Brick-and-Mortar Retail Growth Can Be Had with Savvy Innovation
There’s still hope for brick and mortar, but the landscape has changed
Keith Jelinek, Rick Maicki and Rich Vitaro
Brick-and-mortar retail is dead. Long live brick and mortar. The challenge in front of physical stores is to build an environment where customers can interact with the product while making purchases wherever and whenever they choose. It’s a complex task that requires significant investments in marketing and data analytics, but the alternative is watching Amazon.com and other pure-play digital retailers, as well as consumer goods companies increasing their direct-to-consumer approach, continue to take more market share.
The cold, hard brick-and-mortar retail statistics
By any measure, brick-and-mortar retailing is in trouble. While in-store retail sales rose 4.7 percent in 2017, according to the US Census Bureau, traditional retail sales have averaged 2.5 percent annual growth since 2014—pacing US gross domestic product—while electronic and mail-order sales have grown at a 13 percent rate.
In that same time frame, Amazon’s sales have increased by 100 percent, rocketed along by its Amazon Prime program and CEO Jeff Bezos’s tireless marauding into categories like pet supplies, groceries, specialty apparel, footwear and even private-label clothing. There is talk about wading into the automotive parts business, as well as prescription drugs. There’s no reason to believe this trend will slow: According to one recent survey, 52 percent of US shoppers who bought apparel online in the last six months shopped at Amazon, drawn by free shipping, generous return policies and mobile apps.
Still, the death of brick-and-mortar retail is overrated
Amazon’s expansion, driven seemingly by its astounding customer service and dogged efficiency, helps explain in part why so many retailers in 2017 entered bankruptcy to reduce store footprints or closed their doors forever, including well-known brands Toys “R” Us, The Limited, Wet Seal, Gymboree, True Religion, Payless ShoeSource and RadioShack. It’s no surprise that 90 percent of retail executives surveyed by BRG ranked “the competitive impact of the internet” as the most disruptive retail trend.
Despite the gloomy outlook, more than 90 percent of retail sales still occur in stores. The question is how to reinvent the in-store experience to profitably counter the online threat. It can be done—we have seen retail executives lead brick-and-mortar revivals using technology, customer engagement and operational efficiency to create a savvy new model. Here are some key steps they’ve taken to get there.
Three ways to encourage brick-and-mortar retail growth
Integrate online and stores. Younger consumers demand a shopping experience that meshes internet marketing, social media and mobile apps with in-store shopping. Invest in the technology to reach consumers wherever they want to make a buying decision. Get under the hood and understand the total cost of fulfillment, especially free shipping and how to improve profitability of omni-channel transactions such as in-store pickups of online orders. And view shoppers as your customers even when they aren’t making transactions inside the store—many treat the storefront as a showroom and make the purchase another time.
Personalize the consumer experience. Understand exactly how shoppers interact with your brand. Give deliberate thought to the customer journey. Carefully measure customer engagement and the spending mix between digital and print advertising.
Capture and use customer data points. Retailers with physical stores can conjure a winning formula by compiling and analyzing data on consumer behavior—both their own shoppers and those of others. Purchase and return data can help hone assortments, sizes, colors, garment weight, sleeve length and allocation frequency. If you don’t have a loyalty program, consider creating one to more closely engage with your customers.
The future of brick-and-mortar retail is there, even for Amazon
With the threat from online shopping poised only to grow, Amazon’s purchase of grocery merchant Whole Foods and its own investment in brick-and-mortar locations show that the biggest winner in online retailing also sees real value in a physical presence near the consumer. Survival in this environment requires paying close attention to the basics of inventory and efficient distribution networks, while at the same time investing in technology to manage the complex challenges of marketing to consumers who are agnostic as to where they make the ultimate decision to buy.
Keith Jelinek, Rick Maicki and Rich Vitaro are managing directors for Berkeley Research Group, all of whom have worked extensively in corporate finance and retail.