Retail On Life Support?

Retail is not dead, despite rumors to the contrary. 2016 holiday spending was up 16% over 2015 levels. December through February of this year total sales are up approximately 5% over the same period a year ago. Still, headlines are dominated by brick-and-mortar retailers cutting 2017 forecasts and shuttering locations across the country, as investors are selling their stocks, calling for price adjustment expectations and shorting certain classes of shopping center REITs. Make no mistake, the industry is in the middle of rapid and substantial change; change that was predicted well over a decade ago, as online retailers grew legs and became full-blown competitors. To survive, some retailers adapted measures several years ago and many of them are today’s success stories. However, those that did not, now find themselves trying to catch up on the expensive technology curve. Many are the titans of retail, believing history and brand were on their side, and their customer base would remain forever loyal. This year they will close locations to cut cost, others will seek a sale, some will seek a bankruptcy, and a few will close completely.

It’s been a long battle for these retailers, and much of their fight has been on the defensive. Not wanting to recognize fundamental shifts in customer behavior, retailers clung to previously successful strategies: more locations, gain greater visibility, be more convenient in their markets, and plan marketing events to drive traffic. But all square footage is not equal and price cutting events don’t drive as they once did. The customer’s reliance on the physical location has diminished. So, with the financial model unchanged, and old strategies not adding to the top line, operating margins across the sector are falling, some as much as 5% last year. The problem is having ripple effects on the property owners and investors. Mall traffic on average has seen an incredible drop in visits year over year. And with numerous anchor tenants closing doors by the middle of 2017, these numbers are not expected to get better. We can look at recent investor actions to see sentiment for shopping mall real estate investment trusts (REITs) has waned since the beginning of the year.

But none of this should come as a surprise. Ecommerce has been disrupting the market for a decade or more, and technology has revolutionized the shopping experience several times over. Innovation is one of the quickest ways to increase profit, and while the goal is to be on the left side of the bell curve, the worst place to be is playing catch up in the adoption of innovative change. Ecommerce has the flexibility to adapt at a speed that will always outpace brick-and-mortar stores. But physical stores and shopping centers have benefits of their own. They offer tactile experience, on-hand warehousing ability, brand advertising, and a physical environment that can be adapted. By utilizing technology, they can gather data and real time analytics to capture buyer patterns and craft the experience to that customer. By customizing the shopping experience, they then engage the customer before, during, and after the visit in personable ways. The goal for the brick-and-mortar shops then becomes finding their value, and building on that in ways that lead to becoming the innovators.

Reinventing Subscription Services

One of the most captivating innovations storming the retail market is subscription-based shopping services. From shaving to jewelry to beauty & health, and of course, fashion, subscription shopping services are popping up all over the marketplace. With a few simple clicks of a button, consumers can have all ranges of products delivered right to their door at predetermined frequencies. Even more appealing, brick-and-mortar based retailers can adopt this type of program as a value-added benefit to their current business model. Evereve, a brick-and-mortar fashion retailer founded in 2004 in Minnesota, has done just that. In addition to their boutique locations across the US, they also offer a subscription-based program called Trendsend. This Personal Styling Service gives consumers the convenience of having a professional stylist select pieces based on their unique style profile and the comfort of trying the items on in their own home. Customers pay for only the items they keep, return shipping is free and packaging and shipping labels are included. Since Evereve also has brick-and-mortar locations, returns and exchanges can be done in person for those that want to further enhance their shopping with face to face interaction.

The fully-immersed shopping experience one has when they visit a brick-and-mortar store cannot be replicated in a box. However, by adding these types of personalized subscription services, retailers can offer their customers the ultimate in ease and convenience while still maintaining their brand presence and customer loyalty. The at-home shopping experience is one that almost anyone can enjoy and would come to look forward to each time that box of retail wonder arrives on their doorstep.

Searching for the Best Path Forward: A Collection of Thoughts

The retail landscape is continuing to evolve. Previously-ecommerce-only companies are opening physical locations as retail giants are closing doors. It isn’t about adopting one innovation, but rather being adaptable to change and ultimately the driver of the change.

Amazon, one of the leaders of advanced retailing, is in search of the ultimate future retail design. They believe they can more effectively control the retail environment by establishing brick and mortar book stores in select neighborhoods, such as, Seattle’s University Place. Additionally, by establishing “mini-warehouse” brick and mortar outlets, they can expedite services, like same day delivery, on-line pickups and returns. And some day, drones!

The advantages of brick and mortar stores:

  • Oddly enough, as more people shop online and as national retailers continue store closures, customers who prefer to shop at remaining open chains, may finds stores less crowded, shorter lines at the registers and receive improved service, resulting in a more satisfying shopping experience.
  • Besides customer satisfaction, people appreciate brick and mortar shopping because of the sensory “touch” experience.
  • The ability to see, touch and feel products as well as take items home immediately rank highest among the reasons consumers choose to shop in stores versus online.
  • In particular, female shoppers overwhelmingly want to see, touch and feel products before buying them. Males, on the other hand, skew more toward the immediate satisfaction of buying and taking home.
  • Immediate gratification is a human desire that has a great impact on the shopping industry in general. Currently, brick and mortar stores fulfill that need better than any online retailers can.

Best Buy, facing a staggering loss in sales and earnings in the early part of this decade, implemented some key changes in their daily operations to better compete with online retailers.

  • They devised new and improved shopping technology and implemented a price model that allows them to compete with Amazon.
  • After closing several locations, they began to use their stores to improve e-commerce activities. And with 70% of Americans living within a 15-minute radius of a Best Buy store, management says that half of online orders are now picked up in store or shipped from a store.
  • Utilizing stores as warehouses, shipping times have improved so that most online purchases arrive in two days, matching Amazon Prime’s speeds without the annual fee.
  • Best Buy didn’t just become more like Amazon, it focused on the area where it could set itself apart from the e-commerce giant: its brick-and-mortar stores.

These are two examples where spending the resources to collect their customer data, and learn their shopping needs and desires proved quite effective. Remember, the goal is to drive traffic, and your customer to your company. These lessons reach beyond retailers, to the retail property owners, suppliers, and vendors. Space, goods, and services are needed because these physical locations are frequented by shoppers of all types for all kinds of products & services. If the shoppers cannot find the various retail outlets or prefer to shop on line, then your revenue stream is dramatically affected. It is trickle-down economics! The only way to combat this is to be aware of current trends, be creative and become technologically advanced in how you deliver your services to their marketplace.