Have a Retail Business? A Top Investor Predicts Your Future

    By | Small Business

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    New models of retail sales promise to improve the consumer experience and spell slow death for businesses that don’t adapt. 

    Mike Kwatinetz is a founding general partner at Azure Capital Partners in San Francisco. A highly successful investor who has served on the boards of Bill Me Later, BlogHer, Cooking.com, and VMware, Kwatinetz has a knack for predicting business trends.

    At his blog SoundBytes II, Kwatinetz recently shared his views on the most promising next-generation retail and e-commerce sales techniques. He pointed to his own shopping experiences at Warby Parker, where he bought a pair of glasses, and at Tesla, where his wife bought a car, as case studies. We spoke with him about what the changes he sees in big-retail practices mean for small businesses.

    While the first wave of e-commerce business was “about giving customers who knew what they wanted an easier way to shop than walking into a retail store,” Kwatinetz says winners of the next wave will be businesses that create the most satisfying shopping experiences. 

    “Take LensCrafters versus Warby Parker,” Kwatinetz says. “Warby Parker sells eyeglasses online, and views its physical store as a place for customers to see its products and get measurement assistance. They sell only their own brand and offer just two prices. There are no upcharges. And the price of the frames includes the lenses.”

    At LensCrafters, Kwatinetz says frames branded with luxury designers’ names have much higher pricetags, and lenses cost extra. “The LensCrafters buying experience is about trying to figure out if you really need whatever the salesperson is trying to upsell you,” he says. “It’s hard to walk out of there without spending $300, even if a $95 offer was what brought you in.”

    Kwatinetz notes that LensCrafters also makes lenses and assembles glasses at each location. That requires a large footprint. Warby Parker glasses are all put together and delivered from one central location; its retail store footprint is so small that they can afford to rent in high-traffic locations. “They’re an online player that figures out a way to have a physical space,” he says.

    His experience at Tesla’s store in the Palo Alto-Stanford Shopping Center was similarly streamlined. “My wife and I walked into the Tesla store where you go on a big screen that walks you through your options. A facilitator, not a sales person helps you.” Instead of a large showroom, Kwatinetz says Tesla keeps a few cars available in the mall parking lot for test driving, and instead of independent dealers, Tesla owns all distribution (which translates to non-negotiable pricing) and doesn’t need to provide service desks at every retail location. “You spend 20 minutes on paperwork, and someone spends 45 minutes explaining the features of the car to you,” he says.

    Meanwhile, at the local Mercedes dealer, there were as many as 50 cars on the lot and the process took over three hours when Kwatinetz bought his own car. “The sales person is trained to upsell you, so it’s a time consuming process with a lot of deception involved,” he says. And, because each dealer also wants to capture your service revenue, the dealership needs a substantial amount of floor space.

    The differences between Warby Parker and LensCrafters and between Tesla and Mercedes are just two examples among many cases that Kwatinetz says could demonstrate old versus new ways of doing retail. The new model keeps inventory and manufacturing in one location. “There’s a big difference in how they approach things, and we think that’s the next step in retail,” he says.

    For small retailers, a lot depends on the nature of the business, he says. For instance, “If you’re a retailer with a shop and your customers love your taste and the shopping experience, you would create an online shop that replicates that experience. A lot of small business people need to think about how they use online to enhance their shopping experience. Conversely, he says, some online-only retailers are going to create physical shops or sell through a physical shop like a department store.

    As retail evolves, he says, "you’ll continue to see share shift away from the older line guys.”

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