If you’ve been following the results of this past season’s shopping behavior, you’ll know that trends set in motion years ago have hit a tipping point, and unless the traditional brick and mortar retailers do something dramatic, the trend will continue to the inevitable outcome.
When did this trend begin? In July 1995, with the launch of Amazon.com. Yes, it’s as simple as that. Sure, plenty of online retailers preceded Amazon, and many more have come since. And yes, Jeff Bezos told the board they wouldn’t see any profit for at least 5 years. Many thought his cavalier attitude would spell the company’s ultimate demise, in light of the booming ecommerce economy. But nothing could have been further from the truth. And as the bubble burst in 2000, Amazon not only survived, it thrived, turning in its first profit in 2001.
The website with the most traffic wins, in virtually any category. Once the traffic was there, built through a series of shrewd online web property purchases while creating the #1 affiliate program on the web, anything was possible. And so, a mere 20 years later, Amazon has reached the pinnacle of retail success, surpassing Walmart as the most valuable retailer in the USA, based on market capitalization.
From The Headlines
Online Shoppers Spent A Record $4.45 Billion On Black Friday And Thanksgiving
In 2015, Amazon Ate Even More of Walmart’s Lunch
Shoppers Avoid Stores, Online Booms in Final Christmas Blitz
Black Friday brought in 151M, most online: NRF survey
Amazon isn’t single-handedly taking on brick and mortar. And certainly there are plenty of stores/chains with their own online presence. But the fact remains, the trend that started in 1995 is continuing, and for the first time, more people in 2015 shopped online than in stores during the coveted Black Friday weekend event. And just as important, online activity grew versus previous years during the final Christmas shopping blitz.
Naturally, this doesn’t spell the demise of retailers as we know them. Outside of the pure-play ecommerce players, plenty of online activity goes to banners with a brick and mortar parent. Yet, the shift to online has translated into numerous store closings and consolidations for traditional retailers. Whether or not this enables a stronger bottom line remains to be seen.
Retail expands and contracts, which is a natural state
Online trends aside, retail expansion seems to be in full swing. In Toronto, for example, retail malls have been investing heavily through substantial expansions, largely to add high-end chains such as Nordstrom and Saks Fifth Avenue. Many other retailers are going along for the ride. Yet, at the same time, the retail landscape continues to see its share of roadkill; in Canada this includes Target Canada, BLACK’s Photography, Smart Set, Mexx, Jacob, Laura, Nine West and Bikini Village. Not insignificant by any standard.
So how does mall expansion buck the trend towards online which shows no signs of letting up? Will the malls continue to attract the numbers necessary to sustain such expansions, or is this all for naught?
In the United States, retail contraction continues with the pending demise of Radio Shack, and the store closures at many retailers including Staples, Office Depot, Macy’s, J. C. Penney, Abercrombie & Fitch, Aeropostale, and Barnes & Noble.
Electronic retailers and book sellers have taken a significant hit over the past few years.
“As part of a bankruptcy filing, RadioShack announced the most recent large-scale store closure. Other electronics giants — Circuit City, CompUSA to name two — disappeared in recent years, while others, such as Best Buy, have been struggling. RadioShack is restructuring in bankruptcy and the familiar stores could resurface through a forced marriage with Sprint.
No retailers have perhaps felt more strongly the effect of the e-commerce boom than book stores. The advent of Amazon.com already led to the demise of Waldenbooks, Borders and B. Dalton booksellers and now threatens Barnes & Noble. Barnes & Noble tried to hang on by developing the Nook e-reader to take direct aim at Amazon.com’s signature e-reader, Kindle. But in its most recent financial report, Barnes & Noble said revenue for its Nook division fell while earnings for its book division were basically flat. As a result, in the current fiscal year, Barnes & Noble plans to close 13 stores instead of the 20 it earlier forecast.” Source: 247wallst.com By Mark Lieberman and Thomas C. Frohlich March 12, 2015
Ironically, while Barnes & Noble fights for survival, and other chains have disappeared from the landscape all together, Amazon has begun launching brick and mortar locations. By all accounts, the stores are generating substantial foot traffic. Their layouts are different than the typical book store, and they leverage web pricing (in real time), merchandising and ratings (it’s about as omni-channel as it gets). Read this interesting article by Andrew Hamada as he reflects on Amazon’s reinvention of the bookstore.
