Through a special arrangement, presented here for discussion is a summary of an article from Retail Paradox, Retail Systems Research’s weekly analysis on emerging issues facing retailers.
With holiday online sales winding up 15 percent higher year-over-year versus more modest gains for physical stores, digital marketers and online retailers are dragging back out all the stuff they said in 2000. “The store is dead!” “E-commerce will kill brick and mortar retailing!”
I still humbly disagree with all of them: the physical store has some distinct advantages and is one differentiator that multi-channel retailers have over online pure-plays — if they can figure out how to use it.
That said, the store is still in big trouble. Here’s my quick take on retail developments for 2012:
Store Closings
Stores are an enormous asset, but ultimately there are too many of them in the U.S. I firmly believe the Sears announcement is a herald of things to come — retailers will be shuttering unproductive stores in 2012 and either investing more heavily in e-commerce and cross-channel or opening new stores in new geographies. We’ll also see more sub-dividing and sub-leasing store space to complementary retailers or service providers.
Big Box on the Rocks
Another place where e-commerce is taking a big bite out of traditional retail is in the big box or “category killer” verticals. Shoppers used to go to these stores because the selection and expertise were unmatched. Well, you can now find both online.
Borders in 2011 was the canary in the coalmine — a retailer whose product was especially well suited to online distribution. Electronics has long been a heavily online-driven category in retail, so I suspect the only thing slowing down this category’s transformation a la Borders is the fact that much of the product still has to physically be delivered. Some category killers, in particular REI and PetSmart, have hedged, diversifying into services. I’m still waiting for someone to reinvent the grocery store in a cross-channel world.
Mobile Customer Service
A more positive development is retailers’ rush to embrace mobile. While last year’s push was to “have something, anything” in mobile, this year will see more thoughtful approaches; more integration. This will mean putting more capabilities in the hands of shoppers and employees. I long to see the day when having asked a store employee a question, I don’t get the puzzled, helpless look and instead get a few flicks and clicks on a mobile phone for a ready answer to my question. I’m sure that store employees long for that day, too.
BrainTrust
Discussion Questions
Discussion Questions: Which of the three retail developments identified in the article — store closings, big box on the rocks, mobile customer service — do you think will figure more prominently in 2012? Are there developments not listed here that you think will greatly influence retailing over the course of the next year?
Poll
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Mobile customer service is an obvious choice. I won’t predict the death of brick and mortar until I see an empty Apple store!
Of the three trends listed, I believe that mobile will be the area most evolved in 2012. It serves two masters…the consumer and the retailer. Harnessing the opportunities it provides sales staff should be a key goal for retailers. Consumers will develop mobile skills on their own, but an attentive staff that truly wants to satisfy the customer will be enabled to use whatever resources allow that.
All three of these developments will continue in 2012 and this puts pressure on brick and mortar laden companies. Those companies have to diversify and find ways to be relevant with e-commerce and with creative customer service offerings. Coordination of physical retail with online sites and well-trained employees will be even more critical. Empowering store employees to be well-versed in and responsible for online questions and services will make the in-store experience better and keep consumers coming to the physical plants.
Depending on the type of retail, there are still online ordering challenges, e.g. perishables in grocery. The ability to give personal attention with technology (see Apple stores) will allow the savvy retailer to continue to be important to customers in a store setting. BUT there will continue to be fewer of these outlets as online and digital ordering continue to grow.
Store closings will be a major problem, as they are a visual sign of blight. No one is re-purposing these large buildings in a way that improves the economic condition of the surrounding community.
Entrepreneurs are hesitant to start a small storefront next to a large abandoned former Border’s Books building. This is a serious issue that is going on in 2012 across many suburban sprawls that has to be addressed.
I still contend that store closings will figure prominently in 2012. There is simply too much space, inventory, and expense chasing too little demand. Expect to see the secondary and tertiary players go dark.
I read this week that record sales were up last year. You remember records — those round vinyl things with the hole in the middle and the great covers that make music.
The question is not whether physical stores, or books, or music will go away. The question is how many people will hold onto them and how many outlets for satisfying that need will be required.
The biggest impact of online shopping is going to be to reduce the number of physical stores needed to meet demand — so the most prominent near-term impact (aka 2012) should be store closings. It is the natural first step in the cycle.
Expansion into services is a sure winner for specialty retail. I’d love to see more of this in grocery, but I don’t think the margin structure in today’s “deal” world will permit it.
So I’m voting for mobile service. My son did mobile service using his personal phone at Brookstone two years ago when he worked there over the holidays, even though he was “out of policy” in doing so. But he closed more big ticket sales than his co-workers by having enough information available to keep shoppers in the store and not out wandering the mall or alternatives.
