Liberating Retail Entrepreneurs with Commerce Technology
Everyone Needs to Shop
Every human will need a multitude of products and services in their daily lives, and as such, every single person will need to go shopping for anything from food to furniture: US consumers will spend just shy of $5.5 trillion in retail products by 2020.
Interestingly, the top 100 retailers in the USA (with Walmart, Amazon and Kroger placing 1st, 2nd and 3rd, respectively) earn 55% of the total retail spendings in the country (the $5.5 trillion we discussed a couple of lines up) and serve the equivalent of 84% of the US population on a daily basis (along the tune of 300 million customers per day); not to mention the top 10 retailers operate over 6 500 stores in the US alone.
And that’s without taking into consideration fast-food restaurants; like Subway and McDonalds, who together alone own 41 000 locations in the continental US.
Small Businesses are Squeezed Out
When ‘big fish’ companies control the majority of the retail market (and that means everything selling computer repair services to luxury boats, small businesses often suffer in attracting customers and outputting consistent profits.
Because these businesses (many times being family-owned) have little capital available to them to pay for marketing, brand improvements, sponsorships, or direct customer acquisition expenses, they face a harder time reaching a wide base of potential customers and simultaneously offering competitive prices.
A little something called economies of scale have to do with this. Essentially, because they have a small customer base, these businesses produce/buy fewer goods to sell, and therefore pay a higher cost per unit.
That high cost (which is definitely higher than the local Walmart in most cases), gets passed on to the consumer.
And no one likes paying more than they have to.
So, an individual in our capitalistic society may say something like,
Who cares if big companies KILL these small businesses! They can get a job if they need it.
Well yes. They could get a job. But small businesses are valuable in so many ways to the American economy (in terms of jobs, society, GDP and more); to a point where society, as we know it would be inherently different, had all large companies eradicated any new player.
Empowering Entrepreneurs
During the advent of online stores in the mid-2000s, only big-box retailers and brands had access to selling items online, along with the likes of Amazon and eBay.
They built their own custom store software that allowed inventory and payments, as an extension of their in-store services.
Now, this was during the great rise in internet users and traffic and for mom-and-pop stores, upcoming brands and unique & specialty merchants to remain competitive, they had to expand beyond physical retail strategies.
The tides were in favour of establishing a digital presence.
Merchants — that weren’t huge brands and big-box retailers — needed a quick and cheap, out-of-the-box solution to expand their operations online without reaching all the way to the bottom of their wallets: it didn’t make sense to pay a large fee to contract the building of an online store. And selling on Amazon and eBay didn’t allow autonomy online and control of experience and brand.
Shopify, founded on the same difficult experience of building an online store, provides an out-of-box, cost-effective solution for any-size brand and merchant to build an independent online store.
If you’ve used a Shopify store — which you likely have, buying from Allbirds, Noize, Popsockets, Spigen, even Tesla up to a point — you wouldn’t recognize anything other than the brand experience, because part of Shopify’s business model is to remain invisible.
Brands need full autonomy and brand independence to have the greatest customer experience. Shopify provides the best of both worlds by allowing a solution used by many, but a level of customization that leaves Shopify in the back.
Thanks to the great design and no-bullshit system to track sales and fulfillment, players like Shopify and Square have started providing physical infrastructure for store operations. All payments, online sales, fulfillment and customer tracking and engagement are housed in one place, and these upstarts spearheaded the retail entrepreneur ecosystem by empowering them online.
As Shopify calls it, beautiful commerce software — online and offline — arms the rebels; for retail entrepreneurs and up-and-coming brands to go up against and have a fair shot to take on big-boxes, megabrands and marketplaces.
Enter the Upstarts: Square and Shopify
With the advent of the smartphone, individuals can access payments and e-commerce store infrastructure with great ease (everything from point-of-sale terminals and online stores to billing and payroll management).
Unlike big-box chains, small businesses leapfrog the previous generation of retail technology — not needing to use the conventional bulky POS terminals, set up large-scale data warehouses to store customer information or have an obsolete inventory system (or those big computers that take ages to boot up (IM LOOKING AT YOU SEARS)).
Shopify
Shopify provides businesses with a platform to construct online stores and maintain their virtual presence and operations (everything from payments and inventory to delivery and returns).
Expanding from their beginnings in e-commerce-only, Shopify now provides a holistic commerce platform. In other words, small businesses can use Shopify hardware to manage their physical presence, on top of their online brand and store.
The company manages the site hosting, payment processing (including fraud detection), shipping and returns logistics, in addition to payroll, inventory and invoicing for the physical side of operations-basically, Shopify is the lifeblood of many small (and very large) business operations.
Because they offer one to run a store completely virtually, it opens up the realm of dropshipping. This is the idea of running a full online store — including a unique inventory — with no actual inventory.
Caught you off guard, didn’t I?
But yes, an individual can run an online store, take payments and not actually have the product. And that’s because this ‘product’ is stored in a third-party warehouse. This third-party receives the payment confirmation from the buyer performing the transaction on your website and then handles packaging and shipping.
