The Real Threat From The Internet

By James Robinson
Robinson is a managing partner of HDWP, LLC, a San Francisco-based holding and management company that is overseeing the turnaround of the regional bike shop chain Start to Finish, Inc., purchased from Trek last September. Start to Finish has eight locations and sales of $7.2 million. Robinson serves as the chainís CEO.
A friend and I were having dinner at an Oakland hot spot last week. The service is usually great, but on this particularly quiet night it was slow. We asked the owner what had changed, and he told us that he couldnít find new managers to replace the ones being lured by the Internet. Last fall, I lost a great store manager to an e-commerce start-up that offered him over $50,000 to pack boxes, and almost lost another this spring to a job in an Internet service call center.
It is beginning to sink in. The real threat from the Internet is not in losing sales. It is in losing customer service specialists.
The best brick-and-mortar operations are competing with the íNet by ìclick-and-mortaring.î We play at the ìclickî game, and count on our ìmortarî side to provide superior service, personal attention, and satiate the customerís need for the enjoyable and real experience of shopping. Thatís great, but the Internet is stealing our next generation of store managers, draining brick operationsí competitive advantage of personalized service.
In the Bay Area, we face rapidly rising hiring costs due to unusually low unemployment, a tight housing market and the lure of Silicon Alley. College graduates with half a mind for business, and even those with less than half a mind, have a plethora of $55,000 job offers upon graduation from Internet start-ups, established dot-coms, and in related services. These are the people, with basic technical aptitude or customer service skills, that we employ in bike shopsóor The Athleteís Foot or TGIFridayísówhile they pursue their education. They are also the same people whom we train for (and pray will return for) a full-time quest for management upon graduation. Instead, they opt to pack boxes or answer customer service calls in a cubicle.
This is leaving us in a middle-management shock. As the present generation of store managers moves on, we do not have the depth or the allegiance among our 20-something employees to fill our future needs. Every employee that has the talent is selling it to the íNet for twice what we offer.
Our options are few. Can we offer a better work environment? How do you compete against flexible hours, oxygen bars, and decorate your cubicle contests? Can we offer better pay? How do you compete against $15/hour starting wages, partner benefits and stock options? The ultimate offset will be higher prices and improved margins to cover ever-increasing operating costs. Will our industry tolerate that in the face of super e-tailing and Costco? Weíve been discussing margin ad nauseam, but perhaps for the wrong, short-sighted reason.
Weíve been blinded to the real threat of the Internet. While it may have a short-term impact on sales, it will ultimately lead to the long-term demise of the brick-and-mortar store as we lose our only advantage to the íNetócustomer service. As our best and brightest get lured away, we face an decreasing employment pool at the same time demands for customer service are increasing. A paradox? No, just fact. A death knell? Not yet, but beware for whom the bell tolls.