Is physical retail doomed - or is it evolving?

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By: RickFerguson |

Posted on April 17, 2017

News that brick-and-mortar retail stores around the globe are shuttering their doors at a blistering pace has the industry wondering aloud what the future of retail will look like. Will retail brick-and-mortar stores go the way of the dinosaurs? Will Amazon become the global equivalent of the company store, in which we all work for Amazon and then spend all of our paychecks buying things from them and having them drop-shipped by drone to our front doors? Or is there a future for retail that doesn't involve filing for bankruptcy? A recent Zebra Consulting report might just provide a glimpse of the future - a future in which the physical and the digital merge to transform the retail customer experience.

By Rick Ferguson
The news from the US retail sector is dire. Here's just a smattering of bad news from the traditional brick-and-mortar retail sector, as highlighted by Bloomberg:
  • Footwear retailer Payless Inc. announced plans to file for bankruptcy and close 400 of its 4,000 locations.
  • Apparel retail Rue21 will fil for bankrucpty as soon as this month.
  • Retailers HHGregg, Inc., Gordmans Stores Inc., and Gander Mountain Co. all entered bankruptcy this year
  • US retailers are projected to close over 8,000 stores this year - a faster pace of stores closings than in any year since the 2008 financial crisis.
  • What little retail growth there is being captured largely by Amazon, which accounted for 53 percent of retail e-commerce growth in 2016.
Bloomberg quotes experts who collectively agree that part of the problem is the "retail bubble" that saw stores expand locations at such a rapid pace that retail square feet per capita in the United States is six times the retail square footage in Europe or Japan. Money quote from Urban Outfitters CEO Richard Hayne:

"This [retail expansion] created a bubble, and like housing, that bubble has now burst. We are seeing the results: Doors shuttering and rents retreating. This trend will continue for the foreseeable future and may even accelerate."

There are, believe it or not, a few filaments of silver lining in this unrelentingly bruising phalanx of storm clouds approaching retail. While retail shopping malls around the country close their doors, so-called "Class A" malls filled with higher-end retail continue to prosper, albeit not to the degree of the glory days of old. Cowen Research, meanwhile, reports that shoppers interviewed report a preference for in-store retail over online shopping 75 percent of the time. In addition to Class A malls, outlet malls, which provide ostensibly greater bargains while offering a more pleasant outdoor shopping-entertainment environment, also continue to thrive. Money quote from Retail Wire:
"Outlet malls have always stood out with the promise a treasure-hunt experience. A [Wall Street] Journal article ... noted how even high-end retailers are having to offer more deals to reach their loyal wealthy customers. With nearby hotels promoting free-shuttles, tourists have become a major supporter of outlet malls. Open-air environments and their ability to provide an all-afternoon adventure for family or friends are also key traffic drivers."
The success of outlet malls hints at what many retail analysts say could be the driving force that saves retail: Reinventing the physical in-store experience. As the Retail Wire piece notes, one saving grace for outlet malls is their profitability; unlike their e-commerce arms, which to compete with Amazon must offer free shipping and liberal returns policies, outlet stores are cash-flow positive. 
There may indeed be a say-do gap at work here; consumers say they prefer in-store shopping, and yet their actual behavior benefits Amazon to the exclusion of everyone else. And yet there is a reason why Amazon is at least testing the idea of offering physical stores: offering a compelling in-store experience is a time-tested way to take the customer's focus off price. 
A recent Zebra Consulting report also reveals a glimpse of the future of physical retail - a future in which the digital merges with the physical. In the United Kingdom - a country that often serves as a belwether even ahead of the US when it comes to early adoption of retail trends - Zebra reports that a quarter all retailers plan to eliminate manned, stationary point-of-sale checkout lanes by 2021. Already, checkout lanes in the UK have fallen from 72 percent of retail locations in 2012 to only 52 percent today.
As the Telegraph points out, this trend in the UK is largely driven by Brexit fallout as retailers scramble to cut staffing costs in the face of the falling British Pound and higher commodity prices. Therein lies, however, a glimpse of the way forward. Money quote from Zebra director Mark Thompson:
"In five years, a visit to the British high street will be massively different from today. Retailers want to put more power into the hands of shoppers, letting them pay with their mobiles as they browse, or giving them smart-carts with screens and built in scanning. The store itself will continue to get smarter as well. Retailers will be able to tell when and even where specific customers are in store."
Here's a note of caution, however: while the convergence of digital personalization and frictionless technology will provide a welcome transformation of the retail experience - say goodbye to long checkout lines - retailers will fail to differentiate if they merely pocket the cost-savings from sales automation and fire all of their clerks. Rather than turn their brick-and-mortar locations into faceless, charmless, self-service retail ATMs, consider investing those savings into training high-impact sales associates who can leverage customer data and in-store recognition to provide differentiated reward and recognition to your best customers. 
Want an example? One of the reasons why Apple Stores are historically among the most profitable physical retail spaces in the world is that you can't throw a rock inside one without hitting one of their myriad blue-shirted sales associates. Walk into an Apple Store and within two minutes, someone asks you why you're visiting, checks you in, and then assigns you to a specific associate trained to address your specific needs, whether you're there to test-drive the latest iPhone or have your old model serviced. It's that attention to each individual customer that sets the Apple retail experience apart. 
Combine that level of personal attention with in-store reward, recognition, and offers personalized based on your transaction record and stated preferences, and you have a model that can save physical retail. Make that experience seamless with and connected to your e-commerce delivery, and you have a model that might even challenge Amazon. Can every retailer pull off this transformation? Sadly, no - some legacy retailers will simply not survive this evolution. Those that do, however, will emerge able to deliver a physical customer experience that will ensure a healthy, profitable retail sector for decades to come.
Rick Ferguson is CEO and Editor in Chief of the Wise Marketer Group.