He also was smart enough to never answer or make personal calls while on the sales floor.
As some volume moves to the internet, the result will be a reduction or closing of some stores. But there will still be store closings due to failed merchandising, poor location selection and changes in population. Store closings in Detroit have little to do with the internet.
The more likely scenario is smaller stores, or more stores-within-a-store. Big-box stores have another 15 years to go. Online shopping will not work well for buying 500 pounds of fertilizer or 50 lumber boards. Big and bulk will be their hallmark. The mobile consumer is over promised. Technology providing customer information as a replacement for clueless sales associates will win out, but not necessarily on my smart phone.
We should expect to see a lot more store closings this year. The large retailers have an edge on market problems and will see a lessening in the need to close more stores. The increase in closings that I see coming soon will be the medium and small store businesses that are stuck in the enclosed shopping malls, which are desperate for customers.
At a time in history when the consumer wants faster access to a large inventory selection with dollar store pricing, the medium to high priced mall boutiques with limited selections are now at odds with the market.
The successful retailers (the winners) will determine how best to utilize mobile technologies to drive promotions, move high-margin products, increase same-store sales, and deliver better customer service both via online channels and in physical stores. There are a lot of great retailers that are already leveraging mobile to stay closer to the customer and to move the customer closer to their stores.
The under-performing retailers will cite the death of the store as the reason sales continue to disappoint.
While all three areas are viable sources of influence for the coming year, I believe most markets remain well “over-stored” across most channels of retailing, and facility closings will be a big story in 2012.
In the supermarket channel, big boxes like Walmart, Meijer, and SuperTarget have increased the number of grocery square footage in most markets enormously, reducing the sales productivity of each existing square foot of grocery space. Other channels have seen an influx of square footage in the past few years as well.
Whereas new store growth has traditionally been the lifeblood of healthy retailers, slower population growth, coupled with a very slow housing market, and new online retailing options lead me to believe 2012 will continue to be a tough year on new store construction. There will be some notable exceptions, but the current environment tells the story pretty clearly. A&P, Sears, Friendly’s Ice Cream, even Tesco’s Fresh & Easy have recently announced major store closings. More are likely on the way.
On a positive note, this “purging” of excess retail outlets will allow the markets to “re-calibrate” and retailers will be forced to focus on growing their business by building “share of customer” with fewer, more productive stores.
Store closings have always and will continue to represent a “market correction” for physical retailing. Although there is a huge amount of vacant retail real estate in the US, there are also multiple markets that are under stored, believe it or not. The format of stores continues to evolve. Again, this has more to do with the local market than anything else. There are crowded malls, coast-to-coast, yet others are vacant. Local market analysis obviously still needs to be optimized.
Big-box stores will continue to show strength in specific product categories. We all can name several that are strong today, especially as one CEO stated publicly only days ago.
Mobile is the wild card. As devices change daily, along with consumer preferences, 2012 will be a strong growth year for it. I believe that a major technology advance in the next 18 months is on the horizon and will be a game-changer. Just my gut feeling.
Customer service will continue to grow in 2012 and that means more technology and mobile customer service. That said, it can’t simply be a sales associate reading off an iPad. Customers can do that themselves; customers want true knowledge and answers to their questions, not an employee reading out loud.
I agree with Joel, Apple has shown that brick and mortar is not dead. The tactile experience is still very valuable. Nothing sells an iPad or iPhone better than using one. Other categories need to learn from this.
First, mobile will continue to receive the greatest focus of these three and be in the news as both customers and retailers figure out how to maximize value with that platform. Related, and timely based on the PayPal/Home Depot announcement, mobile payment will pick up steam. It will be interesting to watch the development of both NFC and non-NFC mobile payment solutions. I also believe the the use of video for non-LP/security uses is likely to gain traction as retailers struggle to drive business growth on limited payrolls.
Finally, physical stores will remain as important as ever, although their role in the entire customer purchase process will continue to evolve as consumers begin to shop based on a retailers ability to adapt to them rather than their ability to adapt to the retailer.
I think the long-term trend is to see retailers downsizing their footprint in many of their markets. As lease obligations expire, I think we’ll see stores relocated into smaller footprints in more desirable locations. Where leases remain in force, I think you’ll see retailers seeking to re-purpose the space, both through sublease arrangements as well as through an expansion of categories and services.
2012 will be a year of optimization. Unprofitable stores will close, Big Box stores will find more useful ways to drive dollars per square foot and mobile solutions will become more prevalent within stores as a source of information.
All three areas will play a part in shaping 2012. The real theme for the year is overall optimization.