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Retail Isn’t Dead, But It Does Need To Adapt

2017 June 7
by Greg Satell

It seems like there has never been a worse time for retail. Sears looks doomed. Many other large retailers, including J.C. Penney and Macy’s are closing stores and even fashionable boutiques like BCBG Max Azria are filing for bankruptcy. CNN reports that store closings this year are already outpacing 2008, the worst year on record.

Yet take a broader view and things don’t look so bad. Apple’s stores have been a hit and a number of digital companies, like Amazon, Warby Parker and Bonobos have been opening brick and mortar locations. Sure, e-commerce is growing, but the Census Bureau estimates that it still accounts for less than 10% of total retail.

As Darrell Rigby explained in an article in Harvard Business Review, every 50 years retail goes through a major disruption. The rise of urban centers led to department stores. Automobiles created suburbs and shopping malls. Then category killers and discount stores challenged that status quo. Today, retail is in the process of being reinvented once again.

The Consumer Context

Clearly, over the last century retail has changed a lot, but if you analyze the trends, success comes down to three factors: Convenience, spontaneity and experience. Department stores brought everything under one roof, malls catered to suburban shoppers with cars and now digital commerce enables people to make a purchase while waiting for their dry cleaning.

Each of these formats then needed to be made not only functional, but immersive. Department stores invested in elaborate displays. Malls created food courts, playgrounds for kids and held events. Online shops learned to measure the effect of every pixel and button. Today, retailers need to adapt to the current context.

Melissa Gonzalez, CEO of The Lionesque Group and author of The Pop Up Paradigm, told me, “A shopping experience used to be an event centered around the store, but with the rise of digital commerce that’s no longer true. Today, retailers need to think about how they can operate within the consumer’s context, whether that be in store, online or in a pop-up environment.”

So the key to survival has less to do with mindless debates about “digital vs. brick and mortar” than it does about putting customers at the center and building out operations that can service them effectively.

Embracing The Customer Mindset

Traditionally, the core purpose of a store was to drive transactions. People shopped primarily to buy stuff. That’s why so much of the floor plan, labor and customer interaction was centered around the cash register and metrics like sales per square foot and average transaction size were used to measure success.

Today though, customers can go to a store to browse, get advice and then make a purchase online. This trend, called “showrooming” is cited as a factor in the decline of brick and mortar stores. Retailers investing in physical locations and paying for rent, utilities and staff get killed every time someone walks into a store and then searches for better prices on their phone.

When customers can make a purchase from anywhere, retailers need to switch their focus and give customers what they really want. “Don’t fight showrooming, embrace it,” says Gonzalez, She points to Bonobos Guide Shops and J. Hilburn’s “The Studio” as a model, There customers can get fitted, consult a stylist and process returns just like in a standard store.

However, there is a crucial difference. You can’t actually take a purchase home. These are “shoppable showrooms” that don’t stock inventory, but provide the experience and service that customers want. That allows for smaller stores and big savings on the rent and labor expenses it takes to manage transactions.

Creating The Experience

When so many customers prefer to make purchases online, the old metrics focused on in-store sales clearly no longer suffice. Today, retailers need to measure and improve the in-store experience and there is a wide array of technologies that can help.

For instance, Gonzalez recommends that the fashion retailers she works with use RFID tags to track products on the floor. That can help retailers learn whether customers are simply not showing any interest in a particular item or whether it being taken to the dressing room and then discarded. These data trends can be investigated further by talking to floor staff and a strategy to improve sales can be devised.

She also sees great results from sensors within the store that can be used to generate heat maps to improve the store layout. Are people stopping by a display and not making a purchase or is it simply not getting noticed? Touchscreens can also be used to investigate what information customers most want to know about a product.

Finally, a variety of strategies, such as in-store and curbside pickup can be used in physical stores that can support online sales. Another option is to use a service like Postmates to facilitate same day delivery from store locations. In the end, it’s all about optimizing the experience, regardless of where the transaction actually takes place.

Dealing With Disruption

In The Innovator’s Dilemma, Harvard professor Clayton Christensen explains that when new technologies reshape the marketplace, customer needs shift and there is a change in the basis of competition. The response of market leaders is, all too often, to try to increase efficiency and get better and better at things people care about less and less.

That’s how you get disrupted. You become a square-peg business in a round-hole world. Clearly, this is what most retailers are facing today. They act as if they are still operating in an environment where the function of a physical store is to drive transactions, rather than to provide an immersive physical experience, build personal relationships and upsell.

The good news is that the opportunities are endless. Apparel retailers can become style guides. Toy stores can become playrooms. Electronic retailers can demo the newest gadgets and help even the most tech averse customers adopt technology that will enrich their lives. The best part is that these strategies can also reduce inventory and rental costs while at the same time expand reach to smaller urban locations and pop up shops.

So the rumors of retail’s demise have been greatly exaggerated.  Retail isn’t dead. It just needs to be reinvented once again.

– Greg

 

An earlier version of this article first appeared in Inc.com

4 Responses leave one →
  1. June 10, 2017

    With the rise of the new technology, not to mention the fact that it’s constantly changing-adjusting to the needs and wants of the consumers, it’s definitely a no-easy challenge for retail. I think in order to stay on the competition, it needs to find a platform where it can thrive. In today’s world of business, it’s as simple as you stay or you go.

    [Reply]

    Greg Satell Reply:

    Hi Wellington,

    I’m not sure this is an issue with platforms. After all, most traditional retailers have platforms similar to that of digital natives. It’s more of how they see their business. If you see physical locations as a way to drive transactions, you run your business one way, but if you see physical locations as a way to service your customers and provide an experience, you will run it differently.

    – Greg

    [Reply]

  2. June 11, 2017

    Thanks Greg. It is true that retail is changing, a lot. It is also true that technology is providing a new path toward understanding and serving the customer personally. It is also true that most retailers have long term leases (put there to protect themselves) that limit much of what they may need to do.
    Now retailers are indeed seeing change, but more like 50 years of change in just a few years. For many, it is not that they do not understand what is needed, but lack either the funds or the flexibility to do so. Of course, many have hung back hoping the digital tide would not affect them, but even those closer to the front of the wave have structural issues.
    If you had a big box store to try to convince the shopper there was no need to look elsewhere you know the smartphone provides more search and selection than you can provide in even the largest format. Still, you have the real estate and cannot get out of it. As we know, many of the largest stores have no blackout clauses in their leases and so we see degrading Sears, and somewhat empty isles in places. We may wonder what management is thinking, and in many cases they are doing a lot (such as at Best Buy), but still need time to transform.
    The biggest error of course is to give up, to determine you cannot do it but it will take perseverance to get there and results will be “tested” along the way.
    Human beings need physical interaction to understand things in many cases. Retail provides that for people. How big things are, how much they weigh, how convenient, or easy is not always something that text on a page or a digital picture can convey. There is plenty of life ahead for retail, but not in the same old way.
    Change brings opportunity. Vive la difference! And good luck to all.

    [Reply]

    Greg Satell Reply:

    Great points Robert. Thanks!

    – Greg

    [Reply]

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