A thought-provoking article from Maureen Atkinson, Senior Partner, Research Insights at J.C. Williams Group, suggests: “when you see a new retailer open in your neighbourhood and think that there is really no room for any more retailers, remember that it is agility and the ability to read the environment that counts.” Read the article for a glimpse into the Canadian retail environment.
Let’s face it, reinvention is difficult, and in many cases simply impossible. Reinvention means hitting the mark bang on, while taking more risks than those taken in the original creation of the business. But often is the case, that without reinvention, you’re simply pushed aside.
In this article Krystina Gustafson (@KrystinaGustafs), content editor and retail reporter at CNBC.com, lines up the reasons for retail store shrinkage, outlining it’s not all because of ecommerce growth. Stores are in poor locations, there are simply too many stores for the demand, or demand has shifted to other brands. Sure, these are good reasons, but largely unacceptable unless you’re happy watching your business in free-fall. Store consolidation is a short-term measure, a Band-Aid in lieu of dealing with root issues.
The fact is, in many cases, retailers have brought on their own demise, and blaming ecommerce is an easy excuse to bring to the Board. And while Amazon cashes in on their newly launched brick and mortar stores, Barnes & Noble is left with its tail between its legs, wondering what they should be doing differently to survive. While there are always external factors, some out of one’s control, much of the fate of retailers lies within their own hands. However, they often simply ignore the signs, refuse to change, don’t change fast enough, or frankly, are simply not innovative enough to turn things around.
Can Innovation save retail?
It seems that if retailers don’t back their retail growth investments or consolidations with resourcing for innovation and offer a better customer experience, they’ll be shuttering the very doors their currently painting.
While there appears to be plenty of innovation in the retail space, it’s hard to find, and generally not found in the major department stores. Most of it remains in trials, with myriad tech solutions in various store tests, largely in search of a silver bullet. Like most tech changes, this will come slowly, through a lot of trial and error, with many technologies going by the wayside while the truly innovative winners emerge. A recipe for cold feet, if nothing else. One only need search on “retail innovation” to see everything from the fully immersive 2-way experience in trial at Burberry, to RFID tracking using loyalty cards, through to all kinds of splashy merchandising leveraging touch screens, holograms and much more.
Even Best Buy, where over the past few years you could shoot a cannon off and no one would hear it, has been re-inventing itself. Kudos for their attempt to ensure they’re not listed amongst the recent electronic store closures. Their new store-within-a-store set up, reminiscent of home show trade fairs, has potential, is visually appealing and easy to navigate. But, without proper staffing, will this model make a difference, regardless of the additional revenue stream from manufactures paying for space? And there’s the rub. Because it does not look like they’re changing their staffing model to support the new design.
While the business model may have changed, with new revenue from manufacturers who rent their space in the store, the staff remains the same. No specialization, little training, and few incentives for reps to help customers or to better themselves. So, while touch and feel may still drive you to Best Buy, you’re not likely to get much help from the staff in making your ultimate purchase decision.
It seems like a colossal waste of space devoted to a handful of manufacturers, with few reps capable of effectively demonstrating the product. And, if the sales rep hasn’t built a rapport with the customer, the customer is more likely to click a few times and check Amazon’s price once she’s made a decision. Will the rent revenue off-set falling traffic and sales? Maybe in the short run, but at some point, the new model won’t be sustainable, the manufacturers will pull out, and the big box will fold up.
Isn’t it time to think well outside the box?
Innovation in retail remains but a spec on the retail landscape, with the majority of retailers appearing to be standing still, as if on a lifeboat surrounded by sharks, doing little or nothing to drive their own survival. Small incremental changes aren’t going to make enough of a difference unless retailers choose to connect more dots, and truly reinvent the retail or omni-channel experience.
