an estimated $1.1 billion in wages and UPS losing $816 million in earnings. The balance of this estimate would result from the disruptions incurred by UPS customers. </p>
<h2>What do you think will happen?</h2>
<p>Unlike the threatened <a href="https://theconversation.com/railroads-and-unions-reach-deal-to-avert-devastating-strike-keeping-americas-trains-and-the-economy-on-track-for-now-190600">railroad strikes of 2022</a>, there is no system in place for the federal government to prevent a UPS strike. On that occasion, Congress had the option of intervening, but a deal was reached before the government had to step in.</p>
<p>However, it seems likely that there <a href="https://apnews.com/article/ups-strike-teamsters-biden-delivery-cb586d2f6160a92cda9318d6290ac8ea">will be calls for the White House</a> to get both parties back to the negotiating table.</p>
<p>Given that both the Teamsters and UPS have an incentive to not see the company lose customers to rival shipping operations, I believe that they may reach a deal soon enough to avoid a costly and disruptive strike. Consistent with this, UPS announced on July 19, 2023, that it and the Teamsters will <a href="https://www.freightwaves.com/news/ups-teamsters-to-return-to-table">return to the negotiating table</a> before their July 31 deadline.</p><img src="https://counter.theconversation.com/content/209819/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jason Miller does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Talks between the the International Brotherhood of Teamsters and company bosses have broken down. A supply chain expert explores what could happen next.Jason Miller, Associate Professor of Supply Chain Management, Michigan State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1953102022-11-24T16:45:33Z2022-11-24T16:45:33ZBlack Friday: so many online returns end up in landfill – here’s what needs to happen to change that<figure><img src="https://images.theconversation.com/files/497199/original/file-20221124-24-wul2j4.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Someone else's problem?</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/african-american-young-woman-doing-online-1186332751">Gaudi Lab</a></span></figcaption></figure><p><a href="https://www.salecycle.com/blog/featured/11-black-friday-and-cyber-monday-online-retail-stats/">Two of the busiest</a> online shopping days of the year are upon us. In the middle of a cost-of-living crisis and <a href="https://www.ft.com/content/65cd5dda-a5ea-411a-b0ef-08caee388b47">recession</a>, retailers will be desperately hoping that shoppers take advantage of discounts on Black Friday and Cyber Monday to bump up annual sales figures. </p>
<p>While this would boost a sector that has <a href="https://www.reuters.com/world/uk/uk-retail-sales-rise-by-06-october-2022-11-18/">yet to fully recover</a> from the COVID pandemic, there’s a major downside. The more that shoppers buy online, the bigger the problem with returned goods. </p>
<p>Almost <a href="https://www.statista.com/topics/2333/e-commerce-in-the-united-kingdom/">60 million people</a> shop online in the UK – in other words the vast majority. But most shoppers buy more than they intend to keep. They order multiple sizes and colours to find the perfect item, safe in the knowledge that there’s a convenient and “free” return option to dispose of the rest. </p>
<h2>The returns nightmare</h2>
<p>This has become so standard that there’s even a name for it – “wardrobing”. Around <a href="https://www.forbes.com/sites/forbesbusinessdevelopmentcouncil/2020/06/12/how-your-return-policy-can-influence-new-sales-and-long-term-loyalty/?sh=4749b17a1c42">66% of </a> people in the UK consider the returns policy before buying online, and abandon orders when the policy isn’t obvious. <a href="https://inews.co.uk/news/consumer/instagram-shoppers-buy-clothes-wear-once-ootd-picture-return-186572">One in ten shoppers</a> even admit to buying clothes solely for the purpose of taking a photo for social media. </p>
<p><a href="https://www.royalmail.com/sites/royalmail.com/files/2019-08/royal-mail-delivery-matters-returns-2018.pdf">More than half</a> of all clothes purchased online are returned. Put another way, each British shopper returns an average of <a href="https://www.royalmail.com/sites/royalmail.com/files/2019-08/royal-mail-delivery-matters-returns-2018.pdf">one item per month</a>. </p>
<p>But if people have become used to treating their bedrooms and living rooms as the new in-store changing room, it’s not only clothes that cause an online returns problem. For example, <a href="https://www.royalmail.com/sites/royalmail.com/files/2019-08/royal-mail-delivery-matters-returns-2018.pdf">42% of electrical goods</a> ordered online get returned, mostly because they arrive damaged or faulty. </p>
<p>Returned goods are much more <a href="https://eprints.whiterose.ac.uk/170890/">complex to process</a> than other stock because they tend to arrive as single items that need inspecting individually to see why they were returned. They need sorting and possibly repairing or cleaning before being returned to stock, which for many retailers is in a different location. </p>
<p>The associated costs are significantly higher than shipping out new products. According to <a href="https://edition.cnn.com/2022/06/26/business/retail-returns/index.html">one US expert</a>, every dollar in returned merchandise costs a retailer between 15 and 30 cents. </p>
<p>Returns were estimated to be costing retailers <a href="https://www.clearreturns.com/portfolio-item/black-friday-costs-uk-retailers-180m-in-returned-goods/">about £20 billion a year</a> in 2016, roughly half that of shop-bought products. Since then, it will have <a href="https://www.statista.com/statistics/286384/internet-share-of-retail-sales-monthly-in-the-united-kingdom-uk/">increased considerably</a> – particularly during COVID as online sales went through the roof. </p>
<p>Every time you move a product there are also environmental costs associated with the journey. According to <a href="https://www.nature.com/articles/s41558-021-01246-9">one recent study</a>, the carbon emissions from returning a product are about a third higher than shipping it out in the first place. </p>
<h2>What can be done</h2>
<p>It is tempting to think we need rules to curb all this over-buying and returning. But that would be very difficult to police and also potentially disastrous for online retailers. </p>
<p>In any case, the sector is developing its own solutions: <a href="https://internetretailing.net/delivery/25-of-top500-brands-now-charging-consumers-for-returns/">a quarter</a> of leading UK brands now charge customers for returns, including fast-fashion players like <a href="https://www.retailgazette.co.uk/blog/2022/11/end-free-returns/">Zara and Boohoo</a>. They will not be doing this lightly: the Royal Mail <a href="https://www.royalmail.com/business/system/files/delivery-matters-uk-edition-2018.pdf">estimates 52%</a> of shoppers would be unlikely to use a particular online retailer if they had to pay for the returns. </p>
<p>We both still see reports online claiming that substantial amounts of returned clothes end up in landfill, but this is not what we hear from our discussions with leading retailers. <a href="https://www.sustainability.vic.gov.au/You-and-your-home/Waste-and-recycling/Furniture-andhousehold-items/Clothing">Over 95%</a> of returned clothing can be reprocessed and made available for resale as a new product – subject to cleaning and sewing repairs and retailers having access to ozone cleaning facilities to remove perfume/aftershave smells, which is actually a major one issue.</p>
<p>Our understanding is that many retailers are approaching that sort of turnaround figure. ASOS reportedly <a href="https://www.asos.com/responsible-fashion/packaging-and-delivery/6-ways-our-returns-are-more-responsible/">resells over 97%</a> of its returns, for instance. </p>
<h2>Challenges with bulky goods</h2>
<p>Unfortunately it’s very different with bulkier goods like furniture or kitchen appliances. These often require additional packaging, two-person collection and much more besides. </p>
<p>Take memory foam mattresses. A consumer returning one won’t be able to squeeze out all the air and put it back in the modest-sized delivery box. The return will therefore be the size of a mattress, and you can’t get that many on a truck.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/497194/original/file-20221124-20-g0m2rq.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Mattress on the back of a delivery van" src="https://images.theconversation.com/files/497194/original/file-20221124-20-g0m2rq.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/497194/original/file-20221124-20-g0m2rq.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/497194/original/file-20221124-20-g0m2rq.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/497194/original/file-20221124-20-g0m2rq.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/497194/original/file-20221124-20-g0m2rq.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/497194/original/file-20221124-20-g0m2rq.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/497194/original/file-20221124-20-g0m2rq.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Mattress returns are a complex business.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/new-mattress-being-delivered-on-truck-2164476311">Robin Gentry</a></span>
</figcaption>
</figure>
<p>Mattresses have also been slept on so there are hygiene considerations. The cover needs to be washed or discarded, depending on its condition. The mattress has to be inspected for damage like scuff marks, then cleaned and sanitised before being reboxed to be sold as reconditioned.</p>
<p>There are comparable challenges across the board with bulkier products. To give another example, electrical items are expensive to repair and by law need to be tested before they can be resold. </p>
<p>Faced with such issues, retailers frequently take the easy way out. They let returns languish in distributors’ warehouses before eventually sending them to landfill. </p>
<p>We have seen this first hand in <a href="https://eprints.whiterose.ac.uk/170890/">our research</a>, working with four major retail brands that use returns specialist Prolog. One beauty retailer insists their returned electrical products in beauty kits be destroyed to protect their brand, leading to many being sent to landfill. </p>
<p>We were able to demonstrate that these items could be processed more sustainably by harvesting the unused components for new kits, retained by Prolog Fulfilment for supplying missing components to other customers, or salvaged for warranty replacements. </p>
<p>These sorts of options are available with a bit of investigation. Sometimes value engineering is also possible, where engineers repair returned products and provide feedback to manufacturers about common reasons for returns. </p>
<p>Carbon footprints can also be reduced. For instance, the delivery company could hold the returns rather than sending them back to the retailer’s distribution centre. It’s still commonplace for retailers to process returns in a different location from where they ship out new products, so companies need to look at this too. </p>
<p>These failures are both unacceptable from a sustainability point of view but also a major missed selling opportunity. Many returns could be refurbished with little effort and sold as “A-” grade at a small discount. </p>
<p>When products can’t be resold, other options include resizing, donating to charity or working with specialist recycling companies to dismantle and recycle the smaller components to prevent any material going to landfill. </p>
<p>As everyone gears up for the Black Friday weekend and then Christmas, it’s time for these retailers to do better. Consumers also need to be aware of this issue and apply more pressure.</p><img src="https://counter.theconversation.com/content/195310/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Erica E.F. Ballantyne received funding from The University of Sheffield ESRC IAA fund.
Member of the Chartered Institute of Logistics & Transport (CILT) UK and its Logistics Research Network.</span></em></p><p class="fine-print"><em><span>Jonathan Gorst does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The rising cost of returned products is a burden on Britain’s retailers and the environment.Erica E.F. Ballantyne, Senior Lecturer in Operations and Supply Chain Management, University of SheffieldJonathan Gorst, Principal Lecturer in Supply Chain Management and Deputy Head of Department of Management, Sheffield Hallam UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1661742021-08-16T19:53:06Z2021-08-16T19:53:06ZHow one simple rule change could curb online retailers’ snooping on you<figure><img src="https://images.theconversation.com/files/416255/original/file-20210816-21-6808b0.jpg?ixlib=rb-1.1.0&rect=46%2C0%2C5184%2C3453&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Rupixen.com/Unsplash</span>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>I spent last week studying the 26,000 words of privacy terms published by eBay and Amazon, trying to extract some straight answers, and comparing them to the privacy terms of other online marketplaces such as Kogan and Catch (my full summary is <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3905693">here</a>).</p>
<p>There’s bad news and good news.</p>
<p>The bad news is that none of the privacy terms analysed are good. Based on their published policies, there is no major online marketplace operating in Australia that sets a commendable standard for respecting consumers’ data privacy.</p>
<p>All the policies contain vague, confusing terms and give consumers no real choice about how their data are collected, used and disclosed when they shop on these websites. Online retailers that operate in both Australia and the European Union give their customers in the EU better privacy terms and defaults than us, because the EU has stronger privacy laws.</p>
<p>The Australian Competition and Consumer Commission (ACCC) is currently collecting submissions as part of an inquiry into online marketplaces in Australia. You can have your say <a href="https://consultation.accc.gov.au/mergers-and-adjudication/consumer-questionnaire-general-online-retail/">here</a> by August 19.</p>
<p>The good news is that, as a first step, there is a clear and simple “anti-snooping” rule we could introduce to cut out one unfair and unnecessary, but very common, data practice.</p>
<p>Deep in the fine print of the privacy terms of all the above-named websites, you’ll find an unsettling term.</p>
<p>It says these retailers can obtain extra data about you from other companies, for example, <a href="https://theconversation.com/its-time-for-third-party-data-brokers-to-emerge-from-the-shadows-94298">data brokers</a>, advertising companies, or suppliers from whom you have previously purchased.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/its-time-for-third-party-data-brokers-to-emerge-from-the-shadows-94298">It's time for third-party data brokers to emerge from the shadows</a>
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<p>eBay, for example, can take the data about you from a data broker and combine it with the data eBay already has about you, to form a detailed profile of your interests, purchases, behaviour and characteristics.</p>
<p>The problem is the online marketplaces give you no choice in this. There’s no privacy setting that lets you opt out of this data collection, and you can’t escape by switching to another major marketplace, because they all do it.</p>
<p>An online bookseller doesn’t need to collect data about your fast-food preferences to sell you a book. It wants these extra data for its own advertising and business purposes.</p>
<figure class="align-center ">
<img alt="Empty Amazon packaging" src="https://images.theconversation.com/files/416259/original/file-20210816-13-1vkjfla.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/416259/original/file-20210816-13-1vkjfla.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=664&fit=crop&dpr=1 600w, https://images.theconversation.com/files/416259/original/file-20210816-13-1vkjfla.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=664&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/416259/original/file-20210816-13-1vkjfla.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=664&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/416259/original/file-20210816-13-1vkjfla.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=834&fit=crop&dpr=1 754w, https://images.theconversation.com/files/416259/original/file-20210816-13-1vkjfla.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=834&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/416259/original/file-20210816-13-1vkjfla.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=834&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Online shopping leaves a digital paper trail as well as empty boxes.</span>
<span class="attribution"><span class="source">STRF/STAR MAX/IPx/AP</span></span>
</figcaption>
</figure>
<p>You might well be comfortable giving retailers information about yourself, so as to receive targeted ads and aid the retailer’s other business purposes. But this preference should not be assumed. If you want retailers to collect data about you from third parties, it should be done only on your explicit instructions, rather than automatically for everyone.</p>
<p>The “bundling” of these uses of a consumer’s data is <a href="https://www.oaic.gov.au/updates/news-and-media/flight-centre-found-to-have-interfered-with-privacy/">potentially unlawful</a> even under our existing privacy laws, but this needs to be made clear. </p>
<h2>Time for an ‘anti-snooping’ rule</h2>
<p>Here’s my suggestion, which forms the basis of my own submission to the ACCC inquiry. </p>
<p>Online retailers should be barred from collecting data about a consumer from another company, unless the consumer has clearly and actively requested this.</p>
<p>For example, this could involve clicking on a check-box next to a plainly worded instruction such as:</p>
<blockquote>
<p>Please obtain information about my interests, needs, behaviours and/or characteristics from the following data brokers, advertising companies and/or other suppliers.</p>
</blockquote>
<p>The third parties should be specifically named. And the default setting should be that third-party data are not collected without the customer’s express request.</p>
<p>This rule would be consistent with what we know from <a href="https://cprc.org.au/app/uploads/2018/07/Consumer-Data-and-the-Digital-Economy_smallest-file-size.pdf">consumer surveys</a>: most Australian consumers are not comfortable with companies unnecessarily sharing their personal information.</p>
<p>There could be reasonable exceptions to this rule, such as for fraud detection, address verification or credit checks. But data obtained for these purposes should not be used for marketing, advertising or generalised “market research”.</p>
<h2>Can’t we already opt out of targeted ads?</h2>
<p>Online marketplaces do claim to allow choices about “personalised advertising” or marketing communications. Unfortunately, these are worth little in terms of privacy protection.</p>
<p>Amazon says you can opt out of seeing targeted advertising. It does not say you can opt out of all data collection for advertising and marketing purposes.</p>
<p>Similarly, eBay lets you opt out of being shown targeted ads. But the later passages of its <a href="https://www.ebay.com.au/help/policies/p-behaviour-policies/ebay-cookie-notice?id=4267&mkevt=1&mkcid=1&mkrid=705-53470-19255-0&campid=5338596835&customid=&toolid=10001">Cookie Notice</a> state:</p>
<blockquote>
<p>your data may still be collected as described in our User Privacy Notice.</p>
</blockquote>
<p>This gives eBay the right to continue to collect data about you from data brokers, and to share them with a range of third parties.</p>
<p>Many retailers and large digital platforms operating in Australia justify their collection of consumer data from third parties on the basis you’ve already given your implied consent to the third parties disclosing it.</p>
<p>That is, there’s some obscure term buried in the thousands of words of privacy policies that supposedly apply to you, which says that <a href="https://www.bunnings.com.au/policies/privacy-policy">Bunnings</a>, for instance, can share data about you with various “related companies”.</p>
<p>Of course, Bunnings didn’t highlight this term, let alone give you a choice in the matter, when you ordered your hedge cutter last year. It only included a “Policies” link at the foot of its website; the term was on another web page, buried in the detail of its Privacy Policy.</p>
<p>Such terms should ideally be eradicated entirely. But in the meantime, we can turn the tap off on this unfair flow of data, by stipulating that online retailers cannot obtain such data about you from a third party without your express, active and unequivocal request.</p>
<h2>Who should be bound by an ‘anti-snooping’ rule?</h2>
<p>While the focus of this article is on online marketplaces covered by the ACCC inquiry, many other companies have similar third-party data collection terms, including <a href="https://www.woolworths.com.au/shop/discover/about-us/privacy-policy">Woolworths</a>, <a href="https://www.coles.com.au/privacy#coles-group">Coles</a>, major banks, and digital platforms such as Google and Facebook.</p>
<hr>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/heres-how-tech-giants-profit-from-invading-our-privacy-and-how-we-can-start-taking-it-back-120078">Here's how tech giants profit from invading our privacy, and how we can start taking it back</a>
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<p>While some argue users of “free” services like Google and Facebook should expect some surveillance as part of the deal, this should not extend to asking other companies about you without your active consent.</p>
<p>The anti-snooping rule should clearly apply to any website selling a product or service.</p>
<p>With lockdowns barring many of us from visiting physical shops, we should be able to make purchases online without being unwittingly roped into a company’s advertising side hustle.</p><img src="https://counter.theconversation.com/content/166174/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Katharine Kemp receives funding from The Allens Hub for Technology, Law and Innovation. She is a Member of the Advisory Board of the Future of Finance Initiative in India, the Centre for Law, Markets & Regulation and the Australian Privacy Foundation.</span></em></p>There is no major online marketplace operating in Australia that sets a commendable standard for respecting consumers’ data privacy. Letting customers opt out of data tracking would be a good start.Katharine Kemp, Senior Lecturer, Faculty of Law & Justice, UNSW, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1631892021-06-22T18:02:52Z2021-06-22T18:02:52ZIf Amazon buys Morrisons, it could be a win for consumers and a major threat to other supermarkets<figure><img src="https://images.theconversation.com/files/407720/original/file-20210622-25-1hw6qwx.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">C RGP</span> </figcaption></figure><p>The share price of UK supermarket group Morrisons has <a href="https://finance.yahoo.com/quote/mrw.l/">jumped by</a> over 30% after a US private equity firm made an offer to buy it for £5.5 billion. The bid by Clayton, Dubilier and Rice, which is being advised by former Tesco chief executive Terry Leahy, was rejected as Morrisons believes the business is worth more. But there is speculation that it may prompt others to bid – including Amazon. </p>
<p>Morrisons is the UK’s fourth largest food retailer after Tesco, Sainsbury and Asda, holding a <a href="https://www.statista.com/statistics/280208/grocery-market-share-in-the-united-kingdom-uk/">10.5% share</a> of the market. Founded by William Morrison in 1899, the Yorkshire-based company grew under the leadership of his son, Sir Ken Morrison, listing on the London Stock Exchange in 1967.</p>
<p>Morrisons further expanded in 2004 with the £3.3 billion acquisition of rival Safeway. Now run by former Leahy lieutenants David Potts and Andy Higginson, it has <a href="https://www.statista.com/statistics/382340/morrisons-number-of-stores-united-kingdom-uk/">around 500 stores</a> nationwide. Unlike many retailers, Morrisons did not have to close in 2020-21, but while its <a href="https://www.theguardian.com/business/2021/mar/11/morrisons-profits-fall-2020-covid">sales went up</a>, annual profits have fallen because of costs associated with the pandemic.</p>
<h2>State of the market</h2>
<p>Nonetheless, Morrisons is a perfect target for any overseas company looking to gain a share in the UK’s £230 billion grocery market. The market has seen <a href="https://retailanalysis.igd.com/presentations/presentation-viewer/t/uk-channel-opportunities-2020-2022/i/9951">slow but consistent growth</a> over the last few years and has had to respond to changing consumer demand for more online shopping and new technologies such as automated ordering using artificial intelligence.</p>
<p>Morrisons had previously been reluctant to be part of these changes, preferring to concentrate on traditional principles that always worked well for it. The group did enter the online market in 2014 through a <a href="https://www.bbc.co.uk/news/business-22564676">tie-up with Ocado</a>, but would have been held back by the fact that orders relied on what was in warehouses and not on supermarket shelves. Having started a deepening partnership <a href="https://www.reuters.com/article/uk-morrisons-results-idUKKCN1VX0HD">with Amazon</a> in 2016, it is gradually becoming a more serious online player. </p>
<p>More generally, the Amazon partnership has been a <a href="https://www.theguardian.com/business/2021/mar/11/morrisons-profits-fall-2020-covid">bright spot</a> for Morrisons during the pandemic. The US online retail giant has been selling groceries to its UK-based Prime subscribers through Morrisons’ online platform, for example, and providing lockers for Amazon deliveries in Morrisons stores. </p>
<p>Amazon has also grown its bricks and mortar retail business in recent years with its acquisition of Whole Foods in 2017 and its recent launch of three Amazon Fresh till-free stores in London. Buying Morrisons would give it a much stronger foothold in the UK grocery market, and enable it to swiftly expand. </p>
<h2>The Morrisons attraction</h2>
<p>Morrisons is a trusted and stable contributor to the UK grocery sector, and has invested heavily over the last few years in both its retailing and wholesaling arms. Stores have been refreshed with everything from the local-market-style Market Street counters through to new trollies in car parks. </p>
<p>On the wholesale side, Morrisons is the <a href="https://www.morrisons.jobs/locations/manufacturing-locations">UK’s second largest</a> fresh-food manufacturer after 2 Sisters. By supplying not only its own stores but other retailers such as newsagent McColls in recent years, it has made the whole system more productive. Amazon would therefore be buying into a supply chain that goes well beyond stores – much more so than Morrisons’ rivals – and an estate that covers the bulk of the UK even if it is predominantly in the north of England. </p>
<p>Amazon would add an abundance of cash to invest in the business, which would mean the potential for more stores in the south of England – particularly in the south-east, where Morrisons’ presence is scarce. </p>
<p>Amazon would also bring new technologies through its established online platform. For example, Morrisons would potentially benefit from Amazon’s strengths in using algorithmic stock-ordering. Amazon would also be very likely to further develop the online business and provide a faster and more efficient service across the country as a result. At present, not all areas of the UK have access to Morrisons online, so this would be a big shift. </p>
<p>This all has the potential to shake up a sector where the top four have not been allowed to buy one another, and which has stayed fairly constant for several decades. The main issue in recent years has been the rise of German budget operators Lidl and Aldi. </p>
<p>Any Amazon takeover will raise questions about workers, given the <a href="https://www.theguardian.com/technology/2020/oct/12/uk-must-compel-amazon-to-improve-worker-conditions-say-unions">endless media questions</a> about the conditions in its warehouses. But in terms of shopping experience, consumers will clearly benefit from a takeover. It would help Morrisons to attract a younger shopper base that fully understands the online space. It would be another step towards an Amazon ecosystem in the home, where consumers get whatever they want when they need it from the online giant. The likes of Tesco and Asda might finally have met their match.</p><img src="https://counter.theconversation.com/content/163189/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Benson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Thanks to a bid from a private equity firm backed by former Tesco boss Terry Leahy, the UK’s fourth largest supermarket chain is in play.Michael Benson, Principal Lecturer in Finance, Accounting and Business Systems, Sheffield Hallam UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1591842021-04-26T16:25:21Z2021-04-26T16:25:21ZDepartment store closures: the case for a national programme to fill empty space<p>Debenhams, one of the UK’s leading department stores chains, <a href="https://www.dailymail.co.uk/news/article-9499409/Debenhams-confirms-final-closing-date-27-stores.html">is set to</a> permanently close its 97 remaining outlets in England and Wales during the first two weeks in May. Having already closed its Scottish stores and the flagship on London’s Oxford Street, it will mark the end of Debenhams as a bricks and mortar operator. The brand alone will survive, <a href="https://www.theguardian.com/business/2021/jan/25/boohoo-buying-debenhams-a-changing-of-the-guard-in-retail">having been bought</a> by online retailer Boohoo earlier in the year. </p>
<p>Department stores have not fared well under COVID-19. Thanks to changing government restrictions, stores have veered from near-normal trading to click-and-collect to complete closure apart from online offerings. This has been confusing for customers. They have <a href="https://www.ons.gov.uk/businessindustryandtrade/retailindustry/timeseries/j4mc/drsi">turned to</a> online shopping, both through department-store sites and internet-only rivals like Amazon and ASOS. </p>
<p>The timing could not have been worse for physical stores, since they were already struggling to compete with online retail. As well as the Debenhams collapse, <a href="https://www.theguardian.com/business/2021/mar/05/frasers-group-warns-of-store-closures-after-near-worthless-budget-support">House of Fraser continues</a> to axe or repurpose stores as part of an ongoing pre-pandemic programme, and John Lewis has <a href="https://www.retailgazette.co.uk/blog/2021/04/john-lewis-boss-halts-store-closure-programme/">permanently closed</a> 17 of 51 stores – including the likes of Birmingham Grand Central, which only opened in 2015.</p>
<p>A couple of years ago, I wrote <a href="https://theconversation.com/is-this-the-last-john-lewis-christmas-ad-127084">in The Conversation</a> that things had become so bad for UK department stores that John Lewis might even have put out the last of its famous Christmas adverts. John Lewis may not quite have stopped making festive ads, but more generally events have turned out worse than I anticipated. Closures are creating huge empty spaces in our high streets and shopping centres. The big question now is, what to do about it?</p>
<h2>An overreaction?</h2>
<p>First off, we shouldn’t actually assume the whole sector will die off. <a href="https://www.ons.gov.uk/businessindustryandtrade/retailindustry/timeseries/j4mc/drsi">Online retail’s share</a> of the overall UK market had climbed to 22% by the start of the pandemic, and has since risen as high as 36%. But we don’t need to assume that trend will continue indefinitely. For example, online stores may have killed off many book shops but <a href="https://inews.co.uk/news/business/waterstones-profits-sales-living-wage-394777">Waterstones was thriving</a> before the pandemic.</p>
<p>Surviving department stores could similarly benefit from being the last man standing. After all, nearly one in five people over 65 in the UK <a href="https://www.ons.gov.uk/peoplepopulationandcommunity/householdcharacteristics/homeinternetandsocialmediausage/bulletins/internetaccesshouseholdsandindividuals/2020">never use</a> the internet and many also have more spare cash than debt-laden under-40s.</p>
