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Amidst all the retail apocalypse nonsense it turns out that physical retail isn't dead after all. Last year some 3,000 new stores were opened and physical retail continued to have positive growth in most major global markets. One of my 14 predictions for retail in 2019 is the notion that, despite the presumed death of physical retail, quite a few major brands are seeing a renaissance of sorts. In fact, stores are striking back against being made obsolete by online shopping in many different and important ways.
A couple of years ago legacy retailers like Walmart, Best Buy, Target and Home Depot were often seen as laggards, soon to be made progressively more irrelevant by Amazon and others. Yet it turns out, to paraphrase noted retail strategist Mark Twain, reports of their death were greatly exaggerated.
A couple of years ago, beyond Amazon's disruptive impact, the future was often thought to be concentrated in the large number of venture capital funded "digitally-native vertical brands" that could scale to massive value creation by avoiding pesky and asset intensive stores. Yet, in a rather ironic twist, a large cohort of the once firmly "we'll only grow online because physical retail is going the way of the dinosaurs" upstarts will collectively open more than 800 brick-and-mortar locations this year. Most are now experiencing most of their growth from good old fashioned stores.
A couple of years ago, many analysts and "futurists" saw e-commerce getting to 50% share within a decade and questioned why anyone would invest in physical stores. But facts are stubborn things, and it's clear we aren't remotely on a glide-path to online getting to even 30%. Moreover, rather traditional retailers as diverse at TJX, Sephora, Ulta and Dollar General are openings dozens upon dozens of stores. We also have retailers like Tractor Supply and AtHome becoming large, growing and incredibly successful brands with an overwhelming focus on brick-and-mortar locations.
So how do we explain all this?
Not every customer is like you. You personally may love the ultra-convenience of e-commerce and hate going to stores. Good for you. But there is a reason 89% of all retail is still done in brick-and-mortar locations. Every retailer needs to respect the differences among consumers and their key purchasing drivers across different occasions. Repeat after me: treat different customers differently.
Brick and mortar trumps e-commerce in many respects. Shopping in physical stores is more emotional, social and connected. Shopping in physical stores allows customers to try stuff on, understand the real look of a given product and get a clearer sense of value. Shopping in physical stores offers immediate gratification. Shopping in physical stores makes it easier (usually) to put more complex solutions together, like a home project or assembling an outfit. It's a digital-first world. Until it's not.
E-commerce is often pretty unprofitable. It's great that investors are willing to subsidize the poor profitability of many disruptive concepts, from Uber to WeWork to Amazon to Wayfair. It won't last forever and many sophisticated companies are starting to lean into the lower cost acquisition and/or distribution costs of physical locations vs. direct-to-consumer. Accordingly their investment decisions and pricing are starting to reflect the underlying economic realities.
There is a big difference between buying and shopping. If you are on a largely search-based mission, item-focused and care mostly about price and convenience, e-commerce works really well. Hence Amazon's strong relative share in these "buying" occasions. You might even get all wild and crazy and use Alexa. But if you are more engaged in discovery, something more emotional and want a more holistic experience, then you are "shopping" and a physical store-centric (albeit digitally enabled) path is often your best bet.
Assets or liabilities? A brand that fundamentally sees their stores as liabilities typically seeks to optimize them--and a cycle of cost cutting and store closings begins, typically initiating a downward spiral. If a brand see their stores as assets, they work on improving e-commerce and digital enablement capabilities and lean into making the stores more relevant. Contrast Sears strategy with Target's. Sears disinvested in stores and will soon be gone. Target shifted many things about its store strategy and simultaneously upped its digital game, while plowing billions into store upgrades and omni-channel capabilities. So have Walmart, Home Depot and Best Buy. Nordstrom has continued its decade long strategy of doing so. It's paying off.
It's all one thing. Brands that are physical store dominant see their brick-and-mortar locations as the hub of a shopping ecosystem. They don't get hung up on a phony battle between e-commerce and stores. The customer is the channel. Online drives stores and vice versa. Their mission is to leverage the best of each customer touchpoint, eliminate the friction, harmonize the experience and amplify the "wows." Rinse and repeat.
Sure, there is plenty of doom and gloom in the retail industry. And the collapse of the boring middle is real--and not about to go away.
