Expert comment
9 min read

The future of shopping: everything must go

Shops on social media, Alibaba in Europe and trying on clothes with augmented reality. It’s all coming to retail within the next decade.

For nearly 150 years, the department store was seen as the apotheosis of the consumerist dream. Vast pleasure palaces offering everything one might need – clocks, cameras, umbrellas, mattresses, trousers, stationery, toys, tearooms, cafes, sewing schools, mini-golf courses and 'girls-only' gun clubs – all under one roof. Since the first one opened – minus the gun club – in London’s Pall Mall in 1796, department stores, with their glossy cosmetics counters and ornate window displays, offered a frisson of luxury. They helped to promote the idea of shopping as leisure.  

""

These seemingly evergreen emporia are now suffering. In the past two years, major US department stores JCPenney, Neiman Marcus Group and Barneys New York have either been sold or filed for bankruptcy. For others, the future seems bleak: today they comprise less than 3% of all retail sales, according to the US Department of Commerce, down from 10% a generation ago.  

Nothing, it seems, can save these grand old dames, their business models pulverised by fast-fashion retailers, discount chains and, of course, e-commerce and the inexorable rise of Amazon. Yet, in January Amazon announced the latest plans for growth: to open its own Amazon Style physical fashion store in Los Angeles later this year. 

Such is the topsy-turvy nature of retail in 2022. The next 25 years are set to be even more disruptive, with social networks looking to challenge Amazon’s hegemony by embracing retail in a bid to unlock billions of dollars from users. Meta (formerly Facebook) launched its Shops feature last year, and recently integrated its Facebook Pay service with Shopify; embracing commerce is 'the right long-term bet' according to CEO Mark Zuckerberg (despite the impending demise of Meta's cryptocurrency play, Diem).  

Instagram redesigned its layout last November to accentuate its shopping features, while YouTube, TikTok and Twitter are all experimenting with similar retail-led services focussing on live streaming. With the market for global social commerce (the use of social media for e-commerce) predicted to hit $604.5 billion (£444bn) by 2027, this is already the primary direct sales channel for many businesses. Its impact could be huge. Until recently, all brands needed to do to sell products online was establish a digital store and add a ‘Buy now’ button. Now it seems they also need to find a way to inveigle their way into people’s news feeds. 

‘Social commerce goes back to the nature of us as social animals,’ says Jonathan Reynolds, Associate Professor in Retail Marketing and Deputy Dean. ‘If the lockdowns have taught us anything, it’s that we crave being social and if we’re denied the physical company of our fellow social creatures, we get it digitally.’ 

Social shopping 

Covid-19 has made us gravitate even further towards social media, with consumers spending more time researching and making purchases online. A huge number (44.8%) of global internet users used social media to search for brand information in 2020, according to Data Reportal’s Global State of Digital report.  

The rise of social commerce seems inevitable, especially because it relies upon – and amplifies – the notion of trust. The deluge of likes, retweets and online reviews give consumers greater assurance of a product’s quality.  

""

‘Thirty years ago, there wasn’t an awful lot of information on products so people trusted brands more,’ says Jonathan. ‘But with peer-to-peer crowdsourced insight into brands appearing on the likes of Tripadvisor and Airbnb, we’re exposed to more information to help us make decisions and now brands have to work harder to earn that trust.’ 

Online recommendations from those within our social circles are also influential. ‘We’ll trust our friends and families over advertising agencies any day,’ says Jonathan. ‘That’s always been the case.’ 

Social commerce has another canny tool in its arsenal. ‘Frictionless’ payment options such as one-click, guest checkout, saved shopping cards and auto-filled card details allow us to buy products within seconds. Fintech firms like Sweden's Klarna and Australia's Afterpay take this one step further: allowing shoppers the option to buy now, pay later. Payments are likely to become even more frictionless in coming years: the likes of Amazon employ armies of experience designers who detect pain points in customer buying journeys.  

 

 

The world of digital couture is set to reach its zenith in the metaverse.

Social commerce sites can also leverage technology in ways other e-commerce sites can’t. Snap has been investing in augmented reality (AR) technology that allows users to try on virtual clothing, watches and jewellery – an experience online retailers struggle with. Snap’s Future of Shopping report forecasts a 37% increase in Gen Z shoppers using AR to purchase a product by 2025. 

The world of digital couture is set to reach its zenith in the metaverse, according to commentators – the virtual world in which Facebook is investing billions. Just as in creative gaming platform Roblox – where virtual Gucci bags sell for more than their real-life equivalents – it’s anticipated metaverse users will buy apparel and other items for their avatars.  

Shopping compulsion 

There are, of course, inherent dangers should social commerce become highly successful. During the pandemic, our insatiable scrolling led to increasing bouts of oniomania, with people impulse-buying chocolate, pandemic puppies, even goldfish. Research from Barclaycard found that people in the UK spent £40.6 billion ($55bn) online on non-essential items during the first national lockdown – around £770 ($1,050) per person.  

‘Social commerce combines our first favourite activity, socialising, with our second favourite, shopping,’ says Jonathan. ‘It’s a seductive phenomenon that puts the drug straight into the bloodstream.’ 

