As e-commerce continues to explode across the retail world, brick and mortar (BAM) retailers are facing mounting pressure to stay relevant in a world increasingly focused on the internet. Not all of them are succeeding.
The e-commerce onslaught will likely continue as more and more buyers move their shopping and buying to PCs, tablets and smart phones, even shopping in stores then completing their purchases online with Amazon or another lower cost e-retailer.
Signs of the Times
Signs of change are everywhere:
- The Staples acquisition of Office Depot, driven largely by a desire to stay relevant in a digital market, may not pass monopoly scrutiny and, according to retail experts, is unlikely to save the chain’s business model.
- Retail purchases from smart phones increased 125 percent in 2014 year over year, taking much of that increase from in-store sales. At least one chain (Sport Chalet) is attempting to ride this increase by equipping its sales personnel in eight of its stores with iPads to help shoppers find the right size and color, then allowing the shopper to complete the sale from their own mobile device if they wish.
- Radio Shack, struggling for several years, faces potential liquidation by its investors as it loses market share to the burgeoning online market for all things electronic and from larger rivals like Best Buy and Wal-Mart. Interestingly, two of the rumored buyers for many of Radio Shack’s nearly 4,000 stores are Sprint and Amazon.
- Showrooming continues to grow as customers visit stores to examine and compare merchandise, then complete their purchases online with Amazon or other e-commerce retailers offering better than store prices.
Changes like this hold the potential for chaos across the retail industry as online business continues to rob in-store sales of customers, dollars and margin, making their survival even more tenuous. While this may appear a good thing for e-commerce vendors gloating over their current ascendance, it could end up a Pyrrhic victory.
The retail world is facing nothing less than the breakdown of a paradigm more than 90 years old, dating to the opening of the first Sears Roebuck retail store in 1925 and its attendant shift of retail channel emphasis from catalogs to in-store sales. Not handled properly, today’s level and pace of change can do damage to the entire retail marketplace -- store-based and e-commerce alike.
A few of the impacts:
- Chains falling into bankruptcy, with significant job losses, geographical dislocations as jobs move. E-commerce requires dramatically fewer employees, in dramatically fewer locations than its BAM counterparts -- and reduced salaries as jobs transition from customer service to warehousing
- Malls with empty anchor storefronts, often losing their secondary stores as well and suffering “foreclosed house” effects similar to residential neighborhoods -- if you thought all those empty video rental stores were eyesores a few years ago, wait till the big box properties start turning up empty
- Loan defaults and other direct financial results, including downward pressure on stock prices across the board, draining value from every shareholder and capitalization from every firm
- Investors taking baths in the retail market and putting their money elsewhere -- in many cases, industrial development -- slowing retail development across the board
- Drastic reductions in BAM expansion and development as their firms shift resources to build or expand their own online stores
- Franchise retailers, already squeezed for margin, finding themselves literally unable to operate in the black, sometimes in competition with their own franchisor’s online store
- Current BAM customers increasingly driven to e-commerce as they confront the lack of fully stocked and staffed stores, further accelerating the downward spiral of brick and mortar retailing
While there are always winners, even in a situation like this, none of it will be particularly beneficial for customers or for either online or BAM business.
To avoid this dystopian retail future, we must found ways to integrate -- or harmonize -- the existing BAM infrastructure with the growing online commerce sector, providing, at least, a potential bridge to the fully electronic retail world if and when we are ready for it. We can see instances of this currently in its early form: the Sport Chalet iPad equipped in-store sales staff; the prospect of Amazon turning Radio Shack stores into local BAM display and inventory hubs; but much more will be needed if the retail industry is to weather the coming changes.
Bright Spots … If We Use Them
Though the horizon may look stormy at the moment, there are some encouraging signs. Studies show that millennials, the most tech-savvy of current shoppers, still prefer to shop in stores given the opportunity. And well beyond the “mall crawling” days of their teens, have come to view in-store shopping as a form of entertainment. To keep its seat at the retail table, the BAM community must find ways to appeal to these preferences, crafting a shopping experience that combines the best of both in-store and virtual shopping, with powerful enough BAM appeal that consumers will demand the in-store part as a condition of their participation. Having millennials on your side could give this approach an important starting shove.
Faced with a world moving faster than they are used to thinking, retailers can’t afford to wait and play catch-up. Starting late may guarantee the kind of panicked decision-making that virtually guarantees failure. Blockbuster delayed its entry into the mail and online delivery of movies, ceding the field to upstarts Netflix and Redbox until it was too late to survive.
All in the Same Boat?
Research and experimentation across the retail world is growing, but is still largely focused on specifics and specific sectors. What is needed is concerted effort across all retail sectors to find workable solutions to this oncoming collision. These solutions must include what works technologically and what potential shoppers will be most attracted to: in good economic times, when shoppers buy what they want, and in bad times when they buy what they can afford. Omnichannel merchandising addresses some parts of the challenge, but doesn’t yet go deep enough into browsing, shopping and buying habits to expose a complete solution.
While e-commerce appears the winner in much of what we see today, chaos in any major segment of the retail industry will do damage to all sectors. Given this, it’s critical for every sector to participate in the search for solutions to today’s challenges, sharing their results and helping to envision a fully integrated shopping world that meets the needs of everyone, shoppers and sellers alike.