<p>For those that do shop online, there is still <a href="https://www.theengineer.co.uk/last-mile-delivery-challenge-logistics/">a perception</a> that it involves something of a gamble. Online delivery has improved over the years, partly thanks to better customer information through apps, texts and so on, but many of us regularly play a game of “hunt the parcel” with our neighbours.</p>
<p>During the pandemic, consumers’ experiences of online delivery have been mixed. Supermarket services have been plagued by timeslot shortages, <a href="https://www.bbc.co.uk/news/business-55540485">for instance</a>. Deliveries to home will also become less convenient once people are not always working or studying there. </p>
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<a href="https://images.theconversation.com/files/397066/original/file-20210426-23-yso1q2.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Victorians out shopping" src="https://images.theconversation.com/files/397066/original/file-20210426-23-yso1q2.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/397066/original/file-20210426-23-yso1q2.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=409&fit=crop&dpr=1 600w, https://images.theconversation.com/files/397066/original/file-20210426-23-yso1q2.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=409&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/397066/original/file-20210426-23-yso1q2.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=409&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/397066/original/file-20210426-23-yso1q2.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=514&fit=crop&dpr=1 754w, https://images.theconversation.com/files/397066/original/file-20210426-23-yso1q2.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=514&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/397066/original/file-20210426-23-yso1q2.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=514&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Shopping circa 1880.</span>
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<p>Meanwhile, department stores have never simply been about purchasing. Since Victorian times, they have been “cathedrals of consumption” – places to spend leisure time, where being seen was as important as what you bought. </p>
<p>It is no coincidence that they invariably contain a cafe, and usually various eating and drinking places. Lockdown probably hasn’t permanently killed off the inherent human desire to socialise and display social status. </p>
<h2>Pulling up anchors</h2>
<p>Nonetheless, the demise of the department store presents a significant challenge for cities, <a href="https://theconversation.com/future-of-high-streets-how-to-prevent-our-city-centres-from-turning-into-ghost-towns-154108">particularly when</a> high streets and shopping centres are declining more generally. Department stores are often the destination outlets around which retail locations are “anchored”. </p>
<p>They drive consumers to a location. Once these anchors depart, the whole shopping centre is “holed”. Nobody is likely to choose to spend their leisure time or demonstrate their status in a decaying retail centre, with boarded up shops and a despondent air. Many retailers will switch to healthier locations as a result. </p>
<p>The question is how to turn this into an opportunity to change use. It is not the first time that cities have had to manage empty, unproductive space. Two relatively recent examples are the many bomb sites after the second world war, and the brownfield sites following <a href="https://www.theguardian.com/business/2016/nov/06/the-legacy-of-leaving-old-industrial-britain-to-rot-is-becoming-clear">the deindustrialisation</a> of the 1980s. </p>
<p>This time around, the UK housing crisis, with an <a href="https://pure.hw.ac.uk/ws/files/24741931/HousingSupplyMay2019.pdf">estimated requirement</a> of 380,000 new homes a year, points to a way forward. There are already examples, with planned housing use on a former House of Fraser site as part of the multi-billion-pound <a href="https://www.wirral.gov.uk/sites/default/files/all/planning%20and%20building/Local%20plans%20and%20planning%20policy/Local%20Planning%20Evidence%20Base%20and%20Research/Wirral%20Documents/Reg%2018%20Issues%20and%20Options%202020/Birkenhead%20Regeneration/Birkenhead%202040%20Framework.pdf">Birkenhead 2040</a> regeneration project in north-west England. </p>
<p>Such conversions will be made easier by the UK government <a href="https://www.gov.uk/government/news/new-freedoms-to-support-high-streets-and-fast-track-delivery-of-schools-and-hospitals-across-england-introduced-today">changing the rules</a> so that retail sites in England can be converted into housing without planning permission. Of course, this could simply create an environment that is neither fish nor fowl – too little retail density to attract enough shoppers, but offputting to homebuyers and tenants because of noise and potential lack of privacy. </p>
<p>In any event, the planning changes are unlikely to fill all the empty footage on their own. Many leading recent housing and leisure schemes originated from repurposed urban space, such as <a href="https://www.visitmanchester.com/things-to-see-and-do/explore/the-quays">Salford Quays</a> in Greater Manchester and the <a href="https://albertdock.com/">Albert Dock</a> in Liverpool. But they took years, indeed decades, to come to fruition because there are always serious obstacles, not least fragmented site ownership, financing and lack of shared vision.</p>
<p>But rather than despair, perhaps we can learn something from the UK’s approach to COVID-19. Instead of the orthodoxy of the past 40 years where we rely on the market, the government could take the driving seat. </p>
<p>Vast <a href="https://www.nursingtimes.net/news/hospital/building-the-nightingale-hospitals-engineering-on-the-fast-track-23-06-2020/">Nightingale hospitals</a> were created seemingly overnight to handle COVID. Students and the retired <a href="https://www.gov.scot/news/coronavirus-support-from-returning-staff-and-students/">were re-employed</a> in frontline healthcare roles, and a seemingly effective <a href="https://www.gponline.com/uk-covid-19-vaccination-programme-tracker/article/1704726">vaccination programme</a> has been enacted. </p>
<p>Maybe a similarly bold approach could address the millions of unwanted square feet on high streets and shopping centres. The government could use compulsory purchase orders to take control of many sites and repurpose them into the best uses for each area. This would obviously not be cheap, but this is a national crisis. Better to grasp the nettle than to allow city centres and shopping centres to slide into ruin, with all the potential for deprivation and crime that would emerge along the way.</p><img src="https://counter.theconversation.com/content/159184/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Griff Round does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>This doesn’t have to be the end for empty retail space.Griff Round, Lecturer in Marketing, Keele UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1545532021-02-04T04:03:19Z2021-02-04T04:03:19ZWhat’s next for Amazon after Jeff Bezos? No dramatic changes, just more growth and optimisation<p>Jeff Bezos has <a href="https://press.aboutamazon.com/news-releases/news-release-details/amazoncom-announces-financial-results-and-ceo-transition">announced</a> he will stand down as chief executive of Amazon in the third quarter of 2021. The founder of the online retail behemoth will hand the reins to <a href="https://www.independent.co.uk/news/world/americas/amazon-new-ceo-jeff-bezos-b1796710.html">Andy Jassy</a>, who currently leads Amazon’s cloud computing wing.</p>
<p>The announcement comes after an enormously successful 2020 for Amazon despite (or perhaps because of) the COVID-19 pandemic, with operating cashflow up 72% from the previous year to US$66.1 billion, and net sales increasing 35% to US$386.1 billion. </p>
<p>Amazon has its share of detractors, with critics highlighting concerns around working conditions, tax minimisation, anti-competitive practices and privacy. But its enormous size and continuing phenomenal growth make it a force to be reckoned with.</p>
<p>How did Amazon get to this position, and what does the future hold under new leadership?</p>
<h2>How it all started</h2>
<p>Almost 27 years ago, in 1994, Bezos left his job as a senior vice-president for a hedge fund and started an online bookstore in his garage. At the time, using the internet for retail was in its infancy. </p>
<p>Bezos decided that books were an ideal product to sell online. Originally the new business was named Cadabra, but Bezos soon changed it to Amazon and borrowed US$300,000 from his parents to get things off the ground.</p>
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<a href="https://theconversation.com/amazon-is-turning-25-heres-a-look-back-at-how-it-changed-the-world-118307">Amazon is turning 25 – here's a look back at how it changed the world</a>
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<p>Books proved popular with growing numbers of online buyers, and Bezos began to add other products and services to the Amazon inventory – most notably e-readers, tablets and other devices. Today Amazon predominantly makes its revenue through retail, web services and subscriptions. </p>
<h2>The rise and rise of Amazon</h2>
<p>Amazon is now one of the <a href="https://www.businessinsider.com.au/amazon-ceo-jeff-bezos-net-worth-passes-200-billion-2020-8">most valuable companies</a> in the world, valued at more than US$1.7 trillion. That’s more than the GDP of <a href="https://worldpopulationreview.com/countries/countries-by-gdp">all but 10</a> of the world’s countries. It’s also <a href="https://www.statista.com/chart/17027/tech-company-workforces/">the largest employer</a> among tech companies by a large margin. </p>
<p>The key to Amazon’s dominance has been constant expansion. After moving into e-readers and tablets, it extended more broadly into technology products and services. </p>
<p>The expansion has not yet stopped, and <a href="https://www.amazon.com.au/?tag=googhydr0au-22&hvadid=410334209007&hvpos=&hvexid=&hvnetw=g&hvrand=828720878017336185&hvpone=&hvptwo=&hvqmt=b&hvdev=c&hvdvcmdl=&hvlocint=&hvlocphy=9072340&hvtargid=kwd-472833430967&ref=pd_sl_528fr5i2vk_b">Amazon’s product lines</a> now include media (books, DVDs, music), kitchen and dining wares, toys and games, fashion, beauty products, gourmet food and groceries, home improvement and gardening, sporting goods, medications and pharmaceuticals, financial services and more.</p>
<p>More recently Amazon has expanded into bricks-and-mortar, heralded by its <a href="https://www.entrepreneur.com/article/312481">purchase of the Whole Foods chain in 2017</a>, the creation of its own high tech stores such as <a href="https://www.amazon.com/b?ie=UTF8&node=16008589011">Amazon Go</a>, and its sophisticated distribution and delivery services such as <a href="https://www.amazon.com/amazonprime">Amazon Prime</a>. </p>
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Read more:
<a href="https://theconversation.com/fear-not-shoppers-amazons-australian-geoblock-wont-cramp-your-style-97612">Fear not, shoppers: Amazon's Australian geoblock won't cramp your style</a>
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<p>Amazon has become increasingly <a href="https://www.statesman.com/story/opinion/columns/your-voice/2020/10/13/opinion-why-amazon-and-its-domination-should-be-raising-concerns/114270032/">vertically integrated</a>, meaning it no longer simply sells others’ product but makes and sells its own. This gives the company a position of extreme market dominance. </p>
<h2>Criticism</h2>
<p>Amazon is hugely popular with customers, but has attracted criticism from supplier advocates, workers unions and governments.</p>
<p>Industrial relations matters, such as fair wages, unsafe work practices and unrealistic demands, appear the most common area of concern. A 2019 <a href="http://labourbehindthelabel.net/wp-content/uploads/2019/06/TailoredWagesUK-FP-updated.pdf">UK report</a> found:</p>
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<p>Amazon have no policy on living wage and make no mention of wages being enough to cover workers’ basic needs in their supplier code.</p>
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<p>Other concerns relate to alleged <a href="https://www.forbes.com/sites/deniselyohn/2020/06/02/amazon-faces-a-crucible-moment-with-employees/?sh=6c3f5d0f3822">unsafe working conditions and “whistleblower” policies</a>.</p>
<p>In March 2020, as COVID-19 began to take hold, <a href="https://www.business-humanrights.org/en/latest-news/usa-amazon-warehouse-workers-allege-they-were-fired-in-retaliation-for-protesting-insufficient-protection-for-workers-from-covid-19-incl-company-comments/">workers claimed they were fired</a> for voicing concerns about safe working conditions. Amazon vice president and veteran engineer Tim Bray <a href="https://time.com/5831674/amazon-engineer-quits-coronavirus-whistleblowers/">resigned in solidarity</a> and nine US senators issued an <a href="https://www.warren.senate.gov/imo/media/doc/2020.05.06%20Letter%20to%20Amazon%20from%20Senators%20Warren,%20Sanders,%20Booker,%20Brown,%20colleagues.pdf">open letter</a> to Bezos, seeking clarity around the sackings.</p>
<p>More <a href="https://www.nytimes.com/2015/08/16/technology/inside-amazon-wrestling-big-ideas-in-a-bruising-workplace.html">general criticisms</a> of the company culture have surfaced over the years, relating to insufficient work breaks, unrealistic demands, and annual “cullings” of the staff – referred to as “purposeful Darwinism”.</p>
<p>Another strand of criticism relates to Amazon’s market size and antitrust laws. <a href="https://www.openaccessgovernment.org/antitrust-investigation-into-amazon/97295/">Antitrust laws</a> exist to stop big companies creating monopolies. Amazon presents a challenge, as it is a manufacturer, an online retailer, and a marketplace where other retailers can sell products to consumers.</p>
<p>Privacy concerns have also <a href="https://www.wired.com/story/amazon-drone-camera-go-palm-data-privacy/">plagued</a> Amazon products like Echo smart speakers, Ring home cameras, and Amazon One palm-scanning ID checkers.</p>
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<span class="caption">The Amazon Web Services privacy policy says all the right things.</span>
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<a href="https://theconversation.com/amazon-echos-privacy-issues-go-way-beyond-voice-recordings-130016">Amazon Echo’s privacy issues go way beyond voice recordings</a>
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<p>Finally, the amount of <a href="https://www.abc.net.au/news/2019-11-21/how-amazon-australia-shifts-income-offshore-to-reduce-tax/11719232">company tax Amazon pays in Australia</a> has been brought into question. The company has used a range of tactics to legally reduce the income taxes it pays around the world.</p>
<h2>What does the future hold for Amazon in a post-COVID world?</h2>
<p>What will change at Amazon when Bezos steps down? We’re unlikely to see a dramatic shift in the short term. For one thing, Bezos is not departing entirely – he will stay involved as “executive chairman”. For another, his successor, Andy Jassy, has been with Amazon since 1997. </p>
<p>Jassy is the head of Amazon Web Services (AWS) and already one of the most important people in the tech industry. AWS has been at the forefront of simplifying computing services, driving the cloud computing revolution and influencing how organisations purchase technology.</p>
<p>Jassy’s long history, intimate knowledge of the organisation, and technological expertise will no doubt stand Amazon in good stead. </p>
<p>However, he faces a monumental undertaking. Jassy will inherit responsibility for more than a million employees, selling millions of different products and services.</p>
<p>His expertise in AI and machine learning at AWS will be increasingly important as these play <a href="https://medium.com/@ashujoshi/how-amazon-uses-ai-algorithms-c7faee72f842">a greater role</a> in Amazon’s operations – for everything from optimising warehouses and <a href="https://analyticsindiamag.com/how-amazon-is-using-ai-to-better-understand-customer-search-queries/">giving better search results</a> to <a href="https://aws.amazon.com/events/aws-innovate/machine-learning/">business forecasting</a> and monitoring <a href="https://techau.com.au/amazon-australia-using-ai-to-enforce-social-distancing/">warehouse staff</a> and <a href="https://www.theverge.com/2021/2/3/22265031/amazon-netradyne-driveri-survelliance-cameras-delivery-monitor-packages">delivery drivers</a>.</p>
<p>The physical lockdowns and online acceleration driven by the COVID-19 pandemic provided the ideal conditions for a company that has been called “<a href="https://www.penguin.com.au/books/the-everything-store-jeff-bezos-and-the-age-of-amazon-9780552167833">the everything store</a>”. Supporters and critics will watch with interest to see if this is still true in a post-COVID environment.</p><img src="https://counter.theconversation.com/content/154553/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Amazon CEO Jeff Bezos is stepping down. His successor’s AI experience may hold clues for the retail giant’s future.Louise Grimmer, Senior Lecturer in Retail Marketing, University of TasmaniaGary Mortimer, Professor of Marketing and Consumer Behaviour, Queensland University of TechnologyMartin Grimmer, Professor of Marketing, University of TasmaniaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1488022020-11-01T19:06:48Z2020-11-01T19:06:48ZThe suburbs are the future of post-COVID retail<p>The COVID-19 pandemic delivered a <a href="https://theconversation.com/how-covid-all-but-killed-the-australian-cbd-147848">body blow to CBD retailers</a>, but it’s just the latest of their challenges in recent years. They were already under pressure from <a href="https://www.abc.net.au/news/2020-09-03/coronavirus-recession-in-australia-six-graphs-explain/12624250">cautious consumer spending</a>, intense <a href="https://business.nab.com.au/nab-online-retail-sales-index-august-2020-42815/">competition from online retailing</a> and the growth of suburban “<a href="https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&ved=2ahUKEwi16pTj99XsAhUGzDgGHToVAVYQFjAAegQIAhAC&url=https%3A%2F%2Fwww.colliers.com.au%2Fdownload-research%3FitemId%3Dd1c91b17-abd7-4b03-a1d5-90874a6f38fd&usg=AOvVaw3V4dCHIa1neOszR03MtIPY">mega-centres</a>”.</p>
<p>Now, declining commuter foot traffic and an increase in people <a href="https://www.abc.net.au/news/2020-09-07/working-from-home-coronavirus-big-productivity-increase/12628764">working from home</a> present new challenges for CBD retailers. Lockdowns, changing work practices and the need for social distancing have left some of Australia’s largest city centres at times resembling <a href="https://www.theguardian.com/australia-news/gallery/2020/sep/12/melbournes-curfew-descends-and-vibrant-city-becomes-ghost-town-in-pictures">ghost towns</a>.</p>
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<strong>
Read more:
<a href="https://theconversation.com/how-covid-all-but-killed-the-australian-cbd-147848">How COVID all but killed the Australian CBD</a>
</strong>
</em>
</p>
<hr>
<p>Even as <a href="https://www.premier.vic.gov.au/statement-premier-77">restrictions lift</a> and CBDs reopen, it will not be business as normal.</p>
<h2>Stores will shrink</h2>
<p>Retailers that depend heavily on discretionary spending, for items such as <a href="https://www.afr.com/companies/retail/clothing-industry-in-decline-as-conscious-consumers-cut-back-20191014-p530ex">clothing, footwear and accessories</a>, have been hit particularly hard.</p>
<p>The latest <a href="https://www.abs.gov.au/statistics/industry/retail-and-wholesale-trade/retail-trade-australia/latest-release">Australian Bureau of Statistics figures</a> show clothing, footwear and personal accessory retailing fell 10.5% in August 2020, in seasonally adjusted terms. Department stores were down 8.9%.</p>
<figure class="align-center ">
<img alt="Chart showing changes in retail turnover" src="https://images.theconversation.com/files/366559/original/file-20201029-19-182olai.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/366559/original/file-20201029-19-182olai.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=375&fit=crop&dpr=1 600w, https://images.theconversation.com/files/366559/original/file-20201029-19-182olai.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=375&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/366559/original/file-20201029-19-182olai.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=375&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/366559/original/file-20201029-19-182olai.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=471&fit=crop&dpr=1 754w, https://images.theconversation.com/files/366559/original/file-20201029-19-182olai.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=471&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/366559/original/file-20201029-19-182olai.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=471&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/industry/retail-and-wholesale-trade/retail-trade-australia/latest-release">Retail Trade, Australia, ABS</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Interestingly, despite an average decline in spending of -0.2% <a href="https://www.ibisworld.com/au/industry/clothing-retailing/407/">between 2015 and 2020</a>, research by <a href="https://www.mckinsey.com/featured-insights/asia-pacific/retail-ghost-town">McKinsey in 2019</a> found clothing and footwear retailers increased their selling space by almost 2%.</p>
<p>Clothing, footwear and <a href="https://www.news.com.au/finance/business/retail/david-jones-retailer-flags-footprint-cut-possible-store-closures/news-story/48bce9366f4729595bcbf6ca52e8f5f0">department store retailers</a> are now expected to “right-size” their selling space. McKinsey <a href="https://www.mckinsey.com/featured-insights/asia-pacific/retail-ghost-town">predicts</a> a floor-space reduction of more than 10% between now and 2024.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/retail-wont-snap-back-3-reasons-why-covid-has-changed-the-way-we-shop-perhaps-forever-140628">Retail won't snap back. 3 reasons why COVID has changed the way we shop, perhaps forever</a>
</strong>
</em>
</p>
<hr>
<p>CBD-based department stores have fared worse than those in the suburbs. The <a href="http://investor.myer.com.au/FormBuilder/_Resource/_module/dGngnzELxUikQxL5gb1cgA/file/MYR_FY2020_Results_Presentation.pdf">Myer Annual Report 2020</a>, for example, highlights the impact of COVID restrictions on CBD store sales. Despite reopening all stores (except Melbourne) by <a href="https://insideretail.com.au/news/myer-to-reopen-all-stores-next-week-202005">May 27</a>, CBD store sales fell 33%, whereas suburban store sales contracted by only 9%, in the final seven weeks of the financial year. Myer <a href="http://investor.myer.com.au/FormBuilder/_Resource/_module/dGngnzELxUikQxL5gb1cgA/file/MYR_FY2020_Results_Presentation.pdf">reports</a>: “Low foot traffic in CBDs expected to continue for the foreseeable future.” </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/366566/original/file-20201029-15-1y70p76.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Chart showing Myer online, CBD and other sales" src="https://images.theconversation.com/files/366566/original/file-20201029-15-1y70p76.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/366566/original/file-20201029-15-1y70p76.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=396&fit=crop&dpr=1 600w, https://images.theconversation.com/files/366566/original/file-20201029-15-1y70p76.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=396&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/366566/original/file-20201029-15-1y70p76.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=396&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/366566/original/file-20201029-15-1y70p76.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=498&fit=crop&dpr=1 754w, https://images.theconversation.com/files/366566/original/file-20201029-15-1y70p76.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=498&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/366566/original/file-20201029-15-1y70p76.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=498&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The Myer annual report shows a rise in online sales, a large fall in CBD store sales and smaller fall in other store sales compared to the same period a year earlier.</span>
<span class="attribution"><a class="source" href="http://investor.myer.com.au/FormBuilder/_Resource/_module/dGngnzELxUikQxL5gb1cgA/file/MYR_FY2020_Results_Presentation.pdf">Myer annual report 2020</a></span>
</figcaption>
</figure>
<h2>Online shopping is surging</h2>
<p>As COVID shut down cities, Australian shoppers moved online in increasing numbers. The <a href="https://business.nab.com.au/nab-online-retail-sales-index-august-2020-42815/">NAB Online Sales Index</a> estimates Australian consumers spent around $39.2 billion in the 12 months to August 2020. Online shopping now accounts for 11.5% of total retail sales in Australia. </p>
<p>Research from <a href="https://auspost.com.au/content/dam/auspost_corp/media/documents/inside-australian-online-shopping-update-sep2020.pdf">Australia Post</a> shows over 8.1 million households shopped online between March and August this year —
900,000 of them for the first time. In cities around Australia, <a href="https://www.abc.net.au/news/2020-09-11/shopping-centres-feel-the-pinch-as-retail-moves-online/12651046">foot traffic has become web traffic</a>.</p>
<p>We can clearly see the impacts of this on physical retailers. A number of <a href="https://www.businessinsider.com.au/australia-retail-collapse-2020-1">major retail chains</a> have closed, including Toys ‘R’ Us, Roger David, Esprit, Ed Harry, TopShop and GAP over the past few years.</p>
<h2>CBD workers shift away from commuting</h2>
<p>As an increasing share of people work from home and fewer commute to city centres, the long-term future of CBD retailing looks bleak because of the fall in demand.</p>
<p>This shift in behaviour is likely to be substantial, as transport expert David Hensher recently <a href="https://www.sydney.edu.au/news-opinion/news/2020/09/28/australians-want-to-work-from-home-more-post-covid.html">observed</a>:</p>
<blockquote>
<p>The evidence reinforces the fact that as we move through and beyond the COVID-19 period, we can expect commuting activity to decline by an average of 25-30% as both employers and employees see value in a work-from-home plan.</p>
</blockquote>
<p>The ongoing health and economic crisis caused by the COVID-19 pandemic and the required physical distancing measures will force many firms to <a href="https://www.oecd.org/coronavirus/policy-responses/productivity-gains-from-teleworking-in-the-post-covid-19-era-a5d52e99/">introduce telework</a> (working from home) on a large scale. </p>
<p>In Australia, it has been estimated <a href="https://theconversation.com/teleworkability-in-australia-41-of-full-time-and-35-of-part-time-jobs-can-be-done-from-home-140723">39% of all jobs in Australia</a> — 41%of full-time and almost 35% of part-time – can be done from home.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/fancy-an-e-change-how-people-are-escaping-city-congestion-and-living-costs-by-working-remotely-123165">Fancy an e-change? How people are escaping city congestion and living costs by working remotely</a>
</strong>
</em>
</p>
<hr>
<p>CBD retailing relies on workers and visitors who use public transport. An August 2020 <a href="https://www.transurban.com/content/dam/transurban-pdfs/03/Urban-Mobility-Trends-from-COVID-19.pdf">Transurban report</a> found 84% of daily train users (77% of bus users) in Melbourne said they had reduced their use. Many said they did not expect to return to daily use even after the pandemic. Similar numbers were reported in Sydney and Brisbane.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/366560/original/file-20201029-17-1u6lruv.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Chart showing current and expected public transport use" src="https://images.theconversation.com/files/366560/original/file-20201029-17-1u6lruv.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/366560/original/file-20201029-17-1u6lruv.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=379&fit=crop&dpr=1 600w, https://images.theconversation.com/files/366560/original/file-20201029-17-1u6lruv.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=379&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/366560/original/file-20201029-17-1u6lruv.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=379&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/366560/original/file-20201029-17-1u6lruv.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=476&fit=crop&dpr=1 754w, https://images.theconversation.com/files/366560/original/file-20201029-17-1u6lruv.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=476&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/366560/original/file-20201029-17-1u6lruv.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=476&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.transurban.com/content/dam/transurban-pdfs/03/Urban-Mobility-Trends-from-COVID-19.pdf">Data: Urban Mobility Trends from COVID-19, Transurban</a></span>
</figcaption>
</figure>
<p>COVID restrictions and declining commuter traffic have also had big impacts on the food and beverage market. According to IBISWorld, Australian restaurant revenue has <a href="https://www.ibisworld.com/au/industry/restaurants/2010/">fallen by 25%</a>, from almost A$20 billion in 2018-19 to just A$15 billion in 2019-20. <a href="https://www.smh.com.au/national/nsw/it-hasn-t-fallen-apart-yet-cafes-in-sydney-s-cbd-on-the-brink-of-disaster-20200320-p54cds.html">Cafe owners</a> are equally feeling the impact, with fewer commuters grabbing their morning coffee and fewer coffee meetings happening around town.</p>
<h2>Back to the future</h2>
<p>With both <a href="http://cbre.vo.llnwd.net/grgservices/secure/CBRE%20Australia%20Retail%20MarketView%20Snapshot%20Q3%202020.pdf?e=1603837660&h=07e3ae7021bad508b0f4675eaae9ad94">commercial and residential rents</a> remaining relatively stable outside CBD zones, and more people choosing to work from home, we can expect to see a growth in “<a href="https://www.warc.com/newsandopinion/news/localism-is-forecast-to-be-a-major-post-pandemic-trend/43612">localism</a>”. </p>
<p>Shopping mall owners have <a href="https://www.smh.com.au/business/companies/chadstone-set-for-685m-expansion-20191202-p53fyw.html">invested heavily</a> in refurbishing and increasing the floor space of their centres to provide retail, <a href="https://www.afr.com/property/commercial/living-centres-the-future-of-shopping-20190926-p52uzy">hospitality, entertainment, leisure and recreation</a> activities under one roof. Somewhat ironically, these refurbished malls have even <a href="https://www.mdpi.com/2071-1050/11/15/3999/pdf">appropriated design elements</a> of traditional high streets. </p>
<p>With many more people working from home during the pandemic there has been something of a retail inversion with more people <a href="https://www.smh.com.au/business/companies/neighbourhood-malls-flourish-as-shoppers-stay-local-20200723-p55eto.html">shopping locally</a>. There are clear signs of a resurgence in local shopping villages and high street retailing. There even appears to be a <a href="https://www.smh.com.au/business/small-business/spotlight-milk-bars-in-the-age-of-the-macchiato-and-smashed-avo-20190723-p529qs.html">corner store revival</a> of sorts. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/more-than-milk-and-bread-corner-store-revival-can-rebuild-neighbourhood-ties-121244">More than milk and bread: corner store revival can rebuild neighbourhood ties</a>
</strong>
</em>
</p>
<hr>
<p>CBD-based retail is at a crossroads, especially in Melbourne and Sydney. Despite restrictions being lifted, the data indicate CDBs may never return to the “bustling metropolises” they once were.</p>
<p>The precarious state of the national economy, government plans to reduce subsidy payments, more people working from home, shopping locally and online, all point to a <a href="https://thenewdaily.com.au/finance/consumer/2020/09/29/online-shopping-sales/">bumpy road ahead</a> for CBD retailers. </p>
