You can’t avoid it in business news. These are the major stores that we think of as the cornerstones of our malls across the country. Hundreds of their doors closed in 2016, and there are already announcements this year of significant closures among some of the largest retailers. Ecommerce is seen as the savior of the lost revenue.
Some of the nation’s oldest and largest retailers continue to close stores by the hundreds
Macy’s is planning to close 100 stores, about 15% of total, with 68 stores specifically announced already.
Sears is denying the rumors of bankruptcy, but closing 150 (more) KMart and Sears stores this year.
JC Penney just announced they will close 130-140 stores, 13-14% of total.
These stores are the retail representatives of the previous generation. They thrived in a time when the only options were to order by catalog or have the ideal retail experience by walking into a department store and spending half a day shopping. There is still nothing quite like a real-life shopping trip. That’s especially true for sensory items that are best experienced through touch (like blankets) or smell (like fragrances). But the experience is less and less appealing to consumers.
Consumers WANT a good brick and mortar shopping experience
While it is still statistically preferable to shop in person for the touch-and-feel experience, much of consumers’ satisfaction is driven by personal interaction. If they are able to find a store associate, and if that person offers useful expertise, consumers are more likely to purchase, and feel good about it. But shoppers are less likely to find anyone to help them at all – or to find associates helpful – and often leave stores empty handed and frustrated as a result.
More than 80% of consumers research products before entering a store to potentially buy them, according to Salesforce.
48% of those consumers said they believe they are more knowledgeable about the products than the store associates and 67% don’t trust associates to tell them the truth!
Worse, a consumer study in the UK determined that 71% of consumers feel they know more about the products they are shopping for than store associates.
All of this turns the retail stores into more of a showroom than a place to purchase. Consumers do want to hold an item in their hand before buying. That is (almost, almost) impossible online, but stores are still there, stocking the goods for shoppers to check before checking out. And walking into the store always offers the opportunity for that valuable upsell, on which retailers heavily rely.
The problem is in seeing digital commerce as completely separate from brick and mortar
Warby Parker began as an online-only eyeglass business in 2010. Its first retail store opened in 2013 and there are currently 47 brick and mortar locations, and still growing. Shoppers can buy online or in stores. They can walk into any store and have their glasses instantly adjusted. They can order a free try-on box to “touch and feel” at home before buying.
Neil Blumenthal, one of WP’s four co-founders, made a statement in 2013 that was misinterpreted by many. He said “E-commerce as a term will become obsolete in five or six years.” Some digital folks balked, assuming he had suggested that online sales were somehow going away. Instead, his point was simply that seeing commerce as EITHER online or off was a death sentence for retailers. Blumenthal’s point was that it’s all just commerce, and he believed that understanding this was the only way to remain successful.
Even the biggies make the mistake of building silos
When Walmart entered ecommerce, it created a separate headquarters in another state with its own leadership. The buyers for digital were not the same buyers for in-store goods, and inventories were not shared.
Walmart has, arguably, the most impressive physical presence of any retailer in the country. Walmart spokespersoian Nick said in 2015 that “Walmart is within 5 miles of 70% of the U.S. population.”
I’ve read statistics over the years that vary from 15 miles/90% to 5 miles/85%. The lower number reported above may be stores having opened since then or having closed before then, faulty reporting, or my faulty memory. Nonetheless, this is something worth boasting about. More than that, it’s a massive opportunity.
Rather than separating the online and offline channels, Walmart’s greatest opportunity is in leveraging that infrastructure. If they treated it more like a DC and less like a retail floor, those locations might become more profitable, reducing shipping costs, and bolstering sales in store and online. Instead, they have historically thought about them as separate. This is a losing perspective for these chains that are so rooted in brick and mortar.
Walmart’s recent acquisition of Jet and – more relevantly – its founder, Marc Lore, gives me hope. Lore is clearing out the digital execs and is now overseeing all ecommerce for Walmart. Plans are underway to finally leverage the stores within the ecommerce ecosystem. It will be interesting to see where he takes the channel. This is the most promising move Walmart could have made to bridge the gap between their channels and get on top of ecommerce.
Forget Omni-Channel; Remember Blumenthal
Big box retailers want to be “omni-channel.” They may understand that this means acknowledging that customers are channel agnostic – they don’t think about switching from a website to a store to a phone call to another website in their path to purchase. They just wander through their process until they ultimately, hopefully, buy. Many large chains have embraced this by offering services like in-store pickup or free returns to store, which are some of the most common ways to bridge the digital-to-brick gap.
But they can’t stop there. When online inventories and in-store offerings don’t matchup, the crossover is limited and frustrating for consumers. When there is more helpful information to be gained from strangers assessing stars on a web page than from the supposedly trained and knowledgeable in-store staff, stores are reduced to showrooms and websites are reduced to comparison-shopping search engines.
Until more retailers understand that the lines between digital and the rest of the shopping world are forever blurred, they will be left behind, struggling to understand why their stores continue to fail.