The dopamine rush of these spur-of-the-moment sprees could have profound consequences for vulnerable people, particularly those with mental health issues. As such, social commerce sites could face legal restrictions.  And even embracing more conventional e-commerce isn’t as straightforward as it seems.  

‘As many businesses discovered during the pandemic, increased growth online brings you all kinds of new customers,’ says Jonathan. ‘But these aren’t just enthusiastic early adopters: many e-commerce providers found they’d acquired new customers who were more demanding. Also, such rapid growth in customers can’t always be resourced or accommodated. If you’re an online-only grocer, you can’t build a warehouse overnight to meet increased demand. Instead, you’ll have to constrain delivery slots, perhaps angering your most loyal customers. 

‘Yes, it’s easy for social media firms to have a marketplace model, but it’s much harder for them to have the logistics, delivery models and algorithms that produce efficient delivery… Don’t forget, it’s taken Amazon 25 years to get where it is now – effective operationalisation of commercial enterprises takes time to develop.’ 

Sustainable shopping 

Covid-19 may also have forged a more positive trend: according to global 2021 study Who Cares, Who Does? by market research firm Kantar, nearly half of all households (49%) said that the pandemic made sustainability more important to them. The purchasing power of ‘eco-actives’ could be significant, with Kantar estimating this segment, who could form half the global population by 2030, will spend $446 billion on fast-moving consumer goods in 2021, up $70 billion from the year above. By 2026, it forecasts this expenditure will grow to $925 billion. 

""

The trend towards more sustainable shopping appears to be driven, in part, by younger generations. The Kantar study also found 36% of respondents identified ‘family’ (mostly children) as being the most influential factor (over, say, product packaging) in their adopting more eco-friendly shopping habits. This so-called ‘Greta effect’ may yet encourage parents to embrace their offspring’s sustainable fashion trends. The phenomenon is exemplified by the success of peer-to-peer second-hand shopping app Depop. With 90% of its 30m users under 26 years old, Depop was bought by Etsy in June for $1.6 billion (£1.1bn).  

Despite the rise in sustainable shopping, the instant gratification of one-click shopping with e-commerce titans may be hard to resist, despite their environmental impact (Amazon’s emissions grew 19% during 2020) and the fear they may put small independent retailers out of business. ‘People might say they are in favour of saving the planet,’ says Jonathan. ‘But if they need that toothpaste now and can have it delivered within an hour many will buy it.’ 

 

The next Amazon? 

Amazon’s dominance could face a challenger if Alibaba’s plans for expansion into Europe come to fruition. To move its goods to the continent, the Chinese internet giant has built an airport hub in the Belgian city of Liège, where it has also established rail links to the Chinese city of Zhengzhou, 9,000 kilometres (5,590 miles) away.   

With 1.25 billion monthly active users, China’s WeChat messaging app is often cited as a model for Facebook’s social commerce ambitions. Its smooth integration with other apps (such as Alibaba and digital wallet service WeChat Pay) partly explains its popularity. 

‘One of the reasons why WeChat has become so successful is that it’s an integrating platform with everything on it,’ says Jonathan. ‘It doesn’t get in the way of your social chat – you buy something for a second, then you’re back on your social activity again.’ 

The success of e-commerce upstart Pinduoduo – whose $120 billion Nasdaq valuation is higher than that of HSBC – may be harder to replicate, probably because of its quixotic business model. The online shopping site, which has nearly 750 million users, offers deep discounts on everything from chairs to Cadillacs (friends and families often club together as a group to buy items, with larger groups receiving higher discounts), making money from advertising and promotions by its five million-plus merchants. 

Wheel of retailing 

They might offer inspiration for US social media giants dabbling in e-commerce, but these Chinese companies are unlikely to threaten Amazon’s ascendancy imminently. Yet, Jeff Bezos’s behemoth may not be as invulnerable as it seems. Jonathan offers a cautionary tale.  

In the late 19th century, Montgomery Ward was a Chicago-based company which became one of the largest retailers in the world due to the innovation of mail-order catalogues, which it dispatched to hard-to-reach prairie homesteads. As Jonathan says, ‘Montgomery Ward described itself as the “world’s biggest purveyor of products and services” and also faced criticism from the media and competitors. That’s not so far from Amazon today.’ 

""
Every retail business has a natural life cycle – eventually they ossify and cease to adapt in the way customers expect.

Like Amazon, it made a foray into bricks-and-mortar retail, opening its first department store in 1926, swiftly followed by hundreds more across the US. But the vaulting ambition soon backfired: due to lack of growth and investment, Montgomery Ward slid into decline, filing for bankruptcy in 1997 before being liquidated in 2001. For Jonathan, this follows the classic boom-and-bust pattern of marketer Malcolm McNair’s ‘Wheel of Retailing’ theory.  

‘Every retail business has a life cycle,’ says Jonathan. ‘At some point they ossify and cease to be able to change in the way customers expect. While they’re losing this momentum, there is always somebody snapping at their heels… What goes around, comes around.’