Technology almost killed offline retail. But here’s how it’s bringing it back to life.

Michael Tefula - Associate

Michael Tefula

12 December 2019

We often misjudge the impact of technology. And a recent prophecy that’s turning out to be wrong was the prediction that online shopping would kill offline retail. Here’s what the prominent tech investor Marc Andreessen thought in 2013:

“Retail guys are going to go out of business and ecommerce will become the place everyone buys. You are not going to have a choice…I’d bet on the pure plays in ecommerce. Software eats retail.” — Pando, 2013

At Downing Ventures we recently invested further in Trouva (the £17m round was covered by TechCrunch) having been an investor since 2016. This is a tech company at the intersection of offline and online retail but before sharing more about the business, I wanted to peruse Andreessen’s comment and share my thoughts on this space.

Technology almost killed offline retail

Andreessen was partially right. According to Coresight, 8,500 stores in the US have closed so far this year, and that number is set to be 12,000 by the end of 2019 (compared to 5,800 closures in 2018).

Meanwhile in the UK we’ve seen Maplin, HMV, Mothercare, Jack Wills, and a heap of other retailers collapse, with many pundits attributing this failure to online shopping.

But Andreeesen was also wrong. Offline retail is here to stay and what these headline ‘retail apocalypse’ figures don’t show is that the majority of failures are companies that had far too many stores, poor experiential service, and low differentiation. Just look at the chart below.

Data from FGRT

These closure numbers also don’t show that offline retail is actually growing (albeit much slower relative to online.) The chart below shows this.

US Retail Data from Deloitte Report

In addition, there’s a retail bifurcation happening: premium and differentiated retailer revenues grew 81% in the last half decade in the US while discount stores grew 37% and “middle” retailers got by on just 2% growth. Premium and lost-cost is winning offline. Middle folks are losing.

Deloitte Report

What all this shows is that bland retailers with too many stores are going to be wiped out. But differentiated retailers with a lighter footprint can benefit from technology. So much so that the Internet and technology are exactly what we need to bring offline retail back to life. Technology isn’t going to kill offline retail. It’s going to bring it back to the future.

Here are two brief reasons why I think that is.

1. Online is going offline

Pure-play ecommerce players are starting to embrace an offline presence despite initial skepticism. For example, the founder of Everlane, a San Francsico-based online apparel company once told the New York Times that he’d shut down the company before doing physical retail.

Yet, the company now has outlets in four cities. The sites are small but they help Everlane show off its wares in person, reach new customers, and nurture a closer relationship with them.

Online brands which are opening small retail outlets (CB Insights)

Other previously online-only companies are pursuing an omni-channel approach. These include Warby Parker (90+ stores), Bonobos (60+ stores), and of course tech giants Amazon (100+ stores & pop-ups, excluding Wholefoods) and Alibaba (which has invested some $8bn in brick-and-mortar retailing.)

Clearly offline is all to play for and with high street vacancy rates hitting record highs, online players are bound to find great discounts on quality locations.

2. Offline is going online

Large offline retailers have had to go online to survive. Many are seeing double-digit growth in online sales and this category of revenues could surpass — though not completely replace — offline sales.

On the other hand, independent boutique retailers haven’t been as well equipped to take their inventory online. Of course, some have their own websites or work with Shopify but they lack:

  • sophisticated inventory management systems (some use spreadsheets and paper),
  • cost effective shipping (they lack volume discounts that larger retailers have),
  • discovery and demand generation (larger retailers benefit from established brands).

This is where technology can help.

A company that’s making offline inventory available to all

There are tens of thousands of independent boutique retailers globally with millions of differentiated stock items that are offline or are hard to discover online. These independent retailers are missing out on incremental revenues that could help their offline operations thrive.

If only there was a way to aggregate all this offline boutique inventory, curate and make it easily discoverable online, while helping independent retailers benefit from a global customer base, volume shipping discounts, a sophisticated inventory management system, and predictive analytics on what’s going to sell well, technology just might revive the independent high street.

Enter Trouva: An online marketplace for curated homewares and lifestyle items curated from the best retail boutiques across the world.

Some of the boutiques you can find on Trouva.com

I’ve been privileged to work with the team at this fast-growth business in their latest investment round where at Downing Ventures we have more than doubled down on our initial investment in the company by taking part in the latest £17m funding round.

Trouva co-founders Alex, Glen, and Mandeep

The team are exceptionally ambitious and they’ve made it their mission to “take the world’s best independent retail online” and make “beautiful offline inventory easily available to all.”

By partnering with 800+ boutique retailers, Trouva already has over 200,000 items curated from independent boutiques across the UK, Germany, Spain, Belgium, and many more countries. Moreover this is but a fraction of a market potential worth billions.

Items curated from boutique retailers on Trouva

From a consumer perspective, Trouva is the perfect place online to discover unique gifts or treats from around the world. And on the retail side, the platform helps boutiques thrive, with a growing number of retailers on the platform making over £100,000 of additional revenues.

With Trouva, you can shop online yet still support independent offline retailers who add colour to our bustling high street.

The future of retail: a symbiotic relationship

Technology (and more specifically the Internet) almost killed offline retail. But as is often the case with tech predictions, the prophets got it wrong.

We aren’t heading to a future with a lifeless high street. Offline retail is here to stay and what we’ll have is a future where offline retail has a symbiotic relationship with technology.

A symbiotic relationship of online/offline retail

Online retailers will continue to seek out physical spaces for a visceral interaction with consumers. Meanwhile, offline retailers will now be empowered by companies like Trouva, which is taking us closer to a future where all of the world’s offline inventory will also be online.