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Is Brick-and-Mortar Retail Dying?

Posted by Sam Lowder on May 3, 2017 8:00:00 AM

All it takes is a quick Google search of “retailers closing” to discover news story after news story about retail chains large and small experiencing shrinking sales and closing locations. Yes, big chains like Macy’s, JCPenney, Sears/Kmart, Payless ShoeSource, and others have been shuttering stores. Some analysts and journalists have dubbed the last few years the “retailpocalypse” and are actively predicting the demise of brick-and-mortar retail. But is retail dying?  Let’s look at some of the reasons behind recent store closures to accurately answer that question.

The birth of e-commerce and big consumer changes

The most obvious change that’s hit the retail industry hard is the rise of internet shopping and the sea change in consumer buying patterns. Amazon.com was born in 1995, making shopping more convenient and personalized than traditional shopping, and what has transpired since has been pretty revolutionary. Last year, eMarketer reported that total retail e-commerce sales would reach $1.915 trillion in 2016.

It isn’t just the emergence of e-commerce/online shopping that’s impacted the retail industry, of course. There has been pressure on some publicly traded retailers to grow and expand at an unsustainable pace, sacrificing their long-term viability for short-term gains (and a boost in stock price). Often, rapid expansion causes retailers to perform less due diligence when choosing sites, resulting in stores opening that should have never passed the site selection phase—and bad site decisions have plenty to do with why stores fail. Real estate everywhere has become more expensive too, which means a poor site decision is that much more costly.

Still, shopping centers will always exist

Despite all of the changes in the retail industry, the fact remains: physical stores will always have a place in the market.  There is an important human aspect that is irreplaceable for certain shopping experiences, and some industries such as grocery, home improvement, home furnishing, mattress, and automotive will always appeal to consumers as a physical vs. an online experience.

There are plenty of success stories in the bricks-and-mortar space too, especially among companies that embrace innovation and strive to put their customers’ desires at the heart of their business. Take off-price giants like TJX and Ross Stores, which have built a reputation for being convenient, inexpensive, and something of a “treasure hunt” shopping experience. In February, the CEO of TJX, the company that owns T.J. Maxx and Marshalls, said that it could open 1,300 more stores in North America. The company has 1,000 more stores than it did six years ago.

Retail is here to stay

So, is retail dead? In our opinion, no. But it is definitely evolving. Just this week, Forbes published a great opinion piece titled “Five Reasons Why ‘The Retail Apocalypse’ is a False Scare Story,” and it makes some valid points. Three of their reasons that shatter the notion that retail is reeling are particularly poignant:

  1. Retail sales are up. By 4.1% in Q1 2017, to be exact. That’s following the holiday season of Q4 2016 and does not include the Q2 Easter holiday buying spike.
  2. Most of the chains closing their doors have seen problems building for decades. Sears and Kmart have wrestled with an identity crisis for many years, and quite frankly, were too slow to change. Specialty retailers like Wet Seal and The Limited didn’t keep up with changing tastes and times. And J.C. Penney’s target customer has long been aging out of the market entirely. Is it fair to say that all retailers are dying when many of the big names in the news are ones that have been struggling for years?
  3. There are thousands of retailers opening in 2017. IHL Group recently researched store growth and found that 19 retailers have plans to open 2,861 new stores in 2017 (and certainly, there are many other). Their list includes stores like Dollar General, Dollar Tree, Ross Stores, T.J. Maxx, O’Reilly Auto, Ulta, Target, and Sprouts. Yes, stores are closing, but stores are opening too—for brands that have innovated and/or kept pace with evolving consumer demands and preferences.

The media likes to make a big deal about the death of retail, but when you look at things objectively, it’s just not true. Store closures have always happened and always will happen, but it is pronounced today due to many overbuilt markets. Bottom line: retail isn’t going anywhere, but it is indeed different than it once was.

Why retailers MUST adapt to consumers’ changing needs

Today, retailers must reinvent themselves for the digital consumer and tailor their businesses to meet their needs, whether those needs are engagement, convenience, or an exceptional shopping/buying experience.

Shoppers today are different than the shoppers of yesterday, after all. Millennials, who will grow to represent 30 percent of annual retail sales by 2020, seek bargains and tend to browse merchandise at a store and then comparison shop online. Shoppers of all ages seek an easy shopping experience, and many expect that their smartphones and computers will augment their purchase, whether they buy online or in person. Retailers that understand these behaviors and adjust their strategies to deliver the shopping/buying experience that consumers demand will survive—and thrive. Those who stick to their old ways…well, we’ve all seen what happens!

As PwC said in their recent report, The new retail ecosystem: From disrupted to disruptor, “While the store of the past may be dead, retailers are already adapting to a new retail ecosystem. In this retail ecosystem of the future — a combination of physical, digital, and complementary service offerings — stores tailored by location and demographics become part of the consumer’s broader shopping experience.” 

The importance of choosing the right store locations

If you’re growing, one of the keys to success is choosing the right locations. A bad location can lead to lost revenue and bury you into a hole that is tough to dig out of. As you choose locations, you must know your customer. Learn everything about their behaviors and preferences and choose your sites based on where they live and work. Then, continue to analyze their behaviors so that you can market to them appropriately and ensure you are delivering what they’re looking for as they move through changing life events and to and from new places.  

Bottom line: never stop doing your homework. Understanding your customers should be part of doing business, and the minute you stop doing so is the minute you risk becoming irrelevant to them. Merchandising shouldn’t be stagnant. As we’ve all seen throughout the Information Age and the emergence of the digital world we now live in, consumers and the world are evolving every day. Retailers that recognize that and adapt accordingly to what today’s customers need and want are the ones you can expect to see growing and succeeding.

Topics: Retail Data Analysis