<p>Major questions are being raised about the future character and function of the CBD and, ultimately, about the structure of Australian cities more broadly.</p><img src="https://counter.theconversation.com/content/148802/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>CBD retailers were already struggling before the pandemic. The contrast in fortunes with suburban retail activity is stark, and there are good reasons to think the shift could be permanent.Gary Mortimer, Professor of Marketing and Consumer Behaviour, Queensland University of TechnologyLouise Grimmer, Senior Lecturer in Marketing, University of TasmaniaPaul J. Maginn, Associate Professor of Urban/Regional Planning, The University of Western AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1474032020-10-29T14:49:17Z2020-10-29T14:49:17ZAnt Group is holding the biggest IPO of all time – here’s what it is<figure><img src="https://images.theconversation.com/files/366228/original/file-20201028-17-1vd01rb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Ant climax. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/hangzhou-chinamarch-10-2018ant-financial-services-1662877429">wcarrot_007</a></span></figcaption></figure><p>Ant Group is likely to pull off the largest initial public offering (IPO) <a href="https://theconversation.com/ant-group-why-america-is-missing-out-on-the-biggest-ipo-in-history-145405">in history</a> when it goes public on the Hong Kong and Shanghai exchanges on November 5. The Chinese digital finance giant is <a href="https://www.bbc.co.uk/news/business-54692537">hoping to raise</a> US$34.4 billion, eclipsing flotations by <a href="https://uk.reuters.com/article/us-saudi-aramco-stocks/saudi-aramco-raises-ipo-to-record-29-4-billion-by-over-allotment-of-shares-idUKKBN1ZB03D">Saudi Aramco</a> (US$29.4 billion) and its cousin <a href="https://www.ft.com/content/0f97cc70-4208-11e4-a7b3-00144feabdc0">Alibaba</a> (US$25 billion). </p>
<p>The IPO is likely to value Ant Group at US$313 billion. This will make it the fourth biggest financial company in the world (after Berkshire Hathaway, Visa and Mastercard). </p>
<p>Many are asking what Ant Group is, how it has become so successful, and why it is worth so much. There are also questions about how it relates to the rest of the empire of Alibaba founder Jack Ma. Let’s start at the beginning.</p>
<h2>The rise of Alipay</h2>
<p>Unlike many emerging digital giants, Ant Group <a href="https://www.businesstimes.com.sg/opinion/us200b-ipo-for-ant-will-be-a-cheap-buy">has been profitable</a> from the get go. It started life as Alipay, a third-party online payment tool created by <a href="https://www.alibaba.com/">Alibaba</a> in 2004. </p>
<p>The catalyst for this move was eBay announcing plans to enter the Chinese market in 2003. Alibaba was China’s star in online retail, but was focused on selling goods for businesses. It now launched <a href="https://world.taobao.com/">Taobao</a>, a cross between eBay and Amazon, to serve consumers. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/366231/original/file-20201028-13-ikl0f5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Jack Ma giving a presentation" src="https://images.theconversation.com/files/366231/original/file-20201028-13-ikl0f5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/366231/original/file-20201028-13-ikl0f5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/366231/original/file-20201028-13-ikl0f5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/366231/original/file-20201028-13-ikl0f5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/366231/original/file-20201028-13-ikl0f5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/366231/original/file-20201028-13-ikl0f5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/366231/original/file-20201028-13-ikl0f5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Alibaba co-founder Jack Ma launched Taobao and Alipay to head off eBay’s incursion into China.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/paris-france-may-16-2019-chinese-1404202358">Frederic Legrand - COMEO</a></span>
</figcaption>
</figure>
<p>Taobao conjured up millions of users, but didn’t initially make much revenue since listings were free and there were no commissions. There was also an issue of trust between vendors and buyers; imagine a rudimentary eBay without PayPal. </p>
<p>To address this, Alipay began as <a href="https://www.bloomberg.com/news/articles/2020-08-30/as-ipo-looms-all-you-need-to-know-about-jack-ma-s-ant-group">a simple escrow service</a> to secure transactions between independent buyers and sellers on Taobao. Alipay did not have the appropriate licences, but <a href="https://www.biznews.com/interviews/2015/02/09/the-incredible-story-behind-alibabas-jack-ma-an-inspiration-that-will-span-generations">Jack Ma insisted</a> they push forward within a grey zone of legality, believing that e-commerce in China depended on it. </p>
<p>Collaboration with Chinese banks was the next step, but there were archaic and bureaucratic obstacles, and online banking was still very basic. Building a new infrastructure from scratch was the only way to scale, in collaboration with the Industrial and Commercial Bank of China and Sun Microsystems.</p>
<p>By 2006, over 300,000 merchants in everything from travel to gaming had adopted Alipay. By 2010, it had connections with over <a href="https://www.researchgate.net/publication/323877493_How_a_Little_Ant_Challenges_Giant_Banks_The_Rise_of_Ant_Financial_Alipay's_Fintech_Empire_and_Relevant_Regulatory_Concerns">200 banks in China</a> and started providing payment services for online retailers outside Alibaba Group. </p>
<p>As Alipay grew, regulation became a hot topic. China precluded foreign-owned companies from operating banks, which technically included Alibaba, since Yahoo and Softbank controlled over 50% of the company. Jack Ma and Xie Shihuang, another Alibaba co-founder, <a href="https://www.marketwatch.com/story/how-alibabas-mistake-damaged-chinas-market-2011-06-14">purchased back the majority</a> of Alipay stock to create a Chinese-controlled entity that could operate legally. </p>
<h2>Ant invasion</h2>
<p>Today, Alipay <a href="https://techcrunch.com/2020/07/14/ant-alibaba-1-3-billion-users/#:%7E:text=Alipay%2C%20the%20brand%20of%20Ant's,active%20users%20as%20of%20March.">has 1.3 billion</a> active users. Alipay has captured a huge amount of value for Alibaba by enhancing its sales proposition, though it could have taken more from mobile payment fees for itself: around <a href="https://finance.sina.cn/chanjing/gsxw/2020-03-15/detail-iimxyqwa0537070.d.html">50% of transactions</a> are free and Alibaba transactions are heavily discounted. </p>
<p>Alipay faces <a href="https://fintechnews.hk/12618/mobilepayment/alipay-maintains-dominance-in-china-over-tencents-wechat-pay-and-qq-wallet/">fierce competition</a> to maintain its 55% share of Chinese mobile payments, with rival Tencent’s WeChat Pay and QQ Wallet closing in on 40% combined. <a href="https://www.weekinchina.com/2020/07/its-all-about-the-money/">And once</a> the digital yuan being developed by the People’s Bank of China is released, new payment channels could reduce all the incumbents’ market share.</p>
<p>But if growth in user numbers is <a href="https://www.forbes.com/sites/sarahsu/2018/05/30/how-will-ant-financial-chinas-fintech-giant-be-impacted-by-new-regulations/#773f25943df4">beginning to plateau</a>, the revenue stream per user promises to continue rising. Alipay has long understood that capturing value depends on how long it retains customers’ loyalty. Payments alone were never going to be enough. Alipay has built on its <a href="https://www.researchgate.net/publication/323877493_How_a_Little_Ant_Challenges_Giant_Banks_The_Rise_of_Ant_Financial_Alipay%27s_Fintech_Empire_and_Relevant_Regulatory_Concerns">two main resources</a> – access to funds and customer data – to branch into other financial services. </p>
<p>Ant Financial was established in 2014 as a vehicle for the entire operation, amid <a href="https://www.ft.com/content/dcd9fc62-1638-11e5-a58d-00144feabdc0">a private fundraising</a>. The insect name is a metaphor for no transaction or investment being too small – when added up, they become significant. Alibaba owns a 33% equity interest, with the remainder controlled by Ma (about 50%) and early investors. </p>
<p>Ant Group now offers services across five domains - payments, wealth management, lending, credit scoring, and insurance. Wealth management relates to Yu'e Bao (“leftover treasure”), launched in 2013 to allow even the smallest customers to invest leftover funds. It offers an average of 2% greater returns than traditional bank deposit interest, plus lower fees to its asset management partners. It is one of the <a href="https://www.wsj.com/articles/investors-pull-cash-from-chinas-money-market-behemoth-as-yields-tumble-11592481715">largest money market funds</a> in the world.</p>
<p>Ant Financial has also created a wealth management platform, Ant Fortune, which enables users to choose between Yu'e Bao and other funds offered by rivals. It <a href="https://www.shine.cn/biz/tech/1906207041/">now boasts</a> over 4,000 wealth management products from over 100 asset management companies.</p>
<p>Elsewhere, <a href="https://www.ft.com/content/ba163b00-fd4d-11e8-ac00-57a2a826423e">Sesame Credit</a> was created to leverage Ant’s access to personal data to create credit score profiles for borrowers, as well as offering them financial advice. <a href="https://fortune.com/2019/07/29/jack-ma-mybank-lending/">MYbank</a> was launched to use big data and AI to lend to small and medium-sized firms that were underserved by larger banks. </p>
<p>In 2018, Ant Group launched <a href="https://www.scmp.com/business/companies/article/3039554/ant-financials-mutual-aid-platform-xiang-hu-bao-attracts-100">Xiang Hu Bao</a>, a mutual insurance platform designed to address the lack of affordable healthcare for lower-wage workers. Free to join and only charging premiums upon treatment, 100 million users joined in the first year alone. </p>
<p>This ecosystem of service offerings is why Ant Group is worth so much today. The company cross-sells them extremely well. <a href="https://www.alibabagroup.com/en/ir/investorday">As many as</a> 80% of customers use three or more services, and 40% use all five. By taking a platform approach, direct competition with traditional financial institutions has been reduced. </p>
<p>The ambition doesn’t end at financial services, <a href="https://m.chinaknowledge.com/News/DetailNews?id=64408">as evidenced by</a> the Ant/Alibaba acquisition of online food delivery group Ele.me in 2018. As a company spokesperson put it, “The idea is that people are living their lives through this platform.” </p>
<h2>The big picture</h2>
<p><a href="https://www.antgroup.com/en/ir/notices">In 2019</a>, Ant Group made profits of more than US$2.6 billion from US$17.5 billion in revenues. Profits in just the first half of 2020 superseded 2019 at US$3.2 billion (PayPal’s net income over the same period was <a href="https://www.statista.com/statistics/478481/paypal-quarterly-net-income/#:%7E:text=PayPal%3A%20quarterly%20net%20income%202014%2D2020&text=In%20the%20second%20quarter%20of,dollars%20from%20the%20previous%20quarter.">US$1.6 billion</a>).</p>
<p>There appears strong potential for Ant Group to grow outside China, having formed strategic partnerships with mobile payments providers in <a href="https://mnacritique.mergersindia.com/news/alibaba-ant-financial-invest-in-paytm/">India</a>, <a href="https://www.scmp.com/business/article/2041909/ant-financial-forms-strategic-partnership-thai-fintech-ascend-money">Thailand</a> and <a href="https://iupana.com/2018/04/26/alipay-hunts-for-latam-opportunities-after-openpay-deal/?lang=en">Mexico</a>. <a href="https://www.antgroup.com/en/ir/notices">These added</a> another US$90 billion to the US$17 trillion in processed transactions in China in 2019. Besides new revenues, they have also proven to be a successful conduit for drawing new users into the services ecosystem. Recently, however, Ant Group has <a href="https://www.nasdaq.com/articles/insight-ant-group-curbs-support-for-overseas-partners-in-strategy-rethink-ahead-of-listing">dialed back</a> some of its global expansion ambitions to focus on consolidating its gains in the Chinese market ahead of the IPO. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/366233/original/file-20201028-23-1hd5erv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Mobile phone with Ant Financial app in front of keyboard and headphones" src="https://images.theconversation.com/files/366233/original/file-20201028-23-1hd5erv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/366233/original/file-20201028-23-1hd5erv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/366233/original/file-20201028-23-1hd5erv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/366233/original/file-20201028-23-1hd5erv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/366233/original/file-20201028-23-1hd5erv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/366233/original/file-20201028-23-1hd5erv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/366233/original/file-20201028-23-1hd5erv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Stand by for the ant invasion.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/july-26-2020-brazil-this-photo-1785414962">rafapress</a></span>
</figcaption>
</figure>
<p>To offer expanded financial services, Ant Group has also developed a portfolio of tech capabilities including <a href="https://www.forrester.com/report/The+BATJ+Firms+Are+Driving+Digital+Financial+Services+For+All/-/E-RES144756">cloud and blockchain platforms</a>. It has been selling these tech services to financial companies, emphasising that the group is primarily about tech not finance, coining itself “techfin” not “fintech”. Indeed, <a href="https://go.forrester.com/blogs/ant-groups-next-move/">these tech services</a> produced 50% of 2019 revenues, compared to payments bringing in 36%, and this switch has further excited investors. </p>
<p>Ant Group would not be worth as much, or as scaleable, had it stuck to disrupting China’s payments market. It is only by having become a digital enabler of all financial services that such a large IPO is now about to take place.</p><img src="https://counter.theconversation.com/content/147403/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Most people would be content to pull off one of the world’s top five IPOs, but Jack Ma is on course for his second.Michael Wade, Professor of Innovation and Strategy, Cisco Chair in Digital Business Transformation, International Institute for Management Development (IMD)Elizabeth Teracino, Research Fellow, International Institute for Management Development (IMD)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1485562020-10-22T15:03:11Z2020-10-22T15:03:11ZUp to 40% of UK retail space is not needed – here’s what can be done with it<figure><img src="https://images.theconversation.com/files/364797/original/file-20201021-17-17790cd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">shutterstock</span> </figcaption></figure><p>COVID-19 has wreaked havoc on many retailers. Since tough new restrictions were introduced in parts of the UK during October, footfall on high streets, shopping centres and out-of-town retail parks <a href="https://www.retailgazette.co.uk/blog/2020/10/retail-footfall-drops-after-three-tier-covid-19-restrictions-take-effect/">has fallen</a>: it is now down 32% year on year, with regional cities bearing the brunt. Though retail as a whole <a href="https://www.ons.gov.uk/businessindustryandtrade/retailindustry/bulletins/retailsales/september2020">has now recovered</a> to pre-COVID levels, many physical retailers <a href="https://www.ft.com/content/a0feb217-1f13-4e34-bdc2-e2e1c9f53c48">are not paying</a> rent, and <a href="https://www.retail-week.com/stores/landlords-mull-legal-action-against-retailers-as-rent-slumps-to-new-lows/7035886.article?authent=1">some landlords are considering</a> legal action. </p>
<p>But as dreadful as COVID-19 has been, retail had serious existing problems. The reality is that there is far too much retail floorspace in the UK. Dealing with it is going to be one of the big challenges of this decade. </p>
<h2>The retail crunch</h2>
<p>Retail <a href="https://www.retaileconomics.co.uk/library-retail-stats-and-facts">employs more people</a> than any other UK sector – about 2.9 million, two-thirds of whom work for the 75 largest companies, turning over around £394 billion in 2019. In recent years, these businesses have been <a href="https://theconversation.com/retail-decline-in-maps-england-and-wales-lose-43m-square-metres-of-shop-space-107470">wrestling with</a> higher staff costs due to increases in the <a href="https://www.statista.com/statistics/280483/national-minimum-wage-in-the-uk/">minimum wage</a>; higher <a href="https://theconversation.com/the-real-story-behind-the-row-over-uk-business-rates-74324">business rates</a> (property taxes), especially for large shops in prime locations; <a href="https://uk.tradingview.com/symbols/TVC-BXY/">a weaker pound</a> since the Brexit vote of 2016, making imports more expensive; and online competition.</p>
<p>The UK already had the <a href="https://www.savills.com/impacts/Savills_OnlineRetail.pdf">third highest level</a> of online shopping in the world before COVID-19 (16% of total retail spend, exceeded only by China and South Korea). Now online <a href="https://www.ons.gov.uk/businessindustryandtrade/retailindustry/timeseries/j4mc/drsi">has become</a> even more powerful, peaking in June at one-third of all UK retail sales. Wherever it settles, it will be higher than before the pandemic. </p>
<p><strong>UK online sales as a % of total retail</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/365513/original/file-20201026-15-1b6epw1.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Graph showing total UK retail sales" src="https://images.theconversation.com/files/365513/original/file-20201026-15-1b6epw1.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/365513/original/file-20201026-15-1b6epw1.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=239&fit=crop&dpr=1 600w, https://images.theconversation.com/files/365513/original/file-20201026-15-1b6epw1.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=239&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/365513/original/file-20201026-15-1b6epw1.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=239&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/365513/original/file-20201026-15-1b6epw1.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=300&fit=crop&dpr=1 754w, https://images.theconversation.com/files/365513/original/file-20201026-15-1b6epw1.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=300&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/365513/original/file-20201026-15-1b6epw1.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=300&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.ons.gov.uk/businessindustryandtrade/retailindustry/timeseries/j4mc/drsi">ONS</a></span>
</figcaption>
</figure>
<p>Thanks to online shopping and the other pressures on physical retail, <a href="https://www.savills.com/impacts/social-change/how-to-repurpose-retail-space.html">as much as 40%</a> of shop floorspace may be permanently surplus to requirements. This is about 42 million square metres, equivalent to 175 <a href="https://uk.westfield.com/london">Westfield Londons</a>, 227 <a href="https://intu.co.uk/metrocentre">Metrocentres</a> or 284 <a href="https://bluewater.co.uk/">Bluewater</a> shopping centres.</p>
<p>This helps to explain why Intu, owner of large shopping centres like Gateshead’s Metrocentre, Manchester’s Arndale and Trafford Centres, and Birmingham’s Merry Hill, went <a href="https://www.retailgazette.co.uk/blog/2020/07/intu-ceo-matthew-roberts-exits-following-company-collapse/">into administration</a> in June. Many of its centres are <a href="https://www.business-live.co.uk/retail-consumer/newcastle-shopping-centre-eldon-square-19089952?utm_source=businesslive_newsletter&utm_medium=email&utm_content=BL_NorthEast_smallteaser_Image_Story1&utm_campaign=north_east_newsletter">now being sold</a> or <a href="https://www.retailgazette.co.uk/blog/2020/10/intu-lakeside-watford-victoria-and-braehead-snapped-up/#:%7E:text=Intu%20Lakeside%2C%20Watford%2C%20Victoria%20in,be%20run%20by%20Global%20Mutual">transferred to new management</a> as the Intu Group is dismantled. </p>
<p>Other big landlords have struggled too. <a href="https://quoteddata.com/2020/10/hammerson-collects-41-rent-q4/">Hammerson</a> (whose centres include Brent Cross, Birmingham Bullring and Bristol Cabot Circus), <a href="https://www.ft.com/content/001c08a4-cd9f-4516-b742-1a96061b771f">British Land</a> (Sheffield Meadowhall and Drake Circus in Plymouth) and <a href="https://www.thisismoney.co.uk/money/markets/article-8856717/Covid-hit-Land-Securities-eyes-retail-park-sale.html">Land Securities</a> (Bluewater in Kent, Leeds White Rose and Buchanan Street in Glasgow) have been on a stock market rollercoaster and face a similar dilemma with their oversupply of retail floorspace.</p>
<p><strong>Share prices of major UK retail landlords</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/364746/original/file-20201021-19-12yxd17.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Graph showing share prices of leading shopping centre groups" src="https://images.theconversation.com/files/364746/original/file-20201021-19-12yxd17.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/364746/original/file-20201021-19-12yxd17.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=329&fit=crop&dpr=1 600w, https://images.theconversation.com/files/364746/original/file-20201021-19-12yxd17.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=329&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/364746/original/file-20201021-19-12yxd17.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=329&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/364746/original/file-20201021-19-12yxd17.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=414&fit=crop&dpr=1 754w, https://images.theconversation.com/files/364746/original/file-20201021-19-12yxd17.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=414&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/364746/original/file-20201021-19-12yxd17.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=414&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Blue = British Land, Red = Land Securities, Turquoise = Hammerson.</span>
<span class="attribution"><a class="source" href="https://uk.tradingview.com/chart/?symbol=LSE%3ABLND">Trading View</a></span>
</figcaption>
</figure>
<h2>Mitigating factors</h2>
<p>One silver lining of the pandemic has been landlords having to reframe their relationship with tenants. As proposed by the UK government’s voluntary <a href="https://www.gov.uk/government/publications/code-of-practice-for-the-commercial-property-sector/code-of-practice-for-commercial-property-relationships-during-the-covid-19-pandemic">code of practice</a>, which came out in June, landlords must work with retailers for everyone to survive this period. This includes cutting rents to more sustainable levels. </p>
<p>For example, the market is seeing a return to <a href="https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/turning-over-a-new-lease-landlords-face-up-to-tighter-ties-to-retailer-fortunes-60550836">turnover rents</a>, where tenants pay a percentage of turnover rather than a nominal “market” rent unrelated to prevailing economic conditions. Such flexibility may reduce empty floorspace to a certain extent. </p>
<p>Another mitigating factor is that most retailers will still want some kind of presence on high streets or shopping centres. Indeed, the lockdown <a href="https://www.retail-week.com/grocery/grocery-sales-rise-as-consumers-shift-spend-to-at-home-options/7035970.article?authent=1">saw a big shift</a> in domestic spending to local convenience and neighbourhood stores in the suburbs.</p>
<p>Retailers have also been blending traditional and online sales by encouraging customers to order for next-day home delivery or click and collect. This gives them another reason to retain a physical presence. At the same time, online retailers such as Amazon are <a href="https://www.amazon.com/find-your-store/b/?node=17608448011">opening high street stores</a> to complement their offering. </p>
<h2>The way ahead</h2>
<p>Despite these innovations, there is still likely to be a large surplus of physical stores overall. So what can be done?</p>
<p>Some space might be used as offices, though the pandemic has seen a huge rise in <a href="https://theconversation.com/remote-working-is-here-to-stay-but-that-doesnt-mean-the-end-of-offices-or-city-centres-145414">remote workers</a>, some of whom may never resume the office commute. Making stores into cinemas, restaurants or bowling alleys is hardly a solution either, when the leisure sector is among the hardest hit by pandemic restrictions. </p>
<p>Perhaps the most productive opportunity is to redevelop for a more varied mix of complementary uses – as echoed by leading retailer <a href="http://www.vanishinghighstreet.com/wp-content/uploads/2020/06/Grimsey-Covid-19-Supplement-June-2020.pdf">Bill Grimsey’s</a> call to “build back better”. </p>
<p>In towns and city centres, this could include universities and colleges expanding their campuses; galleries, workshops and showrooms for the arts and creative sector; community enterprises and hubs; and health and wellbeing services which will be essential in the post COVID era, such as social care and mental health. Such uses could be assisted by public funding and landlords recognising that some tenants paying low rents are better than no tenants at all. </p>
<p>Some redundant buildings and vacant upper floors could also be turned into homes – echoing <a href="https://www.bbc.co.uk/news/uk-44482291">the return to urban living</a> of the 1990s and noughties. The government could reintroduce the <a href="https://www.communities-ni.gov.uk/sites/default/files/publications/communities/dfc-pacec-lots-final-report-september-2016.pdf">living over the shop (LOTS) scheme</a>, which subsidised such conversions during that era. </p>
<p>Yet many buildings do not easily lend themselves to residential use. Utilities may struggle to provide refuse collection, water and sewerage connections, and parking spaces. <a href="https://www.planningportal.co.uk/info/200187/your_responsibilities/37/planning_permission/2">Planning relaxations</a> may sometimes remove the need for planning permission to change to residential use, but there are still <a href="https://www.fmb.org.uk/media/37062/fmb-homes-on-our-high-streets-low-res-final.pdf">complex building regulations</a>, especially regarding fire protection and emergency access. </p>
<p>Traditional high streets also have multiple owners, who don’t always cooperate. Town centre managers and business improvement districts (BIDs) can help here, though we may need to see <a href="https://publications.parliament.uk/pa/cm201719/cmselect/cmcomloc/1010/1010.pdf">BIDs that levy</a> additional business rates on landlords rather than tenants, <a href="https://www.researchgate.net/publication/264539892_Reclaiming_the_European_City_and_Lobbying_for_Privilege_Business_Improvement_Districts_in_Germany">like in Germany</a>, to bring landlords to the negotiating table. </p>
<p>Shopping centres at least have the advantage of a single owner. As destinations in their own right, they are often regarded (rightly or wrongly) as too big to fail, particularly those woven into the fabric of city centres, such as Liverpool One or Eldon Square in Newcastle. Keeping them functioning will therefore be a high priority for the authorities. </p>
<p>Some out-of-town shopping centres had plans for new residential and leisure developments even before the pandemic. An example is the <a href="https://www.gateshead.gov.uk/article/3011/MetroGreen">project to build</a> 2,000 new homes around the Gateshead Metrocentre. The idea would be to reorientate the centre, diversifying the mix of uses to serve a <a href="https://www.savills.co.uk/blog/article/301690/commercial-property/why-repurposing-retail-space-could-be-the-answer-for-underutilised-assets.aspx">wider community</a>, though it won’t be easy to create new family homes in an environment designed around the car. </p>
<p>Such challenges are not particularly new: 25 years ago we would have called it “mixed-use regeneration”. This time it is driven by excess retail space, ironically much of it built on the former industrial sites that were regenerated in the 1980s and 1990s.</p><img src="https://counter.theconversation.com/content/148556/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Paul Michael Greenhalgh does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A space the size of 284 Bluewaters is surplus to requirements.Paul Michael Greenhalgh, Professor of Real Estate and Regeneration, Northumbria University, NewcastleLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1353712020-04-03T09:14:20Z2020-04-03T09:14:20ZCorporate debt is in serious trouble – here’s what it means if the market collapses<figure><img src="https://images.theconversation.com/files/324969/original/file-20200402-74895-43gchz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Stand well back. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/closeup-hand-man-take-one-block-387122737">Oatawa</a></span></figcaption></figure><p>Markets abhor uncertainty. The coronavirus pandemic is a severe supply shock that will substantially reduce the world’s economic output, and there will potentially be several waves as the contagion returns in the autumn or spring 2021. </p>
<p><a href="https://theconversation.com/coronavirus-comparing-todays-crisis-to-2008-reveals-some-interesting-things-about-china-132147">Many governments</a> are trying to form a bridge over the lockdown period to allow economic activity to be restored. This involves keeping viable businesses in operation with a furloughed workforce that can quickly re-open when appropriate. One major impediment is that the private corporate debt market is likely to completely implode, which risks pushing a substantial number of businesses over the edge. </p>
<p>Corporate debt is traded on the open market in <a href="https://www.economist.com/finance-and-economics/2020/03/12/corporate-bonds-and-loans-are-at-the-centre-of-a-new-financial-scare">several ways</a>: bonds issued directly by companies, and bank loans that are sold on to investors by the bank that agreed them, either individually or in packages of multiple loans. Bonds make up <a href="https://files.stlouisfed.org/files/htdocs/publications/es/13/ES_31_2013-11-15.pdf">the majority</a> of the market. </p>
<p>There are three direct measures of the state of this corporate debt market. One involves credit ratings. The three leading ratings agencies <a href="https://www.zerohedge.com/markets/fallen-angel-avalanche-arrives-sp-downgrading-companies-fastest-pace-record">have been</a> downgrading corporate debt <a href="https://www.ft.com/content/253210d5-4a2d-439f-a4a6-204a7f66d445">at a rapid pace</a>, including big names like Ford and Goodyear. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/325011/original/file-20200402-74854-47sjlm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/325011/original/file-20200402-74854-47sjlm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/325011/original/file-20200402-74854-47sjlm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=377&fit=crop&dpr=1 600w, https://images.theconversation.com/files/325011/original/file-20200402-74854-47sjlm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=377&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/325011/original/file-20200402-74854-47sjlm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=377&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/325011/original/file-20200402-74854-47sjlm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=474&fit=crop&dpr=1 754w, https://images.theconversation.com/files/325011/original/file-20200402-74854-47sjlm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=474&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/325011/original/file-20200402-74854-47sjlm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=474&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Downgraded.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/paris-france-september-30-ford-focus-62427691">Darren Brode</a></span>
</figcaption>
</figure>
<p>Ratings agency Fitch <a href="https://www.fitchratings.com/site/re/10114439">is forecasting</a> a doubling in defaults in 2020 on US <a href="https://www.investopedia.com/terms/l/leveragedloan.asp">leveraged loans</a>, which refers to bank loans to businesses considered more risky. The agency expects a default rate of 5% to 6% this year, compared to 3% last year. The dollar value will exceed the previous high of 2009, and for retail and energy companies, the default rate could approach 20%. </p>
<p>Fitch then expects defaults of between 8% and 9% next year in this market, amounting to a total of US$200 billion (£161 billion) in bad debt over two years. Other sectors at risk include airlines, hotels, restaurants, casinos and cinemas. </p>
<h2>That 2008 feeling</h2>
<p>A second measure of corporate debt is the market price of credit default swaps (CDSs), which are tradeable contracts that investors use to insure against companies defaulting on their debts. Both for <a href="https://www.investopedia.com/articles/02/052202.asp">investment grade and “junk” debt</a>, the price of these swaps is <a href="https://www.ft.com/content/f013c18e-649c-11ea-b3f3-fe4680ea68b5">back at the levels</a> of the financial crisis of 2007-09. It is striking how quickly this has happened. </p>
