I recently had an in-depth conversation with Brendan Witcher, principal analyst, digital business strategy at leading global research and advisory firm Forrester, about the outlook for retail, which, as we’ve all heard, appears rather bleak. This year alone, 5,300 stores have closed, up 218% year-over-year, with no slowdown in sight. Analysts predict that store closings in 2017 will exceed the record high number of closures in 2008 at the start of the Great Recession.
But one surprising data point:, there have been 3,262 announced store openings in 2017, up 53% over last year. While The Limited, RadioShack, Payless and Gymboree were closing doors, Dollar General, Aldo, Ulta, and Sephora are opening stores across the U.S and e-commerce giant, Amazon, is building out its retail capabilities with its acquisition of Whole Foods. Here’s the bottom line; consumers haven’t stopped shopping, they’re shopping differently and that’s what’s propelling this retail revolution.
A convergence of factors led to the decline of retail. First, the marketplace was overcrowded. Too many stores selling similar items failed to attract consumers and the thrill of discovery and excitement associated with shopping was lost. Second, deep discounting practices used to entice consumers during the Great Recession taught shoppers that they no longer needed to buy items at full price. Simultaneously, consumers began to lose interest in things and invest in experiences. While this fueled the growth of the restaurant and travel industries, retailers suffered. Next, e-commerce (specifically Amazon) made it easy for consumers to shop with the tap of a finger. Mobile accelerated e-commerce as it made it easy to shop anywhere, anytime. Finally, disruptors (fast fashion, subscription boxes) changed traditional business models and make it harder for retailers to compete. Struggling retailers have been trying to stay afloat, reinventing their brands, developing an omnichannel strategy, and creating consumer-centric in-store experiences. Although some have been successful, many are still trying to find the formula that works.
What Successful Retailers Are Doing Right
Don’t start counting brick and mortar stores out yet! Researchers have consistently found that consumers still do the majority of their shopping in-store. Even among teens, more than half say they prefer to shop in-store rather than online. Digital has yet to re-create the experience that retail brands offer consumers—the ability to immerse themselves in a retail brand’s multi-sensory store environment. Retailers who are getting this right are creating seamless omnichannel experiences across digital and brick and mortar environments.
Who is getting it right…and why? Sephora has mastered the art of integrating the online/offline experience by inviting mobile technology into the store through their app and augmented technology. Ulta expertly mines data to better understand their consumer and give her exactly what she wants. Starbucks’ social engagement drives excitement about their products while their app makes it easier and faster to get your caffeine fix (and rewards you for it too). Home Depot keeps do-it-yourselfers engaged through content, alerts, messages, and personalizing the in-store experience.
Even young, digital-first brands are choosing to open retail stores—they’re just doing it creatively. Sugarfina, a candy e-tailer for grownups, designed their stores with Instagram selfies in mind. Warby Parker disrupted the eyewear industry by selling lower-priced quality products via e-comm, but still chose to open retail stores that seem constantly packed. Finally, Away, a luggage brand aimed at Millennials, is building community through a shared passion for travel and investing in pop-up stores in key locations where they invite the local community to gather for music performances and other experiential events.
Malls Aren’t Dead Either
There’s been much ado about the death of the shopping mall, but malls aren’t dead, they, like retail, are reinventing themselves. Prosperous malls tend to be located in high-density, affluent or tourist markets and have grown sales at a double-digit rate over the past five years. Malls in rural areas are transitioning into community gathering places, often housing medical and other sports/recreation facilities. While the category may shrink over the next few years, many are being reimagined as experiential spaces, ushering in a new era of the American mall.
The Future of Retail
Where does this leave us? Stores need to fulfill a greater purpose than simply selling merchandise. Creating community through content and human connection offers potential for brands and allows consumers to build authentic relationships with brands.
Source: Fung Global Retail & Technology, Deep Dive: The U.S. Retail Revolution Solution