We’ve heard “retail is dead” shouted from the rooftops for the past several years, and the waves of retailer bankruptcies and store closures would seem to support this notion. In fact, the final Toys R Us locations will close this week, the latest in a string of closures in recent years.
Here’s the thing: Retail is transforming, not dying. We’re witnessing the evolution of retail into something quite different, but don’t mistake change for “death.”
The old retail model (where all consumers bought nearly all items purchased within a brick-and-mortar retail store) is no longer a valid market model. The accelerating development of the internet and wireless technologies, the maturation of online retailers and the acceptance of online shopping by consumers have combined to create options for consumers that simply didn’t exist before, creating Amazon and other marketplaces.
Speaking of Amazon, those guys are on fire. In the 4Q 2017, Amazon reported $1.86 billion in net income – in a single quarter! From Amazon’s initial IPO in 1997, it took the company more than 14 years (from 1997 until 2011) to earn that same $1.86 billion. From a retail benchmark standpoint, Amazon reported year-over-year (YOY) revenue growth of an astonishing 43%. Many traditional retailers would be thrilled to achieve YOY growth of even 1/10th of that amount.
Seeking to leverage the core Amazon shopping model, Wal-Mart has invested heavily in development of Walmart.com, which provides online purchase and home delivery services, and is emerging as a serious competitor in this sector. But wait – Wal-Mart has retail stores, aren’t they competing with themselves? Well maybe to some degree, but consider the revenue they’re gaining with Walmart.com, rather that cannibalization of physical store sales. Every Walmart.com sale is a sale that our friends at Amazon don’t make – Wal-Mart is competing with Amazon in e-commerce, but with an important twist.
Wal-Mart’s huge base of physical stores is a tremendous asset in their online retail model. Think about it – with thousands of stores, an existing and highly effective distribution and supply chain structure in place, Wal-Mart is effectively pre-positioning its products in your neighborhood store.
Why struggle with a cart through a crowed store to buy groceries? Now, busy families can place their order online, make an appointment, and simply stop by the store. Shoppers don’t even need to leave their vehicle – a designated team of employees shops your order, has it ready when you arrive, and employees load your groceries into your car! All while you’re Facebooking in the front seat.
But wait – millennials are the biggest force in retail today, and they all shop online. This is surely the final nail in the coffin for retail, right? Not so fast, my friends. According to a recent survey by TotalRetail (1,000+ consumers), millennials visit physical stores MORE OFTEN than baby boomers and Gen Xers. In fact, 56% of millennials shop at least once each week in stores, not including grocery stores and convenience stores. Final score: Millennials 56%, Gen Xers 44%, Baby Boomers 27%.
There will always be something special about seeing, holding, and comparing physical items in person, particularly clothing, shoes, things we try on before buying. Can’t do that online…yet. But there’s also something about shopping as an event – the “experience” of shopping is its own appeal to many.
Further leveling the playing field, the Supreme Court decided this week that states can now require online retail purchases to be taxed in essentially the same way that store purchases are taxed. Not huge to shoppers, perhaps, but this change will take away pricing advantages held by online retailers.
Retailers will continue to evolve and change, likely following Wal-Mart’s model to varying degrees, but incorporating the online experience with what’s unique about the retail experience. Take furniture retailers for example – tough to get that new couch delivered via UPS from Amazon. And what if it’s not right for the space you have in mind, or the color doesn’t truly look quite like that shade online.
Some furniture stores are now developing their own online experience or aligning with specialized companies to provide an answer to questions about furniture shopping that have long been a puzzle. Well, would that fit in the living room? How would it look with that window behind it? Use an accurately rendered 3D model of your home and find out with 3D furniture. There are apps and online interior design firms that do this, and some retailers are incorporating versions of this into the in-store experience – see furniture in person, place it into that 3D model, and see for yourself. Then buy!
The examples and statistics above confirm that we’re still going to shop – retail is not dead! – but the way we shop, the way retailers innovate and position their products and services, is evolving every day.
Retailers will continue to grow, and many to thrive, as this transformation occurs. Retail real estate will likely be transformed as retailers create new retail footprints based around “what shoppers do in the store,” potentially rejuvenating retail real estate as new sites and store types are needed. Developers will create new types of properties that cater to new retail models while inventing new ways to use vacated “old” retail spaces in new, useful, profitable ways.
Retail is not dead. It’s transforming into something new and provides great career opportunities for those with the right skill sets. Visionary leaders, inventive real estate professionals, those with the ability and vision to incorporate various technologies into physical stores and the skills needed to blend a retailer’s online and physical presence will find some new and compelling opportunities to consider.
Retail is transforming, not dying. It offers great career opportunities for talented professionals to jump onboard and enjoy the ride into the rapidly changing future of where and how we shop.