I love Bill Gurley.

He says something that goes like this - "You can sell a dollar worth of an item for 95 cents and people will love it. You would even sell a billion dollars worth of it. But it’s not a business because it doesn't make economic sense."

New business models, however, are hard to pass judgment on. I am no Bill Gurley. But I have a daughter and I learn from watching her make tradeoffs that are untenable even for someone as street-smart as her. She doesn't like learning Tamil (ironically, our mother tongue) but knows that she won’t get the best student award if she doesn’t perform well in this subject. She kicks and screams. She takes refuge in her Harry Potter book collection until she can no longer postpone studying Tamil for her exams.

'Retail as a service' companies behave in a similar fashion. They kick and scream that wholesale channels are not conducive for D2C brands. D2C brands will eventually embrace wholesale. I am unsure where that would leave RaaS.

Very few businesses can lose tons of money and still live to own a big market and eventually get the economics right. Uber is likely to be one. I'd think Bill would have trouble calling 'RaaS' players as sound businesses that can avoid the grim reaper that economics is.

Overview of New Retail:

Here's my bear case:

Before we start, let's just call them 'New Retail', ok? RaaS sounds horrible.

Here's New Retail's view of the world:

Brands apparently don't like wholesale channels. They cannot 'control' the experience or get the data about their consumers. That is the central thesis of 'New Retail'. Oh, and there is a notion that shoppers like to do small talk with a cheerful retail assistant who isn't broken inside. They need someone to apply the mineral-rich hand creme on their hands. The sales would eventually happen online or through 'Scan and go'. But life outside SoHo and Palo Alto works differently. Middle America and well, all of America except SoHo and Palo Alto need retail and go to shops to buy things they need. Heck, even in SoHo 'Scan and Go' doesn't work well yet.

The sobering reality is that eCommerce in the US is only 7.5% of retail if you ignore Amazon. What? Ignore Amazon? Well, D2C companies are in that phase. I don't support abusive relationships but that elephant in the room got there before the brands came into being. You can't go to its living room and complain that there isn't space.

Anyway, for D2C brands there are two and a half options to address 'Brick & Mortar' retail - doing own B&M stores, going to wholesale channels or the warm and fuzzy pop-ups.

Enter 'Retail as a Service' companies - the champions of pop-up retail era. B8ta, Showfields, Neighborhood Goods, etc. tout a new kind of retail experience to brands.

Here's their manifesto:

It makes sense-ish for the brands. It's easy to launch a product today than ever. Consumers used the big brand names as a proxy for trust. Now brands can build trust with YouTube videos. Trust-building is democratized. You could even build a brand based on the trust if you are open to slow cooking. Or you could toss it in the oven and what comes out is brandless :P!

As single-ish product brands (once upon a time called "Digital Natives") launch, they need consumer feedback and the more real-time the feedback is the better it is. If you can track the consumer feedback through sensors and other cues right at the moment of truth, it would be awesome. Previously you'd set up a shop at a mall. Feedback was a side-benefit. But not all could afford their own shops. Now you go to B8ta or NeighborhoodGoods to get feedback.

Does "new" always equal better?

There is something uncomfortable about this value proposition. To me, it really looks like a lot of organic, toxin-free lipstick on a cheerful pig. It looks cute but the slaughterhouse is waiting.

While 'New Retail' claims to give customer data, the scale is nearly not as compelling as traditional retail. Product feedback is good but there is a selection bias. The SoHo crowd cannot make a brand succeed. They may give the start. Middle America is where D2C brands have to go to grow (that is if they want to be big). 'New Retail' does not want to be in Middle America.

So for brands, 'New Retail' is a real-life A/B testing, session recording, and heat mapping platform for testing one segment that lives in urban centers. The 'Tech company' tag also isn't very appropriate. In the A/B testing software space, the software could potentially plug into every eCommerce website and stay there forever (well, almost). But in the case of 'New Retail', there is a limit to how many brands they can sign. Churn is a part of the design. There isn't a bigger physical space to upgrade the brands to.

One of the top mall owners privately told me that the cute newsstand model ('New Retail') is an antithesis to how they make money. They need big brands with big shops or D2C brands with a need for big fulfilment space. The math doesn't work for them otherwise. It's not a stretch to assume that the 'New Retail' has even lesser ability to monetize space.

That brings us to the next revenue stream. Analytics.

The software on top of the tracking infrastructure, which is often enabled by a real tech company, is just a visualization layer. I would argue that there are a lot of 'small data' problems under the hood that needs to be solved before real analytics can happen. Is 'New Retail' a modern-day alternative to the likes of Nielsen? I don't think that is the case either. Neither their scale/medium nor their reluctance to be a 'sales' channel allows them to be a reliable source of consumer data. As in-store tech becomes more and more ubiquitous, large department stores can give the same anonymized data about shopper behavior to brands like the 'New Retail' players do today and maybe even some consumer data. If not anything else, wholesale gives a whole lot of sales.

"Pretty UI + a sub-let space + maybe some benchmarking" might make sense for brands in their early days, but what's the economic incentive for the 'New Retail'?

I like the thesis that there would be more brands striking out as independents and there is no compelling need for retail to be the only 'point of sale' or 'point of discovery' destination in the offline world. Tardy as it may be, 'scan and go' will succeed in the future. 5G will enable better analytics and personalization without the need for a human assistant to be there to deliver the 'wow' moment. But, how far is that future and will the V1.0 of 'New Retail' survive and morph?

I am rooting for the experience it brings and the visibility it enables. But it's not nearly as exclusive and as compelling given the current scale. What's your bull case?

PS: Know any I should talk to?