What can we learn from companies shutting down online stores?

Starbucks has recently shut down its online stores. As a pioneer in sales and marketing strategy, Starbucks may be telling us something about the way businesses will have to operate soon. Since jumping onto the Central Perk culture from hit TV-series – Friends, they have revolutionized food and beverage in the last few years by making customers pay and pre-order using their smartphones. Their culture of fast coffee purchases using smartphones was influential enough to inspire credit card companies to produce cards the contactless cards we all have today. Starbucks are always ahead of the game.

 

Starbucks has been a innovator of trends for the last decade
Starbucks has been a innovator of trends for the last decade

 

In the last few years, companies have shifted from high-street retailers to online websites, selling their goods using only their web-client as a means to interact. It is easier for the client, it is cheaper for the company, and it means that people have better access to goods and services. So why have Starbucks shut down their site and discontinued online selling?

Starbucks’ new campaign strives to get people to leave their houses and come into their stores as opposed to surfing their products at home. Their CEO stated that he wants Starbucks to be an “experiential destination.” Customers can surf the net and check out their products using the app, but cannot buy anything without entering a store. This means you can order a coffee on the app and pop in and grab it, but you cannot have anything sent to your house. There must always be some physical interaction with the brand.

This is an interesting move. Why is it that we are seeing this shift back to high street retailers? What is it that companies value in such strategic shifts? Firstly, it allows companies to compete with giants like Amazon, who have a large market share, and sell the products of others. When we think about it, Starbucks would be extinct if Amazon found a way to sell their coffee online. This revolution would hit Amazon hard if Starbucks managed to make a trend of “experiential destinations,” as Amazon do not have a place where customers can come in. If this becomes a trend, it will make companies with a physical presence shine.

Secondly, it makes their product more valuable. Nike and other fashion companies have saturated the market with their goods, they are no longer seen as special. The consumer engagement is lower and people care less and less about high-quality Nike products. They are also available on Amazon. It is more than likely that Nike will swiftly follow suit, and emulate the synthesis of internet marketing and in-store experience. This could be the future for all big companies that sell goods online.

If successful, this business model will have a significant impact any company whose business model is focused in online sales. It will give power back to retailers, and will hinder “middle men” like Amazon. But before all this, they are going to have to convince the world that experiential destinations are successful.

 

 

Starbucks is a place we can work in or relax
Starbucks is a place we can work in or relax

(Please note: James O’Leary does not currently hold a position in: Amazon, Nike, or Starbucks. Henry James International does not currently own a position in: Amazon, Nike, or Starbucks)

 

Digital Developments – The Wearable Technology Market

Developments in the digital era have meant that it is easier than ever before to take your work with you. Phones now serve not only for making calls but also as devices for sending emails, keeping up-to-date with world news, and keeping track of to-do lists and calendar engagements. One digital sector that has seen growing interest recently is that of wearable technology. Wearable tech has been around in one form or another for centuries, but a boom in popularity began in the 2000s when companies began developing devices that took keeping fit on the go to a whole new level. Since then the wearable technology sector has taken off, with the number of wearable tech devices being shipped increasing from 29 million units in 2015 to 33.9 million units in 2016, growth of 16.9% year-on-year.

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Having launched their first product in 2008, a fitness tracker wristband, Fitbit initially experienced high levels of commercial success. However, recent figures show that the company may now be in a period of declining consumer interest. Shipments in the 4th quarter of 2016 were down 22.7% compared to the same period of 2015, with numbers dropping from 8.4 million units to 6.5 million. In terms of market-wide success, in the first quarter of 2017 Fitbit accounted for 13.2% of all wearable technologies shipped, in comparison to the 24.7% of the market that it made up a year ago. It is thought that the drop in Fitbit products may be due to a reducing demand for fitness bands and the company’s slow entry into the market for smartwatches. However, CEO of the company, James Park, believes that as the market for wearable technology develops, new opportunities for renewed growth of Fitbit will present themselves.

fitbit

As Fitbit sales decrease, the way has cleared for other big-name tech companies to take a larger portion of the market. With the launch of the new Apple Watch series 2 in September 2016, Apple has seen an increase in sales from 4.1 million to 4.6 million, a growth of 13%. The company has overtaken Fitbit as number one in the wearables market in the first quarter of this year. Close behind Apple, Chinese technology company Xiaomi has also overtaken Fitbit to second place in the market. Indeed the company has been the fastest growing in the industry, experiencing a year-on-year increase of 96.2% in sales, from 2.6 million to 5.2 million from 2015 to 2016. Much of this growth was due to shipments of their tracker, Mi Band Plus.

apple watch

While Fitbit may be experiencing a period of declining interest, the wearable technology market as a whole is bigger than ever, and with new products constantly being developed and introduced it is likely that interest in this sector will continue to grow.

(Please note: James O’Leary does not currently hold a position in Fitbit, Apple, or Xiaomi. Henry James International does not currently own a position in Firbit, Apple, or Xiaomi for any client portfolios)