Why big retail will be the Internet’s next victim

New technologies regularly change the rules of competition. When a fundamental shift happens, companies that seemed unassailable flounder and newer firms quicker to grasp the changed rules take their place: if it’s big enough we call it an “Revolution”. If it small, we call it innovation.

If we go back 200 years ago, the shift with the invention of mechanized production introduced changes at that scale, as local businesses in a range of industries from ceramics to textiles disappeared, and bigger firms figured out large scale mechanized looms, porcelain production, and global transportation of quantity goods from cheap labor markets.

We’ve been living under the terms set by this last shift for so long they’ve begun to seem unquestionable: producing more in places with cheaper labor, mechanizing when possible, building scales of economy, just makes sense.  Firms with the biggest retail distribution networks will always win, as they can take advantage of owning the point of sale and the leverage of negotiating with suppliers. Right?

Perhaps not. The combination of nearly universal internet access, the bandwidth to support rich media, and the social network is changing the nature of competition at a pace that has not been seen for the past 200 years. Industries that sell goods that can be digitized have already been transformed: Blockbuster, HMV music stores, countless newspapers and others that never saw it coming have gone the way of rifled cannon – even trophies and awards are getting the digital treatment.

The effect is now beginning to spread to industries that focus on physical products, as the same rich communication and rapid information exchange mean that small-scale entrepreneurs have access to each other, to a global audience of customers,  and to production facilities. It’s suddenly possible to have design a one-off product in London, sell it to a customer in Germany, source production in Asia and have it shipped directly.

Low-volume, no upfront costs, no need to own a big organization. It’s also suddenly possible to calculate the tradeoffs of shipping/customs and consider bringing back local production. This last scenario looks a lot like the potential revolution – as cottage industry once again becomes feasible.

Small startups are emerging globally to take advantage of this new value chain – one that makes it possible to reach a mass audience, to gauge enthusiasm for potential products, to actually sell those products, and then produce and and deliver to-order. Suddenly barriers of entry have disappeared, and small entrepreneurs are able to build businesses on Etsy, Youtube, Ebay, Kickstarter, and a host of other platforms, and building networks of globally dispersed partners.

An interesting firm I have had the pleasure of working with  in this space is MUUSE.com. It is an entrepreneurial platform for independent fashion designers. The designers gain access to a global audience,  back office, and production services by sharing these services through MUUSE.

Easy access to small-scale producers globally means that rather than invest in large quantities of clothing, MUUSE is able to produce to-order, at whatever quantity is needed, turning around orders for individual customers within 6 – 8 weeks. It is a risk-free way for independents to be able to get exposure and then to scale to fill the orders that come – a business-in-a-box for design entrepreneurs that also fills a need in the consumer market: the need for unique, high quality clothing that can set them apart from the mass luxury brands that have become common and copied.

I think we will see this trend across the board, from fashion over furniture even to digital hardware with the rise of platforms like Auduino.

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