Stores closing are just doors opening to a new age in retail
Every year after the holidays the same topics seem to dominate media coverage of the retail industry. The numbers are in, who’s closing stores? Who’s going out of business? Who are this year’s casualties in the great Clicks vs. Bricks War? This focus on post-holiday attrition is part of a larger conversation about the future of retail, one often tinged by notes of panic, dire predictions, and dramatic pronouncements such as: Online retail is damaging brick-and-mortar. Malls are dead! Retailers are shuttering hundreds of stores!
While these statements may make for eye-catching headlines, they are often missing important context. Yes, Walmart is closing 154 U.S. stores (269 worldwide), but that sum total is only around 2% of the company’s 11,600 global locations. And looking beyond the seemingly alarming headlines, we see that Walmart is also planning to open approximately 300 new supercenters, and that these moves are part of a regular and healthy process of portfolio management. Walmart’s circumstances are an ideal example of why you have to look deeper than the sound bites for this topic. This isn’t always a time to panic, it’s also a time to celebrate. Here’s why.
Yes, we are seeing some fundamental structural changes in the industry. Some segments are over-retailed, and others are evolving in ways that make it tough for certain brands and businesses to thrive. Some retail stores that have continued to super-size over the last decade are finding that their optimum prototypical size better utilizes a smaller footprint. The reality is that online sales make up only around 8% of overall worldwide retail sales.
What is taking place in retail right now isn’t a crisis, it’s a revolution. The story of retail has always been one of change. Malls moved commercial energy from Main Street into the suburbs, and big-box stores took their toll on mom-and-pop operations. In recent years, we have seen a shift back toward town center-style and mixed-use projects as the population shifts and millennials search for community. What is happening now is another paradigm shift. And that shift is continuing to drive value to the customer, utilizing these delivery channels.
Savvy industry observers recognize that we have turned a corner. There is a growing recognition that, for retailers to flourish and reach their full potential, online needs in-line and brick-and-mortar needs bits and bytes. A perfect example is Walmart’s recent $3 billion purchase of Jet.com as part of the brand’s ongoing efforts to upgrade and enhance its virtual storefront. In order for the retailers to be competitive, a robust omnichannel retail model has to be a retailer’s number one priority. It’s the new normal. As the growth of online retail continues to advance, the market will eventually find the equilibrium between online and brick-and-mortar.
The big online winner at Christmas was (no surprise) Amazon, responsible for an astonishing 46% of online sales. The next closest competitor was Best Buy at 4%. Walmart and Target are each coming in at 3%. The bigger story here is that large brands need to accelerate the ways in which they successfully navigate this omnichannel marketplace. The reality is that far too many retailers are lagging with their online offerings. Problems abound, from confusing site layouts, poor search solutions, and ineffective coordination between online platforms and in-store sales. Some brands are not even equipped to price match their in store prices against their own online offerings.
Other retailers are recognizing that even small conveniences can make a big difference with online sales, and making it easier for shoppers to browse and to pay with fewer clicks (using Apple Pay, PayPal, credit card information on file, etc.) can literally and figuratively pay off. They are realizing that the delivery model — the stuff that takes place almost entirely behind the scenes — is just as important, even if it is largely invisible to the consumer. Figuring out logistics in a way that makes financial sense and facilitates speedy and reliable delivery is a huge piece of the puzzle.
Advancing the omnichannel model requires an effective logistics solution. It also impacts everything from marketing to merchandising to store sizes. It requires an understanding of both product and customers’ priorities and shopping habits, and making sure that the business model is aligned with those.
For some products and in some markets, brick-and-mortar can be about showcasing, where consumers get to feel and touch the product and then later make a purchase online. The Apple Store is a prime example. In other segments, it might be precisely the opposite. With that in mind, it’s not surprising to see significant numbers of store closings and significant numbers of store openings. There are always new segments ready, willing, and able to occupy spaces that come available with the decrease in large boxes and ongoing realignment. Today we are seeing many new service users such as medical office getting aggressive to move into prime retail locations from traditional office building locations. There will always be new concepts created that we haven’t even thought of today.
Some brands and businesses will adapt quickly, and others will take more time to figure things out. It’s about overcoming challenges, but it’s also about capitalizing on new opportunities, unlocking new synergies, and cross-platforming promotions. But this isn’t all about attrition, it’s about adaptation and new creation. While there is some hand-wringing; this should also be time for celebration. These are interesting times for the industry. Just because bell bottom jeans aren’t in fashion any more, it doesn’t mean pants are going away! Retail isn’t dying, it’s elevating to a new level.
Dave Cheatham is president of Phoenix-based Velocity Retail Group, a member of X Team International, an alliance of retail brokerages. He can be reached at [email protected].