Retail’s Next Chapter

Written by:

Share

Facebook
Twitter
LinkedIn
Pinterest
Email
Print

Macy\’s recent announcement that it is closing more than 40 stores as part of a three-year plan to shutter approximately 125 stores wasn\’t unexpected but was still a huge blow to the retail industry. The 163-year-old department store chain has joined a long list of iconic retailers that are drastically downsizing with several filing for bankruptcy protection. They include Neiman Marcus, JCPenney, Sears and Lord & Taylor, which liquidated all its stores and is in the process of moving to a pure eCommerce operation.

Retail Reformation

These names and others show the breadth of the decline in the traditional retail industry, encompassing luxury stores and traditional middle-class businesses. While the downturn has accelerated during the coronavirus pandemic, this trend was already ongoing coincides with the decline of the suburban shopping mall. Green Street Advisors, a commercial property research firm, estimates that more than half of all mall-based department stores will close by the end of 2021.

Macy\’s Gamble

Macy\’s decision to close one-fifth of its store locations could be the final blow to traditional department stores. Stores will not go away altogether, but many will be largely reformatted in the coming years. The challenge for retailers will be their ability to recreate the store experience and combine it into a seamless omnichannel platform for consumers.

[callout]Half of all sales in the UK are predicted to be through eCommerce by 2025 and 25 percent of physical retail will disappear by 2023.[/callout]

Spacial Concepts

Anne Pitcher, managing director of the Selfridges Group, says the current disruption can provide opportunity. \”Department stores are lucky because they are by necessity big, open spaces, Pitcher told McKinsey & Co. in its state of fashion report for 2021. \”There\’s still so much art, food, culture, conversation, relevance. We\’ve used our cinema non-stop to create conversations. The skate park is still fully booked. There\’s a lot more that people can do in a space than just buy stuff. Being together, even if socially distanced, is one of the main ones. For anyone to go out, there needs to be a purpose and that\’s how we need to think about the way we do business.\”

The U.K.-based retail company controls five department stores: Selfridges in the UK, Arnotts and Brown Thomas in Ireland, De Bijenkorf in the Netherlands and Holt Renfrew in Canada. They are located in historic city centers and are among the dominate retailers in those markets. This means they cater to high spending tourists that are no longer able to travel to these cities because of Covid. Pitcher says the opportunity lies with local consumers.

\”All of our businesses are very local, but there is a huge opportunity to continue to build domestic business,\” Pitcher said. \”You can start with a pretty strong assumption that digital is going to continue to over-deliver on 2020 plans, so [there will be] more investment in digital, more investment in acquiring, attracting and growing a relationship with domestic customers. One of the things we have done well in the past is invite people into the store for events. We\’ve found that we\’ve reached a much wider audience with some of our recent digital conversations, turning them into customers of the future.\”

Rebalancing Retail

At the other end of the retail spectrum, Janey Whiteside, chief customer officer at Walmart, is in agreement with Pitcher.

\”Stores aren\’t going anywhere. I think people are still craving the experiential component of going to the store,\” Whiteside said during an interview at the virtual National Retail Federation \”Big Show 2021,\” held in January. \”What we\’re thinking about is will the next iteration of the in-store experience is going to look like; and when people will want to be in a store. And how can we use our stores to be able to help us become a go-to retailer from what I believe is going to be some of the stickiness of the new behavior around pickup and delivery.\”

Whiteside said that pickup and delivery services has increased by 300 percent and has attracted four times the number of new customers for these services.

\”We saw five years worth of digital acceleration in terms of pickup and delivery in five weeks,\” she said. \”It\’s interesting that the fastest growing segment of customers leaning in to pickup and delivery was the older segment, 65-plus population.\”

Digital Settles In

Although stores are here to stay, ecommerce will become more dominant. Kate Ancketill, CEO and founder of GDR Creative Intelligence in the U.K. sees traditional retail playing a secondary but still vital role in the total retail experience.

