Forces on the Digital Horizon

2015 Will See the Rise of Online Grocery

In the world of e-commerce, this will be the year the store strikes back. Traditional brick players are starting to catch up with industry leader Amazon, and many are growing their online business faster than the retail behemoth.

But, while L2 believe that Amazon is still the most disruptive retail force in the U.S., it has an Achilles heel -- shipping. Amazon’s shipping costs have gone up an unsustainable 25% a year, on average, for the last five years.

Best Buy is taking advantage of bricks and mortar to fight back. By using stores as flexible warehouses the retailer is reporting that it can deliver faster than Amazon.

Click and collect – ordering online, picking up offline – has caught the world of technology and retail by storm. The UK was an early adopter, but many big U.S. names are following suit. ACE Hardware, for example, is now fulfilling two thirds of online sales in store. Another innovation in the UK is the concept of ‘dark stores’, flexible grocery spaces – including subway stops – which serve as collection points for grocery orders. Order online in the morning, pick up your shopping on the way home.

L2 is forecasting the death of pure play e-commerce and pure play retail, and predicts that Amazon will have morphed into one of the world’s largest brick and mortar players by this time next year. The warehouses being built close to cities will become stores.

Maureen Mullen, L2 co-founder and head of research, speculates that gas stations may provide a click-and-collect solution. As we become less reliant on gas and fossil fuels, a company like Amazon may snap them up as pickup stations for their products.

Currently, less than 1 % of grocery sales are done online. Grocers are reluctant to embrace the e-commerce model, maintaining that the consumer “likes to hold the grapefruit.” But we’ve been to this movie before. “This is what fashion said, this is what watches and jewelry said, this is what retail said. Grocery is about to be disrupted.”

The real impact in the U.S. will come from Amazon Fresh. Currently being piloted on the west coast, the grocery delivery service is slated to roll out to many more cities in 2015.

Another potential big player is Walmart. The grocery giant is making huge investments in technology and we suggest that with shrinking store footprints, it will also be embracing click- and-collect.

Inspiration Will Come from Korea

America has long been the arbiter of consumer influence and taste around the world but we see a new leader emerging – South Korea. It is already home to influential brands such as Samsung, Kia, LG and Hyundai and is a leader around product and packaging. Note the similarities between these Korean originals and these U.S. brands:

Korea’s e-commerce beauty market is exploding: L2’s Digital IQ Index, which looks at digital competence as an indicator of future success, ranks Korean beauty brands second, just behind the U.S... Seoul is now the sixth largest city in the world around luxury, and the country is also the global leader in duty free.

Cheap Technologies will Disrupt the Travel Industry

In travel, new players are nipping at the heels of the establishment. TripAdvisor and Airbnb combined now have a higher value than Hilton Worldwide or Starwood Hotels & Resorts.

Airbnb is larger than any hotel company in the world with respect to gross rooms globally and usage is exploding in emerging markets. Plus, all-important millennials are very comfortable with peer-to-peer accomodation rentals.

There is clearly room for further growth. Only one third of U.S. consumers have heard of home rental platforms.

The new disrupters are impinging on the previous generation. Many smaller hotels are now outsourcing their reservation system to Airbnb. The upstart’s three percent fees are more appealing than online travel agencies’ 25 percent.

Facebook Will Pull Ahead

Social Media is Facebook and the Seven Dwarfs. Two thirds of all visits to social sites are to Facebook or Facebook-owned properties. YouTube is a distant second and everybody else almost doesn’t register.

The reach among millennials is greater on Facebook during prime-time than it is on the four major networks combined.

With recent acquisitions (including Instagram, WhatsApp, and Atlas), two billion people effectively have a direct relationship with the platform. No other media company (with the possible exception of Google) can match this.

Their business also has tremendous potential to grow globally. Facebook’s biggest market is now Asia, which has one twelfth the monetization of U.S. consumers.

In terms of data dominance, they know their user’s identity; they track every site they visit. They are starting to offer brands the ability to serve ads whether or not they are on the platform. And they are now tracking more people online than any firm in the world, including Google.

Apple will Impact Luxury

To qualify as a luxury brand, a company needs appreciation and skill around artisanship; a beautiful product; an iconic founder; an exceptional price point that defies logic; a self-expressive benefit; to be in control of distribution and to be global. I would argue that the new self-expressive benefit brand is Apple. The ultimate display of wealth is the Apple device.

So what impact will Apple have over the next 12 months? Morgan Stanley predicts they will sell 30-60 million iWatches, which would make them the largest watch company in the world. I speculate that teen brands and aspirational brands with a similar price point might be affected.

I also predict that Apple will get into the credit card business. Competitive consortium-owned CurrentC is “dead on arrival” in my view. Apple already has almost 1 billion credit cards on file and the margins are simply “too big for them to ignore.”