Watch your step as you board the Wayback machine. We're going to travel about 20 years into the past. Destination: 1999, the height of the e-commerce boom. Just before the bubble burst.
Remember Pets.com? How about eToys or Webvan? Those companies were going to revolutionize the way we shopped. Why bother going to a store when you can make purchases from the convenience of your couch? Brick-and-mortar retail stores were bound to close within months, and Main Street and shopping malls would become relics of a bygone age.
The assumption was that cutting out the retailer middleman would more than offset the cost of shipping to millions of customers' homes. Billions of investment dollars were thrown at that proposition. Companies with no track record or even a comprehensive business plan announced record-setting IPOs. Sophisticated warehouses rose overnight. Then the bottom fell out.
As we now know, the problem for these newcomers was not a lack of capital. What doomed them was their failure to grasp the complexities of distribution—specifically, direct-to-consumer distribution. While staggering amounts were invested in new warehouses, many of those facilities were not designed to pick and pack individual orders efficiently and cost effectively.
Let's journey back to the present. Today, I believe we are seeing the fulfillment of those prophecies of two decades ago. Many traditional retailers are reeling, and shopping malls are struggling. Sears has shuttered more than 236 stores since January, while Payless, Gander Mountain, The Limited, and Rue21 have recently closed for good or are barely afloat in bankruptcy.
What has changed? Dot-com companies (and other retailers that succeed at e-commerce) have figured out how to make distribution and shipping work and, in some cases, to parlay it into a source of competitive advantage.
Amazon, one of the few survivors among the early dot-com contenders, is leading the way. Amazon Prime, which features free two-day shipping, is the benchmark, and retailers who want to survive must tailor their supply chains to match that high level of customer service. A few, such as Walmart, have been doing their best to keep pace. But consumer expectations are also evolving, putting even more pressure on retailers for ever-faster response, low-cost or free shipping, and easy returns.
Just like 20 years ago, retailers that can develop efficient pick-and-pack operations and also figure out how to leverage the brick-and-mortar stores they have left have the best chance of surviving and possibly even thriving. Then and now, it all comes down to mastering their supply chains.
Loxo/Planzer