This week, I was reading an article about the new Sony PSP Go of all things and it struck me that we are moving into a world with less retail.

The original PSP used discs for movies and games called UMD. (Probably stands for ultra-mini-disc and they were about as popular as the original Sony mini discs.) UMDs were never a big hit so the new PSP Go removes the disc drive altogether.

The article pointed out that retailers actually make their money on the accessories like movies and games and not on the original systems. Using a common business cliche, there are no profits on the razors; the money is in razor blades.

By removing the disc drive media, you remove the retailers incentive to carry your system. If there are no blades to sell, why carry your razors?

This article was about the Sony PSP but it is a theme across a lot of products that use media. Retailers make money on the discs but customers just want the content. If content delivery changes, it undermines the business model of the retailers.

And that is exactly what is happening. Media is all going digital and digital is moving to direct downloads via the Internet.

(As a side note, Apple doesn’t worry about this because they have their own retail stores. Direct download media is fine with them and better for the customer.)

Then I was read an article about Redbox – those kiosks in the grocery store that rent movie DVD’s for $1. Over 10M rentals last year. They are doing well because of their location convenience and super low price but movie studios are angry because they feel easy rentals cuts down on DVD sales.

I cannot remember the last time I went to a video store. A week ago, we were visiting friends out of town. How about a movie? We used their laptop to log into Netflix and 5 minutes later we were all watching a movie stream to their TV with Silverlight. Instant gratification and great quality. Why would you ever waste time on a video store?

Where products are media, the stores are going away and being replaced by digital downloads. Music. Movies. Games. Do record stores even exist today? The retail experience for these products is greatly diminished from 20 years ago.

Digital media is the most dramatic example, but other physical goods are also being sold online more and more cutting out traditional retail. The consumer electronics space has contracted leaving BestBuy as one of the only survivors. The pie shrank and most of the retailers starved to death. Book stores?

The one thing physical retailers are best at is returns but returns is not a business you want to be in. More and more people will check prices at retail, inspect the product and then buy it from their online supplier like Amazon.

More and more, retailers will shrink and go out of business. Maybe the new system is more economically efficient over all but it sure is different.

Boy oh boy has the world changed in my lifetime.