\”On the upside we have already adapted incredibly well and incredibly quickly as consumers and retailers to the new normal. The last five months we changed more than the previous five years, maybe the previous ten years,\” she said during her presentation at the NRF event.

She also provided a painful dose of reality in her talk. She cited KPMG figures that predict in the U.K. half of all sales will be through ecommerce by 2025 and 25 percent of physical retail will disappear by 2023.

\”Whether or not it is appropriate in your country to accept the prediction by KMPG, I think we all have to agree that ecommerce has deleveraged physical retail,\” Ancketill said. \”It\’s just the nature of the world and I don\’t think it\’s going to go away. I think we have to start to accept that the trend is towards physical retail becoming the support system for digital and ecommerce. That is not to say it will disappear. I\’m a huge fan of flagship retail continuing for the deep experiences only they can provide. I think the tougher question is what happens to the rest of retail. To the mass retail that is rolled out across big countries and large estates. In that case I think it\’s about integrating commerce and improving fulfillment.\”

Emerging 5G

In particular, Ancketill says that as high-speed 5G cellular technologies becomes more available, retailers will use it to present a richer and more robust online experience for customers, particularly when it comes to live streaming. \”Live streaming is very important to retail. We will keep coming back to it.\”

For example, she says in China where 5G is widely available, live streaming now accounts for 11.8 percent of total retail sales. She predicts this trend will enter the U.S., U.K. and other western countries.

People, Planet, Profit

Innovations that were introduced during the pandemic will continue when life returns to normal as long as they meet three criteria: Provide fulfillment, convenience and conversation services to customers; promote sustainable practices; and maintain sales while rightsizing real estate. She calls it the \”three Ps: People, Planet, Profit.\”

A true store experience is something difficult to replicate online so many ecommerce retailers opened storefronts. However, many of these companies are using their physical stores to attract online sales.

\”Pure players have all been keen on having physical retail,\” she says. \”Physical fills the experience gaps that are hard to fill online. For them a store might be a window to generate more online sales.\”

Innovation Labs

Examples include a pure online South Korean beauty brand, IOPE, which opened a five-story physical presence it calls a \”research space.\” Three floors are dedicated for the public where customers can customize their skincare products with a store employee. The store also has 3D printing capabilities where it provides customized face masks.

Direct sales company, Avon, opened a 19,000-square-foot, two-story space for customer and representatives in Los Angeles. It\’s called Studio 86, which is the year of its founding. Despite being such a challenged sector, opening a physical store provides an inviting and attractive community space for representatives and customers to try new product and for training, Ancketill says. When 5G becomes available live streaming of activities and live tours will be more easily broadcasted throughout the world.

Dealership Shifting Solution Gears

One sector that Ancketill says has been extremely challenged is car dealerships. \”It has been a disaster. Car buyers would rather go to the dentist than go to a car showroom. This sector is one that not only needs to retract but to completely reinvent.\” She adds that other retail sectors are in a similar position.

A new car company addressing this is called Lynk & Co, a Chinese-Swedish automobile brand with six contemporary luxury cars models that is sells directly to consumers on a monthly membership basis. The owners can then rent-out their cars through an app similar to car-share programs. The cars can also be purchased outright. The company opened a showroom in Amsterdam that is more like a community hub for Lynk members.

\”It looks like a bar, a hospitality space, party space, membership club,\” Ancketill said. \”They understood we no longer buy cars, at least young people don\’t. They now buy mobility solutions. So, they also reinvented the actual product as well as the channel through which it is sold. You can buy these cars, but you can also subscribe to them by the month, and what\’s also interesting is through the app you can Airbnb your asset out to other people and earn from it. Total reinvention and I think this is something we need to see in many different sectors,\” adding, \”They have only one car in the showroom.\”

This isn\’t the future of traditional retail, it\’s the present. Expect more these types of solutions as the world becomes more digitally enabled.

Related

Articles

Scroll to Top
the Daily Report

Insights + Interviews right to your inbox.