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The Myth of the Retail Apocalypse

Posted by Charlotte Lee | February 27, 2018


These days we hear constant talk of the retail apocalypse—but contrary to what the headlines may suggest, brick-and-mortar isn't going away any time soon.

The End of Brick-and-Mortar As We Know It?

Lately there has been a lot of media coverage of the ongoing "retail apocalypse"—a term used to denote the alleged decline of brick-and-mortar stores in the face of the rising popularity of e-commerce engines. The phrase evokes the compelling image of a bleak wasteland dotted with abandoned strip malls, but fails to accurately depict the true current state of retail. Despite rapid growth, online sales comprised less than 10 percent of all retail sales in the U.S. at the end of 2017.

There is no doubt that the digitization of shopping and subsequent shift in consumer behavior has forced many major brands to cut down on real estate and rethink their go-to-market strategies. In an age of instant gratification ushered in by the ascent of Amazon, consumers today are turning to online channels to get products quickly and cheaply, to the detriment of brick-and-mortar businesses that are struggling to maintain a diverse, fresh range of inventory while still turning a profit. As a result, many storefronts have closed up shop in order to free up cash that would be better used to drive fulfillment speed and fuel innovation.

But this doesn't mean the end of brick-and-mortar as we know it. As consumers shop in physical stores less frequently, businesses find themselves searching for new ways to approach product mix and omnichannel strategy. In fact, many brands are now taking the opportunity to increase the number of physical stores in their repertoire. Eyeglass retailer Warby Parker is planning to expand from 64 to 100 physical locations in the U.S. by the end of 2018. Amazon, which has opened 11 bookstores across the U.S. since 2015, is also expanding its offline presence, with plans to launch six more of its cashierless Amazon Go stores this year.

Retail Gets Creative

Meanwhile, others are taking an inventive approach to how space is used in the physical world. Bonobos, a men's clothing company, has opened more than two dozen "guideshops" where customers can try on clothes but can't actually buy them on the spot. These stand-alone stores carry a limited inventory so that customers can try on garments and then order their own online, choosing from a wide range of sizes, colors, and styles.

IKEA is another example of a business that has profited from a hybrid online/offline model. Customers can browse online for an item and then have it delivered, or collect it in store. In-store displays mimic the layout of a home in order to provide a three-dimensional vision of what furniture configurations would best suit a customer's living space. The Swedish furniture retailer is planning on expanding both its e-commerce and brick-and-mortar businesses this year, viewing the two platforms as complementary sales drivers.

Meanwhile, other companies are looking to keep up with the shifting landscape by opening up "pop-up shops," temporary locations that allow for low-risk experimentation and intelligence gathering without the full-commitment of a traditional storefront. They also appeal to consumers by creating an air of exclusivity that helps drum up excitement for new or limited edition products. Last fall, Google opened a donut pop-up shop to promote the launch of the Google Home Mini. Best Buy, J. Crew, and Nordstrom have also ventured into the world of pop-ups, indicating that the pop-up trend may be here to stay.

The Experience Economy

What we're seeing now is the emergence of a new era of retail: the experience economy. Millenials are looking for a shopping experience that not only delivers the products they want, but also provides a sense of novelty, an entire aura that reflects how they perceive themselves—and also provides some Instagram-worthy content.

And it isn't just everyday brands that are being forced to re-evaluate how they interact with customers; the trend has spread to the luxury segment as well. Last fall, Barneys' Madison Avenue store held a two-day event called "the Drop," which featured tattoo artists and piercers, custom sneakers and T-shirt bars, and streetwear brands like Off-White and Fear of God. The event was a huge success, attracting younger shoppers who had never before been into a Barneys location. At the end of two days, the Drop had drawn 12,000 shoppers to the store and increased year-over-year revenue by 30 percent.

"We’re in the entertainment business. We’re in the personalization business. We’re in the services business. We’re in the food business. We also know the consumer does want that social connection, and it takes place in actual environments and physical spaces—stores, restaurants, fitting rooms," said Barneys New York CEO Daniella Vitale to the Wall Street Journal.

Vitale's words reflect the fact that there are certain types of value physical stores can deliver that online channels simply can't—at least for the time being.

In China, Another Story

Contrary to trends in the United States, brick-and-mortar is just beginning to boom in China, where the retail market is much less mature and physical stores remain somewhat of a novelty despite having a widespread e-commerce market. Fashion brand Inman has opened 450 stores (mostly in China's smaller cities) since mid-2015, and its offline business grew 300 percent last year alone (compared to 39% growth online).

As the costs of online advertising are rising in the east, Chinese retailers which started out online-only are finding that opening physical locations is a profitable way to distinguish themselves from the competition. Smartphone seller Xiaomi Corp. has opened more than 300 stores since its online-only sales slumped in 2015, and has seen sales recover. It will be some time before these companies face the same sort of pressure to scale back on brick-and-mortar as their U.S. counterparts.

Conclusion

It looks like the retail question isn't an "either/or" decision, as retailers are finding new ways to combine online and offline shopping experiences to cater to a new generation of consumers who value both convenience and ambiance.

While it is perhaps true that in-person retail will never be able to offer the same level of competitiveness as e-commerce in terms of price, speed, and options, online still falls short when it comes to providing that extra touch of personalization that turns a shopping trip into a memorable experience. As a result, the businesses that survive and thrive into the future will be those that are able to leverage the unique advantages of both mediums, striking a careful balance between bricks and clicks.



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