<p>The final measure is to look at the risk premiums associated with different types of debt. In other words, how much it costs companies to borrow compared to the benchmark ten-year US treasury bond. We have seen spikes in these rates for <a href="https://fred.stlouisfed.org/series/AAA10Y">high-grade</a> corporate debt and <a href="https://www.nasdaq.com/articles/ishares-iboxx-%24-high-yield-corporate-bond-etf-experiences-big-inflow-2020-04-01">junk bonds</a> alike. Both have eased back in recent days, but borrowing costs remain considerably higher than before the crisis. This will be putting pressure on many companies already struggling to cope. </p>
<p>As a general rule, if one company has a negative shock through no fault of its own, even a severe one, it will be able to obtain financing to continue in business. Anyone seeking online deliveries from Ocado will realise, for example, that the company is still suffering logistically from its <a href="https://www.bbc.co.uk/news/uk-england-hampshire-49071456">devastating warehouse fire</a> in England in July 2019, yet it has <a href="https://www.independent.co.uk/news/business/news/ocado-losses-warehouse-fire-robots-andover-hampshire-a9329301.html">continued to</a> have access to finance. </p>
<p>It’s a different story if a majority of firms are all suffering shocks at the same time, and the outcome looks as uncertain as it does at the moment. To make matters worse, companies are entering this period carrying high levels of debt. US corporate debt, for example, <a href="https://wolfstreet.com/2019/03/23/countries-with-most-monstrous-corporate-debt-pileup-u-s-wimps-out-in-25th-place-debt-to-gdp/">is over</a> 70% of GDP, much higher than <a href="https://www.ft.com/content/27cf0690-5c9d-11ea-b0ab-339c2307bcd4">historic levels</a>. </p>
<p><strong>US corporate debt as a % of GDP</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/324987/original/file-20200402-74874-l9dulr.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/324987/original/file-20200402-74874-l9dulr.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/324987/original/file-20200402-74874-l9dulr.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=392&fit=crop&dpr=1 600w, https://images.theconversation.com/files/324987/original/file-20200402-74874-l9dulr.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=392&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/324987/original/file-20200402-74874-l9dulr.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=392&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/324987/original/file-20200402-74874-l9dulr.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=493&fit=crop&dpr=1 754w, https://images.theconversation.com/files/324987/original/file-20200402-74874-l9dulr.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=493&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/324987/original/file-20200402-74874-l9dulr.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=493&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Going up.</span>
<span class="attribution"><a class="source" href="https://wolfstreet.com/2019/03/23/countries-with-most-monstrous-corporate-debt-pileup-u-s-wimps-out-in-25th-place-debt-to-gdp/">Wolf Street</a></span>
</figcaption>
</figure>
<h2>Alternatives</h2>
<p>While the markets for trading corporate debt may well collapse, some companies may still be able to borrow privately. During the financial crisis, Goldman Sachs chose not to participate in government bailouts, which came with restrictive conditions. </p>
<p>Instead, the US investment bank went to Warren Buffett’s Berkshire Hathaway in 2008 and <a href="https://qz.com/67052/heres-how-warren-buffett-made-3-1-billion-on-his-crisis-era-bet-on-goldman-sachs/">effectively borrowed</a> US$5 billion. This created enough investor confidence to allow Goldman to issue new shares on the open market to raise extra capital. </p>
<p>This time around, Berkshire <a href="https://markets.businessinsider.com/news/stocks/warren-buffett-berkshire-hathaway-buy-tesla-starbucks-mcdonalds-coronavirus-selloff-2020-3-1029041432">holds about US$125 billion</a> in “cash”, which could be used to strike similar deals. An alternative option for some promising companies will be <a href="https://www.mckinsey.com/industries/private-equity-and-principal-investors/our-insights/private-equity-and-the-new-reality-of-coronavirus">private equity finance</a>, in which investment firms buy stakes in them. </p>
<p>In some cases, bank lending may also be available: central banks <a href="https://theconversation.com/are-the-banks-strong-enough-to-withstand-the-coronavirus-crash-134258">have given</a> continual assurances that the major commercial banks have passed strenuous stress tests, so they will hopefully be in a position to do their jobs and lend. </p>
<p>Yet despite these possibilities, current uncertainties may cause companies in <a href="https://theconversation.com/coronavirus-your-guide-to-winners-and-losers-in-the-business-world-134205">sectors hit hard</a> by the pandemic to be insolvent if they cannot trade for several months. Here, the <a href="https://www.bbc.co.uk/news/business-51982005">UK programme</a> on paying up to 80% of wages for furloughed workers is well judged. This should help high street retailers, for example, since they have high wage bills. It will also help these firms that business rates <a href="https://www.bbc.co.uk/news/business-51836256">have been suspended</a>. </p>
<p>In contrast, the US government’s <a href="https://www.visualcapitalist.com/the-anatomy-of-the-2-trillion-covid-19-stimulus-bill/">US$2 trillion stimulus package</a> seems extremely ill-judged. It includes US$500 billion of business support that is likely to be <a href="https://www.marketwatch.com/story/the-fed-will-make-up-to-4-trillion-in-loans-to-businesses-to-rescue-economy-mnuchin-says-2020-03-22">multiplied by</a> the Federal Reserve buying corporate bonds and offering extra liquidity to American banks by printing up to US$4 trillion in new money. Even the US scheme for supporting furloughed workers is a lot more indirect than the UK version. </p>
<p>The American programme is much more focused on stoking aggregate demand, which is not the answer at this point. If supply falls by 20% because everything from manufacturing to services is hampered by the pandemic, then demand needs to fall 20% as well. Otherwise <a href="https://www.prospectmagazine.co.uk/economics-and-finance/keynes-in-the-age-of-coronavirus-economy-recession-covid-19">we risk</a> unleashing inflation. From an economic point of view, the priority must be to ensure that a collapsing corporate debt market does not bring down viable firms and make the crisis even worse.</p><img src="https://counter.theconversation.com/content/135371/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jefferson Frank does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The coronavirus pandemic is shaking a system that was pretty wobbly already.Jefferson Frank, Professor of Economics, Royal Holloway University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1323752020-03-05T14:20:42Z2020-03-05T14:20:42ZThere’s a complex history of skin lighteners in Africa and beyond<figure><img src="https://images.theconversation.com/files/317538/original/file-20200227-24680-l3fa2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Detail of book cover</span> <span class="attribution"><span class="source">Wits University Press</span></span></figcaption></figure><p>Somali-American activists recently scored a victory against Amazon and against <a href="https://www.theguardian.com/commentisfree/2019/oct/09/colourism-is-finally-being-taken-seriously-thanks-to-celebrities-like-lupita-nyongo">colourism</a>, which is prejudice based on preference for people with lighter skin tones. Members of the non-profit <a href="http://thebeautywell.org/">The Beautywell Project</a> teamed up with the <a href="https://www.sierraclub.org/">Sierra Club</a> to convince the online retail giant to stop selling skin lightening products that contain <a href="https://www.thoughtco.com/mercury-element-facts-608433">mercury</a>.</p>
<p>After more than a year of protests, this coalition of antiracist, health, and environmental activists <a href="https://www.mprnews.org/story/2019/11/22/amazon-pulls-skinlightening-creams-from-site-after-demands-from-minnesota-activists">persuaded Amazon</a> to remove some 15 products containing <a href="https://www.zeromercury.org/">toxic levels of mercury</a>. This puts a small but noteworthy dent in the global trade in skin lighteners, estimated to reach US$31.2 billion by 2024.</p>
<figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/318031/original/file-20200302-18283-k3bdh0.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/318031/original/file-20200302-18283-k3bdh0.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=1067&fit=crop&dpr=1 600w, https://images.theconversation.com/files/318031/original/file-20200302-18283-k3bdh0.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=1067&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/318031/original/file-20200302-18283-k3bdh0.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=1067&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/318031/original/file-20200302-18283-k3bdh0.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1340&fit=crop&dpr=1 754w, https://images.theconversation.com/files/318031/original/file-20200302-18283-k3bdh0.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1340&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/318031/original/file-20200302-18283-k3bdh0.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1340&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Amira Adawe, an activist with The Beautywell Project pickets outside Amazon.</span>
<span class="attribution"><span class="source">Amira Adawe</span></span>
</figcaption>
</figure>
<p>What are the roots of this sizeable trade? And how might its most toxic elements be curtailed?</p>
<p>The online sale of skin lighteners is relatively new, but the in-person traffic is very old. My new <a href="https://www.dukeupress.edu/beneath-the-surface">book</a> explores this layered history from the vantage point of South Africa.</p>
<p>As in other parts of the world colonised by European powers, the politics of skin colour in South Africa have been importantly shaped by the <a href="https://www.sahistory.org.za/article/history-apartheid-south-africa">history</a> of white supremacy and institutions of racial slavery, colonialism, and segregation. My book examines that history.</p>
<p>Yet, racism alone cannot explain skin lightening practices. My book also attends to intersecting dynamics of class and gender, changing beauty ideals and the expansion of consumer capitalism.</p>
<h2>A deep history of skin whitening and lightening</h2>
<p>For centuries and even millennia, elites used paints and powders to create smoother, paler appearances, unblemished by illness and the sun’s darkening and roughening effects.</p>
<p>Cosmetic users in ancient Mesopotamia, Egypt, Greece, and Rome created dramatic appearances by pairing skin whiteners containing lead or chalk with black eye makeup and red lip colourants. In China and Japan too, elite women and some men used white lead preparations and rice powder to achieve complexions resembling white jade or fresh lychee.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/318048/original/file-20200302-18308-t3ibht.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/318048/original/file-20200302-18308-t3ibht.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=1079&fit=crop&dpr=1 600w, https://images.theconversation.com/files/318048/original/file-20200302-18308-t3ibht.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=1079&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/318048/original/file-20200302-18308-t3ibht.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=1079&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/318048/original/file-20200302-18308-t3ibht.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1356&fit=crop&dpr=1 754w, https://images.theconversation.com/files/318048/original/file-20200302-18308-t3ibht.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1356&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/318048/original/file-20200302-18308-t3ibht.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1356&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">In this 1623 portrait by Anthony van Dyck, Elena Grimaldi’s regal whiteness is underscored by a dark-toned servant.</span>
<span class="attribution"><span class="source">Wikimedia Commons</span></span>
</figcaption>
</figure>
<p>Skin lighteners generate a less painted look than skin whiteners by removing rather than concealing blemished or melanin-rich skin. <a href="https://www.sciencedirect.com/topics/medicine-and-dentistry/melanin">Melanin</a> is the biochemical compound that makes skin colourful.</p>
<p>Active ingredients in skin lighteners have ranged from acidic compounds like lemon juice and milk to harsher chemicals like sulfur, arsenic, and mercury. In parts of precolonial Southern Africa, some people used mineral and botanical preparations to brighten – rather than whiten or lighten – their skin and hair.</p>
<p>During the era of the <a href="http://www.unesco.org/new/en/social-and-human-sciences/themes/slave-route/transatlantic-slave-trade/">trans-Atlantic slave trade</a>, skin colour and associated physical difference were used to distinguish enslaved people from free, and to justify the former’s oppression. Colonisers cast melanin-rich hues as the embodiment of ugliness and inferiority. Within this racist political order, some sought to whiten and lighten their complexions.</p>
<p>By the twentieth century, mass-produced skin lightening creams ranked among the world’s most popular cosmetics. Consumers included white, black, and brown women.</p>
<figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/317436/original/file-20200226-24690-8e4tu1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/317436/original/file-20200226-24690-8e4tu1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=756&fit=crop&dpr=1 600w, https://images.theconversation.com/files/317436/original/file-20200226-24690-8e4tu1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=756&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/317436/original/file-20200226-24690-8e4tu1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=756&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/317436/original/file-20200226-24690-8e4tu1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=950&fit=crop&dpr=1 754w, https://images.theconversation.com/files/317436/original/file-20200226-24690-8e4tu1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=950&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/317436/original/file-20200226-24690-8e4tu1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=950&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">This ad appeared in an issue of the Central and East African edition of Drum magazine.</span>
<span class="attribution"><span class="source">Duke University Press</span></span>
</figcaption>
</figure>
<p>In the 1920s and 1930s, many white consumers swapped skin lighteners for tanning lotions as time spent sunbathing and playing outdoors became a sign of a healthy and leisured lifestyle. <a href="https://www.theguardian.com/commentisfree/2012/feb/19/history-of-tanning">Seasonal tanning</a> embodied new forms of white privilege.</p>
<p>Skin lighteners became primarily associated with people of colour. For black and brown consumers, living in places like the United States and South Africa where racism and colourism have flourished, even slight differences in skin colour could carry political and social consequences.</p>
<h2>The mercury effect</h2>
<p>Skin lighteners can be physically harmful. Mercury, one of their most common active ingredients, lightens skin in two ways. It inhibits the formation of melanin by rendering the enzyme <a href="https://www.ncbi.nlm.nih.gov/pubmed/8496620">tyrosinase</a> inactive; and it exfoliates the tanned, outer layers of the skin through the production of <a href="https://pubchem.ncbi.nlm.nih.gov/compound/Hydrochloric-acid">hydrochloric acid</a>.</p>
<p>By the early twentieth century, pharmaceutical and medical textbooks recommended mercury – usually in the form of ammoniated mercury – for treating skin infections and dark spots while often warning of its harmful effects. Cosmetic manufacturers marketed creams containing ammoniated mercury as “freckle removers” or “skin bleaches”.</p>
<p>When the US Congress passed the <a href="https://www.fda.gov/about-fda/histories-product-regulation/1938-food-drug-and-cosmetic-act">Food, Drug and Cosmetics Act in 1938</a>, such creams were among the first to be regulated.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/317446/original/file-20200226-24659-1ii165p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/317446/original/file-20200226-24659-1ii165p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=479&fit=crop&dpr=1 600w, https://images.theconversation.com/files/317446/original/file-20200226-24659-1ii165p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=479&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/317446/original/file-20200226-24659-1ii165p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=479&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/317446/original/file-20200226-24659-1ii165p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=602&fit=crop&dpr=1 754w, https://images.theconversation.com/files/317446/original/file-20200226-24659-1ii165p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=602&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/317446/original/file-20200226-24659-1ii165p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=602&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Part of Twins’s success lay in their recruitment of hawkers to sell their products in townships. Bona, May 1959.</span>
<span class="attribution"><span class="source">Duke University Press</span></span>
</figcaption>
</figure>
<p>After World War II, the negative environmental and health impact of mercury became more apparent. The devastating case of <a href="https://www.sciencedaily.com/releases/2020/02/200213135755.htm">mercury poisoning</a> caused by industrial wastewater in Minamata, Japan, prompted the Food and Drug Administration to take a closer look at mercury’s toxicity, including in cosmetics. Here was a visceral instance of what environmentalist <a href="https://www.rachelcarson.org/">Rachel Carson</a> meant about small, domestic choices making the world uninhabitable.</p>
<p>In 1973, the administration banned all but trace amounts of mercury from cosmetics. Other countries followed suit. South Africa banned mercurial cosmetics in 1975, the European Economic Union in 1976, and Nigeria in 1982. The trade in skin lighteners, nonetheless, continued as other active ingredients – most notably <a href="https://www.rxlist.com/consumer_hydroquinone_melquin_3/drugs-condition.htm">hydroquinone</a> – replaced ammoniated mercury.</p>
<h2>Meanwhile in South Africa</h2>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/317447/original/file-20200226-24664-1uevavc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/317447/original/file-20200226-24664-1uevavc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=767&fit=crop&dpr=1 600w, https://images.theconversation.com/files/317447/original/file-20200226-24664-1uevavc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=767&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/317447/original/file-20200226-24664-1uevavc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=767&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/317447/original/file-20200226-24664-1uevavc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=964&fit=crop&dpr=1 754w, https://images.theconversation.com/files/317447/original/file-20200226-24664-1uevavc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=964&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/317447/original/file-20200226-24664-1uevavc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=964&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A full-color.
In the early 1960s, colour photography and printing saw skin lightener ads feature a range of light brown and reddish skintones. Drum, September 1961.</span>
<span class="attribution"><span class="source">Duke University Press</span></span>
</figcaption>
</figure>
<p>In apartheid South Africa, the trade was especially robust. Skin lighteners ranked among the most commonly used personal products in black urban households. During the 1980s, activists inspired by <a href="https://www.sahistory.org.za/article/defining-black-consciousness">Black Consciousness</a> and the sentiment “<a href="https://www.theguardian.com/artanddesign/2019/mar/26/kwame-brathwaite-photographer-black-is-beautiful">Black is Beautiful</a>” teamed up with concerned medical professionals to make opposition to skin lighteners part of the <a href="https://www.aluka.org/struggles/collection/AAM">anti-apartheid movement</a>.</p>
<p>In the early 1990s, activists convinced the government <a href="https://theconversation.com/why-its-time-all-african-countries-took-a-stand-on-skin-lightening-creams-49780">to ban</a> all cosmetic skin lighteners containing known depigmenting agents – and to prohibit cosmetic advertisements from making any claims to “bleach”, “lighten” or “whiten” skin. This prohibition was the first of its kind and the regulations immediately shuttered the in-country manufacture of skin lighteners.</p>
<p>South Africa’s regulations testify to the broader antiracist political movement from which they emerged. Thirty years on, however, South Africa again possesses a <a href="https://www.lawforall.co.za/2019/10/skin-lightening-south-africa-law/">robust</a> – if now illicit – trade in skin lighteners. An especially disturbing element is the resurgence of mercurial products.</p>
<figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/317449/original/file-20200226-24664-9ddcjv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/317449/original/file-20200226-24664-9ddcjv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=905&fit=crop&dpr=1 600w, https://images.theconversation.com/files/317449/original/file-20200226-24664-9ddcjv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=905&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/317449/original/file-20200226-24664-9ddcjv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=905&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/317449/original/file-20200226-24664-9ddcjv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1137&fit=crop&dpr=1 754w, https://images.theconversation.com/files/317449/original/file-20200226-24664-9ddcjv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1137&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/317449/original/file-20200226-24664-9ddcjv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1137&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">Wits University Press</span></span>
</figcaption>
</figure>
<p>South African researchers have found that over 40% of skin lighteners sold in <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/j.1365-4632.2012.05566.x">Durban</a> and <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/ced.12720">Cape Town</a> contain mercury.</p>
<p>The activists’ recent victory against Amazon suggests one way forward. They took out a full-page ad in a local newspaper denouncing Amazon’s sale of mercurial skin lighteners as “dangerous, racist, and illegal.” A petition with 23,000 signatures was hand-delivered to the company’s Minnesota office.</p>
<p>By combining antiracist, health, and environmentalist arguments, activists held one of the world’s most powerful companies accountable. They also brought the toxic presence of mercurial skin lighteners to public awareness and made them more difficult to purchase.</p>
<p><em>Lynn M. Thomas’s latest book Beneath the Surface: A Transnational History of Skin Lighteners is available from <a href="https://witspress.co.za/catalogue/beneath-the-surface/">Wits University Press</a> and from <a href="https://www.dukeupress.edu/beneath-the-surface">Duke University Press</a>.</em></p><img src="https://counter.theconversation.com/content/132375/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Lynn M. Thomas does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The long history of racist beauty standards alone cannot explain the ongoing global use of harmful skin lighteners.Lynn M. Thomas, History Professor, University of WashingtonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1246132019-10-02T19:41:38Z2019-10-02T19:41:38Z3 reasons Forever 21’s bankruptcy doesn’t spell the end of brick-and-mortar retailing<figure><img src="https://images.theconversation.com/files/295287/original/file-20191002-49369-1v5cuvy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Clothing racks won’t be going away anytime soon.</span> <span class="attribution"><span class="source">AP Photo/Wilfredo Lee</span></span></figcaption></figure><p>Affordable fashion brand Forever 21’s <a href="https://www.nytimes.com/2019/09/29/business/forever-21-bankruptcy.html">decision to file for bankruptcy</a> and shutter hundreds of its stores has resurrected the notion that online retailing is killing old-fashioned brick and mortar retailing.</p>
<p><a href="https://www.thestreet.com/video/forever-21-bankruptcy-signaling-death-of-mall-retail--15109130">Some</a> are <a href="https://thestatetimes.com/2019/09/13/the-death-of-retail-forever-21-petitions-for-bankruptcy/">suggesting</a> the <a href="https://www.ipc.be/services/markets-and-regulations/e-commerce-market-insights/e-commerce-articles/global-ecommerce-figures-2017">strong growth of e-commerce</a> – coupled with <a href="https://www.digitalcommerce360.com/article/e-commerce-sales-retail-sales-ten-year-review/">slow sales at physical stores</a> – <a href="https://www.crainsdetroit.com/retail/forever-21-files-bankruptcy-adding-retail-apocalypse">portends the doom</a> of traditional retailing. <a href="https://dailyreporter.com/2019/02/09/hardware-store-closing-displays-small-town-retail-struggles/">No more mom and pop hardware stores</a>, <a href="https://slate.com/culture/2006/05/the-death-of-the-independent-bookstore.html">no more independent bookstores</a>, <a href="https://time.com/4865957/death-and-life-shopping-mall/">no more shopping malls</a>. </p>
<p>Since 2004, I have studied the <a href="https://scholar.google.com/citations?user=Kl7wt_kAAAAJ&hl=en">economics of retailing</a>, from big-box retailing to online shopping platforms. I believe there are limits to what e-commerce can upend. Here are three advantages physical stores still have over their online-only rivals.</p>
<h2>Scratch and sniff</h2>
<p>Even with the promise of same-day delivery, e-tailers like Amazon <a href="https://www.latimes.com/business/la-fi-same-day-delivery-20171218-story.html">will never be able to deliver fast enough</a> or satisfy many consumer needs.</p>
<p>Need a battery for your child’s new toy? A shot of caffeine? Convenience stores always seem to be either around the corner from home or along the interstate. As such, they are strategically located in places where consumers want to take immediate possession. For evidence, look no further than the <a href="https://cstoredecisions.com/2018/10/12/positioning-7-eleven-for-the-future/">strategy of 7-Eleven</a>, which has been expanding and opening new stores, particularly in urban areas where there is more foot traffic and on-the-go consumers. </p>
<p>Remember Peapod.com? Online food and beverage sales have been around since the early 2000s, yet <a href="https://content-na1.emarketer.com/grocery-ecommerce-2019">Americans still buy 98% of their groceries offline</a>. One way to explain this is that <a href="https://content-na1.emarketer.com/consumers-remain-skeptical-about-ordering-fresh-and-frozen-food-online">there is simply no substitute</a> for physically inspecting the produce or trusting that the refrigerated products will arrive unspoiled.</p>
<p>More broadly, consumers often want to touch, feel or try a product before making a purchase. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/295307/original/file-20191002-49397-156m45a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/295307/original/file-20191002-49397-156m45a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/295307/original/file-20191002-49397-156m45a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/295307/original/file-20191002-49397-156m45a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/295307/original/file-20191002-49397-156m45a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/295307/original/file-20191002-49397-156m45a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/295307/original/file-20191002-49397-156m45a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Nordstrom’s latest stores are more for show than sales.</span>
<span class="attribution"><span class="source">AP Photo/Richard Drew</span></span>
</figcaption>
</figure>
<h2>Best of both worlds</h2>
<p>In some ways, the same can be said for apparel. It is hard for many of us to know whether we like a new pair of pants or blouse until we’ve tried it on. </p>
<p>But unlike the grocery business, this is an area where online retailers have a distinct advantage because they’ve made it easy for consumers to order a shirt off the internet, try it at home and then send it back if it’s not quite right. </p>
<p>That’s why online apparel sales are surging and <a href="https://www.digitalcommerce360.com/article/online-apparel-sales-us/">made up more than a third</a> of all clothing sold in the U.S. in 2018. It’s not just online-only retailers that are cashing in, however. </p>
<p>Traditional brands like Banana Republic, J. Crew and Uniqlo have been successful at <a href="https://www.doi.org/10.1509/jmr.14.0518">incorporating an online presence</a> with their physical stores. An advantage they have over newer online brands is that consumers already know and trust them. The combination allows the customers to view and inspect new seasonal products in the store and follow up with online purchases. </p>
<p>A related trend in upscale apparel retailing is the store with no inventory. Department store chain Nordstrom, for example, created a line of “<a href="https://shop.nordstrom.com/store-details/nordstrom-local-brentwood">showroom stores</a>” that focus on providing patrons with fashion advice, store pickup and even help with dry cleaning. For Nordstrom, the abundance of online competitors <a href="https://www.washingtonpost.com/news/morning-mix/wp/2017/09/12/nordstroms-wild-new-concept-a-clothing-store-with-no-clothes/">is seen as a competitive advantage</a> because many consumers are looking for a respite from the overwhelming number of fashion choices out there.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/295310/original/file-20191002-49350-1adcgle.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/295310/original/file-20191002-49350-1adcgle.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/295310/original/file-20191002-49350-1adcgle.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/295310/original/file-20191002-49350-1adcgle.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/295310/original/file-20191002-49350-1adcgle.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/295310/original/file-20191002-49350-1adcgle.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/295310/original/file-20191002-49350-1adcgle.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The traditional, indoor shopping mall is known for its soaring atrium and sprawling floor plan.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/kishjar/9719921230/in/photolist-p72jki-dDEc2q-dLK3mB-nxjJhQ-nMgvwH-56ZF2A-65Ggv3-emCq5B-fNV8WN-8QXWWX-aqC9XM-hNPBxS-ccqFXq-nwWEg1-729tmu-r47F4g-qtTJLd-4LqGp5-5Dxv3u-9xWZZm-8E9ZSU-cik6tw-5eq35N-71aCKM-4YPdcK-e3jHpV-noqQjH-utq3c-dZRVQg-qiwLTy-3aoarp-kyeyW4-kFCW5v-dXFscJ-bCiRmA-9xvCRo-dPUbNu-pL1ZNe-gVrMjo-5XPJW1-8ofESZ-cH4joh-jNDEQV-nfHEbd-bGchUi-5Nh2P-cG3YFW-piKWHt-a1b3QT-st1Xi">kishjar?/Flickr.com</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<h2>Socializing at the mall</h2>
<p>The outlook for the traditional shopping mall, however, remains bleak. </p>
<p>Vacancy rates at regional shopping centers <a href="https://www.reuters.com/article/us-usa-property-retail/us-retail-vacancy-rates-down-marginally-in-second-quarter-reis-idUSKCN1TY0CC">reached 9.3%</a> earlier this year, the highest rate in <a href="https://www.calculatedriskblog.com/2018/03/">about eight years</a>. Analysts expect <a href="http://time.com/4865957/death-and-life-shopping-mall/">one out of four malls to close</a> by 2022. </p>