Stores are still an asset in a digital world
It is reasonable to hope that the store closures are simply a way for retailers to refocus their efforts toward digital. However, if the full shopping experience of the channel-agnostic customer is about the interplay of these channels, reducing the stores is not necessarily a win.
JC Penney states in the above article from Home & Textiles Today that 75% of their online orders touch a store in some way (such as “ship from store” or “in-store pickup”). Three quarters of all digital orders! Those orders may never have been placed without those options. In-store pickup is an obvious convenience for the consumer. It’s not a big leap to imagine that losing local stores could chase off some of those conversions from customers who wanted their orders faster or were not willing to pay for shipping.
But shipping from the store is something consumers might not even realize is happening. It’s a perfect example of a way large retail chains can leverage their infrastructure.
Imagine the opportunity for Walmart. If every store were also a DC (with shared web/store inventory) it would suddenly have fulfillment centers within 5 miles of the vast majority of its customers! There is some evidence they may be shifting their thinking this way now, as the above Fox article suggests using drones to deliver locally from stores.
Now imagine what the loss of stores might do to JC Penney’s numbers.
It’s not news to some
Another retailer that has suffered a reduction in doors is Best Buy. However, they have been less aggressive about it because, according to former Chief Financial Officer Sharon McCollam, “brick-and-mortar plays a critical role in digital shopping. About one-third of Best Buy’s online orders are picked up in its stores.” (https://www.thestreet.com/story/13690060/2/best-buy-slows-closures-as-stores-seen-key-to-digital-shopping.html)
Retailers are beginning to see the full picture shopping experience between digital and stores, it appears. But stores are expensive, and when digital is seen as the competition, it’s a losing battle.
Digital is the reason for store closures
Many retailers cite growing competition from online retailers as a reason for closing stores.
Macy’s: “The closures were part of a previously announced cost-cutting initiative to help the retailer restore profitability amid heavy competition from online retailers.” (Source)
JC Penney: “We believe closing stores will also allow us to adjust our business to effectively compete against the growing threat of online retailers.” (Source)
The message is: we’re losing brick and mortar sales to e-commerce. While some retailers’ digital businesses show growth, many are under-performing to plan.
Yet still, it is very common to hear similar rhetoric from retailers when they announce more stores will go. They frequently echo the mantra that with store closures comes anticipated upticks in digital sales.
As stores close, the pressure is on digital
As large retailers go through these rocky periods of reduced retail locations and mass layoffs, the effects are palpable for vendors. Brands and manufacturers who sell into stores feel the pinch. Every closed retail store contains unsold merchandise that has to be moved, reallocated, or hastily sold off. Warehouses carry more inventory than retailers want to have on hand, and vendors can feel it in reduced demand.
Those of us drop shipping for retailers experience it in a different way. I have personally had retailers going through this refuse to add any new items to their online assortment as they struggle to sell off their excess owned inventory. This is an unusual position for a retailer to take. Historically, it’s a constant request for newness – a perpetual need for more. Drop ship goods don’t require a commitment from the retailer. Adding products just allows them to grow their assortment and garner more sales without taking on the inventory risk. But when sales are slow and they are overstocked in the inventory they own, it’s not worth the risk. Adding items might cannibalize sales of their goods on hand. That is a meaningful shift to experience.
When goosing ecommerce sales is a slippery slope
These are the retailers that close stores by the tens and hundreds, while expecting significant increases in online sales volume. It’s no wonder. If the primary reason for store closures is that more sales are moving online, it stands to reason that these giants of retail should be winning those digital sales.
If nothing else, they are desperately hoping for those digital upticks. They have to make up the lost brick and mortar revenue somewhere. When the position feels that desperate though, it’s likely to mean heavier discounting online. This only increases the consumer perception that they are closeout shops. That position depletes the perceived value in the retailer and its goods.
This is a problem Macy’s has experienced for some time. Stores are increasingly seen by consumers as a place to find the clearance section. The high end shopping experience is fading. My local Macy’s store has been transitioning more and more real estate to clearance racks. At this point, it feels like throwing money away to shop in the other, shrinking departments.
Where is big-box retail headed?
It’s a good sign that we’re getting onto the same page. Digital is inevitable, and stores alone will not keep a retailer afloat. It seems we’re not quite there on the rest, though. For major retail chains, physical store locations are also still critical.
On a profit-per-square-foot basis, it’s tough to keep a roof over stores if they slide into a role as a showroom for online sales. But stores play an important role to the consumer, and should factor more prominently into retailers’ digital strategies. Those perceived divides between e-commerce and commerce don’t exist for consumers, so retailers have to break them down too.
A store isn’t just a retail location. It’s a distribution center for online sales. It’s a place for consumers to pick up their web orders. It’s an easy in-and-out for returns of online purchases. Maybe pick-ups and returns can be made in lockers or in a drive-through. Perhaps there is a healthy opportunity for upsell or even an offer toward future web orders.
It will take creativity and imagination for sure, but most importantly, it will take acceptance that digital sales won’t make up for lost store revenue in a vacuum – rather, the combined strategy must embrace the full path to purchase for the channel-agnostic consumer.