Are Apparel Retailers Shooting Themselves in the Footprint?

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\"\"The Shift To E-Commerce May Be Too Much, Too Soon

On a recent afternoon I spent 20 minutes doing errands that a year or two ago would have taken me about eight hours to do.

Instead of jumping into my SUV and taking multiple trips to various big box and discount stores in my town, I strolled into my home office, powered up my trusty PC, and “went to town” in a different way. With a few clicks of a mouse I bought two or three carloads’ worth of stuff ranging from garden tools and patio furniture to office supplies and groceries.

Most of my purchases were made on pure-play e-commerce sites. Comparison shopping helped me get very good prices and free delivery. One category of merchandise failed to figure into my flurry of e-consumerism, however: I did not buy a single stitch of clothing. I am one of those people who prefer to shop for clothes in brick-and-mortar stores. I need to see, feel and try on clothes before I buy them to make sure they fit, look good and meet my quality standards. I do not trust computer monitors to accurately display important details like fabric, color, drape or weight.

It turns out I am not alone in this. According to e-commerce intelligence firm eMarketing, total U.S. e-commerce sales rose to $200 billion last year, or 7% of the total retail business. It is estimated that the portion of total apparel sales purchased online is much smaller—by some estimates only 5%. Making matters worse, returns of online apparel sales are as high as 40% for some retailers.

Online apparel sales, though growing, remain a relatively small part of the business because consumers need to touch, see and try on. Sucharita Mulpuru, analyst with technology powerhouse Forrester Research, feels that “the in-store experience remains a critical part of the buying process for discretionary items like apparel.”

The exception to this, according to Mulpuru, are flash sale sites like Gilt Groupe and Rue La La, which continue to enjoy meteoric growth. There, the spontaneity afforded by the Internet is the experience, and customers are all too willing to forego trying-on for the thrill of the hunt.

I recently asked a group of trade show seminar attendees, most of whom were under 40, if they were frequent online shoppers of apparel. To my shock, no hands went up. I then asked (to make sure they were listening) how many hated shopping for clothes online. All the hands went up.

The problem, they were only too happy to explain, is that unless you already know that a brand looks good on you, and what size you wear in that brand, and the fabric quality standards of that company, your chances for dissatisfaction with an online clothing purchase are pretty close to 100%.

One woman told me, “It takes all the fun out of clothes shopping. I look forward to coming out of the dressing room and hearing the feedback from others. I like to have the cashier wrap up my purchase in tissue paper and place it in a nice bag and hand it to me, and then get to walk around carrying the pretty bag. Internet orders arrive in cheap plastic bags in cheap brown paper envelopes.”

One man in the group told me that “Although buying clothes online seems convenient at first, once you find out the item doesn’t fit, you have to pack it back up and haul it back to the post office, or call UPS for a pickup. Suddenly it’s not so convenient anymore.”

And forget about impulse purchases. Another attendee was turned off by the lack of inventory during a recent trip to a Gap store. “I needed a pair of khakis for an event that night,” he complained. “They had three pairs of khakis, which of course were all extra large. The sales clerk told me I could order my size online in the store for free shipping to my house. That didn’t help me since I needed them right away.”

Despite complaints by the many industry and lay people I read about and talk to, though, e-commerce is an increasingly important focus for apparel companies. Every major apparel retailer is crowing about its double-digit online sales growth. According to eMarketer, although apparel lagged for years behind other categories in online sales growth, it’s now growing faster than any other e-commerce product segment. Over the last four years, online apparel sales growth has accelerated—from 10% in 2007 to over 20% in 2011. Some industry experts are forecasting that it will represent almost 20% of total apparel sales by 2016.

However, the growth numbers don’t tell the whole story. Just because a consumer buys a product online doesn’t mean he or she didn’t see it in a brick-and-mortar store first. Perhaps the store didn’t have the desired size or color, so the shopper ordered it online—maybe even from his or her smartphone while still in the store. Or the consumer found the item at the store initially, tried it on, and loved it, but waited until it went on sale to order it—online. Or perhaps after discovering the product at one store, and “showrooming,” (using a mobile device to search the web for a better price while shopping)—she bought it elsewhere. Since it’s virtually impossible for stores to track this kind of activity, they credit their increased e-commerce sales to exceptional website design, rich customer e-mail lists, and cutting-edge social media.

What’s particularly disturbing to us brick-and-mortar loyalists, however, is that as online sales grow, many apparel retailers are beginning to reduce their store count and average store size, making the in-store experience less compelling.

One mall developer (who requested anonymity) said there isn’t a major specialty store chain today that isn’t frantically trying to cut its total physical footprint. “Everyone’s desperate to cut expenses, and store occupancy and labor costs are the biggest line items. Right now I’m being asked to renegotiate leases even before the term is up. We don’t want to lose important tenants, so we’re being forced into flexibility and concessions we wouldn’t have dreamed of five years ago.”

Specialty chains Gap, Old Navy, Ann Taylor, American Eagle and Destination Maternity have dramatically reduced their store count over the past two years. Last year Ann Taylor reduced the square footage of almost 20% of its stores by 30 to 40%, a project it plans to continue in the next couple of years. Many department stores are doing it as well, citing the need to “localize.”

The apparel market isn’t growing, so its brands and retailers can only increase revenue by taking share from competition in what is arguably the most competitive environment in the history of soft goods retailing. The successful ones do this by staying top of mind with their target customers, by delivering their offerings faster, better, cheaper and with the best customer experience.

Instead of investing in a compelling in-store environment that engages consumers in an emotional, neurologically connecting way, some retailers are making the mistake of trying to do too much with less. They’re cutting store-level inventory (assuming customers will order out-of-stock colors or sizes online while still in the store), making stores smaller, and moving away from the in-store merchandising techniques that really enhance the shopping experience. Many are claiming that since e-commerce is their fastest growing channel (even though it’s still a very small portion of sales), they’ve chosen to invest more into web stores and online technology and less in store design, rent, store labor and all those tangible elements that contribute to the in-store experience. This is a shortsighted and very dangerous direction. When consumers spend the time and gas to visit a store, they want it to be worth it, or they might not come back. The in-store experience enhances the brand proposition for all customers, regardless of whether they prefer online or in-store shopping.

Are more consumers buying online because they want to, or because they have less choice? Are apparel retailers reducing their physical selling space because of the consumer’s preference toward e-commerce as a shopping channel, or is this a financial strategy in search of justification? Are brands prematurely pushing the consumer to e-commerce by closing some stores and shrinking others?

If so, then this strategy could backfire in a major way, tarnishing brands and sending customers to the competition faster than you could click a mouse.



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