Well we just finished another haul through that end-of-year spending frenzy that passes for yule-tide spirit. This bit a crass consumerism in the name of the virgin birth often leaves a bad taste in my mouth and a reasonably large dent in my wallet. But it also gives ample opportunity to observe and even dissect American economics with particular focus on the household-to-firm side of the three-legged stool that comprised the bulk of our economic activity.
Now before I report on my observations, I think, in the interest of full disclosure, that I make it abundantly clear, that I prefer to make the majority of my holiday purchases online. There are several reasons for this. The most important reason is that I would rather spend my precious time with family and friends rather than slogging through a mall but I would be remiss if I didn’t mention that I simply don’t like interacting with people that much. It helps that the majority of gifts I look to purchase are easily obtained with a little cyber-spending.
All that said, this past holiday season emphasized one point with emphasis. Despite dire predictions to the contrary, I see no end in sight for brick and mortar establishments.
Often over the past 10 or 15 years we’ve all heard that brick and mortar establishments – ranging from big box stores like Best Buy to mom-and-pop stores just across the street – were facing insurmountable competition from the online presences. The end was nigh so said the gloomiest of the economic pundits and yet here we are years later and brick and mortar shops are still here.
To be sure, they are not quite in the same embodiment that they were in before the internet revolution. The fierce competition from online vendors, particularly Amazon, has substantially changed the face of how books are purchased. But brick and mortar establishments have adapted in the face of this competition. They’ve capitalized on those facets of their business that give them the greatest advantage and have responded to free-market forces in a way that would make Adam Smith proud.
And what are those facets that give them an edge over the internet providers? Well, a little bit of thought should convince you that the primary advantage that brick and mortar provides its customers is what I like to call purchase certainty. Purchase certainty takes several forms that are best illustrated with examples.
First type of purchase certainty is certainty in the quality of the product. Most of us, I am sure, have had the experience where the item online looks good but when it arrives it is a disappointment. The one that personally affects me is the purchase of comics. I like to selectively collect comics and my emphasis is on finding good stories. I am willing to compromise on the art provided that the story has good exposition and is thought-provoking. Individual comics can run between 2 and 4 dollars for 32 pages of material at a comics specialty shop and, when it is realized that a good story can run between 10 and 40 issues, the dollar cost can be quite high in comparison with other mediums. This cost can be substantially reduced by buying in advance through online services (e.g. Discount Comics Buyer Service), which gives discounts of, on average, 40%. Of course, the publishers are willing to provide this discount to receive the improved certainty in forecasting the number of books they will need to print. The flip side is that as a consumer I pay for their improved certainty with loss of certainty of my own as to the quality of the product. The brick and mortar establishment allows me to directly observe the product before purchasing at the cost of a higher price that is the premium associated with the freedom they provide and the corresponding uncertainty they face (will I or won’t I buy). Of course, brick and mortar stores are most vulnerable in this advantage since a consumer may go to the showroom to see the quality and then turn to online to buy. But I believe people are starting to become economically savvy to the fact that they can’t have their cake and eat it too and are willing to not exploit this vulnerability.
The second type of purchase certainty involves returns. As a consumer buying from a brick and mortar you know that you will have a much easier (and more certain) experience trying to make a return. Recently, my wife purchased a costume from the Amazon marketplace. When the package arrived, the item sent looked nothing like the item shown online (another example of the item quality certainty discussed above) and she resolve to return it. However, the process to return it was slow and cumbersome. It took weeks to get the vendor to even agree that they had made a mistake and another month or so to get the shipping label and receive the refund. The closure process for brick and mortar stores is faster and more certain again offering a tangible advantage over the online experience.
The third type of purchase certainty is the certainty in enjoyment. Being able to go to a brick and mortar store and find what you wanted (even if you didn’t know you wanted it until you saw it) means that there is greater certainty in getting instant gratification than is possible online. The extra time that one gets to enjoy the purchase is valuable in its own right and is yet another advantage that brick and mortar businesses offer over their online competitors.
So while it is true that some businesses have suffered from their competition with online rivals, the majority of brick and mortar stores have adapted to showcase their unique advantages. The ultimate winner is the consumer and the ultimate loser is those pundits who predicted the demise of the brick and mortar experience. Brick and mortar businesses are there to stay.