Retail Business Types
There’s really two types of retailers: Low Cost Providers, or Aggregators.
Low Cost Providers
Low Cost Providers is what the majority of what people think of. They are your discounters, or marketplaces. This would be Costco, Amazon, Walmart, etc. They sell everything and want to appeal to the highest demographic. Often, SKU count is extremely large.
In my opinion, these business will continue to be driven to the largest retailers. Amazon over the last 20 years is a great example of this. Free and 2 day shipping is now the standard, anything is sub-optimal experience. The majority of retailers cannot keep up - nor should they unless they have some unique advantage.
You shop there because they have an acceptable ratio of quality to price. Quality levels change from consumer to consumer. But after your quality bar is cleared, you focus on price. You can think of something like a tee-shirt - materials and manufacturing are the cost. If you find two tee-shirts at the same price, you shop quality.
For example: premium tee shirt could be seen as one made of bamboo cotton. It’s extremely soft, but often more costly. It will last longer, and hold it’s shape. A 40% cotton, 60% polyester blend is the exact same, but less soft.
Your target customers weigh a few combinations of characteristics: shape, size, variation, color, and material. But if all else is equal, price is the deciding factor.
These are the people who save us time and build a collection products for a target demographic. Often, their value proposition is that they save you time in finding them, and often they’ll establish some level of trust with their consumer.
For example, I’ve follow Studio Mcgee for years, and I have seen a lot of their interior design work. I trust them to put together great rooms, and now they have McGee & Co. There’s a certain element of trust I have for this aggregator that majority of products could potentially result in a well designed home.
The Future of Aggregators
I believe that content creators will be the future of aggregated retailers. Big low cost providers will get bigger and take up more marketshare. Everyone else between the two will fade away.
The opportunity exists in the aggregators, and more specifically the content creators. Content creators spend a lot of time building an audience, and building trust with that audience. Once, they’ve successfully done that their Cost to Acquire Customers (CAC) is extremely low. There are some very obvious examples: Kardashian’s and everything they do, Nelk Boys and Happy Dad, Jillian Harris and Joe Fresh (Big Retailer even finding it), etc. It’s about content product fit, but once found, it’s a fly wheel.
The big low cost providers will get bigger because they will continue to invest in reducing their overhead, or getting more efficient. Think about the capital Amazon has invested into shipping to achieve 1-day. Indigo, a Canadian retailer will never achieve that. They shouldn’t try, they should hit a bar clearing level and focus on what makes them unique to their audience.
That’s where the third group comes in. The companies that copy the big retailers will have a worst ROI, and will slowly survive or die off. I’m not interested in spending my life "surviving".
The future aggregator will have an audience through their content. Their retail operations will be managed by one person, or a small team of people. They will depend heavily on software and 3D party tooling. And that’s it.
If I was building a retail store and didn’t have audience, I’d build an audience or partner with someone who has one. If I wanted to participate in the retail stack, I’d be focus on capture a small percentage of GMV. Gone are the days of small retailers having large margins, and big overhead. It will be low overheads and the lions share will either go to the content creators, or back to the customers.