Weekly Update

The return of bricks-and-clicks

Back in the Web 1.0 era, the bricks-and-clicks model of retailing was touted as the savior of traditional merchants in the emerging world of e-commerce. By leveraging their existing inventory and buying strength, brick-and-mortar retailers would be able to bring enough cost savings, efficiency and merchandising know-how to their online efforts to compete effectively against the new breed of pure-play e-commerce operators like Amazon.com.

It never really worked out that way. Retailers spent millions trying to integrate their physical inventory and point-of-sales systems with the online systems. But instead of an advantage, traditional retailers’ physical stores turned out simply to mean higher fixed costs, while e-commerce sites were able to leverage lower prices, the absence of sales taxes and the convenience of online shopping to grab significant market share. Where once a large store base bought market share and economies of scale, the fixed costs of the real estate, security, insurance, utilities and employees that came with them were now increasingly a drag on earnings as online sales cannibalized in-store purchases.

The situation has gotten even worse for brick-and-mortar merchants with the widespread adoption of smartphones equipped with mobile shopping apps that let shoppers easily check in-store prices against online alternatives, turning expensive storefronts into showrooms for other retailers’ merchandise.

There are signs, however, that the tide is poised to change. New mobile tools for merchants and a new platform push by eBay aimed at brick-and-mortar operators are giving traditional retailers an e-commerce leg up and may finally let them deliver on the promise of bricks-and-clicks.

This week, eBay began testing a new same-day delivery service called eBay Now in San Francisco. The service allows shoppers to order goods from local merchants using a mobile app (iOS only at the moment) and have the items delivered in about one hour. The backbone of the new service is Milo.com, the shopping search engine eBay acquired in 2010. Milo lets local merchants upload real-time inventory information and makes it searchable by shoppers using a mobile app, saving retailers the need and expense to do their own offline-online integration. Ebay Now also integrates PayPal Here, the Square-like mobile payment app and dongle eBay launched in March.

Amazon also has recently introduced same-day delivery in a handful of cities. And the Amazon Marketplace has also long provided an online merchandising and sales platform for third-party retailers. But eBay is pitching itself to merchants as a friendlier alternative, reminding them that unlike Amazon, eBay holds no inventory of its own, so it doesn’t compete with the merchants that use its platform. And, while Amazon has encouraged the use of its mobile app for “showrooming,” irritating brick-and-mortar retailers, eBay’s mobile app still attracts more users, giving brick-and-mortar operators a fighting chance.

Brick-and-mortar retailers may be getting even more help soon. In June, Facebook announced it was phasing out the use of its Facebook Credits virtual currency in favor of real currencies and would start processing credit card transactions itself. Many brick-and-mortar retailers already have a marketing presence on Facebook, and some have tried to set-up virtual storefronts on the social network, mostly with limited success. The shift to real currency and in-network handling of payment processing, however, could eventually turn Facebook into a powerful e-commerce platform for any merchant that wants to set up shop there. A one-click, “Buy with Facebook” button on a retailer’s web site, moreover, should Facebook introduce one, could arm merchants with the same sort of low-friction purchase and payment processing that Amazon has used to great effect with its One-Click ordering system.

Like eBay, Facebook is unlikely to get into the business of reselling physical merchandise itself, making it potentially a powerful ally and partner for retailers against Amazon.

It’s early days yet. But unlike in the Web 1.0 era, brick-and-mortar retailers today increasingly have access to low-cost (or free), highly scalable tools and platforms for integrating offline and online inventories, mobile commerce, payment processing and same-day delivery services. That doesn’t mean they won’t still feel pressure from online-only retailers. But it should be a fairer fight.

Question of the week

Can eBay mount a meaningful challenge to Amazon in e-commerce?