Friday, February 18, 2011

A Star Trek online retailing future

Shoes of Prey is a pure-play online retailer and we've decided against offline retailing for the time being. As we look to grow our business an important question for us is how large can the online retail industry grow as a percentage of total online retail sales and what will the industry look like in the future?

Estimates of online retail sales as a percentage of total retail sales in Australia vary from around 3%-5%. In the US online retail sales currently account for around 7.5% of total retail sales and in the UK the figure is closer to 10%. Jeff Bezos, Founder and CEO of Amazon in a letter to shareholders in 2000 said with growth in processing power, disk space and bandwidth he expects the online retail market to eventually settle at around 15% of total retail sales. That's an old quote and I wonder if that estimate is high enough?

Shoes of Prey is not even 18 months old so even thinking 3-5 years out is a long way for us, and clearly the online retail market is going to grow significantly within that time frame which is our main concern. But it's interesting to think about how large the market can grow in the future.

The major barriers to buying a product like women's fashion shoes online are:
  • The exact look and feel of the shoes, particularly the colour and quality.
  • Fit and not being able to try the shoes on.
  • For many women shopping is a fun experience and browsing products in store is a form of entertainment that is difficult to recreate online.

Let's look forward 10-20 years and see how these issues might be addressed online. Keep in mind that the first time most of us used the internet or even a mobile phone was only 15 years ago and now I have a device in my pocket that can tell me exactly where I am in the world, accurate to within a meter by communicating with satellites in space. Yes, space. So I don't think these ideas are too far fetched!:

The look and feel of the shoes. We've already seen an increase in our conversion rate since adding video content to our website and the anecdotal feedback from customers is that the videos provide a better way for them to see and understand the look, colour and quality of our shoes. Fast forward 10-20 years and perhaps, in your own home, you'll be able to pick up a holographic image of a shoe you've designed on Shoes of Prey, hold it in your hand and inspect small details like the stitching and colour tones. With a swipe of your hand the image transfers to your feet so you can see how the particular peep toe shape you like looks on your toes.

Augmented reality on a screen was so 2010!

You can then put on holographic images of the different outfits in your wardrobe to see how the colour of the shoes matches the outfit. A couple of your friends are available on Facebook so you invite them to a holographic chat in your living room. Your friend bends down to take a closer look at how the peep toe looks on your toes and suggests you switch to a slightly wider toe shape so you make that change to your shoe design and your friends agree the shoes will look fantastic so you buy them.

Fit and not being able to try the shoes on. We've already covered how a 3D image of a shoe you can try on could help with some fit decisions, but what about your shoe size? In 2030 you step in front of the 3D holographic camera in your living room and tell it to connect with Shoes of Prey to take measurements of your feet. The camera scans your feet and takes key measurements down to an accuracy of less than 0.1mm. Our software then creates a digital shoe last for you, develops a pattern based on your design and last, then prints the pattern and adjusts a physical last which our technicians then use to make your shoes. The result? Shoes that are much more comfortable than the mass produced shoes available in stores.

A fun shopping experience. It's raining and there's too much traffic on Saturday morning so from the comfort of your own living room you walk through the holographic rendition of the Westfield Bondi Junction mall. A couple of your friends have joined you from their living rooms and you browse the shop windows. Melbourne Cup is approaching and you need some new shoes so you pop into the Shoes of Store where the holographic versions of Carmen and Susie are there to lend you a hand with designing your shoes. Together you review the outfit you have planned (your online wardrobe organiser has helped you select the dress based on who will also be at the Melbourne Cup event you're attending and which outfits they've seen you wear before) and you design a pair of shoes that goes with your outfit. You realise you don't yet have a hat so you call in an assistant from a boutique hat retailer who joins the group in the Shoes of Prey holographic store and helps choose a hat to go with both your dress and new shoes.

My take is that the experiences described above are actually better than the equivalent experiences as they currently happen in physical retail stores. If that's the case, online retail could well become more than 50% of total retail sales. To be honest though, if this is the future of 'online retailing' then retail and online retail will have effectively merged into one. We can already see this starting to happen with 'multi-channel retailing', consumers researching products online which they then buy in store. Or visiting a store, selecting a product then checking on their mobile phones if it's available at a lower price nearby. Technology is only going to blur the lines between retail and online retail further.

While the estimate that online retail sales should grow to 15% of total retail sales is actually probably quite bullish for the Australian market over the next 3-5 years, I think it underestimates where the industry will be in 10-20 years time.

What do you think?

Cross posted to Power Retail


  1. There's another possibility - the overall retail market can also grow which will fuel growth in online retail. So just not just the piece of the pie that is online retail, but the entire retail market (offline + online).

    I think this will happen with more affluent people in developing countries like China. The rise of the middle class will fuel demand and result in more people being able to buy goods and services. Similarly in India. They'll want to buy online too. These developing countries form a part of BRICI (Brazil, Russia, India, China and Indonesia) and are the internet's new billion. Well several billion actually!

    Check out this report, its pretty good:

    Lastly, I'm not really sold on augmented reality. I think its too early stage at the moment. The look part is already here though. I have been impressed by this eBay app which came out early this year. It lets u try on a pair of virtual sunglasses on your face.

    Also, saw you guys speak at the Online Retail Forum today - nice work!

  2. Matt, that's a great point about emerging markets like China and the BRICI countries growing the retail industry as a whole. Even more reason for Australian retailers to innovate and go online in order to sell to the 2 billion people in these markets!

    Loved the eBay augmented reality app!