01 Sep Bricks vs. clicks
Online is killing off traditional retailing. That is the story doing the rounds among commentators in the United States. The evidence seems compelling ever since Radio Shack announced last year that it was intending to close half of its 4300 outlets. Other notable retailers such as Barnes and Noble, American Eagle, Abercrombie and Fitch, Staples and Gap have also made their intentions clear to divest themselves of large numbers of stores over the coming years. Over half of America’s 1165 malls are purportedly “not working” and some analysts are predicting that 700 or more will close by 2030. Rental rates on Madison Avenue have fallen by 3% on last year. All this at a time when online pureplays are reported to be seeing revenues rise by an average of 15% a year and online sales increased by 15.2% year-on-year in Quarter 1 2016.
Let’s just take stock a moment and put all of this into context. The growth in online sales comes on the back of a small overall market share (6.9%). Transactional websites have been with us for over 20 years – so the rate of uptake has not been as rapid as many believe. The truth is that e-commerce often fails to provide a great shopping experience; there remains too much friction in the online process of shop, buy, pay. In a recent survey of 600 online retailers almost half the sites were found to be difficult to shop.
Lifting the covers higher, we discover just as much evidence about the healthy status of physical estates as to the contrary. A recent survey of 150 retailers by CBRE found that an overriding majority (83%) are not changing their store expansion plans on the back of the growth of e-commerce. Neither should we believe that e-commerce is retail’s new golden egg. Even if a retailer succeeds in attracting traffic to its website it can struggle to make enough money to recompense the loss of store sales. Another 2016 study (Retail TouchPoints) revealed that twice as many US retailers (48%) are planning to add stores to their estates as reduce their physical footprint (24%). Furthermore, increasingly more former pureplay retailers including the likes of Amazon, Birchbox, Bonobos and Warby Parker have begun opening stores to strengthen their position and benefit from the halo effect of having a bricks-and-mortar presence.
There was a time when a linear relationship existed between opening stores and growing revenue. Clearly the digital world has put an end to that, but it doesn’t sound the death knell for the physical store. Retail has always evolved and it continues to do so. The role of the store is being re-thought: less as the space in which goods and money are exchanged, and more as an experiential hub and engagement centre, there to generate sales across all retail channels – online, mobile and in-store.
For some retailers a consequence of the shift in shopping behaviour may leave them over-spaced. This is the case for the likes of Sears and JC Penney. For others, such as Target, Walmart and Kohl’s, it’s more a matter of right-sizing, often towards smaller formats. For all retailers though, one thing still holds true: success is predicated on having stores in the right locations. And one of today’s most valuable metrics in site location analytics is people counting data, constantly monitoring the popularity of stores and retail centres to optimise the composition of physical estates.
The end of the bricks-and-mortar retailing is nigh? We’ve been here and heard it all before: in the dot.com boom, retail was one of those industries that was set to be obliterated by the online revolution. It didn’t happen then and it won’t happen now.
For more information, visit www.ipsos-retailperformance.com.
Dr. Tim Denison, Ipsos Retail Performance.