Here are 6 things retailers can to do to help ensure they stay in the game:
- Continue to Innovate – innovation comes in many forms, tech is but one.
Sure, you can innovate through technology, but if you haven’t the resources or simply aren’t ready, consider other things you might do to enhance the overall experience. Your hiring and staffing practices, store hours, merchandising, in-store atmosphere and loyalty programs all leave room for forms of innovation that can draw in and keep customers.
- Focus on creating great customer experiences – give them something they can’t get online.
All too often consumers are faced with a sub-optimal experience in a retail store, driving them to another store, or online. Why endure long checkout lines if they don’t have to? Why deal with sales representatives that don’t understand the product they’re selling? Why shop where they don’t have adequate inventory? These aren’t high standards, however the expectations continue to rise as online options grow. With more choices than ever before, consumers are just a click away from finding another solution. And they’re making that click while they’re standing in your store.
There’s no question there’s a balancing act here. Without the investment, consumers will turn elsewhere (it’s become too easy for them not to), and with the investment, revenue shrinks. A dilemma, yes, but one which needs to be solved.
Look at what smart retailers are doing. Sure, Apple has great product, but consider their store set-up. There’s a reason other retailers have been trying to copy them for years. And yet, Apple is still one of the only major retailers that has enabled its staff to transact with an app on their iPhone, anywhere in the store. If you make your customers endure long line ups, even just a few times a year, you are already lost if you think that’s a measure of success.
- Embrace technology – take a chance on technology; it’s better than doing nothing.
At some point retailers need to invest in technology to offer a better shopping experience. Your competitors already are, or are going to; you’ll need to also. Technology is changing rapidly, and there’s a growing number of options aimed at the retail experience. You can’t wait until all the dust settles; pick a horse or two and run. If you don’t jump in, you’re giving the web and your competition a substantial advantage.
Websites remember who their customers are, they say “hi” when you return, they remember what you’ve bought, what size you are and when your birthday is. They reach out and tell you about specials, new products and sales. It’s time for retail to step up and go where web already does, and more importantly, where web can’t.
- Create a great web experience and embrace mobile – the web can be your savior, if you give it a chance.
If you don’t want to sell online, don’t. But that doesn’t mean you shouldn’t have a web presence. The world has gone mobile, and if nothing more, people will want to find you, find your location and hours, and call you. So, if you do nothing else, be sure you have a page optimized for mobile that allows shoppers to get in touch.
- Create a true omni-channel experience – broken solutions between web and retail are worse than no web at all.
Banana Republic figured this out a long time ago. If you have stores, and a website, allow the customer to experience a seamless journey between the two. On-line purchases backed by store exchanges and returns sounds like table stakes, but only a few have figured this out. And it doesn’t end there – pricing schemes that make sense between online and the store, merchandising, product availability, all need to be working off a consistent strategy. Online can’t be treated like a separate channel; it’s part of the overall shopping experience. Store staff need to be informed with what’s happening online as they represent all elements of the shopping experience. And the list goes on.
Create a great in-store or online experience, and all boats rise. A structure that drives competition between your own sales channels is a recipe for failure.
- Get your mall a good Santa – mall developers are going to need to step up in driving overall traffic to ensure the stability of retailers.
As consumers flock to their keyboards, malls need to do something to drive traffic their way. While retailers are clearly dependent on this traffic for their survival, it’s up to both the retailer and the mall developer to ensure it happens. This is where the mall can take advantage of its edge over online. Restaurants and other value-add traffic drivers are critical to competing with online. And yes, even Santa has a role to play.
While you can’t use the same brush to paint the retail picture across all brands and product lines, it’s clear that steps need to be taken if retail is to continue to thrive. There’s no question there is a new reality, and there’s no turning the clock back on ecommerce. Yet there’s plenty to be done to drive the vitality back into retail, and it starts by thinking much bigger, and connecting all the strategic dots.