Friday, December 18, 2009

The Mason's Dilemma

I just read Tim O'Reilly's Why Using ShopSavvy Might Not Be So Savvy, and have a few thoughts. The first of which is that I think that people will fail to see the connection between "Mason" and "Brick and Mortar" stores, which is largely a result of a sub-par title. "The Brick and Mortar Store's Dilemma" doesn't quite have the same ring, though. Bad metaphors aside, the gist of O'Reilly's article is that by browsing for an item in person and then buying it online, you incur all of the costs of running a retail business (rent, display items, employees, etc.) without providing them with the revenue (from the purchase), making it a very unstable system. He is absolutely right about this, and it is a big problem for physical and especially small, local retailers. I don't dispute his predictions of how this will play out, but I find myself leaning towards a few different conclusions about what we should do about it.

Last Man Standing

First of all, he states:
But what happens once those mega-retailers are the last one standing? Prices are likely to go up.
I don't know about that. I'm definitely not a hardcore Laissez-faire kind of guy, and it really isn't the main point of his article, but I think that setting up an online retail site (or account on Amazon or Ebay) has such low overhead that the barriers to entry are too low for a monopolist to jack up prices. A local mega-store might be able to get away with it, but they would face the same competition from online retailers that the smaller shops do. Assuming that the mega-stores can't jack up prices, there is an argument to be made in favor of small local stores being pushed out by large chains. If goods like food, paper, cleaning supplies, etc. are cheaper, then people will have more money left over for more "useful" things that create better jobs than sales clerks. This is known as the "yay efficiency!" argument, and I think it has to be balanced with the "everyone in the town goes broke" argument.

We're Nihilists

To some extent, I can't help but think that there is a degree of futility in his proposal to "buy where you shop" in that it is going to be hard, if not impossible, to get a meaningful group of people to voluntarily spend more than they have to on the same item for an abstract notion of "preserving local business." It sounds pretty defeatist, but I don't think it is sustainable to tell people "consciously avoid going for the cheapest option, even if it is more convenient." There's also a huge, unresolved Tragedy of the Commons dilemma in that I might decide that there are enough other people buying from the local store that it is okay for me to buy the cheaper, online option. It's great for me if everyone is paying extra to support the local store and I can get the advantage of its services without having to pay the premium for its products, but if everyone does it, then we're right back where we started. Part of the problem seems to be the same one facing the organic food movement: people don't perceive organic food being that important, so will buy the cheaper, non-organic product. You have to convince people that organic (or local, or brick-and-mortar) food is valuable enough to spend extra money to get it. Changing people's consumption preferences is really hard, and is probably not a good strategy by itself. I don't have any stats to back it up, but it seems like organic food is having more success going the "it's healthier" and "it's tastier" route than the "it's better for the environment" route, since health and taste are already important attributes to people.

What to do, what to do?

So what do we do? One approach that is mentioned in the comments and discussed in detail by my hero Clay Shirky is the idea of decoupling the two functions of local stores, the browsing and the purchasing. Shirky describes this far better than I could, but bookstores have already started doing this, by adding coffee shops in the stores, they are becoming social gathering points first and retail outlets second. The analogue for more general retail outlets might be a business whose purpose was to show off and let people play with gadgets and things without the assumption that they were going to buy them there, possibly supported by charging a membership. People like to go shopping not so much for the "walking away with new stuff" aspect but more for the "look at and check out new things" part. Malls have invested a huge amount of time and money into making themselves "experiences," but they don't make their money off of the "experience" part. If physical stores were thought of more as advertisements that you can go to rather than places to purchase things, they might have a better prospect. There are certainly issues with this approach, not the least of which is whether it is really viable, since the cost of setting up a physical store might be too high to be recouped by a reasonable membership fee. There are a thousand things that could fail, but another thousand that could succeed. Now is definitely a time for crazy ideas and experimentation, but I don't think the solution is to try to fight against the prevailing incentives.