<p>But just because people are buying more stuff online doesn’t mean they don’t enjoy the social experience of shopping at a mall. And this is an area where e-commerce can’t compete. </p>
<p>To exploit this advantage, today’s most profitable malls <a href="https://theconversation.com/lifestyle-centers-reinvented-communities-or-dressed-up-shopping-malls-36752">have rebranded themselves</a> as “lifestyle centers” in order to convey that they are places to experience a part of life – not just to buy things. </p>
<p><a href="https://www.forbes.com/sites/samanthasharf/2018/10/11/the-walt-disney-of-retail-meet-the-billionaire-building-the-malls-of-the-future-1/#4614e11330fc">An early visionary of this trend was The Grove in Los Angeles</a>, currently one of the most profitable malls in the country. It <a href="https://fortune.com/2014/10/29/malls-that-make-the-most/">was built in the 2000s</a> just as e-commerce was picking up speed, and has thrived even as online retail has dominated. </p>
<p>The flipside of the lifestyle center is the outlet mall, which sells brand-name fashion at deep discounts. Their <a href="https://www.wsj.com/articles/surprise-outlet-malls-are-hot-1490094007">occupancy rate</a> is about 98%. Since they’re often located far from the city, branded manufacturers can set “deals” for bargain hunters without harming their cachet at urban, flagship locations.</p>
<h2>Survival instincts</h2>
<p>There is no doubt that online shopping is convenient. But these retail trends show that there are factors other than convenience that drive consumer choices.</p>
<p>For Forever 21, it probably came down to the simple fact that fashion trend cycles can be cruel – especially to brands targeting mall-strolling teens. The retailer did the best it could blending bricks and online, but it clearly wasn’t enough. </p>
<p>While some traditional retailers will survive the “retail apocalypse,” many will not.</p>
<p>[ <em>You’re smart and curious about the world. So are The Conversation’s authors and editors.</em> <a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=youresmart">You can read us daily by subscribing to our newsletter</a>. ]</p><img src="https://counter.theconversation.com/content/124613/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anthony Dukes receives funding from the Marketing Science Institute. </span></em></p>A retail expert explains why brick-and-mortar brands will continue to thrive in the age of e-commerce.Anthony Dukes, Professor of Marketing, University of Southern CaliforniaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1186162019-06-12T11:45:59Z2019-06-12T11:45:59ZOnline shopping: why its unstoppable growth may be coming to an end<figure><img src="https://images.theconversation.com/files/278908/original/file-20190611-32373-1m41xwl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">What goes up ...</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/online-shopping-concept-1070185271?studio=1">Bogdan Vija</a></span></figcaption></figure><p>Many people probably assume that online stores are making a fortune, without all the costly bricks and mortar. But the reality is rather different. Many ecommerce activities are, in fact, unprofitable; if people had to pay the true cost of what they bought online, they would probably buy less. In fact, we think there is <a href="https://www.bostonglobe.com/ideas/2018/12/06/how-amazon-prime-will-change-way-our-cities-look/POt25dZIWoaph01gNKkJoN/story.html">an inflection point</a> approaching, when consumers will either have to pay more for online purchases or end up with fewer products and services to choose from. </p>
<p>Let’s start with the online retail leviathan Amazon, which <a href="https://ir.aboutamazon.com/quarterly-results">chalked up</a> record profits and revenues in 2018. This is great news for Amazon shareholders, but deeper scrutiny reveals a different picture. To begin with, most of the profit was not from retail activities. Amazon Web Services, a cloud-hosting business unrelated to ecommerce, <a href="https://www.zdnet.com/article/in-2018-aws-delivered-most-of-amazons-operating-income/">generated</a> more <a href="https://www.investopedia.com/ask/answers/122714/what-difference-between-operating-income-and-revenue.asp">operating income</a> than the company’s entire North American retail operation – and with margins over five times higher. </p>
<p>Even then, this was a much better performance from the retail division than in 2017, when the North American operating income was completely offset by international retail losses. In that year, Amazon’s positive operating income was <a href="https://www.zdnet.com/article/all-of-amazons-2017-operating-income-comes-from-aws/">entirely thanks</a> to the cloud-hosting business. </p>
<h2>Profit push</h2>
<p>Amazon’s retail improvement in 2018 came on the back of a profitability drive, much of which involved raising the consumer cost of ecommerce. For example, Amazon <a href="https://www.theverge.com/2018/4/26/17287528/amazon-prime-annual-membership-cost-increase-price-hike">increased</a> the annual membership cost of priority customer service <a href="https://www.amazon.co.uk/gp/help/customer/display.html?nodeId=201910360">Prime</a> by 20% to US$119 (£94) in the US, along with comparable rises in other countries. </p>
<p>According to one estimate, this US hike <a href="https://www.fool.com/investing/2018/10/27/surprise-amazons-e-commerce-beats-walmart.aspx">accounted for</a> nearly a third of Amazon North America’s operating margin in 2018. Yet not all of this extra profitability looks sustainable: Amazon is <a href="https://www.nytimes.com/2019/04/25/technology/amazon-earnings-one-day-prime-shipping.html">now seeing</a> shrinking growth in Prime membership in North America and declines in some countries as customers at the margin decide to walk away. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/279108/original/file-20190612-32351-1nlcn7c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/279108/original/file-20190612-32351-1nlcn7c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/279108/original/file-20190612-32351-1nlcn7c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=992&fit=crop&dpr=1 600w, https://images.theconversation.com/files/279108/original/file-20190612-32351-1nlcn7c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=992&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/279108/original/file-20190612-32351-1nlcn7c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=992&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/279108/original/file-20190612-32351-1nlcn7c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1246&fit=crop&dpr=1 754w, https://images.theconversation.com/files/279108/original/file-20190612-32351-1nlcn7c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1246&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/279108/original/file-20190612-32351-1nlcn7c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1246&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">CRaP water.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/plastic-bottle-drinking-water-isolated-on-146174870?src=phc4zvgW61mkTOdv9QKQSg-1-89&studio=1">Tarasyuk Igor</a></span>
</figcaption>
</figure>
<p>Amazon has also been targeting its <a href="https://www.businessinsider.fr/us/amazon-wants-to-stop-selling-unprofitable-items-report-2018-12">CRaP products</a>, which stands for “cannot return a profit”. Product lines end up in this category because of small margins or logistical challenges such as their weight or size. Bottled water, fizzy drinks and snack foods are all examples. </p>
<p>Amazon has been pressuring the manufactures of these products to lower sales costs. It’s unlikely that this will succeed on the whole, since in many cases there’s little room for improvement. This will force Amazon to choose between charging more for these products or delisting them, which will translate into higher prices for consumers or a narrower selection on the site. </p>
<p>Not all of Amazon’s initiatives are at the expense of the consumer, it should be said. The company <a href="https://www.nytimes.com/2019/04/25/technology/amazon-earnings-one-day-prime-shipping.html">recently reported</a> a 4% drop in the cost of fulfilling orders, mainly because it has been building fewer new warehouses and ramping up throughput at existing sites instead. This is a welcome development for the company, since the costs of both fulfilling orders and shipping <a href="https://www.supplychain247.com/article/amazons_ever_increasing_ecommerce_shipping_costs">increased</a> as a percentage of sales each year between 2010 and 2017. </p>
<p><strong>Shipping and fulfilment as a % of Amazon sales</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/278881/original/file-20190611-32361-129gyrx.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/278881/original/file-20190611-32361-129gyrx.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/278881/original/file-20190611-32361-129gyrx.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=372&fit=crop&dpr=1 600w, https://images.theconversation.com/files/278881/original/file-20190611-32361-129gyrx.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=372&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/278881/original/file-20190611-32361-129gyrx.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=372&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/278881/original/file-20190611-32361-129gyrx.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=468&fit=crop&dpr=1 754w, https://images.theconversation.com/files/278881/original/file-20190611-32361-129gyrx.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=468&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/278881/original/file-20190611-32361-129gyrx.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=468&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.supplychain247.com/article/amazons_ever_increasing_ecommerce_shipping_costs">Statista</a></span>
</figcaption>
</figure>
<p>Within its warehouse network, Amazon handles own-brand goods and those of many of the other vendors who sell via the platform. These vendors have the <a href="https://www.statista.com/statistics/259782/third-party-seller-share-of-amazon-platform/">choice between</a> paying Amazon a premium to completely handle their distribution and pricing, giving them full access to the Prime customer base; or having a looser relationship that can involve paying Amazon or an independent logistics company to use the warehouse network instead. </p>
<p>Amazon <a href="https://www.visualcapitalist.com/breaking-amazon-makes-money/">has</a> succeeded in growing these different types of looser relationships – they <a href="https://www.statista.com/statistics/259782/third-party-seller-share-of-amazon-platform/">now make up</a> over half of total retail sales. Developing the third-party logistics strand is creating a new revenue stream and lowering working capital, since it means that Amazon covers less of the cost of overall sales fulfilment. This resembles the <a href="https://www.investopedia.com/articles/investing/061215/difference-between-amazon-and-alibabas-business-models.asp">business model</a> of the Chinese ecommerce giant Alibaba. Yet saving on working capital doesn’t represent an inherent efficiency, since offloading some distribution expenses is likely to eventually be passed on to consumers as higher prices from costs incurred elsewhere. </p>
<h2>Competitors</h2>
<p>Major rival Walmart has its own techniques for trying to make online sales more profitable. Its new approach to CRaP products <a href="https://www.wsj.com/articles/why-walmart-shoppers-are-finding-more-items-out-of-stock-1535716801?mod=searchresults&page=1&pos=7">is to</a> hide them from view in Walmart consumer search results, showing as out of stock alongside alternatives that are more profitable to the company. </p>
<p>Interestingly, Walmart is also <a href="https://news.walmart.com/2019/05/14/free-nextday-delivery-without-a-membership-fee?mkt_tok=eyJpIjoiTmpFd1pHRm1ObVkwT0RFeSIsInQiOiJYWm5QNzljWktHT21SaTZSeHNLMTRMQXhKVkhBMXhFZ2dCRWFUMHdxMWlsM0J2U0VEZWp5b0dPd0xUV1ZQNUJLeExoc2g2MXFGbnVaVUJmQ3BFejBNM0xXSDY0dXBHdnNFYloyTmxRbENDZDc2RWlPN2RXaWpiTmlON1JMbVR5NyJ9">piloting</a> free next-day deliveries from its stores in the US without customers having to be members of any Prime-equivalent service. The wrinkle is that the offering is limited to only high-volume, higher margin products. In both examples, Walmart is therefore pruning consumer choice in its search for more profitability online. </p>
<p>Walmart is <a href="https://news.walmart.com/2019/05/14/free-nextday-delivery-without-a-membership-fee?mkt_tok=eyJpIjoiTmpFd1pHRm1ObVkwT0RFeSIsInQiOiJYWm5QNzljWktHT21SaTZSeHNLMTRMQXhKVkhBMXhFZ2dCRWFUMHdxMWlsM0J2U0VEZWp5b0dPd0xUV1ZQNUJLeExoc2g2MXFGbnVaVUJmQ3BFejBNM0xXSDY0dXBHdnNFYloyTmxRbENDZDc2RWlPN2RXaWpiTmlON1JMbVR5NyJ9">also</a> one of <a href="https://www.tesco.com/groceries/en-GB/zone/Same-day-delivery">numerous</a> big retailers that offer same-day grocery delivery, but this too is not all it seems.</p>
<p>An experienced grocery retail manager has told us that online grocery is necessary as a marketing loss leader but “impossible” to make money from. Such delivery offers are only possible, he said, because online grocery is just 2% of the overall market, since most consumers don’t buy these products online. <a href="https://www.capgemini.com/wp-content/uploads/2019/01/Report-Digital-%E2%80%93-Last-Mile-Delivery-Challenge1.pdf">A recent study</a> agreed with this thinking, finding that online grocery orders have a negative margin of about 15%. It is reminiscent of that old business joke about losing money on every sale but making it up in volume. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/278910/original/file-20190611-32373-1b7394x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/278910/original/file-20190611-32373-1b7394x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/278910/original/file-20190611-32373-1b7394x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=434&fit=crop&dpr=1 600w, https://images.theconversation.com/files/278910/original/file-20190611-32373-1b7394x.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=434&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/278910/original/file-20190611-32373-1b7394x.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=434&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/278910/original/file-20190611-32373-1b7394x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=545&fit=crop&dpr=1 754w, https://images.theconversation.com/files/278910/original/file-20190611-32373-1b7394x.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=545&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/278910/original/file-20190611-32373-1b7394x.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=545&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Basket case?</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/online-shopping-concept-1070185271?studio=1">Billion Photos</a></span>
</figcaption>
</figure>
<p>To understand the mindset of retailers like Walmart and other smaller rivals who are not purely online, a supply chain consultant <a href="https://www.imd.org/research-knowledge/articles/the-hidden-cost-of-cost-to-serve/">told us</a> last year that they are placing a priority on speed of change before profitability, amid pressure to stay competitive with the likes of Amazon. “It’s a logic of desperation as much as it is of strategy,” he said. </p>
<p>We can see the consequences in an <a href="http://www.neeley.tcu.edu/Centers/Center_for_Supply_Chain_Innovation/PDFs/Future_of_Supply_Chain.aspx">interesting survey</a> which found that in 2017, 61% of supply chain executives reported increasing product lines due to ecommerce, up from 55% in 2013. When asked about the impacts on distribution, 26% said they were implementing smaller, more localised warehouses, up from 20% in 2013. These changes <a href="https://theconversation.com/will-amazon-do-to-the-grocery-industry-what-it-did-to-ecommerce-96874">inevitably</a> lead to higher costs, which will again be passed on, at least in part, to the consumer. </p>
<p>Viewed as a whole, the inflection point in online shopping that we mentioned earlier could be getting close. We may have reached peak convenience and cheap prices, and might now be entering a world of more targeted offerings, with less geographic coverage, variations in order turnaround and perhaps even higher prices – all of which will slow the growth curve. At least for high street retailers who have been living with seemingly endless freefall, this may be the best news in a very long time.</p><img src="https://counter.theconversation.com/content/118616/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Even Amazon can’t defy gravity forever.Ralf Seifert, Professor of Operations Management, International Institute for Management Development (IMD)Richard Markoff, Supply Chain Researcher, EPFL – École Polytechnique Fédérale de Lausanne – Swiss Federal Institute of Technology in LausanneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1160172019-05-14T18:28:27Z2019-05-14T18:28:27ZAmazon’s bottomless appetite<figure><img src="https://images.theconversation.com/files/270981/original/file-20190425-121249-1vutyzc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">file zvylji</span> </figcaption></figure><p>Amazon is shrinking time and eating up the planet. Once a small online book retailer, in 2018 it <a href="https://theconversation.com/with-its-purchase-of-whole-foods-is-amazon-aiming-at-revolutionising-food-distribution-93161">took over Whole Foods Market</a>, a leading US organic grocery chain. That’s almost 500 stores in one mouthful. In Paris, the firm is vacuuming up <a href="https://www.lesechos.fr/industrie-services/conso-distribution/le-tandem-amazon-et-monoprix-a-lassaut-du-marche-parisien-138714">distribution of goods sold by the Monoprix supermarket chain</a>. There is no longer a need to queue at the delivery counter or browse Monoprix.fr, then stay at home waiting for your hummus or dish soap to turn up.</p>
<p>Nowadays everyone has heard of Amazon’s website and its express delivery service, but we pay less attention to its appetite for competitors and former associates.</p>
<p>Let’s start with a reminder of Amazon’s vital statistics. It weighs in at nearly $200 billion in annual revenue, with a $760 billion market valuation, the highest in the world, ahead of Google and second only to Apple. Globally, it occupies 140 square kilometres of warehouses and logistics bases, equivalent to the surface area of Cambridge and Oxford, England, combined. Every day it dispatches some 1.6 million parcels, with a workforce of more than 500,000 (25% of that of its competitor Walmart).</p>
<h2>Wreaking revenge with diapers</h2>
<p>Now for a tale of diapers. Once upon a time there was a start-up called Quidsi, which achieved spectacularly rapid growth selling baby products online. Young families on the US East Coast flocked to its site, Diapers.com, in search of wipes, diapers, milk powder and such, all delivered for free. Amazon expressed an interest in buying Quidsi, but the start-up did not relish the idea of being swallowed in one gulp.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/225472/original/file-20180629-117374-3p6bz9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/225472/original/file-20180629-117374-3p6bz9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/225472/original/file-20180629-117374-3p6bz9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=528&fit=crop&dpr=1 600w, https://images.theconversation.com/files/225472/original/file-20180629-117374-3p6bz9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=528&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/225472/original/file-20180629-117374-3p6bz9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=528&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/225472/original/file-20180629-117374-3p6bz9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=663&fit=crop&dpr=1 754w, https://images.theconversation.com/files/225472/original/file-20180629-117374-3p6bz9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=663&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/225472/original/file-20180629-117374-3p6bz9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=663&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Jeff Bezos, founder of Amazon.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/docsearls/4863741414/in/photolist-735peT-jym8t7-FZQAry-XEdTE1-h7xo85-4k3Cie-bbfmTD-fE3Q5q-8V2rb1-ain94F-5yXoVD-A8zQK-h2zWi4-fF2cP8-aiBjRQ-nqSkxL-5VAkH6-26B9g8s-aBky3-8pMWSA-8V2rf5-fDt6W8-fFfrNo-5p7sZD-22LnjLe-ci5BKj-fNpw6b-gVNKQj-27awsW1-72wMFA-52F2cN-5uHbZa-gmRwxZ-5WGaYg-73AWrR-72sFxM-7JX2Ha-VjQJkC-76HSVL-WoC7Rv-71s2eW-WwKESY-w6PZh-5VAjHc-WAkxtH-fJPs3v-hvCPPE-6oRQo3-71rZwE-8gWSBa">Doc Searls/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Shortly afterwards, <a href="https://www.amazon.com/Everything-Store-Jeff-Bezos-Amazon-ebook/dp/B00BWQW73E">or so the story goes</a>, the Seattle giant lost its temper. It offered a 30% discount on diapers for customers who agreed to place a monthly order. It rolled out the “Amazon Mom” programme, which included a year’s free delivery of baby products within two days of placing an order. Quidsi alleges that in so doing, Amazon accepted quarterly losses of up to <a href="https://www.amazon.com/Everything-Store-Jeff-Bezos-Amazon-ebook/dp/B00BWQW73E">$100 million on diapers alone</a>.</p>
<p>Time passed and Quidsi’s growth curve flattened out, while those of its increasingly large rival soared. The upstart fell out of favour with investors and when Amazon renewed its interest, Quidsi sold out for $545 million. A few years later <a href="https://www.recode.net/2017/3/29/15112314/amazon-shutting-down-diapers-com-quidsi-soap-com">Amazon shut down Diapers.com and Quidsi’s other sites</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/225475/original/file-20180629-117440-118zaxa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/225475/original/file-20180629-117440-118zaxa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/225475/original/file-20180629-117440-118zaxa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/225475/original/file-20180629-117440-118zaxa.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/225475/original/file-20180629-117440-118zaxa.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/225475/original/file-20180629-117440-118zaxa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/225475/original/file-20180629-117440-118zaxa.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/225475/original/file-20180629-117440-118zaxa.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">A serious affair.</span>
<span class="attribution"><a class="source" href="https://visualhunt.com/f2/photo/10173994805/ecd9e1aaff/">BoogaFrito/VisualHunt</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<h2>Standing up to Amazon is expensive</h2>
<p>The moral of this tale of diapers is pretty obvious: it’s hard work competing with a giant like Amazon. <a href="https://www.yalelawjournal.org/note/amazons-antitrust-paradox">Some analysts</a> claim that the Seattle-based company was openly predatory, a form of behaviour normally prosecuted under antitrust law. Once it has eliminated the competition with rock-bottom prices and minimal or even negative profit margins, it can raise consumer prices again and offer less attractive terms of sale.</p>
<p>Others hold that Amazon’s strategy simply borders on intimidation and its sales ploys are perhaps a bit aggressive. Furthermore there is no clear proof of any deterioration in consumer welfare. After close scrutiny, the Federal Trade Commission (FTC) approved Amazon’s takeover of Quidsi, asserting that it would neither hurt competition nor jeopardise consumer interests. Lacking a sufficiently detailed grasp of this case, we can only accept their verdict.</p>
<h2>Being a listed Amazon seller can be expensive too</h2>
<p>We should add that it is not always a good idea to be listed as an Amazon seller-partner, here again due to its size. But first a word of caution: if you are not a retailing specialist, the meaning of various terms demands clarification. For this purpose we shall stick with baby products. Amazon sells its own brand of <a href="https://www.amazon.com/Amazon-Brand-Diapers-Count-Bears/dp/B0746G1ZDW">Mama Bear diapers</a>, as well as reselling Pampers and Lillydoo goods, among others. Finally it showcases the products of other specialist manufacturers and traders.</p>
<p>Brick-and-mortar or online retailing generally uses one of three models:</p>
<ul>
<li><p>The first is based on partial vertical integration: the retailer defines a product’s characteristics and owns the brand under which it is marketed, for example store brands used by mass retailers such as Tesco (UK) or Carrefour (France).</p></li>
<li><p>In the second and most frequent model, retailers resell products purchased from third parties, such as Procter & Gamble’s Pampers diapers.</p></li>
<li><p>In the third case the retailer is a marketplace, a “pure” intermediary between buyers and sellers thanks to its website or store: think of the mini-stores for Apple phones or luxury cosmetics in big shops.</p></li>
</ul>
<p>Amazon uses all three. In particular it is both a reseller and a marketplace. Originally it only resold books, subsequently adding a few other products. But commissions paid by third parties now account for <a href="https://www.sellbrite.com/blog/how-does-amazon-make-money/">20% of overall revenue</a>. At the same time its business as a marketplace adds up to half of all transactions. In other words Amazon does not itself purchase <a href="https://www.statista.com/statistics/259782/third-party-seller-share-of-amazon-platform/">50% of the products sold on its website</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/225471/original/file-20180629-117385-15z4lu2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/225471/original/file-20180629-117385-15z4lu2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/225471/original/file-20180629-117385-15z4lu2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=350&fit=crop&dpr=1 600w, https://images.theconversation.com/files/225471/original/file-20180629-117385-15z4lu2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=350&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/225471/original/file-20180629-117385-15z4lu2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=350&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/225471/original/file-20180629-117385-15z4lu2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=440&fit=crop&dpr=1 754w, https://images.theconversation.com/files/225471/original/file-20180629-117385-15z4lu2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=440&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/225471/original/file-20180629-117385-15z4lu2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=440&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">In an Amazon warehouse (2014).</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/eager/16109372026/in/photolist-qxwK4y-5W6Eh8-7ACEC-qifejw-dKBMfV-VmKzzZ-Vj4zGA-4prcp-bJsTcF-6o1Vmn-jzqmgN-Vj4zvo-5JNnEK-dY5udY-6awutw-24tXtuQ-rt5tZ9-Vuc8MQ-4BbskJ-puJrz1-eaDJXK-7tayh5-bQtarn-64Tj5-aCRKxg-a8igNZ-o4Aoyb-9iA5gD-LsMGs3-7eMLf-ebgm97-r23NMJ-XgPpUF-XN48Pw-YgNKUK-fDUJfU-YrsRzN-9iA7vT-nm11JE-qw7KVs-28oqdzw-qijPh9-jzpnnL-iqj9qp-3bPAcx-369cnt-gGEkEQ-mBHXqF-39NWY9-WAkcRB">Forgemind ArchiMedia/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>This is an essential point for two reasons. First, a marketplace is characterized by very specific network effects: the more seller-partners there are at a given site, the more attractive it is for consumers to shop there; similarly the more visitors a site attracts, the greater the incentive for sellers to be represented there. The same, well known mechanism is at work in a platform economy, with its markets controlled by one or just a few firms. A reseller is neither a marketplace nor, as economists put it, a two-sided market.</p>
<p>Second, the risks involved are not the same. Resellers purchase the products they sell. It’s just too bad if they fail to find a buyer. However they can drop their price or have a clearance to unload excess inventory, unlike a platform which only acts as an intermediary. In short there is a big difference between a contract with a supplier to purchase goods for resale and a partnership agreement covering sales on a marketplace. The <a href="https://www.nobelprize.org/prizes/uncategorized/all-prizes-in-economic-sciences/">economic theory of contracts</a> demonstrates the extent to which these two options differ in terms of risks, incentives and investments.</p>
<h2>A shifting strategy</h2>
<p>So it is a strategic decision when a firm positions itself as a reseller or a marketplace. Depending on which products it is selling Amazon has opted to adopt one or other stance. Powerful models explain why it makes these decisions. It tends to prefer to act as a reseller for popular products. For example Amazon generally purchases and resells successful DVDs, whereas third-party partners are <a href="https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2014.2042">left to handle less popular items</a>.</p>
<p>What is even more interesting is that Amazon shifts its position over time. The Seattle-based firm may opt to sell such and such a product directly, whereas in the past it was only available on the marketplace from third parties.</p>
<p>A fascinating econometric study focuses on how Amazon poaches on its partners’ product spaces. Over a 10-month period the authors of the study observed that a shift of this sort affected 3% of products sold by third parties. Nor was this a haphazard occurrence. Amazon focused on goods with a higher price tag, stronger demand and more favourable customer ratings. In other words Amazon moves into markets with a good expectation of higher added value.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/225469/original/file-20180629-117440-d3b37o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/225469/original/file-20180629-117440-d3b37o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/225469/original/file-20180629-117440-d3b37o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/225469/original/file-20180629-117440-d3b37o.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/225469/original/file-20180629-117440-d3b37o.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/225469/original/file-20180629-117440-d3b37o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/225469/original/file-20180629-117440-d3b37o.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/225469/original/file-20180629-117440-d3b37o.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The packages arrive.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/publicresourceorg/4245550588/">Public.Resource.Org/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Two other results confirm this conclusion. First, Amazon tends to resell products with low delivery costs, which is hardly surprising. The shipping terms and conditions it offers when operating as a reseller are most attractive to customers, but very costly for the firm (see below). So it stands little chance of making a profit on a product the price of which barely exceeds the cost of shipping.</p>
<p>Second, Amazon is less likely to start reselling products that it already stores, packs and delivers. For these products the cost-benefit balance for Amazon is not the same. If it switches to reselling such goods it loses the revenue from inventory management services, paid by the relevant third party, as well as the commission for using the marketplace.</p>
<h2>Prioritising growth over profit</h2>
<p>Last, the study shows that when Amazon enters the product-space of third-party resellers it often discourages them from continued trading. They are on average more likely than other resellers, not in direct competition with Amazon, to stop selling altogether or reduce the range of products sold on the marketplace. On the other hand when Amazon starts reselling a product it does not increase the retail price. In fact demand increases, because customers pay less for shipping than before. In other words, true to its determination to prioritize growth over profit (see the <a href="https://www.statista.com/chart/4298/amazons-long-term-growth/">figure below</a>). Amazon shows no inclination to take advantage of the situation and upset its customers.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/224706/original/file-20180625-19382-4xy454.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/224706/original/file-20180625-19382-4xy454.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=357&fit=crop&dpr=1 600w, https://images.theconversation.com/files/224706/original/file-20180625-19382-4xy454.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=357&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/224706/original/file-20180625-19382-4xy454.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=357&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/224706/original/file-20180625-19382-4xy454.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=448&fit=crop&dpr=1 754w, https://images.theconversation.com/files/224706/original/file-20180625-19382-4xy454.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=448&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/224706/original/file-20180625-19382-4xy454.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=448&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
