Insight

Retail viewpoint: brick and mortar is far from doomed

June 2017

May failed to bring any early summer heat to retail sales. Last month’s results were generally weak across the board.1 Core retail sales were flat2 after an upwardly revised 0.6% increase in April.3 Sales at electronics and appliance stores dropped 2.8%—the largest decline since March 2010.4 Meanwhile, sales at sporting goods and hobby stores fell 0.6%, and department store sales saw a sharp decline of 1% in May, the worst performance in nearly a year.5 Although core retail sales rose 3.8% in May on a year-on-year basis,6 sales at department stores were 3.7% lower last month than they were a year ago. Intense competition from e-tailers is likely responsible for that drop, and also for the record-setting pace of bankruptcy filings and store closings so far this year.7

Recent headlines for traditional brick-and-mortar retailers have been grim. Retailers have announced more than 3,600 store closings so far in 2017.8 Yet as stores are closing, e-commerce is booming. In 2016, e-commerce represented 12.1% of adjusted retail sales—nearly doubling its 6.5% share in 2010.9

But those who assume brick-and-mortar retail is doomed are missing the bigger picture (figure 1). The National Retail Federation projects that online sales will grow at an impressive 8-12% in 2017, but it also projects store-based sales will grow at 2.4-2.8% in that same time.10 Even at peak penetration, e-commerce is only expected to reach about 25% of adjusted retail sales by 2025.11 That’s more than $1.1 trillion in brick-and-mortar retail growth projected in the US alone over the next eight years.

http://emarketing.alixpartners.com/rs/emsimages/2017/pubs/VPRetail/Figure_2017_06_01.jpg


Brick and mortar is not doomed from the customer’s perspective either. A recent study of millennial shopping habits found that 82% of this tech-savvy demographic still prefer shopping in stores.12

Last week’s announcement that Amazon plans to acquire Whole Foods for $13.7 billion underscored the fact that even the #1 online retailer recognizes that a strong brick-and-mortar base can be a key component for success. Retailers that tailor their stores and experiences to provide the best of both worlds will position themselves to weather current challenges and gain market share.

As we enter the summer season, we believe retailers should be thinking about how they can enhance their brick-and-mortar presence to emulate—and expand on—the major forces driving online sales growth.

Blur the lines

Omnichannel shoppers spend 3.4 times more than a single-channel shopper.13 Additionally, the average basket of an omnichannel shopper is 20-180% larger than a single-channel shopper’s basket.14
Winning retailers will continue to explore ways to extend the online experience beyond phones, tablets, and desktops. Giving customers a seamless view of their shopping history, tracking items they like or “liked” while they are shopping in-store or online, providing visibility into inventory across channels, and helping them purchase via devices while in-store will blur the lines between web-rooming and show-rooming.

Leverage your customer data

Data can help brick-and-mortar retailers gain the sharp insights they need—whether they want to home in on what their customers really want, understand the impact of pricing and promotions, or create an unforgettable shopping experience. Retailers should explore ways to provide customer history and preferences to sales associates to reach new levels of personalization. They can empower sales associates to build stronger connections and increase brand loyalty among shoppers.

Engage customers in-store

Utilizing customer recognition tools or “beacons” in-store can help tailor messaging and promotions. Retailers can simulate the suggestion-based shopping experience customers have come to expect online. Many large retailers from hardware to apparel have been testing beacon technology for years, not only to send targeted messages to customers while they shop, but also to gain valuable intelligence about customers’ shopping habits. More than 30% of shoppers who received a “push-ad” from an in-store beacon used that offer to buy something, according to a survey of retailers using the technology.15

Assume fast is never fast enough

Customer expectations around shipping times, costs, and availability continue to rise. Two-day shipping, once considered only for critical purchases, is now the norm. Customers have been conditioned to expect immediate gratification through online purchases. But for many retailers, operating a regional distribution-center network—much less building out a drone network—is simply not cost-effective.

But retailers with significant, regionally dispersed store footprints can still provide shipping experiences on par, if not superior, to those that the best online retailers provide. They can use their stores as fulfillment centers to provide flexible and timely access to products. They should also invest in talent and more robust assortment and inventory planning tools as customer expectations grow for both speed and availability.

Expand engagement and experience

In addition to meeting the customer’s need for immediacy, stores also offer retailers a way to provide experiences that cannot be achieved online. It’s now commonplace for retailers to offer classes, repairs, and installations. Some even offer services like hair styling or pharmacy and health services. These value-add services nudge customers to make visiting stores part of their regular routines.

Retailers who treat their online businesses like one of their brick-and-mortar stores may discover they are simply trading sales between the two. Even worse, they could be losing out to smarter retailers that use their online platforms to complement their brick-and-mortar presences. Those who embrace a strategy that blends both channels will find that brick-and-mortar can be a critical part of their success this summer and beyond.

Data pack

For our complete data pack of retailer and macroeconomic data including many of the key economic indicators discussed above please contact retail@alixpartners.com.

1   marketwatch.com/story/us-retail-sales-in-may-are-weakest-in-16-months-2017-06-14.
2   Seasonally adjusted May retail sales exclude motor vehicles, gas, food services, and drinking places.
3   Seasonally adjusted April retail sales exclude motor vehicles, gas, food services, and drinking places.
4   cnbc.com/2017/06/14/us-retail-sales-may-2017.html.
5   marketwatch.com/story/us-retail-sales-in-may-are-weakest-in-16-months-2017-06-14.
6   Seasonally adjusted May retail sales exclude motor vehicles, gas, food services, and drinking places.
7   cnbc.com/2017/05/05/its-more-than-amazon-why-retail-is-in-distress-now.html.
8   businessinsider.com/retailers-at-risk-of-closing-stores-2017-5.
9   JP Morgan, “Amazon,” May 2017.10   NRF, “NRF Forecasts Retail Sales,” February 2017.
11   New York Times “Imagining the Retail Store of the Future,” April 201712   nrf.com/news/millennial-moment.
13   JP Morgan, “Hardlines/Broadlines vs. Internet,” May 2017.
14   Ibid.
15   streetfightmag.com/2017/05/04/report-beacons-making-sizable-impact-on-retail.

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