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MIT TECHNOLOGY REVIEW
business report — beyond the checkout cart
new retail startups. “Are you at the store?
Or is the store at you? And then there’s
mobile—the store is in your pocket. The
game is to satisfy demand wherever and
whenever it is.”
— Antonio Regalado
orders now ship from the back rooms of
500 Macy’s stores that this year began act-
ing as mini distribution centers.
So what’s online and what’s offline?
And does it matter anymore in retail?
These are the big questions behind this
month’s MIT Technology Review Busi-
ness Report. “Getting into data, analytics,
or mobile isn’t even a decision anymore,
so we should stop calling it e-commerce
and call it just commerce, or maybe per-
vasive commerce,” says Chris Fletcher, a
research director at Gartner who works
with retailers. “It’s happening and you
have to deal with it. But companies are
just getting used to the idea that it’s all
According to the U.S. Census Bureau,
which tracks economic data, only 5.7 per-
cent of U.S. retail purchases were made
online in 2012 (13.1 percent if you don’t
include gasoline, groceries, or automo-
biles). So in-person sales still dominate.
But these figures underestimate the effect
of the Internet. When stores like Best Buy
survey their customers, they find that 80
percent of them have already searched for
price information online. A third of them
do so while on a phone inside a store.
Coloring the situation is just how
badly most large merchants misjudged
technology. Back in 2008, Accenture
found that retailers invested only 2 per-
cent of their revenue in technology while
most other industries invested two to
three times that much. As they stood by,
Amazon.com amassed annual sales of $60
billion, six times the online sales of its
nearest U.S. competitor, Walmart.
With its thousands of engineers, Ama-
zon is starting to look like a software com-
pany that just coincidentally sells things.
But now it and other Internet companies,
including eBay and Google, are investing
in same-day delivery—getting goods to
people just hours after they order them.
With their drop boxes and fleets of deliv-
ery cars, they’re bidding to eliminate one
of physical retailers’ main advantages:
Traditional chains are running in the
opposite direction. They must reach cus-
tomers on social media, on the Web, and
on their phones. But their stores—often
thought of as a costly liability—may turn
into an surprising advantage. One emerg-
ing technology is indoor mapping, which
enables retailers to capture customers’ cell-
phone locations while they’re browsing.
With Wi-Fi sensors and even video surveil-
lance, chains may be able to do the same
kind of behavioral advertising that’s possible
on the Web. Imagine them, for instance,
sending a timely coupon to that shopper
circling the outdoor grills in Aisle 6.
“Retail has become a blur. And the
blurring is 100 percent driven by technol-
ogy,” says Tige Savage, a partner at AOL
founder Steve Case’s investment company
Revolution Ventures, which is investing in
of store shoppers check prices online
Brought It Back.
Here’s why location matters again in
● For retailing, the key change produced
by the Internet is that shopping online
spared consumers the economic costs (in
time, grief, and gas money) of visiting a
store and locating a product. This has
been called the “death of distance.” When
even isolated individuals can buy any-
thing from a global marketplace, physical
location does not confer any commercial
advantage, and online merchants might
be expected to win every battle.
But an emerging body of economic
research shows that there is no inde-
pendent “online world.” Physical context
matters to e-commerce. It shapes our
choices and tastes, and it strongly deter-
mines what we buy online. With the rise
of mobile computing, these local effects
matter even more.
Given how easy it is to find and buy
books, electronics, and other items online,
why do people continue to buy in stores
at all? The reason is that online buying
generates what economists call disutil-
ity: inspecting digital products is difficult,
shipping can be slow or expensive, and
returning products can be challenging.
Research shows that people weigh
these disadvantages against the benefits
of buying online. Along with colleagues
Chris Forman and Anindya Ghose, I
Online Shopping’s Steady Play
Percentage of U.S. retail revenues from online purchases
12/6/13 11:28 AM
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