</figcaption>
</figure>
<p>It goes without saying that Amazon’s selective approach to the products it resells is based on a mass of data and highly sophisticated processing. Amazon finds out almost all there is to know about third-party sales and products: price, volume, destination, delivery terms and cost, customer ratings and so on. As a <a href="https://www.amazon.com/Everything-Store-Jeff-Bezos-Amazon-ebook/dp/B00BWQW73E">former executive explained</a>:</p>
<blockquote>
<p>“If you don’t know anything about the business, launch it through the Marketplace, bring retailers in, watch what they do and what they sell, understand it, and then get into it.”</p>
</blockquote>
<hr>
<p><em>Cambridge University Press has published a book by François Lévêque, <a href="https://www.cambridge.org/core/books/competitions-new-clothes/C5673F61E3872255E3142042CCE99B93">“Competition’s New Clothes: 20 Short Cases on Rivalry between Firms”</a></em>.</p>
<p><em>This article was translated from the <a href="https://theconversation.com/logre-amazon-98896">original French</a>.</em></p><img src="https://counter.theconversation.com/content/116017/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>François Lévêque's laboratory receives research grants from many companies, particularly during the past five years from EDF, Microsoft and Philips. In addition, François Lévêque is a Reference Advisor at Deloitte France.</span></em></p>Immersion in the development strategy and digestive system of Amazon, the online ogre that prioritises growth at all costs.François Lévêque, Professeur d’économie, Mines Paris - PSLLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1121792019-02-25T12:28:20Z2019-02-25T12:28:20ZAlgorithms are maximising profits for online retailers by colluding to keep prices high<figure><img src="https://images.theconversation.com/files/260416/original/file-20190222-195876-1054uxt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/portrait-angry-beautiful-young-woman-wearing-1279989073?src=L5O2zW8U5jBNTZG1MHcCcQ-1-27">Dean Drobot/Shutterstock</a></span></figcaption></figure><p>Have you ever searched for a product online in the morning and gone back to look at it again in the evening only to find the price has changed? In which case you may have been subject to the retailer’s pricing algorithm.</p>
<p>Traditionally when deciding the price of a product, marketers consider its value to the buyer and how much similar products cost, and establish if potential buyers are sensitive to changes in price. But in today’s technologically driven marketplace, things have changed. Pricing algorithms are most often conducting these activities and setting the price of products within the digital environment. What’s more, these algorithms may effectively be colluding in a way that’s bad for consumers.</p>
<p>Originally, online shopping was hailed as a benefit to consumers because it allowed them to easily compare prices. The increase in competition this would cause (along with the growing number of retailers) would also force prices down. But what are known as <a href="https://www.researchgate.net/publication/318596610_Pricing_and_Revenue_Management">revenue management pricing systems</a> have allowed online retailers to use market data to predict demand and set prices accordingly to maximise profit. </p>
<p>These systems have been exceptionally popular within the hospitality and tourism industry, particularly because hotels have fixed costs, perishable inventory (food that needs to be eaten before it goes off) and fluctuating levels of demand. In most cases, revenue management systems allow hotels to quickly and accurately calculate ideal room rates using sophisticated algorithms, past performance data and current market data. Room rates can then be easily adjusted everywhere <a href="https://www.revfine.com/important-online-distribution-channels-hotels/">they’re advertised</a>.</p>
<p>These revenue management systems have led to the term “<a href="https://link.springer.com/article/10.1057/s41272-018-0147-z">dynamic pricing</a>”. This refers to online providers ability to instantly alter the price of goods or services in response to the slightest shifts in supply and demand, whether it’s an unpopular product in a full warehouse or an Uber ride during a late-night surge. Accordingly, today’s consumers are becoming more comfortable with the idea that prices online can and do fluctuate, not just at sale time, but several times over the course of a single day.</p>
<p>However, new <a href="https://mislove.org/publications/Amazon-WWW.pdf">algorithmic pricing programmes</a> are becoming far more sophisticated than the original revenue management systems because of developments in artificial intelligence. Humans still played an important role in revenue management systems by analysing the collected data and making the final decision about prices. But algorithmic pricing systems largely work by themselves.</p>
<p>In the same way that in-home voice assistants like Amazon Echo <a href="https://www.sas.com/en_gb/insights/analytics/machine-learning.html">learn about their users</a> over time and change the way they operate accordingly, algorithmic pricing programmes learn through experience of the marketplace.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/260418/original/file-20190222-195879-1fgxine.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/260418/original/file-20190222-195879-1fgxine.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=431&fit=crop&dpr=1 600w, https://images.theconversation.com/files/260418/original/file-20190222-195879-1fgxine.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=431&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/260418/original/file-20190222-195879-1fgxine.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=431&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/260418/original/file-20190222-195879-1fgxine.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=541&fit=crop&dpr=1 754w, https://images.theconversation.com/files/260418/original/file-20190222-195879-1fgxine.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=541&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/260418/original/file-20190222-195879-1fgxine.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=541&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Pricing algorithms constantly watch other online shops.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/woman-shopping-clothes-online-731340991?src=R8prMHWFwoVBkoL_WEzAJw-1-19">Kaspar Grinvalds/Shutterstock</a></span>
</figcaption>
</figure>
<p>The algorithms study the activity of online shops to learn the economic dynamics of the marketplace (how products are priced, normal consumption patterns, levels of supply and demand). But they can also unintentionally “talk” to other pricing programmes by constantly watching the price points of other sellers in order to learn what works in the <a href="https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13405">marketplace</a> </p>
<p>These algorithms are not necessarily programmed to monitor other algorithms in this way. But they learn that it’s the best thing to do to reach their goal of maximising profit. This results in an <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2591874.36">unintended collusion</a> of pricing, where prices are set within a very close boundary of each other. If one firm raises prices, competitor systems will immediately respond by raising theirs, creating a colluded non-competitive market. </p>
<p>Monitoring the prices of competitors and reacting to price changes is normal and legal activity for businesses. But algorithmic pricing systems can take things a step further by setting prices above where they would otherwise be in a <a href="https://arxiv.org/pdf/1802.08061.pdf">competitive market</a> because they are all operating in the same way to maximise profits.</p>
<p>This might be good from the perspective of companies but is a problem for consumers who have to pay the same everywhere they go, even if prices could be lower. Non-competitive markets also result in less innovation, <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/443448/Productivity_and_competition_report.pdf">lower productivity</a> and ultimately less economic growth. </p>
<h2>What can we do?</h2>
<p>This poses an intriguing question. If programmers have (unintentionally) failed to prevent this collusion from happening, what should happen? In most countries, tacit collusion (where companies don’t directly communicate with each other) isn’t currently seen as an illegal activity.</p>
<p>However, the companies and their developers could still be held responsible as these algorithms are programmed by humans and have the ability to learn how to communicate and exchange information with competitor algorithms. The <a href="http://europa.eu/rapid/press-release_IP-17-201_en.htm">European Commission</a> has warned that the widespread use of pricing algorithms in e-commerce could result in artificially high prices throughout the marketplace, and the software should be built in a way that doesn’t <a href="https://www.freshfields.com/globalassets/our-thinking/campaigns/digital/mediainternet/pdf/freshfields-digital---pricing-algorithms---the-digital-collusion-scenarios.pdf">allow it to collude</a>.</p>
<p>But as long as the algorithms are programmed to deliver the greatest profit possible, and can learn how to do this independently, it may not be possible for programmers to overcome this collusion. Even with some restrictions put in place, the algorithms may well learn ways to overcome them as they look for new ways to meet their objective.</p>
<p>Attempting to control the market environment to prevent conscious price monitoring or market transparency will also undoubtedly result in more questions and create new problems. With this in mind, we need to better understand this kind of machine learning and its capabilities before we bring in new regulations.</p><img src="https://counter.theconversation.com/content/112179/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Graeme McLean does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The AI behind retail websites has learnt the best strategy is to copy each other’s prices – and that can see them ‘collude’ to keep them high.Graeme McLean, Lecturer in Marketing, University of Strathclyde Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1031252018-11-09T11:42:39Z2018-11-09T11:42:39ZSingles Day shows China’s global retail power<figure><img src="https://images.theconversation.com/files/244653/original/file-20181108-74760-liy9cl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A mascot for Alibaba's online shopping site Tmall urges customers to buy on Singles Day.</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/China-Singles-Day/05c8096ec07044a88e48abf0d962d424/12/0">AP Photo/Ng Han Guan</a></span></figcaption></figure><p>Nov. 11, or 11/11, has been celebrated as Singles Day – a sort of <a href="https://en.wikipedia.org/wiki/Singles%27_Day">anti-Valentine’s Day</a> for single people – since 1993. Chosen because its date has four ones in a row, the holiday originated in China and has become the largest shopping day of the year, in both online and offline retail sales around the world. It’s a signal of shifting power in the global retail sales market, moving away from the U.S. and toward Asia – specifically China.</p>
<p>Alibaba, the giant Chinese e-retailer that promoted the day as an opportunity – or excuse – for single people to treat themselves with new purchases, has seen its revenues on Nov. 11 grow from <a href="https://www.theatlas.com/charts/EJ8yZP5Ml">US$100 million in 2009</a> to 250 times that in 2017, <a href="https://www.statista.com/statistics/364543/alibaba-singles-day-1111-gmv/">$25 billion</a>. And that was only <a href="https://www.digitalcommerce360.com/2017/11/13/chinas-singles-day-online-shopping-extravaganza-nets-38-23-billion-sales/">two-thirds of total online sales</a> that day.</p>
<p>Singles Day dwarfs the three other largest online retail mega-events. In 2017, Thanksgiving weekend online sales – <a href="https://www.statista.com/statistics/266010/online-revenue-on-thanksgiving-and-black-friday/">including Black Friday</a> and <a href="https://www.statista.com/statistics/194643/us-e-commerce-spending-on-cyber-monday-since-2005/">Cyber Monday</a> – totaled $7.3 billion. The third, Amazon’s Prime Day, in 2017 took in <a href="https://www.statista.com/statistics/728120/annual-amazon-prime-day-sales/">$100 million an hour</a> – but Alibaba raked in <a href="https://www.statista.com/statistics/364543/alibaba-singles-day-1111-gmv/">10 times that amount</a> on Singles Day that year.</p>
<p><iframe id="YRBtS" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/YRBtS/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>Getting in on the action</h2>
<p>By 2022, Chinese middle-class shoppers as a group are projected to <a href="https://www.businessinsider.com/chinas-middle-class-is-exploding-2016-8">both outnumber and outspend U.S. customers</a>. Retailers around the world are seeking to take advantage of this growing Chinese economic power, offering their own Singles Day deals and even seeking to expand the day into a longer festival: Alibaba is keeping its discounts going for 48 hours, and its main Chinese competitor, JD.com, began an 11-day festival from Nov. 1 to Nov. 11 with a set of limited-time discounts that <a href="https://technode.com/2018/11/01/jd-com-logs-rmb-6-billion-in-sales-within-the-first-hour-of-singles-day-campaign/">grossed $865 million in its first hour</a>.</p>
<p>Global brands like <a href="https://www.adweek.com/digital/singles-day-is-the-worlds-biggest-shopping-day-but-dont-expect-to-find-it-here/">Adidas, Mattel, Mondelez, Nike and Unilever</a> participated in 2017 by offering deals on a variety of their products. <a href="https://www.fool.com/investing/2017/10/22/jdcom-tencent-and-wal-mart-join-forces-against-ali.aspx">JD.com teamed up with Tencent</a> – another Chinese e-commerce behemoth – and Walmart to offer one another’s customers the same special deals on Singles Day 2017. In 2018, Alibaba subsidiary Lazada is offering Singles Day sales <a href="https://econsultancy.com/singles-day-2018-alibaba/">in six Southeast Asian countries</a>. </p>
<h2>Online or in store?</h2>
<p>For 2018, Alibaba is promising <a href="https://www.businessinsider.com/alibaba-plans-for-singles-day-this-year-2018-11">special discounts on 1.5 million products</a> in 3,700 categories, from 180,000 brands from China and 74 other countries. The company plans to fulfill much of the enormous order volume from its <a href="https://www.cnbc.com/2018/10/30/alibaba-cainiao-chinas-biggest-robot-warehouse-for-singles-day.html">robot-automated warehouse</a> where 700 robots will automatically pick up items and assemble packages for shipping to customers.</p>
<p>Many companies are working to develop their electronic customer base, <a href="https://theconversation.com/more-businesses-are-trying-mobile-apps-to-lure-and-keep-consumers-88684">particularly with mobile apps</a>. But there is still big money in the real world.</p>
<p>Though <a href="https://theconversation.com/how-sears-helped-make-women-immigrants-and-people-of-color-feel-more-like-americans-105278">landmark retailers like Sears</a> and J.C. Penney are struggling in the U.S., the vast majority of global shopping is still <a href="https://theconversation.com/in-store-shopping-still-matters-this-holiday-season-87494">done in-person</a>, rather than online. Newer <a href="https://multichannelmerchant.com/blog/omnichannel-investments-pay-off-brick-mortar-retailers/">mega-retailers like Walmart, Target and Best Buy</a> are thriving in the U.S. and elsewhere. Even pure e-commerce retailers such as Amazon are moving offline, opening <a href="https://www.businessinsider.com/amazon-go-stores-close-on-weekends-2018-10">cashierless Amazon Go stores</a> and physical bookstores, <a href="https://theconversation.com/amazon-dives-into-groceries-with-whole-foods-five-questions-answered-79638">buying Whole Foods</a>, and partnering with Kohl’s to handle product returns. </p>
<p>In China, Alibaba has moved into physical stores, too, <a href="https://www.forbes.com/sites/greatspeculations/2017/11/21/alibaba-takes-next-step-in-new-retail-with-2-9-billion-investment/">acquiring the InTime department store and mall chain</a> and <a href="https://www.businessinsider.com/chinas-hema-market-has-two-advantages-over-amazon-go-2018-2">opening 60 Hema supermarkets</a> that don’t accept cash and where customers’ food purchases can be prepared before they check out. The company has also <a href="https://technode.com/2018/02/14/alibaba-new-retail/">set up 100,000 convenience stores</a> as places where customers can try on products in augmented reality and pay with facial recognition systems.</p>
<h2>The future of retail</h2>
<p>Shoppers around the world want to be able to buy both online and in physical space, from any device and by any payment method – all while getting a high level of customization and service experience. This goes beyond the simple mechanics of telling a smart speaker like Amazon Echo, Google Home or Apple’s HomePod to order more laundry detergent. </p>
<p>Artificial intelligence systems are analyzing customers’ behavior, which can make routine shopping for items like facial tissues and soap faster and easier, by remembering what brands a customer likes, and how often to order refills. AI can also suggest products customers might want to buy, based on their previous purchases – as <a href="https://www.wired.com/story/amazon-artificial-intelligence-flywheel/">Amazon already does</a>. That can make shopping for luxury products, splurges and gifts more fun and engaging. </p>
<p>The global retail market is adjusting to China’s rising economic power, and Chinese customers’ desire for AI-enhanced mobile shopping experiences. Singles Day’s spread across the world suggests a new chapter of computer-enhanced shopping experiences is beginning.</p><img src="https://counter.theconversation.com/content/103125/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Venkatesh Shankar does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Chinese customers spend billions on Nov. 11. Why, and what does it mean for the global retail marketplace?Venkatesh Shankar, Professor of Marketing; Director of Research, Center for Retailing Studies, Texas A&M UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/976122018-06-03T20:23:57Z2018-06-03T20:23:57ZFear not, shoppers: Amazon’s Australian geoblock won’t cramp your style<figure><img src="https://images.theconversation.com/files/221327/original/file-20180601-142102-1owy6g4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Will there be fewer of these on Australian doorsteps?</span> <span class="attribution"><span class="source">Ink Drop/Shutterstock.com</span></span></figcaption></figure><p>Online retail giant Amazon’s decision to block Australian shoppers from its US website has prompted an <a href="http://www.abc.net.au/news/2018-05-31/angry-amazon-shoppers-sick-of-always-having-to-pay-more/9821062">outpouring of anger</a> from its customers. However, economic statistics indicate the actual value of online purchased products entering Australia from international marketplaces is relatively low. While some shoppers will be disappointed by Amazon’s decision, others will simply find ways around the geoblock. </p>
<p>The federal government has been <a href="https://www.2gb.com/gst-on-online-shopping-should-have-happened-ten-years-ago-gerry-harvey-says/">under pressure from legacy retailers like Gerry Harvey</a>, who have called for an end to the GST exemption on overseas online purchases worth less than A$1,000. </p>
<p>Federal Treasurer Scott Morrison last year <a href="http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22chamber%2Fhansardr%2F345ee0b5-7f9d-47ea-a37c-53d1b10edff0%2F0030%22">introduced legislation</a> for this measure, arguing it will “establish a level playing field for our domestic retailers”. From July 1, 2018, GST will apply to all overseas online purchases.</p>
<p>The Australian Retailers Association has proposed a “<a href="https://www.retail.org.au/mediacentre/ara-calls-productivity-commission-widen-net-gst/">vendor collection model</a>” under which foreign retailers would collect the GST at the time of purchase and then pay it to the Australian Taxation Office.</p>
<p>But the fact is that these measures won’t level the playing field. Overseas online prices for many items are so low that that even if GST were added, they would still be <a href="https://www.choice.com.au/shopping/online-shopping/buying-online/articles/buying-cheaper-clothing-online">far cheaper than they are in Australia</a>. For example, a recent search showed Levi’s 510 jeans for A$115 at Myer, compared with A$74.85 in the United States; and a Uniqlo Women’s ultralight down jacket for A$200 here, versus A$154.10 over there.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/three-holes-in-hockeys-plan-to-levy-gst-on-overseas-purchases-46460">Three holes in Hockey's plan to levy GST on overseas purchases</a>
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</em>
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<p>In 2017 Australians spent an estimated <a href="https://business.nab.com.au/wp-content/uploads/2018/02/NORSI-DEC-2017.pdf">A$24.2 billion online</a>. Yet this is just 7.8% of the amount spent at bricks-and-mortar shops. And more than 80% of online spending was through domestic retailers, which are subject to GST. </p>
<p>With only A$4.84 billion spent via overseas retailers, a quick calculation indicates that adding 10% GST to those purchases would have added A$484 million to the government’s coffers last year.</p>
<h2>Why has Amazon blocked Australia?</h2>
<p>Amazon has <a href="https://www.nytimes.com/aponline/2018/05/31/world/asia/ap-as-australia-amazon.html">blamed the new GST rules</a> for its decision to bar Australian shoppers, arguing that the vendor collection model would create significant operational difficulties:</p>
<blockquote>
<p>While we regret any inconvenience this may cause customers, we have had to assess the workability of the legislation as a global business with multiple international sites.</p>
</blockquote>
<p>Yet rival online seller eBay seems to have managed to <a href="https://sellercentre.ebay.com.au/content/gst-fees-ebaycomau">implement the vendor collection model</a> without undue trouble. It looks as if Amazon, which generated <a href="https://www.statista.com/statistics/266282/annual-net-revenue-of-amazoncom/">almost US$180 billion in sales last year</a>, views the Australian market as just too small to justify the hassle. In fact, one study has estimated that Amazon will only gain a <a href="https://www.macquarie.com/au/advisers/expertise/market-insights/is-amazon-the-end-of-australian-retail-as-we-know-it/">16% share of Australian online retail sales by 2025</a>. </p>
<p>Amazon’s view on Australia’s red tape may well be right. <a href="https://www.pc.gov.au/__data/assets/pdf_file/0017/221543/sub037-collection-models.pdf">Modelling by Australia Post</a> suggests that if the postal service were tasked with assessing and collecting the GST on international deliveries, it would cost almost A$900 million to collect A$300 million in revenue. </p>
<h2>Who are the winners and losers?</h2>
<p>As mentioned above, Amazon probably won’t suffer much from cutting loose its relatively small Australian customer base. But what about the customers themselves, and Amazon’s competitors?</p>
<p>When <a href="https://www.amazon.com.au/">Amazon Australia</a> (not to be confused with the now geoblocked US site) launched in December 2017, just in time for the Christmas rush, <a href="https://www.smartcompany.com.au/industries/retail/amazon-australia-3-8-million-aussies-december">3.8 million Australians visited the site</a> during that month alone. But this is well short of the <a href="https://www.smh.com.au/business/small-business/does-amazon-australias-retail-launch-spell-the-end-of-ebay-20171205-gzywck.html">11 million Australian shoppers</a> who visit eBay each month. </p>
<p>Amazon’s withdrawal will undoubtedly benefit eBay and other sites such as <a href="https://www.alibaba.com/countrysearch/AU/australia.html">Alibaba</a>, which look set to attract shoppers who are still hungry for an international bargain.</p>
<p>While some dedicated fans of Amazon’s US site are <a href="https://www.news.com.au/national/nsw-act/we-regret-any-inconvenience-this-may-cause-amazon-to-stop-shipping-to-australia-from-july-1/news-story/f90d87e59d29cc589ea9c184f3f5f40b">understandably annoyed</a>, most customers simply won’t notice the difference. Customers will be automatically directed to Amazon’s domestic offering, which claims to stock more than 60 million products. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/amazon-in-australia-might-not-be-the-end-of-retail-as-we-know-it-75382">Amazon in Australia might not be the end of retail as we know it</a>
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</p>
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<p>For Australia’s traditional retailers, the playing field still isn’t really “level”, even without access to Amazon US. Don’t expect everyone to suddenly start banging down Harvey Norman’s doors come July 1. In reality the impact will be minimal.</p>
<h2>How to get around the geoblock</h2>
<p>For the very determined shopper who demands access to Amazon US, there are naturally ways around geoblocking technology, such as re-shipping services, freight forwarders, and <a href="https://www.choice.com.au/electronics-and-technology/internet/internet-privacy-and-safety/articles/bypass-geo-blocking">VPNs</a>. </p>
<p>But given that the <a href="https://gopages.neto.com.au/rs/618-SCT-255/images/The%20State%20of%20Ecommerce%20Guide%202017.pdf">average online shopping basket</a> was worth A$145 in 2017, it seems like a lot of trouble to go to just to avoid paying A$14.50.</p><img src="https://counter.theconversation.com/content/97612/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gary Mortimer does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Amazon has barred Australian shoppers from its US site, rather than contend with new GST rules on overseas purchases. But don’t expect a stampede at your local branch of Harvey Norman as a result.Gary Mortimer, Associate Professor in Marketing and International Business, Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/941472018-04-02T18:59:07Z2018-04-02T18:59:07ZWill Amazon be your next bank and health insurance?<figure><img src="https://images.theconversation.com/files/212831/original/file-20180402-189801-800vup.jpg?ixlib=rb-1.1.0&rect=0%2C162%2C3500%2C1886&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Amazon founder Jeff Besos.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/samchurchill/6927955020/in/photolist-byczEm-4x4zhh-49zDrd-foChCZ-fpwE5Y-GXvbZ-GQEoL-exQZ9-FaR6g-AoqF-dEMn5a-8MpFbB-JUbAJa-56PcCG-fyGpPJ-GQC7R-GQEw3-UZz3nW-fvf9tL-CXEft-fNifdn-c7cgmE-c7cgaJ-px3ycA-4GH29q-4GH2iN-GY5Rj-4GLVHG-DkoV-eCS3sQ-c7ckwo-9cUXQ-s3etE-c7cc67-gpKR8-c5otZ9-ardYMw-c5osD7-dxUL1m-c7ci9J-GSQt1-c7cff1-zYEy-c5otNs-FvTFit-c5osry-ESAoM-c5oso9-c5osjw-c7ckNm">Sam Churchill/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><blockquote>
<p>“One of Mr. Rockefeller’s most impressive characteristics is patience.”</p>
</blockquote>
<p>This 1902 assertion by pioneering journalist Ida Tarbell described <a href="https://www.poynter.org/news/today-media-history-ida-tarbells-1902-1904-investigative-series-corruption-standard-oil">John D. Rockefeller</a>, one of the wealthiest men in the world in the early 20th century.</p>
<p>Today, it could as easily be used to describe Jeffrey Preston Bezos, the founder and CEO of Amazon, and <a href="http://money.cnn.com/2018/01/09/technology/jeff-bezos-richest/index.html">currently the richest man on Earth</a>. Bezos had to wait 14 years to see the first positive quarterly result of his company. In another testament to his long-term vision, he recently invested $42 million in the construction of a <a href="http://www.businessinsider.fr/us/everything-you-need-to-know-about-jeff-bezos-amazing-10000-year-clock-2013-8">10,000-year clock</a>. This 150-meter tall apparatus is being built within a mountain in Texas. It tells time in terms of decades and centuries rather than seconds and minutes, and its “cuckoo” mechanism will be activated only once a year. Bezos believes this gigantic endeavour – based on a prototype designed by the <a href="http://longnow.org/clock/">Long Now Foundation</a> – should be a timeless reminder to our species (as well as future civilizations) that humanity should nurture long-term ambitions.</p>
<p>“Relentless” is another way to describe Bezos. This was one of the names he considered for his online book-selling service back in 1997 (in fact, the URL relentless.com is still owned by Amazon and redirects to its main website to this day). His business objectives relentlessly grew from being the world’s largest bookseller, to becoming the “everything store” and then branching out to create the world’s greatest cloud service provider, with <a href="https://en.wikipedia.org/wiki/Amazon_Web_Services">Amazon Web Services</a> (providing data storage to clients ranging from NASA to Netflix). Not to mention the founding of Blue Origin, a spaceflight services company whose Latin motto “Gradatim Ferociter” means “Step by step, ferociously”. In 2013 Bezos shocked the media world by snapping up the <a href="https://www.theguardian.com/media/2013/aug/05/washington-post-sold-jeff-bezos-amazon"><em>Washington Post</em></a> for $250 million, roughly 1% of his wealth at the time, $22 billion. (He’s now up to $106 billion.)</p>
<p>Last year, Amazon raised many eyebrows by crossing into physical distribution territory with the <a href="https://theconversation.com/with-its-purchase-of-whole-foods-is-amazons-goal-to-revolutionise-food-distribution-93161">acquisition of Whole Foods Market</a> and its 473 stores in North America and the United Kingdom. This move made the shares of Walmart and other supermarket chains plummet, while raising Amazon’s own stock valuation by $15.6 billion. After the announcement of the deal, the rise in Amazon share prices alone was enough to cover the $13.7 billion cost of acquiring Whole Foods.</p>
<p>More recently, Amazon announced that it would partner with other giants like Berkshire Hathaway and JPMorgan to implement a <a href="http://money.cnn.com/2018/02/27/news/companies/amazon-health-care/index.html">health care solution for their combined 840,000 employees</a>. Is that the first stage of a road-map to offer health insurance worldwide? Finally, a few weeks ago, we learned that Amazon is in talks with large banks such as JPMorgan Chase to create a checking-account-like service.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/212614/original/file-20180329-189795-2t80s7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/212614/original/file-20180329-189795-2t80s7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=316&fit=crop&dpr=1 600w, https://images.theconversation.com/files/212614/original/file-20180329-189795-2t80s7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=316&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/212614/original/file-20180329-189795-2t80s7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=316&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/212614/original/file-20180329-189795-2t80s7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=397&fit=crop&dpr=1 754w, https://images.theconversation.com/files/212614/original/file-20180329-189795-2t80s7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=397&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/212614/original/file-20180329-189795-2t80s7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=397&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The 10,000 year clock being built by Jeff Bezos inside a mountain in Texas.</span>
</figcaption>
</figure>
<h2>How big is too big?</h2>
