Bluepoint daily market view – May 29, 2012
Mom and Pop shops set to boom? Best Buy released its first-quarter 2012 earnings last week, and though the numbers beat Wall Street expectations, net income took a tumble — falling 25%, compared with last year. Another quarter of declining revenues has pundits wondering if these latest results are just another step on the road to the end of the big-box store phenomenon.
So what’s behind a store like Best Buy’s headlong decline? One word: Amazon. Specialty big-box stores like Best Buy have made a killing the past 20 years by offering a huge selection of products at low prices. But there is no way the firm can compete with an Internet retailer like Amazon on those measures. Even worse for Best Buy is the phenomenon of “showrooming,” whereby shoppers check out an item in a store and then buy it through an online competitor for a lower price. This is particularly frustrating for brick-and-mortar stores because it takes their one tangible advantage to online retailers — the in-store experience — and turns it into a way for their competitors to steal market share.
So the death of retail 1.0, has already happened to the mom and pop stores, with the advent of the big box mart stores. Now the retail 2.0 death is now happening to the big box mart stores themselves. The first permutation of this death included the failure of large media retailers like Borders, Blockbuster and Tower Records. The Internet proved to be a much more efficient medium for purveying media. The second wave of retail death 2.0 is well on its way with main line brick and mortar stores.
Then comes retail 3.0. Yes the mom and pop stores return – online !!! For those online entrepreneurs ready to venture out with better niche product understanding, super targeted search/social media marketing, personalised customer service and small back office costs (that the Internet can provide and that large bulky brick and mortar organisations can not provide), new opportunities are at last here for mom and pop. Go for it, innovate, its time has come.