Retail’s Day of Reckoning

Ray Hartjen
Ray Hartjen
Director, Marketing

After the struggles of so many retailing brands over the past few years, wouldn’t a new vision be a welcomed sight?

Let’s be honest, retail’s day of reckoning should have been two years ago, last year at the very latest. But, since retail – as an industry – is traditionally much more fast follower than early adopter, let’s go with the working assumption that retail’s day of reckoning is … today.

So, what are you waiting for?

Out with the old

SunsetExperience and tradition are important, but no industry should be a slave to its own old and outdated paradigms, and perhaps no industry has misplayed the Information Age like our industry, retail.

The first thing that needs to go is the idea of channels.

Retail is no longer an industry of channels, at least not like it’s been talked about for the last several years. From here on forward, there’s a brand’s direct-to-consumer (DTC) retail channel and its wholesale channel, where various partners sell the brand’s products through their own storefronts.

With respect to channels, that’s it.

What about online, digital channels and the physical, brick-and-mortar channel, you ask? Forget about it, for that’s an outdated retail paradigm that told the story of retail in 2000, not 2020. Forget all the talk about omnichannel, multichannel, cross-channel, etc. You see, to shoppers it’s just “shopping,” and today’s shopping journeys are sometimes digital, sometimes physical, but mostly both and, increasingly so, at the same time.

Mobile shopper in store

Where retailers get into trouble is thinking about, organizing and structuring their businesses as a collection of channels, and it’s well past time for retail to overcome its collective inertia and burst away from unproductive, unresponsive and increasingly unprofitable past paradigms.

New truths

Every shopping touchpoint has its inherent advantages, and no single touchpoint can do it all – in scale, over time, with sustainable growth and against competition – on its own.

Online shopping gets a lot of attention, and it should, as it continues to grow as a percentage of overall retail, particularly through mobile touchpoints. However, pure-play e-commerce as a viable long-term business strategy has seen its time come and go.

It’s true.

Online retailing lends itself to comparison shopping and, therefore, almost continuous margin-eating price promotions; the percentage of product returns – especially on apparel – are extraordinarily high, causing a bloated and expensive “reverse supply chain;” demands for free and expedited shipping further carve away at margins and the cost of customer acquisition is prohibitively high. The result for pure-play e-commerce is a ‘race to the bottom,’ with operational losses, crushing negative cash flows and shrinking valuation.

Having said that, of course, make no mistake about it – online touchpoints are absolutely critical for success.

So are physical stores.

It’s become almost passé for retail pundits to bemoan the inadequacy of physical stores, and often that criticism is warranted, as a great many physical stores are unchanged from what they were 30 years ago. Nothing is the same as it was 30 years ago, particularly the way consumers shop and buy, so why should retail stores continue to tilt forward into the strong headwinds of change?

Store Window

Before the internet, it made sense for brands to expand their physical presence into new and underserved markets, and between 1965 and 2005, malls and storefronts popped up … pretty much everywhere. The result is the United States now has, depending on whose estimates you choose, between six to 10 times the retail space per capita as Europe.

All that retail space made sense pre-internet, but now with shoppers’ new internet-empowered shopping behaviors firmly established, it makes no sense (or cents); the hard truth is the United States is overstored, and many brands are handcuffed with either too many stores, too much space per store, or worse yet, both. 

However, just like online touchpoints, physical stores are absolutely critical for a brand’s success. Stores are just in sore need of reinvention, and while some brands’ store portfolios need a little tightening, the available space opens opportunity aplenty for other brands. 

Stores’ new role in a unified commerce future

Traditional e-commerce brands like Warby Parker, Bonobos, Rent the Runway – and even online behemoth Amazon – have opened brick-and-mortar stores the past two years as an expansion of their DTC strategies, primarily allowing greater control over their brand identities and optimizing time-to-market inventory considerations while managing growth. Almost without exception, store results have exceeded initial expectations across all metrics, including profitability, with the biggest – and perhaps most surprising – benefit being the low cost of new customer acquisition relative to online efforts.

It’s not a case of “build it and they will come,” though, as that’s pre-internet all over again. Rather, today’s retail environment demands a different approach to store design and buildout, as well as store operations.

Fish where the fish are

For brick-and-mortar stores, retailers should focus almost exclusively on high traffic malls and retail districts. The old paradigm of growing outward into C- and D-tier markets to fuel expansion is prohibitively expensive – not so much the capital expenditure to build stores, but the operating expenses in marketing to drive traffic.

Using marketing dollars to drive traffic to brick-and-mortar stores is not efficient and, frankly, it hasn’t been effective for years. Despite the best efforts of the brightest retail marketers, store traffic has declined monthly, as measured year-over-year, for over four years.

Rule number one when you find yourself in a hole:  Put down your shovel!

Shoppers strolling on sidewalk

Instead of opening stores where traffic needs to be driven, instead invest in building out attractive stores in areas that already have high traffic. Then, take the balance of traffic-driving budgets and invest in delivering an exceptional in-store shopping experience and market toward shopper retention and loyalty, particularly through branded digital touchpoints.

Said differently, why invest in driving store traffic when you’re likely underserving the traffic you already have?

In retail boardrooms across every segment, executives and directors lament the fact that if they could only incrementally improve conversion they could drive substantial same store comp growth with the traffic they already have. The industry’s best performers are the best converters.

Grease conversion by removing friction

Higher conversion is achieved by eliminating friction points in the customer’s shopping journey. Be it service levels, fitting room management, checkout queues or whatever, the same discipline to addressing shopping cart and shopping trip abandonment online should be applied in-store. Just take a look at Amazon’s Amazon Go concept store, currently in beta testing, to see an example of a brand trying to get it right for its shoppers.

Will Amazon’s checkout-free delivery model work for all segments (or even its own segment, for that matter)? No, it won’t, and that’s exactly the point. You know best the friction points in your shopping experience delivery. If you started with a white sheet of paper, how would design your brand and store today to eliminate – or at the very least, minimize – those friction points? That’s the first step in winning.

A new era’s new twist

In the unified, blended retail environment that is much more today than the future, there is an opportunity to once again introduce a brand and its products, services and community through physical stores – sort of like the “old days.” Cost of customer acquisition can be lower and high-touch, value-added service, combined with personalization, customization and unique experiences, can deliver profitable transactions. Then, customers can be nurtured through digital touchpoints, driving customer retention, shopper loyalty and sales growth, both in-store, online and through other touchpoints. This week at #shoptalk17, Target CEO Brian Cornell spoke of exactly that

It’s a different vision for retail, and after the struggles of so many retailers over the past five years, wouldn’t a new vision be a welcomed sight?

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