<p>As Amazon competes with Apple for the record of becoming the <a href="https://www.investors.com/news/technology/amazon-may-beat-apple-on-path-to-reaching-1-trillion-in-value/">first company in history to be valued at $1 trillion</a>, several experts start to question when antitrust regulation should step in to stop its relentless growth. In a brilliant research note published in the <em>Yale Law Journal</em>, Lina M. Khan argues that current US antitrust laws based on the principle of “consumer welfare” are ill-prepared to deal with what she calls the Amazon paradox: contrary to what antitrust theory predicts, Amazon does not raise its prices in spite of its growing dominance. She cites two reasons for the rationality of everlasting predatory pricing by online e-commerce platforms:</p>
<ul>
<li><p>Pursuing growth over profits has been historically rewarded by investors, who clearly believe in Bezos’ long-term vision.</p></li>
<li><p>Thanks to their dominant size and investor’s faith, Amazon can integrate across distinct business lines (retailer, marketplace, cloud service provider) to create the very infrastructure upon which its rivals came to depend. If, for instance, Amazon notices through its powerful data analytics that one new product category is growing, it can launch its own brand of the same product and rank it higher in its search results, effectively driving traffic and sales away from the newcomers.</p></li>
</ul>
<p>Yet whenever claims of monopolistic practices are levered against it, Amazon quickly points out that <a href="https://www.entrepreneur.com/article/306678">e-commerce represents less than 10% of brick-and-mortar sales</a>. Furthermore, it claims that Walmart sales alone – over $500 billion in 2017 – are almost three times bigger than Amazon’s. Add to this the fact that prices are kept low at Amazon and you can dismiss any charge of Amazon abusing its dominant position.</p>
<p>These arguments miss the main point raised by Khan in her “Amazon Paradox” note: Amazon should not be persecuted for antitrust based on consumer welfare criteria or overall retail market share dominance. Rather, more modern antitrust laws should focus on the methods online platforms the size of Amazon can use to inhibit competition. These methods include predatory pricing based on real-time analysis of marketplace competitors and vertical integration of logistics. Thanks to Amazon’s highly complementary business models, it has created a physical and online infrastructure empire that is quickly becoming the only competitive way to satisfy the growing need of <a href="https://theconversation.com/delivery-drones-swooping-down-to-prey-on-our-self-control-77994">instant gratification by online shoppers</a>. Lured by the lock-in mechanisms built into the “Prime” subscription services (which offers free next-day delivery and video streaming to subscribers), consumers cannot help but be ecstatic with this online shopping paradise. One quickly understands why Amazon Prime now captures 46% of online shoppers in the US and why the barriers to entry are becoming increasingly insurmountable to upstarts in this field.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/212615/original/file-20180329-189798-1vo6vvl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/212615/original/file-20180329-189798-1vo6vvl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/212615/original/file-20180329-189798-1vo6vvl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/212615/original/file-20180329-189798-1vo6vvl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/212615/original/file-20180329-189798-1vo6vvl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/212615/original/file-20180329-189798-1vo6vvl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/212615/original/file-20180329-189798-1vo6vvl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">An undercover investigation reveals difficult working conditions at Amazon.</span>
<span class="attribution"><span class="source">Sunday Mirror</span></span>
</figcaption>
</figure>
<h2>The price of instant gratification</h2>
<p>Amazon definitely takes its “customer-centric” culture seriously. Few consumers are left unmoved by the killer value proposition it offers: a convenient, fast and reliable way of buying almost anything online. While customers have somewhat fallen out love with other tech giants like Apple and Google – both of whom recently plunged from 2nd and 3rd places to 29th and 28th places in the <a href="https://theharrispoll.com/reputation-quotient/">annual “Reputation Quotient” list by the Harris Poll</a> – Amazon has remained the first brand in the preference of US consumers for the past five years (with exception of 2015).</p>
<p>Behind stage, this constant battle to keep customers happy does come at a cost to Amazon employees, though. Cases of burnout or exhaustion have been documented in Amazon’s fulfilling centres, with workers reportedly falling asleep standing up during 55-hour-a-week marathons ahead of big events like Christmas or Black Friday. Or consider the story of a young British man whose night shifts in an Amazon warehouse working alongside robots <a href="https://www.theguardian.com/money/2018/jan/20/amazon-worker-warehouse">almost destroyed his social life and his psychic health</a> – all for a princely salary of £18,000 ($25,262) a year.</p>
<p>With no visible sense of irony, Amazon has recently produced a “Prime Original” TV series called <a href="https://www.amazon.com/Philip-K-Dicks-Electric-Dreams/dp/B075NTXMN9"><em>Electric Dreams</em></a> that portrays dystopic techno-futures envisioned by Philip K. Dick. In the second episode, called <a href="https://www.thestranger.com/slog/2018/01/16/25716031/autofac-an-episode-from-new-amazon-series-electric-dreams-is-about-how-to-destroy-amazon">“Autofac”</a>, they describe a post-apocalyptic world in which the last survivors of the human race are besieged by robot-driven factories that ignore the end of the world and keep pumping out drone-delivered boxes of products no one needs.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/212832/original/file-20180402-189827-15fgofv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/212832/original/file-20180402-189827-15fgofv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=332&fit=crop&dpr=1 600w, https://images.theconversation.com/files/212832/original/file-20180402-189827-15fgofv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=332&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/212832/original/file-20180402-189827-15fgofv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=332&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/212832/original/file-20180402-189827-15fgofv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=418&fit=crop&dpr=1 754w, https://images.theconversation.com/files/212832/original/file-20180402-189827-15fgofv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=418&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/212832/original/file-20180402-189827-15fgofv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=418&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Amazon’s own vision of the future in their new TV series <em>Electric Dreams</em>: a post-apocalyptic world ruled by drones and robots.</span>
<span class="attribution"><span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>Antitrust laws need to evolve to catch up with 21st-century business practices in order to create a healthier competitive environment in the e-commerce sphere. This is no longer about saving the mom-and-pop stores in main street or keeping brick-and-mortar bookstores from disappearing: it is about making sure that future innovative players can thrive online without having to use the monopolistic infrastructure of Amazon or be confronted with their anti-competitive practices. Hopefully such measures will also limit the drive for lowering prices at all costs, with all the social and environmental consequences this race to the bottom entails.</p>
<p>In 1911, Rockefeller’s Standard Oil was broken up in 34 companies by the Sherman Antitrust act, separating them into distinctive activities of oil producing, transporting, refining and marketing. If “data is the new oil”, monopolistic data-driven platforms of today should maybe suffer the same fate in the name of competition, innovation and employee well-being.</p><img src="https://counter.theconversation.com/content/94147/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Marcos Lima ne travaille pas, ne conseille pas, ne possède pas de parts, ne reçoit pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'a déclaré aucune autre affiliation que son organisme de recherche.</span></em></p>How Jeff Bezos is plotting to take over the world – and why Amazon’s dominance in e-commerce could be a threat to innovation.Marcos Lima, Head of the Marketing Innovation and Distribution Program at EMLV, Pôle Léonard de VinciLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/880682018-01-10T19:33:25Z2018-01-10T19:33:25ZAmazon drives a fifth city-shaping retail revolution<p>As possibly the world’s oldest economic activity, retailing didn’t venture away from the traditional street, with its congestion, grime and weather exposure, until about 1800. This resulted in new types of retail space, including enclosed shopping arcades and freestanding or anchor department stores. These are still evident in cities today.</p>
<p>It helps to visualise the evolution of modern retail activity and structures in terms of five broad revolutionary cycles. Each has lasted about 50 years, as shown in the diagram below. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/201292/original/file-20180109-83559-gskxzk.gif?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/201292/original/file-20180109-83559-gskxzk.gif?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/201292/original/file-20180109-83559-gskxzk.gif?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=236&fit=crop&dpr=1 600w, https://images.theconversation.com/files/201292/original/file-20180109-83559-gskxzk.gif?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=236&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/201292/original/file-20180109-83559-gskxzk.gif?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=236&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/201292/original/file-20180109-83559-gskxzk.gif?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=296&fit=crop&dpr=1 754w, https://images.theconversation.com/files/201292/original/file-20180109-83559-gskxzk.gif?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=296&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/201292/original/file-20180109-83559-gskxzk.gif?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=296&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Revolutionary cycles and disruptive innovations.</span>
<span class="attribution"><span class="source">Author</span></span>
</figcaption>
</figure>
<p>After the first industrial revolution of the late 18th and early 19th century, two industrial revolutions followed, from about 1850 to 1900, and then from 1900 to 1950. A consumer revolution began about 1950. Then, at the dawn of the new millennium, came an information revolution. </p>
<p>Each revolution spawned a unique set of technological innovations that shocked the status quo by replacing outdated structures with new ones. The retail sector and retail spaces were not immune to this process.</p>
<h2>Creative destruction</h2>
<p>In 1942, the economist Joseph Schumpeter called this process <a href="https://www.investopedia.com/terms/c/creativedestruction.asp">creative destruction</a>. Nowadays a comparable term, disruption, is bandied about, particularly in the retail world. Internet retailing is an obvious example. </p>
<p>So what transformations in physical retail spaces occurred during these key revolutionary periods? We need look no further than 19th-century Paris for illustrations of these changes.</p>
<h2>New shopping platforms</h2>
<p>Structural cast iron, the world’s first artificial building material, perfected in the 1790s, enabled the construction of glass skylights and large column-free spaces. In Paris, this prompted the development of shopping arcades with skylights such as the <a href="https://en.wikipedia.org/wiki/Passage_des_Panoramas">Passage des Panoramas</a> in 1800.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/201120/original/file-20180108-83574-1m0tozp.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/201120/original/file-20180108-83574-1m0tozp.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/201120/original/file-20180108-83574-1m0tozp.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/201120/original/file-20180108-83574-1m0tozp.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/201120/original/file-20180108-83574-1m0tozp.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/201120/original/file-20180108-83574-1m0tozp.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/201120/original/file-20180108-83574-1m0tozp.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/201120/original/file-20180108-83574-1m0tozp.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Passage des Panoramas, Paris.</span>
<span class="attribution"><span class="source">Author</span></span>
</figcaption>
</figure>
<p>The innovation was successfully applied in 1852 to the world’s first department store, <a href="https://www.24sevres.com/en-au/le-bon-marche/history">Le Bon Marche</a>, also in Paris. It still serves as a template for today’s department stores. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/201049/original/file-20180107-26139-t15ka4.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/201049/original/file-20180107-26139-t15ka4.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/201049/original/file-20180107-26139-t15ka4.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/201049/original/file-20180107-26139-t15ka4.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/201049/original/file-20180107-26139-t15ka4.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/201049/original/file-20180107-26139-t15ka4.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/201049/original/file-20180107-26139-t15ka4.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Le Bon Marche, showing cast iron colums and skylight roof.</span>
<span class="attribution"><span class="source">Author</span></span>
</figcaption>
</figure>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/201050/original/file-20180107-26151-bhtg6a.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/201050/original/file-20180107-26151-bhtg6a.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/201050/original/file-20180107-26151-bhtg6a.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=750&fit=crop&dpr=1 600w, https://images.theconversation.com/files/201050/original/file-20180107-26151-bhtg6a.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=750&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/201050/original/file-20180107-26151-bhtg6a.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=750&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/201050/original/file-20180107-26151-bhtg6a.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=943&fit=crop&dpr=1 754w, https://images.theconversation.com/files/201050/original/file-20180107-26151-bhtg6a.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=943&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/201050/original/file-20180107-26151-bhtg6a.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=943&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Royal Arcade, Melbourne.</span>
<span class="attribution"><a class="source" href="https://www.instagram.com/p/Badt71GBrkn/">Instagram/royalarcade</a></span>
</figcaption>
</figure>
<p>The diffusion of innovation was rapid. The arcade and department store formats were soon adopted in Australia, most notably in Melbourne’s <a href="http://royalarcade.com.au/history/">Royal Arcade</a> (1870), Sydney’s <a href="https://dictionaryofsydney.org/entry/grace_brothers">Grace Bros Department Store</a> (1885) and <a href="http://adelaidearcade.com.au/history/">Adelaide Arcade</a> (1885). At the time, Australia was one of the wealthiest countries in the world, with the resources and financial clout to become an early adopter of European innovations.</p>
<h2>The age of steel</h2>
<p>Spurred on by steel-making in the next revolutionary period, including the <a href="https://searchinginhistory.blogspot.com.au/2015/06/the-bessemer-process-process-that-made.html">Bessemer process</a>, railways and tramways connected cities, towns and inner and middle ring suburbs. Retailing flourished on the high streets around train stations and tram stops. In Australia, this was particularly evident in Melbourne, Sydney and Adelaide, where remnants of this historical legacy can still be seen.</p>
<h2>Mass production and preservation</h2>
<p>The third revolution included innovations in automobile mass production, steel container packaging and food preservation – thanks to refrigeration. These innovations would eventually have a profound impact on the small independent retail sector as the next revolution unfolded.</p>
<h2>Mass consumption and consumerism</h2>
<p>After the second world war, population growth, social mobility and affordable cars drove suburbanisation in Australia’s capital cities. An emerging consumerism, stimulated by advertising on television, which was introduced in 1956, was under way. </p>
<figure class="align-left zoomable">
<a href="https://images.theconversation.com/files/201104/original/file-20180108-83571-5dmucf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/201104/original/file-20180108-83571-5dmucf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/201104/original/file-20180108-83571-5dmucf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=691&fit=crop&dpr=1 600w, https://images.theconversation.com/files/201104/original/file-20180108-83571-5dmucf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=691&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/201104/original/file-20180108-83571-5dmucf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=691&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/201104/original/file-20180108-83571-5dmucf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=869&fit=crop&dpr=1 754w, https://images.theconversation.com/files/201104/original/file-20180108-83571-5dmucf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=869&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/201104/original/file-20180108-83571-5dmucf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=869&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Roselands shopping centre was described as ‘a product of the motorised age’ when it opened in 1965.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Roselands_Facade.jpg">Wikimedia Commons</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>Independent retailers that retained provisioning and selling methods from earlier times found their popularity waning. The death knell of the small independent retailer that failed to keep pace with the machinery of mass consumption began with the emergence of the supermarket format in 1960. Planned suburban shopping centres with ample car parking, such as <a href="http://www.adonline.id.au/buildings/chadstone-shopping-centre/">Chadstone</a> in Melbourne (1960) and <a href="https://en.wikipedia.org/wiki/Roselands_Shopping_Centre#History">Roselands</a> in Sydney (1965), mushroomed in the nation’s capitals. </p>
<p>With the launch of the first <a href="http://www.theage.com.au/news/business/bankcard-checks-out-151-downfall-on-the-cards/2006/02/02/1138836371293.html">Bankcard</a> in 1974, the ready availability of credit drove consumerism and consumption. </p>
<p>These were to be the hallmarks of the retail landscape for the next 50 years, until the new millennium ushered in the information revolution and another retail paradigm shift. </p>
<h2>The information revolution</h2>
<p>We are almost two decades into the 21st century, and tales about damage to the traditional retail sector wrought by the digital insurgency are rife. Online retailers are engaged in cyber warfare with physical retailers and each other in a battle for the consumer dollar. Collateral damage is evident, at least partially, in shop vacancies on high streets and <a href="https://theconversation.com/history-says-department-stores-will-struggle-in-the-future-85527">declining department store sales</a>. </p>
<p>Shopping centres <a href="https://theconversation.com/how-shopping-centres-are-changing-to-fight-online-shopping-80056">have responded</a> by placing more emphasis on the shopper experience. This approach includes improved food and beverage offerings, provision of entertainment and, lately, faux main streets with integrated residential development. It is an interesting irony that the traditional high street, with its rustic quality, diverse land uses, historic character and <a href="https://collections.museumvictoria.com.au/articles/2933">cafe culture</a>, has been the inspiration for many of these ideas.</p>
<p>In conclusion, we have seen profound changes in the physical retail landscape over the last two centuries and, if history is any guide, more change is yet to come. </p>
<p>This change includes a somewhat unexpected “back to the future” scenario in online retailing. Amazon currently confines itself to an online presence in Australia, but has established bricks and mortar stores in the United States. These include the innovative <a href="http://www.businessinsider.com/amazon-go-grocery-store-future-photos-video-2017-6?IR=T">Amazon Go</a>, a competitive threat that has forced other physical competitors like <a href="http://mashable.com/2017/12/21/walmart-cashierless-shopping-amazon/#F6NZ7HvutPqF">Walmart</a> to respond. If Amazon adopts a similar strategy here, this will no doubt provoke reactions from other physical and online retailers, and thus a probable new revolution in retailing.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/NrmMk1Myrxc?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Amazon Go offers shoppers physical stores with no lines and no checkouts.</span></figcaption>
</figure><img src="https://counter.theconversation.com/content/88068/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Paul Drechsler does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Urban retail space is being transformed yet again. Predictions of the demise of physical retailing in the face of online competition overlook its resilience over two centuries of disruptive innovations.Paul Drechsler, Doctoral Researcher, The University of Western AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/886842017-12-20T11:27:32Z2017-12-20T11:27:32ZMore businesses are trying mobile apps to lure and keep consumers<figure><img src="https://images.theconversation.com/files/198611/original/file-20171211-27680-oj23he.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Using a store's mobile app can affect in-store purchases.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/young-beautiful-woman-using-mobile-store-498919009">Javier Arres/Shutterstock.com</a></span></figcaption></figure><p>Intense retail competition has led old standbys, such as <a href="https://www.cnbc.com/2017/08/24/here-are-the-28-stores-that-sears-is-closing-next.html">Sears</a>, to <a href="http://www.businessinsider.com/list-sears-kmart-store-closures-2017-11">close dozens of stores</a>. Walmart is <a href="https://news.walmart.com/2016/08/08/walmart-agrees-to-acquire-jetcom-one-of-the-fastest-growing-e-commerce-companies-in-the-us">venturing online more</a>. And Amazon is expanding offline, <a href="http://www.businessinsider.com/amazon-big-expansion-retail-pop-up-stores-2016-9">opening stores</a> and <a href="https://www.bloomberg.com/news/articles/2017-06-16/amazon-to-acquire-whole-foods-in-13-7-billion-bet-on-groceries">buying Whole Foods</a>. The fight for retail dollars is fierce, and the battleground will soon migrate into the palms of customers’ hands – via apps on their smartphones.</p>
<p>This isn’t just happening with mega-retailers. <a href="https://www.cinemark.com/cinemode">Movie</a> <a href="https://www.amctheatres.com/mobile/app">chains</a> and <a href="https://www.chewy.com/ci/lp/resp/chewy-app/chewy-app.html">pet supply stores</a> are increasingly connecting with their customers through their own branded apps. Zumiez, a specialty clothing chain with <a href="http://ir.zumiez.com/news-releases/news-release-details/zumiez-inc-announces-fiscal-2017-third-quarter-results">600 stores in the U.S.</a>, <a href="http://www.zumiez.com/the-stash/">has an app</a>. Scooter’s Coffee, an Omaha-based coffee chain with <a href="https://franchising.scooterscoffee.com/">200 stores</a>, <a href="https://www.scooterscoffee.com/MobileApp">has one too</a>. So does <a href="https://www.nypovt.com/">New York Pizza Oven</a>, a single pizza parlor in Vermont. </p>
<p>Mobile apps are becoming key ways for customers and retailers to interact. Our recent analysis of data from a large U.S. retailer of video games and electronics (whose name we agreed to keep confidential) found that <a href="http://www.msi.org/reports/the-effects-of-mobile-apps-on-shopper-purchases-and-product-returns/">apps can even affect consumers’ offline buying</a> habits.</p>
<h2>Growth in use – and spending</h2>
<p>The number of people who have the option to use mobile apps is skyrocketing. <a href="https://www.ericsson.com/en/press-releases/2015/6/ericsson-mobility-report-70-percent-of-worlds-population-using-smartphones-by-2020">More than 70 percent</a> of the world population will own a smartphone by 2020. And they’ll spend more than <a href="https://www.emarketer.com/Article/Smartphone-Apps-Crushing-Mobile-Web-Time/1014498">80 percent of their on-phone time</a> using task-specific apps.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/199060/original/file-20171213-27580-1w8e9rs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/199060/original/file-20171213-27580-1w8e9rs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/199060/original/file-20171213-27580-1w8e9rs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/199060/original/file-20171213-27580-1w8e9rs.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/199060/original/file-20171213-27580-1w8e9rs.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/199060/original/file-20171213-27580-1w8e9rs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/199060/original/file-20171213-27580-1w8e9rs.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/199060/original/file-20171213-27580-1w8e9rs.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Is there no line because people are ordering ahead on their mobile phones?</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/phoenix-april-19-starbucks-store-kiosk-675584989">jessicakirsh/Shutterstock.com</a></span>
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<p>Letting buyers learn about products, discover deals, locate nearby stores and even place orders in advance is a huge business opportunity. At Starbucks, for example, an app allowing people to order and pay on the go – just swinging into the store for pickup – helped customers avoid standing in line and waiting: <a href="https://www.forbes.com/sites/greatspeculations/2015/10/30/how-mobile-ordering-can-impact-starbucks-valuation/">Over five years, 20 percent of its sales</a> shifted to online transactions.</p>
<p>Research has also begun to show that people who use mobile shopping apps buy more than they might otherwise. After individual shoppers started purchasing using eBay’s mobile app, their <a href="https://doi.org/10.1257/aer.104.5.489">purchases from eBay’s website increased</a>. Similarly, a tablet app from major Chinese e-tailer Alibaba led customers to <a href="https://doi.org/10.1287/mnsc.2015.2406">spend about US$923.5 million more each year</a> with the company than they would have without the app. Some of that increased spending is from shoppers using the app to <a href="https://doi.org/10.1287/mnsc.2015.2406">buy impulsively</a> – making one-off purchases of items they are interested in, or adding items to larger orders.</p>
<p>Our research recently found a new dimension to this app-related spending boost. Over 18 months, customers who downloaded the branded app of the retailer we studied spent <a href="http://www.msi.org/reports/the-effects-of-mobile-apps-on-shopper-purchases-and-product-returns/">30 percent more in stores</a> than they would have without the app. We can infer this by looking at data on customers’ spending before and after the app was installed, and by <a href="https://press.princeton.edu/titles/8769.html">comparing that</a> to the spending of a random sample of customers who had similar demographics and shopping behavior before the app launched.</p>
<p>We learned that most of the increase was because customers used the app to find out about products before buying them. For example, by closely analyzing the data on app use and purchases, we could see these customers started increasing purchases of lesser known video games when they started using the app.</p>
<h2>App users return products more</h2>
<p>While shoppers who use a retailer’s mobile app tend to buy more online and in stores, we find that they are also <a href="http://www.msi.org/reports/the-effects-of-mobile-apps-on-shopper-purchases-and-product-returns/">more prone to subsequently returning</a> the products they purchased. </p>
<p>In particular, customers who use a retailer’s app tend to return products most often when they purchased those products on discount, and within seven days of making the original purchase. Apps often make it easier to purchase items on impulse. When customers receive some of the items and are dissatisfied, they regret the decisions and return the items. </p>
<p>Even taking into account the high rate of returns, app users spend more both online and in physical stores. But that’s when the apps work as customers expect them to.</p>
<h2>App failures –- and consequences</h2>
<p>Apps that load information slowly or crash frequently can deter not only online purchasing, but in-person spending, too. Surveys show that <a href="https://techbeacon.com/sites/default/files/gated_asset/mobile-app-user-survey-failing-meet-user-expectations.pdf">more than 60 percent</a> of users expect an app to load within four seconds. And our ongoing research suggests that more than half of users will abandon an app that freezes or crashes frequently.</p>
<p>App slowdowns can be costly. One estimate suggests that if each Amazon webpage took just one second longer to load, the company’s sales could drop <a href="https://www.fastcompany.com/1825005/how-one-second-could-cost-amazon-16-billion-sales">as much as $1.6 billion</a> a year. For smaller retailers, a similar drop of 2 to 3 percent would be a smaller dollar amount but still a significant blow.</p>
<p>Our ongoing research with Stanford’s <a href="https://www.gsb.stanford.edu/faculty-research/faculty/sridhar-narayanan">Sridhar Narayanan</a> suggests that poor app performance reduces users’ in-store spending too. Specifically, we studied how shoppers react when an app is not accessible for five or six hours, due (users were told) to a server error. Our preliminary results suggest that in the following two weeks, those shoppers spent 3 to 4 percent less in stores than they would have otherwise. Less-frequent customers reduced their spending even more than the company’s more regular shoppers.</p>
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<figcaption><span class="caption">Unnati Narang discusses her ongoing research on failures in mobile shopping apps.</span></figcaption>
</figure>
<p>Interestingly, customers who experience app failures spend less in stores, but their online spending remains unchanged. A deeper analysis indicates that when a retailer’s app fails, shoppers often go to the retailer’s website to complete their intended transactions. But the negative experience from app failure discourages them from buying more in the retailer’s store. </p>
<p>Our research illustrates some ways mobile apps can be a double-edged sword for customers and retailers alike. Shoppers can use apps to learn more about prospective purchases, be inspired on the fly and save time at the cash register. But if the software fails, they may be frustrated, discouraged and even spend less at physical stores. Retailers can see increased sales and faster transactions, but may have to handle more returns – though they’ll still make more money. The longer-term effects of mobile apps on the retail business have yet to be seen, of course, but in an ever-changing landscape, companies and customers alike will be exploring the options.</p><img src="https://counter.theconversation.com/content/88684/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>As businesses’ branded mobile apps become more common and popular, how are they affecting shoppers’ buying habits?Venkatesh Shankar, Professor of Marketing; Director of Research, Center for Retailing Studies, Texas A&M UniversityUnnati Narang, Ph.D. student in Business Administration (Marketing), Texas A&M UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/886142017-12-18T15:43:02Z2017-12-18T15:43:02ZChristmas shopping is changing – but retailers must accept that pop-up stores are here to stay<figure><img src="https://images.theconversation.com/files/199725/original/file-20171218-27562-13mhpid.jpg?ixlib=rb-1.1.0&rect=97%2C237%2C3927%2C2802&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/charlotte90t/8273973076/sizes/l">Charlotte9OT/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span></figcaption></figure><p>At Christmas time, vacant shop spaces suddenly fill with new vendors selling decorations, small toys, gifts and calendars for the following year. Christmas markets seem to materialise out of thin air, and even online retailers set up shop on the high street. By the new year, these will all vanish without a trace. Yet for businesses, the pop-up store phenomenon is more than just a phase. </p>