For the majority of the share of the price of the item, they will basically do all the work for you, while also you taking a piece of the pie. You make a small profit without lifting a finger (literally, in many cases), the third-party gets orders with no marketing or customer interaction (for the most part), and the buyer gets their item: A happy ending for all parties.
With prices ranging from $29/month to $299/month, they are a true manifestation of SaaS (software-as-a-service) with a great impact on hundreds of millions of customers from over a million merchants.
Square
Founded by Twitter’s Jack Dorsey, Square is a technology company that manufactures low-cost retail hardware to enable small businesses to accept payments. Rather, that was just the beginning.
Square offers an extensive, mobile-first retail operations backend platform: aka, small businesses can use iPads to run their store by viewing inventory, accepting payments, managing employees, and even take on credit; all from a device in their hand.
The ingenious initial prototype (as shown) converts card information from a card swipe, into data in an auditory format (essentially you can listen to your payments), and converts it back to readable data for the app to process through the cloud.
And voila!
Small businesses save thousands in payments infrastructure (long words just meaning a POS and its related equipment) expenses annually by plugging a plastic toy-looking-thing into their phone.
Charging 2.75% — 3.75% for transactions, the mobile payments company has expanded to a wide variety of hardware offerings, including, a fully-integrated cash register (that looks more like an iMac), tap and insert hardware, as well as devices that can be used to automate billing at restaurants (because who likes waiting for the waiter to bring back your card 🤷).
As the company grew, Square now offers lending opportunities for small businesses wanting to expand operations; in a transparent method, unlike the reputation of banks.
Square offers point-of-sale services with no extra fees, uses a simple and modern user interface, and provides extremely efficient and easy control and visibility into store operations.
When a buyer is prepared to make a purchase, the price of the goods is entered (or scanned) into Square’s point-of-sale terminal (any one of the beautifully-designed hardware equipment shown above). The buyer verifies what they’re buying and how much they’re paying, and then proceeds with the transactions: swipes, taps (through NFC), or inserts the card on a Square reader, which transfers the transaction information to the POS device.
Square — acting as the payment service provider (PSP) — then sends the payment transaction information to the Square backend on the cloud.
Square passes along the transaction information to the acquiring processor via the internet (instead of landlines in some cases for older big-box stores). Square pays a small fee per transaction in this process.
How Payments Work
Yes, it’s a little tricky to understand, especially if you don’t understand the behind the scenes operations of conventional payment processors.
Lucky for you, I’ll run through a crash course in payment processing :)
Using the example of a Square POS:
The seller inputs the purchase information onto a Square reader
The buyer verifies this and completes the transactions (swipe/tap/insert)
Square, acting as a payment service provider, is the mediator that carries this information to an acquiring processor. Essentially, Square is the mailman that delivers the parcel (containing the buyer’s credit card information) to a mail sorting facility, to be forwarded to the correct recipient.
There is yet another (pricier and bossier) mailman that carries this parcel (of transaction information) from the sorting facility (acquiring processor) to the bank of the buyer: these guys often go by the names of Visa, Mastercard, American Express and Discover among others — our card networks. These networks facilitate the movement of credit card information to the recipient.
Our recipient happens to be the bank that issued our buyer their credit card — hence the name: the issuing bank. They verify purchase details (making sure it’s not fraud and that this person is permitted to complete the purchase) and then approve or decline the transactions. A decline is when you see the oh-so-feared declined message on the point-of-sale.
If and when approved, the buyer is notified (and their heart can rest from the heavy beating LOL), and a receipt is printed; creating a digital and hard-copy record of the transaction.
The issuing bank notifies the acquiring bank (the bank of the store owner) and deposits the money that was owed to them (so technically, when a buyer pays a seller, they are simply authorizing their bank to transfer money to the seller’s bank — completely different from a cash transaction).
The acquiring bank (seller’s bank) sends the money that was owed (as proven by the delivery of our parcel with transaction information) to the payment service provider; Square (bet you almost forgot we were talking about Square in the first place huh 😜).
Square deposits this money into the seller’s business checking account; available for withdrawal.
And, of course, such a process is likely similar for Shopify Payments.
Note that, because of all the mailmen (card networks and payment service providers), sorting facilities (acquiring processor) and the recipients (acquiring and issuing bank), the parcel loses some weight during its voyage.
AKA, all these parties in this big process take a teeny-tiny cut out of the money that’s being transferred all over the place.
Remember that 2–3something percent fee Square or Shopify charge? That gets distributed to everyone in all sizes of shares of the prize; just like 20 kids sharing one cookie.
The retail scene is a rapidly evolving one. With big-box retailers dipping their toes in high-tech equipment and one-upping each other in their product offerings (*cough*cough* Amazon + Walmart’s x day free-delivery war), this retail space can be extremely intimidating for low-capital and (relatively) inexperienced to try and grab a piece of the pie.
A losing battle up until recently, small businesses and virtual businesses have taken advantage of advanced technologies that offer simple, easy and cheap access to store management infrastructure — giving them a leg up in the game.
Thanks to many companies, including Square and Shopify, all individuals are empowered by convenient and accessible technology, to gain a foothold in the extremely lucrative retail industry.
This article was written like a personal research project for an upcoming visit to Shopify, thanks to The Knowledge Society!
Glad to take you along my learning journey :)