<p>Pop-up retailing is a simple concept – it’s a retail store that exists for a limited period, measured in weeks, days, sometimes mere hours. They can take any form, from shops, bars and restaurants to cinemas and galleries. And they’re often used as part of strategies to promote brands and launch new products.</p>
<p>The origins of pop-up stores can be traced back to the <a href="https://pdfs.semanticscholar.org/5246/be88a7615f714d7fba61a465c4490969691e.pdf">periodic markets of the Middle Ages</a>, and the salesmen who travelled from place to place, selling their wares. Indeed, since the first <a href="http://www.medievalhistories.com/late-medieval-christmas-german-invention/">German Christmas markets</a> appeared in the 14th century, sellers have used pop-up stores to meet seasonal demands, in cases where having a permanent premises may not make financial sense. </p>
<h2>A new tradition</h2>
<p>The main attraction of pop-up stores is their flexibility, which is become increasingly important in the rapidly changing world of retail. Businesses are under mounting pressure to evolve, to keep pace with changing customer expectations and behaviour. </p>
<p>As established high-street vendors <a href="https://www.theguardian.com/technology/2017/nov/19/amazon-high-street-shop-london">are overtaken</a> by online-only retailers in terms of market value, many find themselves with excess store space: one estimate says there are 50,000 surplus stores accross the UK. </p>
<p>These spaces <a href="https://ee.co.uk/content/dam/everything-everywhere/documents/Pop-Up%20Economy%202015.pdf">present opportunities</a> for pop-up shops, where different retailers can appear unexpectedly, create a buzz and disappear before people have a chance to get bored.</p>
<h2>Maximum flexibility</h2>
<p>The pop-up enables business to be more flexible in terms of location, financing and strategy. Being able to set up in different places allows retailers to take advantage of the growing amounts of vacant space in many shopping malls and town centres. </p>
<p>Short-term use of this space can benefit property owners by bringing in some rent, while providing opportunities for retailers – especially new business owners seeking to test out their business models. </p>
<p>Pop-up stores also allow retailers to go where their customers are; for example, by capitalising on gatherings of potential customers at events and festivals. Retailers can become “nomadic”, setting up stall in <a href="https://www.fastcodesign.com/1663294/a-pop-up-store-made-of-pantyhose-yes-pantyhose-slideshow#10">specially-designed marquees</a>, repurposed shipping containers, and even <a href="https://www.freshnessmag.com/2009/06/11/generic-man-pop-up-store-space-15-twenty/">inside other shops</a>.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/199724/original/file-20171218-27607-1wuomov.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/199724/original/file-20171218-27607-1wuomov.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/199724/original/file-20171218-27607-1wuomov.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/199724/original/file-20171218-27607-1wuomov.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/199724/original/file-20171218-27607-1wuomov.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/199724/original/file-20171218-27607-1wuomov.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/199724/original/file-20171218-27607-1wuomov.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Shopping containers in Shoreditch, London.</span>
<span class="attribution"><a class="source" href="http://www.shutterstock.com">Shutterstock.</a></span>
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<p>The financial flexibility of pop-up stores mean that they can be a low-cost alternative for start-ups which want to test a business concept, without the commitment or expense of leasing a permanent premises. The high cost of commercial rent in major cities has also encouraged the emergence of the so-called “shop share”. Here, small retailers can rent a rail, table, shelf or stand in a more established shop. </p>
<p>Such initiatives have encouraged greater collaboration among retailers, and helped small and independent business to boost their brand. Successful business concepts can then develop from pop-up to stay-up. In this way, pop-up stores can offer strategic flexibility. </p>
<h2>Online, in person</h2>
<p>Well-established businesses can also benefit, using pop-up stores less as a means of driving sales, and more as a way to promote their brand, market new products, and connect face-to-face with the general public. This goes for online retailers too: eBay, for instance, <a href="http://www.techexclusive.net/ebay-opening-christmas-shop-in-soho-london-uk/">established a pop-up shop</a> in central London over Christmas, featuring their 200 best-selling items.</p>
<p>This gives online-only stores a chance to have more direct interaction with - and feedback from - consumers, as well as providing opportunities to link the brand to specific cultural, fashion or sporting events. </p>
<p>In the retail industry, the boundaries between pop-up and more traditional retailing are blurring. At Christmas time, retailers will take every opportunity to increase sales during this peak trading period – including through pop-up stores. While these snow-festooned stores may be gone come the new year, it seems that for retailers, the pop-up is for life – not just for Christmas.</p><img src="https://counter.theconversation.com/content/88614/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The idea of pop-up shops has been around for ages, but now even established high-street retailers are being forced to buy in.Charlotte Shi, Senior Lecturer in Fashion Marketing and Branding, Nottingham Trent UniversityGary Warnaby, Professor of Retailing and Marketing, Manchester Metropolitan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/874942017-11-17T13:31:20Z2017-11-17T13:31:20ZIn-store shopping still matters this holiday season<figure><img src="https://images.theconversation.com/files/194872/original/file-20171115-19799-99jc2s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">In-person shopping remains popular.</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Holiday-Shopping-Black-Friday/c1b47a7b8d8a466aba67b0354e5b83fb/15/0">AP Photo/Jeff Chiu</a></span></figcaption></figure><p>It surprises most millennials to learn that <a href="https://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf">only about 10 percent</a> of all retail purchases are actually made online. Each semester, when I ask hundreds of undergraduate business students to estimate, they consistently guess that between a quarter and half of all retail spending happens on the internet. But this holiday shopping season, as ever in the past, the overwhelming majority of purchases will still happen within four physical walls of a store.</p>
<p>This should encourage the thousands of retailers anchored in strip malls, lifestyle centers and mixed use developments. The National Retail Federation expects holiday retail sales – not counting car, gas and restaurant purchases – in November and December this year to <a href="https://nrf.com/resources/consumer-research-and-data/holiday-spending/holiday-headquarters">increase up to 4 percent</a> over last year, to as much as US$682 billion.</p>
<p>Stores will need the money in order to avoid being added to <a href="https://www.cnbc.com/2017/09/23/here-are-the-retailers-that-filed-for-bankruptcy-protection-in-2017.html">2017’s record-breaking roster</a> of retail bankruptcies, store closures and layoffs, which included landmark brands like Toys R Us and RadioShack.</p>
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<h2>A reason to visit</h2>
<p>Traditional retailers must give consumers good reasons to visit their stores, beyond product selection and good value. Joe Pine and James Gilmore’s 1999 book “<a href="https://hbr.org/product/the-experience-economy-updated-edition/10254-PBK-ENG">The Experience Economy</a>” foretold how savvy companies, like Apple and American Girl, excel by <a href="https://hbr.org/1998/07/welcome-to-the-experience-economy">staging compelling experiences</a> that teach, entertain or inspire customers. </p>
<p>The main asset of a physical store in a digital world is human staffing. Even if a shopper doesn’t want help, a smile acknowledging his or her presence encourages connection. Front-line employees can ask customers about their kids, in-laws or Thanksgiving meal planning. That can lead to an authentic personal connection through which employees can discover a shopper’s unique wants and respond with products on the shelves, or ordered and shipped for free to the customer’s home. An in-person encounter can become a seamless <a href="https://hbr.org/2013/09/the-truth-about-customer-experience">blend of the online and physical worlds</a>.</p>
<p>Even Walmart, America’s largest retailer, is moving to a more experiential model. In hopes of boosting sales, its 4,700 stores will host <a href="https://www.usatoday.com/story/money/2017/11/01/walmarts-plan-battle-amazon-holiday-hint-its-gonna-party-supercenters/817223001/">20,000 parties with Santa</a> before the New Year. Customers will be able to take pictures, test out toys and get tots excited.</p>
<p>The company has another advantage over online sellers, too: <a href="https://www.statisticbrain.com/wal-mart-company-statistics/">nine in 10 Americans live within 15 minutes</a> of a Walmart store. <a href="https://news.walmart.com/2017/09/06/walmart-to-open-1-000th-online-grocery-pickup-location">A thousand Walmarts</a> now let customers drive up to the storefront to pick up online grocery orders the same day they’re purchased, at no additional charge. That rivals <a href="https://www.recode.net/2017/11/15/16653862/amazon-fresh-usps-postal-service-shutdown-grocery-delivery">Amazon’s Fresh grocery service</a>, which comes at an extra cost and often doesn’t deliver until the next day.</p>
<h2>Emotional connection in a digital age</h2>
<p>Beyond face-to-face service, successful companies today must develop a deeper connection with their customers, whether online or off. Store-based retailers can show their values in ways that at times can take on a very personal meaning for shoppers and store owners alike. I have been a loyal customer of <a href="http://www.galleryfurniture.com/">Gallery Furniture</a> in Houston for years. Owner Jim McIngvale, known as “Mattress Mack,” is a marketing maverick known for his <a href="https://www.youtube.com/watch?v=QseD6K54pII">decades of zany TV commercials</a> pledging to “<a href="https://www.youtube.com/watch?v=mQHNYjieABA">Save you money!</a>” </p>
<p>After the devastation of Hurricane Harvey, he opened his stores to anyone in need of a place to stay. Some came by boat, with only the clothes they were wearing. McIngvale <a href="https://www.nytimes.com/video/us/100000005398367/houston-harvey-mattress-shelter.html">welcomed thousands of Houstonians</a> to sleep on his inventory of mattresses. He sheltered, fed and prayed for flood victims.</p>
<p>On Halloween, McIngvale <a href="http://www.star-telegram.com/sports/mlb/texas-rangers/article182136291.html">flew 50 first responders to Game 6</a> of the World Series in Los Angeles, giving those lucky Astros fans a once-in-a-lifetime experience and emotional lift in the wake of natural disaster.</p>
<p>Like other retailers gearing up for the holidays, Gallery Furniture is promoting “monster sales.” But with the floodwaters gone and the Astros crowned as baseball’s world champions, McIngvale’s community spirit seems to have positioned his chain as more than a brand, destination or store. Beyond capturing market share, Gallery Furniture may have an advantage in customer sentiment.</p>
<h2>Best Buy is buzzing again</h2>
<p>Community involvement isn’t the only way retailers can regain strength. National electronics chain Best Buy has ridden a roller coaster over the last 20 years: In 2004 it was recognized by Forbes magazine as “<a href="https://www.forbes.com/free_forbes/2004/0112/138.html">Company of the Year</a>.” By 2012 it was dismissed as a <a href="http://www.hbs.edu/faculty/Pages/item.aspx?num=47957">real-world showroom for cheaper online retailers</a>. In August 2017, though, its stock price <a href="https://finance.google.com/finance?q=NYSE:BBY&ct=obgf&xpid=4132891&evtid=epEMWtHHIei_jwT267DQCw&ep=obgf">hit an all-time high</a>.</p>
<p>As Amazon grew, Best Buy defended itself, becoming a top 10 retailer in sales by matching competitors’ prices and investing in personal services like <a href="https://www.bestbuy.com/site/electronics/geek-squad/pcmcat138100050018.c?id=pcmcat138100050018">Geek Squad</a>. The company also <a href="http://www.latimes.com/business/la-fi-agenda-best-buy-20170717-htmlstory.html">trained workers to help customers</a> understand technology: Product descriptions can list a camera’s functions, but a knowledgeable employee can explain how it works with lenses, editing software or with other devices. That allows the company to take advantage of the ever-increasing number of tech-connected items in smart homes, from Nest thermostats to 4K TVs – which require more instruction to set up and operate than their analog predecessors.</p>
<p>In the face of online competition, brick-and-mortar retailers must give consumers unique in-store experiences that build emotional connections with shoppers. Black Friday promos on toasters or iPads won’t cut it. They have to provide heartfelt feelings like surprise, delight and excitement – and actual help and useful advice. Shopping on a couch via a mobile app is efficient, but a store can be magical and memory-making.</p><img src="https://counter.theconversation.com/content/87494/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The Center for Retailing Studies is funded through annual donations made by retailers (see: crs.mays.tamu.edu) to underwrite student education in retail studies at Mays Business School, Texas A&M University. Kelli Hollinger, director of the Center for Retailing Studies, is a state employee of Texas and currently engages in no external industry consulting.</span></em></p>Holiday retail sales may boom this year – and the lion’s share will not be online purchases. Yet brick-and-mortar retail stores are facing heavy internet competition.Kelli Hollinger, Director, Center for Retailing Studies; Lecturer of Marketing, Texas A&M UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/859522017-11-07T15:02:24Z2017-11-07T15:02:24ZChina’s Singles Day retail phenomenon will blow Black Friday out the water<figure><img src="https://images.theconversation.com/files/193422/original/file-20171106-1014-1hd57tg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/lijiang-old-town-evening-crowed-tourist-679247371?src=NqR5oQhG5jAMPWbVnkra1A-3-10">Toa55/Shutterstock</a></span></figcaption></figure><p>For the past few years, Black Friday <a href="https://theconversation.com/uk/topics/black-friday-13696">has become a focal point</a> for many US and UK retailers – and for media outlets hungry for images of shoppers bursting into stores in pursuit of posh televisions. The event, supposedly named after the moment when retailers move into profit for the year, has quickly escalated into a four-day shopping festival. But it is not the only game in town – or even the biggest. </p>
<p>Black Friday falls the day after Thanksgiving in the US (November 23 this year) and is followed up by a long-weekend extravaganza which culminates in the online-focused <a href="https://www.chainstoreage.com/finance-0/adobe-cyber-monday-will-biggest-online-shopping-day-ever/">“Cyber Monday</a>”. It has recalibrated, and brought forward, many consumers’ pre-Christmas shopping plans.</p>
<p>However, unlike Black Friday, China’s November 11 “Singles Day” is still predominately focused on local consumers and completely dominated by one online retailer – Alibaba. The economic impact of Black Friday is dwarfed by this online one-day retail festival from China. Singles Day has gone under the radar for most of the general public in the West, but in 2016, Chinese shoppers spent an incredible US$17.8 billion in 24 hours <a href="http://www.alizila.com/wp-content/uploads/2017/10/11">on the Alibaba online platform</a> – China’s Amazon equivalent. </p>
<p>This online sales bonanza <a href="http://fortune.com/2017/11/02/alibaba-stock-price-earnings/?iid=sr-link4">shifts more goods than the Black Friday</a> and Cyber Monday sales days in the US combined. Black Friday in the US saw online sales hit a record <a href="https://techcrunch.com/2016/11/25/black-friday-online-sales-to-hit-a-record-breaking-3-billion-over-1-billion-from-mobile/">of just over US$3 billion</a> in 2016.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/193153/original/file-20171103-26456-gj0scc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/193153/original/file-20171103-26456-gj0scc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/193153/original/file-20171103-26456-gj0scc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/193153/original/file-20171103-26456-gj0scc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/193153/original/file-20171103-26456-gj0scc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/193153/original/file-20171103-26456-gj0scc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/193153/original/file-20171103-26456-gj0scc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/193153/original/file-20171103-26456-gj0scc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/sea-wash-711259702?src=IpjP8sccLf17VD4zmfOEoA-1-23">HelloRF Zcool/Shutterstock</a></span>
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</figure>
<h2>Origins</h2>
<p>Singles Day started as an obscure “anti-Valentine’s” celebration for single people in China back in the 1990s. The popular story is that it was started by students at Nanjing University who <a href="http://time.com/3576381/china-singles-day-history/">celebrated their singledom</a> by treating themselves. It takes place on November 11 every year and is sometimes known as “bare sticks holiday”, after the way the date is written (11/11).</p>
<p>The event is also known as “Bachelors’ Day”, and it’s not hard to see why. China has a surplus of males caused by years of the <a href="http://www.bbc.co.uk/schools/gcsebitesize/geography/population/managing_population_rev3.shtml">government’s “one child” policy</a>. By 2020, sociologists expect the gender imbalance <a href="http://www.telegraph.co.uk/black-friday/0/what-is-chinas-singles-day-and-how-does-it-compare-to-black-frid/">to have widened to 35m</a> and by 2030, it is estimated that one in four Chinese men in their late 30s will <a href="http://www.telegraph.co.uk/black-friday/0/what-is-chinas-singles-day-and-how-does-it-compare-to-black-frid/">never have married</a>. That is a big market.</p>
<p>Black Friday was, of course, initially driven and then “exported” to the UK and other markets by major US retailers, specifically Walmart and Amazon. In China, it was the e-commerce giant Alibaba which adopted Singles Day in 2009, just as online shopping started to explode. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/193154/original/file-20171103-26438-o2izpb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/193154/original/file-20171103-26438-o2izpb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/193154/original/file-20171103-26438-o2izpb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/193154/original/file-20171103-26438-o2izpb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/193154/original/file-20171103-26438-o2izpb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/193154/original/file-20171103-26438-o2izpb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/193154/original/file-20171103-26438-o2izpb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/193154/original/file-20171103-26438-o2izpb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Too many men?</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/chinese-people-practicing-taiji-park-651134725?src=UX0-RJCyTCTmwUBmFNcG4Q-1-0">Blend Images/Shutterstock</a></span>
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</figure>
<p>It has now become a day when everyone, regardless of their relationship status, buys themselves gifts. Alibaba spotted this as a chance for retailers to generate interest and excitement and to boost sales in the lull between China’s Golden Week national holiday <a href="http://www.telegraph.co.uk/black-friday/0/what-is-chinas-singles-day-and-how-does-it-compare-to-black-frid/">in October</a> and the <a href="https://www.cnbc.com/2013/12/19/christmas-in-china-a-season-to-shop.html">peak Christmas season</a>.</p>
<p>Like much of the global growth in online sales, Singles Day has been driven by mobile. Nowhere is this more stark than in China where, with 1.3 billion smartphone users, mobile shopping is huge. Around 37% of Chinese shoppers buy products using their phones, compared to the <a href="http://www.telegraph.co.uk/black-friday/0/what-is-chinas-singles-day-and-how-does-it-compare-to-black-frid/">global average of 13%</a>.</p>
<p>We’ve seen that Alibaba’s sales numbers for Singles Day are astonishing. And the growth has been too. The chart below shows how Singles Day sales for Alibaba have risen over the past seven years. Last year alone, <a href="http://www.alizila.com/wp-content/uploads/2017/10/11.11-Global-Shopping-Festival-Fact-Sheet_20171031_final.pdf?x95431">sales were up 32%</a> on the previous year.</p>
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<a href="https://images.theconversation.com/files/191622/original/file-20171024-30590-kk97u0.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/191622/original/file-20171024-30590-kk97u0.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/191622/original/file-20171024-30590-kk97u0.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=367&fit=crop&dpr=1 600w, https://images.theconversation.com/files/191622/original/file-20171024-30590-kk97u0.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=367&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/191622/original/file-20171024-30590-kk97u0.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=367&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/191622/original/file-20171024-30590-kk97u0.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=461&fit=crop&dpr=1 754w, https://images.theconversation.com/files/191622/original/file-20171024-30590-kk97u0.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=461&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/191622/original/file-20171024-30590-kk97u0.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=461&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="source" href="http://www.bbc.co.uk/news/37946470">Alibaba/BBC</a>, <span class="license">Author provided</span></span>
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</figure>
<p><a href="http://www.alizila.com/wp-content/uploads/2017/10/11.11-Global-Shopping-Festival-Fact-Sheet_20171031_final.pdf?x95431">According to Alibaba</a>, during the event on 2016 they processed more than a billion payment transactions in total, with 120,000 transactions per second at peak and their distribution system processed more than 657m delivery orders.</p>
<p>Analysts have predicted this year’s event could see Alibaba rack up sales of US$20 billion despite a slowdown in China’s economy, partly due to it having a broader audience.</p>
<h2>Copy cats</h2>
<p>Of course those kinds of numbers attract the interest of Western retailers too and the 2016 event saw <a href="http://www.alizila.com/wp-content/uploads/2017/10/11.11-Global-Shopping-Festival-Fact-Sheet_20171031_final.pdf?x95431">37% of total buyers</a> purchasing products from international brands or merchants. Companies like US retailers Costco and Macys as well as Britain’s Top Shop and House of Fraser have marketplaces on <a href="https://www.econsultancy.com/blog/67771-a-beginners-guide-to-alibaba-s-tmall/">Alibaba’s Tmall site</a> have already got involved. </p>
<p>And, for the first time, Alibaba’s 2017 Singles Day festival will bring more than 100 Chinese brands <a href="http://www.scmp.com/business/companies/article/2117839/alibaba-looks-turn-singles-day-international-affair">to overseas buyers</a>, offering special promotions targeting over 100m overseas Chinese consumers in Asia and around the world.</p>
<p>There is one rather sensitive obstacle to the adoption of Singles Day in the UK, however. The eleventh day of the eleventh month is Armistice Day when Britain marks the end of World War I and the nation remembers all those who have died in military service. There will be many who think it distasteful to run a shopping event on that day. However, as David McCorquodale, head of retail at KPMG, pointed out: “Singles Day in China is the biggest promotions day in the world. [The date] will stall its entry to the UK, but not forever.”</p>
<p>Given the rapid globalisation of most retail trends and the way online retail now allows immediate access to millions of products from thousands of manufacturers, it is indeed impossible to envisage that Singles Day won’t extend it’s reach, in some form, to Western consumers very quickly.</p><img src="https://counter.theconversation.com/content/85952/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nelson Blackley does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Will the rest of the world catch up with a trend which encourages gift buying for yourself?Nelson Blackley, Senior Research Associate, Nottingham Business School, Nottingham Trent UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/868442017-11-05T19:17:07Z2017-11-05T19:17:07ZChinese personal shoppers have created a new type of retail store in Australia<p>It might seem unlikely that there’s stores in Australia, selling only a small range of products, at prices significantly higher than supermarkets, yet turning over <a href="http://www.afr.com/business/retail/fmcg/meet-australias-biggest-daigou-who-can-make-or-break-brands-in-china-20170523-gwavsx">millions of dollars each year</a>. But an increase in stores catering to personal shoppers, called daigou, are growing in the Australian retail scene.</p>
<p>As demand for Australian <a href="https://www.austrade.gov.au/Australian/Export/Export-markets/Countries/China/Industries/Consumer-products">products increases</a>, daigou stores allow Chinese shoppers to send goods to China. One public relation agency estimated there are between 1,200 to 1,600 small daigou stores that offer <a href="http://www.saucecommunications.com.au/daigou-craze-drives-chinese-demand-for-australian-products/">“pack and send” services</a> in Australia. Until now, these businesses were fragmented and operated independently.</p>
<p>However, the first Daigou retailer recently listed on the ASX, <a href="https://aumake.com.au/">AuMake</a>. The retailer has seven stores <a href="http://www.smh.com.au/business/markets/daigou-retailer-aumake-lists-on-asx-shares-double-20171004-gyummo.html">in Sydney and plans for more</a>.</p>
<p>Daigou stores are emerging in response to the demands of a burgeoning Chinese middle-class and their hunger for Australian brands. By 2022, 76% of China’s urban population <a href="https://www.mckinsey.com/industries/retail/our-insights/mapping-chinas-middle-class">will be considered middle-class</a>. </p>
<h2>Why Australian brands can’t ‘go it alone’</h2>
<p>Poor quality Chinese products, <a href="https://www.forbes.com/sites/yanzhonghuang/2014/07/16/the-2008-milk-scandal-revisited/#4803d2cd4105">food safety concerns</a> combined with ongoing issues of <a href="https://www.cnbc.com/2016/07/08/amazons-chinese-counterfeit-problem-is-getting-worse.html">counterfeiting</a> have contributed to a deficit in trust of Chinese brands. This lack of trust is driving demand for authentic, high quality products – particularly from Western markets like Australia.</p>
<p>So, why don’t Australian business simply cut out the middleman and go straight to the consumer? It comes down to the establishment of trust between the consumer and the retailer, and the length of time it takes a foreign retail business <a href="http://www.business-circle.com.au/en/?p=3535">to establish consumer trust in China</a>. Australian-based brands like Suisse, Blackmores and Jurlique sell through Daigou retailers to quickly establish authenticity of the product and consumer trust.</p>
<p>Daigou businesses are quickly becoming market influencers, that can <a href="https://www.emarketer.com/Article/Influencers-Big-China-Influencer-Marketing-Underutilized/1016364">make or break brands in China</a>. Case in point is Bellamy’s infant formula, Airwallex Founder Lucy Liu <a href="http://thenewdaily.com.au/money/your-budget/2017/03/28/inside-chinese-daigou-craze/">stated</a>:</p>
<blockquote>
<p>what Bellamy’s didn’t expect was that the daigous’ customers would be more loyal to their daigou, than to the Bellamy’s brand.</p>
</blockquote>
<p><a href="http://www.shenglidigital.com/services/chinese-influencer-marketing/">Chinese consultancies</a> are now offering to connect Australian businesses with highly-influential Chinese bloggers and Chinese social media personalities to help promote your products and services </p>
<h2>A viable market</h2>
<p>Despite low domestic growth in food and groceries, an <a href="https://www.afgc.org.au/2016/11/state-of-the-industry-2016-report-exports-generate-growth-despite-difficult-domestic-conditions/">AFGC State of the Industry Report</a> identified a real hunger for Australian manufactured brands internationally. In 2015-16 food and beverage exports grew by 11% to A$26 billion and grocery (non-food) exports up 32% to A$4 billion.</p>
<p>Notably, China has become Australia’s largest export market <a href="https://www.afgc.org.au/wp-content/uploads/AFGC-2017-State-of-the-Industry-Report.pdf">for the first time in 2016-17.</a></p>
<p>So lucrative is this daigou model, that the 2017 Australia-China Business Week Conference <a href="http://acbwchina.com.au/acbw-wechat-workshop/">allocated an entire afternoon</a> to a workshop on Chinese social media platform WeChat. The aim of the session was to demonstrate to marketers and business how WeChat could be utilised to connect, influence and sell to Chinese consumers.</p>
<p>Global consultancy firms like <a href="http://www.nielsen.com/au/en/insights/reports/2017/the-daigou-effect-how-brands-can-break-down-chinese-borders-and-drive-growth.html">Nielsen</a> are scrambling to advise entrepreneurs and brands on how they can leverage this new retail model for financial growth.</p>
<h2>A final cautionary note</h2>
<p>As these daigou stores open up around Australia and become the legitimate “go to” for Chinese consumers seeking quality, authentic Australian brands, it would appear the days of individual daigous striping supermarket shelves of infant formula may be numbered. The model provides a regulated channel to the Chinese consumer and circumnavigates the need for individual daigou shoppers. </p>
<p>While this new retail model presents a great opportunity for Australian products and brands, ultimately, the future remains uncertain. On one hand, Chinese entrepreneurs may increase the number of stores across Australia and small brands will compete for shelf space, in order to access the lucrative Chinese market.
Alternatively, established daigou relationships based on trust may endue and the business model becomes irrelevant. </p>
<p>In the end, this retail model remains viable only as long as the Chinese government permit online shopping from international markets – they could <a href="http://www.theaustralian.com.au/business/opinion/alan-kohler/shopping-with-chinese-characteristics/news-story/b47d79581c3deef6a4b2493c854a0e16">close the door overnight</a>. Chinese officials have <a href="http://www.rfa.org/english/news/china/permit-03102017115213.html">already imposed bans</a> on foreign books, movies and games being imported to China.</p><img src="https://counter.theconversation.com/content/86844/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>New stores based on the business of personal shoppers for Chinese clients are capitalising on the country’s emerging middle class.Gary Mortimer, Associate Professor, Queensland University of TechnologyCharmaine Glavas, International Business Lecturer, Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.